How can businesses join Web3 through a Blockchain wallet?
In our first two articles, we have been addressing the potential and value of Web3. In this article, you will learn more about how you and your company can take the first step towards joining Web3, by opening a crypto wallet. The article presents the solutions which are on the market and how businesses can adapt to them.
Background
We are in a technical revolution with blockchain technology opening business areas across all sectors. It has become crucial for companies to adapt to this new technology. The global blockchain market is estimated to grow by 15.1 billion US$ by 2024 with a CAGR of 69.3 %.
Since the extent of cryptocurrencies is rapidly growing and companies must be aware that holding a crypto-wallet will enable them to make transactions with cryptocurrencies. In our perspective, in the coming years, all businesses that are interacting with society and Web3 will need to be able to handle crypto transactions.
How can companies adapt and join Web3? The easiest way to get started is by opening a crypto wallet for the company. Our objective with this article is to help business owners gain knowledge on how to adapt their business to the new reality of crypto payments and Web3. We want to educate business owners and help them in the right direction when choosing their wallet supplier.
Each business has different needs and conditions, in the past, these factors decided which bank and payment systems the business choose. In the same way, these factors will play an important role when choosing a wallet supplier. We will present some of the alternatives regarding wallet suppliers and which we think could be a good fit for different businesses.
Crypto wallets
What is a crypto wallet and why does one need a crypto wallet? Crypto wallets are not like normal wallet that stores money. Instead, a crypto wallet keeps private keys — passwords that give the owner access to their cryptocurrencies. With a wallet, the owner can store their private keys, send, and receive cryptocurrencies.
For a person or a business to be able to send, receive or store cryptocurrencies they need a wallet like how one needs a computer or smartphone to interact with the internet.
There are different kinds of wallets for different kinds of needs, now we will present the most common kinds of wallets and suppliers for each.
Hot wallets
A hot wallet is an online wallet, this means that it’s always connected to the internet. This is the most convenient crypto wallet since it could be stored in a browser, desktop, etc. There are three commonly used hot wallets, desktop wallets, mobile wallets, and web wallets.
Desktop wallets - These are wallets that are downloaded and installed on a computer on which the owners can store all private keys. Exodus is a supplier of desktop wallets that can easily be set up for a company. First, Exodus is a wallet and not an exchange account or web wallet.
Therefore, there is no account to sign up for or be managed (that is associated with a phone number and email) because all the wallet details are stored on the local machine.
This means that there is no signup necessary or traditional “account login” right off the bat. So, if a company has blockchain assets, once they have deposited funds to their wallet, they can start using the funds by sending, receiving, or exchanging them via the third-party exchange API provider in Exodus.
Since Exodus is a non-custodial wallet, the company and only the company have complete control over their wallet and funds. When they deposit funds to their wallet, they are stored on the blockchain.
Exodus never touches or manages funds, and they don’t collect or store any customer data and information. All the necessary information to access the wallet is generated locally on the device.
How can a company use Exodus? Generally, a company has multiple people with the ability to do transactions for the company. If a company still wants to be able to do this when only using Exodus there are two alternatives.
First, they could provide the secret 12-word recovery phrase to the business partners wanting to do transactions. Note however that any person who has access to this recovery phrase will have complete control over all assets in the wallet.
The other alternative is to only provide the private key to the business partners, note here as well that the person who has access to the private key will have complete control over whichever assets correspond to that private key.
It’s important to know that sharing the 12-word recovery phrase or private keys, naturally triggers various security issues and concerns and therefore might not be the best solution in our opinion.
How secure is a desktop wallet? No matter which device the business is using, always make sure to keep the 12-word phrase in a safe and secret place. Do not store the backup phrase in any digital format such as a screenshot or text file — always make sure to write it down and keep it hidden so the assets will be recoverable.
Mobile wallets - An app-based wallet that is downloaded on a mobile phone. Like a desktop wallet but downloaded on mobile. Mobile wallets have the great characteristic of being practical. Daily transactions in a business between people can easily be done by scanning a QR code and sending the payment directly peer to peer.
A Mobile wallet is a self-custody wallet like a desktop wallet, so the owner has full control of their private keys. A great supplier for a mobile wallet is in our opinion BKS Backstage, their wallet offers the possibility to exchange between the 30 biggest assets, staking of their token $BKS, and Store NFT’s running on Binance Smart Chain. They have a simple KYC & AML process which provides a seamless set-up.
Another supplier of mobile wallets is Coinbase Wallet. They support over 4000 assets and the user can store both crypto and NFTs in one place.
Security-wise a mobile wallet is as explained before identical to a desktop wallet like Exodus, the owner has responsibility for their private keys.
Web wallet - Is a plug-in to browsers that is easy to connect to Defi protocols or DApps. This is good for transactions on NFT marketplaces etc but not for HODL.
In a web wallet, the owner has full control of their assets. Different suppliers are depending on which asset the business is using. Two examples are MetaMask and Nami.
MetaMask is a wallet for the Ethereum blockchain and tit’s considered one of the larger web wallets. Nami is a wallet for interacting with the Cardano blockchain.
Since web wallets are internet-hosted wallets, the security risk is higher than a cold wallet in terms of hacker attacks etc. Our recommendation is to not store all the private keys on a web wallet but instead use it as a transaction account for interacting with blockchain services on the internet.
Multisig wallet — A good option for businesses is a multisig wallet: this is a wallet that can be stored on the desktop, mobile, or web but works great for businesses since it requires multiple signatures from a selected amount of people for a transaction to happen. This prevents unauthorized transactions from being made. A great supplier for this is Gnosis Safe.
Cold wallet
Cold wallets are not connected to the internet, this makes them hard to hack and therefore more secure. Cold wallets are preferred when storing private keys for long time purposes. Practically cold wallets are usually USB drives or hardware wallets that are designed for cold wallets. This is considered the safest crypto wallet and could therefore be seen as a savings account for a business because it’s more difficult to do transactions using a cold wallet than a hot wallet. The biggest supplier of hot wallets is the Ledger.
Crypto Custodial Solutions
On one side of the specter is a non-custodial wallet, as a hot/cold wallet where the owner of the wallet has full control of their private keys, these are the ones we have been speaking about up until now. But then there are custodial wallets, here the owner of the private keys gives the control to a third party, such as an exchange like Coinbase or Kraken.
The benefit of using a custodial solution is that if the owner loses their password a customer service can in most cases help the owner to regain access to their keys. But if the owner loses the private keys in a non-custodial wallet, then the crypto is lost forever.
Custodial wallets help the owner control their private keys through their platform which often is operated by an exchange-like CoinBase. Many custodial wallets also offer assurance on the crypto in the event of a hack on the exchange. Like what regular banks offer today. The KYC process of opening a custodial wallet is like opening a bank account since the exchanges go under regulations of anti-money laundering.
Coinbase Commerce is a business solution that offers both a self-managed account and a Coinbase managed account. The differences are the set-up process, functionalities, and the control of private keys.
A Coinbase managed account gives Coinbase access to the private keys but the business can also regain control of the account if the seed phrase or password is lost.
Additionally, the setup process is longer. It takes 3–4 weeks for the application and more KYC information is required. A big benefit of having a Coinbase managed account is the accessibility to more services, for example,
Coinbase exchange
The other alternative is a Coinbase self-managed account, here the business only needs an email to set up and the process of creating an account takes a maximum of 10 minutes. With this version, the business has full control over their wallet with their keys.
The process of setting up is:
- email-setup + verification;
- 2-step verification set up with Google Authenticator app on a phone;
- set up a wallet with a seed phrase;
- optional back-up to google drive.
A great feature of Coinbase commerce is its flexible payment system since there is volatility in the crypto market the fluctuation of the asset price can differ during the transactions which cause the transaction to be denied. Instead as a merchant, you can set thresholds if the price is a bit above or below the listed price the transaction will still be valid.
Finally, on Coinbase Commerce, businesses can via API accept crypto payments directly to their wallet for goods or services sold. They offer e-commerce integration with all of the major web hosters. Additionally, businesses can also create invoices or accept donations in crypto.
An alternative to using Coinbase Commerce is CoinPayments. This is a smaller up-and-coming competitor to Coinbase Commerce. They specialize in helping businesses do transactions with crypto. CoinPayments are a custodial wallet and payment gateway, this means that they hold and control private keys like a Coinbase managed commerce solution. According to CoinPayments, this makes transacting crypto easier for their clients.
Regarding KYC, CoinPayments perform KYC on the individual (UBO) and require an ID and proof of address. KYC is required to remove any transaction limits on the client’s CoinPayments account. CoinPayments wallet services are provided by Hodltech OÜ, which is licensed out of Estonia.
The integration possibilities within CoinPayments are good, they have many ways to accept crypto payments including prebuilt plugins and integrations for all the major e-commerce platforms, APIs, payment buttons, invoicing/payment links, and a POS tool.
Conclusion
How can businesses adapt to crypto payments by opening a wallet?
Our opinion is that a business needs different wallets for different use cases, like how they have different bank accounts for different use cases.
First, we think that the larger amounts of business crypto assets that are not being used in daily transactions should be stored safely on a cold wallet. This is for security reasons; a company can’t risk having its assets stolen without recoverability.
Secondly, we think that businesses need a hot wallet for their transactions such as salaries, supplier payments, etc. What kind of hot wallet is individual to different businesses and their size. A small business may be fine with a mobile or desktop wallet, but larger businesses may need a multi-sig wallet to prevent unauthorized transactions.
Having a custodial or non-custodial wallet is a choice each business must make, this is a security aspect where the business has to choose if they need to have full control of their assets or not.
The integration via API possibility of custodial wallets is a great way to start transforming the business to a more decentralized world.
The best way to start adapting to the new reality that has come with crypto payments is to open a wallet. We think that every business must consider the alternatives given in this article and from that open the wallets which best serve their needs.
Glossary
KYC — Know Your Customer procedure.
12-word recovery phrase — A unique string of words that get randomly generated the first time a user is setting up a wallet. Using this phrase is the only way to recover the assets if a password is lost.
HODL — Acronym for “hold on for dear life”, a mantra among crypto enthusiasts denoting a long-term approach to cryptocurrency investing.
DeFi — Decentralized Finance, a global financial system that’s available on public blockchains.
DApps — Decentralized applications are digital applications or program that exists and run on a blockchain network or peer-to-peer network of computers instead of a single computer. Often built on the Ethereum platform.
API — Application programming interface, this is a set of definitions and protocols for building and integrating application software.
About Chainplug
Founded in 2019, Chainplug is leading the Web3 evolution, by means of the 3 founding technologies of the Metaverse (Blockchain, Internet of Things and Artificial Intelligence). At Chainplug we have realized a hybrid blockchain Platform-as-a-Service to create and manage Web3 Trusted Organizations, Businesses and Ecosystems. In a safe and transparent Environment, provided by Blockchain Technology, Chainplug’s mission is to enable the rapid, intuitive and convenient adoption of the technologies by both Organizations, Companies and Ecosystems, to provide a safer and quicker and more sustainable adoption of Web3 and the Metaverse.
