How Can Wallets Enable the Mass Adoption of Cryptocurrencies?
By Charlie Varley, Tech Lead, IOTA Foundation
Cryptocurrencies have taken initial steps toward mass adoption, with PayPal recently announcing that it will allow customers to not only buy and sell digital assets, but to also use them to shop at merchants in their network. The widespread ability to use tokens to pay for things in the real world is critical in the broader acceptance of cryptocurrency. Another missing puzzle piece is a successful killer app -- an app so noteworthy that it proves the utility of the wider technology. The killer app for the cryptocurrency industry will be a wallet.
Which should come first? This is somewhat of a “chicken-and-egg” problem. Without a safe and user-friendly wallet, the general public will be reluctant to wade into the crypto waters in the first place. And without broad acceptance by merchants, cryptocurrency tokens will continue to have limited utility. Both things need to happen in tandem.
Usability of these wallet apps will make or break public acceptance and understanding of cryptocurrencies. Wallet developers must ensure their apps have parity with what users have come to expect from a conventional financial application. But for a wallet to achieve “killer app” status, it must rethink peer-to-peer payments altogether.
Three features to take crypto wallets to the next level
There are already many apps that allow you to send payments, peer-to-peer, all over the world. To compete with those, cryptocurrency wallets must at least match the current level of usability -- and extend the feature set further with some of the interesting things enabled by decentralized technologies. The following three features are crucial for expanding the use of cryptocurrencies to mainstream users, both individuals and businesses.
Contacts: Typically, sending cryptocurrency payments involves exchanging addresses comprising long strings of characters. This convoluted system is a friction point for many people. There's lots of room for error -- in copying a long string of characters, you may make a mistake that results in your payment being sent to the wrong place. By abstracting this process and allowing users to send directly to a saved contact, the process becomes much simpler.
Chat: Communication is a vital part of payments and is something that conventional payment apps often overlook. The ability to communicate via chat can really augment peer-to-peer payments, and crypto wallets should allow that conversation to happen within the same app. With advances in decentralized chat protocols, it is now possible to avoid reliance on any single company, like WhatsApp, to provide the chat infrastructure.
Access to Tokenized Assets: Tokenizing assets means using digital tokens to prove ownership of real-world assets. Use of tokenized assets has enabled micro-investments, where someone purchases a small share of a larger asset. Crypto wallets should allow users to have complete ownership and control of their tokenized assets. When combined with contacts and chat, it is even possible to create marketplaces for those assets.
Addressing security by educating users
Cryptocurrencies are still a very esoteric, technical thing for most consumers. One of the big challenges is how to enable people -- or businesses -- to become their own bank. The problem is, for most people, this is quite new. There's an inherent security risk in having complete control over money, in that you suddenly become a target for attackers. And certain groups, based on their technical ability, are vulnerable to those sorts of attacks.
Users take on a lot of responsibility in holding or using cryptocurrency. They need to protect their private keys and safely generate and share addresses. They need to be able to ensure that no one else can access their funds and steal them.
Security is inextricably linked to usability and user education. Complexity can lead to potentially catastrophic slipups. A wallet must be easy to understand and use, designed in a way that consumers and businesses are already familiar with from conventional financial apps. For unfamiliar activities, wallet developers need to provide clear instructions for best practices so that users understand how to protect themselves.
Balancing usability with security
There's an inherent tradeoff between security and usability. If a wallet is going to be sufficiently secure for all users, certain hurdles are almost unavoidable. For example, when users are setting up their wallet, there is a step where they must back up their private key. A lot of wallets allow users to skip this step and start using the app straight away.
This may seem like a good idea as it avoids friction in the initial setup of the wallet. However, allowing users to skip the backup sets a tone that it is not an important step. It can lead to people losing money -- if private keys are lost or deleted, users cannot access their funds. Wallets should not only require the backup step, but also ensure that users prove they’ve backed up their private key.
Another way to balance usability and security is through the use of smart wallets. In these novel wallets, smart contracts are used to enable innovative functionalities. If a user suspects their wallet has been compromised, they are able to lock their account remotely so that funds can’t be spent.
Smart contracts can also help users recover their wallet if they lose their private keys -- which is a common problem in cryptocurrency and could happen to anyone. Through use of a smart wallet, users can assign trusted contacts as guardians that can restore their wallet on their behalf in case they lose access.
No mass adoption without user-friendly wallets
There are two fundamental questions that arise again and again. The first is, “Why can't we use cryptocurrency to pay for things in shops?" The second is, “Why should developers build a wallet with all this functionality, if people can't even use cryptocurrency for anything in the real world?”
Even though mainstream use cases are not yet here, having a comprehensive platform for crypto-based financial payments will pave the way for those use cases. To really get businesses and individuals onboard the crypto train, the key is to first make the basic experience of the wallet as simple as possible. Then, with the addition of features like chat, contacts, and the innovations enabled by distributed ledger technology, like tokenized assets, we might just see a wallet become the “killer app” for the cryptocurrency industry.
Running like an undercurrent through all the development is the understanding that, no matter how much innovation happens in the industry, consumers need both guidance and a simple gateway to interact with before mass adoption of cryptocurrencies can be fully realized.
Charlie Varley is the Technical Lead of Firefly, a wallet built by the IOTA Foundation. He has an undergraduate degree in Psychology and Philosophy from the University of Bristol and a Master’s in Computer Science from University College London. Charlie is a self-taught programmer whose main interests lie in front-end development.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.