Not Your Keys, Not Your Coins
Owning and controlling your own key is not only the best but the only option if you are to truly own and control your digital assets and be your own bank.
Hello Web3 builders, enablers, and leaders,
When the World Wide Web (www) was initially developed in 1991, it brought the Web1 era.
By the late 1990s, we saw the rise of (dot)com startups where everybody wanted to build an internet company. They were competing to build a simple web page with a username and password to log in and access the internet.
By 2004-05, with the rise of Facebook, Google, Twitter, Apple, and Amazon, websites, apps, and every internet application and platform asked you to Sing in with their service. It has become a simple and easy way to access any web application by connecting with our social accounts. While we use their products and services for free, we compromise our online identity.
Today we have an alternative; connect wallet.
Instead of giving our online identity to tech giants, the new gateway to the internet is just by simply connecting with your wallet. A wallet not only serves as a gateway, but it also serves as a key to the storehouse of all your digital assets; as such, it is important to know what this wallet is: a gateway to the internet and a key to your digital storehouse.
Kuzote Lohe
Researching on Web3, GameFi & Blockchain
Hey, before we go further, please consider subscribing to our newsletter; we bring the most important concepts on web3, GameFi, and blockchain to you every week. If you like it, show some love by sharing this on your social media and tag us.
Everything is not okay
Earlier this month, wallets on Solana- Phantom, Software, and Trust Wallet were compromised in a security breach that drained more than 8,000 wallets worth around $8 million, a ‘Supply chain attack.”
And every now and then, we hear of crypto holders losing their assets or being left without the ability to access their digital assets, even in some prominent exchanges. NFT holders losing access to their NFTs.
Here are some of the biggest hacks in the crypto world.
So today, let's talk about the Web3 wallet, its security, and different types of wallets.
What is a web3 wallet?
Firstly, Web3 wallets come in many different kinds with different strengths and weaknesses. It can be in different forms- physical device, software program, or digital platform. There are many web3 wallets out in the market serving different purposes and use cases.
A web3 wallet is a tool that stores information, a ‘key’ to access your digital funds, and also a gateway to interact with decentralized applications. In other words, it is a tool to own and monetize your digital content, identity, and assets.
Technically, web3 wallets don't actually store your digital assets. Instead, they generate the formation you need to communicate with web3 applications.
Components of a web3 wallet?
There are three important components of a web3 wallet-
Public key- Public key is like your bank account number or UPI id in the form of a link which you can send and receive transactions. It is publicly visible and sharable.
Private key- Private key is meant to keep secret and undisclosed. It is used for signing new transactions and access to funds. Once you lost your private key, you lost your assets forever. That is the reason why, ‘Not your key, not your coin.’
Seed phase- A seed phase is used to generate multiple private keys. They are random words to create a new private key. Like a private key, a seed phase should be kept secret and undisclosed.
Custodial vs. Non-Custodial Wallets
In terms of “who” controls the key, Web3 wallets can be broadly classified into two categories:
Custodial wallet- A custodial wallets are one where your digital assets are held in custody for you. Your wallet's private key is controlled by a third party, so you don't have full control over your digital assets. Examples of custodial wallets are your exchange wallet like Binance, Coinbase, WaxirX, etc.
Non-Custodial wallet- These wallets are the ones where the private keys are held and controlled by you. In a non-custodial wallet, you take full responsibility for your own private key and digital assets. Example of non-custodial wallets- Metamask.
You should know that in a custodial wallet, you are entrusting your assets to a third party. The third party can be an exchange; if their security is being hacked, faced liquidity pressures, shut down, your digital assets go with it. You don't have true ownership over your digital assets.
We have great news for you, Librty is launching a multi-chain non-custodial wallet for gamers to give them true ownership of their game assets.
Hot wallets vs. Cold Wallets
Web3 wallets can also be categorized into Hot wallets or Cold wallets in terms of whether they are connected to the Internet.
Hot wallets- These are hosted on a device connected to the internet and blockchain network. Using a hot wallet is more convenient for sending and receiving transactions and interacting with web3 applications. As hot wallets are connected to the internet, they are more open to hacks and loss of assets. Examples of hot wallets- Desktop wallets, Mobile Wallets, and Web Wallets.
Cold wallets- They are the most secured wallets and are near impossible to hack as they are not connected to the internet. Cold wallets are physical devices that store your private key; they can be physical hardware like your USB to store the private key or a paper where you can write your private key and store it in a safe place. Using a cold wallet is recommendable if you have a huge amount of assets.
Here is a wonderful Twitter thread to read on how to keep your web3 wallet secure.
Conclusion: Not Your Keys, Not Your Coins
The saying “Not your keys, not your coins” holds truism in itself. If blockchain is a technology that enables "being your own bank,” then you need to own and control your key, for there is no meaning without otherwise. We have seen enough hacked, withdrawal halts, and liquidity pressure in the last few months; it has shown us how important wallet security and self-custody are. We never know when the third-party exchange will be hacked, shut down, or corrupted. Owning and controlling your own key is not only the best but the only option if you are to truly own and control your digital assets and be your own bank.
What people are talking about?
What’s happening?
Previous issues
Building on-chain fully is hard; what about web2.5?
Gaming Guilds- The new way to communicate in gaming.
5 elements to consider before building web3 games.
Do Sports games in Web3 have a product-market-fit?
Show some love?
If you like this content and would like to read more of these types of content, please do consider subscribing to our email list.
And share some love by sharing this content with your friends, colleague, and team to help them to know more about Web3 & blockchain gaming.
I will write to you again next week; until then, happy building, gaming, and investing.
Kuzote Lohe
Researching on Web3, Blockchain at Librty