Armory and the monetization of bitcoin wallets
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 aspectrum 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 rasabusiness 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 keysupport.
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 matchesbuyers 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 wedgefor 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 worldgoes 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.
Armory Bitcoin Client
Armory is an open source wallet management platform for the Bitcoin network. It was designed from the ground up to provide the highest level of security for heavily-invested Bitcoin users, while still maintaining a high degree of usability and convenience. Its ease of use and plethora of advanced features makes it one of the most popular alternative Bitcoin clients, and is featured on the main Bitcoin website.
And most importantly, Armory is open-source so it’s available for free. Armory is licensed under the AGPL version 3, which guarantees that any derivative programs based on Armory source-code must also be open-source. That means users win!
You can use Armory for all of your Bitcoin needs. It allows you to maintain multiple wallets, with or without encryption. Maintain offline wallets for maximum security from online attackers. Import addresses created with VanityGen or sweep funds from Casascius physical Bitcoins. Toggle between “Standard” and “Advanced” modes to guarantee an appropriate set of options and information for your Bitcoin experience level. And all this is available through an intuitive user interface that brings all the most advanced features of Bitcoin to your computer, without needing to be a Bitcoin expert!
What is Armory?
Armory is a desktop application for managing your Bitcoin funds. It can be thought of as an “Add-On” to the main Bitcoin client (also known as the “Satoshi Client”), since Armory requires the Satoshi client to be open. However, in the future, Armory will run as a standalone application, and will be considered a competitor to the Satoshi client.
Armory is a full-featured Bitcoin wallet management application. It allows you to maintain multiple encrypted wallets, permanent one-time “paper backups” for those wallets, and even a system for storing all your Bitcoins on an offline computer to keep them safe from online attackers. Armory is constantly being improved, with multiple security- and feature-releases per month.
Armory’s current focus is on bringing the most advanced functionality to Bitcoin users. It comes with an impressive set of features that aren’t available in any other client. However, Armory was designed from the start with a split interface, allowing the user to choose a “Standard” mode that provides a more appropriate level of information and options for users new to Bitcoin. The ability to tailor information to the user’s Bitcoin experience level is what will help Armory become the most widely-used desktop application for Bitcoin wallet management!
Although the Bitcoin network is good at securely transferring money, it is the users’ responsibility to protect their own digital wallets, usually stored on their own computer. Never has personal computer security been so important, yet very few applications exist which provide such high levels of security and usability at the same time.
Armory enables users store their Bitcoins with the highest degree of security, previously only available to those with programming experience and a technical understanding of Bitcoin. Armory is tailored to both newcomers and advanced users, reducing or expanding the functionality based on the selected user-mode: “Standard,” “Advanced,” or “Developer.” It gives beginners a simple intuitive interface, while optionally providing all the features desired by advanced users and developers.
Armory also provides a new level of convenience to companies that wish to adopt Bitcoin in their business. Business owners will be able to handle all aspects of Bitcoin without hiring specialized staff. The developers of Armory believe that business-level adoption of Bitcoin will lead to its overall success.
Bitcoin has the potential to change the world, and Armory helps enable Bitcoin to live up to that potential.
A few important points about Armory,which are always some of the first questions asked by new users:
You don’t need an offline computer to use Armory. Many users create and manage wallets directly on the online computer just as they would with Bitcoin-Qt or other wallet applications. The offline wallet feature is for users that desire the highest level of security.
There is no special version of Armory for offline computers. ”Offline Armory” refers to running the latest version of Armory on a computer without an internet connection.
There are no special wallets files for offline wallets. An “offline wallet” is one that exists only on computers without an internet connection. You can turn an offline wallet into an online wallet by simply copying the wallet file to the online computer. But, if you wish to maintain the security of offline wallets, you should only ever copy a “watching-only wallet” to the online computer.
You don’t need Bitcoin-Qt or bitcoin on the offline computer. The offline computer is essentially just a private-key manager. All blockchain data needed for signing a transaction is transferred with the transaction from the online computer.
Offline Armory requires very little RAM and disk space. Any computer or laptop built in the last 10 years should work for offline Armory. On the other hand, online Armory is fairly RAM-heavy, and requires a lot of disk space due to running Bitcoin-Qt.
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