The primary use-case that blockchain technology brings to the business world is that it enables peer-to-peer transactions by cutting out the middleman.

When sending funds to one another or trading on exchanges in a peer-to-peer fashion, fees are drastically lower than what most are familiar with. On Sept. 5, someone sent $1 billion worth of bitcoin while paying only a $700 fee, which some estimate was still 20x more than needed.

Not only does blockchain technology provide for a cheaper-to-use ecosystem, but there are privacy benefits as well. A blockchain ledger is publicly anonymous, and if you use a non-custodial wallet, then your funds are stored locally on your computer so only you can access them, taking advantage of blockchain technology to the fullest extent.

Despite the benefits that come from non-custodial solutions, custodial solutions, such as Coinbase and Binance, have ironically been attracting the most users over the past few years. But why? Doesn’t this negate all the benefits that blockchain technology has to offer?

The answer is yes, but at first, speculators didn’t seem to care about anything other than potential profit. The reality is that centralized offerings provided better user interfaces and a smoother user experience. The order-matching engines were faster than decentralized networks and customer engagement was better because they know everything about their users.

While these are valid upsides, the harsh downside is that centralized exchanges and custodial solutions are constantly under attack because they are a honeypot for hackers. Billions worth of funds has been stolen from investors with no hope for redemption. Now, they are looking towards non-custodial solutions, as they should in the first place.

The Community Is Learning

After several devastating hackings and billions worth of funds stolen from investors, we are now seeing a positive shift in the products being used by the community, taking advantage of the privacy and financial upsides that non-custodial products have to offer.

The blockchain ecosystem has two main businesses that every user engages with: wallets and exchanges. There are custodial wallets and exchanges, and non-custodial wallets and exchanges. As mentioned above, a custodial offering means that you are trusting your funds to be held with the company, and non-custodial means that you control your own funds, for greater privacy and most likely cheaper transactions. Early on in the blockchain industry, non-custodial solutions felt clunky to use, had horrible user interfaces, and had virtually no support. They were more of a product than a business.

But now, we are seeing non-custodial wallets, like BRD, and decentralized exchanges (DEXs), like Binance DEX, offer sleek user interface and industry-leading support.

The Wallet and Exchange Businesses are Converging

Non-custodial wallets in and of themselves are arguably not a business, they are a product, which are very much needed, but provides no revenue to the business. To survive, some wallets like BRD began to integrate with third parties to offer trading functionality as well as enabling users to buy and sell bitcoin with their credit card or bank account.

The importance of adding these trading features is that:

1. It provides revenue to the business, to keep them alive.
2. It does not force users to go through KYC/AML procedures. This means users can download a non-custodial wallet and use it without any signup, in a completely private fashion. But, if they want to buy and sell, then they can do so, all from the same application.

On the other side of things, we are seeing centralized exchanges, such as Binance, spin up decentralized exchange offerings, like Binance DEX. Binance actually created its own blockchain, called Binance Chain, for the purpose of supporting higher-throughput order matching to compete with centralized exchanges. They have also integrated with Trust Wallet, so users can trade directly on the Binance Chain from their personally controlled wallet.

The Big Picture

The big picture here is that the blockchain industry is witnessing an uptick in the use and awareness of non-custodial solutions. Not only that, but wallets and exchanges are offering more competitive products and services that compete head-on with custodial offerings.

Exchanges are offering non-custodial solutions and wallets are integrating trading features. Observing how both businesses evolve over time will be interesting to note.

Brent Traidman is the CRO of leading crypto wallet, BRD. He has over 15 years of experience leading high impact growth software companies, of which many have had successful exits.