We are adding custody wallets. What is changing at Bitwala? By Ben Jones, CEO
In early 2021, we will integrate a custody wallet alongside our non-custody wallet solution. We wanted to take the time to explain what is changing, why and how it will affect our customers.
What is changing
- All users will get a custody wallet for bitcoin and ethereum as part of their Bitwala account.
- Users will be able to use the custody wallets to trade, deposit and send, and use the Bitcoin Interest Account.
- Trading will be cheaper and faster from the custody wallet as there is no on-chain transaction.
- In the future, new functionality such as spending your bitcoin directly from your card will be available for custody wallets.
What is not changing
- Users will continue to be able to use their non-custodial wallets in the same way as before e.g. trading, deposit and sending.
- Existing users will not be obliged to use the custody wallet.
- New users can set up a non-custodial wallet from within the Bitwala account.
I want to emphasize in the strongest possible terms that we will continue to support our existing non-custodial wallets and have no plans to deprecate them.
Custody vs. non-custody: What’s the big deal?
In the crypto world, custody vs. non-custody can be quite an emotional topic. Some say “Not your keys, not your coins” implying that if you use a custodial wallet, the funds do not truly belong to you. This is understandable as we’ve seen many exchanges be hacked over the years and customers losing bitcoin.
For others, managing your own private keys is too complex and they would prefer to delegate this to a custodian. Many don’t understand the difference and think that bitcoin is bitcoin, regardless of how it’s stored.
Broadly speaking, the argument comes down to a question of security vs. convenience. When you hold your own private keys, you are effectively acting as your own bank. This is extremely powerful, but also places a burden on the user.
Benefits of a custodial wallet
- Easier to create and use a wallet, especially for those new to crypto
- Free and instant transactions & trades as no on-chain transaction is required
- Users cannot lose their own private keys.
Benefits of a non-custodial wallet
- You cannot lose your funds if an exchange gets hacked
- Your crypto cannot be confiscated or frozen by a government
- You are using bitcoin in the way originally intended by its creator
Why now? The story of wallets at Bitwala
When we launched in December 2018, we chose a multisig non-custodial wallet. Bitwala was unique in providing a fast and efficient trading service directly from a wallet where you hold the private keys. For our early cohorts, we knew that offering non-custodial wallets would be an important differentiator for our product.
Our first product was purely an off-ramp solution (allowing customers to sell bitcoin, but not buy). When we launched Bitwala 2.0 we expected customers to use us in the same way as the first product: a quick and convenient way to turn bitcoin and ethereum into EUR.
What we saw was quite different. As the product grew, our buy-sell ratio increased; more customers were buying bitcoin than those who were selling it! For us, this was a fantastic achievement as we want to get as many new people into crypto as possible.
For those of you who’ve tried onboarding your friends to crypto, you know that there are often some teething problems. It was not the easiest experience explaining to my parents what a seed phrase is and where to store one. The reality is that the needs and experience of customers who’ve never used crypto before are different from those who’ve been in the space quite some years.
A custodial wallet is better for first time users
Bitwala’s goal is to democratise the new financial opportunities created by blockchain and we think that a custodial wallet is a better experience for those getting into crypto for the first time. The idea of ‘being your own bank’ is quite alien to people and when they think of money online, the most commonly used applications are PayPal and online banking.
A custodial wallet enables us to automatically create a wallet for users on sign up and remove the need for a seed phrase. It also removes the rougher edges of the blockchain such as transaction fees and block confirmation times.
Custody unlocks features that our customers want
When I explain Bitwala to people (which I’ve probably done thousands of times by now), one of the most common questions I get is “so you can spend bitcoin on the card?”
With non-custodial wallets, only you can move funds. With custodial wallets, we will be able to move funds on your behalf which means we can perform transfers asynchronously for example. This will unlock features like paying with bitcoin directly when you use the debit card.
With custody, transactions do not occur on-chain meaning you don’t pay a fee. This makes smaller transactions feasible and unlocks features like crypto roundups (buy a small amount of crypto when you make a purchase) or selling automatically at a certain time or price.
Custody makes trades cheaper and faster
So, what’s in it for our existing customers? Trading will become faster and cheaper. You will no longer have to pay a network fee to trade and we expect our trades to settle significantly faster. In the future you should be able to sell your crypto and have the EUR on your bank account almost instantly.
Is this betraying Satoshi’s decentralised vision?
Satoshi, bitcoin’s anonymous creator, described bitcoin as “A Peer-to-Peer Electronic Cash System” where you didn’t have to have a trusted third-party. By asking people to trust us with their private keys and use custodian wallets, are we betraying the original principles bitcoin was built on?
Personally, I don’t think so. Bitcoin and blockchain have evolved far beyond what Satoshi initially envisioned in many ways. Custody wallets might be incompatible with ‘peer-to-peer’, but the way people are using bitcoin is different to ‘cash.’ Today, most people buy and hold bitcoin, treating it more of an asset than a currency. This is another example of how bitcoin has evolved from how it was originally intended. Fundamentally, what I think is so special about crypto is not that users must hold their private keys, rather that this option is available to them.
A custodial wallet is the best way to get users to use a non-custodial wallet. Our new users will be onboarded to custodial wallets, but we are publicly committing to educating our customers around the benefits of a non-custodial wallet and celebrating “Proof of Keys” day. As counterintuitive as it sounds, we actually think that by making it easier to get into crypto in the first place, we can increase awareness around non-custody.
Custody wallets will be available on Bitwala in early 2021.