DeFi is an extraordinary word used and seen everywhere in the crypto sphere lately. We know it means “Decentralized Finance” but do we really understand what it means? This month for SuperBots, we are releasing a new series of articles entitled: Don’t defy DeFi.
The goal? It’s to go a step beyond the surface knowledge of DeFi concepts, which will then allow you to make your decisions in a thoughtful way, avoiding missteps. For this second episode, we are going to look at yet another pillar of the DeFi ecosystem, the wallets.
What is a wallet?
A wallet is nothing else than your wallet, a bit like your stock portfolio but this time it contains only cryptos. Crypto wallets have existed since the creation of crypto-currencies because it’s not enough to create them, you have to know how to store them.
It is interesting to note that wallets were already in use before crypto-currencies, one of the first being Paypal. It is an application that can allow us to pay and store these means of payment. We can also mention Google, Samsung, and Apple Pay.
Hot and Cold
There are several types of wallets, some are called “hot” and others “cold”. A hot wallet is simply a wallet that is connected to the internet. It can be an application or an exchange platform, but it must be connected to the Internet. More and more browsers or cell phones offer their hot wallet solution.
A cold wallet, on the other hand, is a wallet that is not connected to the Internet and therefore cannot, in principle, be hacked. There is always a risk of a breach when transferring from hot to cold but once removed from the network, your cryptocurrencies are safe.
Custodial or not?
Wallet types can also be divided into custodial and non-custodial, and it is mainly this distinction that is important for DeFi. A custodial wallet will most often be hot and will function as follows: You have to deposit funds on it to be able to use it afterward, just like on a trading platform. Your funds are therefore not under your permanent control.
From a crypto and DeFi ideology point of view, this is not acceptable, but it does allow centralized exchange platforms to offer better liquidity.
On the other hand, there are non-custodial wallets such as Metamask or Exodus, which allow you to keep control of your funds at all times, hence their use in DeFi protocols.
How to choose the right one?
There are a lot of different wallets on the market but when your capital is at stake, it’s all about making the right choices. If you have a classic approach, i.e. you use your PC to manage your investments, then I can only recommend Metamask.
Once installed, MetaMask usually opens in a new browser window. If not, you should click on the MetaMask icon on the right side of the screen. This will start the procedure. The system will then prompt you to create or import a wallet.
After creating an account, all you have to do is deposit funds in order to use them on DeFi protocols.
Not to be confused with the wallet on your Coinbase account, this is a standalone DeFi wallet that allows you to access DAPPS and access several DeFi protocols.
If you prefer the mobile option, Coinbase Wallet is the ideal candidate because it is only available on mobile. So it comes in the form of an app to download on your smartphone or tablet. It is compatible with Android and iOS systems. So you can access your wallet from anywhere if you have an internet connection.
The small weak point of this wallet is the number of supported crypto, but there is no doubt that this should improve in the future.
The DeFi ecosystem is based on liquidity pools, it’s true, but we must not forget the wallets. Without cryptocurrency storage, there will be no trading.
You now know that there are several types of crypto wallets, online or not. For classic use, Metamask remains the preference in the field.
See you next week to discuss another important topic in DeFi, lending!