The crypto space is complex. Words often get thrown about without deep thought about what they mean. Wallets are a fascinating and important aspect for the future of crypto, but I don’t think many outside the crypto space realize why.
I’d like to put my thoughts down. Partly to clarify my thinking, partly to educate, and (importantly) partly to get these thoughts out there so that in the future I can see if I’m right or not.
Before I continue, I have a favor to ask. I’m not sure if everything I write below is correct. Or, if it’s as important as I think it is. If you have an opinion (pro or con) I’d love if you share it (constructively / politely) in the comments at the end of the post.
In particular, if I give an example, and the example is wrong (or incomplete) but the point I’m trying to make is still valid, please try to keep the bigger picture in mind, as that’s my intent with this post — to put a stake in the ground on the big picture, even if the details get fuzzy (or if there are different avenues to the same outcome). Keep in mind, part of the challenge with crypto is the complexity. It’s not hard to transfer or secure crypto… but it sure is complex. Problems of complexity are still real-problems… they’re not “the user is too stupid” problems. </end mini-rant>
I’d love it even more if you shared this post so that I can get the most feedback possible. I’ve seen a lot of bitcoin/blockchain explainers… but nothing about wallets in plain English.
Always find a metaphor
Early in my career I worked at Teknekron Software Systems (TSS), the company that preceded TIBCO. TSS was founded in the financial services industry, and it’s claim to fame was The Information Bus (TIB).
As legend has it, the founder noticed that traders had all these fancy screens on their desks and then used paper or spreadsheets to manually copy data between systems to make decisions. The data was used to trade, or run their business. The TIB was created to consolidate the data from these systems and present them however the trader wished. There were three key elements of TIB messaging:
- Publish / Subscribe (so you could get the information you were interested in broadcast to you without having to keep asking)
- Subject-Based Addressing (so you could subscribe to IBM’s stock price, or IBM’s stock price from NYSE… without having to worry where the data came from)
- Self-Describing Data (so you didn’t have to have any a priori knowledge about the data / data-structure, the data itself would tell you what it was)
Because TIBCO went on to conquer many more industries using the TIB ‘middlware’ an important piece of Teknekron’s success is mostly forgotten.
There was one more product that catapulted TSS to success. Let’s face it, middleware isn’t that sexy, and people only notice it when it’s not working. What they do notice, is the screen they look at all day. The piece that everyone looked at, that drove tons of consulting and business transformation, the piece that manifested all the value of the TIB was called MarketSheet.
MarketSheet had ‘widgets’ to display any of the various data types traders would subscribe to from the TIB. You could wire these widgets together quite simply to do all the calculations that were formerly done in spreadsheets or on paper. It became a real-time display to the business, that turned trading floors into event-driven trading machines.
Let me summarize:
- You could subscribe to data,
- The data itself would tell you what it was, and
- You could view and manipulate the data in this all-purpose unified display.
It should be obvious, but it’s worth pointing out, that any business might subscribe to a variety of data sources that they believe is valuable to their business… it’s those data sources that they consolidated over the TIB and manipulated in MarketSheet. Two different but similar businesses might subscribe to different sets of data.
MarketSheet, in my opinion, is a metaphor for crypto wallets. Except that instead of self-describing data (that informs the business) in the crypto space, we’re dealing with contracts (that defines the business).
We don’t have a self-describing contract, but standards like ERC-20 are emerging that allow wallets to determine how the contract developer wants a contract to be expressed.
Said differently, today each token/contract requires a wallet purpose-built to express the contract’s capabilities.
With ERC-20 (and similar) standards, a wallet can hold many types of contracts in one place.
Swarm Fund says they’re building an open infrastructure for digital securities. I’m not going to explain that because I’ll give an example below that will suffice.
Celsius Network presents itself as the bank of the future (the ‘Unbank’). Apologies if that’s not exactly how they think of themselves. Again, my example below will suffice.
Let’s start with Swarm. Swarm enables securities to be digitized to the blockchain. It’s a hot area, and Swarm has been at it quite some time. One of the projects I like is a commercial real-estate fund in Puerto Rico. The Fund intends to redevelop a landmark building for the crypto/blockchain community. Suspend any judgment about the project for the moment. You can imagine that you’d get voting rights as part of the contract that defines The Fund.
However, the expression of those voting rights would come about in a wallet. I’ve voted using Swarm before (but not for this fund) but it’s been a while. There was a lot of copying and pasting between my crypto wallet and the Swarm website. It wasn’t hard but it sure was complicated. I could not do it on mobile, and it certainly wasn’t anything like a proxy statement web form that you’d experience at a traditional broker (like Fidelity). Swarm doesn’t have a wallet, which makes it harder because you are manually connecting operations done on the tokens in your “vanilla” crypto wallet into the Swarm project.
My point however really is not how complicated it was, but that voting rights are implemented in a Swarm silo-ed ecosystem somehow even though they’re expressed clearly in the Swarm contract.
Back to Celsius.
Simply put, if you hold certain crypto in Celsius you get paid interest. You can also borrow against crypto holdings using your tokens as collateral. Don’t worry (for the sake of this post) how Celsius works.
Let’s imagine that Celsius supported the Swarm token (it doesn’t) so that I could earn interest on my Swarm holdings and borrow against them.
I would lose the ability to access my voting rights. Those Swarm tokens could only be in one place, and Celsius doesn’t support Swarm voting. Swarm’s silo doesn’t support earning interest on my tokens.
Today I have to choose between the two.
In a world where I held both tokens in a single wallet that understood the contracts, I should be able to take advantage of both services because they don’t contradict each other. I could hold Swarm, earn interest, and use them to vote as long as they weren’t allocated to one of the Swarm equity projects.
Of course, maybe it’s not clear how voting would work (do I own the Swarm tokens or does Celsius?)… so I’m not suggesting this is all clear, or that this is even the best example. In fact, as I write this, I realize maybe it’s not the best example, but I’m going to leave it.
The important point is that even though the tokens make up my “wealth” I am limited by the contract implementation as to how I can use them.
An Example Using Today’s Brokerages
Maybe a simpler example would help?
I own Apple stock in a traditional brokerage. If I wanted to trade on margin (borrow against my Apple stock) I could because my traditional brokerage has a “contract” for that. What if they didn’t? I’d have to go somewhere else, there would be a lot of paperwork, and I’d probably be able to borrow against my holdings if the amount were large enough and I was an important enough customer. However, the process would have a lot of overhead… which means it’s not accessible to lots of people.
This is similar to the conversation happening around accredited investors… why do accredited investors get special treatment/access? Because the whole governance process doesn’t scale, and limiting services access to accredited investors helps scale governance because it’s a smaller pool of people than ‘everyone.’
If I owned that Apple stock on the blockchain, I could layer a contract on top of it that allowed me to borrow against it (and locked those collateral shares from being sold) quite easily (assuming the infrastructure is in place). Companies could compete for my covered loan (I’m a big fan of competition). In effect, collateralized loans would be unbundled from existing full-service banking offerings.Intermediaries whose value is the guaranted of trust between parties will be replaced by the blockchain, but only because the business process they guarantee is expressed in a wallet. Click To Tweet
Banks would be unbundled by contracts that express the bank’s offerings and are accessible via crypto wallets. Whereas the banks used to be the intermediary that provided trust, now trust is built into the infrastructure (implemented in the blockchain).
The competition for people’s business will shift from trust/guarantee to the experience with the business process (as expressed in a wallet).
Why is This Important?
I was listening to Pomp’s Off The Chain crypto podcast with Howard Lindzon. It was a great episode, and I recommend a listen especially if you any interest at all in FinTech. Howard talks about his kids a couple of times and in particular points out that as millennials they have multiple apps for everything (such as payments — paypal, venmo, etc — or investing — robinhood, others), and switch between them with little or no loyalty.
I am a big fan of Stockpile to invest in stocks (note, investing is different than trading). I also use Stash, Robinhood, Fidelity, UBS, Chase, Coinbase, and others.
Imagine if each of these financial businesses was broken down into “contract” and “presentation” layers. Some example of the contract side of the businesses I mention above (using stock ownership as an example):
- Stockpile contract defines that they buy/sell at the end of the day, has a small fee to buy/sell, support fractional shares, reinvest dividends, and have a certain level of insurance on my holdings.
- Robinhood’s contract is different than Stockpile’s in that they can buy at market or via limit order, but there is no fee to buy/sell. Robinhood doesn’t reinvest dividends or support fractional shares.
- UBS’s contract, among other things, allows for reinvesting but only supports whole shares.
Today, I have to go to different apps to take advantage of these contracts because they tie their “business” to their “presentation” (mobile app or website or branch).
I could have one “wallet” that in effect becomes my custom all-in-one bank if they separate the business (or contract) from the presentation of the business. I could pull the investing features of Stockpile, the advisory services of UBS, the traditional retail banking accounts from Chase, and more into a single wallet. A single presentation of my financial picture would have both obvious value and spur innovation unlike anything we’ve seen in financial services because we’re not just sharing data (like TIBCO/MarketSheet) but also the terms of the business (the contract).FinTech would be competing on the terms of the (blockchain) contract, contracts that are unbundled from the presentation of the financial services business. Crypto Wallets are so cool because they’re the experience-manifestation of… Click To Tweet
The wallet becomes the bank.
This makes for a really interesting future for financial services (and of course, well beyond financial services).
Here’s where I remind you to share this post if you found it interesting. Please?
Let me help:.@djbressler has written an easy-to-read post about why #Crypto Wallets are the banks of the future. I found it interesting and thought you might too. #Blockchain Click To Tweet
If you’ve read this far, have a look at Balance.io. They are doing amazing work. More importantly, they’re doing good work for the crypto ecosystem. Their CEO, Ric Burton, is equal parts smart, nice, and interesting. The Balance wallet is gorgeous and plays at the leading edge of all of this stuff. They’re also driving the ecosystem forward around enabling wallets to reach their full potential. Disclosure, I’m a small investor in Balance (and no, they didn’t issue a token).
If you are holding crypto for the long term, you should check out Celsius or something similar and earn interest while you hold (no, I don’t care for ‘hodl”… it messes up my spell-check and gets autocorrected on mobile). Their CEO, who I have not met, is the real deal. He was also on Pomp’s Off the Chain podcast talking about Celsius. I do know one of their advisors, but my suggestion to check them out is based only on my experience as a user/customer of Celsius.
If you liked this post, you might be interested in my thoughtful but brief definition of Digital Transformation (which I believe is related to the transformation that crypto brings to financial services). I have used this definition of Digital Transformation in speaking engagements throughout the Americas with great results — results that enable really good conversations about what digital transformation means for ‘the business’ and the barriers that prevent successful transformations, instead of just talking about technology. I’m available to help you make the impact of your complex technologies understandable by humans.
The Philippines has a National Retail Payment System framework that is working towards my ideas above. Pearl Pay has a white label e‑wallet framework that banks can use to jump start their own work. I’m not familiar with their work, but I find it interesting that the article keeps talking a about a “mission” of bringing banking capabilities to rural areas. A lot of crypto is breaking down barriers to enable service accessibility.