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Selected highlights from the imToken 2023 Cryptocurrency Wallet Report: How will the three wallet directions of smart contracts, MPC, and account abstraction develop?

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Survey shows that 38% of users believe that wallets are not safer than trading platforms.

On February 1st, the cryptocurrency wallet imToken, in collaboration with Matter Labs, Near, and StarkWare, released the "2023 Cryptocurrency Wallet Report: Three Potential Trends". The report details the directions of smart contract wallets, MPC wallets, and account abstraction wallets. The following are selected highlights from the report.

What is the source of data for this research report?

Firstly, we conducted research on publicly available industry information. Secondly, we interviewed 5 different companies and blockchain community experts who are innovating in the future wallet field: NEAR, StarkWare, Matter Labs, and imToken. Thirdly, we also surveyed 181 users mainly from Asia and Europe. Please refer to the chart distribution below.

"2023 Wallet": What are the most important developments?

We have established three important development directions in this process: smart contract wallet, MPC, and AA.

Smart contract wallets (such as Gnosis Safe and Argent) have a similar appearance to regular wallet applications, but are based on smart contracts rather than end-user accounts. Therefore, they can incorporate additional features such as multi-signature and time locking.

Multi-party computation (MPC) wallet (such as Coinbase application or Zengo) replaces traditional private keys with "keys" that are shared between the user's device and one or more other devices. This also provides additional functionality, such as easier account recovery.

Account Abstraction (AA) Wallet can make the way smart contracts work consistent with the way terminal user accounts work today; this can be achieved by improving smart contracts or changing the underlying blockchain code. This helps to build smart contract wallets with multiple functions.

What is imToken's plan for smart wallets?

Chang-Wu Chen, the head of imToken Labs, introduced their wallet plan, which aims to build a future-proof wallet based on MPC and AA to address user pain points. Additionally, the third major version of the wallet will make it easier for mainstream users to adopt use cases such as DID, payments, and gaming.

Wallet - The Cryptocurrency Industry in 2023

The largest cryptocurrency wallet in Asia, imToken, has released its outlook for cryptocurrency wallet technology development in 2023. Three main areas of interest have been identified: self-custody and custodial solutions, smart wallets using account abstraction (AA), and wallets based on multi-party computation (MPC).

A report has found that the pain points of self-hosted solutions have not been resolved for users. Wallets such as Metamask and imToken promise users security and easy access to DeFi, but users still prefer hosted solutions. According to imToken's survey, nearly two-thirds (63%) of users find it more convenient and cheaper to trade on exchanges than in wallets. This is a surprising figure.

Meanwhile, relevant solutions continue to emerge. PayPal has released hosted wallet functionality, and the sixth largest website in the world, Reddit, has added wallet functionality to its application. Interestingly, Reddit refers to its wallet functionality as a "safe", which effectively conceals the "complexity". According to research, cryptocurrency users are clearly uninterested in "complexity".

Additionally, it is shocking that 38% of users believe that wallets are not safer than trading platforms. Security is the main differentiating factor and advantage between wallets and trading platforms, but this does not seem to convince end users. 29% of users are concerned about being hacked, 18% are concerned about losing their cryptocurrency due to their own operational errors, and over 40% of respondents are willing to spend up to $100 to purchase a wallet that can solve all usage issues.

However, users are not optimistic. A considerable portion of people (over 25%) believe that most individuals will not start turning to self-custody for 5 years or more, despite self-custody being one of the fundamental paradigms of cryptography. Similarly, a similar number (25%) of surveyed users believe that even 10 years later, most cryptocurrency users will still retain custody solutions.

At the same time, intelligent wallets have provided a solution to these user pain points. These new tools are currently in a niche market, but their user base is constantly growing. 2022 was the year with the most creation of smart contract wallets in the entire industry. For example, 65% of Safe (formerly Gnosis Safe) wallets were created in 2022, more than double the previous year. However, the total market share is still very low. According to imToken's research, smart wallets only account for 0.1% of the wallet market. The main reason may be that deploying a smart contract wallet requires an initial cost of $100.

In 2023, intelligent wallets are building very promising solutions. Research by imToken has found that intelligent wallets do indeed improve security and convenience, reaching the same level as custodial solutions. In terms of security, intelligent wallets provide risk control in the form of daily limits. This new wallet also offers the ability to disable and regain control in the event of wallet key loss or theft. The majority of survey participants (51%) told imToken that they would choose a new wallet to increase security brought by multi-factor authentication.

The convenience brought by smart wallets seems to be not so obvious. More than 76% of the surveyed users found custody solutions to be more convenient than wallets, and only a few people thought wallets were convenient. The report found that "invisible wallets", linking identity or KYC, and social login are promising solutions in this field.

The future wallet is not all the same. Chang-Wu Chen of imToken identified the drawbacks of multi-party computation (MPC) wallets (such as Coinbase App or Zengo). The research leader pointed out: "[MPC wallets] sound perfect, right? But for MPC solutions, it requires an online computing unit to collaborate with it." Smart wallets built on account abstraction (AA) do not have this particular problem, and this smart contract wallet always stays online. However, as the most popular blockchain, Ethereum has not yet implemented this feature.

imToken's report found that not only wallets, but also blockchain projects themselves are striving to provide the aforementioned security and convenience features. Illia Polosukhin, co-founder of NEAR, said in an interview that unlike Ethereum, his own project decided to implement smart account functionality at the base layer and has achieved success. So far, it is estimated that "500,000 to 1 million accounts" are using these features.

Layer 2 blockchains like Matter Labs and StarkWare face different challenges. Both projects are built on top of Ethereum, so they need to add a form of account abstraction instead of building a new account model from scratch. Either way, both projects believe that this investment is worthwhile.

Tom Brand, the product manager of StarkWare, is excited about the "Web2 user experience" demonstrated by Visa's recent prototype built on the StarkWare network. Omar Azhar, the head of enterprise business development at Matter Labs, agrees and adds that "being able to log in with email, use paymaster and AA for batch transactions" helps establish trust between applications and users, which is a valuable asset for cryptocurrency products.

imToken would like to express gratitude to the following individuals for their contributions: Omar Azhar, Head of Enterprise Business Development at Matter Labs; Tom Brand, Product Manager at StarkWare; Illia Polosukhin, Co-founder of NEAR; Denys Kovalenko, from NEARWEEK; and Chang-Wu Chen, Research Lead at imToken.

About imToken

imToken is a decentralized digital wallet used to manage and protect a wide range of blockchain-based assets, identities, and data. Since its establishment in 2016, it has helped its users trade and exchange billions of dollars in value. imToken Lab is researching innovations such as MPC and AA, and there will be significant progress in the new year. Stay tuned.