tldr;

• Anything you do onchain requires a wallet.

• Think carefully before you sacrifice convenience for security.

• Not all wallets are created equal. Some prioritize user experience, while others prioritize features and functionalities.

• Eventually, all brands entering Web3 will need to consider their wallet strategy.

gm. Part of what I do at Fireblocks requires researching Web3 use cases and applications. Somehow, I always find myself stumbling back to wallets. Without wallets, there are no users. And without users, there is no web3.

This document lays out the fundamentals of web3 wallets, the roles they perform, and how they are essential to the infrastructure and plumbing of the web3 ecosystem.

None of this is financial advice.

If everything Midas touches turns to gold, then everything you touch in web3 requires a wallet.

Purchasing an NFT? Claiming a POAP at an event? Shitposting on Lens? Launching the next Starbucks Odyssey? You need a wallet for all of the above.

The wallets that you and I use in our everyday lives—the Apple Pays and Google Pays of the world—are often used to buy coffee, pay for subway fares, quickly check out your online shopping carts. They offer a convenient and secure way to store payment information and transact without having to carry around physical cards or cash. No doubt these are powerful inventions in their own right, but Web3 wallets are poised to surpass their predecessors.

In Web2, we have an app for everything. In fact, we may have a few too many of them: Venmo, Zelle, Cash App for p2p transactions; Revel, Uber, Lyft for rides; GrubHub, UberEats, DoorDash, Seamless, and at least fifty more for food delivery. Every financial, social, or entertainment need is served and answered. Yet, these interactions are mostly siloed, each operating within their own ecosystem.

We’ve seen glimpses of a superapp, although mostly limited to Asia with the likes of Grab, Alipay, WeChat Pay, and Gojek leading the pack. From one platform, you can order food, hail a ride to the airport, pay your utility bills, book hotels, redeem loyalty points, etc.

Beyond vanilla p2p transactions, Web3 wallets open the floodgates to so many different applications:

• DeFi

  • Crypto-native borrowing (lending and borrowing in crypto)

  • Real World Assets (RWA): on-chain trading, borrowing, lending, LPing to real-world assets (real estate, insurance, agriculture, contracts, private equity, etc)

  • Synthetics: trading derivatives on-chain linked to stocks, commodities, indexes

• DAO

  • Governance for communities to vote on ideas (JokeDAO)

  • Community of builders to accelerate web3 educate and impact (Developer DAO)

  • Global membership for enthusiasts with real world benefits and utilities (LinksDAO)

• NFT

  • Community support & identity (PFPs, Reddit Avatars)

  • Digital Twins: digital representation of a physical asset (Tiffany & Co)

  • Ownership of future digital streaming royalties (Rihanna’s Bitch Better Have My Money)

• New revenue streams / business models

  • Nike x RTFKT (Nike became the highest-earning brand from NFTs, clocking in over $185mm in revenue)

  • Time Magazine: to convert all future subscriptions with TIMEPieces NFTs

  • BlockBar: allows users to purchase high-end spirits in the form of an NFT. They store the bottle for you, prove the authenticity, and ship it out when the user redeems the NFT for the physical item.

Sure, Web3 wallets store and protect your Bored Apes, ETH, and BTC, but they’re also a gateway for all of your on-chain interactions, from e-commerce to gaming, DeFi to NFTs. A point worth repeating from Jason Shah:

“A single product that does all of this in one place does not exist within Web2.”

Anything you do in Web3 requires a wallet.

All wallets have two components: a public key and a private key. The former is your wallet address, a public handle like your Instagram or Venmo username. Think of it as your home, which people can search up on Google Maps (assuming they know your address).

Your private keys are used to access your funds, sign transactions and prove ownership of the public key (aka that you are indeed the owner of the wallet address). Just as you would not share the keys to your home, you would not share your private keys.

When we talk about custody in crypto, we talk about who owns the private keys (and thus access to the user’s funds). Custodial services and businesses like Coinbase, Binance, and NiftyGateway typically custody the coins for the users. Per regulatory compliance, they are obligated to perform KYC/AML checks on their customers. On the user side, the set up process is straight forward: create an account with your email address and password, enable 2FA, and upload a government photo ID. This flow is intuitive for someone who is new to cryptocurrency. It eliminates the complexity that comes with non-custodial (self-custody) arrangements.

That said, let’s also not forget what happened with Celsius, BlockFi, and FTX: when a user entrusts their private key to a third party, they put their trust in that organization to keep it (and the funds within) secure. Users can quickly lose their funds in the event of a cyberattack, bankruptcy, or black swan incident.

In a self-custodial setup, you are in complete control of your digital assets. You can rest assured that no third party will misappropriate your funds or make loans to other customers. You don’t have to worry about your funds disappearing, somehow ending up marked as a loss on a hedge fund’s balance sheet.

However, users now sacrifice convenience for security. Safeguarding their private keys and seed phrases become paramount: once a user loses it, their funds are forever lost. It is up to the user to follow best practices to maximize security and remain in full control of their funds.

Not all wallets are created equal. Given that there are over hundreds of wallet solutions within crypto, most will try to capture the competitive advantage in feature, chain support, UI/UX, and/or vertical (e.g gaming, DeFi, NFTs). At the technical level, my MetaMask and Coinbase wallet are more or less the same. I can store ERC-20 tokens, approve and sign transactions, send and receive crypto. It’s the wallet interfaces and experiences that differ, but it’s those differences that matter.

Leaders of the wallet wars will go on to create the best retail-facing products that serve the needs of a specific customer segment or vertical. A few examples:

• Gamers will care about gas-free minting and gasless transactions, ID portability, multichain connection (Polygon, ImmutableX, Arbitrum, L1s - Solana and Avalanche)

• DeFi degens will care about the best bridging and swapping experience. Getting the best quotes, doing yield farming or perps trading with the fewest number of clicks should be top of mind.

• Mainstream normies care about fiat on/off ramps like MoonPay (credit card) and Stripe/Plaid (bank account). They want to see their NFTs in their wallet, not on the block explorer. On the flipside, retail brands might have to consider a custodial wallet offering for normies who are not familiar with the onboarding flow for wallets.

Teams will have to grapple with the security and convenience trade-offs of wallets, but one common denominator stands: wallets are the ultimate gateway for securing assets and experiences for users in Web3.

We’ll continue to see innovations in the Web3 wallet space, from messaging to account abstraction. As a fellow Web3 explorer, I encourage you to try out all the different wallet options and DYOR to see which are best suited for your needs.

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