Author: Hedy Bi
As LianGuaiyLianGuail launched a stablecoin and sparked industry discussions, public blockchain Aptos announced its partnership with Microsoft yesterday to explore innovative solutions related to asset tokenization, digital payments, and central bank digital currencies. Although Bill Gates has a wavering attitude towards cryptocurrency, Microsoft has been laying the groundwork for Web 3 since 2015, a whole 5 years ahead of LianGuaiyLianGuail. However, whether it is Microsoft starting from its cloud services or LianGuaiyLianGuail starting with the support of LianGuaixos Trust for encrypted payments, both giants are converging in the Web 3 payment field. Not only are tech giants focusing on Web 3 payments, but the native crypto company Circel has also recently released its own programmable Web 3 wallet.
Considering LianGuaiyLianGuail already has a good user experience and stable profits in Web 3 cloud services and investments, why do they still need to delve into Web 3 payments? Why are leading Web 3 technology companies such as OKX Web 3 Wallet and MetaMask investing heavily in Web 3 wallets? What motivates them?
Archimedes once said, “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” Web 3 wallets may become the fulcrum for old and new tech giants to leverage growth in the Web 3 field.
For users, using Web 3 payments, especially Web 3 self-custody wallets (referred to as Web 3 wallets below), is as reassuring as keeping gold or jewelry in their own home safe. There is no need to go through banks or other financial institutions, nor do they need to store their data on third-party service cloud platforms or the servers of third-party service providers. This is the charm brought by the distributed technology behind Web 3, allowing users to safeguard their private keys through the use of Web 3 wallets, with the private key information being stored on a local server.
Web 3 self-custody wallets and payment companies like OKX Web 3 Wallet, MetaMask, and WalletConnect (such as LianGuaiyLianGuail, which implements Web 3 payments in collaboration with MetaMask) have significant differences in terms of technical architecture, security and control, and on-chain applications.
1. Product Architecture: Taking user Alice’s transfer as an example, the difference between Web 3 wallets and the payment apps we currently use can be clearly seen from the comparison in the diagram below. When Alice initiates a transaction, from user-initiated transaction to account identity verification, to transaction confirmation and execution, the process of traditional payment companies is on third-party servers or cloud servers collaborated with the company, with a centralized institution holding users’ sensitive information and transaction data. On the other hand, the operation of Web 3 wallets is on a decentralized blockchain, where functions such as transfers are executed through smart contracts, which means that users are truly safeguarding their assets in a technical sense.
Specifically, users use private keys to control and manage assets on the chain, just like a digital signature pen that is exclusively yours. Only by using this pen to sign, can others verify the signature to confirm that it is your intention. Your transaction will be broadcasted and confirmed throughout the blockchain network, and the transaction will be completed.
2. Control and Security: If Alice chooses to use a payment app on her smartphone, she needs to trust a third-party institution to protect her assets and personal information. Since the third-party institution can collect, use, and share user data, there is a risk of sensitive data leakage or misuse of data. In terms of security, traditional payment companies are vulnerable to single point of failure risks. If the centralized server encounters a failure or attack, users may not be able to access their assets or conduct transactions.
In contrast, when users use a Web 3 wallet, they can independently manage their assets by controlling the private key, without having to hand over their assets and data to others. Therefore, the safekeeping of the private key becomes a major challenge.
Figure: Users record mnemonic words (using mnemonic words to restore the private key and gain access to the wallet and on-chain assets)
According to OKLink’s statistics, in 2022, the largest loss of user digital assets, amounting to 930 million US dollars, accounting for about 40% of the total loss, was caused by private key leaks and losses.
Currently, leading Web 3 wallets such as OKX Web 3 wallet and MetaMask have supported Account Abstraction (AA) technology to achieve social recovery of private keys: by dividing the private key into multiple parts and distributing them to designated individuals for segmented safekeeping, when the user needs to recover the private key, they can contact and collect enough private key segments to restore the access to their wallet.
This not only enhances the security and flexibility of Web 3 wallets, but also seamlessly connects user experience. Last week, we also mentioned that OKLink has already supported the parsing of AA accounts and Uop (User Behavior) queries, allowing users to accurately view their on-chain records of fund transfers through blockchain explorers.
In addition to social recovery, MPC (Secure Multi-Party Computation) non-private key wallets are also at the forefront of industry technology. For example, OKX Web 3 wallet pioneered the emergency export function, realizing a truly decentralized self-hosted non-private key wallet.
“Balancing security and convenience is never easy.” Elbert Xu, the product manager of OKX Build, said during a discussion with OKG Research.
The following diagram summarizes the differences between Web 2 and Web 3 payments:
Figure: Comparison between Web 3 wallets and Web 2 payments
3. Decentralized Applications (DApps): When Alice can easily use a Web3 wallet, she can start experiencing Web3 surfing, connecting with decentralized finance (DeFi), NFT markets, and metaverse games through her Web3 wallet. Web3 wallets not only support the management of encrypted assets, but also enable participation in and expansion of various DApps on different blockchains.
Currently, most payment companies that collaborate with encryption technology companies can only provide storage and transfer functions for a few major encrypted assets, with the payment companies acting as payment gateways.
Take the Ethereum ecosystem, which is the most active in terms of DApps, as an example. According to OKLink data from OKEx Cloud Chain, as of today, the total locked value (TVL) on the chain has reached $45.17 billion, achieving several tens of times growth in just 3 years. Web3 wallets are tools closely integrated with the DApp ecosystem, providing direct access and use of DApps. Currently, using the OKX Web3 wallet as an example, users can access over 5,500 DApps through it, and the wallet already integrates more than 500 DApps. In contrast, Web2 payment apps mainly focus on traditional centralized payment and transfer functions, and cannot directly interact with DApps.
Web3 Wallets Are Moving Towards “Wallet-less”
In addition to providing a solution that eliminates the hassle of saving private keys, which is a leading technological direction of Web3 wallets, another leading direction in the industry is the integration of Web3 wallets into the usage scenarios, also known as “wallet-less” trend. Take NBA Top Shot as an example, users initially see the option to purchase NFT collectibles, while the wallet operates in the background as the custody account for these digital assets. For example, the presence of plugins and mobile applications will gradually diminish. In order for Web3 to become mainstream, Web3 wallets should not be discovered by users and should be more deeply integrated into the scenes to provide a seamless and integrated user experience.
With more and more payment companies entering Web3 and including encrypted assets as one of their asset categories, this will attract a large number of users’ attention to the encryption field. “This is a long-term positive development for the field, because the efforts of admission, reputation, public education, and other payment companies will encourage more people to accept blockchain and blockchain-based business applications,” said Austin Champbell, a professor at the Columbia Business School, in a conversation with OKG Research.
However, we believe that this is just the tip of the iceberg in terms of progress in Web3 payments. The true advantage of Web3 wallets lies in granting users a higher level of security, privacy protection, and control without relying on centralized institutions.
Web3 wallets are the gateway to the future digital economy. Through Web3 technology, individual users can become participants in the digital economy, driving the establishment of an increasingly decentralized and non-monopolistic economic and social model, which will redefine our perception of digital assets and value.
Note: A Web 3 wallet is a digital wallet designed for interacting with decentralized applications based on blockchain technology, used for storing and managing digital assets. There are usually self-custody wallets and custodial wallets. The Web 3 wallet discussed in this article refers to a Web 3 self-custody wallet.