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2023 was an embarrassing year for crypto exchanges, but yet, crypto wallets are still deemed to be less safe by almost 40% of crypto users.
According to research from Singapore based wallet firm imToken, 38% of users found wallets less secure than exchanges, whilst 68% believed trading on exchanges to be more convenient or cheaper than trading on wallets, despite countless exchanges including FTX meeting their demise in 2022.
More than 25% think it will take at least five years for the majority of people to switch to self-custody.
Smart Wallets vs. New Wallets
imToken uncovered a discrepancy between the perception of smart wallets compared to newer wallet tech such as multi-party computation (MPC) wallets and account abstraction (AA).
Smart contract wallets including Safe are based on smart contracts rather than end user accounts, with features such as multi-sigs and time-locks. MPC wallets such as Coinbase app replace traditional private keys with a "secret" established between devices to aid easier account recovery. AA improves smart contracts by changing the underlying blockchain code, enabling developers to build more features into smart wallets.
imToken states that smart wallets, MPC and AA are the most important developments for wallets in 2023. However, only 65% are currently aware of smart wallets, whilst 25% know about MPC or AA. Smart wallet users only account for 0.1% of users too.
As mentioned, wallets are still deemed to be unsafe by a significant proportion of crypto users. Over half of participants (51%) said improved security through multi-factor authentication would be required to choose a new wallet.
Read more: Singapore Mulls Raising Caps on E-Wallets
Instead, users are turning to custodial solutions. 76% said they find custodial solutions more convenient than wallets. Aside from security concerns, imToken believes that the reason for preferring custodial solutions is that "users will only realize convenience once use cases - such as inheritance solutions - exist."
MPC vs. AA
Whilst wallets such as Coinbase app an Zengo are commended for their MPC tech, other wallet providers are leaning towards AA. imToken head of research, Chang- Wu Chen, said “A MPC wallet looks like an Externally Owned Account (EOA) with an invisible private key.... But for the MPC solution, it requires having an online computing unit to co-work with.”
Instead, firms such as Matter Labs and StarkWare prefer the AA model, which imToken says trumps MPC because the smart contract is "flexible and easier to have customized logic and it’s always online."
Omar Azhar, head of enterprise business development at Matter Labs, said “many companies are interested in seeing how they can enable a seamless Web2 experience for self-custody wallets within their applications”.
“Being able to use an email login, using paymaster and AA to batch transactions” would also help in building trust with users, as well as allowing for "custom business" logic being built into smart wallets," he said.