has been a hot topic for a number of years and continues to draw attention, resources and innovation from all corners of the world. This article aims to give information to those who are interested in delving deeper into accessing this exciting universe of decentralized applications, where bunnies with pancakes on their heads and unicorns come with the territory. Decentralized Finance (DeFi) , also labeled as , are the into these vast ecosystems of otherwise known as . As a basis, a wallet is a service that enables a user to store their digital assets and is available under two structures: centralized and decentralized. Decentralized wallets DeFi wallets gateways decentralized applications dApps Centralized and decentralized wallets Most of us are familiar with a centralized authority acting as the custodian (or keeper) of our assets, this holds true in the traditional markets (for example, banks) and with digital assets with the most common being like Coinbase, Binance, Bitstamp and so on. In fact, centralized exchanges are a for many to move funds from fiat to crypto and then make their way into the DeFi ecosystem. centralized exchanges starting point With decentralized wallets, the user the funds keeping full ownership, responsibility and control of the funds within. These typically come in the form of — as a browser extension and/or application download — and as a device. This article is primarily focused on software wallets which are the most commonly used wallet to connect to dApps and I discuss how hardware wallets can be used with software wallets to exponentially enhance security. self-custodies software wallets physical hardware For mobile viewers, this table does not scale well and can be found . here Passwords and seed phrases / private keys As mentioned, should you forget your password, there is no entity to interact with in order to recover it. The user needs to store their password and seed phrase preferably offline. A (also called a ) is your encrypted private key that is typically represented as a string of words that should you forget your password and/or lose access to your wallet. seed phrase recovery phrase you can input Losing your seed phrase will result in your funds being unrecoverable! To understand these concepts better, this by lykke.com does a brilliant job of explaining it by using your home as an analogy. article For optimal security, there is a recommended approach that utilizes a to store your private key offline. , for example, — the most widely used decentralized wallet — offer integration with hardware wallets like and , ensuring with the of transacting on decentralized applications. With this integration, every time the user needs to transact on an application, they will require their connected hardware wallet to approve the transaction, which requires a physical touch sequence on the hardware wallet. hardware wallet Many software wallets Metamask Trezor Ledger maximal security flexibility The key takeaway is that to interacting with decentralized applications across the blockchain spectrum. This is where the power really tilts in favor of users who choose to self custody of their funds. decentralized wallets are the gateways Some applications that are worthy of mention are and , who are in the business of lending/borrowing, as well as , and , who are primarily focused as decentralized exchanges (DEXs) — where you can swap between a vast array of cryptocurrencies and stablecoins. Aave Compound Uniswap Sovryn Pancakeswap The examples above are just the [1] as there are a myriad of decentralized applications which span a host of blockchains (blockchains like , , and to name a few) and the user can connect to them through their decentralized wallet. tip of the proverbial iceberg Ethereum Binance Smart Chain RSK Solana What software wallet is best for me? After reading this article you may have questions regarding what is the best software wallet for you to use as there are a number of options. Remembering that software wallets cover browser extensions and/or application downloads. In order to keep the focus, I’ll dedicate a separate post to wallet options as it is heavily , one of which is which blockchain you are looking to interact with. dependent on a number of factors Where to from here? Software wallets have been evolving their value proposition with one example being Liquality, where one can store their favorite digital assets and perform an (peer-to-peer cross-blockchain exchange of one cryptocurrency for another without trusted third parties). This is powerful as one can , for example, ETH (on the Ethereum blockchain) for example RBTC (the Bitcoin pegged native currency on the RSK blockchain). This is a fantastic use case for anyone looking to move their funds to a different blockchain so they can then interact with those new and exciting dApps! atomic swap exchange a cryptocurrency on one blockchain to a completely different asset This post is not to say that decentralized wallets are better than centralized equivalents. Both structures can (and do) and provide access to services in differing ways. The goal of this post is to give insight into the which, as of writing, sits at $120 billion dollars in market capitalization with decentralized wallets being the entry point. co-exist growing DeFi ecosystem Have you been impressed by any wallets, be it software or hardware? Leave a comment or reach out to discuss! Footnotes [1] Be careful out there. Although the innovation is astonishing, hacks are frequent in this space and not all dApps are considered ‘safe’. Legal Disclaimer: The post above does not constitute financial advice. It is very important to do your own analysis/research before making any investment and base this on your own personal circumstances. By Michael Mendes - ! connect on LinkedIn Thanks to Owanate Amachree and for the feedback! Brendan Graetz
