The concept of Web3 encompasses the vision of a next-generation, decentralized Internet that puts an enormous emphasis on security, autonomy, and privacy. It is what the whole blockchain and crypto ecosystem, including NABOX, has been working towards ever since its inception. And since the wallet is the tool that enables users to interact with this decentralized Web3 world, we decided to take you on an exploratory journey of the different types of wallets existing in the crypto space.
We will evaluate their characteristics and features, with the aim of helping you choose the right wallet for your needs. In fact, given the enormous amount of scams and frauds taking place in the space on a daily basis, it is of utmost importance for you to know how safe and protected your funds will be when different types of wallets are used. Additionally, we will use this opportunity to demonstrate NABOX Wallet’s advantages and benefits.
Crypto vs. Web3 Wallets
A crypto wallet is generally a service enabling users to send and receive cryptocurrencies, whereas a Web3 wallet may have added support for other crypto assets such as NFTs, virtual land or GameFi rewards. A Web3 wallet usually enables you to interact with decentralized applications (dApps) and is essentially your gateway into the Web3 world. Though, both crypto and Web3 wallets can share similar characteristics in terms of security, custody, and centralization, and can be divided into:
Centralized vs. decentralized wallets
Custodial vs. non-custodial wallets
Hot vs. cold wallets
Centralized vs. Decentralized Wallets
A centralized wallet is a service offered by a centralized exchange. It is easy to set up and use, comes with a clean interface and technical support. The downside is that users’ accounts and funds are stored and managed by one centralized entity which by extension represents a single point of failure and is vulnerable to attacks. Centralized exchanges, part of the so-called CeFi (Centralized Finance as opposed to DeFi, Decentralized Finance) sector of the crypto economy, represent a critical systemic risk for the industry as we have repeatedly witnessed throughout 2022, lately in the FTX debacle. However, they are essential for the onboarding of new users into the space and, in general, for crypto’s mass adoption.
On the contrary, decentralized wallets store and manage funds and assets in a decentralized manner, and thus provide a higher level of security, privacy, and autonomy. The NABOX Wallet, of course, falls in that category.
Custodial vs. Non-Custodial Wallets
A beginner user will surely be confused when hearing the term “custody” in the context of wallets, but it is an important concept in the crypto space. In essence, it refers to who is responsible for managing and storing users’ private keys, and by extension their funds and assets.
Centralized wallets are usually custodial wallets i.e. a third-party centralized entity providing the service also controls users’ private keys. Such wallets are the preferred option for inexperienced crypto users who often feel overwhelmed by the “daunting” job of private keys management. When using a custodial wallet they are not required to keep, store or even care for their private keys. But, whoever controls the private keys, controls what is stored in the wallet and we can safely say that your funds are not really yours if you don’t have your private keys.
Non-custodial wallets are a safer option since users are responsible for the protection of their own private keys. Beginner crypto users may find non-custodial wallets a bit more difficult to use, but in return their assets would be in their full control. Indeed, if you lose your seed phrase, your funds will be effectively gone, but on the bright side, you’ll have only yourself to blame.
Naturally, the NABOX Wallet is also non-custodial: your private keys and mnemonics get encrypted and stored locally in your device. That way, neither NABOX nor the websites and dApps you are interacting with have access to them.
Hot vs. Cold Wallets
As you may have figured out already, the categories of “hot” and “cold” do not refer to the wallet’s physical temperature, but instead translate into whether the wallet is connected to the Internet or not. As a rule, hot wallets are software wallets that live on the Internet and can only be used when online. They may take the form of a desktop or a mobile application, or a browser extension. Hot wallets may be custodial or non-custodial, so make sure you take that into account when choosing a wallet.
The NABOX Wallet is currently existing as a Chrome and Brave browser extension, although a mobile application is in the works as well.
On the other hand, cold wallets can be used offline and are considered one of the most secure solutions for self-custody of crypto assets. The most popular cold wallet solutions are the hardware wallets — USB key-like devices designed to store the private keys of their owner.
Fortunately, some software wallets, the NABOX Wallet included, allow for the integration with a hardware wallet aimed at delivering higher levels of security.
What are smart wallets?
Smart wallets are a new generation of crypto wallets that try to combine the user-friendliness of hot wallets with the security of cold ones. They often replace the traditional crypto wallet identification process consisting of a seed phrase with simply a combination of an email address and a password. Additionally, unlike other crypto and Web3 wallets where losing your seed phrase automatically means losing your money, smart wallet accounts can be restored. They also offer a social recovery process that entails the use of several keys held by different people.
The research and innovation in the crypto wallet department continue. Such new features and options as those introduced by the smart wallets are necessary if we want to close the gap between Web2 and Web3 and to make users as comfortable as possible with crypto.
What is NABOX vision for a Web3 wallet?
Nabox is a cross-chain DID application built for Web3.
With Nabox, you can manage assets across different blockchains whether for DeFi, GameFi, NFTs, and other use cases that come up. Nabox is your gateway to the multi-chain world. Nabox uses an asymmetric cryptographic algorithm as the basis of Nabox's DID. Users use the same set of keys and public keys to manage assets and data on different blockchains.
