Guide to Ethereum Wallets
- Real Vision
- November 10, 2021
- 5:32 AM
Digital wallets are the entry gate into the crypto world. Kind of like how browsers unlocked the door to the internet and made its usage a mass phenomenon, digital wallets are helping people adopt cryptoassets. A wallet is an interface to see what is happening on a public blockchain. Practically speaking, it helps you receive, send, store, and potentially do even more with your cryptocurrencies.
A wallet’s main functions
Currently, we are witnessing a Cambrian explosion, as many different crypto wallets are popping up. While they differ in the broadness of their functionality, they have some common denominators: storing, receiving, and sending cryptocurrencies.
Crypto wallets don’t actually store any cryptocurrencies inside them. The coins or tokens themselves exist as a ledger entry on the distributed public blockchain. What is stored inside a wallet are the private keys that are needed to access and transfer a certain cryptocurrency.
Because of this setup, digital wallets empower and let you take self-custody of your cryptocurrencies. This way, you as an investor can protect yourself against the high risks centralized cryptocurrency exchanges face every day: security breaches and hacks.
Although exchanges are striving to make their security systems better, they still represent a honey pot for thieves and hackers. Therefore, storing your crypto in your own wallet may be a priority for you. In order to feel comfortable doing this, you should know about the different kinds of wallets there are. In this piece, we want to focus on and explain the world of Ethereum wallets.
Mobile vs Desktop Wallets
Mobile and desktop wallets are an easy way to get started. As a user, you can simply download an app or a desktop version and follow a few basic steps. While you are not asked to provide any identification, you are usually asked to create a new wallet account. This account is then backed up by what is called a seed phrase. Most seed phrases come in the form of either 12 or 24 words. It is important that this seed phrase is kept private. If anyone gets hold of your seed phrase, your assets could be retrieved and stolen. In case you lose your cell phone or your computer breaks down, you also want to have a backup of your seed phrase, which lets you re-create your wallet on any new device. But because a seed phrase contains sensitive information, you are once again advised not to screenshot or save your seed words as a digital file but on physical paper or on a strictly offline device.
Mobile or desktop wallets are what is referred to as hot wallets. These are wallets that are connected to the internet. Wallets connected to the internet and storing the private keys in digital form are vulnerable to attacks, even though most hot wallets protect the private keys through encryption. Popular wallets in this category are Trust Wallet or Exodus. Both of them let you handle ether as well as Ethereum-based tokens. Also, both wallets allow for the seamless swap of coins, as they have built-in exchanges. An additional feature that comes with the Exodus wallet is its ability to sync with Trezor. This way, you can combine the convenience of a mobile and desktop wallet with the advantage of a hardware wallet.
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Hardware wallets
The main advantage of a hardware wallet is the fact that your private keys are not exposed to the internet. They reside in a secure enclave on the hardware wallet itself. Whenever you do a transaction with your hardware wallet, the transaction is signed with the private key on your hardware wallet, and it is the signed transaction that leaves your hardware wallet.
Only after a successful validation through the user on the hardware wallet can a transaction be sent to the network. What makes hardware wallets so powerful is the fact that any transaction that is initiated through the corresponding software has to be confirmed using the hardware wallet. Confirmation means that a user will have to press a physical button or touch a touchscreen on the wallet.
Hardware wallets can and should also be backed up with the seed phrase they provide. In case of loss or theft, assets stored on the hardware wallet can be recovered with the seed phrase. As with the mobile or desktop wallet, the same principle applies here: The seed phrase needs to be secured safely and privately.
There are various hardware wallets out there. Trezor, Ledger, or Bitbox are all popular options. All of them can be linked to MyEtherWallet. This way, ether, as well as Ethereum-based tokens, can be securely handled using a hardware wallet device.
DeFi Wallets
As indicated here, Ethereum’s public blockchain already offers a variety of decentralized finance products and applications. Be it lending, borrowing, staking, farming, betting, or trading, all of these functionalities are offered by different projects and protocols running on Ethereum. Because there are tons of different options, wallet providers have started to act as aggregators, helping users to access these different decentralized applications (DApps). Like a one-stop shop for DeFi use cases, wallets like Alpha Wallet or Frontier Wallet make it possible for a user to seamlessly connect with most DApps.
Smart contract wallets
Smart contract wallets are another way to access Ethereum-based DeFi applications. One of the most popular options is MetaMask. It is available as a browser extension as well as a mobile wallet and can even be synced with a hardware wallet. When you use MetaMask on your phone, you can use their inbuilt-browser function to access all the DeFi services conveniently from your smartphone.
Interestingly, MetaMask is what is referred to as a non-custodial wallet. Its feature: It is directly interacting with Ethereum’s public blockchain. This means that the wallet is able to “do” smart contracts natively, which is why it is called a smart contract wallet. Judging by crypto’s ethos, this type of decentralized ethos is most in line with crypto’s overall philosophy. The user is truly interacting with the protocols themselves and is the owner of the private keys associated with the smart contract wallet. Other wallet providers offering similar functionalities as MetaMask are Argent or Dharma.
So which wallets to use as a newbie?
If you are just getting started, mobile wallets like Trust Wallet or Exodus could be a good choice. They are easy to handle and let you send and receive your first ether. Once you have more than a few fractions in ether, you might want to properly secure them. It’s worth investing in a hardware wallet like Trezor, Ledger, or Bitbox for maximum security. By linking them up with MyEtherWallet, their handling becomes very straightforward.
After you have decided to tap into the world of DeFi, getting started with Argent or Dharma will do the trick for you. If you want full functionality and the possibility to access every single DeFi application there is, setting up a MetaMask wallet is an option.
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