This is an opinion editorial by Roy Sheinfeld, cofounder and CEO of Breez.
Although Breez often ranks highly on lists of the best “Lightning wallets,” attentive readers will have noticed that we never refer to Breez as a “wallet.” We’re not trying to confuse anyone. On the contrary, it’s the language of “wallets” in the context of Bitcoin and Lightning that’s confusing.
Wouldn’t it be odd to hear someone refer to a fiat payment app, like CashApp, PayPal, or Venmo as a “wallet?” Nobody, not even the companies themselves, describes them as “wallets.” And though many Bitcoin and Lightning companies and apps are both more versatile and further removed from what we normally think of as “wallets,” that’s still what we call them.
This is a very common misconstrual, as Gigi has also noted and (independently) debunked. So let’s think about what a wallet really is, what a Bitcoin “wallet” really is, what a Lightning “wallet” really is, and what we should call these things instead of “wallets.” We will spare no effort in pursuit of truth and liberating ourselves from “scare quotes.”
What’s A Wallet?
“A wallet is a flat case or pouch often used to carry small personal items such as paper currency, credit cards; identification documents such as driver's license, identification card, club card; photographs, transit pass, business cards and other paper or laminated cards.” As Giacomo Zucco put it in a recent chat we had, wallets contain little documents and pieces of information we use to interact with others.
What we call wallets first showed up around the 17th century, concurrent with the rise of paper money. And since there are only so many ways to make a small folding case to carry money, wallets haven’t changed much over the centuries. Compare these two specimens:
On the left is a leather wallet that archaeologists found in the wreckage of a 160-year-old submarine, and on the right is a typical wallet anyone might have in their pocket today.
The big difference isn’t in the wallets, but in their contents. The modern wallet contains credit cards, which arose in the middle of the last century. It’s no coincidence that credit cards entered the market around the same time as machine-readable standards enabled a transformation from physical to electronic money.
The more we rely on electronic money of whatever kind, the less we rely on wallets. The quantity of electronic money out there now outstrips physical money by a ratio of about 20:1 and each card in the modern wallet can contain balances dozens of times greater than the antique wallet could hold.
Now consider: if you took the modern wallet back 160 years to the time of the antique wallet, people back then could almost certainly tell you what it is and what it’s used for. Explaining credit and debit cards would be challenging, but they are still physical objects to represent electronic money. The next step would be to explain fiat payment apps, like PayPal. Your great-great-great-grandparents would positively no longer see a wallet there. By the time you try to explain your favorite Bitcoin/Lightning “wallet,” they’d not even be sure you’re speaking the same language.
We in the 21st century might want to expand the definition. Language evolves. Like Giacomo said, wallets contain documents and little pieces of information that let us interact with others. Phones can now contain digital driving licenses (for as long as driving licenses are still a thing), credit card information, photos of loved ones, passwords, contact info and membership info … phones can contain the digital versions of everything we carry in leather wallets.
As a matter of fact, the term “wallet” might cover more of the functions these devices perform than “phone.” (While we’re on the topic of proper labeling, “phone” is such an outdated term! Here in Israel, nobody younger than Methuselah refers to their mobile device as a “phone.” Get with it anglophones.) So the 21st century correlate of the leather wallet is the phone, right?
But then does it still make sense to call a specific, single-purpose app a wallet? Many apps store information that is readily available to us. If we don’t refer to a contacts app on the device as a wallet, even though it replaces traditional business cards, why use that term for a Bitcoin app like BlueWallet or Wallet of Satoshi? It’s the phone itself that is the wallet, not the apps. Apps are more like the compartments in the wallet. If we’re going to adapt the term “wallet” to our transhumanist age, let’s do it right.
Wallets haven’t changed, but money has, how we store information has, and the term “wallet” no longer fits.
What’s A Bitcoin “Wallet?”
Bitcoin “wallets” and physical wallets are both storage media. Physical wallets store bills and cards that are marked with patterns of information. The right tokens with the right patterns denote value, and wallets move those tokens around in meatspace.
Bitcoin “wallets” also store patterns of information, but they don’t directly store value. Bitcoin’s value is stored only as records on the public blockchain. Bitcoin “wallets” store private keys that allow users to authorize changes to the blockchain on their behalf. Anything that can store a long string of numbers (i.e., private keys) — a piece of paper, neurons, or a fancy, password-protected flash drive — would count as a bitcoin “wallet.” In Bitcoin, the right private keys with the right patterns indirectly denote value, because these keys allow you to move value around in cyberspace.
When friends split a tab with cash, and bills move from one wallet to another, the value is transported. When friends split a tab with bitcoin, the sender encrypts a transaction with the recipient’s public key and then their numbers shift around on the blockchain, where the value was and remains.
Let’s compare again these two kinds of transactions visually:
Again, it’s easy to see where a wallet fits into the transaction on the left: cash exits wallet A, changes hands, enters wallet B. But when it comes to Bitcoin, what we call “wallets” are those colored boxes at the bottom containing the private keys. Does … does anyone else find that metaphor … silly? Like, if a piece of paper, neurons and a flash drive can all be called “wallets,” even though none of them contain any physical tokens of value or even any bitcoin (whatever that would mean), then isn’t that metaphor misleading and unhelpful?
As Kiara Bickers puts it in her great book, “Bitcoin Clarity,”
“With a physical wallet, you are directly holding cash that has value, but with a digital wallet you never hold the value directly, you only ever hold access to it on the blockchain. If you cross a national border from one country into another, did your bitcoin move with you? Well, no. … The private keys stored in your bitcoin wallet represent only the ability to move funds, not the funds themselves.” (p. 18)
If you want a better term that is less misleading and more accurately descriptive, how about “signers?” Same denotation plus vastly improved connotations equals Pareto-efficient semantics.
(Hat Tip to NVK and Conor Okus for helping me to think through this question and terminology.)
What About Lightning “Wallets?”
The term “wallet” is applied to all manner of Lightning apps. While that term misses the mark in every case, it errs in different directions depending on the type of app in question. Interestingly, reflecting on how Lightning apps are not like wallets does help to identify what they are like, so let’s do that.
Custodial “Wallets” Are Accounts
Custodial “wallets” don’t transport tokens of value, but they do have an analog in the fiat world: bank accounts. Remember how custodial accounts actually work:
- You pledge your bitcoin to some intermediary and authorize them to transact on your behalf.
- They execute transactions as you instruct.
- You really hope that they’re actually following your instructions, taking good care of your money, and will still have it when you want to close your account.
In effect, whoever’s operating the custodial “wallet” is “an establishment for the custody [and] exchange of money … and for facilitating the transmission of funds.” In other words, they’re a bank, and that’s not my judgment, it’s the Merriam-Webster Dictionary. That’s just what the word means. And the “wallet” they provide is “an arrangement in which a bank keeps your money but makes it available to you when you want it” – i.e., a bank account (Cambridge American Dictionary).
Custodial “wallets” are merely user interfaces for these accounts. They just provide a way for users to pass instructions to and receive messages from the custodial intermediary. Not really “wallets,” are they?
Noncustodial Lightning Payment Apps
So an actual wallet contains tokens of value to carry them around physical space. A bitcoin “wallet” (or a signer, remember?), holds your keys, signs transactions and broadcasts them to the network. Custodial Lightning “wallets” are really like bank accounts, where the value is entrusted to a third-party who transacts on the user’s behalf.
So what about noncustodial Lightning “wallets”? (Ugh. It feels awkward just typing that.)
The Lightning Network consists of nodes connected by payment channels. Signing plays a role here too, because every Lightning transaction is a Bitcoin transaction. However, Lightning transactions require routing bitcoin from one Lightning node to another … and another … and another, along their payment channels, until the payment reaches its destination.
The point is that Lightning payment apps aren’t just flashy user interfaces to manage “wallets” or “account balances” — they have to route payments through a fluctuating network graph. And ensuring a decent routing-success rate entails a number of subsidiary tasks. These include, for example, channel management — opening and closing channels with other nodes in the network — and liquidity management — ensuring enough outbound and inbound liquidity.
Some users prefer managing their liquidity and available routes manually on self-hosted nodes. Most users, though, delegate these technical tasks to Lightning service providers, like Breez and Phoenix.
Reading this, did anyone think “Well, that’s simple! They’re just describing a wallet!”? That’s the point. There is no such thing as a Lightning wallet.
From “Wallet” To Payment App
Metaphors are great when they help people to communicate a complex reality vividly and succinctly. When E.M. Forster writes that “Life is a public performance on the violin in which you must learn the instrument as you go along,” it hits. It doesn’t require explanation; it’s already an explanation of something much bigger. “Lightning wallet” is not like that. As a metaphor, it confuses, misleads and obfuscates.
A better approach would probably be to use terms that describe functions (think: “bolt cutter”). If an app sends and receives payments, let's call it a payment app. If it's used to play podcasts and stream sats to podcasters, call it a podcast app. If it's used to manage finances, call it a finance app. This applies equally to bitcoin and fiat (remember PayPal, Venmo, CashApp etc.). The app’s name should derive from its function, not how it implements that function. And if we must use metaphors, those metaphors should at least reflect the current state of our technological reality.
We’re sure that many people will continue to refer to Lightning payment apps and custodial accounts as “wallets,” and that legislating language never works (or we would be writing these posts in Esperanto, rajto?). I’m all for free speech, but simply using a term does not make it accurate or valid. It’s still important to think about the relation between how we talk about Lightning and how we think about Lightning, and how the former might influence the latter for better or worse.
Our world is made of concepts (ask Immanuel Kant), and concepts are made of language (ask Ludwig Wittgenstein). Therefore, getting the language right should help us understand and shape the world. How do you expect to launch the Lightning revolution with a mere “wallet?”
This is a guest post by Roy Sheinfeld. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.