The past year has been quite a ride for crypto. With the new year ahead, we would like to show how the wallet space is developing. We first asked crypto users how they feel about wallets, and then interviewed expert teams — for a look into the future.
For a detailed report on our findings please find the detailed report here. Or read our summary of some of the key findings below.
🙌 2022 saw user pains persist
“Not your keys, not your crypto”. This sentence probably popped up on your timeline after any of the recent exchange disasters. And in its essence the sentence is correct: you do need a wallet if you want to take complete control, which is crypto’s big promise. Holding crypto on a custodial solution means giving up on the feature of self-control.
Holding crypto on a wallet, however, is not without risk. Some people get their Ape stolen, and others simply lose their seed phrase.
This made us wonder what people think about crypto wallets today. Here is some of what we found.
In our survey, we learned that nearly two-thirds (63%) of users find trading on exchanges to be more convenient or cheaper than trading on wallets—an unexpected number.
At the same time, we can see solutions emerge. Reddit, for example, added a wallet functionality to their app. The 6th most popular website in the world calls their wallet feature “vault”, somewhat hiding the complexity that users of the traditional crypto wallets so much dislike. Most of their users might not even know the blockchain that guarantees the integrity of their “Reddit Collectible Avatars”, Polygon.
More shocking though, 38% of users found wallets less secure than exchanges. Security is one of the key differentiators in the favor of wallets does not seem to convince end users. They fear being hacked (29%) or losing crypto by their own mistake (18%).
Millions of people started using crypto wallets, thanks to Reddit. https://dune.com/polygon_analytics/reddit-collectible-avatars
Smarter wallets are on the way
Smart wallets promise a solution to exactly these user pains. The new tools are niche, but increasing their user base. In its entire history, 2022 was the industry’s year with the smartest contract wallets created. For example, 2022 saw 65% of all Safe (former: Gnosis Safe) wallets created. More than double the previous year.
While growing in user numbers, smart wallets appeal only to a limited user base. Our research found that smart wallets make up only 0.1% of the wallet market. The main reason might be that deploying a smart contract wallet can cost $100 just in upfront costs.
📈 2023 building the future of wallets
This is where our report gets more technical. If you like to learn more about the technical details below do read the detailed report here. Below we continue with our summary.
We found roughly two areas of improvement in wallets: Security and convenience.
In terms of security, over half of our survey participants (51%) told us they would take improved security in the form of multi-factor authentication as a reason to choose a new wallet. That is a big number if you are a wallet company and thinking about future plans.
Now, what are wallets building? Security improvements fall into three areas: Controlling risks, stopping unwanted access, and regaining access after an incident.
- Transaction conditions help with risk control: A transaction amount limit, for example, can be set to help reduce the chance of an expensive user error and to help prevent an attacker from emptying a wallet in one transaction.
- Emergency account freezing, whitelisting, and multi-factor authentication can help you to stop access: In the event of a lost or stolen device, an account can be locked, or access to the account from the compromised device can be deactivated.
- Multi-signature, social recovery, and key rotation can help you regain access to your account: Smart wallets can have multiple owners which allows you to get rid of one, or add new ones. If your friends are co-owners you can ask those to recover your access.
In terms of convenience, we do see a couple of interesting approaches being developed already. Combining some of their results in experiences similar to that of custodial solutions.
A whopping 76% of interviewed users found custodial solutions more convenient than wallets.
One new concept is the “Invisible Wallet”. This wallet combines an email login, session keys, batched transactions, and paid gas fees. The result is a Web2-like experience where you can play games on Ethereum without having to sign a transaction every time you take an action on-chain.
Most of these amazing new features can be found in MPC and smart contract wallets. Coinbase, Safe, and Argent are prominent examples. Not all that glitters is gold, though. There are trade-offs that wallets have to take.
imToken Head of Research, Chang-Wu Chen, notes that “a multi-party computation (MPC) wallet (like the Coinbase app or Zengo) looks like an EOA with an invisible private key. So it can natively support multichain, like BTC, or whatever public blockchain, only if its signature scheme is MPC-friendly. Sounds perfect, right? But for the MPC solution, it requires having an online computing unit to co-work with.”
Some blockchains already offer solutions that offer benefits similar to the ones from MPC and AA wallet solutions. We interviewed three blockchain projects in that area: The Layer 2 projects Matter Labs (zkSync) and Starkware (StarkNet) as well as the blockchain project NEAR.
On the NEAR blockchain, for example, all accounts are contracts, all of which can be controlled by multiple key pairs. This brings a couple of smart features to NEAR users by default. They can set different permissions per key, add and remove devices, create social recovery, and more — all features that the Ethereum community is working to add on top of its base layer blockchain.
NEAR’s co-founder, Illia Polosukhin, told us that “security is indeed a big part” of the benefit of the account model, with an estimated “500k-1m accounts” having used multiple keys per account so far.
Tom Brand, Product Lead at StarkWare, likened the result to “a Web2 user experience”, and mentioned how Visa (the financial services company) recently built on StarkWare’s network. The payment prototype shows that Account Abstraction allows users to have the same user experience for recurring payments between existing Visa users and StarkNet self-custodial users as with traditional payments.
Omar Azhar, Head of Enterprise Business Development at Matter Labs, agreed that “many companies are interested in seeing how they can enable a seamless Web2 experience for self-custody wallets within their applications”. Azhar added that another benefit was “custom business’ logic being built directly into smart wallets thanks to Account Abstraction”, like embedded identity and KYC.
For a detailed report on our findings please find the detailed report here. Or read our summary of some of the key findings below.
🤝 Thanks to our collaborators!
We want to thank for their contribution: Omar Azhar, Head of Enterprise Business Development at Matter Labs, Tom Brand, Product Lead at StarkWare, Illia Polosukhin, Co-Founder of NEAR, Denys Kovalenko at NEARWEEK, and Chang-Wu Chen, Head of Research at imToken.
About imToken
imToken is a decentralized digital wallet used to manage and safeguard a wide range of blockchain- and token-based assets, identities, and data. Since its founding in 2016, it has helped its users transact and exchange billions of dollars in value across more than 150 countries around the world.
As part of imToken Lab, we research innovations such as MPC and AA and will have major progress to look forward to in the new year.
⬇️Download imToken: Google Play | Apple App Store
