As the world of Web3 continues to evolve, a new development is emerging that seeks to bridge the gap between individual self-custody enthusiasts and institutional investors. In this article, we’ll delve into the concept of multichain self-custody wallets and how they can address the fragmentation issue plaguing the ecosystem.
The Trouble with Self-Custody
Self-custody, or holding one’s own private keys, is a fundamental principle of Web3 that offers users absolute control over their assets. However, it often comes with a significant challenge: managing private keys can be overwhelming for many users, especially those new to the space. Michael Saylor, executive chairman of MicroStrategy, recently argued that moving Bitcoin (BTC) into the hands of regulated institutions provides a layer of security and legitimacy that self-custody may not.
Buterin’s Critique
Vitalik Buterin, co-founder of Ethereum, responded to Saylor’s comments by stating that relying on third-party custodians centralizes risk, weakens network security, and limits the development of advanced cryptographic features. While Buterin’s views are understandable, we believe there is a middle ground between Saylor’s approach and Buterin’s stance.
Advancements in Non-Custodial Wallets
Significant improvements have been made to improve the user experience with non-custodial wallets. Users can now create wallets using their social accounts, including Farcaster, or even with Passkeys. This approach removes the complexity of managing private keys and seed phrases often associated with self-custodial solutions.
The Fragmentation Problem
Despite these advancements, users still struggle to navigate and manage their assets across multiple chains. The proliferation of new layer 1s has created a fragmentation issue, leading to a poor user experience. On average, a user has between three and 10 wallets, depending on their level of experience with crypto.
The Consequences of Fragmentation
Fragmentation affects liquidity and interoperability, making it difficult for users to use their assets efficiently. Assets on one chain cannot be used as collateral in a lending protocol on another. This reality is akin to asking what currency each store accepts whenever entering a new mall – a cumbersome and frustrating experience.
Addressing the Issues
To create a more usable and cohesive Web3 ecosystem, we must address these issues. Wallet abstraction and chain abstraction are crucial steps toward realizing this vision. Advancements like ERC-4337 and EIP-7702 enable Externally Owned Accounts (EOAs) to function as intelligent accounts and delegate wallet control.
Wallet Abstraction
Traditionally, users would need to manually transfer funds between wallets. With EIP-7702, Wallet A and B can delegate control to Wallet C, enabling Wallet C to spend assets without requiring the user to interact with each individual wallet.
Chain Abstraction
Chain abstraction is a streamlined approach to crypto that will function similarly to Apple Pay. Users will interact with the blockchain through a unified interface that allows them to view all their assets and balances across different chains and spend crypto as if it were a single unified account.
Conclusion
The fragmentation in Web3 ecosystems is an evolutionary tale. As the industry grows, it’s no longer about how we onboard users onto a particular platform or chain but how to make the Web3 ecosystem more user-friendly, functional, and interoperable by unifying crypto and trusting in self-custodial systems.
Multichain Self-Custody: A New Era
Coming back to Saylor’s arguments, both institutions holding Bitcoin as an asset and degens can have a single unified account that remains self-custody. The user interface and UX design for that private key can and will likely be designed to suit every type of crypto asset holder.
Saylor later commented: ‘I support self-custody for those willing and able.’ Yet, multichain self-custody will, in time, make everyone willing and able.
The Future of Web3
We cannot undo the past. The industry has grown, and it’s an evolutionary tale. As we continue to onboard users onto various platforms and chains, our focus should be on making the Web3 ecosystem more user-friendly, functional, and interoperable by unifying crypto and trusting in self-custodial systems.
About the Author
Zhen Yu Yong is the CEO of Web3Auth. Web3Auth has built wallets for Binance.US, Trustpilot, and numerous Fortune 500 companies. Previously, Zhen worked at the Eth Foundation and Visa.
This article is for general information purposes only and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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