Web3 Wallet: Following the FTX saga, cryptocurrency owners and everyday retail investors are now eager to take responsibility and take ownership of digital assets and portfolios. crypto communities seek greater security and personal self custody solution to protect their digital assets securely with complete control over their crypto assets and NFTs. Users can manage their portfolios across multiple blockchains in one window using Web3 wallets or crypto wallets.
This article provides an overview of the different types of self-custody solutions made available to individuals and the risk involved. You’ll get to know how you can grow and control your portfolios using reliable web3 wallets to keep your assets safe and the advantages/disadvantages of using them without having to go through any exchange wallet.
What is Web3
Web3 is the vision of the serverless internet, the decentralized web. An internet where users are in control of their own data, identity, and destiny. Web3 in the internet of ownership, takes away control from the internet giant and places it in your own hands, it allows you to experience a new level of freedom and control over your financial asset, personal data, and time in the digital space.
What is a Web3 Wallet?
Web3 wallet is a type of digital assets storage for individuals, it holds NFTs and other digital assets secured at a technical level. It often has a user-friendly interface that can easily connect and interact with decentralized applications (DApps) on various blockchains.
A “crypto wallet” is the same as a web3 wallet, and it is a tool for accessing the web3 economy, allowing users to interact with Dapps. Web3 wallets are often non-custodial wallets, meaning that the wallet owner can store digital assets without needing a third party and are designed to keep the user in control even though they are made by custodial third parties.
How does Web3 Wallet work
When a hot wallet is created or a cold wallet is purchased, they come with a private seed phrase, private key and public key. The seed phrase may be in the form of 12 or 24 words.
- First Users are to create their own wallet account. This is a different process of creating an account in an exchange account with email and password. Once the wallet account is opened a private key and seed phrase will be provided and you can only access your wallet with the private key and seed phrase which should be kept securely.
- Secondly, With this type of custody, everyday retail investors are supposed to remember or securely safeguard their private key and seed phrase, which is proof of their ownership of digital assets. More importantly, the private key is what allows individuals to spend their money.
- Transfer your fund from other wallets to your personal wallet using your private key or seed phrase.
Public keys allow users to receive cryptocurrency transactions. To access the received cryptocurrencies, the public keys have to be paired with a private key to prove ownership. Wallet addresses are usually a shortened version of public keys.
Private seed phrases provide users access to their wallets, which can contain multiple accounts. The difference between a private key and the seed phrase is like the difference between a master key to enter a house (private seed phrase) and a private key to access only one room within a house.
Types of Web3 Wallet
As the name implies, there are several types of self-custody or web3 wallets that are effective in helping investors to self-manage their assets offering different levels of privacy and security which include:
- Hot wallets: These are wallets connected to the Internet. Hot wallets have different types :
- Web-based wallet: Examples include MetaMask or Cronos Defi wallet
- Desktop wallet: Examples include Bybit wallet. Coinbase wallet and Exodus wallet
- Mobile wallet: Examples include Rainbow wallet, Trust wallet, coinbase wallet
Hot wallets can be installed on web browsers and personal smartphones, and in certain operating systems. some mobile versions may come with facial recognition, which serves as an additional layer of security. This makes hot wallets a popular choice for retail to access Web3 applications
Hot wallet features generally are:
● Buy tokens
● Send tokens
● Swap tokens
● Track historical activity/transactions
● View account on blockchain
Hot wallets are highly secure, thanks to various cryptographic protections. However, they cannot match the security of cold wallets overall.
- Cold wallets: Cold storage wallets tend to be relatively less popular compared to hot wallet solutions, which provide ease of access to Web3 interfaces and decentralized applications (DApps). Unlike hot wallets, cold wallets tend mostly to be offline, with minimal to limited access to the Internet.
Types of Cold wallets are:
- Paper Wallet: A paper wallet is a piece of paper with your private and public keys printed out. A paper wallet is a printed piece of paper containing keys and QR codes used to facilitate your cryptocurrency transactions.
- Hardware Wallet: Examples include Trezor and ledger.Trezor and Ledger hardware wallets come with software for the user.
It is also important to note that hardware wallets have to connect to the Internet either by browser or mobile applications or by desktop software.
Cold wallets like hardware wallets, tend to be hack-resistant. This is because the signing of transactions is done locally on the device, then subsequently broadcast to the network via the Internet being secure is not without its downsides, though, as hardware wallets usually come at a higher price compared to hot wallets, which tend to be free. For serious investors or crypto-natives, paying to secure their digital assets probably costs a fraction of their total portfolio value, and it assures users that their digital assets are kept safely
Apart from their offline and hack-resistant features, cold wallets tend to function similarly to hot wallets — like with the use of seed phrases, public and private keys,
Advantages of Web3 Wallet
- Web3 wallet is a self-custody solution that allows anyone to manage their own digital assets personally.
- Allows individuals to spend their money.
- Has strong security feature( seed phrase, private key, and public key)
- Owners can store digital assets without needing a third party
- It is a tool for accessing the web3 economy, allowing users to interact with Dapps
- Investors can protect their assets forever
- You have access to both the public wallet address and the private key (which you should NEVER share with anybody). Private keys represent final control and ownership of cryptocurrency
Disadvantages of Web3 Wallet
- Self-custody requires a certain level of understanding of how crypto actually work, so it’s not for beginners
- Crypto Wallet was not initially designed with an average crypto user in mind, so they are not known for ease of use
- Since most self-custody wallets don’t have a failsafe confirmation step like exchange wallets do, users are one typo away from sending funds to an unknown address and hence losing all their asset
In summary, if you are planning to take personal responsibility and take ownership of your digital asset and portfolios, then you’ll need a web3 wallet that allows you to manage your portfolios across multiple blockchains in one window and keep your assets safe.