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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is an assistant professor of economics at Seton Hall University and former financial economist at the Federal Reserve Bank of Boston
While lawmakers debate how to regulate cryptocurrencies, a far more consequential battle is unfolding over who controls your digital wallet and, with it, your identity.
A digital wallet isn’t just a place to hold crypto tokens. It’s any software that verifies identity and links you to financial, social and even government systems. It may seem like Apple or Meta already manage our digital lives, but their power is still limited. The influence of Apple’s digital wallet, say, is real, but it’s checked by competition from banks, payment networks and rival platforms.
Crypto wallets work differently. They are digital wallets, but they eliminate intermediaries entirely, linking users directly to blockchain-based platforms and decentralised apps rather than traditional websites. That gives their designers outsized influence over who participates in the digital economy.
They might sound niche today, but it’s where the digital economy is heading as crypto use increases and central banks develop digital currencies. Crypto wallets can merge financial, personal and even civic information into a single system. The same technology that verifies your driving licence or health record could also determine whether a payment clears or what data you must share to use a service. This level of integration gives whoever builds the wallet enormous power to set the terms of everyday life.
Some blockchain firms, like Ripple, use a hybrid digital wallet model that connects blockchain networks to traditional payment systems so users can transact across both without fully relying on either. Done right, this can make payments faster and more interoperable, while still limiting any single entity’s power over users.
From an economist’s perspective, market power is a central concern. If crypto wallets become the new entry points to the economy and a single system dominates, it will become nearly impossible to opt out. This pattern isn’t hypothetical; it has happened before. Dominance over social media and mobile operating systems shows how platforms can put their own priorities ahead of users.
That’s why today’s policy debate around crypto is missing the point. Lawmakers are still arguing over how to label tokens while ignoring the question of who controls the infrastructure that allows people to trade, transact and identify themselves. We need to decide who will design and govern crypto wallets.
Other countries are already answering this question in very different ways. China’s national wallet, launched in 2020, in which payments can be made via the digital renminbi, can be accessed by state security agencies, meaning it can be used to increase surveillance and political control. Europe’s new digital identity framework plan takes a different approach: citizens will have a government-backed wallet with interoperability standards. Europe’s non-crypto wallet avoids China’s surveillance model, although its system still concentrates authority with the government, rather than giving users control.
The challenge is ensuring such partnerships don’t allow governments or corporations to dictate access or control user data. The US should lead this debate by shaping digital identity through competition and values of individual freedom. Lawmakers should set open, transparent standards for privacy and interoperability while allowing private companies to compete on innovation and design. The government’s role is to protect competition and rights, not to control the technology itself.
The real test for Washington is not how it regulates crypto, but whether its oversight of the infrastructure of digital payments will allow Americans to keep control of their freedom online.
