Everyone is building a wallet

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I was not surprised by Square’s decision to enter the crypto wallet business. In June, at the Bitcoin 2021 Conference in Miami, Jack Dorsey revealed that Square was toying with the idea of a hardware wallet, in order to make bitcoin custody more mainstream. In August, Facebook revealed that it is ready to launch its Novi digital wallet, but it’s on hold until it obtains the necessary regulatory approvals. A few weeks ago, I read that Robinhood is testing a new crypto wallet and cryptocurrency transfer features for its app. Robinhood is planning to allow its customers to send and receive digital currencies off its platform. Today, Robinhood allows users to buy cryptocurrencies, but to be able to send and receive crypto along with paying for things like NFTs in crypto, you need to have a wallet. In April, Revolut started to let users send crypto to external wallets, but they can’t receive coins, since they haven’t issued individual wallets yet and cryptocurrencies are stored in a pooled virtual currency account. With more than 100 crypto wallets and growing, this sector is getting crowded. Everyone wants to play a direct role in the $2.5 trillion crypto market.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.

Crypto’s immutable nature, makes wallet security a top priority. Immutability is one of the key features of bitcoin and blockchain technology. Immutable transactions make it impossible for any entity to reverse a transaction, once it’s been verified on the blockchain.

The crypto market has been plagued by hacks, thefts and people losing their private key, seed phrase, or forgetting a password.

In a recent article the BBC listed some of the largest hacks and thefts:

  • $610 million was hacked from Poly Network (2021)
  • $2 billion was stolen from Thodex, the Turkish exchange (2021)
  • $281 million was hacked from KuCoin (2020)
  • $40 million worth of bitcoin was hacked from Binance (2019)
  • $146 million was hacked from BitGrail, with 230,000 users losing their funds (2018)
  • $534 million was hacked from Coincheck (2018)
  • $450 million worth of bitcoin was hacked from MtGox (2014)

Over the last 8 years, cybercriminals have stolen at least $15 billion in crypto, and the global pandemic has only increased these attacks.

But hacks are just part of the story. People are people and our human nature is another big reason crypto gets lost.

A recently published study shows that crypto users are not using the best security practices to keep their crypto assets safe and secure from loss or theft. The report by Beyond Identity showed that 63.2% think their crypto wallet password is safe and 3 out of 10 share their crypto wallet password with others.

Here are a few more stories to put things in perspective:

  • Lost Passwords Lock Millionaires out of their Bitcoin fortunes. (New York Times – Jan 12, 2021)
  • “I forgot my PIN”: An epic tale of losing $30,000 in Bitcoin. (WIRED – Oct 29, 2017)
  • Ledger suffered a massive hack that unmasked hundreds of thousands of user profiles and details that led to phishing attacks. (Forbes – Dec 28, 2020)
  • On Coinbase, 6000 customer accounts were drained because of a software flaw in their two-factor security authentication. (Reuters – Oct 2, 2021)
  • Metamask users lose their funds to phishing or social media attacks, giving out their private recovery key, without even knowing. (Twitter – May 18, 2021)

So, figuring out how to safely store digital assets is on everyone’s mind. As the market is booming and it looks like prices will be hitting new all-time highs, no one wants to lose all that stored value.

It’s such a well-known problem, that Tim Dillon created an absolutely brilliant spoof trailer “The Wallet,” that revolves around Tim and his brother, attempting to access their deceased father’s crypto wallet, who died before sharing his wallet’s private key with them.

“Not your keys, not your coins” is an important concept for retail and institutional investors.

According to research by Blockdata, about 4 million bitcoins, or approximately 20% of the total supply, have been lost in orphaned wallets. The vast majority of cryptocurrency investors hold their own assets. That said, with bitcoin’s price over $60k that’s around $240 billion worth of bitcoin that can’t be accessed. That’s too much money to ignore.

Blockdata estimates that there were $371 billion in custodial wallets at the end of Q2, up from $67.8 billion at the same time last year.

It is a no-brainer why Square wants to be in this space. I can also see the attraction for Robinhood. A cryptocurrency wallet is a logical next step for their customer base.

In the past year, we have seen a widespread push for credibility in the digital currency space from decentralized coins like bitcoin and ethereum, to central bank digital currencies and security is paramount moving forward.

The next battleground will be cryptocurrency wallets. Crypto wallets will not only serve as a means of gaining wallet market share for their creators but also as a battleground for mind share.

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https://dailyfintech.com/2021/10/18/everyone-is-building-a-wallet/