Lessson 17: What Are Web3 Wallets?
TL;DR
TL;DR: Web3 wallets are crucial for DeFi, managing digital assets, and interacting with blockchain networks. Key types include non-custodial (MetaMask, Trust Wallet), custodial (Binance Web3 Wallet), and smart contract wallets. Prison Professors educates justice-impacted individuals on these tools to empower reentry.
Key Takeaways
- Web3 wallets are essential for navigating the world of decentralized finance, acting as gateways to interact with blockchain networks and manage digital assets.
- Web3 wallets come in various types. Non-custodial wallets provide user autonomy, while custodial wallets offer convenience with third-party management. Smart contract wallets introduce programmable features for advanced functionalities and enhanced security.
- Popular examples of Web3 wallets include MetaMask, Binance Web3 Wallet, and Trust Wallet.
Introduction
Web3 wallets have emerged as essential tools for users seeking to explore the world of cryptocurrencies and decentralized finance (DeFi). In this guide, we will discuss the fundamental concepts of Web3 wallets and their different types, followed by some popular examples.
What Is a Web3 Wallet?
Web3 wallets are digital wallets designed for the world of decentralized finance. They act as gateways for users to interact with blockchain networks and decentralized applications (DApps), providing a secure way to manage cryptocurrencies, NFTs, and other digital tokens.
Web3 Wallets vs. Crypto Wallets
Although the two terms are often used as synonymous, not all crypto wallets are compatible with DApps and DeFi platforms. So, while both Web3 and crypto wallets are used to manage cryptocurrencies, Web3 wallets support a wider variety of digital assets.
How Web3 Wallets Work
Most Web3 wallets are designed to provide users with full control over their digital assets. This means that users are responsible for managing their seed phrases and private keys.
Typically, whenever you create a new Web3 wallet, you will generate a unique seed phrase of 12 or 24 words. This is what gives total access to your crypto wallet and its private keys (used to sign and verify transactions). Do not share your seed phrase and private keys with anyone.
Key Features of Web3 Wallets
Although some features might differ from one wallet to another, most Web3 wallets come with a set of key features:
- Multi-asset and multi-chain support: Support a variety of blockchain networks and digital assets, including cryptocurrencies and NFTs.
- Smart contract and DeFi interoperability: Facilitate seamless interactions with smart contracts, giving users access to DApps, decentralized exchanges, marketplaces, and other blockchain-based applications.
- Peer-to-peer transactions: Enable users to send and receive digital assets without the need for centralized services or intermediaries.
- Security: A good Web3 wallet should offer robust security and implement encryption techniques to protect seed phrases and private keys from potential threats. Some also include notifications and warnings against potentially malicious websites and smart contracts.
- Pseudonymity: Although most blockchain transactions are publicly available, users can create Web3 wallets without sharing sensitive data or personal information.
Custodial vs. Non-Custodial Web3 Wallets
1. Non-custodial wallets
Non-custodial or self-custody wallets provide users with complete control over their assets. Popular examples include MetaMask and Trust Wallet. Non-custodial Web3 wallets are considered the safest option for most traders and investors, as long as their private keys and seed phrases are kept private and secure.
2. Custodial wallets
Custodial wallets involve a third party managing private keys on behalf of users. The wallets you have in your Binance account are examples of custodial wallets. While offering convenience, users must trust the custodian with their assets, so it’s important to choose reliable and trustworthy exchanges.
Types of Web3 Wallets
There are multiple ways to categorize Web3 and crypto wallets. In this section, we will explore some of the most common types: hardware, web, desktop, mobile, paper, and smart contract wallets. Keep in mind, however, that there are overlaps between the different categories. For example, some Web3 wallets like MetaMask are available as both web and mobile wallets, and offer support for hardware wallets like Trezor and Ledger.
Hardware wallets
Hardware wallets are physical devices that store cryptocurrency keys offline (cold storage), providing an extra layer of security. Even though they’re safer from online threats, they can be a bit tricky to use and access compared to other wallets. But, if you plan to keep your crypto for a long time or have a lot of it, a hardware wallet might be a good choice.
You can set up a PIN code for extra protection, and most of them let you create a backup recovery phrase in case you lose your wallet. Trezor and Ledger are popular examples of hardware crypto wallets.
Web wallets
Web wallets usually operate through a browser interface, allowing users to access their cryptocurrency holdings online. Most web wallets today are also available as mobile wallets. While convenient, users must be cautious when connecting their wallets to DeFi platforms and DApps. Interacting with malicious websites or smart contracts may put your assets at risk.
Mobile wallets
Mobile wallets operate similarly to web wallets, but are specifically crafted for smartphones. They enable users to send and receive cryptocurrencies conveniently using QR codes. They also offer easy mobile access to DeFi and DApps.
However, just like computers, mobile devices are susceptible to malicious apps and malware. It’s advisable to secure a mobile wallet by encrypting it with a password and backing up your seed phrase (or private keys) in case of phone loss or malfunctions.
MetaMask, Binance Web3 Wallet, and Trust Wallet are notable examples of mobile crypto wallets. We will cover each in more detail in the next section.
Smart contract wallets
Smart contract wallets are managed by smart contracts on the blockchain. These wallets introduce programmable, self-custodial accounts and enable advanced functionalities. Unlike traditional wallets, smart contract wallets allow users to define rules and conditions for transactions, automate financial activities, and enhance security through programmable logic.
Smart contract wallets often leverage blockchain technology, providing users with decentralized control over their funds and facilitating integration with DeFi applications. Security features such as multi-signature requirements, time locks, and upgradability are common aspects of smart contract wallets, making them versatile tools for managing and interacting with cryptocurrencies.
Desktop wallets
Desktop wallets were more common in the early years of Bitcoin and cryptocurrencies. They are software applications installed on your computer, providing complete control over your cryptocurrency keys. Security relies on the user’s computer integrity, and regular backups of the wallet data are essential to prevent loss.
Paper wallets
Paper wallets are often discouraged and considered by many obsolete. They involve the physical printing or writing of cryptocurrency addresses and private keys on paper. Offering offline storage, they are resistant to online hacking but require careful handling and secure storage to prevent physical damage or loss.
Examples of Web3 Wallets
MetaMask
MetaMask stands as one of the most popular non-custodial Web3 wallets, known for its compatibility with Ethereum and various EVM-compatible blockchains, such as BNB Chain, Polygon, Avalanche, Arbitrum, and many others.
Users can use MetaMask to interact with DApps, manage digital assets, and engage in token swaps. MetaMask prioritizes user autonomy, as it doesn’t control private keys, offering a secure and intuitive experience for both beginners and experienced users.
Binance Web3 Wallet
The Binance Web3 Wallet, integrated into the Binance app, targets both new and experienced DeFi users. Leveraging multi-party computation (MPC) technology, it enhances cryptographic security by eliminating the need for a single storage location for private keys. The wallet’s three “key-shares” are distributed across the Web3 Wallet, cloud storage, and the user’s device, and are further protected by a recovery password known only to the user. This approach ensures enhanced security and reduced risks of single points of failure.
Binance Web3 Wallet Features
- Easy setup: Quick creation through the Binance app without the need for seed phrases or private keys.
- Convenience: Seamlessly connected to Binance Bridge and other service providers for easy token swaps and exploration of DApps.
- Security measures: Wrong address protection and identification of potentially malicious smart contracts, with transactions controlled by multi-party computation (MPC) technology.
- Self-custody: Encrypted by three “key-shares” and a recovery password, offering complete autonomy over assets.
- Customer support: A 24/7 customer support service ensures a safe and smooth experience for users.
Trust Wallet
Trust Wallet, another prominent non-custodial wallet, offers a seamless mobile experience for managing cryptocurrencies. Supporting a wide range of blockchains, Trust Wallet enables users to store assets, explore DApps, and participate in DeFi activities. Its user-friendly interface and strong security measures make it an ideal choice for mobile users seeking both convenience and protection.
Closing Thoughts
Web3 wallets have become indispensable tools for those delving into cryptocurrencies and DeFi, allowing users to engage with blockchain networks and decentralized applications (DApps). Whether opting for MetaMask, Binance Web3 Wallet, or Trust Wallet, users should always keep their seed phrases and private keys confidential and safe.
Further Reading
- 5 Tips to Secure Your Cryptocurrency Holdings
- What Is Binance Web3 Wallet?
- What Is a Crypto Wallet and How to Choose the Right One?
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Critical Thinking Questions
- How do non-custodial and custodial Web3 wallets differ in terms of user autonomy and security, and what factors should you consider when choosing between them?
- In what ways can the features of smart contract wallets enhance security and functionality for users engaging with DeFi platforms and DApps?
- What are the potential risks associated with using web and mobile wallets, and what best practices can be implemented to mitigate these risks?
- How does the concept of pseudonymity in Web3 wallets affect user privacy and security, and what implications does this have for financial transactions on blockchain networks?
- Given the various types of Web3 wallets available (hardware, web, mobile, desktop, paper, and smart contract), how would you prioritize their use for different cryptocurrency activities and why?
Advocacy Initiative:
We encourage participants to begin memorializing the ways they are using time in prison to prepare for success upon release. I encourage participants to create a personal profile by:
- Writing a simple biography
- Writing a daily journal to show all that you’re learning
- Writing book reports that memorialize the books you read
- Writing a release plan to show the ways you’re preparing for success upon release
These strategies helped me immensely once I got out. By using my time wisely inside, I was able to raise capital, build businesses, and succeed in ways that few people would think are possible for someone who served multiple decades in prison. Anyone can do the same—if they prepare first.
If you’d like to follow in the same footsteps, I encourage you to begin building your personal profile. Get started by sending an email message to our team at:
Prison Professors Talent
[email protected]
32565 Golden Lantern, B-1026
Dana Point, CA 92629
Our interns will accept your email invite. You may then send the interns a message such as:
Dear Interns,
My name is xxx, and I am in prison. I would like to begin showing the strategies I am using to prepare for success upon release. Please send me a Release Plan Workbook, and any other books that will help me prepare for the job market. After receiving those workbooks, I will begin building my profile to show others how I am using my time inside to prepare for success outside.
Glossary
- Blockchain (noun): A decentralized digital ledger that records transactions across many computers securely and immutably.
- Custodial Wallet (noun): A type of cryptocurrency wallet where a third party holds and manages the user’s private keys.
- Cryptocurrency (noun): Digital or virtual currency that uses cryptography for security and operates independently of a central bank.
- DApp (Decentralized Application) (noun): Software applications that run on a blockchain network rather than being hosted on centralized servers.
- DeFi (Decentralized Finance) (noun): Financial systems and applications built on blockchain technology that operate without traditional intermediaries like banks.
- Desktop Wallet (noun): A software application for managing cryptocurrencies that is installed on a desktop computer.
- Digital Asset (noun): Any asset that exists in digital form, including cryptocurrencies, NFTs, and other tokens.
- Encryption (noun): The process of converting information or data into a code to prevent unauthorized access.
- Gateway (noun): An interface or access point through which users can interact with blockchain networks and decentralized applications.
- Hardware Wallet (noun): A physical device used to securely store cryptocurrency keys offline.
- Key-Share (noun): A part of a cryptographic key divided into multiple parts for enhanced security.
- Multi-Chain Support (noun): The capability of a wallet to interact with multiple blockchain networks.
- Non-Custodial Wallet (noun): A type of cryptocurrency wallet where the user has full control and responsibility over their private keys.
- Peer-to-Peer Transaction (noun): Direct transactions between users without intermediaries.
- Private Key (noun): A secret key used to sign transactions and prove ownership of a cryptocurrency wallet.
- Pseudonymity (noun): The state of being pseudonymous, where a user can interact in a system without revealing their true identity.
- Seed Phrase (noun): A series of words generated by a cryptocurrency wallet that gives access to the wallet and its private keys.
- Smart Contract (noun): A self-executing contract with the terms directly written into code and running on a blockchain.
- Smart Contract Wallet (noun): A cryptocurrency wallet managed by smart contracts that allows for programmable transactions and enhanced security features.
- Web Wallet (noun): A type of cryptocurrency wallet that operates through a web browser interface, allowing online access to digital assets.
