In Mighty Block, our purpose is to help onboard the next billion users into Web3. To achieve this, users have to know how to use applications that allow them to connect to the web3, also known as wallets. The problem is that there are different types of cryptocurrency wallets, and even more types of users. Which is the best wallet for each of them? Let’s analyze:
Custodial wallets are those that are managed by a third party. It is the closest thing to a “web2” application (such as a social network) since users will authenticate themselves in the way they do in the applications they use in their daily lives using, for example, their email and a password.
Advantages of Custodial Wallets
- It is very easy to use.
- Recovering an account if I lose my password is quite accessible.
Disadvantages of Custodial Wallets
- You are not the owner of your private keys and therefore do not have full control over your funds.
In resume, it’s a centralized solution for a decentralized world.
Regular Self Custody
In these type of wallets, it is the user who must be in charge of storing and securing their private keys. Among these we find: browser wallets, desktop wallets, some apps and hardware wallets.
Advantages of Regular Self Custody Wallets
- Now we really own our accounts
- The security of our account depends on ourselves and not on third parties.
Disadvantages of Regular Self Custody Wallets
- It’s not uncommon to lose access to an account or get hacked.
MPC (for Multi-Party Computation) allows multiple parties to participate in the signing of a transaction. Each part will have a private key and thanks to complex cryptographic algorithms the desired signature is achieved.
Advantages of a MPC Wallet
- It is a decentralized procedure since it does not store private keys in a third party.
- Reinforces security thanks to complex cryptographic algorithms.
Disadvantages of a MPC Wallet
- It can be a bit more complex in its usability
- Requires more than one physical device which can make it difficult to recover funds.
- It is not compatible (today) with hardware wallets.
These are managed by smart contracts and therefore not only allow to store and transfer but also can execute pieces of code that add functionality such as multisignature.
Advantages of Smart Wallets
- They have flexibility without losing decentralization.
- You can even add logic to pay fees with ERC20 tokens.
Disadvantages of Smart Wallets
- The code can expose vulnerabilities and make transaction costs more expensive.
So, which one should I use?
I believe that there is no silver bullet wallet, but I can give you some clues as to which one is best for you.
- You are not a technical user and you want the easiest to use? Custodial wallet.
- I’m a technical user but I’m not careful with my keys. I prefer to have an easy way to recover my account => Custodial wallet
- I am a technical user and I want a simple way to manage my account, and I am also very careful with my keys => Self custodial
- I am a technical user who doesn’t take good care of his keys, but who thinks that multi-factor authentication would work for him => MPC
- I am a technical user who would like to customize the use of his wallet to even adapt it to decentralized applications => Smart Wallet
Why do I recommend a centralized wallet in some scenarios? Because I think it’s the easiest way to start. And if what we are looking for is adoption, it is important first that everyone can use a wallet, and then become experts and choose the most suitable one.
I hope that with this article you now have a clearer idea about the different types of cryptocurrency wallets that exist.
Which wallet do you think is the most appropriate for you? Let me know in the comments !