What Is A DeFi Wallet and How to Pick the Right One? (A Complete Guide for the Beginners)

Decentralized Finance (DeFi) became prominent in 2020 and most of the crypto users were attracted due to its secure and reliable services.  Currently, more than 40 million people are registered over DeFi and using the services for holding cryptocurrencies and earning through trading and staking.

Decentralized Finance (DeFi) has routinized the financial system and has changed the people’s perspective on financial regulation.  Through DeFi wallets, people can manage, sell, purchase, trade and stake their digital assets all by themselves without intermediary interference. DeFi has the essential Web3 infrastructure which ensures the security and safety of virtual currencies on the website and dApps.   

DeFi Wallet: An Overview

DeFi wallet is the digital wallet which helps us to manage our digital assets. Just like the wallets we have in our physical to put our cash into, DeFi wallets are our digital wallets in which we hold and manage our digital assets (cryptocurrencies).

Also Read:

A DeFi wallet is more than a simple wallet, it is a gateway for decentralized finance (DeFi) where we can hold, sell, purchase, trade, and stake our digital assets by employing the DeFi wallets. It is a non-custodial wallet that is set up on mobile or computers.  Apart from cryptocurrencies, the DeFi wallet can also be used for NFTs and users can use this platform for passive incomes.

Types of DeFi Wallets

DeFi wallets have two significant types i.e., hot (software) wallets and cold (hardware) wallets.

• Software Wallets

Software wallets aka online or hot wallets are the common type of wallets.  DeFi users begin by installing a free wallets app like MetaMask or TrustWallet and link it to a DApp using a QR code or browser message. As software wallets are online, their safety relies on your device’s security.

• Hardware Wallets

Professional or institutional clients use the hardware aka cold wallets for a higher level of security like Trezor or Ledger. These hardware wallets are completely navigable by the owner and offer the best security solution for managing digital assets.

How Does A DeFi Wallet Work?

DeFi wallets are crucial parts of the Web3 space and hence they are also known as Web3 wallets. These wallets have a very traditional and user-friendly interface and don’t require intermediary banking or other reference like Google or Facebook to sign in and manage your assets.

Most of the DeFi wallets are interchangeable and support multiple blockchains i.e., Arbitrum, Polygon and many more along with Ethereum blockchain. If you lose your hardware wallet or mobile, you can easily access your wallet on a new device after a verification process that involves seed phrases.

To use your DeFi wallet, you must add its specific cryptocurrency (like ETH for Ethereum or SOL for Phantom) before making any transactions. This currency, known as gas, covers the fees for the network’s upkeep by paying miners or validators.

How to Pick the Right Wallet?

Look for the following upon picking the right DeFi wallet for you;

• Pick a non-custodial wallet
• Choose a wallet that is protected by two-factor authentication (2FA)
•  Check interoperability and compatibility before picking the wallet
• Check if the opted DeFi has a strong team and customer support
• Select the wallet which has more security features

How to Protect Your Wallet?

DeFi wallets are best known for the feature of self-custody which means that only the user can manage and use the wallet so do the following to protect your DeFi wallet;

• Use strong passwords
• Enable the security feature of 2FA
• Keep your DeFi wallet updated
• Never use your wallets on random devices and keep the key personal to you
• Keep a low crypto in hot wallets connected to the internet
• Wipe up the complete data of the phone in case of switching to a new device

Concluding Remarks

A DeFi wallet lets you access new crypto assets and innovations early, keeping your privacy and control. However, it’s important to be aware of risks like phishing and evolving threats. In crypto, all that you need to keep safe, secure and personal is your login credentials and keys.