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Web3 Wallets: Everything You Need to Know and Tips to Stay Safe

QuHarrison Terry
QuHarrison Terry
12 min read
Web3 Wallets: Everything You Need to Know and Tips to Stay Safe

This article was created in partnership with CyberScrilla.com

With the next phase of the internet upon us, there are new technologies that we must learn to use. A Web3 wallet is one of them. Similar to an internet browser, these wallets are essential for accessing the exciting world of Web3.

A Web3 wallet, also called a crypto wallet, is a gateway to the Web3 ecosystem. Not only is it used to access the decentralized web and dApps, but it’s also used to buy, sell, trade, and store digital assets. The two most common wallet types include hot storage (software) and cold storage (hardware).

As society advances, so does our technology. If you fail to learn about new advancements like Web3 wallets, you will quickly be left behind. In this article, you’ll learn exactly what a wallet is, what it’s used for, the different types, and much more.

What Is a Web3 Wallet?

Simply put, a Web3 wallet is your key to the decentralized web. Whether you are looking at getting into crypto, collecting NFTs, or exploring innovative decentralized apps (dApps), a Web3 wallet is required.

That being said, a wallet is more than just a key. It’s your online identity. The times of keeping track of multiple passwords and email addresses are of the past.

The only thing you need to access all of your online accounts, whether social or financial, is your Web3 wallet. That means you no longer need to enter an email and password for every site you visit. Instead, you simply sign a digital transaction using your wallet.

This transaction is safeguarded by multiple authentication factors, ensuring you and any assets you may hold remain safe.

If you want to learn how to make a Web3 Wallet please visit Wallets123.com.

How to Create a Crypto Wallet - Wallets 123
Your Guide to Creating a Crypto Wallet

What is a Web3 Wallet Used For?

A Web3 wallet is a versatile and significant piece of technology that is set to revolutionize the way our online identity is presented and accessed. Here’s what these digital wallets are commonly used for.

Asset management

A Web3 wallet is most commonly used for managing various types of digital assets. Cryptocurrency and non-fungible tokens (NFTs) are the two most recognized digital assets in today’s world.

Since these digital assets live on the blockchain, having a solution to manage them all is crucial. Using your wallet, you can buy, sell, store and even create cryptocurrencies and NFTs.

Without owning a Web3 wallet, there are limited options for interacting with digital assets on the blockchain.

Access

Beyond simply functioning as a storage solution, your wallet grants you access to the entire Web3 ecosystem. From the decentralized web to popular dApps like Opensea, your Web3 wallet is essential for participating in the new iteration of the internet.

How Do Web3 Wallets Work?

The common misconception about Web3 wallets is that your assets are actually stored within the wallet itself. Truth is, they’re not. Rather, digital assets are stored on an address that is published on the blockchain.

With that, wallets are assigned their own public address. This address can be viewed (and shared) by anyone and is attached to your online identity. That means anyone can view your transaction history, along with your current holdings.

Public Address

Most public wallet addresses are 42-characters long and begin with “0x”. Your public wallet address is what you use to send and receive digital assets, including crypto and NFTs.

It’s important to note that you don’t get to choose your wallet address (unless you use something like an ENS domain). It’s automatically generated for you when you create a new wallet.

Sharing your address is considered safe as it’s already publicly displayed. However, if you don’t want others to know what you hold in your wallet or your historical transaction data, it’s best to keep your wallet address to yourself unless you need it to transact.

Recovery Phrase

In addition to your public wallet address, your wallet will automatically generate a “secret” recovery phrase. You must write this phrase down to store it for safekeeping. The number one rule of wallet-101 is to never share your secret recovery phrase.

Your recovery phrase is the key to accessing your Web3 wallet. Anyone who knows your phrase has complete access to your wallet and the assets within. Under no circumstances should you ever share your secret phrase. It’s a secret for a good reason.

Furthermore, if you lose your recovery phrase, there is no way to recover it. That means you won’t be able to access your wallet or the assets within.

That’s why it’s essential to find a safe place to store your phrase. Storing it on your computer or online is not safe. You should really only store your recovery phrase in a secure, physical location, such as a fireproof safe.

Most wallets will generate a 12-word phrase. The most secure wallets will produce a 24-word phrase, making it near impossible for anyone or anything to guess.

Most wallets use a standard called the Bitcoin Improvement Proposal (BIP-39) to generate every single one of their wallet’s secret phrases.

This standard consists of 2,048 words from the BIP-39 wordlist.

That being said, there are one hundred fifteen quattuorvigintillion (1 followed by 77 zeros) possible mnemonic seeds that hackers have to sift through to find the right match to access your wallet.

Of course, there are numerous scams that users fall victim to every day. Scammers will attempt to trick you into voluntarily handing over your secret phrase, or worse, they’ll send you to a malicious site that can gain access to your wallet once it’s connected to the site.

However, you can reduce your risk of being scammed or hacked by knowing which scams to watch out for, as well as ensuring you get a safe wallet.

What Are the Different Types of Web3 Wallets?

There are several types of wallets to consider, each with its own list of pros and cons. Here are the three different kinds of wallets.

Paper Wallet

If you were early in the crypto space, then you probably know all about paper wallets. A paper wallet is a printed piece of paper that contains unique keys and QR codes that are used to facilitate cryptocurrency transitions.

Paper wallets used to be considered the most secure form of cryptocurrency storage since your wallet’s private information was removed from the internet. As technology advanced, this type of wallet has been put to rest by most users in the space.

That being said, paper wallets will always have their place in the history books. And to be honest, they’re not too far off from the wallets we use today.

Pros:

  • Secure
  • Historically significant

Cons:

  • Outdated
  • No longer used

Software Wallet

Software wallets are the most common type of wallet used in the Web3 space. Mainly because they are convenient and free to use. There are three different variations of software wallets, including:

Web Wallet

Web wallets can be a good option for beginners. They provide easy access through a web-based interface, without the need to download any extensions or add-ons.

Web-based software wallets are safeguarded by setting a strong password to access them. Besides that, there is little you can do in terms of security.

With web wallets, you really have two options: a browser-based provider or an exchange wallet. Most wallet service providers hold and manage your private (recovery) key for you.

Although some might find this helpful, it is considered risky. You are placing complete control and ownership of your digital assets in the hands of your wallet service provider.

However, some wallet providers will let you choose to manage the keys completely on your own or leverage a multi-signature approach for shared control.

Regardless, if you go this route approach with caution.

I recommend not storing any valuable assets in a web wallet. If you’re going to use one, do so for the experience.

One of the most popular web wallets is MyEtherWallet (MEW).

Desktop Wallet

Desktop wallets are a more popular software choice. This kind of wallet is accessed by downloading the software to run locally on your computer or through a browser extension.

This type of software wallet is popular amongst Web3 users because it’s convenient, and it’s non-custodial (you own and control your private keys).

The main concern with using a desktop wallet is that all of your wallet’s private keys (recovery phrase and password) are stored within the software. Even if you create an impenetrable password, you are still at risk for common phishing link scams and other hacks.

One of the most popular desktop wallets is Coinbase.

Mobile Wallet

A mobile wallet, although similar in function and security to a desktop wallet, is the most popular wallet in the world of Web3. This wallet is largely preferred because of how convenient it is to download, set up, and learn to use.

Though mobile wallets offer flexibility, they do present notable vulnerabilities. Like desktop wallets, mobile-based wallets are at risk of malware infection and phishing scams. Therefore, it is crucial that you understand how to protect your wallet to avoid scams and potential hackers.

One of the most popular mobile wallets is Metamask.

It’s often said that mobile wallets (and all software-based wallets) should only be used for transacting. A software wallet is not the best option for short or long-term storage of your digital assets.

Pros:

  • Convenient
  • Free to use
  • Easy to setup
  • Complete control over your keys and assets

Cons:

  • There’s a more secure option
  • Pose a higher risk of being hacked
How to Create a Crypto Wallet - Wallets 123
Your Guide to Creating a Crypto Wallet

Hardware Wallet

At last, we arrive at the most coveted Web3 wallet currently available to users—the hardware wallet. As the name suggests, this kind of wallet is a physical device.

Since all of the private keys are stored in the device itself and not online, these wallets offer you the greatest protection from hackers. It’s important to note that just because the private keys are offline doesn’t mean it’s not registered on the blockchain.

Remember, Web3 wallets are used as a key to access the blockchain, they aren’t the blockchain. It’s also important to really grasp why a hardware wallet is so secure when compared to software wallets.

Setting up a hardware wallet is simple. Sure, it’s more involved than a software wallet, but there are endless resources online to learn exactly what you need to do to set one up.

Basically, it’s as easy as powering on the device, recording your recovery phrase, creating a PIN code, and then a strong password. After the initial setup, a hardware wallet functions similarly to software wallets.

The main security benefit of a hardware wallet comes from the fact that it’s offline—meaning there’s no way for a hacker to gain access to your device. But, if you connect your device to the internet to make a transaction, then it has the same potential of being hacked that a software wallet does.

That’s partly the reason why hardware wallets are the best possible storage solution for both cryptocurrencies and NFTs. This isn’t to say that you can’t connect a hardware wallet to the internet, however, you should exercise vigilance.

In fact, it’s not uncommon for users to own two hardware wallets (one for transactions and one for storage). This is the safest possible solution.

Two of the most well-known and trusted hardware wallet brands include Ledger and Trezor. Both of these companies have been around since 2014 and are backed by teams that possess extensive knowledge in embedded securities, cryptocurrency, and NFTs.

Their devices contain the latest security-tech and are resistant to a number of physical and software attacks. For this added security, expect to pay between $60 and $250 for a good hardware wallet.

Pros:

  • Most secure
  • Complete control over your keys and assets
  • Best for short and long-term storage

Cons:

  • Slight learning curve
  • Costly

How Do You Keep Your Wallet Safe?

Keeping your digital wallet safe is a necessity in a society where everything is being digitalized. From our assets to our identity, our wallets are the gatekeeper of it all. Here are my top tips for ensuring your wallet remains secure.

How to Create a Crypto Wallet - Wallets 123
Your Guide to Creating a Crypto Wallet

Keep Your Private Keys Private

Considering our private keys are essentially the new version of our social security number, it’s important that we do everything in our power to keep them safe.

Make sure to never give out your recovery phrase or any other private information regarding your wallet. The only thing that is safe to disclose is your public wallet address.

Nevertheless, we have to be proactive and take the proper steps to secure our private keys in a smart manner, and in a safe location. Writing your 12-24 word phrase down on a wallet might not be enough.

What happens if there’s a fire or a flood? You can say goodbye to all your assets. That’s why I recommend getting a stainless steel recovery phrase plate. Using an engraving pen, you can permanently record your phrase on this fireproof plate.

Additionally, it’s a good idea to store your plate in a fireproof safe or lockbox for extra security.

Only Buy Your Hardware Wallet From the Manufacture

When it comes to buying a Web3 wallet that you intend to use to keep your digital goods safe, it only makes sense that the only entity you should trust to deliver an authentic product is the manufacturer itself.

Too often I’ve seen people purchase compromised hardware wallets on Amazon or receive them as a free gift on social media, just to find out they were actually a scam.

Trust me when I say it’s worth spending the extra couple bucks to ensure you are buying a legit device.

Avoid Connecting Your Hardware Wallet to the Internet

Even though companies like Ledger have crafted the most secure wallet possible, connecting your device to the internet exposes it to potential scams.

These scams can be blatantly obvious, but when they’re not is when it really hurts. Scammers are smart. In fact, they usually know more about the product than the average consumer. As a result, they know exactly where to strike to take advantage of unsuspecting victims.

Even then, I have seen the most knowledgeable veterans in the space be taken advantage of. You never think it could happen to you—until it does. For this reason, your best bet is to not risk it.

Disconnect Your Wallet From Websites and DApps

If you do connect your wallet to a site (whether it be software or hardware), make sure to disconnect it once you’re finished. It’s no different than logging in and out of your bank account when you're done. It helps keep you secure and helps keep others out.

Your wallet will stay connected to a site if you don’t manually log out, so understanding how to do this is key. Generally, the way you log in to a website or dApp will be the same way you log out. If you locate a button on the website to disconnect your wallet, make sure you log off the site using your wallet.

To do this, find where it says “Connected Sites” in your wallet, then disconnect. After you’ve done that, it’s just as important to lock your wallet. By locking your wallet, you’ll be required to enter your password the next time you try to use it.

Usually, there will be an option in your wallet that says “Lock” or “Logout”.

If you want to keep your digital assets safe along with your digital identity, don’t connect your main hardware wallet to the internet. You either need to utilize two hardware wallets or use a software wallet solely for transacting and logging into sites.

From there, you can transfer your assets to your cold-storage wallet to ensure everything remains safe.

How to Create a Crypto Wallet - Wallets 123
Your Guide to Creating a Crypto Wallet

What Does the Future of Web3 Wallets Look Like?

In modern Web3 society, wallets are mainly thought of as storage solutions for crypto and NFTs. Understandably, many people aren’t exploring dApps yet, especially those who have just been recently onboarded.

This is partially due to fear, as well as an overall lack of awareness of what’s available in terms of decentralized applications.

The future of Web3 wallets looks much different than today’s outlook. The wallets of tomorrow will act as our digital identity. They will expose bad actors and those with poor reputations thanks to the transparency provided by blockchain technology.

Everything we do online will be done via our wallets. From logging into our social media accounts to transferring large sums of money, our Web3 wallet will play a vital role in the way we all interact with each other online.

This is both good and bad. Those who wish to know everyone’s exact move (our government)—along with others who wish to live in a more transparent world—will benefit greatly from the technology.

Moreover, our digital wallets will provide us (and our assets) with unprecedented levels of security as they will be safeguarded by the most advanced blockchain technology and biometrics.

On the other hand, people with bad intentions might have a more challenging time pretending to be someone they’re not. Depending on who you are, you may or may not see this as a good thing.

Ultimately, a Web3 wallet is much more than just a wallet. It is the gateway to a new digitized society that’s upon us. With digital assets and online identities becoming more prevalent in our everyday lives, learning everything you can to protect yourself and your goods is crucial. Don’t be left behind. Keep curious, ask questions, and stay safe.