Today’s Cryptonatives session is all about wallets. Who better to dive into this topic with than Pedro Gomes, founder of WalletConnect?
Strap in as we explore how the WalletConnect team is building solutions for wallet identity that will shape not only web3, but also many future iterations of the web to come.
PWN: What do you think defines a cryptonative?
PG: I think the difference between a crypto native is essentially the difference between a person who speculates by buying a token and then just selling it higher. And another one who actually takes full advantage of its properties.
Maybe the core definition could be someone who has used a self custodial wallet to interact with a dApp, and not just either buying it in an exchange or putting it in a wallet and kind of just letting it sit there. So cryptonatives have somehow interacted with smart contracts or any dApp for the purpose of not speculating.
PWN: As a cryptonative, what are some of the DeFi tools and strategies that you find yourself using?
PG: I would say that I'm very boring when it comes to actual DeFi, as DAOs, NFTs, and identities are the things that really excite me. When it comes to DeFi, my favorite things have always been with borrowing money and letting money accrue interest. It's something so interesting because for a long time, it was only accessible to banks. Banks had checking accounts and would take that liquidity, lend it to other people, and they would earn interest. Now, any individual with some cash that’s stacked away can earn interest by just putting it in a DeFi protocol or even staking if you want to take it to that level.
What I really like about crypto is just web3 in general. For me, web3 and crypto are about social coordination about people coming together through decentralized technology to work towards an end goal. And this could be something as artistic as NFTs, or it could be something more tangible like events that also have properties around NFTs — for example, validating that you have a ticket from an event that you have attended and maybe even accessing some special features not accessible to people who did not have the NFTs, like memberships.
With DAOs, it's kind of taking it to the next level: We’ve attributed particular personas to have these properties and now they get to have a say around a certain topic. I think DAOs today are still very immature because there's still a lot of friction. They often revolve around the idea of someone owning a certain amount of tokens, which evolved into not just owning but having the ability to delegate. In the future, I would like to see a sort of a combination of things – at any point in time, you can just pick some conditions and DAOs will be created ephemerally. It wouldn’t be so rigid, where you're either in a DAO or you're not.
PWN: What are some of the main issues facing cryptonatives in today's financial ecosystem? What issues have you faced and how are you mitigating these?
PG: There are existential issues for web3 around how it’s actually accepted by the mainstream. That perspective has been tainted with past experiences of exchanges being hacked or scams being made. Then, there are smaller issues, such as user experience not being as good as it should be and people losing money with their keys. However if we focus on the social coordination part, the biggest issue in my head is the idea of account management. It’s the idea that you have three or four accounts sitting in separate wallets or in the same wallet, you interact with different dApps and there's no correlation. I think we still haven't created a form of identity that can essentially allow you to manage multiple accounts under one identity.
As an individual, you’re only one person, but you can exist in different personas. So I can be Pedro as the one who wants to borrow money, and that's a completely different person from the one who wants to buy some NFTs because I like how they look. Managing these accounts has created a lot of fragmentation, and once you get into gaming, that's when it really gets hard – gaming has completely different requirements for account management than those of DeFi, DAOs, and NFTs. Right now, gaming projects are into custodial solutions, which are very contradictory to web3 in my opinion. These gaming projects are reacting to the fact that the current solutions are extremely lacking for gaming, so they have to rely on custodial solutions.
So where can we find middle ground? I think there are two technologies that will evolve into this: Threshold signature schemes (like TSS wallets) and account abstraction with the new EIP-4337. I think these two camps eventually will mature and may even converge into what we believe is account management. I think that's the biggest problem. But I'm also biased because being part of WalletConnect, I care about wallets – but in any case, I think that's what we need to fix within the next two or three years.
PWN: Tell us about WalletConnect’s efforts to simplify web3 UX through WalletConnect Auth.
PG: We've been working hard for the last couple years on WalletConnect’s version two. V2 brings together certain issues that were present in version one and we not only resolved them but also expanded the tool’s overall functionality quite a bit. We’ve previously tackled challenges in terms of performance, reliability, and session management in general. And in order to do so, we ended up creating a much more modular communication protocol.
In the past, we saw WalletConnect as a way to connect wallets and sign transactions – that was pretty much the end of the story. But with our new approach, we actually have a much more flexible structure that allows you to have subprotocols on top of the big protocol. There’s Sign API, which is the traditional solution for connecting wallets and signing transactions that everyone is used to, but then we have three others as well: which are Auth, Push, and Chat.
To touch first on Auth API, we've seen the advent of sign-in with Ethereum growing very rapidly, and we’re likely gonna see web2.5, which is a term I use for web2 projects like Instagram, Twitter, and YouTube trying to get into web3 but not yet fully managing to do so. The first touchpoint that each of these projects have is authenticating a wallet user. And when signing in with Ethereum, you have this very simple pattern that you need to connect to your wallet and then sign a message. So we thought, why go through all of that effort when you can go and sign the message directly? That’s how we came up with Auth API, which completely changes that pattern – with a single click, it’s possible to get a sign-in with your message, and then big companies like Instagram, Twitter, YouTube, and others can just take that signature and validate that you own some assets on-chain and correlate that with your digital identity on their platform. I think that web2.5, supported by Auth API, is a good point between web2 and web3.
PWN: Why do you think it's important to make sure that our digital identities are somehow correlated instead of each wallet being on its own and having its own place?
PG: When you think about identity, most people confuse identity with attestations. A person should have either a singular identity or at least one variation that could be correlated to different contexts. Depending on each context, you might want to disclose some information in the form of attestations. So sign-in with Ethereum is the most basic form of attestation, and if you put it in human readable language, you're saying, “I, Pedro, own this wallet address on the blockchain Ethereum.” When you authenticate yourself into Facebook, for example, you put an email and password, and that's a form of attestation that you’re authenticating yourself into your Facebook identity, and now you want to link these two together by having these two attestations connected.
That's where the signature comes in. Ideally, sign-in with Ethereum would be the identity within Facebook, but because I’ve lived on applications like Facebook, Instagram, and Twitter for more than a decade, you actually need to do it the other way around. In this case, the sign-in becomes a small attestation within the ocean of information that we have on these platforms rather than the other way around, where the route of authentication lives at the wallet level.
PWN: What are your thoughts on the prospect of DeFi mortgages (i.e. using digital assets to back long-term mortgages)?
PG: I remember once tweeting about the following pattern that I felt was likely to emerge over time: First off, we have web1, which is truly decentralized by design. Then, we have web2, which became more interactive but also centralized by design. We then came back to decentralization with web3. As a result, it's very likely that web4 won’t be as decentralized as web3, and that's a problem. However, I do expect that web5 will be truly decentralized. What I think will happen in web4/web5 will be an intersection between real-life assets and the decentralized identity we have today.
The biggest problem with decentralized identities today is that we essentially make attestations over digital assets. Everything that you see in the DID authentication world and self-sovereign identity is all about digital assets. So how can we actually go around and have actual real-life physical assets associated with that digital identity? I think that's where web4 is going to come in and we're going to see centralized entities owning the registry of who owns what. And that's going to be a slight disappointment at first, since we want to see physical assets on-chain, but through the centralized method. But maybe that's what web5 is – eventually, web5 may provide truly decentralized oracles.
So if you look at owning a house, you have to go to the government of your jurisdiction and there will be a single entity that controls this registry, and it's the only entity that can actually decide who owns what. So even if you decentralize the oracle, which feeds the information into the blockchain, you still have only one single source of truth that can be corrupted.
I think we will see DeFi mortgages happening in web3/web4 generation, but the true decentralized mortgages will be when the actual ownership of the house doesn’t live in the hands of your country’s register, but instead, perhaps through a DAO. That would be taking it to another level where oracles are decentralized, but so is the registry.
PWN: What are you most excited about in DeFi leading up to the next bull run?
PG: Like I keep mentioning, I think that everything that we're doing, in some form or another, comes down to social coordination. NFTs, DeFi, and DAOs are just representations of what social coordination looks like on a decentralized platform. But the number one thing we're missing is the decentralized identity component.
I think that the components relating to how you authenticate yourself are what make identity the most important. Authentication is one sector within identity, but it's the most important one. And I think wallets will have a great opportunity for that. That's what has always excited me to go very deep into wallets. Over the past few decades, there have been numerous attempts at deploying public key cryptography at scale, which failed over and over again. Then one day, Satoshi essentially created a blockchain that had a ledger that associated a certain amount of money for one key, and all of a sudden, everyone had a private key.
Now, we need to leverage all of this momentum and leverage all of these private keys that people own to authenticate for things that are non-financial. First, we’ll do it with forms of digital assets like NFTs. Then, we'll start having discussions with DAOs where we trade opinions, proposals, and votes around identity. You authenticate with your wallet, but the next level is actually having physical interactions (like NFT tickets for events or, in the future, even accessing your own house through a crypto key registered on-chain).
PWN: Do you have any final thoughts or remarks that you'd like to share?
PG: What I’d love to see is people taking their wallets more seriously. Not just because it’s important to be secure, but also because we’re at the beginning of what is going to be a very different world - and the wallet will be the start of it.
Can we get more creative with what we build and access through wallets? I think we're already getting there because you see social media apps based on Lens protocol or Farcaster protocol that are already building these experiences around the wallet identity.
We can take things a step further, and that's what we're trying to do with WalletConnect. We’re imagining what it can look like if we use messaging, receive mail, and more using our wallets. Having wallet identity at the core of web3’s development will impact way more than just finance. We need to get a little bit more creative on that and give our wallets a little bit more credit.
PWN’s Cryptonatives is an interview series with some of the brightest minds within the Web3 and DeFi space who are building and making active use of the services that today’s crypto ecosystem has to offer. Through shedding light on their experiences and lessons learned throughout their careers, it’s our team’s goal to educate the masses and further spread our guests’ wealth of knowledge.
Read through our previous Cryptonatives interview with Marc Zeller.
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