Understand how Web3 wallets work, how to use them, and which are best. Web3 wallets or crypto wallets store your private keys, enabling you to access blockchain networks, perform transactions on various platforms, and store digital assets such as cryptocurrencies, NFTs, and other types of tokens. Without these, you wouldn’t be able to fully interact with networks and the different applications built on them. Web3 wallets can be digital applications or physical hardware devices. More on this later.
Pick any Web3 platform you want to interact with. Chances are, one of the first things you’ll need to do is get a digital or Web3 wallet. But what exactly is its purpose? Is there one kind of wallet, or are there different types? Which one should you choose? We know that as a new entrant to the realm of Web3, you might have all these questions and more.
Don’t worry—we’re here with a comprehensive guide to Web3 wallets. In this, we cover everything from their definition to how they work and their various types. Based on this, you can determine which wallet will best suit your purpose. So, without further ado, let’s dive right into it.
Available wallets to use on our Platform:
- Coinbase wallet
- Metamask
- Phantom
- Rainbow Wallet
- Trust Wallet
- Zerion Wallet
Read more about the Top 5 Web3 wallets here.
Contents
How Does a Web3 Wallet Work?
To understand how a Web3 wallet works, you must first know its various components.
Private Key
When you create a Web3 wallet, a unique private key is assigned to you. This will be known only to you and nobody else. The private key is used for signing on transactions and prove the ownership of the digital assets.
Public Key
The public key is created using a private key, and as the name suggests, everyone knows this. It is used to receive assets from others and showcases that the owner of the digital assets has signed the transaction. With the public key, any transaction’s authenticity can be verified.
Public Address
The public address is created using the public key. It enables other users and parties on Web3 to send or receive assets from you. The public address is unique and usually consists of a string of numerals and characters.
A digital identity is established on the blockchain network with the private key, public key, and public address. This digital identity enables you to be a unique person on the network, interact with various platforms, and perform transactions.
When you want to send an asset, you go to your Web3 wallet and type in the receiver’s public address and the asset you’re sending. Then, the wallet will sign the transaction with your private key and broadcast the action to the network, which will be verified. When you receive assets, they are broadcasted on the network and updated on the ledger. Once this is done, your new balance is displayed on the wallet.
Decentralized Name Service
A decentralized name service allows you to connect the public key with a domain such that the random string of numbers and characters can be addressed with a memorable name. For instance, if your Web3 wallet’s public key is 0x34… you can get a domain with a name service such as Ethereum Name Service (ENS) and name it johndoe.eth. With this, anybody can easily access your wallet to send or receive assets to or from you.
Furthermore, the name service enables you to create hierarchical structures, such as sub-domains, thus enabling you to store different Web3 wallets or distribute different operations or functionalities across the various domains. The last bit is especially useful for brands or companies who want to provide different services on Web3 while giving users a cohesive experience.
Types of Web3 Wallets
There are various types of wallets, each with a purpose and feature of their own. Below are a few categories into which wallets can be divided. A Web3 wallet may or may not be of more than 1 of the below categories.
Custodial V/S Non-Custodial Wallets
Custodial wallets give control of your private keys to a third party or a custodian. On the other hand, while using non-custodial wallets, only you have complete control of your private and public keys. Exchanges such as Kraken and Coinbase provide custodial wallets to their users. MetaMask is a classic example of a non-custodial wallet. While blockchain is about decentralization, some people prefer custodial wallets in exchange for ease of experience, while others choose non-custodial wallets to have complete ownership.
Hot V/S Cold Wallets
Hot wallets are those connected to the internet, and cold wallets are those offline. Usually, hot wallets consist of a small volume of digital currencies and other assets that are traded and used regularly. Cold wallets are essentially cold storage that comprises a large chunk of cryptocurrencies and assets that are not used regularly and held for a long time. A few examples of hot wallets are Metamask, Phantom, Trust Wallet, etc. The two popular cold wallets are Ledger and Trezor.
Smart Contract Wallets
These types of wallets have smart contracts built into them. Usually, Web3 wallets are Externally Owned Accounts (EOAs), which are tedious to use. However, smart contracts can be added to the wallets, enabling developers to program different kinds of features into them. A couple of examples are Argent and Unipass.
Multi-Signature Wallets
Multi-Signature wallets or Multi-Sig wallets involve multiple parties or users authorizing every transaction. This provides additional security, and these wallets are more useful for organizations where different members of a team or different teams are required to oversee and authorize various transactions. A few names in this category are Biconomy, Safe, and Castle.
Conclusion Web3 wallets
Overall, this is everything you need to know about Web3 wallets. To recap, we understood the different components of the Web3 wallet, learned how they interact with each other and function together, and discussed the different types of Web3 wallets and their usage. Well, now that you are well-versed with Web3 wallets, why don’t you create one of your own.
