Digital Wallets As Identity
To investors,
Former Coinbase CTO Balaji Srinivasan was tweeting about the future of crypto wallets yesterday and he brought up a number of interesting points. His core idea was:
The conversation continued with a focus on monetization of these digital wallets. The main points have been (a) that no crypto wallet has directly monetized their user base well and (b) the most successful wallets have been launched in a bundle along with other services or revenue generating products.
This surfaces a really interesting thought exercise — can digital wallets be sustainable as stand-alone products or do they need to be bundled with other services?
The answer is probably more obvious than you would originally think. The traditional finance world has historically given retail custody (equivalent of a retail crypto wallet) away to customers for free or they have even paid customers a small amount of interest for depositing their funds with a bank or financial organization. There are exceptions of course, but generally the idea of custody is not a self-sustaining business opportunity. This is why banks offer credit cards, loans, mortgages, and other financial services.
Crypto is no different. Individual consumers are unlikely to pay for simple custody solutions (institutions are different) and they are seeking additional functionality to incentivize them to use a specific company’s product. These incentives can include buying, selling, signing, voting, staking, registering, and more.
But as Balaji pointed out in this tweet, those functionalities may not always be external products and services in the future. They may become embedded features in a digital wallet. While he is probably not wrong about teams building this functionality into wallets, there is a more interesting conversation here — what if the digital wallet isn’t about storing money and it is instead about identity?
There have been plenty of people who have suggested that digital wallets could eventually serve as log-in credentials to various digital services, but I don’t think that is taking the idea far enough. Replacing “Facebook Log-in” with a digital wallet is just swapping one digital product for another. But what if the digital identity of the future is baked into a digital wallet?
Imagine your passport, drivers license, medical identification card, and other forms of identification being replaced by a single digital wallet that users can carry on their phone. This seems far fetched today, but I actually think it is more likely than not. These digital wallet identities would be more secure (thanks cryptography!), more portable, and could drastically streamline many user experiences for humans across public and private services.
The digital wallet would then be able to store various types of data — both cryptographically secure assets (Bitcoin, tokenized stocks, tokenized bonds, etc) and cryptographically secure data (identity, medical data, etc). This would create a single location to store every important digital asset that you own (remember, data is a digital asset!).
The parallel concept in the legacy finance world would be equivalent to turning your bank account credentials (username/password) into the validating credentials for any application of your identity. The very details that serve as a gateway to an individual’s wealth are likely to be great indicators of whether someone is actually who they say they are. This would mean your bank account could store your financial assets and also validate your identity. In the digital world, we don’t need usernames and passwords to execute this, but instead can use the digital wallet, combined with various implementations of cryptographic or biometric security, to serve a similar function.
I haven’t fully thought through this idea, but there appears to be a big opportunity for someone to build upon it to create the user-friendly product that doubled as (1) an identify for both the physical and digital world, and (2) the go-to custody solution for your financial assets. There are some variations already being implemented in Asia and infrastructure like Plaid is making it a little more feasible to try this in the legacy world as well.
It doesn’t seem like anyone has cracked the perfect formula yet. That should change soon though if the incentives are large enough (and I think they are).
The crypto industry presents so much promise for a better, more connected, and more secure future, but still have a long way to go. The pontification of ideas can come off as intellectual olympics at times, while there is serious progress made towards true innovation. If you have additional ideas around digital wallets and identity, please share them by responding to this email.
I would love to hear from you.
-Pomp
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THE RUNDOWN:
No Virus Woes for Bitcoin as It Climbs to Highest Since November: There’s one asset escaping the pounding from the spreading coronavirus: Bitcoin. The largest cryptocurrency rose as high as $9,142.80 on Tuesday, a level last seen early November. Other coins rallied as well, with the Bloomberg Galaxy Crypto Index gaining as much as 1.7% to more than a two-month high. Read more.
Bitcoin Bolsters Claim as a Haven With Rally Topping Gold’s: Bitcoin’s claim for being digital gold appears to have another piece of evidence in its corner. In a day where global stocks plunged on concerns over the impact of the deadly coronavirus, the largest cryptocurrency gained as much as 5.8% while gold rose as much as 1.1%. Read more.
Opporty Founder Calls SEC Suit ‘Grossly Overstated’ in Public Defense: The founder of blockchain marketplace Opporty said the Securities and Exchange Commission's legal case against the firm could have repercussions for other crypto companies. In an eight-page open letter to the crypto community Tuesday, founder Sergii "Sergey" Grybniak claimed the firm followed all regulatory guidance available at the time of Opporty's 2017–2018 initial coin offering "from day one." Read more.
Singapore Announces New AML Rules for Crypto Businesses: The Monetary Authority of Singapore is updating its regulatory framework for digital payments. Announced Tuesday, Singapore’s Payment Services Act 2019 brings so-called Digital Payment Token services – effectively covering all crypto businesses and exchanges based in Singapore – under current anti-money laundering and counter-terrorist-financing rules. As such, crypto businesses in Singapore are required to first register and then apply for a license to operate in the jurisdiction.
IBM Awarded Patent for ‘Self-Aware Token:’ IBM has received a U.S. patent for a type of "self-aware token" that can record its own transaction data. Awarded by the U.S. Patent Office on Jan. 7, the patent outlines a ledger-based payments system that could make it easier for individual users, businesses and governments to track and trace transactions made using a cryptocurrency. Dubbed the "self-aware token," it is designed to record all transaction data when not being used on a payments platform IBM patented in 2012. Read more.
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I'm always very interested whenever it comes to digital identity and universal(ly readable) digital medical records.
Here's my thought process:
- the wallet would need 3 separate sections. You don't want to show your wallet balance to the bouncer at the bar. That also means that if I have to pay you, it's a longer route (at least one more tap on the screen).
- the above statement already makes invalid to use a sort unified wallet. 3 different apps with the same authentication (possibly the digital identity would serve that purpose) would make more sense.
- we already have the device for that, and it's our phone. Maybe someone in the meantime someone could build a unified wallet, but ultimately they will be just 3 apps on our phone—if it will still be called like that.