Latest Blockchain Wallet UX Trends: Passkeys, Passports, and WaaS

Author: Jiyun Kyung, Business Development (https://www.linkedin.com/in/jiyunkyung/)

[TL;DR]

• The future of blockchain wallets will move towards harmonizing user experience with the core values of blockchain.
• Technological innovation will improve wallet usability while strengthening security and decentralization.
• A diverse spectrum of wallet solutions, from those aiming for complete decentralization to those focusing on usability, will coexist and compete.
• As interactions between wallets become simpler and standardization progresses, users will be able to easily use various services and multiple chains with a single wallet.
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1. The Relationship Between Blockchain Services and Wallets

1.1. Definition and Characteristics of Blockchain Services

Blockchain services refer to various applications and platforms that utilize blockchain technology. These services overcome the limitations of existing systems and create new value by using blockchain's distributed ledger, smart contracts, and consensus algorithms. The most significant feature of blockchain services is decentralization. The system operates through consensus among network participants without a central administrator, resulting in no single point of failure and high censorship resistance. Additionally, all transaction records are transparently disclosed, making tampering impossible and boasting strong security.

Representative blockchain services include cryptocurrencies like Bitcoin, Ethereum-based DApps (decentralized applications), GameFi (blockchain games), DeFi (decentralized finance) protocols, and NFT marketplaces. These services are changing the paradigm of existing industries and creating new business models.
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1.2. The Role and Importance of Blockchain Wallets

Blockchain wallets are essential for using blockchain services. A blockchain wallet is a software or hardware tool that helps users safely store and manage their digital assets.

Blockchain wallets consist of a pair of public and private keys. The public key is used as an address to receive assets, while the private key holds the authority to control the assets at that address. In other words, only through the private key can assets be transferred or smart contracts executed. Therefore, blockchain wallets are crucial tools for protecting users' digital assets and enabling interaction with blockchain services. As such, the security and usability of wallets are important factors directly related to the mainstream adoption of blockchain services.

Since the loss or theft of a private key means permanent loss of assets, blockchain wallets require a high level of security. At the same time, providing an excellent user experience that allows users to use the wallet easily and conveniently is also an important challenge.

Blockchain wallets are provided in various forms such as software wallets and hardware wallets, and recently, wallets with greatly improved usability have been emerging. Moreover, many wallets are appearing that easily support connection with various blockchain services such as GameFi, DeFi, and NFTs, beyond simple asset storage.

For blockchain services to further develop and become mainstream, the existence of secure and easy-to-use blockchain wallets is indispensable. Wallets are the gateway connecting users to blockchain services and act as the last bastion protecting digital assets.
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2. Traditional Private Key Management Methods in Blockchain Wallets

Blockchain wallets are essential tools for securely storing and managing users' digital assets. Traditional blockchain wallets use private keys to manage access and control rights to assets. While this private key management method plays a crucial role in maintaining the decentralization and security of blockchain technology, it also poses several challenges in terms of user experience.
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2.1. Generation and Storage of Private Keys

When creating a blockchain wallet, the wallet software generates a pair of private and public keys in a cryptographically secure manner. The private key is typically a 256-bit random number, from which the public key is derived. The public key is used as the wallet address, allowing other users to transfer assets to that address.

The generated private key is either encrypted and stored within the user's wallet file or provided to the user in the form of a mnemonic phrase. A mnemonic phrase is a human-readable form of private key backup consisting of 12-24 words. Users must store this mnemonic phrase in a safe place and will need it when recovering their wallet.

In addition to the general form of PKC (Public Key Cryptography) described above, various private key management methods such as multi-sig, SSS, and MPC exist.
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2.2. Advantages and Disadvantages of Private Key Management

The biggest advantage of traditional private key management is that users have complete control over their assets. The private key should be known only to the user, and safely storing it is entirely the user's responsibility. "Not your keys, not your coins" is a frequently used expression in the cryptocurrency community, emphasizing the importance of private keys in blockchain asset management.

Moreover, using private keys allows for free transfer and receipt of assets without a central administrator. Private key management is essential for maintaining the decentralization and censorship resistance of blockchain.

However, private key management can also be a significant burden for users. If a private key is lost or forgotten, all assets controlled by that key are lost forever. In fact, many cases have been reported where users have lost substantial amounts of cryptocurrency due to carelessness.

Also, if a private key is stolen by hackers or malicious programs, users lose their assets without any protection. As it is difficult to expect a high level of security management from general users, complex key management methods have acted as a major obstacle to the mainstream adoption of blockchain wallets.

While using mnemonic phrases makes it easier to backup and manage private keys, it still requires user attention and effort. Safely storing the mnemonic phrase and accurately entering it when needed is not an easy task for general users.

Although traditional private key management methods have played a crucial role in maintaining the security and decentralization of blockchain, they have shown many limitations in terms of user-friendliness. Various measures to improve user experience are being sought to overcome these limitations.

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3. Wallet User Experience (UX) Trends

Blockchain wallets are essential tools that allow users to securely store and manage their digital assets. However, the user experience of traditional wallets has acted as a barrier to entry for many users due to complex private key management and low usability.

To solve these problems and lead the mainstream adoption of blockchain wallets, various UX innovation efforts are being made in the industry. In this article, we will take a closer look at three wallet UX trends that have been gaining attention recently: Passkey, Passport, and WaaS (Wallet-as-a-Service).
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3.1. Passkey

3.1.1. Definition and Characteristics of Passkey

Passkey is a new authentication method replacing existing passwords or seed phrases, and is an open standard led by the World Wide Web Consortium (W3C) and FIDO Alliance. Major IT companies like Apple, Google, and Microsoft are collaborating on its development, and it's expected to be applied across web and apps.

The most significant feature of passkey is that it provides much higher security and usability compared to existing authentication methods. Passkey verifies user identity using cryptographic key pairs (public and private keys) generated on the user's device. The private key is securely stored in the device's security chip or TPM (Trusted Platform Module) and can only be accessed through user authentication such as biometrics or PIN.
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3.1.2. How Passkey Works

1. When a user registers for a service, a public and private key pair is generated on the user's device.
2. The public key is sent to the service provider and linked to the user's account.
3. When the user logs in, the service provider sends an authentication request to the user's device.
4. The user completes authentication through biometrics or PIN.
5. Upon authentication, the device's security chip or TPM signs the authentication response using the private key.
6. The signed authentication response is sent to the service provider for verification.

This process all takes place within the user's device, so there's no risk of the private key being exposed outside the device. Also, as separate key pairs are used for each service, even if one service's security is compromised, it doesn't affect other services.
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3.1.3. Advantages and Disadvantages of Passkey

• Advantages:
  
  • High security: As private keys are securely managed within the user's device, it has strong resistance to attacks such as phishing or data breaches.
  • Usability: Users can log in with simple biometric authentication or PIN without needing to remember or enter complex passwords.
  • Privacy protection: Service providers don't directly collect or store users' biometric information or PIN, lowering the risk of personal information leakage.
  • Easy recovery: Passkeys can be backed up and synchronized through iCloud Keychain or Google Password Manager, allowing easy recovery even if the device is lost.

• Disadvantages:
  
  • Time needed for mainstream adoption: For passkeys to be widely applied across web and apps, active adoption by service providers is necessary, which may take considerable time.
  • Device dependency: As passkeys heavily rely on user devices, inconvenience may occur if the device is lost or malfunctions. Therefore, there's a need to mitigate this issue through multi-device support, etc.
  • Concerns about biometric information leakage: While biometric authentication technology is advancing, concerns about biometric information leakage still exist. Continuous efforts to enhance security are needed to address this.
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3.2. Passport

3.2.1. Definition and Characteristics of Passport

Passport is a form of user account system for managing digital assets in games. It's characterized by providing an integrated solution that encompasses blockchain-based assets by expanding the concept of inventory or wallet used in existing game services. Passport is closer to a centralized account system for managing in-game assets rather than a blockchain wallet in the traditional sense. Passport typically manages keys in a centralized manner, and users access assets through the account system.

In this aspect, Passport is closer to an 'account' or 'repository' for managing in-game assets rather than a 'wallet' in the strict sense. While it's convenient from the user's perspective, the benefits of decentralization may be somewhat limited. The reason for calling Passport a wallet might be to utilize a concept familiar to blockchain game users. Regardless of terminology choice, the important point is that Passport contributes to improving the user experience in games.
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3.2.2. How Passport Works

1. Users create a Passport account using email and password.
2. When users log in to a game supporting Passport, the game client queries the user's digital asset information through the Passport API.
3. When users trade or use items in the game, the game server processes the transaction through the Passport API.
4. Passport verifies the user's request and, if necessary, records the transaction on the blockchain.

In this process, users can easily manage in-game assets without worrying about complex private key management or gas fee payments. Passport plays a role in significantly lowering the entry barrier to blockchain technology through user-friendly UI and in-game visualization.
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3.2.3. Advantages and Disadvantages of Passport

• Advantages:
  
  • Simple user experience: Users can create accounts with just email and password, and intuitively manage assets within the game.
  • Game-specific features: Provides features optimized for in-game asset management such as inventory management and transaction history lookup.
  • Utilization of blockchain technology: When necessary, can leverage the advantages of blockchain to ensure scarcity and transparency of digital assets.

• Disadvantages:
  
  • Limited decentralization: Passport is a centralized service where users don't directly control their private keys. This conflicts to some extent with decentralization, one of the core values of blockchain.
  • Platform dependency: Passport may be tied to specific game platforms or ecosystems, potentially limiting compatibility with other platforms.
  • Difference in security model: As it relies on centralized servers, it has a different security model from traditional blockchain wallets. User understanding and trust in this are necessary.

Passport is one way of utilizing blockchain technology in the gaming industry and can contribute to improving user experience and efficiency in digital asset management. However, as explained earlier, it's important to understand that there are differences from traditional blockchain wallets in terms of decentralization and security models.
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3.3. WaaS (Wallet-as-a-Service)

3.3.1. Definition and Characteristics of WaaS

WaaS (Wallet-as-a-Service) refers to cloud-based services for building and managing blockchain wallets. WaaS providers support developers in easily and quickly integrating blockchain wallet functions into their applications through APIs, SDKs, etc.

Traditionally, introducing blockchain wallets to applications required direct implementation of complex encryption, key management, and blockchain integration. These aspects demanded significant development resources and expertise, acting as a barrier to entry for many developers. WaaS abstracts this complexity and provides wallet functionality as a service, greatly reducing the burden on developers.
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3.3.2. How WaaS Works

1. Application developers sign up for the WaaS provider's platform (e.g., Wepin Wallet's workspace) and receive necessary authentication information (API keys, tokens, etc.).
2. Developers integrate blockchain wallet functions into their applications using the SDK or API provided by the WaaS provider. Complex tasks such as user authentication, key management, and transaction signing are handled through the WaaS provider's service.
3. When users use wallet functions through the application, the WaaS provider creates and manages the user's wallet. Users can check their token balance and perform transactions such as transfers within the application.
4. WaaS providers typically charge based on wallet service usage and guarantee additional features and a certain level of security and availability to efficiently grow the service.

While the operation method of WaaS differs by vendor, it generally follows the process above. Through this process, developers can focus solely on developing their services and applications without directly dealing with complex blockchain and wallet-related technologies. Additionally, by utilizing the WaaS provider's infrastructure, they can provide stable and scalable wallet services.
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3.3.3. Advantages and Disadvantages of WaaS‍

• Advantages:
  
  • Increased development convenience: Blockchain wallets can be easily integrated into applications through SDKs and APIs, greatly reducing development time and costs.
  • Securing expertise: Even Web2 developers lacking specialized knowledge in blockchain and encryption technology can implement safe and effective wallet services using WaaS.
  • Enhanced security: WaaS providers can strengthen wallet security by applying professional security infrastructure and best practices. WaaS solutions provide a level of security that is difficult for individual developers to implement on their own.
  • Flexibility and scalability: WaaS supports various blockchain platforms and tokens, and allows for elastic scaling according to usage. This means wallet services can be flexibly expanded as the application grows.

• Disadvantages:
  
  • Increased dependency: By using WaaS, applications become highly dependent on external services. If the WaaS provider's service is interrupted or experiences issues, it can affect the application's wallet functionality.
  • Limited customization: As WaaS provides standardized wallet functions, there may be limitations in implementing highly specialized or customized wallet services.
  • Cost burden: Costs may be incurred for using WaaS. Especially for large-scale applications, significant costs can be incurred proportional to wallet service usage.

WaaS can be an attractive option for projects and services looking to integrate blockchain wallet functionality into their applications. By utilizing WaaS, which offers advantages in development convenience, security, and scalability, the time and effort required for wallet service development can be greatly reduced. However, the limitations of increased dependency, customization restrictions, and cost burden due to WaaS usage should also be considered. Therefore, it's necessary to carefully analyze the characteristics and requirements of your application to determine the suitability of WaaS utilization.
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4. Comparative Analysis of Wallet UX Trends

Various attempts are being made to improve the user experience of blockchain wallets. New wallet UX trends such as passkeys, passports, and WaaS are enhancing user convenience and accessibility through different approaches. In this chapter, we will compare and analyze the similarities and differences of these trends, and look at actual application cases and their effects.

4.1. Similarities and Differences between Passkey, Passport, and WaaS

4.1.1. Similarities

• Improving user experience: All three trends aim to solve usability issues of existing blockchain wallets and provide a better user experience.
• Enhancing accessibility: They increase accessibility by abstracting complex concepts and technologies so that general users can easily use blockchain wallets.
• Increasing development convenience: They also present ways to streamline blockchain wallet integration from the developer's perspective, making the development process more efficient.
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4.1.2. Differences

• Scope of application:
  
  • Passkey is a general-purpose authentication solution applied across web and apps.
  • Passport is a service specialized for in-game asset management in blockchain games.
  • WaaS is a service-type solution for integrating blockchain wallets into various types of applications.
  Technical approach:
  • Passkey focuses on authentication using cryptographically secure key pairs.
  • Passport focuses on improving usability by utilizing centralized servers.
  • WaaS provides wallet functionality as a service based on cloud infrastructure and APIs.
  Degree of decentralization:
  • Passkey can be linked with decentralized technologies like DID.
  • Passport is a centralized service, making it difficult to fully realize the benefits of decentralization.
  • WaaS varies by provider, typically managing private keys non-custodially and other aspects through centralized servers.
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4.2. Application Cases for Each Trend

4.2.1. Passkey Application Cases

• Recently, cases of applying passkey-based blockchain wallets or mainnets are increasing.
• Examples of passkey applications include Coinbase Smart Wallet, Safe Wallet, and Aptos.

4.2.2. Passport Application Cases

• Various blockchain game platforms are simplifying in-game asset management through passports.
• Blockchain game mainnets (Immutable, Oasis, etc.) are adopting passports.

4.2.3. WaaS Application Cases

• WaaS is being adopted in various types of blockchain services including finance, payments, B2B, and retail.
• Metaverse platform Decentraland and Solana's DeFi project Helium have adopted WaaS.
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5. Impact of Wallet UX Trends on the Blockchain Ecosystem

Various attempts to improve the user experience of blockchain wallets go beyond just the development of wallets themselves. These UX trends are expected to have a wide-ranging impact across the blockchain ecosystem. This is because they can drive the growth of the blockchain industry in various aspects, including improving user accessibility, promoting mainstream adoption, and enhancing security.
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5.1. Improving User Accessibility and Convenience

For the mainstream adoption of blockchain technology, general users must be able to use blockchain services easily and conveniently. However, it has been criticized for having high entry barriers due to complex usage methods, difficult and complicated terminology, and security threats. These aspects have been cited as one of the main factors hindering the spread of blockchain technology.

However, wallet UX trends such as passkeys, passports, and WaaS can significantly contribute to solving these problems. These methods are greatly improving the usability of blockchain wallets through user-friendly interfaces, simplified procedures, and intuitive functions. End users can easily use blockchain services without a deep understanding of complex concepts or technologies.
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5.2. Accelerating Mainstream Adoption and Technology Acceptance

Improved user accessibility can naturally lead to the mainstream adoption of blockchain technology. As wallets become more convenient to use, more people will try and experience blockchain services. The introduction of user-friendly wallet solutions can change public perception of blockchain and become a driving force for accelerating technology acceptance.

For blockchain technology to become mainstream, the development of the technology itself is important, but it's even more crucial for users to accept and utilize the technology. No matter how innovative a technology is, it's difficult to spread widely if it's hard to use and inconvenient. Therefore, improving user experience is an essential element for the mainstream adoption of blockchain.

As the user base expands and blockchain use cases increase, blockchain will gradually seep into our daily lives. And at some point, it will establish itself as an everyday technology rather than a specialized field. Innovative approaches like WaaS can be a significant driving force for the growth and development of the blockchain industry in the long term.

Furthermore, mainstream adoption can expand the blockchain ecosystem through network effects. The more users of blockchain services, the greater the value of those services. This development forms a virtuous cycle that attracts more users and providers to the blockchain ecosystem. Improving wallet usability can act as a catalyst to accelerate this virtuous cycle.

Of course, care must be taken not to compromise the intrinsic value of blockchain in the process of mainstream adoption. The core values of blockchain, such as decentralization, transparency, and reliability, should not be weakened in the process of popularization. Efforts are needed to find an appropriate balance between ease of use and the fundamental values of blockchain.

For this, not only technological innovation but also institutional and social innovations should be pursued in parallel. A system that can proactively respond to new risks and challenges arising from mainstream adoption, i.e., regulatory clarity, should be established. In summary, multifaceted efforts are needed, including technology standardization, legal and regulatory refinement, and strengthening of education and promotion.
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5.3. Considerations on Security and Decentralization

In the process of improving wallet UX, deep consideration of security and decentralization is necessary. This is because new methods introduced to increase usability could instead increase security risks or compromise the decentralization of blockchain. Based on an awareness of these issues, solutions from a long-term perspective need to be sought.

First, in the case of passkeys, there are many criticisms that device-dependent authentication methods could introduce new security threats. If a user's device is infected with malicious code or physically stolen, there is a risk that the passkey could also be leaked. These vulnerabilities are similar to problems seen in existing password methods.

Also, methods that rely on centralized servers, like passports, make it difficult to fully enjoy the benefits of decentralization. As the entity managing users' assets and information is a centralized server, trust issues can arise. The method of relying on centralized authentication authorities is somewhat distant from the concept of a "trustless system" that blockchain aims for.

Based on this awareness of the problem, ways to improve usability without compromising security and decentralization should be sought. For passkeys, we can consider ways to enhance security by utilizing biometric authentication and multi-factor authentication along with device authentication. We can also explore linking with decentralized technologies such as Distributed ID (DID).

Passports should also move in the direction of gradually reducing dependence on centralized servers and strengthening decentralized elements. We could also consider ways to implement a certain degree of decentralization while protecting users' information and assets by utilizing technologies such as zero-knowledge proofs or MPC.

Above all, the most important thing is user education and awareness raising. Even if a convenient user experience is provided, if it compromises security or decentralization, it's putting the cart before the horse. Users should be aware of the importance of security and decentralization while using blockchain wallets, and be able to use these as criteria for judgment.

For this, transparent information disclosure and active communication with users by blockchain wallet companies are necessary. While wallet companies may not be able to disclose all their information, they should clearly disclose what security model and trust structure their solutions have at the very least. They should also provide appropriate education and guidance so that users can easily understand and judge this.

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6. Conclusion: Future Development Direction of Blockchain Wallets

The future of blockchain wallets will move towards harmonizing user experience with the core values of blockchain. Efforts will continue to enhance wallet usability through technological innovation while strengthening security and decentralization. In this process, various technological and institutional approaches will be attempted, and wallet solutions with different characteristics will coexist and compete.
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6.1. Harmonizing User Experience and Core Blockchain Values

In the future, blockchain wallets will develop in a direction that increases ease of use and accessibility while not compromising the fundamental values of blockchain such as decentralization and security. For this, approaches from various angles including technological innovation, institutional complementation, and user awareness raising should be made. Rather than simply pursuing usability, we should find a balance point that can reach the public without compromising the essence of blockchain.
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6.2. Overcoming Limitations through Technological Advancement

Technological advancement will play a crucial role in overcoming the dilemma between wallet usability and core blockchain values. Technologies that perform verifiable computations while protecting privacy, such as zero-knowledge proofs, multi-party computation, and homomorphic encryption, are expected to continue being incorporated into wallets. Additionally, ways to improve usability while minimizing centralized elements by utilizing DID and decentralized storage will be sought. Through the development and incorporation of these technologies, blockchain wallets will likely evolve to the next level in the near future.
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6.3. Coexistence and Competition of Various Wallet Solutions

Rather than developing into a single form, blockchain wallets are expected to show a pattern where various types of solutions coexist and compete by leveraging their respective strengths. There will be a spectrum ranging from wallets pursuing complete decentralization, centralized wallets focusing on usability, to wallet services for enterprises.

Users will be able to choose suitable wallets according to their needs and values, and each solution will achieve differentiation based on unique value propositions. Various standards may also be created in the fragmented wallet market, and interactions between wallets could become extremely simple. Through these developments, we might see a day when we can easily use various services and multiple chains without having to create a wallet every time.