Along with exchange platforms, crypto wallets serve as one of the primary gateways to the web3 world, offering users both a means of storing their digital currencies as well as ancillary services like staking and swapping. As a consequence, the accessibility and security of wallets are critical to the ambition of mass adoption.
Recent years have seen the rise of Wallet-as-a-Service (WaaS) solutions, the sort that offer businesses of all stripes plug-and-play wallet integrations without the need for complex development. While these ready-made, white-label solutions facilitate quick implementation, they aren’t all they are cracked up to be, often introducing security vulnerabilities and UX fragmentation.
Enter Wallet-as-a-Protocol (WaaP), a decentralized approach that promises to overhaul the industry standard by addressing these shortcomings one by one.
WaaS: A Flawed Model
The WaaS model has certainly helped to broaden the appeal of web3, furnishing companies with the valuable infrastructure and tools (APIs, SDKs) they need to offer crypto wallets to their customers. WaaS providers like WebAuth, Coinbase and Circle have brought countless web2 firms into the crypto ecosystem, abstracting away the complexity and facilitating commerce at scale.
Despite enabling rapid onboarding, though, this approach has many fundamental flaws. Chief among them the need for users to access multiple wallets for different decentralized applications (dApps), analogous to having separate PayPal accounts for different online stores.
Not dissimilar to the traditional Software-as-a-Service (SaaS) model, WaaS typically adopts a rent-seeking business model that saddles companies with ongoing subscription costs. Perhaps of greater concern, though, is the security vulnerabilities that users are often exposed to.
iframe risks, for instance, allow attackers to exploit cross-site scripting vulnerabilities, potentially compromising users’ private keys through malicious JavaScript injection. Additionally, federated MPC lockouts can result in users losing access to their wallets due to issues with distributed key sharing systems.
Most troubling of all is the reliance on centralized agents for account recovery, introducing a single point of failure that runs contrary to blockchain’s fundamental principle of decentralization. Of course, a percentage of users are quite willing to accept this tradeoff given the alternative of self-custody wallets. In the latter scenario, there is no knight in shining armor waiting to ride to the rescue if one’s private keys are lost. Lose your keys, lose your coin is the harsh reality.
The Promise of Wallet-as-a-Protocol
Yet another option is emerging, in the form of Wallet-as-a-Protocol. Characterized by unified user experience, decentralized key management, and enhanced security, the WaaP model eliminates ongoing subscription costs and furnishes users with familiar, native wallet experiences that helps with retention. Moreover, wallet-holders benefit from superior security for their funds and smooth onboarding.
Holonym’s Silk is perhaps the best-known WaaP currently on the market. Leveraging 2PC-MPC (Two-Party Compute, Multi-Party Computation) to provide a universal account for seamless interaction across dApps, Silk gives users total control over their keys and digital assets at all times. Better still, it offers a means of account recovery in the worst case scenario – without compromising decentralization.
A key innovation in Silk’s architecture is its implementation of Human Keys, a special cryptographic primitive that derives high-entropy keys from familiar attributes like passwords, OAuth tokens, biometrics, or security questions. Thus, the need for long seed phrases and complex key management systems that often alienate mainstream users is eliminated.
With Silk, Human Keys are split between the user and a non-collusive network through 2PC-MPC, meaning neither party can independently access or reconstruct the key. This architecture provides a phenomenal level of security without centralized risks, and importantly, it’s free for developers to integrate into their apps.
Overhauling Onboarding
By addressing the long-standing security vulnerabilities and UX challenges of WaaS solutions, WaaP platforms are paving the way for more secure, user-friendly web3 interactions.
The welcome shift toward wallet protocols also signals a broader trend in blockchain technology: the embrace of solutions that focus on security and decentralization, while enhancing accessibility and UX. As WaaPs continue to evolve, they could, like WaaS, play a central role in driving mainstream adoption by providing seamless, secure experiences users have come to expect.
