Like traditional identity documents (IDs), wallets have always been our gateway to the crypto world. This article is about the Web3 cryptocurrency wallet and its differences from Web2 e-wallets like ApplePay or PayPal we used to know. In essence, the Web3 wallet also serves the purpose of storage and transactions like e-wallets in Web2. However, it improves the operating model, allowing users more freedom and security.

Web3 wallet landscape

The whole e-payments market is expected to reach 4.8 billion by 2025. Payment/wallet businesses have enjoyed revenue growth, especially since more and more applications are continually integrating with online payment.

The number of investments poured into the Web3 wallet applications is approximately $3.3 billion. Recently, the leading web3 wallet company ConsenSys - Metamask raised $450M, bringing the company's valuation to $7 billion. As more new ecosystems are launched, the number of wallet addresses increases significantly because no one wants to miss this "dreamland". At the same time, the expansion of ecosystems leading to the primary development trend of Web3 wallet projects today is to deploy multi-chain wallets (Figure 1).

Web3 wallet landscape-01.jpg

Figure 1. Web3 wallet landscape

Operating model

Note that this path only goes in one direction; there is no reverse (ie, no one can know the private key even if they know the wallet address).

Figure 2. how does a Bitcoin wallet work (Source: Blocktrade)

Figure 2. how does a Bitcoin wallet work (Source: Blocktrade)

Key storage

Commonly used methods to store secret keys:

Model shifting

The model of e-wallets in Web2 involved three parties: User, Bank, and Service provider. Users need the participation of 3rd parties such as banks to store and confirm transactions and service providers to perform payments and connect between banks and senders/receivers.

A custody crypto wallet is a service provided by a centralized exchange like Binance and Coinbase. The service is to support you in keeping your wallet signature, meaning that they can keep and manage your private keys on your behalf. In other words, you won't have full control of your funds nor the ability to sign transactions, which is similar to the e-wallet at Web2.

In contrast, with the non-custodial wallet model, users do not need to worry about intermediaries like banks because they have complete control over their wallets and assets. Because of cutting intermediaries, users do not need to go through the complicated authentication process steps or share personal information (Figure 3).