What is a (Crypto) Wallet?

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:

1. Pub­lish / Sub­scribe (so you could get the infor­ma­tion you were inter­est­ed in broad­cast to you with­out hav­ing to keep ask­ing)
2. 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)
3. 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:

1. You could sub­scribe to data,
2. The data itself would tell you what it was, and
3. 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.

Crypto Wallets

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.

An Example

The above is still quite a bit abstract. Let me make it con­crete using two projects — Swarm Fund and Cel­sius Net­work.

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).

Summary

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.

Additional Reading

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.