Can Digital Wallets Save Cryptocurrency?

Can Digital Wallets Save Cryptocurrency?

ACM NEWS, By Samuel Greengard

Commissioned by CACM Staff, April 6, 2023

Specialized digital wallets are crucial for cryptocurrency because an iPhone or Android digital wallet does not deliver the essential features and protections needed for Web3.

Credit: Money magazine

It is not difficult to understand why cryptocurrency has garnered a bad reputation. Amid wild financial speculation, defrauded investors, and the enormous energy required to mine it, the largely unregulated monetary framework has often seemed like a solution in search of a real-world problem.

Yet, the likes of Bitcoin, Ethereum, and Ripple may play a critical role as Web3 and the metaverse emerge. This decentralized token-centric digital world introduces new models of ownership and entirely different ways to interact online and offline. It challenges entrenched business models and dominant companies in spaces as diverse as social media, mobile communications and streaming music and video.

"Web3 will be transformative by enabling new business models to take shape. It will usher in the next era of our digital lives," says David Treat, co-lead of Accenture's Continuum business group.

Yet in order for this next wave of digital technology to flourish—supporting everything from objects that span physical and virtual worlds to NFT platforms that allow new types of social interactions and games—there is a need for a trusted payment framework.

Make no mistake, the race is on for developing blockchain-based payment systems with digital wallets that are functional, highly secure, and easy to use in many traditional Web applications, along with cryptocurrency exchanges. "Web3 does not exist without decentralized finance," says Campbell Harvey, professor of finance at the Fuqua School of Business at Duke University.

Decrypting Crypto

What makes Web3 appealing is that it offers a path to an immersive digital world. It encompasses virtual real estate, avatars that link to physical objects, new forms of digital marketing and advertising, more advanced crowdsourcing, and ways for artists and creators to distribute and monetize their work without the need for a central authority or exchange.

"Web3 makes a lot of things possible," Harvey explains. "However, it requires a reliable payment system independent of our legacy financial infrastructure and [it must be] based in decentralized finance." Treat says Web3 finance hinges on four critical factors: interoperability, security, scalability, and a great consumer experience. For now, "There's a need for greater traceability and an expectation for transparency across the exchange of these assets," he says.

Consequently, a key to unlocking value in Web3 is a mature financial framework with wallets. Individuals must have a way to unequivocally own and secure objects—and also to buy and sell items and services through a blockchain. A core problem with cryptocurrency—and a major problem during the collapse of the FTX Trading Exchange in November 2022—was an inability for individuals to fully control their crypto coins and other digital assets.

On the Money

Right now, "All the pieces aren't quite in place," Harvey says. For example, there is no definitive way to verify a person's identity in the Web3 world, digital wallets can be difficult to use, transaction fees are often high, and the technology does not possess the speed and scale required for massive Web3 adoption.

That may soon change. In February, Linux Foundation Europe introduced the OpenWallet Foundation (OWF), which aims to develop a common standard for a wide range of digital wallet use-cases, including payments, identity, and storing validated credentials such as employment, education, financial standing, and entitlements. "Wallets are critical infrastructure for payments, for identity, and for secure access," says Daniel Goldscheider, founder of OWF.

Several companies, including ZenGo, Coinbase, Electrum, and Ledger, are also focused on developing a better digital wallet. Ledger has garnered a good deal of attention with a hardware-based crypto wallet called Stax. It's about the size of five credit cards; relies on Bluetooth for connectivity to Android and iOS phones; includes biometric authentication, tokenization and high-grade encryption; and features a touchscreen e-ink display.

These specialized digital wallets are crucial because, at least for now, an iPhone or Android digital wallet does not deliver the essential features and protections needed for Web3. In addition, they are susceptible to being hacked and attacked by thieves or government entities.

In addition, Accenture found a major barrier to Web3 adoption is trust: 70% of 17,500 respondents it surveyed said robust privacy, safety, and security will impact their willingness to engage in a Web3 world. ... . '