The Advancing Wallet - Understanding the New Technologies and Developments of Cryptocurrency Wallets

08/14/2023·1years ago

of crypto wallets | veDAO Research Institute

Today, veDAO Research Institute will share around a concept familiar to all crypto investors - 'crypto wallet'. Crypto wallet is the main access point of the Web3 economy. It has also received more and more attention with the development of the Web3 economy and the widespread adoption of Web3 applications. It also needs to match the progress of Web3 and meet the more diverse needs of users and more. New technologies and new creations are both challenges and opportunities brought by the market. This article will take everyone to sort out the development of crypto wallets, focus on development trends and innovation directions, and share wallet projects with innovative highlights.

Basic concepts of crypto wallets

The function of traditional electronic wallets is to store assets and mobile payments. On the basis of storing assets and mobile payments, encrypted wallets add the function of identity identification. This is also the entrance and authentication for users in Web3 to pass through various DApps. There are many forms of encrypted wallets on the market, each with different levels of security and convenience. They can be mainly classified according to the following two forms:

According to whether they can connect to the Internet, they are divided into cold wallets and hot wallets:

Cold wallet (offline wallet): Keys are stored in hardware devices, including 'paper wallets' kept with mnemonic words, offline mobile phones, hardware wallets, etc., and are only connected when you want to use cryptocurrency.
Hot wallet (online wallet): A wallet where the key is stored in an application or software, and the private key needs to be connected to the Internet when signing a transaction, including our commonly used wallet apps, web plug-in wallets, etc.

According to whether you have the private key yourself, it can be divided into custodial wallets and non-custodial wallets:

Escrow Wallet (Centralized Wallet): A trusted third party holds the private keys and stores digital assets securely on the blockchain, which also means that users do not have complete control over your funds. This type of wallet is mainly provided by entities such as cryptocurrency exchanges or professional custody services, such as trading platforms such as Binance and Huobi.
Non-custodial wallet (decentralized wallet): A wallet that gives users complete control over their keys and funds. Non-custodial wallets can be based on browsers, software or hardware, such as our common MetaMask, TokenPocket, imToken, etc. Non-custodial wallets can be further divided into three categories:
External Account (EOA) Wallet: EOA wallets are the most common digital wallets for storing and managing cryptocurrencies. EOA wallets are usually provided by centralized exchanges or wallet providers and require users to hold their own private keys. EOA wallets include Metamask, Backpack, Phantom, Rabby and Rainbow, etc.
Smart Contract Wallet: A smart contract wallet is a decentralized wallet that uses smart contracts to manage assets. Smart contract wallets are more secure and flexible than EOA wallets, and support advanced features such as social recovery and multi-signature. Smart contract wallets include Argent, Safe, Sequence, etc.
Multi-Party Computation (MPC) Wallet: MPC wallet uses a technology called threshold encryption for enhanced security. The private key required to authorize a transaction is split into multiple parts and distributed to multiple parties, ensuring that no one party can independently access the key. This approach greatly reduces the risk of a single point of failure or attack, making it more difficult for hackers to steal funds. MPC wallets include Fireblocks, ZenGo, Coinbase MPC and Particle Network, etc.

Source: huobi Research Institute

Market Current Situation\u0026Problems and Pain Points

The current market development status of crypto wallets has the following characteristics:

http://Blockchain.com

1.The user base continues to grow, and the market share rises simultaneously. According to Blockchain.com statistics, the average ownership rate of encrypted tokens in 2022 is 3.9%, and more than 300 million people around the world are using encrypted assets. Among them, the number of users with encrypted wallets reached 68.42 million in 2021, and by July 2022, the number of encrypted wallet users had reached 81 million, with the number growing exponentially. The development of the Web3 economy and the rise of digital assets have driven traditional funds to enter the Web3 world. The market demand for secure storage of digital assets and on-chain activities has increased. The digital wallet industry has ushered in a development opportunity, and a large number of developers and funds have poured in. .

2.As a Web3 infrastructure, encrypted wallets are favored by investment institutions. Crypto wallets are one of the main channels for institutions to invest in the crypto field. Data show that the amount of investment in the wallet field has continued to grow in the past five years. In the first half of 2022, the total financing in the wallet field far exceeded other fields, reaching US$400 million.

3. From B2C to B2B2C commerce, the current crypto wallets in the market are mainly for To B and To C. Compared with the To B field, the To C field is the source of profit for most crypto wallets. As transaction volumes increase as the market becomes more mature, wallet vendors will begin to build economic moats and barriers to entry while profiting from the traffic they generate. This greater bargaining power will make the wallet product a more attractive B2B partner for other DApps and DEX protocols, transforming them into a B2B2C business model.

Source: 7OclockMedia

While crypto wallets have made significant progress in recent years, there are still several challenges that need to be overcome to make them more user-friendly and accessible. Key challenges currently facing decentralized crypto wallets include:

Security: The security of decentralized wallets is relatively high. The biggest challenge currently lies in the custody of users’ own private keys and preventing hacker attacks. Lack of user security knowledge and awareness and bad operating habits will create excellent opportunities for hackers. For wallet developers, the security of the underlying wallet is also full of challenges. In addition to open source wallet code, development also requires code security audits for each major update, storage and management of wallet private keys, etc.
Privacy and supervision: Privacy and supervision are topics that have always been unavoidable in the Web3 field. These are also problems encountered by wallets, including user data privacy, wallet business compliance, etc.
Ease of use: Every step of interaction in the wallet requires the user to operate it in person, which requires the user to have a certain amount of basic blockchain knowledge, whether it is a novice or an experienced player, managing mnemonic words or mnemonic words being stolen, etc. The problems are there and cause them great distress. Although centralized wallets have certain artificial security risks, they are relatively simple to operate and have a friendly user interface. If decentralized wallets want to gain more users, they must solve the issue of ease of use.

To address these challenges, wallet manufacturers are exploring new methods and technologies to create user-friendly and secure digital wallets that are more susceptible to mainstream adoption. Innovation drives wallet development

Multi-party computation MPC

Multi-party computing wallets replace traditional private keys with your device sharing a 'secret message' with one or more other devices. MPC wallet eliminates single points of failure by using Threshold Signature Scheme (TSS). Under this paradigm, we create and distribute shards of private keys so that no single person or machine has complete control over the private key—a process called distributed key generation (DKG). We can then jointly generate the public key by merging the key shards without exposing each party's key shards, thus sharing the so-called 'secret information.'

There are more derivative functions based on this feature, such as making it easier to recover accounts. Therefore, the MPC wallet is similar to a traditional EOA account with an invisible private key. In addition, it can also support the threshold setting function, that is, each transaction requires at least a threshold percentage of participating users to jointly generate a signed transaction. Take effect.

Abstract account AA

Abstract account is a type of contract account, which combines the advantages of the current contract account and external account (EOA) into one. Compared with MPC, it has the advantages of flexible contract design, easy customization of logic and always online. The AA wallet will first conduct transaction verification on the contract at the entry point, and then enter the transaction execution stage after passing the transaction verification.

The emergence of abstract accounts has brought significant progress to the development of Web3 wallets, introducing on-chain programmability through smart contracts, adding flexibility to Web3 wallets. It supports custom rules, so in addition to the current ECDSA signature algorithm, you can also choose other signature algorithms, such as BLS, EdDSA, etc., to better meet the needs of specific application scenarios. AA can even have a signature authorization that is separate from the account, which means that permissions and identities are isolated and have recoverable characteristics. This not only changes the embarrassing situation of 'losing the private key equals losing the identity', but also further facilitates DID design. .

Highlight project sharing

1.Argent

Argent is a Layer 2 wallet active on the ETH chain. Its advantage is that it can easily transfer Layer 2 assets to Layer 1 with low cost and fast speed. Its main features include:

Social Recovery: Argent’s social recovery feature allows users to restore their wallets by connecting with trusted contacts. This makes it easier for users to restore their wallets without having to remember complex mnemonic phrases or private keys.
No need to use ETH as gas fee: Argent uses MetaTransaction technology to allow users to send transactions without owning ETH. Specifically, Argent pays gas fees for users through the middle layer service of 'Gas Station Network (GSN)' and deducts the corresponding fees from the user's account.
Attack detection: Argent wallet uses the self-developed 'Guardians' smart contract to automatically detect and prevent phishing attacks, malware attacks, replay attacks, etc. For example, when a user receives an email or text message that appears to be from an Argent wallet, the Guardians contract will detect whether the message comes from an official Argent channel. If it detects that the information does not come from official sources, the Guardians contract will automatically prevent the user from performing any transactions related to the information.

In terms of financing, Argent has completed three rounds of financing totaling US$56 million. In 2018, it completed a US$4 million seed round of financing, with participation from Index Ventures and others; in 2020, it completed a US$12 million Series A financing, led by Paradigm; in April 2022, it completed a US$40 million Series B financing, led by Fabric Ventures and Metaplanet.

Argent starts from the most important security of encrypted wallets, cancels the concepts of private keys and mnemonic words, and uses functions such as social recovery to ensure users' ownership of wallets and lower the threshold for use. However, compared with other wallets, Argent wallet users cannot freely switch to most commonly used EVM networks, which will limit its use scenarios to a certain extent and make it difficult to build user stickiness. At this stage, the Argent wallet has a small user base. The main reasons include the stability of the ZK network and the fact that it does not support the storage and transactions of multiple cryptocurrencies.

2.Unipass

UniPass is a crypto wallet that eliminates the need for users to remember mnemonic phrases. Its email-based social recovery solution will allow users to easily regain access when lost or compromised. It aims to provide a familiar experience for Web2 users, and more Good silky access to the Web3 world. Its characteristics are as follows:

Compatible with ERC-4337: Users can activate ERC-4337 compatibility mode by adding 4337 module transactions in MainModule. After activation, transactions that users can initiate will be submitted to Bundler through the standard ERC-4337 verification method. Users can also sign UniPass tx and submit it to Relayer for on-chain processing.
Email recovery: Users can set up multiple Internet mailboxes as guardians of their accounts. Just submit the email to the smart contract on the chain to help users retrieve their wallet private keys. When a user has more than 2 guardian email addresses (including the primary email address), the user can use these two email addresses to submit an account recovery email and recover the account immediately. When a user has only one guardian mailbox, there is usually a 48-hour lockout period before the account can be restored.
Gas-free experience: UniPass provides a default relay node that accepts gas payments in the form of native tokens and mainstream stablecoins.

3.ZenGo

As the first private keyless cryptocurrency App wallet, ZenGo has leading technologies in security and biometric technology. The biggest difference from other virtual currency wallets is that ZenGo eliminates technical barriers and allows you to log in without a key—you only need an email address and a fingerprint lock to set up the wallet.

ZenGo operates as a non-custodial wallet without private keys through a variety of security tools, including biometric encryption, three-factor authentication, multi-party computation encryption, and more. This private keyless security system ensures that there is no single point of failure, and even if one of the multi-party computation encrypted shares fails, the user’s crypto assets are safe.

Judging from the financing situation, ZenGo completed US$10 million in Series A expansion financing through the issuance of convertible bonds in February 23, and plans to conduct Series B financing later this year. After the Series A expansion financing, ZenGo’s valuation is US$100 million, the same as after the completion of the Series A financing two years ago. ZenGo completed a $20 million Series A round of financing in April 2021, with investors including Insight Partners, Austin Rief Ventures and Samsung Next.

However, the lack of private keys is a big source of contention for some traders, and not all ZenGO features are available globally, with features such as third-party payment providers being region-specific.

Related websites:

https://app.vedao.com/projects/c17fefd234405be1094f947e0cd8cf1909ce2e72b69aabf0841cffec15971b20

4.OKX Web3 Wallet

The technological innovation and progress of OKX Web3 Wallet in 2023 is obvious to all. In April, the MPC private keyless wallet was launched, and in August, the AA smart contract wallet was launched. Jason Lau, chief innovation officer of OKX, said that OKX’s goal is to provide users with the most convenient, secure and powerful Web3 platform, and OKX MPC private keyless wallet and AA smart contract wallet will play an important role in achieving this goal. .

OKX MPC wallet has great advantages in terms of security. The specific advantages are as follows:

Resist hacker attacks: OKX MPC wallet breaks the private key into three fragments, only one of which is stored in the phone. Therefore, even if a hacker steals the private key, the complete private key cannot be stolen at once, thereby protecting the security of user funds.
Decentralized asset storage: Since OKX only holds one fragment of the user, and the exchange itself does not have the authority to use the user's assets without authorization, it is a truly non-custodial wallet.
Good private key security: Although OKX exchange holds some private key fragments, even if OKX encounters an unexpected situation, users can still assemble the complete private key through fragment 2 in the mobile phone and fragment 3 in iCloud, and retrieve it The entire process does not require the consent or assistance of the exchange for the assets in the wallet.
Convenient transfer: When using the wallet on a daily basis, users can easily transfer funds using Shard 1 on the exchange and Shard 2 on their mobile phones.
Easily retrieve your mnemonic phrase: With the OKX MPC wallet, even if your phone is lost or damaged, you can still use the fragments 1 saved by OKX and the fragments 3 backed up in iCloud or Google Drive to retrieve your mnemonic phrase at any time, thus restoring your phone. Wallets and assets.

The OKX AA smart contract wallet based on account abstraction technology simplifies the complexity of blockchain transactions. For example, one of the biggest pain points faced by users is the need to conduct complex transaction processes and understand terms such as 'Gas Fees' and 'Gwei' and other technical terms, and AA smart contract wallet solves this pain point by reducing the steps required to exchange or trade tokens to just one click. Specifically, it has the following advantages:

Convenience of Gas Fees: Users do not need to use the native tokens of the public chain to pay, but also use the stable currency USDC/USDT to pay, and when using the Discover browser to interact with the DApp on the web page, the AA wallet can also realize third-party payment of Gas Fees.
Simplified steps: AA smart contract wallet combines multiple stages of the exchange and pledge process of DEX, DeFi, etc. on the chain into one step. Users can complete the token exchange and pledge to earn interest with one click.
A more friendly and intuitive wallet experience: Through the AA smart contract wallet, users can interact with multiple contracts in one transaction, which greatly enhances the multi-level needs of advanced users and also increases the convenience of novice users. sex.
In the future, more new features such as social recovery will be supported, which will help users recover their accounts through trustworthy people in social networks even if their private keys are lost. OKX Web3 wallet is not only the first wallet to support Ethereum, Polygon, Arbitrum, Optimism, BNB Chain, Avalanche and OKTChain 7 major public chain account abstraction technologies, but also the first wallet to support MPC technology on 37 public chains, bringing users The private key is divided into three parts, eliminating the need for traditional written records of the private key and mnemonic phrase, greatly improving security and eliminating single points of failure.

Related websites:

https://www.okx.com/cn/web3

5.HyperPay

HyperPay is the world's first multi-ecological digital asset wallet that integrates managed financial wallets, decentralized self-managed wallets, HyperMate hardware wallets, and co-managed wallets, providing users with one-stop services such as asset storage, financial value-added, and consumer payments. So far, the HyperPay wallet supports 57 managed wallet public chains, the self-managed wallet supports 34 public chains, and the HyperMate hardware wallet supports 17 public chains. The HyperPay wallet has more than one million users, an asset management scale of over 1 billion US dollars, and more than 310 million transfers. .

HyperPay mainly protects users' asset security from four dimensions, including: the security of the wallet itself, the security of the user during use, the security of the server, and the security of technical developers. HyperPay wallet hosting service provider HyperBC has obtained a Lithuanian crypto asset custody license. The funds hosted by the HyperPay wallet on the HyperBC platform will be supervised by financial institutions.

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