The Future of Web3 Wallets: Innovation, Challenges, and Key Issues

The Web3 wallet space is undergoing significant transformation, promising to fundamentally change the way we manage digital assets. As the blockchain ecosystem continues to evolve, the demand for secure and user-friendly wallet solutions is becoming increasingly urgent. Wallet 2.0 represents the next generation of wallet technology, offering an unprecedented range of new features and benefits.

This article will delve into the key features of Web3 wallets, the current state, the innovations of account abstraction (AA), and the future development direction of Wallet 2.0. We will also outline five key questions that entrepreneurs in the wallet space should consider when evaluating their business.

Core Attributes of Web3 Wallet

A Web3 wallet is a digital wallet specifically designed for seamless collaboration with decentralized applications ( dApps ). Unlike traditional wallets, a Web3 wallet allows users to have complete control over their assets without relying on third-party intermediaries. Some core features of a Web3 wallet include:

• Decentralized: Operates on a peer-to-peer network, not relying on centralized servers, enhancing security.

• Interoperability: Compatible with multiple blockchain protocols and cryptocurrencies for multi-asset management.

• Security: Uses advanced encryption technology to protect private keys and sensitive information

• User-friendly: The interface is simple and intuitive, making it easy for ordinary users to use.

The Current State of Wallet 1.0

Currently, digital wallets can be roughly divided into two categories: custodial and non-custodial.

Custodial wallets are held and managed by third-party companies ( such as centralized exchanges ) that hold users' private keys.

Non-custodial wallets are fully controlled by users with their private keys and can be further divided into:

1. EOA Wallet: The most common cryptocurrency storage and management wallets, such as Metamask, Phantom, etc.

2. Smart Contract Wallet: Manages assets using smart contracts, supports advanced features like social recovery, such as Argent, Safe, etc.

3. MPC Wallet: Uses multiparty computation technology to enhance security, such as Fireblocks, ZenGo, etc.

In addition, there are some teams developing infrastructure to simplify the process for other developers to create and customize wallets for end users.

Challenges Facing Current Wallet 1.0

Despite significant progress in crypto wallets in recent years, there are still some challenges:

• Not user-friendly enough for ordinary users

• The login process is complicated.

• Mnemonic phrase can be easily lost or stolen

• Fragmentation of wallets across different blockchains

Innovation Brought by Account Abstraction

The emergence of account abstraction (AA) in the Ethereum network marks a significant advancement for Web3 wallets. The ERC-4337 standard achieves protocol-level AA without changing the consensus layer, introducing several key features:

• Social Recovery

• Atomic Multi-operations

• Pay transaction fees using ERC20 tokens

• Paymaster feature

These features make Wallet 2.0 easier to use, which is crucial for promoting Web3 wallet.

The Future Development of Wallet 2.0

The development of ERC-4337 has spawned a new type of wallet, expected to fundamentally change the way digital assets are stored and managed. Some developers have already begun building Wallet 2.0, focusing on enhancing accessibility, security, and interoperability.

Assessing the Five Key Questions of Wallet 2.0

1. Is this a sustainable business model?

2. Can Wallet 2.0 provide more than 10 times improvement over existing solutions?

3. How to establish a long-term competitive advantage?

4. Is it possible to find suitable distribution channels and add smart contract functionality to existing products?

5. What key assumptions are needed for it to be more successful than existing wallets?

Potential Risks and Limitations

• ERC-4337 cannot solve the high gas fee problem.

• New security risks

• Cross-chain interoperability challenges

• Uncertainty in legal and regulatory aspects

Conclusion

The Wallet 2.0 space is rapidly evolving and is expected to fundamentally change the way digital assets are managed. We can look forward to seeing more advanced and user-friendly wallet designs, better key management solutions, and new application scenarios for Wallet 2.0. New technologies such as Layer 2 scaling solutions and the integration of cross-chain interoperability will further enhance its capabilities. As the blockchain industry matures, Wallet 2.0 will become a key tool for managing digital assets and interacting with dApps.

For entrepreneurs in this field, it is recommended to pay attention to the following points:

1. Establish a sustainable competitive advantage

2. Prioritize user experience and accessibility

3. Ensure the security and usability of the design and key management scheme.

4. Find distribution channels for cooperation with existing enterprises

5. Stay updated with the latest trends and technological developments in the blockchain ecosystem.