Robinhood to Launch a Beta Crypto Wallet in Mid-January

Over 1.6 million people already joined the waitlist.

Robinhood's crypto wallet plans are gaining momentum. In September, the popular online broker announced plans to add wallet functionality to its Robinhood app. The crypto wallet rollout will mean customers could use the app to send and receive crypto, rather than just buying and selling it.

Just 30 days after its announcement, 1 million people had signed up for the waitlist. And now that figure stands at over 1.6 million, according to a blog post from the company. Thousands of those people will be eligible for the beta phase, which begins in a few weeks.

Why crypto wallets matter

Crypto wallets are essentially a way to store the keys to your crypto. Cryptocurrencies are encrypted with a public and private key (a bit like your bank account number and PIN). Many crypto enthusiasts believe if you don't control your keys, you don't really own your crypto.

Crypto brokers like Robinhood tend to use custodial wallets, which means they take care of your crypto keys. The advantage of this is that you don't have to worry about storing the password or keeping your wallet secure. If you have a crypto wallet and lose access to it, there's no handy "Forgot password" button -- your assets are locked away forever. As a result, billions of dollars worth of crypto are stuck in wallets that can't be opened.

On the other hand, moving your crypto into a wallet you control has advantages. You're less at risk if the cryptocurrency exchange you use gets hacked. And if for some reason the exchange freezes your account, you won't be impacted. Moreover, if you want to use your crypto assets to earn interest on one of the many decentralized finance applications out there, it's just a question of connecting your wallet.

There are also crypto tax implications. When you sell your crypto, it is a taxable event. And right now, Robinhood customers would have to sell their crypto assets to be able to move that money off the platform. If they instead move the assets into an external wallet, they still own that crypto and wouldn't have to pay tax on any gains until they sold or spent it.

What next for Robinhood's wallet?

Robinhood has finished its initial testing phase, which included its first transfer -- moving Dogecoin (DOGE) to an external wallet. The next step is to open its beta testing to some of the Robinhood customers on the waitlist.

Based on feedback from the alpha testing, Robinhood says it will introduce a number of security features for its wallet. These include multi-factor authentication and other transaction checks. It says education is key as alpha testers wanted more information and explanations of wallet terminology.

It is also working on a way to make gas fees easier to understand. Gas fees change depending on which blockchain network the transaction is being made on. For example, Ethereum (ETH) fees are much higher than those on the Solana (SOL) blockchain.

Once it launches, Robinhood customers will be able to send and receive any of the seven cryptocurrencies the broker supports. They can then trade them commission free on Robinhood's platform.