As the world of cryptocurrency continues to evolve, opinions on self-custody have been debated by prominent figures in the industry. Recently, Ethereum founder Vitalik Buterin took a strong stance against MicroStrategy executive chairman Michael Saylor’s views on crypto’s self-custody ethos. In this article, we will explore the current state of self-custody, its challenges, and how multichain self-custody wallets are emerging as a middle ground between Saylor and Buterin’s seemingly bipolar views.
The Trouble with Self-Custody
Self-custody (holding your keys) offers absolute control over a user’s assets. However, it is often associated with significant challenges, particularly for new users in Web3. Managing private keys can be overwhelming, and Saylor has argued that relying on third-party custodians provides a layer of security and legitimacy.
Advancements in Non-Custodial Wallets
However, massive improvements have been made to improve the user experience with non-custodial wallets. Users can now create wallets by simply using their social accounts or even with Passkeys, removing the complexity associated with self-custody solutions. These advancements only apply to each chain individually, and users must still use multiple custodial and non-custodial wallets to transact on different chains.
The Fragmentation Problem
As more layer 1s are created, and decentralized applications built on different chains proliferate, users struggle to navigate and manage their assets. Siloed blockchains create a fragmentation issue across Web3, leading to:
- User Error: Around 20% of all Bitcoin lost was estimated due to user errors.
- Liquidity Fragmentation: Assets on one chain cannot be used as collateral in a lending protocol on another.
- Poor User Experience: Users might have assets spread across different wallets and blockchains, making it difficult to use them efficiently.
Addressing the Issues
To create a more usable and cohesive Web3 ecosystem, addressing these issues is critical. Wallet abstraction and chain abstraction are 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 use their funds without additional transactions. This addresses the wallet fragmentation problem, empowering users to manage different accounts with a single, unified account.
Chain Abstraction
Chain abstraction is the next important step toward realizing true interoperability in Web3. Users should be able to seamlessly interact with any chain, regardless of where their assets are held. This streamlined approach will function similarly to Apple Pay, where users can easily select their credit card of choice for payments.
The Future of Self-Custody
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. If we continue with self-custody, and a large part of this crypto movement will use self-custodial mechanisms, we must get it right.
Conclusion
The fragmentation in Web3 ecosystems is a reality that we cannot reverse. It’s an evolutionary tale. As the industry grows, it is 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.
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 and is not intended to be 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.
