Web3 wallets are essential to interact with dApps, store digital assets, and trade and exchange cryptocurrencies.
But can one wallet do it all? Or do we need more? How many types of wallets exist? Let’s take a look at them and see their features.
Well, Web3 wallets can be classified into many types.
- Based on ownership, we have custodial and non-custodial wallets.
- Depending on where the wallet is present, we have hot and cold wallets.
- Based on utility, we have smart contract wallets and NFT wallets.
What are Custodial and Non-Custodial Wallets?
Custodial wallets are those that are not in the custody of the user. Seed phrases and private keys help secure the wallet. Many wallet service providers, like Metamask, Coin Base Wallet, etc., provide users with wallet services from their platforms or through applications.
A non-custodial wallet is where the user must take care of their own wallet. The user is provided with a public key, a private key, and a recovery or seed phrase. Some examples of non-custodial wallets are Trezor, Ledger, and Electrum.
Consequently, with the freedom to store your own private and public keys – custodial wallets are considered by many to be secure against hacks and threats.
Why Is A Wallet “Hot” or “Cold”?
A wallet is said to be “cold” when offline from the internet. A wallet connected to the internet or that works when connected to the internet is known as a “hot wallet.”
Cold wallets comprise paper wallets and tangible wallets. Paper wallets, as the name suggests, don’t mean that the wallet is on a piece of paper or that it is a fake wallet address. This time, the wallet is a scannable code to carry out transactions.
Further, tangible wallets, as the name suggests, are a real deal. You can carry it around in the form of a portable USB. And that contains your Web3 data, art, and assets.
Hot wallets, on the other hand, are intangible digital wallets. They are either present as a desktop app, a browser extension, or a mobile application. Consequently, all hot wallets are connected to the internet.
An added advantage of a hot wallet is that users can operate their wallets from a mobile phone or a personal computer.
Read More: The Best Web3 Wallets For 2023!
Are There Wallets Specific to NFTs?
You store your crypto coins in a Web3 wallet; Well, then how does one store non-fungible tokens? Well, you preserve them in Web3 wallets.
Can all wallets support NFTs? Answer: No. Are there wallets specific to NFTs? YES!
NFT wallets behave to provide a digital storage address for art and assets. However, as mentioned above, not all Web3 wallets support NFTs. Some handle cryptocurrencies, while some handle both cryptocurrencies and NFTs.
Digital wallets need to be compatible to store tokens on a particular blockchain. So the wallets can be synergic with the blockchain where the NFT is built.
What are some famous NFT wallets in 2023?
Some famous NFTs wallets are:
What Are Smart Contract Wallets?
Imagine that your Web3 wallets have smart contract functionality. What would it mean for the wallet or for the user? It would mean security, safety, and power for your wallet to sign transactions with validators instead of private and public keys.
Simply put, smart contracts work with your wallet to let transactions happen. The autonomous code is responsible for wallet transactions. Whether it is to send an amount to a beneficiary or to receive a token, the code, upon pre-defined conditions, executes the function promptly.
Further, a smart contract wallet can take care of transactions and security. The wallets’ support for smart contracts includes attributes like account freezing, social recovery, and transfer limits. So, they are of great use and protective!
Smart contracts pave the way for a novel mode of wallet utilization. They are virtuous in many ways, some of which are:
- Autonomous execution of transactions
- Mediator-less transactions
- Executes function without fault
- Secures the payment with a smart contract account, i.e., the smart contract creates a paper account and carries the transaction. Autonomously carrying out a transaction means one is assured that the transaction was carried out safely.
- Transfer limits
- Account freezing/ account recovery
- Account abstraction
So, these are some of the various wallet types present in Web3. You can use a wallet to store NFTs, and cryptocurrencies, execute transactions via a smart contract and even carry it around as a USB.
Web3 Wallets are essential to store your cryptocurrencies and NFTs. More than that, they also act as a passcode to the Web3 universe.
Users log in and interact with DApps with the help of Web3 Wallets. Assets and Art alike are accessible from one wallet address the user has.
The wallets, however, are of many types… Users without custody of their own wallets have Custodial Wallets. It’s in control by a third party. Whereas, those who take care of their wallet have Non-custodial wallets.
A wallet is “Hot” when it is connected to the internet. Hot wallets are present as Web extensions, Mobile applications, and Web applications. A ‘Cold’ wallet is offline. It’s not connected to the internet in its tangible hardware form or in its QR code form.
Although wallets may store data and assets; not all wallets store NTFs. Thus the need for NFT wallets. These are special wallets that can store the digital art in whatsoever form present while being compatible with the blockchain where the NFT is held.
Lastly, we have smart contract wallets. Wallets with smart contract functionality. Permitting for autonomous execution of transactions, providing safety and securing the data.