Hundreds of digital wallets already exist. A recent report by Darrell O’Donnell analyzed 250 digital wallets. Each one of those wallets took thought and effort to create. But today’s digital wallets suffer from a host of problems:
• Vendor lock-in with no interoperability
• Questionable security
• Intrusive business models
• Black-box design
• Limited capabilities
Let’s consider each drawback in brief.
Vendor lock-in with no interoperability
Nearly all digital wallets are tethered to a single bank, payment system, merchant, company, region, nation, or cryptocurrency exchange, and it’s exceedingly difficult or impossible to move our assets, credentials, or data to a different wallet. This is a textbook example of vendor lock-in. When we can’t move our data, we can’t choose between competing products. And without any interoperability, we need a separate wallet for every function.
Questionable security
Wallet developers work hard to keep ahead of cybercriminals, but they sometimes lose the race. Here are two sobering statistics:
• Cryptocurrency crime was U.S. $14 billion in 2021,7 with all these crimes involving digital wallets
• E-commerce fraud will likely total U.S. $41 billion in 2022 and rise to U.S. $48 billion in 2023,8 with much of this committed via digital wallets
Hackers use a vast arsenal to attack digital wallets, including code exploits, flash loans, keyloggers, pagejacking, phishing, ransomware, rug pulls, and even the venerable Ponzi scheme. When they win, everyone else loses—wallet holders, merchants, banks, and insurers.
Intrusive business models
A wallet can easily collect a stream of valuable data on our consumer behavior. That data can then be sold and re-sold to third parties, such as ad agencies, health insurers, even the dark web. So much for our privacy. On the back end, wallets can extract fees from transactions, even if those fees are hidden. In the end, consumers cover those fees by paying higher prices for everything we buy. So, as it turns out, we could be paying extra to have our personal information pilfered. How many consumers would knowingly agree to that?
Black-box design
Hundreds of wallets have been coded by someone, somewhere, but we don’t know exactly who or where. A black box is not at all transparent. But if you can’t see how a product woIntrusiverks, you can’t tell how good it is or whether you can trust it. The only people who can fix bugs or add features work for that one organization. Sounds a little lonely, doesn’t it?
Limited capabilities
The final drawback: You really can’t do much with most digital wallets. Remember the three functions of payments, identity, and access? Nearly all digital wallets perform just one function. So, you need this wallet to pay with fiat, but that wallet to pay with bitcoin. You need this wallet for your identity, and that wallet—or app, really—to access your keys. No one wants to juggle 15 or 20 digital wallets that can’t talk to one another. But that’s where we’re headed. Not ready for prime time
With vendor lock-in, no interoperability, questionable security, intrusive business models, black-box design, and few capabilities, today’s digital wallets just aren’t ready for prime time. Yet the world is plowing ahead. More wallets are constantly appearing, but none are designed to overcome these drawbacks.[1]
References:
[1] Why the World Needs an Open Source Digital Wallet Right Now, OpenWallet Foundation, Feb 2023