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Armory and the Monetization of Bitcoin Wallets

IMG Auteur
Publié le 30 septembre 2013
948 mots - Temps de lecture : 2 - 3 minutes
( 1 vote, 3/5 ) , 3 commentaires
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SUIVRE : Bitcoin
Rubrique : Or et Argent


A group of prominent investors recently made a play in the bitcoin wallet space by backing startup Armory Technologies, Inc. The $600,000 seed round investment will go mostly towards funding and expanding development.

Interestingly, this placement brings into focus a much larger issue: the monetization of bitcoin wallets.

It’s no mistake that Armory founder and CEO Alan Reiner told CoinDesk: “This first 12 months is more about developing a quality product than it is figuring out how to monetize it.” An effective wallet monetization strategy doesn’t exist yet.

Even lead investor Trace Mayer agrees. Wallets being in dire need of improvement is “actually very problematic and a tragedy of the commons problem which I fear will likely only get worse because it is so difficult to monetize wallets,” he wrote. Mayer also said: “There is no immediate plan for how to monetize Armory.”

Indeed, wallet development may get funded, but revenue and profitability are different issues. Here is how I see this market playing out.

It may be comforting to wallet investors that open source Mozilla Firefox has 18.29% worldwide market share of the free browser market, but receives $300 million per year from a Google search deal. Similarly, eyeballs from bitcoin wallets could steer exchange choices but that’s in the long term.

Armory is an open source bitcoin wallet with a strong reputation for security and it is considered a ‘thick client’, meaning that downloading the entire block chain is required to verify transactions.

For low overhead and faster mobile applications, future releases will support a spectrum of block chain access options and the desktop-to-mobile interaction will be important.

Just as with web browsers, the client front-end (or wallet) is part of a grander play in the space. With the online wallets of traditional payment methods, the grander play for transactional and value-add revenue is currently being executed by the technology giants, telecoms, and banks.

But what’s the main driver for bitcoin wallets and payments, especially given that tech brands like Apple may actively be blocking certain bitcoin features for their own strategic benefit?

The answer lies with the bitcoin service providers. Today’s hosted wallet services, merchant processors, and integrated exchanges offer the best near-term choice for wallet monetization, but it will most likely involve a third party and a mobile app.

Bitcoin exchanges already experience a good portion of their customer base using the exchange as an online wallet of sorts. As the bitcoin economy matures, service providers will be searching for unique differentiators to gain a competitive advantage.

Either the service providers evolve into turbo-charged, sophisticated wallets or the bitcoin wallets themselves emerge as premier service providers as seen with the Send Shared mixing service from Blockchain’s My Wallet.

Since it’s a convergence either way, the future of wallets probably includes a combination of both approaches. Armory’s management team has a tabula rasa business model in front of them now and they will no doubt be presented with several promising opportunities to build or partner. So let’s focus instead on the evolution of the third-party service providers becoming sophisticated wallets.

For corporate security reasons, there’s probably a place for desktop wallets in the future, but the majority of innovation will be in the web-based and mobile wallets.

Hybrid wallets, where the user maintains the private keys, and hierarchical deterministic (HD) wallets offer two of the most promising areas for development.

To see where all of this is headed, just look at the feature set of the Blockchain Android App for My Wallet and that doesn’t even include P2SH and split key support.

Take Coinbase for example. The company operates a hosted bitcoin wallet with two-way exchange capabilities and it smartly realizes that consumers are also merchants, and vice versa.

A Coinbase-Armory mobile wallet app could broaden out the Coinbase offering by allowing customers more direct control over their coins using different hosted wallet scenarios. Their primary downside right now is that they only provide a domestic exchange service for the US.

LocalBitcoins is a decentralized approach to trading bitcoin because it matches buyers and sellers in various local regions for trade clearing and settlement.

Sellers maintaining bitcoin balances on the LocalBitcoins wallet is the preferred way to operate. With greater functionality, the site could easily evolve into a primary hosted wallet service in its own right. The company is already offering support for multi-currency and has a global following.

Not wanting to get left behind, exchanges like Mt. Gox and Bitstamp could see themselves adding robust and mobile wallet features that are quite separate from the exchange business.

In addition to exchanges expanding into the wallet space, the merchant processing operators like BitPay and BIPS both benefit from increased functionality at the wallet level.

As more bitcoin balances are kept by the merchants rather than exchanged out to national currencies, the merchant processors start to resemble a hosted wallet because the exchange services become less important. The online secure access and management reporting capabilities of the wallet become the wedge for competitive differentiation.

Going outside of the bitcoin ecosystem, it’s easy to imagine commercial banks and portfolio managers offering specialized bitcoin custodial services to their client base, including branded hardware wallets. When the online casino world goes full bitcoin, the wallet integration issues will be front and center. All present excellent revenue opportunities for leading wallet vendors, not excluding transaction-based revenue.

As new companies and new business initiatives enter the bitcoin market, they will look to the well-known wallets.

Established wallet leaders with reputable brands and diverse offerings will be able to leverage that into a service-oriented model. With integration, maintenance, and even hosting potential, the superior bitcoin wallets like Armory have a bright future.
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I recall two news stories within the last year of bitcoin failures though I can't say how serious or prolonged. And in at least one case the US Government stepped in either from perceived fraud or to prevent any competition. This is a hint that the Government may step in at any moment and seize accounts for any 'justified' reason. In any event there is nothing to prevent multiple bitcoin companies from 'mining' coins and I'm not sure how that's going to work. Two renowned, but non-mainstream economists, have opposing views: Martin Armstrong has recently advocated a new global digital currency -- though as yet given no specific details of how it will work. Opposed is Jim Sinclair who sees a new gold standard emerging from the fiat rubble in the not too distant future. My 'money' is with Sinclair.

Bitcoins have emerged from the on-going dilution of our currency by the FED and a sense that something other than fiat, and independent of Government control, needs to be a new means of global transaction. The problem, again, is that Bitcoins are NOT free of government control or terrorist hacking or just plain private fraud as those recent stories have suggested.

I'm sticking with silver coins (in my possession) for now.
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One thing that no one seems to have commented on yet (in the reading I've done so far) is that the government, if they stepped in and somehow seized the Bitcoins would be in a pickle as they would need someone to purchase this electronic money or it has no value other than to make life miserable for those who it belonged to. So I can see the DC jokers wanting to shut Bitcoin down, this is after all another competitor to their fiat, and then go after any other Bitcoin imitator. As for a global electronic currency coming to a town near you, I see this happening soon. I can see where politicians will eliminate, to the extent that they can, any means to conduct business where they can't collect taxes of some sort. Certainly if you want to buy something from any bricks and mortar store they will have systems in place to ensure compliance. It will only be on the personal level where real money or other goods for barter will be useable and, illegal. It doesn't take much imagination to envision how the various alphabet soup departments will set up sting operations to catch the terrorists who refuse to give the politicians what they feel they are rightly owed.

I agree with you, my spare fiat goes into something that will always have value in someone else's mind, gold and silver.
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"backing startup Armory Technologies Inc."
"Armory is an open source bitcoin wallet with a strong reputation for security ... "

A start up has a strong reputation for security?


The buzz over Bitcoins just keeps getting piled deeper and deeper. As if there isn't enough funny money variants in the world, we now have one that has questionable origin and ... Bitcoins were not designed out of altruism. Somebody is deriving immense gain out of this and nobody knows who. Does anyone know just what the Bitcoin mining computers are really processing? With distributed processing, almost anything could be computed. Bitcoin miners could be unknowing partners in international crime. Nobody knows ... yet.

All I see is a distributed ETF with no backing, no responsible agency and no provenance in its creation. The proponents tell me, "Just trust the algorithm." I'd sooner trust my first wife, politicians, government economists and polar bears.

There is no such thing as a free lunch. TANSTAAFL
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One thing that no one seems to have commented on yet (in the reading I've done so far) is that the government, if they stepped in and somehow seized the Bitcoins would be in a pickle as they would need someone to purchase this electronic money or it has  Lire la suite
Schwerpunkt - 01/10/2013 à 19:26 GMT
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