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Crypto Wallets: Passport to Web3
Passports are fascinating because they are the keys to a portal of ideas, cultures, and experiences. Similarly, one can only participate in the DeFi, NFT, and the whole Web3 boom if they have a reliable wallet that lets them experiment with, flaunt and help understand most important enable and give access to a plethora of resources.
A wallet is exceptionally crucial and the first step towards web3. While there is a lot of experimentation to make wallets more accessible, secure, functional and straightforward, let’s deep dive to understand how they operate.
You store your private key offline on specialized hardware. This option is the most secure way to hold your tokens, but it’s often the most impractical method for making transactions and interacting with DApps.
For most crypto folk, hardware wallets are “cold wallets”. These are physical devices like USB sticks that you plug into your computer and only connect to the internet when they’re docked. This makes them more secure, albeit a little cumbersome to use.
Hardware wallets are the safest for users to secure their ETH and DeFi tokens. For the same reasons, these wallets are great for storing NFTs, too. These pocket-sized digital vaults can’t be easily attacked, unlike software wallets like MetaMask, which face considerably more attack vectors.
If one is interested in possessing rare and expensive digital collectables, a hardware wallet will undoubtedly start security-wise. The only caveat here is that if one loses the physical drive and/or the private key, they will be unable to access their crypto, and there have been several such cases before.
These crypto wallets are connected to the internet and are typically non-custodial (unless one is using a centralized exchange). Hot wallets are convenient for making transactions but come with some security risks. Your private key is held online with your public key and is usually accessible with a user-set password. Like any password-protected service, you could be hacked or phished. You should also use two-factor authentication (2FA) methods to mitigate the risks.
The wallet provider holds your private key. This is the case with your digital assets in an exchange’s wallet. You aren’t entirely controlling your wallet without owning your private key. Likely, you won’t be able to connect to DApps either. For example, if you only want to spot trade BSC tokens and other crypto assets, a custodial wallet is a reasonable choice. But be careful. While this is safe on Binance, you should not trust your funds to any custodial wallet or exchange.
The term could be easily misunderstood as suggesting users themselves don’t have custody of their crypto in this kind of wallet, which is precisely the opposite of the case. In a non-custodial wallet, users own their private keys. It’s the safest option for most traders and investors as long as they take good care of their keys and seed phrases.
Seed Phrase: A seed phrase is a series of words generated by your cryptocurrency wallet that give you access to the crypto associated with that wallet. The seed phrase is a series of 12 to 24 simple words (like “army,” “energy,” “fabric,” “lucky,” “opera,” “stereo,” “trash,” or “void”) rather than a numeric password is because long strings of numbers are complex for humans to remember or even transcribe correctly — think of how hard it can be to input a too-long wifi password. Your seed phrase unlocks your wallet, along with the private keys associated with all the crypto in the wallet.
Each single-signature wallet has an associated seed phrase that allows users to back up and recover their wallets. The standard also makes major wallets intercompatible: if you want to switch wallets, you just need to enter your seed phrase into the new wallet, and your crypto will be available there.
Seed Phrase vs Private Key
Private keys allow you to send or spend some of your Bitcoin, Ethereum, or other cryptocurrencies — they’re algorithmically derived from the long string of numbers represented by your seed phrase.
Seed phrase gives access to the wallet and all the private keys in the wallet.
A somewhat ideal analogy would be a crypto-wallet as a password manager for crypto holdings — as long as one has their master password (the seed phrase), they have access to all the associated crypto.
What you should know about wallets:
Almost all desktop, mobile or web wallets require users to register through the seed phrase and remember it for future logins.
One can sync their mobile app-based wallet with the browser extension by simply entering their seed phrase.
Most wallets are multi-functional,i.e., they support staking, receiving and sending tokens and also purchase of tokens through partnership and integrations with companies like MoonPay and Transak (fintech platforms that let users buy and sell cryptocurrencies using conventional payment methods like credit cards, bank transfers or mobile wallets like Apple Pay and Google Pay).
Wallets are increasingly integrating DApp browsers with their mobile apps to ease DApp usage. They use WalletConnect, an open-source protocol that allows the wallet to connect and interact with DApps and other wallets. By scanning a QR code or clicking a deep link, WalletConnect establishes an encrypted connection between your wallet and the DApp. The protocol also has to push notification capabilities to notify users of incoming transactions. Also, if one is using a wallet without an in-built dapp browser, they can use their default mobile browser and use the WalletConnect option to connect the DApp and their mobile wallet.
Ethereum Centric Wallets
Ethereum being the most popular blockchain, most wallets have focused solely on the protocol given the number of DApps, and now L2s have been operational and all their tokens. Here are a few prominent and most used wallets:
MetaMask is a browser plugin and app(available both on Android and iOS) that serves as an Ethereum wallet and is installed like any regular plugin or app. Once installed, it allows users to store Ether and other ERC-20 tokens, enabling them to make transactions to any Ethereum address.
ConsenSys develop MetaMask, and it’s the most popular Ethereum wallet across Web3 with more than a million users. To use MetaMask, you will need Chrome, a Chromium-based browser or Brave or Firefox.
MetaMask integrated with hardware wallets Trezor and Ledger to use the service while keeping their crypto on a hardware wallet.
Rainbow is designed as a streamlined and accessible mobile alternative to MetaMask, letting users trade crypto tokens, interact with decentralized apps (dapps), buy and view NFT collectables, and access layer-2 and sidechain scaling solutions like Polygon, Optimism, and Arbitrum.
The wallet app is currently available for iOS devices, and Rainbow also recently launched a public beta version of its Android app.
Argent is a trendy Ethereum wallet with a social recovery system that has been up and running for years. It is an impressive blend of smart contracts, SMS systems and email-based account management.
Available on iOS and Android, this non-custodial wallet grants access to all the beneficial functionalities of the Ethereum ecosystem in a simple, user-friendly way. There is, unfortunately, no support for other Blockchains at the moment.
Argent is novel in several ways:
You simply need to enter your mobile number and enter a username to sign up. One can use their Argent wallet username instead of the usual hexadecimal address format whenever they want someone to send them funds.
Touch and Face ID checks can be added on compatible devices. Should an account ever be compromised regardless of the PIN check, Argent lets users protect transactions by setting daily limits on how much funds can be sent out of the wallet on a given day.
Argent also provides a guardian service. An Argent user gets a new phone, downloads the app, and starts the recovery process by remembering the people they asked to be guardians. Guardians can approve access to the person’s wallet within the Argent application or using their Security Center. A guardian can be someone you know and trust, a hardware wallet (or another phone) or a MetaMask account.
Solana Centric Wallet
Solana is the upcoming protocol with more and more dapps and deployed projects due to its efficiency.
Phantom Wallet is like MetaMask for Solana and has witnessed tremendous popularity in the Solana ecosystem.
If someone has been interacting with DeFi and NFT for a while on Ethereum and wants to try them out on SOL, Phantom is the most recommended wallet as it natively supports all tokens built on the SPL standard.
Phantom offers the best of both worlds: a user-friendly interface with one of the most accessible navigation panels among web3 wallets and advanced features, including DeFi staking and native NFT viewing.
Interestingly, Phantom is working towards a multi-chain wallet that can operate both Solana and Ethereum. It’s still in beta testing. Phantom is currently available on iOS devices and as a browser extension.
While there are other Solana focused wallets like Solfare and Glow, they haven’t been as successful yet.
Vitalik and many other have said that the foreseeable future is multi-chain, and for that, one needs to have a wallet that can store, receive and send tokens from various chains and is easy to use. Here are a few multi-chain wallets that top the list:
Viktor Radchenko originally developed Trust Wallet, but Binance acquired the company in 2018. Today it is the official crypto wallet of Binance and the one needed to access Binance Smart Chain or Binance Chain, and earn, buy or send Binance Coin.
Trust Wallet can handle a wide range of cryptocurrencies. What makes Trust Wallet interesting are security features like Two-Factor Authentication (2FA), Google Authentication, and even SMS or email verifications.
Users can directly purchase various crypto using Trust Wallet. For now, MoonPay and Simplex are the only on-platform exchanges supported. One downside of Trust Wallet is that it’s purely mobile-based with no desktop variant.
MathWallet is a multi-platform (mobile/desktop/hardware) crypto wallet that enables token storage of 60+ chains including BTC, ETH, Polkadot, Filecoin, EOS, Solana, BinanceChain, Cosmos etc., supports cross-chain token exchange, multi-chain dApp store and operates nodes for PoS chain.
Since Math is one of the biggest wallet platforms in the crypto world, it offers the staking option as well, and it is done through Math Vault.
Math Vault is a staking platform where you can stake a wide variety of coins with a pretty good and competitive Annual Percentage Rate (APR) that goes up to 30%. You will also get a Math token if you stake different coins.
An interesting observation is that most multi-chain wallets are developed by centralized crypto exchanges like Coinbase, Kraken, Huobi, and Trust. They offer high functionality and good security and make it easy to transfer one diverse crypto holdings from an exchange to the wallet where one can tinker with dapps.
Browsers With Built-in Wallets
The wallet race has also seen browsers trying to make surfing web3 even simpler. In comparison, they’re still new but promising.
Brave Browser has been one of the famous and widely used Chromium-based browsers. The privacy-focused Browser blocks ads and trackers by default and has a simple user interface. Brave’s web browser now includes a native cryptocurrency wallet - Brave Wallet, replacing the previous one based on the MetaMask wallet extension.
The Brave Wallet is integrated directly into the Brave desktop browser, allowing users to access Web3 decentralized apps (Dapps) without installing browser extensions. All EVM-compatible chains and L2 are supported, including Polygon, xDai, Avalanche, etc. Users can connect to hardware wallets such as Trezor and Ledger by importing their wallets from MetaMask or Brave’s legacy Crypto Wallets service.
Brave claims that its wallet is safer than other extension-based wallets and that it does not require additional background processes, requiring less CPU and memory.
Opera Browser Wallet
Opera has launched its Web3 “Crypto Browser” into beta with features like a built-in crypto wallet, easy access to cryptocurrency/NFT exchanges, support for decentralized apps (dApps) and more.
A key feature is the built-in non-custodial wallet that will support blockchains including Ethereum, Bitcoin, Celo and Nervos. One can purchase cryptocurrencies via a fiat to the crypto on-ramp, swap crypto directly in wallet, send and receive it and check your wallet balance.
Opera has integrated decentralized finance (DeFi) trading platform DeversiFi to bring users a layer 2 Ethereum wallet. DeversiFi aims to help traders avoid the high gas fees on the Ethereum network by enabling layer 2 tradings. Opera has also announced partnerships with Polygon and Solana.
This is a one-off category where we wanted to highlight the importance of wallets as a passport to the world of web3. States that actively promote and accept crypto can take a lesson on the dos and don’ts.
El Salvador has been the front runner state in not only legalizing bitcoin but making it legal tender in a bid to save the tanking economy and banking the unbanked. To facilitate this widescale adoption, the state has partnered with a crypto-focused software firm to launch Chivo Wallet - a crypto wallet for citizens to use Bitcoin in their everyday lives.
But it’s been a botched up attempt. There have also been reports in local media of identity theft on the app, with citizens who hadn’t registered to use the Chivo later finding out that their ID number had been used to create an account. On top of this, transactions have been slow or have not been processed at all in some cases on Chivo.
Also, the critical thing to note here is Chivo is a centralized product; it’s custodial, meaning that someone else is looking after the funds—in this case, the Salvadoran government.
Multisignature wallets (or multi-sig, for short) are cryptocurrency wallets that require two or more private keys to sign and send a transaction. The storage method requires multiple cryptographic signatures (a private key’s unique fingerprint) to access the wallet.
One can choose how many keys are allowed to open the multi-sig wallet and the minimum number of keys needed to unlock it. It can be 2 out of 3 signatures, 5 out of 7, etc.
Usually, hardware wallets (Trezor, Coldcard and Ledger) are the go-to option for using a multi-sig setup because they are the safest way to store a private key. Once these wallets are combined into a multi-sig arrangement, they create an entirely new multi-signature address independent of each hardware wallet.
However, a multi-sig wallet does not have this backup mechanism; this is part of its design. So if you lose the majority of wallets in a multi-sig and the seed phrases for these wallets, you lose access to the whole vault.
Multi-Sig wallets are very interesting, and a lot of development is going around them because these can be crucial for DAOs where there is a shared sense of security and mitigating ‘key person risk’. NFT and Investment DAOs and any DAO for that matter can use them. Also, cryptocurrency exchanges also use multi-sig wallets to send tokens to self-hosted wallets.
How to choose a wallet
Fiat On- and Off-ramps: Some wallets offer the ability to users to buy Ether and other Ethereum tokens using their debit card or bank transfer. This makes the life of new users much easier as they don’t have to worry about additionally signing up to an exchange, acquiring these tokens first and then sending them to their Ethereum wallet.
Protocol Integrations: Wallets are also differentiated by the number of decentralized applications they have natively integrated. For example, a wallet might offer users interest on their tokens via Compound or swap tokens via Uniswap. This is convenient for users as they can do many things without leaving their wallets.
Reliable Fee Estimations: Any transaction requires a fee, whether a simple token transfer or a more complex smart contract interaction. This fee is called gas and is denominated in the native token of the protocol. Any good wallet must provide users with reliable information and guidance on the fee they have to set to get their transaction mined in a reasonable amount of time.
Meta transactions: Meta transactions are a particular type of transaction supported by smart contract wallets like Argent, Ethereum or Dharma. In short, they allow these wallets to bundle transactions together to make users’ life easier. For instance, a user who does not have Ether to pay the gas for a transaction but holds another token can send funds anyway. The wallet simply takes the other token and sells it on a decentralized exchange, and uses the proceeds to pay for the transaction.
The .eth and .sol Story
Twitter today is unrecognizable, with people changing NFTs with their profile pictures and peculiarly changing their names. This username on most days is similar to ‘cyborg.eth’ or ‘cyborg.sol’, and while many might think it’s a new meme trend, it is actually about web3 signalling.
Ethereum Name Service (ENS) is like a phonebook of crypto addresses. It allows users to pick a username (like ‘vitalik.eth’) and connect it to their Ethereum address. This makes it much easier to receive funds from friends as it can be given instead of the long address consisting of numbers and letters. One can buy their .eth domain on ens.domains for a few dollars depending on the availability, length of characters in the domain, the gas fee and the during for the purchase is being made. Similar to a web2 domain name, these also require renewal.
Solana has its domain service ‘.sol’, which can be purchased from Bonfida. Also, people keep responding with their ens domains to various tweets which talk about airdrops, i.e., free NFTs or Tokens from a new protocol that’ll come straight into their wallet.
Wallet Privacy Sanitation Rules
1. Only share a wallet address if you’re comfortable tying your identity to it and exposing everything inside of it: Because the blockchain is public and decentralized, anyone with your address can see your entire transaction history. One can simply use block explorers like Etherscan or Solscan to find your transaction history. It’s the essence of blockchain but is subjective to one’s comfort level.
2. Consider having more than one wallet: Many people choose to have multiple wallets that serve different purposes. The most common example is having a “social wallet” tied to their public identity while also having a “hardware wallet” that is anonymous. Rainbow lets you create as many wallets as you need.
3. Backup secret phrase somewhere safe: As we mentioned earlier, this gives control over a wallet. You must back them up someplace secure because they are the only thing that could let you back into your wallet if you lose access.
4. Never share your secret phrase or private key with anyone: You should be the only person who can control your wallet, while there might be exceptional cases. Accidentally leaking or sharing a private key and the secret phrase means your wallet is permanently compromised. It’s not like the traditional internet, where one can simply reset your password. Private keys and secret phrases are unchangeable. The only course of action would be to start a new wallet.
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