How will embedded wallets change the user experience and industry logic of Web3?

The well-known crypto venture 1kx summarizes the current state of cryptocurrency wallet technology and industry development, discussing various aspects such as the technical stack, operational processes, development history, competitive landscape, and more. This article focuses on an innovative design to enhance the wallet user experience - embedded wallets, which are gradually replacing existing wallet terminal interfaces.

Evolution of Wallet Connection Methods

Since the emergence of smart contract applications, Web3 wallets have become the gateway for users to interact with the blockchain. The interaction modes between mainstream wallets and protocols can be roughly divided into three stages:

• No unified standard
• External pop-up wallets
• Embedded wallets

No Unified Standard

Users who have used applications like CryptoKitties before 2018 may have noticed that wallets often prompt for connection upon visiting a website.

This is due to the lack of good communication standards between connecting wallets and DApps. Developers often use hard-coded checks to see if users have the "window.ethereum" object on their browser, indicating the presence of a wallet.

This can lead to unpredictable steps and results when wallets interact with DApps, and conflicts may arise if users have multiple wallet extensions installed in their browsers. This indirectly forces users to choose only one wallet for primary use, leading to monopolization of the wallet market at that time.

However, the WalletConnect protocol emerged early, allowing users to use any Web3 wallet that supports the network.

External Pop-up Wallets

Today, many wallet codebases have gradually matured. Multiple wallet codebase SDKs such as RainbowKit, Web3Onboard, and ConnectKit have emerged in the market, simplifying wallet detection and identity verification processes for DApp developers. Recently, EIP-6963 has been confirmed as an alternative wallet object discovery standard to window.ethereum.

These codebases provide out-of-the-box packages for protocol developers, wallet object search functions, and guides for users to install wallets if they haven't already.

With the standardization and maturation of the above protocols, when users now choose a wallet to connect to a DApp, conflicts are reduced, allowing for more choices simultaneously. This opens up a more competitive and diverse market in the wallet field.

Embedded Wallets

Although codebases have significantly improved the user experience for developers and general users, installing additional software is still seen as a major entry barrier by users. As a result, a new interaction method has emerged - embedded wallets.

With the development of next-generation wallet codebases, the interaction mechanism of wallets in the future will be greatly enhanced. These SDKs can provide registration and login options that replace private keys, such as email, social software, and phone SMS verification. They can create embedded wallets for users without the need to install additional software or leave the DApp's web interface, eliminating the need for users to copy mnemonic phrases.

Protocol developers can directly integrate SDKs such as Magic, Privy, Web3Auth, or use codebases that package multiple services like Magic, Thirdweb, 0xPass. These allow for a fully customized process for users to initially use and register wallets, and can further provide gasless protocol-funded transaction capabilities, enabling users to seamlessly use protocol services, significantly enhancing the user experience.

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Centralized Demand for Embedded Wallet Accounts

Embedded wallets need to allow users to use them uniformly across different services.

As more DApps attract users through embedded wallets, account management will soon become complex for DApp developers and end-users. Creating a new wallet for each DApp will lead to fragmented asset and identity management experiences.

While app-specific wallets are ideal for certain use cases like games, in many instances, users prefer to use the first DApp they encounter with the corresponding embedded wallet and expect to be able to log into another DApp account using the same method, such as an email or phone number.

As a result, many protocols have emerged to handle unified account management services or standards:

• Capsule: A provider of embedded wallets based on MPC technology that allows users to log in and access wallets using the same email.
• Moonchute: A paid service to help users manage multiple smart contract accounts.
• ERC-7555: Specifies interfaces and interaction modes to assist protocols in discovering user signatures and establishing accounts.

Enhancing User Experience with Embedded Wallets

With the popularity of embedded wallets, the boundary between wallets and DApps is becoming blurred, and users will not feel the presence of a wallet, highlighting the protocol service itself and reinforcing user intent.

In the future, standalone wallets may evolve towards specific application scenarios to meet special requirements, such as rapid, batch signing for games, or high security requirements for finance.

Embedded wallets will replace existing generic markets, becoming the future Web3 new gateway for mass user adoption, as users will perceive wallets not as the sole gateway to Web3, but as services and brands of the protocols themselves through embedded wallets, significantly changing the user experience and operational mode of the industry.