I've recently been thinking about all the free Bitcoin software I use and why I am generally not willing to pay for software even though I am willing to entrust it with my life savings. Free open source software is the standard in the Bitcoin ecosystem, but it does create a bit of cognitive dissonance:

🍺️ Free open source software is better/safer/more secure 🗽️ Free markets are more efficient, produce better products

Relying on people working for free is rarely as effective as paying people for their work. So why don't we pay for wallet software?

Here is a comparison of all the Bitcoin-only (mostly), onchain wallet software I could think of and how I believe they fund themselves:

In a perfect world, you connect your Bitcoin wallet with your own node so you don't need to rely on wallet developers (or anyone else) to provide you with information about your coins or incoming transactions. Your relationship with the wallet developers begins and ends when you download their wallet software. You don't need them to run a server for you and you have full access to all the wallet's features.

But even in this world, dependencies get outdated and vulnerabilities are discovered -- so you probably need the developers to patch your wallet software with some regularity. And then the Bitcoin protocol itself changes -- perhaps you'd like a wallet that takes advantage of some new feature (or maybe your wallet is no longer able to understand the coins other people send to it).

Now, we don't believe other people should be required to share their work with us for free. So what do you do if the developers of your wallet don't offer a patch for a critical vulnerability or don't release a new version to take advantage of the latest features in Bitcoin? Well, you probably go find a new wallet that is offering such things. But that is really just the same problem: you're looking for someone to do something for you for free.

When you must rely on a stranger to do something for you, it usually works out better if you are a customer. While the current--somewhat idealistic--attitude in Bitcoin software development is wonderful, it makes me wonder what will happen if all the venture money dries up. What if investors decide that funding Bitcoin wallet development is charity work with no ROI? How many of the currently available wallets would cease to be maintained? And, would this mean wallets can only exist on good will?

In the case of wallet software, most of us aren't capable to auditing it on our own, much less building and maintaining it. When you pay for a product or service, at least some expectations have been set out. If a person charges a price for a product, you can make a pretty good decision about whether it's worth it to you and you can assume that they are making enough out of the deal to be worth it. But if you are given a product and it becomes an integral part of your life and the the people who make it suddenly tell you that they are going broke and they can't keep it up anymore...you are in a tight spot.

It would be better if the developers of the best Bitcoin Wallets could win in the market and make a huge pile of money.

Based on the above table, Bitcoin wallets make money in one of the following ways:

I'll admit I'm putting it harshly, but this is how the biggest wallets in Bitcoin support themselves: they ask companies or users to donate money to them through grants or patronage. It seems to be working for a number of important projects, so who am I to judge? But it doesn't seem like a very sustainable model to me (although, some pretty hefty religious institutions have been built on a similar model + guilt).

This is the model most of the wallets that have an eye on making money seem to be moving towards. Offer the basic wallet for free, but put a (somewhat random) collection of features behind a paid gate. Often the paid features involve interaction with the wallet developers (a cosigning key, cloud backups, etc.).

I suppose if we all don't mind paying for utilities like water, electricity, and internet access on a subscription/usage basis, why would we mind paying for our wallet software this way?

But it doesn't feel quite right to me: this is freedom money. I'm supposed to be able to hold it without needing to rely on a third party. If I use a wallet that requires me to pay every month, it sure starts to feel like I'm trusting a third party to be able to access my bitcoin.

Selling a hardware signing device naturally goes well with developing and maintaining wallet software. Devices each have their nuances, so a wallet that is made by the same company as your device has a lot of perks; although, perhaps they aren't worth it if you are worried about putting all your eggs in one basket. Using different vendors for different parts of your setup is a pretty standard security practice.

Honestly, though, using the sales of a device to support wallet software development seems like one of the best models that we have.

Custodians are natural choices for developing wallet software, too: you have to put it somewhere when you buy it. But exchanges are the most regulated and heavily monitored players in Bitcoin. If we expect being an exchange to be the revenue model for wallet software, we are opening ourselves up to regulatory scrutiny. You might as well have it be taxpayer-funded and get your government to develop wallet software...no thanks.

Wallet software developers could have deals with exchanges where they take a commission on in-app Bitcoin trades. Several wallets do use this method, and a good number of the shitcoin wallets seem to be making a good portion of their revenue this way. The downsides I can see are that it ties the wallet to a particular exchange and it's hard to see how Mr KYC won't be knocking on the devs' door in the near future.

Taking a cut of Lightning or some other Layer 2 action does make sense. There certainly are a lot of wallets that are trying this out (Zeus, Pheonix, Breez, Blizt, Zebedee, etc..). I didn't include any of them in the above table because none of them have a really great solution for the cold storage situation (at least that I'm aware). All the layer 2s on Bitcoin require hot keys, and that's not exactly the same kind of wallet you want to trust with your life savings.

This is the option nobody ever talks about--and certainly none of the wallets out there are pursuing. I'm sure it's because minds wiser than mine have figured out that people don't want to pay for software. Most of the software world in general has abandoned outright purchasing software as a relic of the '90s. On that note, I still get a little rush when I think of bringing home a cardboard box with a little manual and cd for a new game in it. Man, those were the days!

The ecosystem is growing; there are new wallets and the wallets that exist are getting better. It certainly doesn't seem like there is a lack of funding or opportunity. So perhaps my ignorance is showing and I'm running around like Chicken Little here.

I'm curious for the Stackers' opinions: what is a sustainable model for onchain Bitcoin wallet software development?