Why the World Needs an Open Source Digital Wallet Right Now | The Linux Foundation
February 2023 | Gordon Graham
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In partnership with: Why the World Needs an Open Source Digital Wallet Right Now February 2023 Gordon Graham With a foreword by Daniel Goldscheider, Founder, OpenWallet Foundation
Contents Foreword ..........................................................................................................................4 Overview ...........................................................................................................................5 How popular are digital wallets? .............................................................................................................................. 7 Drawbacks of today’s digital wallets ................................................................8 Vendor lock-in with no interoperability................................................................................................................8 Questionable security ...........................................................................................................................................................8 Intrusive business models ................................................................................................................................................8 Black-box design ....................................................................................................................................................................... 9 Limited capabilities ................................................................................................................................................................ 9 Not ready for prime time .................................................................................................................................................... 9 Wallet projects around the world ..............................................................................................................................9 But who’s coordinating all these projects? .................................................................................................. 10 We’ve been here before .................................................................................................................................................. 10 What the world needs now ..................................................................................11 Appendix A: Design principles of the OWF software engine ............12 About the author .......................................................................................................13 Sources ........................................................................................................................... 14
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WHAT ARE DIGITAL WALLETS? DIGITAL WALLET ACCESS SECURITY AND DIGITAL WALLETS Digital wallets store Nearly all digital wallets are Security is a constant digital assets, restricted by vendor concern since credentials, and lock-in from the hackers are useful items, such banks, merchants, constantly trying as tickets and keys. companies, or nations new ways to hack that issue them. into digital wallets. CODE SECURITY WALLET FLEXIBILITY THE WORLD OF WALLETS The design, development, and Most digital wallets can Around the world, updates for most wallets are rapidly in a black box only do a few things, countries are all done so consumers implementing controlled by a single wallets to manage organization so that must juggle their digital identity no one else can see multiple wallets. programs. their code. WALLET COMPATIBILITY MARKET ACCEPTANCE THE WAY FORWARD & THE FUTURE Current wallets lack any The success of digital wallets The mission of the Open Wallet Interoperability across standardizing Foundation (OWF) is to create functions, devices, depends on credential issuers, the engine that runs an open source software merchants, and them so they can all stack and best practices nations. interoperate and share that any developer can information. use to create a wallet. THE DIFFERENCE: OWF OWF BENEFITS: CULTURE OWF BENEFITS: DEVELOPMENT OWF wallets will be On top of these shared The OWF continues to build with portable, highly secure, standards, any developer out its stack privacy-preserving, can provide unique feedback from the standards-based, functions, interfaces, worldwide community interoperable, and and customer of those interested in multi-functional. experiences. the challenges of digital wallets. Copyright © 2023 The Linux Foundation | February 2023 This report is licensed under the Creative Commons Attribution-NoDerivatives 4.0 International Public License
Foreword As our world becomes increasingly digitized, the same holds innovative foundational digital wallet solutions, and importantly, the true for everyday assets. From money to credentials for identity, decision-making frameworks that solve common challenges and academic achievements or your driver’s license, information create shared value. is manifesting itself as digital tokens requiring secure and This report delves into the world of digital assets and the interoperable infrastructure as never before. Part of that opportunities created through digital wallet technologies and infrastructure is specific to custody; consequently, the development best practices, answering the question, “why open source?” The of secure wallet architecture is as vital as the development of the benefits have been leveraged across industries, in terms of faster digital assets themselves. time to market, lower total cost of ownership, and having access to Digital wallets will permeate all facets of society, at the innovation beyond the boundaries of the firm. They apply equally government, enterprise, and peer to peer level. Institutions of all in the context of digital wallet. We are convinced that open source kinds will face the need to issue, secure, trade, and store emerging can also play a vital role to democratize the wallet ecosystem. classes of digital assets, including Central Bank Digital Currency This report is a must-read for leaders who want to learn more (CBDC), securities, health and academic credentials to other types about open source best practices as they pertain to digital wallet of cryptoassets, with an aim to creating trusted digital marketplaces architecture, security and interoperability considerations, and the and increasingly trusted institutions. The digital wallet could outcomes that can emerge from multi stakeholder collaboration become the most important tool ever for asserting control and and innovation. Like the OpenWallet Foundation itself, this engendering trust in our digital lives. report is a valuable resource which we hope will inspire new and To date, the development of commercial digital wallets has often widespread understanding of the opportunities before us. been centralized, with a handful of technology conglomerates Daniel Goldscheider dominating the digital payments landscape. With the rise of Founder, OpenWallet Foundation open source as a framework for mass collaboration at scale, opportunities abound for collaboration in digital asset infrastructure like never before. These opportunities were central to the formation of the OpenWallet Foundation, which aims to be the organization of choice for mass collaboration on open source digital wallet technologies and best practices in governance. With the Foundation’s launch, enterprises, nonprofits and the public sector the world over can collaborate on the development of new and WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 4
Overview Our physical wallets are quickly becoming digitized, especially the three vital functions of making payments, proving our identity, and accessing handy items, such as tickets and keys. Hundreds of digital wallets already exist. But these are textbook examples of vendor lock-in: when we can’t move our data, we can’t choose between competing products. Without interoperability, we need a separate wallet for each different function. Many of today’s digital wallets also suffer from problems such as questionable security, intrusive business models, black-box design, and limited capabilities. We need a wallet engine to help developers create portable and secure digital wallets that anyone can use on any device, with any operating system, for any app or service, with any currency, in any language, anytime, anywhere. The Open Wallet Foundation (OWF) was formed to make this dream a reality by creating an open source software engine and best practices to support it. Then, any developer can use that engine to build a digital wallet that will share data and interoperate with every other wallet built around the same codebase. As a project of the Linux Foundation, the OWF brings together hundreds of people from all over the world: from digital identity activists, standards organizations, and governments to billion-dollar companies in banking, credit cards, and software. To be part of this historic movement, go to https://openwallet. foundation and sign up. WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 5
In essence, a digital wallet is “a thing where we put our stuff.” 1 Beyond that, definitions branch off in all directions. Digital wallets can offer three vital functions. As shown in FIGURE 1, these are making payments, proving your identity, and accessing items such as tickets, keys, or documents.2 FIGURE 1: THE THREE FUNCTIONS OF DIGITAL WALLETS PAYMENTS IDENTITY ACCESS Debit card Loyalty card Tickets Credit card Work badge Receipts Gift card Birth certificate Keys Alipay, Apple Pay, Google Driver’s license Passwords Pay, etc. Health card Warranties Cryptocurrencies Passport Health records NFTs Self-sovereign ID Documents Other Other Other WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 6
A digital wallet is a container where you can store and access How popular are digital wallets? digital assets, credentials, and other useful items, such as tickets Well, for one of the big three functions—payments—digital and keys. Another software component, most often called an wallets rule. As shown in FIGURE 2, digital wallets are now the agent, can put items into a wallet, take items out of a wallet, or world’s leading payment method for both e-commerce and process items in a wallet. While the wallet is the container, the point-of-sale retail. agent is the mover and shaker. In 2021, the value of all digital wallet transactions came to an 3 astounding U.S. $15.9 trillion. By 2025, digital wallets will likely 4 be even more popular. The fact is that digital wallets are not coming some day in the future. They’re here now, used by billions of people. FIGURE 2: GLOBAL TRANSACTIONS MADE WITH DIGITAL WALLETS E-COMMERCE PAYMENT E-COMMERCE PAYMENT POS RETAIL PAYMENT POS RETAIL PAYMENT METHODS 2021 METHODS 2025 (PROJECTED) METHODS 2021 METHODS 2025 (PROJECTED) Digital wallet 49% Digital wallet 53% Digital wallet 29% Digital wallet 39% Credit card 21% Credit card 19% Credit card 24% Credit card 22% Other 18% Other 15% Debit card 23% Debit card 22% Debit card 13% Debit card 13% Cash 18% Cash 10% Other 7% Other 7% Source: The Global Payments Report 2022, Worldpay from FIS WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 7
Drawbacks of today’s digital wallets Hundreds of digital wallets already exist, from Accelitec Questionable security 5 WalletBuilder to Zomato. A recent report by Darrell O’Donnell Wallet developers work hard to keep ahead of cybercriminals, but 6 analyzed 250 digital wallets. Each one of those wallets took they sometimes lose the race. Here are two sobering statistics: thought and effort to create. 7 with all • Cryptocurrency crime was U.S. $14 billion in 2021, But today’s digital wallets suffer from a host of problems: these crimes involving digital wallets • Vendor lock-in with no interoperability • E-commerce fraud will likely total U.S. $41 billion in 2022 and 8 • Questionable security rise to U.S. $48 billion in 2023, with much of this committed via digital wallets9 • Intrusive business models • Black-box design Hackers use a vast arsenal to attack digital wallets, including code exploits, flash loans, keyloggers, pagejacking, phishing, • Limited capabilities ransomware, rug pulls, and even the venerable Ponzi scheme. When they win, everyone else loses—wallet holders, merchants, Let’s consider each drawback in brief. banks, and insurers. Vendor lock-in with no interoperability Intrusive business models Nearly all digital wallets are tethered to a single bank, payment A wallet can easily collect a stream of valuable data on our system, merchant, company, region, nation, or cryptocurrency consumer behavior. That data can then be sold and re-sold to third exchange, and it’s exceedingly difficult or impossible to move our parties, such as ad agencies, health insurers, even the dark web. So assets, credentials, or data to a different wallet. much for our privacy. This is a textbook example of vendor lock-in. When we can’t On the back end, wallets can extract fees from transactions, even move our data, we can’t choose between competing products. And if those fees are hidden. In the end, consumers cover those fees by without any interoperability, we need a separate wallet for every paying higher prices for everything we buy. So, as it turns out, we function. could be paying extra to have our personal information pilfered. How many consumers would knowingly agree to that? WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 8
Black-box design Here’s a quick rundown on what some countries are doing. Hundreds of wallets have been coded by someone, somewhere, The European Digital Identity Wallet expects to pilot a prototype but we don’t know exactly who or where. A black box is not at all in 2023. Initially designed for digital ID, this wallet will be available transparent. But if you can’t see how a product works, you can’t tell 10 to 450 million citizens across all 27 E.U. member countries. More how good it is or whether you can trust it. 11 features, such as payments, are currently in development. The only people who can fix bugs or add features work for that one 12 13 Canada and the U.K. are developing national trust frameworks organization. Sounds a little lonely, doesn’t it? that spell out standards, rules, and best practices for a digital infrastructure in their jurisdictions. This is a necessary first step Limited capabilities before creating a national digital wallet. The final drawback: You really can’t do much with most digital Denmark, Finland, Iceland, Norway, and Sweden have studied wallets. electronic ID and e-signature interoperability across their borders.14 Remember the three functions of payments, identity, and access? While some projects do not involve a digital wallet from the outset, Nearly all digital wallets perform just one function. So, you need they could well adopt a wallet that was designed for their needs. this wallet to pay with fiat, but that wallet to pay with bitcoin. You need this wallet for your identity, and that wallet—or app, really—to India’s Aadhaar digital ID covers 1.34 billion people, making it the access your keys. 15,16 world’s largest biometric ID system. So far, the program uses a plastic card with security features.17 The ID number enables many No one wants to juggle 15 or 20 digital wallets that can’t talk to one transactions, and a digital wallet could implement this feature. another. But that’s where we’re headed. The Philippines and Morocco have rolled out digital ID on the Not ready for prime time modular open source identity platform. Nine more countries are in With vendor lock-in, no interoperability, questionable security, the pipeline, with a goal to issue 500 million digital IDs by the end intrusive business models, black-box design, and few capabilities, of 2023. Some of those millions of people would likely appreciate a today’s digital wallets just aren’t ready for prime time. digital wallet to hold their credentials.18 Yet the world is plowing ahead. More wallets are constantly The World Bank is making an effort to reach out to the world’s 19 appearing, but none are designed to overcome these drawbacks. 1.1 billion people who have no ID at all. A properly designed digital wallet, perhaps based simply on QR codes, could help with that Wallet projects around the world effort. Many intriguing wallet projects are underway. The potential time and money savings that digital IDs can offer are what drive most national projects. Plus, the fact that digital IDs are cryptographically generated makes them harder to counterfeit. WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 9
But who’s coordinating all these projects? We’ve been here before Somehow, all these projects must stay in sync. Otherwise, every Twenty-five years ago, early-stage web browsers were country or organization that issues credentials could become a incompatible and non-standardized. This threatened to derail the walled garden where IDs and wallets from elsewhere don’t work. web. That threat brought everyone to the table to adopt a core set Imagine how that would disrupt travel and tourism, international of standards that ensured interoperability and helped the web to students, and mobile workforces. flourish. Coordinating all these projects is a huge challenge that no one is Today, everyone routinely uses a browser to access the web— doing. But it points to a likely solution: an open source wallet engine but we’re free to switch between browsers anytime we like. Open that promotes interoperability around the world. source browser engines, such as Blink, Gecko, and WebKit, give “Right now, we all have a common problem: consistent, compliant, developers a quick start on their own projects. and secure access to products and services,” says Juliana Cafik, a The parallel is striking. principal standards architect with the identity standards team at Microsoft. Digital wallets are becoming the interface to our entire digital “An open wallet can provide a common core that enables lives. But today’s early-stage wallets are incompatible and interoperable, compliant, and secure exchanges that align with non-standardized. It’s time for everyone to come to the table to trust frameworks for policy and governance. This is a practical create a core engine that adopts a set of standards with built-in opportunity to come together in an open source community to interoperability to help our digital world flourish. 20 create the foundational components for wallets.” Yesterday, we made the right choice. Many organizations worked No one expects a future where one digital wallet reigns supreme together to unleash a monumental wave of innovation on the web. as a “super app” that does all things for all people. Instead, we will Today, we must do that again. Many organizations must work likely have several wallets, each doing a few things better or faster together to unleash a new wave of innovation in digital wallets. or cheaper, or simply in a way that appeals to us. “We see a future where we’ll still have multiple wallets,” says Tomorrow, we can look back in pride at what we achieved, knowing Drummond Reed, director of trust services at Gen Digital and a that the creation of open wallets was a major milestone in the digital ID pioneer and author. “That’s why we need a world-class history of technology that benefited everyone. 21 wallet engine to ensure that interoperability is built in.” WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 10
What the world needs now Our economic and social progress is being held back by the limitations of today’s digital wallets, especially the lack of interoperability. Meanwhile, many countries and groups are rushing ahead to create their own bespoke digital wallets. That’s why we need an open, secure digital wallet engine that anyone can use on any device, with any operating system, for any app or service, with any currency, in any language, anytime, anywhere. And we need it now. People from all over the world who share the same vision of a truly portable, secure, privacy-preserving, standards-based, multi- function digital wallet must design this wallet engine. Hundreds of people who share this vision have come together to start the OWF, a project of the Linux Foundation. The OWF’s mission is to create an open source wallet engine—a set of foundational software components that any developer can use to create a wallet without the cost and risk of reinventing the wheel. The OWF will also research, develop, and promote best practices for building digital wallets. There’s a precedent in the standards developed by the W3C that helped the web to grow and flourish. But we need your help to turn this dream into reality. “If you’re interested in payments, in digital ID, and you hope for a future where a lot of wallets blossom, we want to hear from you,” says Daniel Goldscheider, convenor of the OWF Roundtable in Dublin that attracted interest from more than 350 entities.22 You can be part of this historic movement: go to https://openwallet. foundation/ and sign up. WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 11
Appendix A: Design principles of the OWF software engine It’s too early to define any specifics about the OWF wallet stack. Over time, the OWF will wrestle with these issues and clearly define For example, the OWF software engine likely won’t include any what the foundation provides and what wallet developers must branding, interfaces, or smart contracts. Those will remain up to build. each developer to create. The OWF founders do agree on something important: the design But what about agents? Functional modules? Plug-ins? philosophy that will guide all our discussions. This table shows the key design principles the project will follow, along with the benefits of each one. PRINCIPLE DESCRIPTION BENEFIT Portable Users can freely move assets, credentials, documents, No user assets or identities are controlled or locked in by and any other data between any wallets based on the any vendor OWF engine Highly secure User assets, credentials, and all other data are protected Users trust the OWF engine against malware and hackers, and updated quickly as criminals come up with new tactics Privacy-preserving User’s digital identities are only selectively Users remain in control of their personal data and digital disclosed as needed identities Standards-based OWF supports all relevant standards for all layers of the Wallet developers do not need to rewrite software over wallet stack and over as standards evolve Interoperable Any wallets based on the OWF engine can quickly and Users don’t need a different wallet for each credential, securely exchange data function, or merchant Multi-function Developers create proprietary plug-ins and interfaces on Developers add unique branding, functions, and top of the OWF engine interfaces to differentiate their wallets WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 12
About the author Gordon Graham—also known as That White Paper Guy—is an award-winning writer who has worked on 300+ white papers for clients from Switzerland to Silicon Valley. Gordon has written on everything from choosing enterprise software to designing virtual worlds for kids, for everyone from tiny startups to major enterprises like 3M, Google, and Verizon. Since 2018, he has helped produce more than 15 white papers and case studies for the Hyperledger Foundation. And he worked with the Blockchain Research Institute on numerous research projects, including a special report on the future of digital wallets. WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 13
Sources 1. Definition attributed to John Jordan, Executive Director, BC Digital September 2022. https://ffnews.com/newsarticle/multi-country- Trust Service, Province of British Columbia and Executive Director, consortium-comes-together-to-launch-pan-european-payments- Trust Over IP Foundation. pilot-for-eu-digital-id-wallet/ 2. Don Tapscott, “Toward a Universal Digital Wallet,” Blockchain Research 12. https://diacc.ca/pctf-digital-wallet/ Institute, November 2020, pp 5-13. https://blockchain 13. “UK digital identity and attributes trust framework-beta version,” researchinstitute.org/project/toward-a-universal-digital-wallet/ policy paper, Department for Digital, Culture, Media & Sport, 3. “The Global Payments Report 2022,” Worldpay from FIS, 2022, p 154. 13 June 2022. https://gov.uk/government/publications/ https://worldpay.globalpaymentsreport.com/en uk-digital-identity-attributes-trust-framework-updated-version/ 4. “The Global Payments Report 2022,” Worldpay from FIS, 2022, pp 7, 11. uk-digital-identity-and-attributes-trust-framework-alpha-version-2. https://worldpay.globalpaymentsreport.com/en 14. https://norden.org/en/publication/nordic-digital-identification-eid 5. John Rampton, “Top 101 Digital Wallet Companies,” Due. 15. “Unique Identification Authority of India: A Unique Identity for the com blog, updated 17 January 2022. https://due.com/blog/ People,” UIAI brochure, 3 July 2022. https://uidai.gov.in/images/ top-101-digital-wallet-companies Aadhaar_Brochure_July_22.pdf 6. Darrell O’Donnell, “The Current and Future State of Digital Wallets,” 16. “’Adhaar’ most sophisticated ID programme in the world: World Continuum Loop, 28 April 2019. www.continuumloop.com/ Bank,” daijiworld.com, 16 March 2017. https://daijiworld.com/news/ wp-content/uploads/2022/02/The-Current-and-Future-State-of- newsDisplay.aspx?newsID=442948 Digital-Wallets-v1.0-FINAL.pdf 17. Aditya Tarar, ”Aadhaar News Update: UID has reached 90 percent of the 7. “The Chainalysis 2022 Crypto Crime Report,” Chainalysis, February 2022, p country’s population, Aadhaar has become necessary in many services,” 3. https://go.chainalysis.com/2022-crypto-crime-report.html Hindustan News Hub, 4 September 2022. https://hindustannewshub. 8. “E-commerce Losses to Online Payment Fraud to Exceed $48 Billion com/tech-news/aadhaar-news-update-uid-has-reached-90- Globally in 2023, as Fraud Incursions Evolve.” Juniper Research, press percent-of-the-countrys-population-aadhaar-has-become- release, 12 October 2022. necessary-in-many-services/ 9. “E-commerce Losses Owing to Digital Fraud Set to Exceed $489 BN 18. Comment from Sanjay Jain at Open Wallet Foundation roundtable, World Wide,” News 24 Broadcast India, 12 October 2022. https:// Dublin, 14 September 2022. news24online.com/business/e-commerce-losses-owning-to-digital- 19. Vyjayanti T. Desai, Matthias Witt, Kamya Chandra, and Jonathan fraud-set-to-exceed-48-bn-world-wide/44413/ Marskell, “Counting the uncounted: 1.1 billion people without IDs,” World 10. “European Digital Identity Wallet Call for Tenders,” European Bank blog, 6 June 2017. https://blogs.worldbank.org/digital- Commission, 12 June 2022. https://digital-strategy.ec.europa.eu/en/ development/counting-uncounted-11-billion-people-without-ids funding/european-digital-identity-wallet 20. Telephone interview with Gordon Graham, 14 October 2022. 11. “Multi-country Consortium Comes Together to Launch Pan-European 21. Telephone interview with Gordon Graham, 14 October 2022. Payments Pilot for EU Digital ID Wallet.” Fintech Finance News, 14 22. Telephone interview with Gordon Graham, 30 September 2022. WHY THE WORLD NEEDS AN OPEN SOURCE DIGITAL WALLET RIGHT NOW 14
Founded in 2021, Linux Foundation Research explores the growing scale The mission of the OWF is to develop an open source engine to enable secure and of open source collaboration, providing interoperable multi-purpose wallets anyone can use to build solutions. The OWF insight into emerging technology trends, aims to set best practices for digital wallet technology through collaboration on open best practices, and the global impact of source code for use as a starting point for anyone who strives to build interoperable, open source projects. Through leveraging secure and privacy-protecting wallets. To be part of this historic movement, go to project databases and networks, and a openwallet.foundation and sign up. commitment to best practices in quantita- tive and qualitative methodologies, Linux twitter.com/OpenWalletFdn Foundation Research is creating the go-to repository for open source insights for the benefit of organizations the world over. Copyright © 2023 The Linux Foundation This report is licensed under the Creative Commons Attribution-NoDerivatives 4.0 International Public License. This material may be copied and distributed under the terms of the Creative Commons license. To reference the work, please cite as follows: Gordon Graham, “Why the World Needs an Open Source Digital Wallet Right Now “ foreword by Daniel Goldscheider, The Linux Foundation, February, 2023.
