Wang Yishi: Hardware wallets have not ushered in a real dividend period due to the continuous explosions

Interview: ChainCatcher

Guest: OneKey Core Contributor Wang Yishi

After a series of explosive events, hardware wallet sales surged, with OneKey experiencing a nearly 10-fold increase in sales. OneKey core contributor Wang Yishi told ChainCatcher, "Many hardware wallets that had been shelved for one or two years were suddenly activated after the FTX incident."

The rise in data has led to continuous financing for hardware wallets. At the end of March, Ledger secured a massive €100 million financing, the largest in the crypto space this year. Following a $20 million Series A financing in September last year, OneKey completed an A+ round financing led by IOSG Ventures at a valuation of $85 million at the beginning of this year. Additionally, according to the crypto data platform RootData, hardware wallet startups such as Cypherock and [Foundation Devices](https://www.rootdata.com/zh/Projects/detail/Foundation Devices?k=NjEwNA==) have also secured financing.

In September last year, Wang Yishi shared the entrepreneurial story and differentiation of OneKey in an interview with ChainCatcher. He mentioned that the two main players in the hardware market are Ledger and Trezor. Trezor is the world's first hardware wallet but lacks a secure chip; Ledger has many users, but its secure chip firmware is not open source. Compared to Ledger and Trezor, OneKey has taken a middle path, maintaining open source while using a secure chip, which can be understood as "a Trezor with a secure chip."

As users' security awareness is re-educated and the hardware wallet sector receives a new round of funding, how will the competitive landscape evolve? In a recent interview with ChainCatcher, Wang Yishi stated that users' memories are short, the hardware wallet market has not yet entered a true dividend period due to the series of explosive events, and long-term market education is still needed. Currently, the market penetration rate of hardware wallets is still only about 5%, indicating that the market is very early. From a long-term perspective, the future of hardware wallets will be similar to the banking market, with multiple regional leaders. Currently, in the European and American markets, there are leading brands like Ledger and Trezor, while OneKey is the largest hardware wallet in mainland China.

Moreover, hardware is a capital-intensive business, with OneKey burning eight figures annually. In the face of competition from both new and old players, Wang Yishi also shared how to ensure sustainable cash flow and OneKey's strategic choices.

1. ChainCatcher: Compared to Ledger (not open source, has a secure chip) and Trezor (open source, does not use a secure chip), OneKey has taken a middle path, maintaining open source while using a secure chip. What is the logic behind this choice?

Wang Yishi: As an Eastern brand, it is very difficult to gain trust in the European and American markets. Even excellent national enterprises like Huawei took many years and invested heavily in R&D and marketing to establish a foothold in these markets, let alone OneKey, which is driven by early hardcore cryptocurrency developers.

Therefore, open source is the best way to "prove innocence," which aligns with the core principle of Bitcoin: Don't trust, verify. So when someone asks if OneKey's products are safe or if there are backdoors, we always respond that the code is open source and can be verified at will.

After more than ten years of development, Trezor's code framework and development community are very mature. The relationship between OneKey and Trezor is similar to that of Brave and Chromium (Brave is an open-source web browser based on Chromium). OneKey significantly enhances user experience based on open source; at the same time, the mnemonic phrases are securely stored in the secure chip, completely isolated from the network, which Trezor currently does not achieve. Ledger is a non-open-source product, and you must trust that Ledger as a company will not do harm.

2. ChainCatcher: Compared to software wallets, hardware wallets currently emphasize maximum security. What are the core technological barriers to security in hardware wallets? What aspects do hardware wallet players compete on in terms of user experience?

Wang Yishi: The barriers of hardware itself are limited. It is very capital-intensive; just for the OneKey Touch product, we invested 14 million in production alone, excluding R&D costs, and spent this amount over nearly a year. Most hardware wallet manufacturers perform some routine military-grade reinforcement operations, such as anti-tampering, self-destruction, encrypted communication, etc., but the secure chips used vary by company.

The greater barriers for hardware wallets lie in the overall user experience of software and hardware. Many people love the iPhone not just for its hardware specifications but also because they cannot do without iOS and the Apple ecosystem. The profit model for pure hardware wallets is also very limited and difficult to scale.

OneKey is currently the only one that achieves full software platform coverage, including Windows, macOS, Linux, Chrome browser, iOS, Android, etc. No matter which platform users are accustomed to, they can easily get started and support seamless local synchronization. Since 2019, OneKey has also accumulated its loyal users and continuously supports new chains and features to meet everyone's needs.

However, there are some things we completely avoid, such as the popular concepts of MPC wallets and AA wallets.

3. ChainCatcher: Why are you firmly against making MPC wallets and AA wallets? What considerations are behind this?

Wang Yishi: To ensure security, because new things always come with risks. Many people in the industry know that Fireblocks has lost coins multiple times, and their approach is to fully compensate, meaning they have to pay a high tuition fee to get some new content operational. Currently, OneKey is conservative in many technical aspects, basically following the path of Ledger, with everything focused on security.

4. ChainCatcher: At the end of last year, due to the FTX incident, the demand for hardware wallets surged, and manufacturers are constantly competing for market share, with new players entering the arena. How does OneKey view the competitive landscape of this market, and what are the future trends for hardware wallets?

Wang Yishi: The penetration rate of hardware wallets is very low. The leading software wallet, MetaMask, had about 15 million monthly active users at its peak in 2021, while Ledger, as the leading hardware wallet, had only 1.7 million monthly active users, which is about 10% of the former. I believe the current market penetration rate of hardware wallets is less than 5%, indicating it is still very early.

There have been many security incidents in history, but users' memories are short; the hardware wallet market has not yet entered a true dividend period due to the series of explosive events, and long-term market education is still needed. To break through the user growth bottleneck in the future, hardware wallets must lower the usage threshold and enhance user experience. Currently, many users are hesitant to choose hardware wallets mainly due to fears of losing their assets due to operational errors.

In terms of competition, the emergence of many competitors is a good thing for OneKey, as it confirms that hardware wallets are a necessity with long-term value, rather than a niche market for self-indulgence.

The ultimate form of hardware wallet products should be a physical key to access asset data. Similar to the animated series "Edge Runner," where everyone's bank accounts are stored on a small SD card behind their necks. There could also be many new and upgraded forms, such as using PIN codes, fingerprints, and iris data; in the future, it may involve collecting blood or DNA as encrypted keys to access data. This data may not necessarily be private keys; it could also include your bank card, passwords, and private information. Therefore, the form of hardware wallets will definitely continue to evolve, and in the future, it may become a piece of hardware that everyone has, with each person owning a OneKey.

5. ChainCatcher: With so many hardware wallets available, how does OneKey maintain its competitiveness?

Wang Yishi: There are two points: one is long-term trust. Trust is hard to establish and requires time. My own impression is that at the end of 2013, when Ledger just released its first-generation product, I spent 0.2 bitcoins to buy two units. But after purchasing, I shelved them for two to three years, until one time when Bitfinex had some security issues, I activated them and put some assets in. After observing for a while without any problems, I added more assets. OneKey is similar; many users bought it and shelved it for one or two years, but after realizing security issues due to the FTX incident, they began to inquire about how to use it. During that time, user inquiries about activation and upgrades surged.

In addition to market opportunities, communication with users and maintaining transparency in our model are crucial. For example, patching and reinforcement should be as transparent as possible, the profit model should be clear, and maintaining good cash flow is essential to alleviate users' fears that the brand will go bankrupt after purchasing the wallet.

Although building trust is difficult, once established, user loyalty will be very high. Users will not leave unless there are significant security issues, much like banks. There are tens of thousands of banks in the world, each with its core customers, and they all thrive. I believe the future landscape of wallets will be similar, with strong wallet brands emerging in different regions such as Latin America, Asia, China, Korea, and Japan.

So what does OneKey do better than other wallets? Our community users have summarized that OneKey responds closely and promptly to user needs. For example, some users previously wanted a niche but essential feature during an airdrop process, such as batch transfers. They hoped to transfer to 500 addresses at once, with both addresses and amounts being random, and wanted to create an Excel sheet to import into the wallet for one-click transfers.

Additionally, we are currently developing many features related to the Lightning Network and other Bitcoin derivatives. From a profit perspective, these may not be very significant, but they are crucial for loyal Bitcoin holders. Most wallet manufacturers, whether software or hardware, primarily profit from EVM wallets, while Bitcoin wallets generally do not make money. However, many users in the Bitcoin community hope that Bitcoin will have an ecosystem similar to Ethereum that can benefit the community, rather than just miners.

I believe wallets should be positioned as neutrally and unbiased as possible, spending more time uncovering users' true needs.

6. ChainCatcher: Making hardware is very capital-intensive. In the early stages, when the user base for hardware wallets is not large enough, how does OneKey ensure its cash flow besides financing? Does OneKey have other profit models besides hardware sales?

Wang Yishi: OneKey is currently still operating at a loss, burning eight figures annually, but revenue data has been consistently growing. Hardware wallet companies, besides selling hardware, derive more income from providing financial services such as Swap and Staking. Ledger and Trezor are similar; everyone is in the same boat, and growth around financial innovation tends to be higher, but the core remains to ensure security.

7. ChainCatcher: Ledger recently disclosed a massive €100 million financing. Will this put significant pressure on OneKey in terms of product development and market share?

Wang Yishi: Ledger has been around for a while, and their team's market and operational capabilities have always been strong. They currently have about 1,000 employees, making them the largest hardware wallet company. Having such a leader is a good thing because everyone needs a more advanced team to validate the market.

Compared to Ledger, we maintain a higher employee efficiency ratio. Ledger's scale is already large, with over 1,000 employees, while OneKey has only over 30 people, so I think achieving our current level with this staff ratio is quite impressive.

Ledger sells about $110 million worth of hardware wallets annually, with hundreds of thousands of units, while OneKey's scale is not as large, roughly one-tenth to one-twentieth of Ledger's, with early users primarily from mainland China. However, there has been a noticeable trend starting this year, with an increasing number of overseas users.

The core manifestation is that many overseas digital influencers have begun reaching out to OneKey for testing machines and reviews, and discussions have started in some open-source community forums about the relatively rare situation of code contributions from the Chinese background. Generally, while Chinese projects excel in applications, open-source projects are often led by Westerners.

Currently, OneKey has become the number one hardware wallet in mainland China, and in the future, we will focus more on expanding overseas markets, especially in East Asia and Europe and America. The concept of hardware wallets, or HSM, is a very long snow slope; a diligent team will eventually find its position, and this process requires continuous experimentation.

8. ChainCatcher: In the short term, what are OneKey's strategic plans for the next year?

Wang Yishi: OneKey will definitely continue to focus on hardware, and there are some things we absolutely will not pursue, such as MPC. We are very clear about our strengths and weaknesses in this large industry, so we will try to narrow our business focus on hardware itself.

We expect to release a new series of hardware products by the end of this year, and we are also working on an upgraded version of OneKey Touch, which will be lighter, thinner, and stronger, with some new encryption modules. Additionally, we will collaborate with many hot wallets like OKX and Bitget.

The team will also expand, with plans to grow to around 50 people next year.

9. ChainCatcher: This year, Hong Kong has gradually released a friendly attitude towards crypto, and many leading crypto projects may be gradually relocating their headquarters there, with some also announcing the establishment of new companies. What is your view on the regional migration of crypto?

Wang Yishi: It is definitely better than before. Previously, our regulations were quite rigid, which suppressed some malicious teams and Ponzi schemes but also affected some legitimate businesses. This could lead to a consequence: if Web3 truly becomes mainstream one day, it may have nothing to do with China.

Hong Kong is the financial center of Asia, backed by 1.4 billion Chinese people. If it serves as a testing ground for finance, as long as the government can provide some space for these enterprises within a framework and allow some flexibility, letting businesses find their way while navigating the waters, it could lead to positive outcomes.