Web3 wallets are a user’s key to the blockchain. They enable users to access and interact with decentralized applications and store digital assets and cryptocurrencies. An example of digital assets are NFTs or Non-fungible Tokens. These are unique digital assets which cannot be copied, substituted, or subdivided. NFTs have their own identity and ownership is stored on a blockchain. NFTs are a new way of creating, owning, and sharing digital content such as artworks, photos, videos and audio artifacts. When ownership of an NFT is recorded in the blockchain and transferred by the owner, the NFTs can be sold and traded. Though initially projected to be a new class of investment asset, there are many questions as to the actual monetary value of NFT collections.

Web3 wallets also enable digital identity. They provide users with a unique set of cryptographic keys. There are private keys and public keys —used to denote ownership and control of digital assets. By using private and public keys together, a Web3 wallet can enable digital identity plus prove ownership of digital assets in a secure and decentralized way.

• Private key - Information (a unique code) is used to prove ownership of digital assets in a wallet. It is used to sign transactions sent to the blockchain and is only known to the owner of the digital assets. Without a private key, it is not possible to access or transfer the digital assets stored in a wallet.
• Public key - Information is used to prove that a transaction was signed by the owner of a digital asset. It verifies the authenticity of transactions and can be shared publicly.

There are different types of Web3 wallets that enable users to access and interact with the blockchain depending on their needs:

• Hot wallet
  • Connected to the internet
  • Easy access and management of the funds stored on the wallet
  • Typically used for the storage of small amounts of cryptocurrency that are frequently traded or spent
• Cold wallet
  • Offline
  • Used for long-term storage of large amounts
• Desktop wallet
  • Installed on a computer or laptop
  • Allows users to store, manage, and trade their cryptocurrency directly from their desktop or laptop computer
  • Can be a software-based wallet where users download the wallet app and install it on their device or web-based wallet accessed via a browser
  • More secure than online wallets but less secure than hardware wallets as they are connected to the internet and can be vulnerable to hacking, malware or phishing attacks
• Mobile wallet
  • Designed for use on a mobile device such as smartphone or tablet
  • Allows users to store, manage, and trade their cryptocurrency directly from their mobile device
  • Can be a software-based wallet where users download the wallet app from an app store and install it on their device or web-based wallet accessed via a mobile browser
  • Convenient to use since they allow users to access their funds at any time and place
  • Less secure than hardware wallets as they are connected to the internet and can be vulnerable to hacking, malware or phishing attacks
• Non-custodial wallet
  • User holds the private keys and has control over their funds
  • User responsible for the security of their funds and no third-party, including the wallet provider, has access to them
  • More secure since they eliminate the risk of the funds being compromised or lost due to the actions or security breaches of a third-party, can be software (desktop, mobile, and web) or hardware wallets
• Custodial wallet
  • Third-party. such as an exchange, holds and controls the private keys on behalf of the user