ThinkTWENTY20

A bit of a diversion from the current series on financial professionals and graphic-oriented tools for creation and collaboration (rather than presentation), but triggered from the discussion of Decentraland, I wanted to write on the topic of cryptoasset wallets. Wallets are key to self-custodied use of blockchain, and so understanding what they are, what they are not, and the risks associated with them are important to the financial professional.

As I noted, the legacy virtual environment, Second Life, was going to revolutionize business and communication, but did not reach widespread usage as the far more focused Twitter did. Part of the reason was the complexity of the environment, and that it required a fairly heavy client, software loaded on your own computer. After that, with a login name and password, off you would go. In contrast, Decentraland is browser-based (although still highly resource intensive), but requires a cryptoasset wallet to do anything meaningful.

The simplicity of using a wallet falls somewhere between getting on the Web in 1995 and going on today. While some grans and gramps have done just fine, others find getting a wallet in place to be a non-trivial exercise.

There’s a lot of misconceptions about what a wallet is in the first place (even amongst my colleagues in blockchain standard setting). Unlike the wallet traditionally kept in the left rear pants pocket or in a purse, a cryptowallet does not store bills or coins or cards (or receipts, or calendars, o lucky charms). A cryptowallet manages public and private keys; the assets themselves are tracked on blockchains/distributed ledgers, and the keys are the trackers of which addresses are “yours” and the authorization to move amounts from one blockchain address under your control to another blockchain address.

There are online wallets, some of which are managed by third parties and others of which are self-managed. And some of these online “wallets” are not wallets at all.

Many people who have worked with Bitcoin, Ethereum, Litecoin and the like have purchased them through an online service (exchange), such as Coinbase. Coinbase as a service is no more a “wallet” than your broker is a wallet. You do not have direct control of your assets (or keys); you must work with the exchange to conduct a transaction. If there are “forks” and “airdrops” and the custodian chooses not to support it, you lose the additional assets. Coinbase has, however, recently released a true wallet, “Coinbase Wallet”.

Being your own custodian has its advantages and disadvantages. There is no recourse if you lose your methods of getting into your own wallet. Setting up the wallet, working with recovery phrases and keys, knowing what is safe to do and what will expose your investments to others … this is new and not always intuitive. Having to figure out how to set up MyEtherWallet and MetaMask just so you can save your Decentraland avatar’s appearance and goodies is a high entry point to play a game for the uninitiated.

I have learned to use these tools as I think they will have value beyond investing/gambling on cryptocurrencies. Therefore developing an understanding of these “key” issues will be important in a blockchain-enabled future.