I hereby propose the following new theorem: The digital wallet will be to blockchain as the web browser is to the Internet. In other words, the digital wallet will be the primary gateway to all blockchain interactions and therefore all digital commerce in the near-term and all commerce and digital interaction in the long-term. A corollary to this theorem is the following: The battle over personal and corporate digital wallets will be much more heated than the browser and phone wars have been. In pursuit of dominant positions, newcomers will battle existing corporations on a global basis for primary positions with users. Blockchain 101 Before I go deeper, here’s a basic explanation about cryptocurrencies and blockchain technologies. It could be called blocksplaining, but I find it helpful to lay out a few basic principles and assumptions prior to just jumping into things cold. Cryptocurrencies are separate from blockchain technology. The first is a digital representation of apparent perceived value; the second is a method for distributed transaction processing and storage. At the core of a blockchain platform lies a distributed transaction processing engine that validates and cryptographically seals transactions and then preserves them in a ledger that is ordered by time. Blockchains consist of sets of transactions that are sealed within a “block” using cryptographic algorithms. Successive blocks are linked to the preceding blocks by using hash values such that there is a sequential chain that is largely permanent and immutable. Blockchain networks are comprised of near identical nodes operating in a distributed but independent manner. The network of nodes is used to validate the transactions and encapsulate them within blocks in a chain. Blockchain transactions are maintained in a distributed ledger that is kept in conformity across the nodes in the network via consensus algorithms. Blockchain miners are operators of nodes in the network and are rewarded for forging the blocks via cryptocurrency. In most public blockchains, the first miner who arrives at a hash that is within a certain parameter receives the reward for that block, typically in the form of a new cryptocurrency value. If additional transactions are allowed within the blockchain platform, miners also receive rewards for processing transactions and storing accompanying data. Digital Wallets in the News There has been recent news about a second Parity wallet bug that has caused mult-signature Parity wallets to become unusable, and therefore any cryptocurrency stored within them, to be frozen. Most reports indicate that the funds may be frozen forever unless or until there is an effort by the community to remedy/rollback transactions.* This is clear setback to the development of simple, safe, and secure wallets. It it also likely have reverberating effects on use of cryptocurrencies and use of blockchain technology as it increases people’s fears about the technology and makes them fearful of digital wallets. Details on the Most Recent Parity Wallet Issue The current state of wallets is certainly immature and, to most people, confusing. Discussions of goes over most people’s heads, which is not surprising. Just as with the early Internet, the concepts, terminology, and tools of blockchain are largely new, somewhat complicated, and therefore foreign to most people. The concept of using the browser to access the Internet might seem pretty basic but at one point it wasn’t. Check out this IT Crowd clip if you have doubts. hot wallets vs. cold storage Typing in URLs and domain names was likewise foreign to people. Even trying to relay URLs was cause for puzzled looks and mass confusion. Here’s a classic Today show segment that shows what an ordeal it was to talk about Internet concepts in the early days.. A Learning Process Fortunately, this state is not permanent. Use of digital wallets to store cryptocurrencies and blockchain-aware assets is a progression — one that has its own terminology and take some time to learn. Typical steps might consist of using an exchange then moving to hot storage and then possibly moving to a cold storage solution. This first step is typically to buy cryptocurrencies using an exchange — such as , , or — and keeping the currency within the exchange. This type of onramp is pretty easy, not unlike buying stocks or bonds at one of the many online trading platforms. (The biggest hitches are finding a trustworthy exchange that is authorized to work within your country and filling out the information needed by the regulatory agencies.) Coinbase Kraken CEX Once comfortable with this process, many users will often take the next step and look for a more secure solution as well as one that features less third-party risk. (Much like online stock brokers who hold your portfolio of stocks in their name, online crypto exchanges will typically hold your assets in their name, hence the concerns about third-party risk.) This second step consists of transferring cryptocurrency from your exchange account to a or hot wallet, which is a software wallet that is accessible via the Internet and that you maintain. Examples here include , , or . Once you provide the wallet address in the exchange, the assets will be transferred to the wallet via a blockchain transaction. software wallet Exodus Jaxx Coinomi To further reduce the risk of someone accessing the wallet even more, experts recommend using a cold storage solution. This type of solution involves using a computing device specifically created for storing blockchain assets. You plug the device into your laptop, phone, or other connected device whenever you want to transact. Otherwise, you keep it disconnected and away from the Internet so there is no way for black hats to access it. Example of cold storage wallets include , , and . Trezor Ledger KeepKey Digital Wallets Now vs Digital Wallets in the Future Digital wallet technology are fated to improve and security will increase many fold. A quick look at early browsers and web pages versus the browsers and web pages of today show night and day differences. What was a novelty back then, understandable by only to a few who were web literate, is now a major driver in all entertainment, news, commerce, and social interaction and accessible by billions. ** The layers of technology connecting websites to phone, tablet, and laptop browsers are incredible achievements. This progression had many stages with many blind paths (remember, anyone?) and numerous many hitches, errors, and hard lessons learned. XML The same evolution will take place within cryptocurrencies and blockchain. The look of wallets as well as the way is work is still at such an early stage. Aside from the trading of cryptocurrency, there is no standard or accepted protocol for what gets recorded as part of a blockchain transaction or how transactions are displayed and archived within wallets. The applications and uses of blockchain are also sorting their way out much like early web pages and web businesses. (If you need a reminder, take a look at some of these .) early web pages Things will get better. Technology will improve, interactions and workflows will become more intuitive, and the experience will be less daunting and in time, far more familiar. It may not be clear as to what the equivalent of autofill, bookmarks, safe mode, and multiple tabs will be but I’m sure wallet developers will create them. Standard looks and interactions will emerge of out the creative frenzy and the result will be a more comfortable and intuitive experience such that you won’t remember what it was like “back in the early days.” The interesting part is this stuff can often just confuse the existing generation, but the next generation doesn’t question it. I remember when I first got my 11 year old goddaughter to use bitcoin. I thought I’d have to explain how it worked, how it can’t be just “copied because it is digital” and all that for her to use and accept it, but nope. She just ran with it because it worked. In fact she was using bitcoin because Chase wouldn’t give her a bank account until she was 13. When adults hear about crypto the first time, they are skeptical (for good reasons), but kids just say “Cool, so I can buy iTunes gift cards with it, right?”.– Robert McCone The Growing Importance of the Digital Wallet Getting back to the original proposition, the digital wallet will serve as the gateway to all interactions within the blockchain. It will do so for every action — not just for storing or trading cryptocurrency. It will also provide access for managing and trading traditional financial assets whether they be in the tradition form of cash in a savings account, stocks, bonds, warrants, options, as well as other financial instruments currently traded on exchanges or exchanged bank account to bank account. Going further, digital wallet will provide access for managing and trading non-financial assets as well. These include assets that exist completely in digital form as well as physical assets that have a representational ID in existing in blockchain-ready format. They will hold and manage access to important data that is at the center of personal and business interactions. Some of this data might be related to a form of ID such as passports, driver’s licenses, social security numbers, and voting registration. Other data might relate to policies and agreements including insurance policies such as health, home, auto,and life, cable and utility agreements, and auto and home purchases and mortgages. Even going further, digital wallets may even control and manage on your behalf all the data that you currently upload and create on web sites of today — the social network you created on LinkedIn and Facebook,the emails you store on Gmail, the purchases you’ve made at Amazon, the photos you’ve uploaded to Snapchat and Instagram, the reviews you’ve written at Yelp. If the online world moves from a centralized world to one that is decentralized, then digital wallets will manage and maintain all the data that currently is connected to you but resides in centralized repositories owned by third parties. In a decentralized world, you will have title to this information and can bring it with you. You will use the wallet to provide access to your preference and in return, receive a personalized experience. This attention and preference data will not be locked in silos for use by a single vendor or corporate entity but instead be usable by you for your benefit. (With power, though, comes danger — all issues that wallets will inevitably work to help address, much as browsers help address unsafe websites.) The Growth of Corporate Wallets In the corporate world, the use of digital wallets won’t be limited to the role that department credit cards play — use only for small purchases and transactions, limited in amount and only as a convenience from the official purchasing and payment process. Instead, they will take on a prominent and pervasive role that will eventually be at the center of all things transactional. As with personal assets and transactions, in a decentralized world, corporate wallets will control every transaction, financial or not. They will be used to authorise any exchange of money or data, signing of agreements, and even establishment of relationships. Need to sign an NDA? A digital wallet will facilitate the process. Need to issue a purchase order? Same thing. The nature of transactions will shift to record every intra-party and even interparty exchange as a public or private blockchain transaction. The signing of that exchange and any subsequent access of that exchange will be performed by a digital wallet. That wallet may be embedded as part of corporate applications — with each application providing wallet-like capabilities — or there will be a unified wallet that controls all corporate actions. A wallet that has different roles, permissions, and authorization levels — much like most current corporate applications. The Coming Wallet Wars If we do shift to a more decentralized world with fewer entities controlling personal and corporate data, then it’s not a leap in imagination to see how critical digital wallets become in the scheme of things. Likewise, it is easy to see how disruptive a decentralized world can be for those that currently hold your assets, execute transactions on your behalf, store your communications, or broker your business and social interactions. There’s a business maxim about not letting anyone get between you and your customer. If online interactions move to a decentralized world, that maxim is going to get tested on an exponential scale. The nascent wallet makers have an advantage as they have the knowledge and insights, not to mention the many lessons learned. But we are only in the early stages and the stakes are too high for large corporations (think Google, Apple, Microsoft, Amazon, Facebook, Alibaba, Tencent, and any and every US and international financial institution) to concede this area and let other companies control access to users. Providing users with a browser not only allows default search engine access but also provides untold amounts of useful data and control opportunities. Phone operating systems are browsers on steroids, providing even more “ownership” of the user via what the default apps are, what apps can be in app stores, and even what communication pathways to use. Companies have learned at their own detriment the danger in conceding the interface with users to others. Digital wallets represent the next stage in this battle over technical dominance — one that is even far greater than a browser or a phone operating system. We’re at an early stage now — one that is rough and ill-defined — but that will be sure to heat up. If past experience is a clue, a few will be perceptive to the opportunity, the battles will be fierce, and in all likelihood, only a few will in the end take all. Notes * The issue with the most recent Parity bug involves users of their multi-signature feature — a feature which was intended to provide more security by requiring a second authentication for each transaction. An error within the framework of a smart contract allowed a user to take ownership of a particular contract and then replace the existing code that was used by the multi-sig feature with non-operational code — thereby freezing people out of use of assets stored in the wallet. The triggering of the bug originally appeared to be the result of a developer testing various edge scenarios and not a malicious act but later analysis may point to a darker intent. It is believed that the only way to unfreeze the assets would be through a hardfork that either mutates the state (like with the DAO fork ) or adds a new rule to Ethereum which could be used to unfreeze certain kinds of Ether when it is locked in a contract address where the contract code has been suicided (i.e. removed). Here is an Ethereum Improvement Proposal (EIP) which could allow this type of rescue were to to be implemented.** Digital wallet technology may will never likely be completely safe as there will always be a battle between white hats and black hats. A look at the constant battle with browser and phone spyware and malware as well as the ever-increasing reliance on antivirus and authorization software proves this out. Time and development efforts will solve many issues, but others will crop up, to be defeated by new security measures and fixes. Acknowledgements Thank you to and who assisted in the review and editing of this piece. Any and all errors are entirely my fault. Robert McCone Shawn Douglass
