Web3 Wallet: What Is It and Should You Use One?

Cryptocurrency and digital asset storage are quickly becoming hot topics among traders. As people continue to grow their portfolios, they need a reliable wallet to keep their assets safe. Whether they choose an advanced cold wallet to safely store their assets offline, or a simple software wallet, a proper web3 wallet is a necessity. Use this brief guide to learn more about the importance of web3 wallets and some of the advantages of using them.

Key Takeaways:

• Web3 wallets are crucial for securely trading and managing digital assets and improving the interoperability of decentralized applications (DApps).

• Different types of web3 wallets offer varying levels of security and convenience, allowing users to choose the one that suits their needs.

• In contrast to custodial wallets, noncustodial web3 wallets let users hold their private keys and fully control their funds.

What Is Web3?

Web3 is an advanced version of the internet that utilizes decentralized blockchains. Web3 also emphasizes machine learning, privacy, security and artificial intelligence to deliver a more personalized experience.

What Are Web3 Wallets?

A web3 wallet is mainly designed for interacting with web3 applications, integrating a user-friendly interface that can easily connect and interact with DApps on various blockchains. It’s also used to store a user’s cryptocurrency, NFTs or other digital assets.

How Do Web3 Wallets Work?

Each web3 wallet is a little different, but they all have the same essential function. Users start by creating an account and receiving a private key or seed phrase. A user’s account is only accessible with the private key or seed phrase, which cannot be changed. In some cases, users may be unable to retrieve their private keys, so it’s vital to write this information down and store it somewhere safe offline.

Once the user has signed in to their wallet, they can clearly see any assets they have stored in it. They can then send or receive digital assets from other wallet addresses. Some wallets allow users to connect directly to the blockchain or to a trading platform, enabling them to purchase cryptocurrency or other assets with ease.

Keep in mind that wallets value self-custody, the concept of handling your assets with little or no restrictions. While some platforms may have some use restrictions or limitations, the majority of web3 wallets allow users to make permanent, irreversible transactions as they see fit.

Custodial Wallets vs. Noncustodial Wallets

In the web3 space, custodial and noncustodial wallets differ in terms of control and ownership of users' assets. Following are the differences to note.

Custodial Wallets

These wallets usually involve a third-party service, for instance a crypto exchange that can access users' private keys and manage their assets on their behalf. Users rely on wallet providers mainly for the convenience, support for new wallet functions, and to delegate the responsibility to keep their assets safe within custodian policies.

Noncustodial Wallets

Noncustodial wallets give users full control and ownership over their private keys and digital assets. Wallet owners have full custody over their assets and autonomy to change their privacy settings. They also “own” safeguarding their private keys and the security of their assets.

What Are ‘Private Keys’ and ‘Public Keys’ in Web3 Wallets?

Private and public keys are cryptographic elements crucial in securing and accessing your digital assets. Fundamentally, there are subtle differences between the two, as follows.

Private Keys: These keys are unique alphanumeric characters, generated randomly, that are used to prove ownership and control over your digital assets stored in a web3 wallet. Only wallet holders should have access to the keys, as anyone who gains access to these keys has the autonomy to control the activities of the wallet’s assets. Authorized transactions using these private keys are irreversible, and can result in permanent loss of your assets if they're abused.

Public Keys: A public key is derived from your private key through a mathematical process known as asymmetric cryptography. It uses a cryptographic key that’s openly shared with others, and is used to receive funds or verify your identity in the web3 ecosystem. Public keys are mainly used to verify a digital signature signed by the corresponding private key, and to encrypt or decrypt data before sending a message across networks.

The Different Types of Web3 Wallets

Before you invest in digital assets, it’s imperative to learn the best way to store them. There are several other ways to keep your assets safe, offering various levels of privacy and security. The following are some examples of web3 wallets.

Cold Wallets

Cold wallets store your digital assets offline when not in use. Even if you’re an active cryptocurrency trader, most decentralized finance (DeFi) applications recommend a cold wallet for storing your long-term assets. By remaining offline except when in use, cold wallets are often less prone to scams. Older storage methods, such as paper wallets, are often used because they’re considered hack-proof — unless you lose the piece of paper.

Hardware Wallets

A hardware wallet stores your digital assets in an external device — typically a USB drive — that plugs into your computer when you’re ready to use it. Two of the most popular hardware wallet manufacturers are Ledger and Trezor, both of whom offer simple and advanced models catering to a wide range of cryptocurrency traders.

One of the benefits of using hardware wallets is that they’re small, often resembling typical flash drives. While you’ll need a PIN, private keys or seed phrase to access the data inside, its everyday appearance helps keep it safe.

The only downside is that their small size means they can easily be lost or stolen. While a thief won’t be able to access the data inside without your passphrase or PIN, you’re not likely to recover your device. If you choose a hardware wallet, don’t make the mistake of attaching it to your house or car keys. Instead, store the device in a secure location in your home, such as a fireproof safe, when not in use.

Paper Wallets

Paper wallets aren’t used as often as hardware wallets. While they offer a strong level of security, they can be unconventional to use. Paper wallets typically generate quick response (QR) codes or long strings of numbers and letters to represent a cryptocurrency. These papers are then stored somewhere safe offline until they’re ready to be traded.

In order to effectively use a paper wallet to store your cryptocurrency, you’ll need to find a trusted wallet generator to manually generate private keys. Most of these tools are open-source, so conduct thorough research before selecting which ones to use. Because of the extra steps involved in their use and due to their unconventional nature, paper wallets aren’t suitable for quick applications, such as receiving GameFi rewards.

Hot Wallets

Hot wallets are always connected to the internet. Most hot wallets cater to active traders and are hosted on exchange platforms, but there are several variations. 

New traders often have an easier time working with hot wallets, because funds don’t need to be transferred to an additional storage device. For example, with a hot wallet, a user only needs to deposit funds to purchase NFTs or cryptocurrency. The user can simply connect and receive GameFi rewards or stake their assets. Most hot wallets also have a lower learning curve, making them beginner-friendly.

These types of wallets also attract more users new to DeFi and trading. While you do get some support through most hot wallet providers, your activities are still irreversible. You won’t be able to recover funds if you send them to the wrong address, or if someone scams you. No matter what type of wallet you use, always be cautious, and review each transaction carefully.

Browser-Based Wallets

A browser-based wallet is a type of crypto wallet that has the same look and feel as a web browser. It usually exists as a browser extension. Most web3 wallets connect to a single blockchain. A well-made wallet allows you to connect and interact easily with DApps.

Some browser-based wallets resemble a typical internet browser, such asBrave. Other browser-based wallets, likeMetaMask orCrypto.com, are accessible by extensions built into your existing browser.

Desktop Wallets

Sometimes called software wallets, a desktop wallet allows you to interact with blockchains via a computer program. A software wallet allows you to buy, sell, trade and earn digital assets. Most software wallets also make all the tools you need easily accessible and quick to use.

There are a wide variety of different software wallets available. Examples of popular software wallets include Bybit Wallet, Coinbase Wallet and Exodus Wallet.

You’ll find a large variety of software wallets available. Some of them are designed specifically for storing and viewing NFTs, while others are only compatible with certain blockchains, games or other digital assets. Software wallets focused on DeFi applications tend to have more advanced features, and often provide additional resources, such as live trading information.

Mobile Wallets

Mobile wallets are becoming increasingly popular as more DeFi users are strictly using their smartphones for trading. These mobile apps are an excellent choice for anyone who routinely trades on the go, or receives small amounts of crypto at a time. For example, most mobile wallets offer GameFi support. Simply load the app, enter your PIN or password, and you’re ready to send and receive crypto.

Some of the most popular mobile wallets available include Bybit Wallet, Rainbow Wallet, Trust Wallet and Coinbase Wallet. 

What Are the Benefits of a Web3 Wallet?

Web3 technology doesn’t just emphasize safety and security. It also strives to make life easier for everyday users. Web3 wallets are no exception, and there are several advantages to trusting them when it comes to storing your digital and crypto assets.

Low Learning Curves and User-Friendly Interfaces

Both hot and cold wallets are designed to be set up within minutes, quickly granting the user access to trading and storage features.

The best web3 wallets focus heavily on the user experience. Hot wallet providers don’t like overly complicated interfaces. They want you to be able to set up your wallet and start trading assets within minutes, with little or no technical knowledge. For example, you can set up your own Bybit Wallet with just one click. 

After your wallet has been created, you can proceed to explore the web3 ecosystem via the Bybit Web3 Portal, where you can find information on all kinds of DApps, as well as guides and tips to help you navigate the web3 world.

Community Support

Almost all hot and cold web3 wallet providers have strong communities behind them. Even if the wallet you’re using isn’t open-source, you’ll still be able to find the answers to any questions you may have. While you do need to be mindful of scams, you’ll learn a lot about new ways to use your web3 wallet just by exploring online forums and watching videos.

Be in Control of Your Finances

Even though many web3 wallets are made by custodial third parties, they’re designed to keep the user in complete control. There are rarely limitations imposed on how you can send or receive crypto assets, since the market is decentralized. While some platforms or software wallets may have various limitations, the user is generally given free rein over their portfolio.

Stay Anonymous

One complaint many people have is that digital transactions often leave a strong paper trail. While most users aren’t engaged in mischievous activity, they don’t always want others to be able to track their online transactions. Part of the appeal of crypto assets is anonymity. When sending assets, you only need a wallet address, and you never need to enter your name or other personal information.

Web3 Wallet Security

Security is crucial when it comes to DeFi. Web3 wallets emphasize security. Without your private keys or seed phrase, hackers can’t access your crypto assets. When you leave your funds with a highly reliable exchange such as Bybit, which is equipped with industry-grade security, you can rest assured your funds will be kept safe. 

While paper wallets offer the highest level of security, most users find that a well-made software wallet provides efficient, secure storage.

Disadvantages of Using Web3 Wallets

While there are plenty of advantages to using web3 wallets, this storage method isn’t for everyone. If you’re completely new to trading crypto or collecting digital assets, it may take hours or even days to set up a proper wallet. There are also a few other disadvantages to be mindful of when using a web3 wallet.

Users Are in Complete Control

While many users enjoy having complete freedom over their crypto assets, others don’t like the absence of substantial support when things go wrong, especially when using cold web3 wallets. For example, if you lose your private keys to your hardware wallet, you won’t have any way to retrieve your funds. And if you accidentally send any of all of your assets to the wrong address, there’s no way to reverse the transaction. 

Of course, the alternative is to sacrifice some of your control and opt for a custodial wallet instead. If you happen to forget your seed phrase, or if you get hacked, you can still contact customer support to retrieve your account and get assistance. 

Advanced Features Have a Learning Curve

While most features can be accessed with little to no technical knowledge, most decentralized applications take time to fully understand. If your web3 wallet was made to interact with specific DApps, or requires additional steps to set up properly, you may have a hard time using it. This is especially true for hardware wallets that typically don’t have the friendliest user interfaces and require technical knowledge to use.

Scams and Security Risks

As mentioned above, the majority of web3 wallets emphasize safety, but most aren’t completely hack-proof. Utilizing a cold storage method that keeps your assets offline as much as possible will improve your security.

Inexperienced users may also be susceptible to scammers if they don’t know what to watch out for. Remember, if something doesn’t sound right, it’s okay to get a second opinion. Never give your private keys or seed phrases to anyone.

Web3 Wallets vs. Crypto Wallets

The term “crypto wallet” is often used interchangeably with “web3 wallet,” but the two terms have very different meanings. A crypto wallet is specifically designed to hold cryptocurrency. A web3 wallet supports a wider range of digital assets, including NFTs and crypto.

Similarities

Both web3 and crypto wallets are designed to store digital assets. There are both custodial and noncustodial options, and wallet owners are usually able to send, receive and store their assets with little to no restrictions.

It’s also important to note that most web3 and crypto wallets offer easy ways to view your assets. Simple interfaces allow you to quickly note what you have available in your account so that you can make faster decisions.

Web3 and crypto wallets may offer both hot and cold storage features, so users can easily find a wallet that suits their needs and provides them with their desired level of security.

Differences

The biggest difference between crypto wallets and web3 wallets is in what they store. Web3 wallets often interact with blockchains and DApps, making them much more versatile. For example, web3 wallets often house NFT collections. Crypto wallets are strictly for crypto assets, making them a bit more limited in how they can be used.

Should You Use a Web3 Wallet?

Because of the growth in the use of cryptocurrency and blockchain technology, it’s wise to learn how web3 wallets work. While it isn’t necessary to have an advanced hot or cold wallet, you should still have a basic understanding of how web3 wallets function if you plan on trading.

Choosing a web3 wallet can be difficult for beginners, but it can also save you a lot of headaches later. It’s okay to take your time and learn about the advantages and disadvantages of each wallet before trying it. The more active you become and the bigger your portfolio, the more concerns you’ll have regarding security and advanced management features. Having a reliable and secure wallet means less transferring, and gives you peace of mind from day one.

Experienced traders may also want to experiment with multiple web3 wallets to find one that complements their investment methods. It isn’t uncommon for traders to use a combination of hardware and software wallets. If you’re looking to get started with a custodial web3 wallet, consider setting up your own Bybit Wallet in just one click after signing up for a Bybit account.

Top Web3 Wallets

Following are some of the best web3 wallets to consider for keeping your digital assets secured:

1. Bybit Wallet: This wallet is integrated into the Bybit platform, so users just need to log in to their Bybit account to get started with the web3 functions. You can rely on the Bybit Web3 Portal to explore DApps functions and backgrounds that are compatible with the Bybit Wallet.

2. MetaMask: Although this wallet focuses on the Ethereum blockchain, it’s versatile and users can easily access other blockchains. It’s also open-source, with a strong development community that focuses on usability.

3. Coinbase Wallet: This is a noncustodial wallet separated from the platform's wallet. Wallet users can distinguish their usernames by replacing the long string of numbers and letters that matches their crypto wallet address.

4. Trust Wallet: This is a multi-asset mobile wallet that enables users to easily transfer digital assets between blockchains. Trust Wallet is one of a few web3 wallets that allow users to stake their digital assets to earn rewards and interest.

Learn more about the18 Best Web3 Wallets to Use

The Bottom Line

Web3 wallets are crucial if you want to get involved in trading cryptocurrency or other digital assets. They’re easy to use and secure, and they help you stay in control of your assets. There are several different hot and cold wallets available, and it’s easy to find something that matches your needs. Whether you’re an advanced crypto trader or just need something to store your GameFi rewards, now is a great time to start looking into a proper web3 wallet for your assets.