Are Smart Wallets The iPhone Moment of Crypto? 📱🤔
News This Week – Coinbase Smart Wallets Launched
“connect wallet”… what does that even mean?
The number one response to new users getting into crypto is confusion over wallets and how they operate.
In my experience, the absolute biggest block to people using crypto technologies is how complex it is.
People are confused at why it adds value, let alone how they can actually use it.
Smart wallets aim to change the game of crypto and the way we connect with the digital world. Smart wallets enable us to move from a “connect wallet” phase directly to a “create wallet and connect” phase.
Coinbase says that smart wallets are the “iPhone moment” of crypto, and to be honest, I can see that being true 👀
Coinbase also says that smart wallets have the potential to onboard the next 1 billion people into crypto.
With over 1 billion people using blockchain technologies to build a better Internet, we may, for the first time, have a real chance of building the equitable Internet that we’ve been dreaming of since humanity first came online.
To understand the value of smart wallets, you must first understand the current status quo of how users enter the crypto world with wallets generally.
I’ll go through the current status of crypto and how smart wallets enable people to access property rights in the digital world in a way that web2 (the current internet/social media) does not.
With the Live Nation (Ticketmaster) hack and Snowflake hack this week… it’s clear that the Internet is increasingly not safe under centralized identity systems. Understanding cybersecurity and how crypto enhances the Internet is going to become more and more important.
Smart wallets make cybersecurity more accessible for everyone.
I hope this entry helps you understand:
- what a crypto wallet is;
- why a smart wallet is easier;
- why crypto changes the way we think of value on the internet
Some Crypto-Related Definitions
I recognize that many of the words in this entry may be unfamiliar to some of you, so here is a glossary to help you out before we dive into the important of smart wallets in web3.
If you’re well-versed in crypto terminology, please feel free to skip to the next section 🫡.
web3 = the third iteration of the web. web1 = read (blog posts) web2 = write (social media posts) web3 = own (tokens representing unique digital ownership). Web3 is powered by crypto.
crypto = short for “Cryptographic”, which is a way of encrypting (protecting) and securely accessing information online. People often associate crypto with cryptocurrency (bitcoin, ethereum), but currencies are only a portion of the ecosystem. True crypto involves adding a security layer to the Internet that introduces scarcity to digital goods. In other words, crypto enables an ownership layer to digital assets, meaning we can buy and sell goods online in the same way we would with physically scarce items in real life.
wallet = a web3, crypto “account”. A wallet operates as an identity that can be used to “sign in” to any web3 system. Wallets are made of a public key (kind of like a username) and a private key (a digital signature). Anyone can view the public key to see who is signed into an account, or where to send money to, but only the private key holder can sign in or send money from that account. Wallets are secured by cryptographic encryption, accessible through a “seed phrase”.
NOTE: Wallets do not “store” anything other than your private key. When you own blockchain-based assets (cryptocurrencies, NFTs), the asset themselves stay on the blockchain, they do not go “into” your wallet. Instead, the wallet gives you the property right of being able to move, sell, or trade that asset. Wallets give you control of digital assets that reside on blockchain.
Wallets are the accounts of web3, in the same way that you would create an account on social media using email in web2. The difference is that one wallet can be used to sign into all of web3, rather than needing to create a new account for every single web2 platform.
seed phrase = a string of 12 or 24 words that represent many, many numbers and letters as the “password” to access your wallet’s private key. Seed phrases make wallets effectively unhackable. You can also use a seed phrase to import your wallet to other wallet providers. Some common wallet providers are metamask, rainbow, phantom, ledger.
smart wallet = a way to generate a passkey wallet, without the use of a seed phrase. Instead, a “passkey” is generated for the device you are on and stored in your iCloud keychain (iOS) or Goggle Password Manager (android), accessible by biometrics (face ID or fingerprint ID).
NFT = non-fungible token = a “value packet” stored on blockchain. Non-fungible = unique, unlike any other asset. You can think of an NFT as a digital certificate of authenticity. This certificate is often associated with a unique file that is stored on the “permaweb” such as Arweave or IPFS. The digital certificate of authenticity brings ownership rights to the Internet, meaning that NFTs are able to be bought and sold, thereby changing the “owner”.
For example, I can “mint” my photos onto blockchain as an NFT. Minting a photo as an NFT creates a certificate of authenticity (NFT) that links to the photo I uploaded to the permaweb. I can then sell that digital asset to anyone and they become the new owner.
digital asset = cryptocurrencies (fungible tokens) and NFTs (non-fungible tokens). A wallet gives me the power to “own” digital assets, a power previously very difficult to enable across the entire Internet.
More on web3, crypto, NFTs, and cryptocurrencies can be read here.
Let’s dive in ✨
Recalibrating Recap
Welcome to Recalibrating! My name is Callum (@_wanderloots)
Join me each week as I learn to better life in every way possible, reflecting and recalibrating along the way to keep from getting too lost.
Thanks for sharing the journey with me ✨
Last week, we touched on the value of building in public and how to overcome the fear of putting yourself out there and caring what other people think.
This week, I thought it would be useful to explain how Smart Wallets change the world of crypto, and why this fits so well with everything I’ve been talking about over the last year.
I was originally going to write about AI this week, but I think understanding how smart wallets work will help you better understand why crypto is an important (perhaps necessary) development if we want to keep a human Internet in the age of AI.
The Bigger Picture – Why you should care about Smart Wallets
The current crypto user interface sucks. There’s no way around it.
Let’s say a user wants to try a new crypto app. The status quo is that they have to download the app, then go and download a wallet app, create a wallet, write down their seed phrase, and then sign in by connecting that wallet to the app.
The average user does not understand (or care) what a wallet is. Even if they do care what it is, they have to go through so many hoops to create one, that by the time they actually get to the point where they would use the wallet, they are bored and have moved on to something else.
Part of this is due to the decline in people’s attention (thanks web2 🙄).
Part of this is due to the complexity of understanding:
- what a wallet is
- how to install a wallet
- how to use a wallet
- how to keep a wallet safe
That’s a lot of steps for the average person who may be only slightly interested in the crypto app in the first place.
Smart wallets remove all of these steps.
Instead, a user has to merely download the app they are interested in (or go to its website), click “create account”, and a wallet will automatically be created for them, automatically be linked to a passkey (more on that later), and automatically be saved and accessible via their face ID or fingerprint ID from their phones.
In other words, a user can instantly download an app and create a wallet in one go, without even knowing that they created one, while gaining all of the benefits of having one, giving them access to a full suite of decentralized applications (dapps).
Sound familiar?
In 2007, Apple launched the iPhone, hardware that enabled the App Store. All of the sudden, millions of people could easily access apps through the App Store, on the iPhone.
Smart wallets enable a similar feature, bringing blockchain applications to millions (or billions) of users.
About time!
Cryptographic security is, in my opinion, a necessary upgrade for the current Internet.
Online vs Onchain
There is a huge difference between going online and going onchain. Online is the current Internet (web1 and web2) and deals with emails, usernames, and passwords. Onchain operates in web3 and deals with wallets.
To understand the value of wallets and web3 ownership, let’s take a look at the current status quo of web2.
Going Online (Create Account)
Going online is (mostly) anonymous, unless you sign into an account to use the website (or app). As soon as you sign into an account, you produce data that gets stored and owned by the company you signed into.
Unfortunately, this account and data is often limited to that one platform/app. If you want to sign into a different app, you need to create a new account.
Thankfully, we have a way to organize these accounts: email.
You can use a single email to create an account for as many platforms as you want, with all of the information being sent to your email.
Email operates at a protocol level, which means that it is independent from the platforms that enable you to use email to sign in. No one can block the use of email, it’s a protected Internet protocol.
However, there is no way for you to link all of these accounts together. It’s annoying, you have to remember a different password for every app and no data is shared between them.
Thankfully, companies provide password aggregators that allow you to store your passwords in something like the iCloud keychain, or Google Password Manager. Note Apple just released “Passwords” with iOS 18, which should further simplify the use of keychain.
Unfortunately, as far as the public is concerned, there is no way to actually link all of these accounts across the Internet. The only way we can have consistency is to try and get the same username across every social media we sign into.
Unfortunately, if someone already took your name, you’re out of luck. You have to add an underscore, period, dash, other letters, etc., to distinguish you from this other person. What’s worse, if someone goes to follow you from Instagram to YouTube and you have different usernames, they may be confused and might follow the wrong person.
Your networks get fractured by the different accounts, names, and sign-ins.
It would be a different story if all of the platforms communicated with one another and shared their data, creating an interoperable, harmonious ecosystem for the Internet to thrive and prosper. But they don’t. I don’t see that happening anytime soon.
These companies set up walled gardens to keep people in their own ecosystem, doing whatever they can to keep you from leaving. The more people stay within their ecosystem, the more ad revenue they earn, so they are not incentivized to allow true interoperability.
We have a global online identity problem, which is only going to get worse with the rise of AI, fake news, and hacking of centralized identity platforms.
We need a better way to create and prove our identities to other humans online.
Going Onchain (Connect Wallet)
Web3 aims to solve this identity problem with a simple solution: wallets.
I explained a bit about wallets under the definition section above, so please feel free to review that section if you want more detail. The key here (no pun intended) is the use of a public key and private key pair.
The public key is like a bank account number that the public can see, the private key is like your debit card that gives you access to the funds in the account. Anyone can see the public element and transfer money or NFTs into your account, but only you have the power move them out of it.
I don’t need to sign in with email and generate a new password every time I want to connect to a new application. Instead, I use the single wallet and corresponding private key to cryptographically sign a blockchain verification to prove that I am the owner of that wallet address.
Boom, that’s it. No need to create account, no need to create a password. No need to remember a username. It’s all stored in the public/private key pair.
Wallets enable cross-platform accounts. I can use a single wallet to sign into any number of platforms/apps that allow for wallet accounts. This means you can have the same username and password across all platforms.
Even better, these accounts are all connected by blockchain, so your identity is cryptographically linked between the platforms as well.
In other words, if my wallet address (account number) is 0x1234 and I sign into 5 different web3 platforms, the account will be displayed as 0x1234 for all of them. I don’t need to worry about trying to get the same username for different platforms, they’re automatically identical as the wallet address.
You can further customize and simplify your identity through the use of the Ethereum Naming Service, which I talk more about in Entry #34.
But, there is a serious block to adopting this system: seed phrases.
Seed Phrases
When you create a wallet using a wallet provider (metamask, rainbow, phantom, ledger, etc.) you generate a seed phrase of 12-24 words. These words represent a long string of numbers and letters that provide an incredibly secure cryptographic password to access the private key of your wallet.
This seed phrase can be used to “log in” to other wallet providers, importing your private keys so they can be used elsewhere. I can use the same wallet address on metamask as on rainbow and the same wallet on any number of devices (computers or mobile).
For example, if I get a new computer or lose my first one, I can import my private key from my first computer to my new computer using my seed phrase, without needing access to the first computer.
This interoperability is a great feature of web3, as we can always move our wallets to the best user interface or highest security application available and don’t have to worry about losing our money/assets if we lose the device that has our wallet on it.
The power of storing information onchain 🚀
Problems with Seed Phrases
But, and this is a big but, the fact that we have to use an app to connect to other apps introduces complexity to a system that is already too complex for most people to follow.
Also, if you lose your seed phrase… well, you’ve lost the ability to access your private keys and continue using the accounts in that wallet if you get a new device. You can export your private key while you’re still signed in to your wallet, but the seed phrase is your recovery system in the event you lose that device.
There’s no “forgot password” option in web3. By going onchain, you enter the world of self-sovereignty, the world of self-responsibility.
Worst of all, if someone gets access to your seed phrase, they can import your private keys to their own device and drain your wallet by sending your assets (crypto, NFTs) to their own wallet.
This last concern is why you should never, EVER, write your seed phrase online or on a digital device.
NEVER
It’s possible for your computer to get hacked and the hacker can run a “find seed phrase” search function on your computer or phone. If you stored it in Apple Notes or on a word doc, they can steal your seed phrase and get access to your wallet, stealing your assets.
The best way to deal with a seed phrase is to write down multiple physical copies of it and store it in different extremely secure locations (your house, your parent’s house, a safety deposit box at your bank, etc.).
Some people even store their seed phrases printed in metal so that they are fire-proof.
So, seed phrases leave us with an incredibly secure way to access the decentralized internet with a unified identity across all platforms, but come at great risk of theft, loss, and are complex to use and understand.
Not ideal if we’re trying add the ownership layer to the Internet.
Going Onchain with a Smart Wallet (Create Wallet with Passkey)
Smart wallets take traditional web3 wallets and make it much easier to access your digital assets with one simple step: creating a passkey. Aka Create Wallet to login, rather than connect wallet.
Rather than writing down/remembering your 12-24 word seed phrase, smart wallet creation generates a passkey that gives you access to your wallet. Rather than downloading a separate wallet app, the wallet is created and stored via your passkey in either iCloud keychain or Google Password Manager.
Passkeys are a relatively new and increasingly popular way of user authentication. Instead of a password that you have to remember, a passkey is generated for the device you are using, and unlocked with biometrics like touch ID or face ID. I believe you can also use a PIN, however, this method is much less secure in my opinion.
If it’s your first time accessing crypto, you don’t need to be confused about the “connect wallet” requirement. Instead, all you need to do is click “create wallet”.
The workflow of accessing a crypto app now becomes:
- download new app or go to app webpage
- click “create wallet”
- generate a passkey
- access app!
The passkey is stored in your biometrically secured password system, so you don’t have to remember anything. You don’t need to write down a password or seed phrase. You don’t need to download another wallet app.
You’re good to go!
Note: different smart wallet providers use different methods of authenticating the passkey and connecting that authorization to your wallet. Some use a proxy smart contract, others a third party relay authenticator, and others still a layer-2 with native abstraction. To be honest, this is incredibly complicated, so I’m not going to dive into the specific authentications more at this point. If you want to learn more about smart wallet authorization methods, you can read this article here.
Cons of Smart Wallets
At the moment, there are a few cons of using a smart wallet over traditional web3 public/private key paired wallets:
- gas is slightly more expensive
- you are currently relying on your password manager’s security (e.g., Apple or Google)
- Coinbase smart wallets are currently not importable to other wallets
Since smart wallets operate by authenticating a smart contract with a passkey, the smart contract has to go through a few more functions than a traditional wallet to authenticate and operate in web3. These extra functions (actions) incur additional onchain costs (gas), which can mildly increase the cost of operating onchain.
If you are using your smart wallet on an L2 (such as Base), gas is negligible at the moment, making smart contract additional gas fees also negligible. If Base gas spikes in the future (higher transaction fees), you may wish to import your smart wallet into another wallet type.
Since the smart wallet is generated via passkey on your device, the passkey is stored in your password manager. This is both a pro and a con. The pro is that you have recovery options through the account used to create the passkey (e.g., Apple ID), meaning that if you lose your device, you can still contact Apple to get your passkey.
Additionally, since Apple enables iCloud keychain sync across devices, your passkey is automatically synced to all connected devices. If you lose one device, you still have access to your passkey and your wallet.
However, centralized storage of passkeys is also a con. You are not the one in full control of your smart wallet, since it is effectively gate-kept by your password provider. That said, for most people, this centralization will not pose a problem, especially when you are first getting started in crypto.
Similarly, at the moment, Coinbase smart wallets are not importable to other wallets. However, the language of “currently only accessible via the web or mobile web” leads me to guess that smart wallets will be able to be imported to other wallets in the future, enabling true self-custody of your wallet. In other words, there will be a way in the future to decentralize your wallet control.
Additionally, Coinbase’s smart wallet announcement explicitly states that smart wallets are self-custody, so I thinka flow will be established to port between different wallet providers.
Tying it All Together as an “iPhone Moment” 📱🤔
Coinbase says that smart wallets will enable the iPhone moment of crypto. I agree, to the extent that smart wallets make blockchain accessible for everyone, drastically levelling up the cybersecurity of most apps and opening the door to innovation in a similar way to the launch of the iPhone and App Store.
This boost in cybersecurity is essential in a world filled with phishing, spam, and scams. With the rise of AI making scams seem even more legit-looking, a decentralized Internet organized by decentralized identities through cryptographic wallets are, in my opinion, a necessary upgrade.
I originally got into blockchain when researching solutions to fake news in 2018, which you can read more about here, so it is a topic that is close to my heart and has been for many years.
Not only will smart wallets boost digital identity security across the Internet, but they also enable an entire new user-base to enter into dapps – decentralized apps. This upgrade is similar to when the iPhone enabled web-users to access applications via the App Store on mobile devices.
The more people that enter into the decentralized internet, the more chance we have to fight against the current walled garden ecosystem of web2. These walled gardens stifle innovation, remove income from creators and builders, and generally have a negative impact on the mental health and economies of the world.
With more users able to use dapps, more builders will be motivated and incentivized to build better dapps, which spurs innovation forward in a decentralized manner, rewarding contributors along the way.
We saw the same thing happen with the iPhone and the App Store. All of the sudden, software could be installed instantly to a user’s device, tied to the user’s identity, thereby vastly opening up the market for builders to build apps and test them quickly while growing their user base.
Everything was linked through the App Store and Apple ID, simplifying the distribution of technology to the masses.
Ways That Smart Wallets Are Better Than The iPhone Moment
A huge difference between the original “iPhone moment” and the current integration of smart wallets to access the decentralized Internet is just that, the crypto-based system is giving access to decentralization.
Where Apple provided a walled garden for developers, charging absurd rates and gate-keeping many apps from launching in the App store, smart wallets enable an open system for any and all to use.
Where Apple forced people to use their Apple ID to access the App Store, smart wallets enable a self-custody account that can be used across all dapp ecosystems, not just the Apple ones.
Where Apple charges at least 30% tax for all sales made through the App Store, self-custody and decentralized systems enable a complete bypass of taxes aside from the minor (1-2%) fees built into blockchain that sustain them.
I also want to note that a lot of these benefits are already inherent in the current public/private key wallets that crypto uses now. The key here is that smart wallets make these wallets accessible to the masses for perhaps the first time.
Accessibility is a huge element for mass-adoption of new technology, so I would tend to agree that, in theory, smart wallets will enable an iPhone-level shift of users entering crypto in much the same way as the App Store did to software as a whole.
That said, I am wary of any form of centralization, so I will be more comfortable with Coinbase smart wallets when there is a clear indication of the self-custodial nature of them.
Decentralized Social (DeSo) & the Farcaster Protocol
As a quick aside, I want to note that Farcaster accounts make use of smart wallets. Farcaster is the decentralized social network that I’ve been talking about for the past few months, by far my favourite social media I’ve ever used.
Farcaster uses the passkey method of generating a smart wallet to hold your Farcaster ID, which is one of the reasons it has been such an incredible way to onboard people into crypto.
When you go to sign up for a Farcaster account, you pay a $3 gas fee to put your smart wallet account onchain, and then you are good to go!
It’s an incredibly simple way to access the benefits of a decentralized app without the complexity of creating a separate wallet, downloading a wallet app, connecting the wallet app to Farcaster, creating a Farcaster account with the wallet.
Instead, you click “Create wallet with passkey”, pay the $3 fee, and you’re done!
Future-Proofing and Flowcast
If you’re still note convinced that crypto is an essential upgrade to the Internet, I suggest going back and reading Entry #35: Why We Need A Cryptographic Internet. In the age of AI, fake news, and hacking becoming more prevalent, levelling up the world’s cybersecurity of the Internet is a must if we are to retain human sovereignty.
To help onboard people into crypto and organize their digital identity with smart wallets, I have (with the incredible help of @stevedylandev.eth 🫡) integrated smart wallet creation into the Flowcast App 👀
I will use this app as a way to help people understand the value of crypto, digital identity, intellectual property, and flow, leading to, I hope, a more mentally health and economically beneficial creator economy for us all ✨
The app is set to launch this week! I’ll put out another announcement with more information when it launches 🚀
Next week
This upcoming week is a big one for me! I am launching the Flowcast App to the world and I am incredibly excited 🥳
This app idea has been on my mind for 2 years, especially since I quit my job as an IP lawyer and patent agent last June (almost 1 year ago!). Flowcast solves a lot of the problems I see with the current Internet, web2 social media, and web3 complexity/monetization.
Flowcast has also been accepted to the Collision Conference in Toronto the following week, so I will be displaying the app there!
Stay tuned ✨
P.S. please consider sharing this entry or any other entry with others. Word of mouth is by far the best way for me to build up my newsletter, helping more people along the way. Your support is very much appreciated
Book of the week: Finding Flow
