Every crypto wallet is different and has its own way of making money. However, only some wallets make money. This might seem strange, but not all wallets need to make money.
In this article, we look at how Bitcoin/crypto wallets make money, and if they even need to.
Because most crypto wallets are free to download, they are essentially free tools for everyone to interact with different blockchains and crypto protocols. By this point, it would feel weird to even pay for one. So wallets generally need other methods of generating revenue to keep their business going.
The different methods Bitcoin wallets use to make money
Each crypto wallet has its own methods of generating revenue. Some simply focus on 1 form of revenue creation, whereas others do multiple. But most wallets essentially use one of the following tactics.
To display ads inside the wallet. This is one of the most annoying things ever. But every business requires a form of revenue and for many wallets, this is the go-to solution for their revenue problems. Ads simply pay for running the business. But won't make the company a large profit if they do not have many users. For most wallets, this form of revenue will thus not be enough.
A free wallet is in the perfect position to refer people to other crypto services. Because they are already onboarding people to the crypto space, they have easy direct access to crypto users, that will usually need an exchange or other crypto product at some point.
- In wallet trading
Another simple way for wallets to generate revenue is by letting users trade within their wallets. So that they won't have to do this via a crypto exchange. The wallet of course can then again take a fee for the facilitation of this trade.
- Pro version
One of the simplest features for wallets to do is a Pro version. This way, they can make an improved version of the wallet that can only be accessed when people make use of a paid version. How this works is different for each wallet. But typically includes extra features or something like no ads.
- Staking pools
Staking pools can also bring in some revenue for wallet providers. This revenue comes not really from operating the wallet, but more from the revenue generated by the staking pool. The wallet here functions basically as a mere marketing tool for the staking pool as a business.
- Routing fees
The newest wallets that make use of the lightning network often become full LSP (Lightning Service Providers). Wallets like these often make money by taking a small cut of each transaction. So the more users the wallet has and the more transactions they make, the more money the wallet generates. With wallets like Zebedee, they take an unnoticeable cut from outgoing transactions.
How wallets do not make money
Many people confuse crypto wallets with crypto exchanges. But they are simply not the same thing. Crypto wallets are focused on the custody of your coins and tokens. Typically, in a non-custodial way. Whereas exchanges focus solely on trading as their core business, with the option to store crypto on them. Exchanges can hereby claim trading and transaction fees. Crypto wallets do not do this and thus make no money via transaction fees (except for lightning wallets).
So wallets do not make money from your transactions, nor do they from holding your crypto. Because most wallets are free and non-custodial, they do not even have control over your funds. Making it so that they can not borrow or lend your funds like a bank does.
How do crypto wallet companies make money?
The companies behind free crypto wallets often generate revenue via other ways than their wallet, or in combination with the methods mentioned before. In the case of hardware wallet companies, the profits can also come from selling a physical hardware wallet device that typically costs 100+ dollars.
A lot of times, we also see that the companies behind many large crypto wallets do not even try to make money with their crypto wallet. This is because the wallet is not their business model. But rather another product like a crypto exchange or lending platform. The wallet merely exists as a way to give back to the crypto economy and to help drive adoption. Because most of these crypto companies do believe in crypto and its future. And the wallets they create typically are a way of giving back to the crypto community as a whole.
Why some wallets do not even try to make money
Very frequently we see that wallets do not have to make any money. This is because they have been created as a form of charity or marketing tool for the company behind it. Very popular wallets like Trust wallet for example are owned by companies like Binance. Binance's main revenue model is not their crypto wallet but rather the Binance crypto exchange. Therefore, Binance could benefit from making Trust Wallet a successful business, but would not need it to be, as long as it helps with crypto adoption and works well with the Binance ecosystem.
Another thing you see happening is that wallets do an ICO (Initial Coin Offering). If the wallet is a popular one, you often see that they will raise a lot of cash. Doing so can help the wallet company pay for the bills. But it also makes it easier to keep on running the business. So easy that some of these companies do not even need much of a revenue model anymore for the next few years. Crypto wallets with crypto wallet tokens thus don't really have to think about creating revenue for the first few years of operation. But will at some point have to find one way or another to keep the business running after the ICO money runs out.
Ways crypto wallets could possibly earn money in the future
The whole crypto/Bitcoin space is still constantly evolving, and the business models for wallets of today are not the same as those of tomorrow. In the future, wallets might do other things that are not being done today or are not even possible yet. Things like:
- On-chain referrals
They would make it possible to get a referral bonus on-chain for DeFi protocols. Making this possible would drastically change the landscape between DeFi and wallets. And bring an entirely new set of revenue to wallet providers.
- On-chain fees for transacting
It could be possible for wallets to take a small share of the transaction fee in the future as a build extra fee. This would work as an extra hidden fee. Because when you transact on-chain, you always have to pay the blockchain transaction fee. In theory, a wallet could make the transaction so that it would send a small portion of it to the company's wallet. Thus generating a revenue stream for them. If the blockchain transactions for that chain are low enough, this could be done without making it expensive or even noticeable for the wallet user.
- Paid wallets
One other way wallets could make money is by making their wallet a paid product. Either in the form of a one-time payment or a subscription. A paid wallet could make for a more sustainable revenue model. But as most wallets are free at the moment, it will be hard to compete with free wallets on the market.
Crypto wallets have many ways of making a profit. However, not all wallets really need to generate money. For now, crypto wallets seem to be doing fine with the way they generate revenue. But we still see lots of new wallets pop up and old ones closing shop. The future of how crypto wallets thus work will depend on how successful they will be with marketing themselves and the revenue they generate. Which might completely change as time goes by.