Robinhood Wednesday announced plans to launch a new wallet for cryptocurrencies like Bitcoin, Ether and Litecoin. People interested in beta testing the new feature can sign up soon, though the official release won't come until 2022.
Founded in 2013, Robinhood's financial app, which makes it easy and free to buy and sell stocks, also offers cash management accounts -- and, as of 2018, supports some cryptocurrency trading. The company has been embroiled in controversy, attracting the scrutiny of state regulators and academics for "gamifying investing" and for its role in the GameStop trading fiasco earlier this year.
Still, by offering a cryptocurrency wallet, the company is giving its customers more of what they want: Nearly 60% of the app's users bought or sold cryptocurrency during the previous quarter, according to Robinhood. And the focus of investing momentum within Robinhood's user base continues to shift: For the first time, the company disclosed, new users' first purchases more often involve cryptocurrency than equities.
"Our customers have been asking for the ability to send and receive crypto on Robinhood, and that's exactly what we're building," said Christine Brown, Robinhood's chief operating officer.
CNET sat down with Brown to discuss the future of cryptocurrency trading, the company's new wallet and how it decides on which coins to support. Here's what we learned.
Why is Robinhood building an integrated crypto wallet?
"When you look at Robinhood's customers, about half are first-time investors," Brown said in an interview with CNET. "In crypto especially, there's this generational shift going on in how users invest. That's something we've seen play out over the last six months. I think crypto is a central part of that. So building features that are accessible and available and make the market and ecosystem of cryptocurrency easier to approach for the first time is really aligned with our mission to democratize finance for all."
Will the wallet be free?
Robinhood wants to make it cheap and easy for its users to get into the crypto markets, Brown says, so its wallet will be free to use -- similar to how wallets work on other exchanges like Coinbase. Robinhood users will still be on the hook for any transaction fees, however.
"We have not added fees to the [wallet] product. We will be passing on the transfer fees that exist when you move assets on-chain. But there's no additional Robinhood fee," Brown said.
Will users hold the keys to their Robinhood wallets?
No. The Robinhood wallets are custodial, meaning access to your crypto assets will ultimately be held by Robinhood. This removes the burden of keeping up with your keys, which some users may prefer. However, your ability to access to your Robinhood wallet depends Robinood's infrastructure. Some crypto enthusiasts may feel wary about entrusting the security of their crypto assets to a centralized authority.
"This will be a custodial wallet, or a 'hosted' wallet. Users who have the 'Not your keys, not your coin' mentality will be able to transfer into their own wallet and manage their own keys if they want to."
That means that Robinhood users will retain the right to transfer their crypto assets from Robinhood's wallet into their own noncustodial wallet, where they can have full control.
Will Robinhood have access to my wallet?
Robinhood says it will track some transactions in an effort to prevent fraud, which is increasingly common in the cryptocurrency market. The company will have access to your wallet and its contents.
Brown confirmed, "Yes. We will have the ability to understand all of the assets under custody that users deposit onto our platform."
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If my wallet is custodial, where is the crypto?
When you buy cryptocurrency and store it in your Robinhood wallet, Robinhood controls that cryptocurrency.
"The product we're launching mirrors the infrastructure and setup we use today to [manage] custody all of our customers' coins. When you make a purchase on Robinhood, we actually do acquire those coins. We hold them internally, and we have a mix of hot and cold custody solutions to make sure our users' assets and their coins are as protected as possible," Brown explained.
How will Robinhood authenticate my identity for making transactions to and from my wallet?
"We're building a new multifactor authentication process in-app, so we know that it's you when you initiate a transfer. There's no way that someone else can initiate a transfer to a wallet without your confirmation. There are multiple stages of confirmation that this is actually you as the person doing it," Brown said.
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How does Robinhood determine which cryptocurrencies to support?
Robinhood also announced that it will add new coins to its platform.
Most of us are aware of Bitcoin. But there are other major coins -- including Ether and Litecoin -- as well as countless more niche cryptocurrencies popping up all the time. Robinhood would not provide many details about its criteria for which coins to support and which to ignore.
Brown said, "The world of coins out there is huge -- there are thousands of coins. We do have a process to review all the coins we would want to list, and we make sure we're listing coins that meet a certain level of criteria and standards on our side. There's a little bit of secret in that sauce of what our asset listing framework contains. But we do put all of our coins through a rigorous review process before it's on the platform and accessible to our users."
Robinhood currently allows users to buy and sell Bitcoin, Bitcoin Cash, Bitcoin SV, Dogecoin, Ethereum, Ethereum Classic and Litecoin.
When will Robinhood's crypto wallet be available?
Robinhood said the wallet will roll out early next year. But users will soon be able to add their name to a waitlist to become a beta tester.
"We will be rolling out to a beta group of initial customers in the coming month. And we're going to be building in public, so those users are going to get an early version of the app. We're going to be looking to them for feedback and first experiences, and it will help iterate and drive the final product that we produce," Brown said.
"Beyond this next month, we will be rolling out to users on our waitlist through early 2022."