Can digital wallets solve the identity crisis?

It’s not primarily a question of technology, but of mass adoption. The current state of digital wallets is a major design problem.

We manage more and more of our lives online, and thus we need multiple digital identities to reflect that. Getting to grips with all that data has turned into a veritable identity crisis, as Accenture Life Trends 2023 has put it. Now, digital wallets may soon come to the rescue. But can they deliver what they promise?

This is not primarily a question of technology. Blockchain exists, and digital wallets like Metamask (with 21 million monthly active users) have already made some inroads. It is a question of widespread adoption, of crossing the chasm. This makes it an experience design problem instead.

Without doubt, the current situation is utterly broken. Users have to manage myriad passwords, enter their personal data repeatedly, click away dozens of cookie pop-ups and they still don’t know how their data is being used. Even if they do, they have little control over what is done with it. Data love has long turned into data hatred.

We now have the technology to solve this identity crisis. Digital wallets can safely store all of our personal data, in the form of non-transferable NFTs, alongside other, transferable assets. Wallet owners enjoy complete control of their assets, including their data.

Companies and brands wanting access to this data can get it, but people remain in control. They can revoke access anytime they want. This shift of control is changing one of the key design principles of the internet: the copy machine. Transferring data over the internet always involves copying from one machine to another.

The new world of digital identity wallets

Technically, the blockchain still copies data. But since it’s encrypted, it can only be accessed with the right key. However, if we grant access to, say, our postal address, and a company like Amazon copies our data and stores a copy on its server, it can still do that. In our new world of digital identity wallets, this would be a breach of trust if we didn’t explicitly allow it. Following the Lens Protocol for the Web3 generation of social media, a copy of the data would still be possible, but would not show as authorised if it were not.

What happens when we move, changing our postal address? We just update our address once in our wallet, and every organisation with access to that data will know it. Compare this to today’s world where you have to change this simple piece of data in dozens or possibly hundreds of different databases; you’re guaranteed to miss something.

Then, there’s the realm of customer loyalty. Today’s loyalty programmes are based on the exchange of data for benefits. Here’s a scenario from the Accenture Life Trends report:

We expect to see brands plugging their loyalty apps into people’s digital wallets as a strategy to fit seamlessly into their lives and earn their trust—and their data. Ultimately, loyalty programs will improve when customers own the data the programs collect, such that it can’t be sold on. This aligns incentives: marketers will want and need to be trustworthy because if they aren’t, they won’t have consumer data to work with. They will compete to become the most trusted brand in their category because customers will have the power to go where they want, buy what they want, and share what they want.

The general concept is to replace the old world of cookies and logins with a new world of identity wallets where customers are in control. Cookies are going away, not with a bang but a whimper. Logins have a longer half-life, but suffer from the platform paradigm where control is firmly in the hands of the platforms and not the consumers.

Barriers for adoption

The sheer number of usernames and passwords that the average user has to manage is overwhelming, and the use of password managers or centralised login services only mitigates the struggles. Indeed, they can increase risk: one of the big password managers recently suffered a serious hack. And they do not really solve the underlying issues. Digital wallets can do that, but the devil is in the details, as the report puts it. Will we see widespread adoption?

Today it’s early days, so the focus is still on technology. Later in the game, things like tokens, blockchain, and Web3 itself need to fade into the background, as the user experience will be key. Two barriers to mass adoption must be overcome, as the Life Trends report explains:

The first: will governments, advertisers, and brands truly engage with it, and does it deliver a business model that works for them? The second: will people understand what it is, trust it, accept it and engage with it en masse?

The report estimates a timeframe of three to ten years for this. Bear in mind, we’re talking about new interfaces. Those must be designed carefully and iteratively, and users need to learn how to use them. Design metaphors like “wallet” are helpful, but users must also understand how this differs from their physical wallets.

Let’s not forget major players like Apple and its wallet app. At some point, Apple will probably integrate crypto into the app, thus driving mass adoption.

If there’s one ecosystem that will accelerate crypto’s adoption, it will be Apple’s. How? Through seamless integrations through their products, worldwide reach, and cult-like following.

But before we invest too much hope in Apple, we shouldn’t forget that Cupertino usually comes late to the party. Apple conveniently sits at the mainstream side of the chasm, patiently waiting for both new technology and the early market to mature.

As soon as that happens, Apple comes out of the closet. One of the things Apple is clearly good at is design. As the current state of digital wallets is undoubtedly a major design problem, Apple could be well-placed to solve it.

Photo by Gilles Lambert on Unsplash