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Geoffrey Moore discusses in his seminal work "Crossing the Chasm" how all new ideas spread along a bell-shaped curve, with the majority falling into a main chasm between the early market and the mainstream market. Businesses that successfully adapt their product and occasionally their business strategy to meet the needs of the early majority, who differ from early adopters, are those that take this risky leap. This concept also applies to the crypto wallet market. For example, in the 1960s-70s, when computers were first being developed, they relied on text-based command lines and were primarily used by scientists, researchers, and large corporations for complex tasks like data analysis and simulations. It was not until Xerox developed the graphical user interface (GUI) and Ethernet that computers became more user friendly and accessible to a wider range of people.

This is also the case for crpyto wallets. In the early days of Bitcoin, the only ways to store and secure bitcoin were to utilize a cold wallet or to preserve private keys on paper. Since then, however, cryptocurrency wallets have advanced significantly. The tools available for safeguarding and keeping digital assets have developed along with the crypto business. Before delving into the current technical solutions, such as multiparty computation and smart contract wallets, we must first examine how we got here. This article will briefly cover the history of web3 wallets from the invention of Bitcoin, with a focus on security concerns at each stage, significant improvements, and the conflict between self- and non-self-custodial wallet types.
In 2009, Satoshi Nakamoto proposed Bitcoin, a decentralized proof-of-work digital currency inspired by its predecessors. Since then a pair of public and private key is used to make and validate Bitcoin transactions. However, if a third-party ever obtained access to a user's public and private keys, the remaining bitcoin can be stolen. This need to protect the public and private key pair gave rise to the first generation of crypto wallets. The first wallet developed for Bitcoin was a desktop application known as Bitcoin-QT which required the user to download the entire blockchain as a 'full client', making it impractical for most users to use as Bitcoin gained popularity in later years (btw Bitcoin block size is 460GB as of Feb 2023). Moreover, cybercriminals could develop malware to access users' local wallet.dat file which stores their private keys.

Soon, a new generation of wallets, such as MultiBit and Coinbase that didn't require downloading the complete blockchain to conduct transactions, became widely available, with MultiBit gaining 1.5 million downloads and Coinbase having 1 million customers in early 2014. However, these blockchain infrastructure were not flawless. Users confirmed that MultiBit generated numerous random cryptographic keys and encouraged a unique address for each transaction.

During the formative years of cryptocurrency, these "full" and "light client" wallets featuring a command line and graphical user interface were targeted at geeks, programmers, and bitcoin enthusiasts. Albeit subjective to security issues, these wallets established the standards for what makes a practical crypto wallet through their functions, security features, and user interfaces.
As bitcoin grew in popularity, crypto wallet systems began to streamline their workflow and user onboarding procedures to offer a straightforward, undemanding experience. When web-based applications like Coinbase advise users to store their private keys on the platform and use standard username and password to authenticate their identity, custody wallets rapidly gain control. Although these platforms were regularly audited to ensure they have the proper capital-to-deposit ratios to prove their solvency, complaints surfaced that the audit was merely a formality. However, in stark contrast to cryptocurrency's anonymous beginnings, these custodial wallets required Know-Your-Customer (KYC) regulations.
At this time wallet providers also started rolling out multi-signature (multisig) wallets to combat security issues. Contrary to traditional wallets that use a pair of public and private keys to sign and validate transactions, multisig wallets, on the other hand, provide users with a single public key and three private keys and requires M of N (e.g. two of three) to sign a transaction. Users initially hesitant to store their bitcoins now recognize the value of multi-signature. The new multiple-signatories protocol attracted high net worth bitcoin holders and large corporations

Early in 2013, Vitalik Buterin and others presented Ethereum, a new decentralized blockchain that extended bitcoin's capabilities beyond only tracking financial transactions. It enables programmers to make decentralized applications (Dapps) for gaming, financial systems, and the arts. EOA wallets are used by the majority of users to communicate with these Dapps. The Ethereum platform developed an entity called EOAs (Externally Owned Account) to expand on the conventional idea of Bitcoin transactions utilizing private keys. Also introduced was smart contract account, another keyless account controled by codes. EOA wallets use a seed phrase (mnemonic words) and a hierarchical deterministic (HD) structure to generate private keys, public keys that correspond with them and on-chain addresses. With the help of the seed phrase, users of these wallets can generate the private keys required to sign transactions and recover all keys.
The most popular example is Metamask, which debuted in 2016 and currently boasts more than 30 million active monthly users (as of March 2022). EOA wallets produce keys using a hierarchical deterministic (HD) structure and a seed phrase (mnemonic syllables).They also introduced another keyless account called a smart contract account. The most widely used case is Metamask, which launched in 2016 and now has over 30 million monthly active users (as of March 2022).

Although the industry has put a lot of work into educating consumers about the significance of protecting seed words and keys, this one flaw still prevents more widespread adoption. Additionally, the verification process is complicated, because EOAs can only authenticate one action per transaction. This means that for a typical Ethereum, users must sign three transactions to LP on Uniswap using MetaMask: two to authorize tokens and one to deposit them. Moreover, the emergence of more successful chains has sparked a wallet war not just within Ethereum but also within each chain individually, sometimes across chains, and among the L2 solutions. Ideally,as Fred Wilson puts:
"the wallets and dApps will eventually be hidden by developers so users don’t need to worry about which network their assets are on. They will be able to find them, use them, transfer them, sell them, etc without needing to know which chain they are dealing with."
For crypto wallets and web3 to become a mass adoption, the next generation of wallets should focus on bringing down the threshold for users to enter by bringing a sleek, user-friendly UI, design and documentation experience while keeping the self-custody principle that crypto economy stands for.
So far, there have been two technical solutions to smoother users' experience with web3 wallets, namely MPC wallets and Smart Contract wallets, and there is already an ecosystem of products and services in both categories that have been adopted by institutions, cryptonatives and DAOs. In the next blog, we will explain the two core technologies, listing their sets of trade offs and then move on to mapping the current competitive landscape of these low-threshold wallets.
Geoffrey Moore discusses in his seminal work "Crossing the Chasm" how all new ideas spread along a bell-shaped curve, with the majority falling into a main chasm between the early market and the mainstream market. Businesses that successfully adapt their product and occasionally their business strategy to meet the needs of the early majority, who differ from early adopters, are those that take this risky leap. This concept also applies to the crypto wallet market. For example, in the 1960s-70s, when computers were first being developed, they relied on text-based command lines and were primarily used by scientists, researchers, and large corporations for complex tasks like data analysis and simulations. It was not until Xerox developed the graphical user interface (GUI) and Ethernet that computers became more user friendly and accessible to a wider range of people.

This is also the case for crpyto wallets. In the early days of Bitcoin, the only ways to store and secure bitcoin were to utilize a cold wallet or to preserve private keys on paper. Since then, however, cryptocurrency wallets have advanced significantly. The tools available for safeguarding and keeping digital assets have developed along with the crypto business. Before delving into the current technical solutions, such as multiparty computation and smart contract wallets, we must first examine how we got here. This article will briefly cover the history of web3 wallets from the invention of Bitcoin, with a focus on security concerns at each stage, significant improvements, and the conflict between self- and non-self-custodial wallet types.
In 2009, Satoshi Nakamoto proposed Bitcoin, a decentralized proof-of-work digital currency inspired by its predecessors. Since then a pair of public and private key is used to make and validate Bitcoin transactions. However, if a third-party ever obtained access to a user's public and private keys, the remaining bitcoin can be stolen. This need to protect the public and private key pair gave rise to the first generation of crypto wallets. The first wallet developed for Bitcoin was a desktop application known as Bitcoin-QT which required the user to download the entire blockchain as a 'full client', making it impractical for most users to use as Bitcoin gained popularity in later years (btw Bitcoin block size is 460GB as of Feb 2023). Moreover, cybercriminals could develop malware to access users' local wallet.dat file which stores their private keys.

Soon, a new generation of wallets, such as MultiBit and Coinbase that didn't require downloading the complete blockchain to conduct transactions, became widely available, with MultiBit gaining 1.5 million downloads and Coinbase having 1 million customers in early 2014. However, these blockchain infrastructure were not flawless. Users confirmed that MultiBit generated numerous random cryptographic keys and encouraged a unique address for each transaction.

During the formative years of cryptocurrency, these "full" and "light client" wallets featuring a command line and graphical user interface were targeted at geeks, programmers, and bitcoin enthusiasts. Albeit subjective to security issues, these wallets established the standards for what makes a practical crypto wallet through their functions, security features, and user interfaces.
As bitcoin grew in popularity, crypto wallet systems began to streamline their workflow and user onboarding procedures to offer a straightforward, undemanding experience. When web-based applications like Coinbase advise users to store their private keys on the platform and use standard username and password to authenticate their identity, custody wallets rapidly gain control. Although these platforms were regularly audited to ensure they have the proper capital-to-deposit ratios to prove their solvency, complaints surfaced that the audit was merely a formality. However, in stark contrast to cryptocurrency's anonymous beginnings, these custodial wallets required Know-Your-Customer (KYC) regulations.
At this time wallet providers also started rolling out multi-signature (multisig) wallets to combat security issues. Contrary to traditional wallets that use a pair of public and private keys to sign and validate transactions, multisig wallets, on the other hand, provide users with a single public key and three private keys and requires M of N (e.g. two of three) to sign a transaction. Users initially hesitant to store their bitcoins now recognize the value of multi-signature. The new multiple-signatories protocol attracted high net worth bitcoin holders and large corporations

Early in 2013, Vitalik Buterin and others presented Ethereum, a new decentralized blockchain that extended bitcoin's capabilities beyond only tracking financial transactions. It enables programmers to make decentralized applications (Dapps) for gaming, financial systems, and the arts. EOA wallets are used by the majority of users to communicate with these Dapps. The Ethereum platform developed an entity called EOAs (Externally Owned Account) to expand on the conventional idea of Bitcoin transactions utilizing private keys. Also introduced was smart contract account, another keyless account controled by codes. EOA wallets use a seed phrase (mnemonic words) and a hierarchical deterministic (HD) structure to generate private keys, public keys that correspond with them and on-chain addresses. With the help of the seed phrase, users of these wallets can generate the private keys required to sign transactions and recover all keys.
The most popular example is Metamask, which debuted in 2016 and currently boasts more than 30 million active monthly users (as of March 2022). EOA wallets produce keys using a hierarchical deterministic (HD) structure and a seed phrase (mnemonic syllables).They also introduced another keyless account called a smart contract account. The most widely used case is Metamask, which launched in 2016 and now has over 30 million monthly active users (as of March 2022).

Although the industry has put a lot of work into educating consumers about the significance of protecting seed words and keys, this one flaw still prevents more widespread adoption. Additionally, the verification process is complicated, because EOAs can only authenticate one action per transaction. This means that for a typical Ethereum, users must sign three transactions to LP on Uniswap using MetaMask: two to authorize tokens and one to deposit them. Moreover, the emergence of more successful chains has sparked a wallet war not just within Ethereum but also within each chain individually, sometimes across chains, and among the L2 solutions. Ideally,as Fred Wilson puts:
"the wallets and dApps will eventually be hidden by developers so users don’t need to worry about which network their assets are on. They will be able to find them, use them, transfer them, sell them, etc without needing to know which chain they are dealing with."
For crypto wallets and web3 to become a mass adoption, the next generation of wallets should focus on bringing down the threshold for users to enter by bringing a sleek, user-friendly UI, design and documentation experience while keeping the self-custody principle that crypto economy stands for.
So far, there have been two technical solutions to smoother users' experience with web3 wallets, namely MPC wallets and Smart Contract wallets, and there is already an ecosystem of products and services in both categories that have been adopted by institutions, cryptonatives and DAOs. In the next blog, we will explain the two core technologies, listing their sets of trade offs and then move on to mapping the current competitive landscape of these low-threshold wallets.
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