Taking Cryptocurrency Security Offline with Cold-Storage Wallets

This Research Highlight provides five key recommendations for cryptocurrency cold-storage wallet providers, as well as regional market forecasts between 2022 and 2027.

Market Overview

• The global crypto user base will increase from 320.1 million in 2022 to a forecast 1.6 billion in 2027, demonstrating a solid level of uptake over the next few years from both a crypto and Central Bank Digital Currency (CBDC) perspective.
• The global installed base of cold-storage wallets will climb from 6.7 million in 2022 to 21.9 million in 2027.
• The North American cold-storage wallet installed base will increase from 2.3 million in 2022 to 4.9 million by 2027—making it one of the largest regional shares in the global crypto wallet market and a first mover. Coinbase, BitGo, BitPay, and other regional players contribute to the growth in the hardware wallet in North America.
• In Latin America, wallet solutions are seen as a good way of financially including more citizens as smartphone adoption continues to grow. By 2027, the cold-storage wallet installed base in the region will reach 2.2 million, up from 0.7 million in 2022.
• Spurred by widespread acceptance of crypto and electronic IDentification, Authentication and trust Services (eIDAS) 2.0, Europe is one of the fastest-growing regions in the cryptocurrency wallet market. Compared to 1.9 million cold-storage wallets in circulation in 2022, that number will climb to 7.2 million by 2027.
• Asia-Pacific is integral to blockchain innovation and will also experience a huge surge in crypto wallet support. Cold-storage wallets in circulation will increase from 1.9 million in 2022 to 7.2 million in 2027.
• The Middle East & Africa lags far behind other regions in terms of cold-storage wallets due to an underbanked population and low smartphone penetration. The cold-storage wallet installed base in the region will only jump from 0.2 million to 0.3 million in the next 5 years.

“A movement away from cash and migration toward cashless societies is exacerbating the need for digitized solutions and crypto, which presses the case further for CBDC developments.” – Sam Gazeley, Industry Analyst at ABI Research

Key Decision Items

Explore the Opportunities in Multiple Signature Storage

In terms of cryptocurrency security, the more private keys, the better. The typical computer software wallet attacks are carried out via a remote administration tool to recover the container. From there, the cybercriminal can use brute-force hashing or a keylogger to retrieve the password. But with multi-signature cold-storage wallet security solutions, a malicious actor can’t gain access through a single keypair acquisition. Cold-storage wallet providers need to assess opportunities in multi-sig storage because of the ability to provide an additional layer of crypto security in the event of a compromised password.

Understand the Cold Wallet Market de facto Standards as They Relate to Security Features

When it comes to crypto security features, there are several de facto standards within the cold wallet market that must be recognized. These features encompass a microcontroller or Embedded Secure Element (eSE), a proprietary Operating System (OS), and an anti-tampering authentication check.

Much attention needs to be paid specifically to the chips used in cold wallet devices. To date, generic microcontrollers are used as hardware chips in a great deal of cold-storage wallet solutions. But generic microcontrollers, often found in household appliances, aren’t secure enough for what’s required. That’s why the most trustworthy cold wallet providers like Ledger, SatoshiLabs, and NGRAVE all leverage Secure Embedded (SE) chips in their wallets. Thus, their wallets give users a tamper-resistant solution that safeguards against attacks from multiple angles and provides crypto security far beyond generic microcontrollers. In the smart card form factor, major players like CompoSecure and IDEMIA have also demonstrated the use of eSE solutions.

Combine Software Wallets with Hardware Wallets

Due to a large number of cold-storage wallets in the marketplace, there’s a need for integration between a hardware wallet and a third-party app capable of managing Non-Fungible Tokens (NFTs). Although hardware wallets are more secure than software wallets for NFT marketplaces, they can complicate and prolong the process of purchasing and selling NFTs.

To solve these concerns, one of the most common cold-storage wallet solutions in the market is a hybrid approach. In a hybrid approach, the wallet links with trusted third-party online wallets like MetaMask, and securely transacts assets from the cold-storage wallet. Under the hybrid approach, ownership of the NFT portfolio stays secure in the hardware wallet, whereas the online wallet manages the wallet balance.

Get Ready to Become the Teacher of Cryptocurrency

As it stands, there is a sizable gap between the level of knowledge about the crypto market from stakeholders and what they should know. Individuals and policymakers need to be educated on the risks of storing cryptocurrency on an exchange (e.g., regulatory shutdown) and the security benefits of a cold-storage wallet. Solution providers are key to filling these knowledge gaps for users that otherwise would never self-educate.

Education programs related to crypto ownership, such as tailored communications and outreach programs, will be key to generating new user bases and revenue streams. Beyond that, education campaigns are integral to the effectiveness of regulatory initiatives, whereby many authorities are already conducting consumer analysis to gauge the necessary level of education required in the crypto space.

Be Cautious of European Crypto Regulation

Cold-storage wallet solution providers and Decentralized Autonomous Organizations (DAOs) should keep a watchful eye on European regulation. Proposed regulation in the European Union (EU), if fully ratified by the European Parliament, would prohibit Virtual Asset Service Providers (VASPs) from transacting with un-hosted wallets without first confirming ownership via Know Your Customer (KYC). Plus, any crypto transaction worth more than €1,000 would need to be reported to appropriate anti-money laundering authorities.

An un-hosted wallet, by definition, would be any non-custodial wallet completely managed by an individual. So, this would put a major strain on market potential in Europe for wallet providers given the hefty costs required to comply. Smaller, less capital-rich companies would likely be left out of the European market altogether.

Key Market Players to Watch

• Coinbase
• CompoSecure
• Giesecke+Devrient
• Google
• IDEMIA
• PayPal, Inc.
• SatoshiLabs

Dig Deeper for the Full Picture

To learn more about the cold-storage wallet provider ecosystem and suitable market strategies, download ABI Research’s Cold-Storage Wallets and the Security of Cryptocurrency Portfolios research report.

Not ready for the report yet? Check out our following Research Highlights:

• Out with Physical Documentation and in with Mobile Identity (ID)
• An Inside Look at the Global Mobile Wallet Market as 2022 Concludes
• Strategic Guidance for Biometric Payment Card Vendors

This content is part of the company’s Digital Payment Technologies and Trusted Device Solutions Research Services.