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A Beginner’s Guide To Ethereum And Its Applications (pt. 3)

August 13, 2020

A Beginner’s Guide To Ethereum And Its Applications (pt. 3)

As it should be clear so far, Ethereum is a platform on which decentralized applications are built offering a wide range of (potentially) endless possibilities.

However, all those dapps are not your regular apps. They empower users to do unique things, such as creating new kinds of monetary and digital assets and building decentralized organizations, properties, or virtual worlds that are governed collectively. These web dapps are unstoppable and uncensorable.

In general, it is often the case that each digital asset running on a blockchain requires its own wallet. With Ethereum the situation is a bit different though. Ethereum wallets are applications that enhance holding and transacting with ETH, as well as interacting with applications built on the blockchain.

Therefore, the key difference between Ethereum and other blockchains is that one main Ethereum address can utilize several types of packages that run on its blockchain, such as ERC-20 and ERC-721 tokens.

There are several types of Ethereum wallets, and your choice shall depend on the level of your expertise/familiarity and what you want to make out of it. As always, the Do Your Own Research principle applies here too!

Before checking out the different wallet options for interacting with the Ethereum blockchain, let’s mention some key criteria one should take into consideration when deciding which wallet to choose.

Missed the previous parts? Take a look here for pt. 1 and pt.2

Wallet Custody

Firstly, there is a basic distinction between custodial and non-custodial wallets. Custodial wallets are those that trust a third party (e.g. exchange or service) to secure funds and restore any potential losses.

The user of a custodial wallet doesn’t get the private key of his/her wallet but only a password and the third party having the custody of the wallet has the ability to freeze the account/restore passwords, change wallet settings and even reverse or freeze transactions.

Therefore, the upside with a custodial wallet is that a centralized service is responsible for the security of your funds. On the other hand, in non-custodial wallets, you are basically your own bank. You can use any interface of your choice to interact with your funds and wallet creation is open to anyone regardless of nationality or availability of acceptable identification documents. Thus, the advantage of non-custodial wallets is that you are fully in control of everything.

Know Your Customer

Secondly, a KYC procedure is required by some wallets, in most cases for custodial wallets. In simple words, KYC is a process that links your wallet to your real identity.

That doesn’t mean that your name appears somewhere on the blockchain, but that your bank or government can have access to your cryptocurrency history. Therefore, for those that have ideological incentives for interacting with decentralized services, a wallet requiring a KYC might not be the best solution.

Ethereum Wallet Types

Now, let’s take a look at the different types of Ethereum-compatible wallets and what are the pros and cons of each option.

Smart contract wallets

They are utilizing the power of smart contract functionality. Additional security is enabled as well as recovery features for users. Some unique features include two-factor authentication, social recovery through family/friends, rate-limited withdraws like an ATM, personal white-/blacklists, fraud alerts, and emergency lockdown.  Gnosis Safe, Argent, Authereum are some options if you are looking for a smart wallet.

Hardware wallets

They are (debatably) considered to be the most secure method for accessing your funds while online, as they are not exposing your private key to the internet when signing transactions. These wallets are non-custodial and private, with the downside being that they have to be purchased and sometimes at a not small price (up to $180).

Ledger NanoX is one of the most famous hardware wallets, offering support for multiple cryptocurrencies and tokens, including ERC-20 tokens. A great competitor of the Ledger is Trezor. Trezor is a hardware wallet with almost the same features as the Ledger but almost double the price. Between the two, it all comes down to which of these is supporting the coins you might own, as their lists of supported coins are both long yet quite different.

Lastly, KeepKey is a simple, user-friendly wallet, while BitBox02 Multi is a Swiss-engineered hardware wallet with native support for BTC, LTC, ETH, and ERC-tokens. It enables the user to independently generate and securely store private keys to access and transact with crypto assets.

Desktop wallets

These wallets are downloadable apps capable of operating on Windows, macOS, Linux that allow users to interact with their funds. If you’re able to sign transactions offline, desktop wallets are one of the most secure, non-custodial, private methods to interact with the Ethereum blockchain, however, when used offline it can be more of a hassle than other methods.

MyCrypto is an open-source, client-side tool that can be downloaded online and is used for generating Ethereum wallets while handling ERC-20 tokens as well. Recently, they launched their upgraded beta version. Atomic wallet is a desktop (mobile too) wallet allowing to send and receive more than 300 coins and tokens in one interface.

Eidoo is a multiplatform and multicurrency wallet with a DeFi gateway, whereas Tokenary is a macOS compatible Ethereum and ERC-20 tokens wallet as well as a Safari extension. Finally, Fetch is a desktop (and web) wallet supporting ETH and ERC-20 tokens and is integrated with 20 exchanges offering real-time trading rates and one-click trading.

Web wallets

Wallets hosted on a website and act as an interface for users to generate and interact with their accounts, while they might be both custodial and non-custodial. Web wallets are probably the most frequently used wallets, as they are highly available and accessible, and in most times, free.

Additionally, it is often the case that wallet providers offering desktop wallets also have a web version and vice versa. For example, MyCrpyto, Fetch and Tokenary all have a web-based as well as a desktop version of their wallets. Nevertheless, there are some high-quality wallets that only come in a web version.

MyEtherWallet (MEW) is a free, client-side interface helping you to interact with the Ethereum blockchain. MEW is an open-source tool dedicated to Ethereum and only. The MEW platform offers the possibility to generate ETH wallets, interact with smart contracts, and use fiat money to buy ETH. In addition, you can trade, sign messages, interact with dapps and register ENS names, all in a single platform utilizing its non-custodial web wallet.

Another much-trusted web wallet with more than 1 million worldwide users already is MetaMask. MetaMask is available as a browser extension (and mobile app) supporting ETH, ERC-20 tokens, and ERC-721 collectibles. It’s a non-custodial wallet with support for hardware wallets, like Ledger or Trezor, for extra security. With MetaMask you can interact with any dapps built on the Ethereum blockchain and explore Web3 services while being in complete control of your own funds and data.

Overall, web wallets are a good, easy, and secure solution to start with, with the only disadvantage being that the security and privacy of your data are often dependent upon each provider.

Mobile wallets

Essentially, they are mobile, device-based alternatives to desktop and web wallets. While being the most mobile and accessible method to interact with your funds, the downside here is that the security of your funds is reliant on your mobile device’s security.

As mentioned before, many wallets come in several versions. Mobile wallets are no exception. As an example, apart from their desktop version, Eidoo and Atomic have a mobile version too. Moreover, except for a web-extension, MetaMask offers a mobile app version as well so you can use it from your mobile device.

AlphaWallet is an open-source mobile wallet for businesses and users with customizable design, tokens, and features, that offers full documentation support and no third party dependency. Lastly, WallETH is a mobile option, being the native Android wallet of Ethereum.

Exchange wallets

They are pre-created digital wallets issued by crypto-exchanges that can be utilized through the user’s account interface with the exchange. Despite major exchanges, like Binance, having an astonishing security record, exchange wallets are considered to be the least safe option to store your crypto as they are custodial, meaning you don’t get any unique seed phrase or the private key of your wallet.

Therefore, if the exchange where you are holding your crypto gets hacked, you can do nothing about it. In addition, in times of maintenance or when the exchange has suspended all funds due to a phishing attack, for example, you can’t interact with your funds either.

Nevertheless, two of the most famous exchanges are Coinbase and Binance, and both provide a wallet option so you can interact with your ETH. Recently, Trust wallet partnered with Binance and became its official cryptocurrency wallet, adding some extra layers of security to their exchange wallet.

On the contrary, Coinbase has released its own mobile wallet for iOS and Android. With this wallet, you can store all your digital assets in one place, as it’s offering multi-coin support as well as support for ERC-20 tokens and ERC-721 collectibles. Being an Ethereum browser app as well, the Coinbase wallet offers the opportunity to access all the dapps that run on the Ethereum network.

Lastly, it is important to mention that this wallet is a type of custodian wallet, so ultimately you don’t get full control of your private key, you only receive a ‘recovery seed’, thus in cases of phishing attacks or hacks aiming at the exchange, you might be pretty helpless.

Which Ethereum wallet shall I choose?

In conclusion, it will be ultimately your decision which wallet to choose. It is often the case that experienced users are making use of several wallets of different types for doing different jobs.

For example, hardware wallets being the most secure should be used for storing large amounts of assets for longer periods of time, whereas browser and mobile wallets are more suitable for holding smaller amounts for the purpose of daily interaction with applications.

Nevertheless, although at first creating a new wallet may seem a hard decision to make, don’t get stressed as you will probably end up having multiple wallets that will serve different purposes!

Independently of what your wallet choice will be, get ready to explore a wide variety of possibilities that are already available and ready to use which exist in the realm of dapps and DeFi, and include: playing games, creating/buying unique collectibles, using digital verification/signatures, getting loans and earning interest, holding/investing in cryptos, voting and exercising governance, and much more!