What are Web 3.0 wallets and why we need them?
- igonzalezdelmazo
- Oct 8, 2020
- 4 min read
The internet is evolving from being a platform for sharing information to one for transacting value. To be able to fully participate in this new ecosystem, users need a Web 3.0 wallet which allows peer to peer transactions. In the past, Web 3.0 wallets have been complicated to use for non-technical users, but some companies are making important improvements. The main adoption will come when customers start using them, not only for trading, lending and games, but for daily payments.
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The internet has evolved since it was initially created. First, it was known as Web 1.0 and only hosted read-only static websites. In the late 1990s, Web 2.0 was released, and it allowed the use of databases, forms, and social media[1]. Today, the promise of Web 3.0 is to turn the current internet of information into the internet of value (in addition to other features). Web 3.0 aims to decentralize the internet and avoid that tech platforms own user’s information.
To be able to participate in this new ecosystem, users need a Web 3.0 wallet. These wallets, in contrast with Web 2.0 wallets (e.g. Apple Pay, Venmo, Square Cash App), allow users to self-custody their own funds and interoperate with wallets created by other companies. In a sense, they remove the power of the intermediary company providing the wallets, because the company does not have access to the user’s funds or information and cannot lock the user into a closed system (Apple Pay, Venmo, Square Cash App and others only allow users to transact with other users of the same company). This preservation of privacy and open systems is also supported by regulators, who worry about Big Tech closed payment systems.
To participate in the new era of the internet, users need a Web 3.0 wallet
There are different types of Web 3.0 wallets: software, hardware, mobile and smart contract. Each type of wallet has its strengths and vulnerabilities. Software (or desktop) wallets are convenient and easy-to-use programs that the user downloads in its computer. Since they are connected to the internet, they are vulnerable to the browser being used –any seed phrase or password can be seen by a hacker. Hardware wallets are the most secured wallets since they are not connected to the internet but are less easy to access since the hardware needs to be plugged in into a computer. Mobile wallets provide on-the-go access from a phone but normally are dependent on Apple and Google App stores to list them among their apps (and these companies have blocked crypto wallets in their store until recently). Finally, smart contract wallets, as it name suggests, store user’s funds in a smart contract. Therefore, they are connected to the internet and be hacked but, at the same time, they can be programable, which allows the user to establish daily withdrawal limits and other features that reduce risk. Therefore, the ideal wallet may differ from person to person and likely includes a combination of them.
Web 3.0 wallets can be software, hardware, mobile and smart contract. Each type has strengths and vulnerabilities; therefore, the ideal solution may differ from person to person and likely includes a combination of them
The current dominant Web 3.0 wallets is Metamask. It was created in 2016 as a software (desktop) app by ConsenSys to interact with the Ethereum ecosystem. As of May 2019, it had reached over 1 million users in total and 264,000 monthly active users. However, Metamask is still very difficult to use for non-technical customers. In a study done in 2019, Metamask published that users only complete the new wallet onboarding process 79% of the time. This could be one on the reasons that Metamask released a mobile wallet version in 2020.
In the meanwhile, other competitors have appeared in the space, trying to make onboarding seamless and more like Web 2.0 applications. Some of these competitors include Trust Wallet, Burner, Coinbase Wallet, etc.
The current dominant Web 3.0 wallets is Metamask, but it is still very difficult to use. Users only complete the new wallet onboarding process 79% of the time
Other interesting innovations in the space are the smart contract wallets built for Ethereum. These became popular in 2019 and are still very new products. In addition, the wallet only accepts Ether and ERC tokens –a feature that can be limiting for users that also want to invest in Bitcoin, XRP and other cryptocurrencies.
The goal of most wallets is to make crypto mainstream, but the target market of each company may differ. For example, just among Ethereum smart contract wallets we can observe a focus on different audiences. Dapper Labs, the creator of CryptoKitties, created a wallet to make crypto collectables easier to use so that their games will attract more users. Argent targets non-technical users new to crypto and interested in DeFi (Decentralized Finance) with its seamless UX. Gnosis created Gnosis Safe to provide the best in class security to its users.
Most wallets want to make crypto mainstream, but each company shows a slightly different focus in their strategy
The future of the internet of value relies on Web 3.0 wallets that can interact peer to peer. The same transactions that we currently do in cash, will be done with these wallets, allowing interoperability and privacy. Therefore, even if now the main use case of wallets by customers is to store crypto, trade, lend, play games and participate in other decentralized applications, the ultimate mass market adoption will come with customers using them for daily payments.
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