In recent times, web3 and cryptocurrency have seen an enormous development in technology and applications. Web3 wallets have played a crucial role in this development by allowing people to securely hold, transact and receive payments without having to share personal information and sensitive data. Web3 wallets are similar to traditional wallets but instead of storing physical currency, they are designed to perform transactions in cryptocurrencies and NFTs.

Let’s understand the types of web3 wallets:

Types of Web3 wallets

Web3 wallets can be broadly categorized into three types: custodial and non-custodial wallets and smart contract wallets.

Non-custodial wallets

A non-custodial or self-custody wallet is a type of web3 wallet that gives you full control over your digital assets such as cryptocurrency and NFTs.

Every crypto wallet is associated with a public-private key pair. To execute a transaction with these wallets, both keys are needed. The public key is similar to your bank account number which you need to share when you want to receive funds from a person and the private key is a secret alphanumeric code that gives you access to assets stored in your wallet similar to the password for your internet banking account.

In the case of web3 wallets, private keys define the ownership of a wallet and act as your digital signature. If you want to send some cryptocurrency, your wallet uses the private key to create a digital signature to approve the transaction.

Non-custodial wallets are primarily of two types:

Software Wallets

These are the web3 wallets that can be installed on your personal computer, downloaded as a mobile app, or can be accessed over the web. These wallets are very convenient but can pose a security risk in case of security breaches.

Hardware Wallets

These are physical wallets that resemble USB drives and store your private key offline, offering higher security from online hacking attempts. These are generally used to store large amounts of cryptocurrencies by prioritising security over convenience.

Custodial Wallets

Creating and using non-custodial wallets can be quite difficult for a beginner and poses a barrier to entry into the web3 world for many individuals. This problem is resolved with the help of custodial wallets. These wallets are created and managed by a third party, generally a cryptocurrency exchange such as Coinbase and Binance. The key advantage is ease of use which is favourable for beginners. But this ease of use comes with a reduction in security since these platforms store your private keys.

Smart Contract Wallets

A smart contract wallet, also referred to as a contract-based wallet, operates through a smart contract on a blockchain network, such as Solana or Ethereum. Unlike software or hardware wallets, smart contract wallets don’t rely on private keys but use code on blockchain to manage transactions.

Since these wallets run as smart contracts, they can offer improved security features such as requiring multiple signatures (from multiple devices or individuals) before executing a transaction. These wallets can also incorporate different rules for transactions such as spending or withdrawal limits and permission for specific type of transactions.

Best Web3 Wallets For Beginners

MetaMask

MetaMask is a popular non-custodial wallet that can be installed as a browser extension on your personal computer or as an app on your mobile. It supports Ethereum and other Ethereum-compatible blockchain networks. MetaMask is very user-friendly and provides a great starting point for interacting with decentralised applications (dApps).

Phantom

It is a popular non-custodial wallet primarily designed for the Solana blockchain. Its user-friendly interface and versatility make it a popular choice among beginners and experienced users.

Trust Wallet

It’s a non-custodial wallet that supports various cryptocurrencies and blockchains including Bitcoin, Ethereum, Polkadot, Binance Smart Chain, and more.

Coinbase Wallet

It is a custodial web3 wallet built on the Coinbase exchange platform. It is perfect for users since it’s easy to use and integrated with the exchange platform. The users can easily hold, buy, sell or even send different cryptocurrencies using this wallet. It’s available on mobile as well as on the web.

Ledger

Ledger is a company that makes hardware crypto wallets such as Ledger Stax, Ledger Nano X, etc. These wallets are great for users who want that additional layer of security especially when dealing with larger amounts of cryptocurrencies.

Conclusion

The world of Web3 can feel overwhelming at first but it offers limitless possibilities to buy, sell and trade cryptocurrencies and build wealth. Web3 wallets facilitate this process seamlessly and securely without the need for any third party. As a beginner, you can start with a trusted custodial wallet from cryptocurrency exchanges such as Binance or Coinbase since they offer simplicity and a great opportunity to learn about Web3. Once you’re comfortable with these wallets, you can create your own non-custodial wallets or own a hardware wallet depending on your requirements.