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Web3 wallet: what it is and how it works in the world of cryptocurrencies and DeFi
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Web3 wallet: what it is and how it works in the world of cryptocurrencies and DeFi

created Michał Sielski13 May 2024

In the era of digitalization of finance, the Web3 wallet has become a key tool for anyone who wants to explore the world of cryptocurrencies and decentralized finance (DeFi). These advanced tools allow you to not only store digital currencies but also interact with various blockchains and applications DApp. In our guide, we'll take a closer look at what Web3 wallets are, what their functions are, and what types of WebXNUMX wallets you can choose to best meet your needs.

What is a Web3 wallet?

Web3 wallets are nothing more than advanced digital… wallets that allow users to safely manage their cryptocurrencies, NFT tokens, as well as other digital assets. These wallets also act as a gateway to the decentralized world of finance, enabling direct connection to blockchain networks and decentralized applications (DApps).

Differences between Web3 and crypto wallets

Although the deadlines "Web3 wallet" i "crypto wallet" are often used interchangeably, there are important differences that are worth understanding. Both types of wallets are used to manage cryptocurrencies, but Web3 wallets offer much broader capabilities, including support for DApps and DeFi platforms, which is not always available in traditional crypto wallets. Most traditional wallets are mainly used to safely store cryptocurrencies.

How do Web3 wallets work?

Web3 wallets are designed to give users complete control over their digital assets. This means that the responsibility for managing private keys and seed phrases lies directly with users. It is crucial to never share your seed phrase or private keys with third parties to avoid the risk of theft or loss of access to your funds. This is a basic rule that must be strictly followed.

Features and benefits of Web3 wallets

Web3 wallets offer many features that increase their usefulness in the DeFi ecosystem:

  • Multi-asset and network support: Web3 wallets can support various blockchains, allowing you to manage a variety of digital assets in one place.
  • Interacting with smart contracts and DeFi: Users can directly use DApps, decentralized exchanges, and other DeFi tools.
  • Peer-to-peer (P2P) transactions: The ability to directly exchange assets between, for example, friends or contractors without intermediaries increases privacy and reduces transaction costs.
  • Security: Advanced encryption technologies protect funds against unauthorized access.
  • Partial anonymity: Maintains user privacy by not requiring personal information when creating a wallet.

Web3 wallet types

There are many types of Web3 wallets, each adapted to different user needs:

  • Non-custodial wallets: Such as MetaMask or Trust Wallet, which give users full control over private keys and assets.
  • Custodial wallets: Managed by third parties who hold private keys on behalf of users. Although they are convenient, they require trust in the managing party. Such wallets can be found, among others: on cryptocurrency exchanges: Binance or bybit.
  • Hardware wallets: Like Ledger or Trezor, which store private keys offline, providing an additional layer of security.
  • Online and mobile wallets: Available via browsers or as smartphone apps, offering easy access to funds and DeFi.

How to choose the right Web3 wallet?

Choosing the right Web3 wallet depends on the user's individual needs, such as the type and amount of assets stored, the required level of security, and the frequency of using DeFi applications. It is important to choose a wallet that best suits your needs and provides the appropriate level of security for your investments.

If you only use it to protect your capital, you can choose a hardware wallet. If to "flipping" tokens per Cryptocurrency exchanges, it may be a custoid wallet of one of the exchanges, etc.

It is worth remembering that Web3 wallets are more than just tools for storing cryptocurrencies. They are the gateway to the rapidly expanding world of decentralized finance. They provide key features that allow users to fully exploit the potential of blockchain technology: from asset management to participating in the global financial ecosystem without intermediaries.

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About the Author
Michał Sielski
Professional journalist for over 20 years. He worked, among others, in Gazeta Wyborcza, recently associated with the largest regional portal - Trojmiasto.pl. He has been present on the financial market for 18 years, he started on the Warsaw Stock Exchange when the shares of PKN Orlen and TP SA were just being introduced to the market. Recently, his investment focus has been exclusively on the Forex market. Privately, he is a parachutist, a lover of Polish mountains and a Polish karate champion.