The crypto industry has brought countless innovative technologies that are changing the world. Blockchain allows developers to program smart contracts tied to a distributed immutable ledger to automate transactions across finance, supply chain management, digital identity, voting, healthcare, charity, asset management, and numerous other industries. However, at the heart of every web3 account is a problem few are prepared to admit.
Web3 accounts suck!
Apps on Apple’s AppStore or Google’s PlayStore are optimized to within an inch of their lives to create the best possible experience for new users. From load times to onboarding journeys, web2 applications do not compromise when it comes to the new user experience. Developers are all too familiar that if you lose a customer within the first few minutes of an app install, it is impossible to bring them back in the future.
However, when you compare the web2 app industry to web3, there is no comparison. Creating a web3 account is a slow, monotonous and tedious process that requires users to write down up to 24 seed words. Further, these seed words could potentially represent a person’s entire digital identity; so how are we accepting that a piece of paper is a suitable solution to securing a web3 account?
The answer may be surprising because many people do not trust themselves with the piece of paper. Instead, they utilize custodial solutions such as exchange wallets which often cause the users to give up all rights to their crypto. Crypto held on an exchange can be frozen or withheld at any time, whereas a crypto wallet like Metamask, Trust Wallet, etc., can only be controlled by the creator and owner of the seed phrase.
Alternatives to non-custodial wallets are, of course, crypto exchanges. Crypto exchanges such as Binance, Coinbase, Kucoin, and others have seen unrivaled usage as the crypto industry exploded over the past decade. For example, Glassnode data shows that between 2012 and 2022, Bitcoin balances on centralized exchanges grew to over 3.2 million BTC before reducing slightly during the 2021 bull run to around 2.8 million BTC.
The rise in popularity of crypto exchanges is unsurprising, given that they perform the same way as other web2 applications. Exchange apps are available on all major mobile app stores and utilize a web2 user experience when it comes to onboarding users. Furthermore, no seed phrases are required as the exchanges own internal exchange wallets; thus, users create accounts with a traditional email and password combination.
Further, should a user lose their exchange password, customer support is on hand to help users get access to their accounts. In essence, centralized crypto exchanges are simply web2 applications allowing users to deposit crypto and trade within the exchange’s internal off-chain order book. There is little interaction with blockchain technology outside of withdrawals and deposits.
Herein lies the problem. Blockchain removes the need for trust as the code verifies transactions. However, users are forced to trust a crypto exchange as most of the functionality is off-chain. Furthermore, users do not have control of their assets deposited onto an exchange, so if the exchange goes bankrupt, users may never see their funds again.
The collapse of Voyager, BlockFi, Celsius, Genesis, and, most notably, FTX has impacted exchange growth significantly. Throughout 2022, Bitcoin balances on exchanges fell steadily as bankruptcies became an almost monthly event.
Bitcoin balances on exchanges have fallen to their lowest level since March 2018 as investors look to move their crypto assets off of custodial solutions and into self-custody. The move was not necessarily driven by a desire to take full ownership of their crypto but to reduce the risk of another exchange collapse. As a result, some users are now forced into self-custody due to necessity rather than choice.
While there are certainly advantages to the self-custody of crypto assets, many factors go into the decision to take responsibility for digital assets.
Reviewing stablecoin balances on exchanges reveals a similar story with an even greater correlation to the collapse of FTX. Stablecoin balances reached an all-time high in November 2022, right before FTX filed for bankruptcy.
Following FTX’s failure, stablecoin balances plunged, dropping 16% from December to January. Further, the value of the stablecoins withdrawn from exchanges totaled over $7 billion.
As exchange balances continue to fall, the question becomes, where will users move funds? Common options are:
Custodians (BitGo, Fireblocks) who will hold crypto on behalf of an investor for a management fee. These typically only service high-net-worth individuals and institutions.
Hot wallets (Metamask, Phantom) are accessed via a password in a browser plugin or mobile app. These can be attacked via malware on a user’s device or by signing a transaction within a malicious dApp.
Cold storage (Trezor, Ledger) that requires additional hardware to be purchased and store the wallet’s private key onto a physical device. Hardware wallets cost around $100 and are inaccessible to many in developing countries.
Therefore, managing a non-custodial solution can be a real headache for users who are used to the simplicity of a web2 optimized exchange account. In addition, hardware wallets can be cumbersome to use, hot wallets need a safely stored seed phrase, and custodians have capital requirements that are out of reach for most people.
At Intu, we recognize this problem, and its solution is at the heart of what we do. Our goal is to democratize institutional account technology to give regular web3 users access to accounts that have all the convenience of an exchange account but with all the security of a self-custody wallet.
Intu has created a protocol that gives users access to these tools while fully decentralized, self-sovereign, and secure without relying on third-party tools.
Everyone has differing risk tolerance levels, personal responsibility, time, and preferred utility for their crypto assets. Intu has built a protocol that will suit anyone because it can be configured precisely as you desire.
Want low-risk, low-responsibility, high utility in next to no time? No problem, you can set up your Intu account to minimize risk and responsibility while having easily accessible digital assets to use on-chain.
Happy with high risk, high responsibility, and low utility at any time? Sure, set up an Intu account with multiple methods of recovery known only to yourself while you surf the web3 in real-time.
We will be showcasing how to set up an Intu account in future posts, so subscribe to learn more as we prepare for launch and open beta at ETH Denver in February.