Your wallet is the application that lets you interact with Ethereum, much like a banking app, but without the bank. The main difference between DeFi and centralized crypto services lies in who controls your wallet – in other words, custody.
Most centralized crypto services offer custodial wallets, where a third party such as an exchange stores your private keys for you. The exchange might link your wallet to login credentials, but know that if the company is attacked, your assets will be at risk.
Decentralized applications (dapps), on the other hand, are non-custodial: you have full ownership, possession and responsibility over your private keys and assets.
There are roughly three different kinds of wallets:
- Hardware wallets: A physical device stores your private keys offline. This type of wallet is thought to be the most secure. Examples include Ledger and Trezor.
- Web wallets: A self-custody wallet lets you interact with your Ethereum account via a web browser. For example, you can download MetaMask as a browser plugin and create a wallet to store Ether and other ERC-20 tokens.
- Smart-contract wallets: These are wallets that live as a program on the blockchain instead of providing the user with a public and private key pair, and are typically associated with a specific app. Examples include InstaDapp’s DeFi Smart Accounts, Argent, Dharma, Gnosis Safe, etc.
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