Here Is Why Coinbase’s New Dapps Feature Is Important

Here Is Why Coinbase’s New Dapps Feature Is Important

On May 16, Coinbase, America’s largest cryptocurrency exchange, released Web3 apps functionality, including a hot wallet and browser, to a select group of mobile app users. Select users will be able to access decentralized apps (Dapps) on the Ethereum (ETH) network, such as Uniswap and OpenSea, using the app.

In Coinbase’s announcement blog post, the firm emphasizes:

“With today’s launch, users can explore dapps without having to manage a recovery phrase. This innovative dapp wallet experience is powered by Multi-Party Computation (MPC) technology that enables you to have a dedicated on-chain wallet that Coinbase helps you keep secured. This is due to the way this wallet is set up, which allows the ‘key’ to be split between you and Coinbase. Ultimately, this means if you lose access to your device, the key to your dapp wallet is still safe and Coinbase can assist in recovery through our live support.“

Pete Kim, who was previously the Head of Engineering for Coinbase Wallet and is now working on DeFi and Web3 at Coinbase, explained the value of the built-in Web3 browser in a Twitter thread on May 18.

Kim says he’s a “huge fan of self-custody wallets,” but that non-custodial wallets are still the best option for anyone who know how to backup and preserve their private key.

He went on to note that one of the most common support requests the Coinbase Wallet team receives is for help with the loss of the “backup recovery phrase,” which they are unable to resolve.

Coinbase found there were no ideal solutions for securing the recovery phrase of a non-custodial wallet, and they wanted to create a means to help their users in this area.

“What do you do with your recovery phrase? Do you carry it with you? Do you leave it at home? Do you keep it in a safe deposit box at a bank? What if you get robbed? What if your house burns down? Do you trust your bank? Can you trust anyone?”

“We explored other options like social recovery, but who can I trust? Do they understand what they’re doing? What if they lose or replace their device and forget to tell me? If we want to onboard a billion users to this platform, self-custody was simply not going to work out.“

Although a custodial wallet – a Coinbase account with a secure password and 2FA authentication activated — is the safest way to hold crypto assets for most users, Kim claims that this option only allows users to buy, sell, transfer, and receive crypto. Because it uses a hot wallet, which is unfortunately less secure, it does not provide full access to Web3.

As a result, Coinbase devised a “semi-custodial” wallet system:

“The idea is pretty simple: the user keeps some key material on their device and Coinbase keeps some key material. Both are needed to use the wallet. If only one party is hacked, funds are still safe.“

“Well, it allows for different backup and recovery options. The backup could be in a cold storage system or with a third party. Just like the key materials held by the user and Coinbase, the backup alone can’t be used to transact.“

“We explored various options ways we could implement this new system. A smart contract wallet was considered, but was quickly rejected due to reasons such as high gas overhead and inability to sign messages, but most importantly the fact that it is specific to a blockchain.

“The solution we decided on uses multi-party computation or MPC for short. It uses advanced cryptography to enable multiple parties to interactively and collaboratively sign things like transactions without having to let anyone have the full key at any given time.“

“Coinbase’s MPC system that was built in-house supports both ECDSA/secp256k1 and EdDSA/ed25519, and hence it can handle cryptographic signing for almost any blockchain out there. There is also zero gas overhead. To the blockchain, an MPC wallet looks just like an EOA wallet,” he said.

“A MPC-powered wallet (we call them dApp wallets), can support anything and everything a normal self-custody wallet can. Not just sending, receiving and trading, but also using dApps, DEXes, storing and trading NFTs, voting in governance, yield farming, web3 games, etc.“

“Work is currently under way to enhance all of our products with this new tech. Are you an NFT trader, and you’re worried about keeping your keys safe? Are you an institution and you need secure custody but still want to use your assets in web3? DApp wallet solves this.“

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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