Imagine a world where your mobile device isn't just a way to access your bank, but a standalone place to store value. A world where transactions aren't slowed down by middlemen, but flow as easily as sending a text message. Web3 wallets offer a decentralized, transparent, and direct method to store value on mobile devices and interact with digital assets.
What are Web3 wallets?
Web3 wallets are tools designed to store digital assets and interact with blockchain technologies. Unlike traditional bank accounts, these wallets allow the storage and management of blockchain-based digital assets, including:
- Stablecoins: Stablecoins like USDC can be stored, sent, and received using Web3 wallets. Web3 infrastructure allows stablecoin transactions to be settled more quickly and with reduced fees compared to traditional banking payments.
- NFTs: Non-fungible tokens represent unique digital assets, like art or collectibles, and can be securely held in Web3 wallets.
- Badges and loyalty gifts: Instruments like airline miles or rewards points from your favorite store can be tokenized and managed within Web3 wallets, providing a more direct connection between businesses and their customers. For example, Grab, a popular app in Singapore, is using Circle Wallets to offer coupons for goods and services associated with high profile events like the Singapore Grand Prix.
Web3 wallets vs traditional digital wallets
The term “digital wallet” is often used to describe both Web3 wallets and traditional wallets, so it’s useful to clearly distinguish the two types of digital wallets.
Traditional digital wallets are electronic platforms or apps that enable users to store, manage, and transact with fiat currencies and traditional financial instruments like credit and debit cards (think, for example, of apps like Apple Pay or Google Pay). These wallets are typically tied to centralized financial institutions such as banks or payment service providers. They rely on legacy systems and integrations provided by these institutions, which means they operate within siloed networks with limited cross-platform interoperability. Security in traditional digital wallets is generally managed by the service provider, and users depend on these centralized entities for the protection and control of their funds.
Web3 wallets are often confused with traditional digital wallets, but they can have several key features that differentiate them from traditional digital wallets:
Custodial vs non-custodial wallets
Web3 wallets come in various forms, including custodial and non-custodial wallets.
- Non-custodial wallets: Non-custodial wallets (also known as self-custody wallets) do not entrust the custody of private keys to a third party. Instead, users maintain full control and responsibility over private keys and assets within the wallet. Non-custodial wallets are an essential tool for connecting to decentralized applications (dApps).
- Custodial wallets: Custodial wallets have private keys that are managed by a hosting business or other third party, which can enable account recovery and other features. Custodial wallets typically do not enable users to connect to dApps.
How to use a Web3 wallet
These are the steps required to get started with most Web3 wallets today:
- Download and install: The first step involves downloading and installing your desired wallet. Some wallets function as part of a mobile app, while others may be desktop applications or browser extensions.
- Set up the wallet: Once the wallet is installed, it needs to be set up. This usually involves creating a new wallet within the application, although existing wallet data can be imported using a private key or seed phrase from another wallet if available. This process may or may not be guided, and can take significant time to complete.
- Secure the wallet: Upon creating a new wallet, users will be asked to set up a strong password and may also be provided with a seed phrase (also known as a recovery phrase) — a sequence of words that acts as a recovery key for the wallet. This seed phrase is extremely important, as it can restore the wallet if the host device is lost. Note that your seed phrase should always be securely stored and protected; anyone who has access to it can control (i.e., transfer or spend) the assets in its associated wallet.
- Receive a public address: Once the wallet is secured, users will be able to view their public blockchain address. This is a unique identifier that can be shared with others when transferring cryptocurrency. It's a unique code similar to an email address that designates a specific wallet to receive crypto transactions.
- Send and receive digital assets: The wallet is now ready to send and receive assets on the blockchain. Other wallet holders, exchanges, or applications can use wallet’s public address to transfer crypto or view public information like asset balances of the wallet.
Security measures for Web3 wallets
Here are some security best practices to keep in mind while using a non-custodial Web3 wallet:
- Safeguard private keys: For non-custodial wallets, users are responsible for securely storing their own private keys (or their wallet’s associated recovery phrase). It’s important that this crucial information remains private. Writing a recovery phrase down on paper and storing it in a secure location can be one effective method.
- Regularly update wallet software: Wallet software should be kept up-to-date, as developers may release updates that fix bugs and security vulnerabilities.
- Guard against phishing attacks: Web3 wallet users should be aware of phishing attacks, where scammers try to trick users into divulging private keys or connecting to malicious applications. Legitimate platforms and services will never ask for this information.
Web3 wallet innovations: Circle Wallets
An interesting development in the world of Web3 wallets is the emergence of technology like Circle Wallets. These wallets allow businesses to seamlessly integrate Web3 wallets into their existing applications or new products, simplifying the setup and usage process for end-users. For those less familiar with Web3 security, Wallets enables businesses to offer custodial wallets and securely manage private keys on behalf of customers. Features such as PIN code authorization reduce transaction friction, and users can easily access their public wallet addresses directly within an app. Wallets thus helps bridge the gap between complex blockchain technology and user-friendly experiences, making it easier for businesses to serve digital asset products and services to individuals around the world.
The future of Web3 wallets
As blockchain technology continues to mature and become embedded in everyday applications, Web3 wallets are poised to play a greater role in the internet financial system. As the digital asset industry grows, businesses should continue making these wallets as intuitive as possible, removing barriers for new users. Web3 wallets are a big step forward in the digital world, changing how we think about digital transactions and ownership.
Web3 wallet FAQs: custodial vs non-custodial, safety, and setup
What is a Web3 wallet?
A Web3 wallet is a tool that lets you store and manage digital assets, as well as interact with the smart contracts and decentralized applications (dApps) that make up Web3. While all Web3 wallets are crypto wallets, not all crypto wallets are Web3 wallets.
For example, custodial crypto wallets allow you to buy, sell, and trade digital assets. But when you sign up for a centralized exchange (CEX), your exchange-hosted crypto wallet is typically limited in its functionality to connect to Web3.
Web3 wallets (like Ledger, MetaMask, Phantom, Trezor, and others) give you more connectivity in the Web3 space — enabling you to interact with blockchains and the various dApps built on them, including the decentralized finance (DeFi) ecosystem. For example, you can use a Web3 wallet to participate in DeFi, play decentralized games, post on decentralized social media, and more.
Why do I need a wallet to use Web3?
You need a Web3-compatible crypto wallet in order to interact with Web3 projects and services. The way Web3 is built involves blockchain networks, and Web3 wallets are a crucial part of interacting with these networks (in addition to providing basic functionality like asset storage). Your Web3 wallet enables you to authenticate, verify, and confirm your digital asset transactions. So whether you’re signing into a decentralized social media platform, or storing in-game items for a decentralized game, a Web3 wallet is key.
What's the difference between custodial and non-custodial wallets?
There are two main types of Web3 wallets: custodial and non-custodial. The key difference between custodial and non-custodial wallets comes down to who actually controls the digital assets the wallet contains. Custodial wallets are generally third-party services that manage and control your digital assets, much like traditional bank accounts control your dollars. They hold your private keys which prove digital asset ownership. This can be a convenient option for those that want to delegate this responsibility, but it entails placing your assets under someone else’s control. For example, while millions use centralized exchanges (CEXs) to custody their assets, some CEXs have gone bankrupt, which may affect user access to assets in certain cases.
Non-custodial wallets, on the other hand, give you control over the private keys that signify ownership of your digital assets. For this reason, you may have seen non-custodial wallet proponents use the phrase “not your keys, not your crypto.” With non-custodial wallets, you have a high level of control over your digital assets, but also a high level of responsibility for your wallet’s safety. If you lose your wallet, your password, or your keys, you might permanently lose access to your digital assets. There is no person who can reset your wallet or password for you.
A custodial wallet is like storing your money in a bank’s vault (though likely without insurance protections like FDIC). A non-custodial wallet is like having the vault — and the key — in your own home. Where and how you store the key can be pivotal.
It’s highly recommended that non-custodial wallet users securely and safely store their wallet recovery phrase in an offline location. This is a backup measure that can regenerate your wallet should it become lost, damaged, or inaccessible for any reason. However, you must keep this phrase secret. Anyone with your recovery phrase could confiscate your assets by regenerating your wallet using the same process you would use.
How is a Web3 wallet different from a traditional digital wallet?
Traditional digital wallets that you may use are managed by companies and primarily store traditional fiat currencies (e.g., USD, EUR, etc.) linked to your bank account or credit/debit card. Popular options include Apple Pay, Google Pay, PayPal, Venmo, and others.
Web3 wallets are different because they're decentralized and allow you to connect directly with blockchain networks and manage your digital assets — including stablecoins — without relying on a third-party intermediary.
How do I keep my Web3 wallet safe?
A few smart habits can go a significant way toward keeping your Web3 wallet safe. Consider using strong, unique passwords, enabling two-factor authentication (2FA), and securely storing your private keys or recovery phrase offline in a trusted location. Another way to help keep your Web3 wallet secure is to avoid sharing or storing sensitive wallet details online (including your password) where online hackers could access them. Hardware wallets (physical devices designed specifically for enhanced security) can offer added protection by keeping private keys offline.
How do I choose the best Web3 wallet?
Choosing the “best” Web3 wallet will likely depend on your personal needs, preferences, and situation. Factors to consider include: ease of use, compatibility with other devices and platforms, security features, and which digital assets your Web3 wallet supports. For example, some Web3 wallets only support specific assets or blockchains.
Web3 software wallets are typically free, easier to use than hardware wallets, and can be downloaded onto your phone, tablet, or computer. If you’re always on the move, a mobile wallet can offer convenience and fast access to your funds, right from your pocket. If convenience and ease of use aren’t as important to you as security, a hardware wallet is worth considering due to its more robust security profile which includes storing your private keys offline.
In many cases, you can link your Web3 software wallet with your hardware wallet — using a familiar software wallet interface but signing transactions offline with your hardware wallet. This can give you the convenience of a software wallet with the secondary security features of a hardware wallet for confirming transactions.
What's a good Web3 wallet for beginners?
For beginners, Web3 wallets like Exodus, MetaMask, Phantom, and Trust Wallet are popular choices due to their security features, user-friendly interfaces, and widespread compatibility with most decentralized applications (dApps). MetaMask offers Web3 browser integration for easy access to dApps, supporting new users as they explore Web3.
These wallets provide a beginner-friendly experience with built-in support for popular digital assets like USDC and many others. Further, they generally offer helpful resources for getting started and offer a good deal of compatibility with many Web3 dApps and platforms.
*Circle Technology Services, LLC (“CTS”) is a software provider and does not provide regulated financial or advisory services. You are solely responsible for services you provide to users, including obtaining any necessary licenses or approvals and otherwise complying with applicable laws. For additional details, please click here to see the Circle Developer terms of service.
