Crypto Defi Wallet
What Is A Crypto DeFi Wallet?
Unlike regular fiat money that can be stored both physically and digitally, cryptocurrencies have no physical form, so they must be stored in a crypto wallet. This wallet usually consists of a public and private key and a passphrase. Crypto wallets are classified into two categories: hot wallets (connected to the Internet) and cold wallets (hardware-based).
A wallet from an exchange is a hot wallet (connected to the Internet) that can be either non-custodial or user-custodial. If it’s non-custodial, the private key and the passphrase are known only by the person or organization giving you the wallet. On the other hand, real DeFi wallets are user-custodial and belong entirely to the users, as they receive both the private key and passphrase.
Summary of Important Points
- Cryptocurrencies do not have a physical form and can only be stored in crypto wallets - hot wallets and cold wallets.
- A crypto wallet is a place where you store your cryptocurrencies, and it can be non-custodial or user-custodial. It’s usually given out by a centralized exchange (CEX) like Binance and Coinbase, while DeFi wallets are given out by apps like MetaMask, TrustWallet, or DeFi Swap.
- Non-custodial wallets cannot be directly accessed by any governing or regulatory bodies since the private key & the passphrase is only known to the exchange giving them out.
- When you get a DeFi wallet, you are given the public and private key and the passphrase (also known as a seed phrase). This means that the responsibility falls only on you when any assets are lost.
How Does a Crypto DeFi Wallet Work?
As mentioned above, DeFi wallets differ from non-custodial hot wallets & cold wallets like ledgers. To get a crypto DeFi wallet, you first need to register at a DeFi wallet website like Coinbase and DeFi Swap or download an app like MetaMask.
Once you’ve generated a new wallet, you automatically get the private key and passphrase, which you need to store somewhere safe. Unlike wallets based on CEXs (like Binance), DeFi wallets are entirely your responsibility - if you lose your private key, you might also lose your crypto.
To ensure your DeFi wallet is fully secured, you should consider looking into a multisig wallet. These are wallets that make use of multiple private keys, passphrases, and signatures to authorize transactions. If you want to take your privacy to the next level, this is the thing for you.
Is a Crypto DeFi Wallet Worth It?
Yes, a crypto DeFi wallet can be worth it. This is especially true if you have put a significant portion of your hard-earned money in crypto. Once the crypto wallet is given to you, it’s entirely yours, and no one can ever use it. This means that, as long as you’re responsible with it, you’ll never be a direct target of an attack.
Is Crypto DeFi Wallet Safe?
In most cases, crypto DeFi wallets are much safer than wallets you’d get from exchanges. You don’t have to worry about any online attacks at an exchange, profile hacking, or security breaches. As long as you have your private key and your passphrase stored, you’ll be much safer than the average crypto investor.
How To Choose a DeFi Wallet
Consider doing a sizable amount of research when choosing a DeFi wallet. Make sure to look at many factors, like user-friendliness, user authentication, language availability, and private key recovery. As long as you go with a reputable DeFi wallet that many people use worldwide, you cannot go wrong. If you’re a beginner to DeFi, consider choosing from one of the following wallets:
- Trust Wallet
- Coinbase DeFi Wallet
- Argent Wallet
Advantages vs. Disadvantages of A DeFi Wallet
- Your funds will always be safe since you’re the only one that can directly access the wallet. As long as you keep your private key and passphrase to yourself, you’ll be the only one with access to your crypto.
- When you hold crypto at an exchange, the exchange can oversee your transactions and track your activity. Keep in mind that exchanges require a KYC procedure, so they know all of your personal details. A DeFi wallet holds none of that.
- A DeFi wallet can be cheaper than a wallet provided by an exchange. When holding crypto at an exchange, your money may be subject to bigger fees and charges. The crypto in your DeFi wallet is there to stay, and the only way it will lose money is through market price fluctuation of your digital assets.
- A DeFi wallet means inherent responsibility. Once you get the wallet, a passphrase and a private key will be automatically generated for you. Losing them can be quite a big problem, so being irresponsible here should be avoided at all costs.
- You might lose on some small benefits that a non-DeFi wallet offers. Wallets from exchanges can be used for staking automatically online. Keep in mind that you can also stake your cash with a DeFi wallet, though it requires a bit more work.