The advent of Web3 wallets has brought about a substantial change in the digital world. The switch from centralized wallets to decentralized and the rapidly evolving blockchain technologies are all harbingers of the significant expansion of the Web3 wallet industry. This article will explore the future predictions of web3 wallets.
What are Web3 Wallets?
A Web3 wallet is a software program that stores private keys necessary for accessing blockchain networks and conducting transactions. Unlike traditional wallets, which store physical currency, Web3 wallets store digital assets such as Bitcoin, Algorand, and NFTs.
Web3 wallets can interact with dapps (Decentralized Applications) and offer various functionalities, including DeFi (Decentralized Finance) services like lending, borrowing, mortgaging, loaning, and saving.
These systems use stablecoins and cryptocurrencies as forms of payment, and non-fungible tokens (NFTs) might be employed as security. Popular Web3 Decentralized Applications include Sushiswap, PancakeSwap, and MakerDAO.
Where it All Started: The Evolution of Wallet Systems
The evolution of wallet systems refers to the shifts in wallet systems in response to the needs for interactivity, social connectivity, security, openness, and greater user utility. There are three generations in which this evolution has occurred so far. They are:
- First-generation wallets (Web1 wallets)
- Second-generation wallets (Web2 wallets)
- Third-generation wallets (Web3 wallets)
First Generation Wallets (Web1 Wallets)
Web1 wallets are the original wallet systems. The Web refers to the World Wide Web, of which Web1 wallets are the first generation. They are “read-only” with a focus on user interactivity and limited amounts of user interfaces.
Web1 wallets were rudimentary tools with a primary focus on facilitating basic financial transactions. Such transactions include sending and receiving cryptocurrencies like Bitcoin.
Examples of Web1 wallets are Blockchain.com wallet, MultiBit, Electrum, and Bitcoin Core Wallet.
Web1 wallets laid the foundation for introducing users into the decentralized world.
Second-generation wallets (Web2 wallets)
Web2 wallets were brought about by a need for user interfaces in the digital world. Until the advent of Web2, users could only view information without interacting or responding to it.
Web2 wallets emerged due to the paradigm shift from user consumption to user-generated content, social networking, and interactive web applications.
These wallets prioritize giving customers access to more sophisticated features and functionalities beyond basic Bitcoin transactions and storage.
The creation of Web2 wallets brought about many features. They include multi-currency support, user-friendly interfaces, and security enhancements. It also brought about token swapping and exchange. Examples of these Web2 wallets include Coinbase Wallet, Trust Wallet, Exodus Wallet, and Ledger Live.
With all these changes in digital asset management, centralized entities such as governments and companies still control the wallet systems.
There is a centralized point in a centralized web, which can be a server through which all data in a network must pass through before distribution to various computers or devices.
Lack of trust in centralized entities, security issues, and other limitations led to the search for newer web systems. This brought about the transition to decentralized systems.
Third-generation wallets (Web3 wallets)
Web3 wallet systems ushered in a new era of decentralized systems in which no single entity controls anyone else’s wallet. This means that each individual is responsible for the safety of his assets.
The Web3 wallets are also called “read-write-execute”. This is because the Web3 wallets have the following features.
- Read
- Write
- Execute
Read
This refers to the ability of Web3 wallets to read data from the blockchain or decentralized applications. Web3 wallets can retrieve account balances, transaction history, smart contract data, and token metadata from the blockchain.
Write
This refers to the ability of Web3 wallets to write data to the blockchain or smart contracts. Users can initiate transactions, interact with smart contracts, and perform other actions that modify the state of the blockchain using their Web3 wallets.
Execute
This denotes the execution of transactions or actions the user initiates through the Web3 wallet. This could include executing smart contracts, exchanging tokens on decentralized exchanges, or participating in decentralized finance (DeFi) protocols.
The Nature of Web3 Wallets
Web3 wallets come in different forms. They can be in the form of physical appliances, software, and lots more. The following are forms which Web3 wallets can take:
- Cold wallets
- Hot wallets
- Custodial Wallets
- Non-custodial Wallets
Cold Wallets
A hardware wallet is a device (like a USB thumb drive) that helps you store your assets offline in anticipation of use online at a later date. Examples include the ledger nano wallet. Safepal, keep key, etc.
Hot Wallets
These wallets are connected to the internet, providing easy access for managing funds, but are more vulnerable to security threats. Hot wallets can be browser wallets, mobile applications, extensions, or desktop applications.
Custodial Wallets
The private keys to a user’s digital assets are kept in custodial wallets, which outside parties like a cryptocurrency exchange or wallet service provider oversee. Custodial wallets are practical and simple but compromise user security and control.
Non-Custodial Wallets
Also called self-custodial wallets, non-custodial wallets offer users total control over their private keys. Non-custodial wallets provide better security, but they can be trickier and need more thought regarding security precautions. Most Web3 wallets are non-custodial.
How Web3 Wallets Work
Web3 wallets work off the creation of two keys, a public key, and a private key. This is done through complex mathematical algorithms. The public key is hashed and turned into a public address to receive transactions.
The private key, on the other hand, is meant to be kept private. Its purpose is to sign transactions and verify ownership of your digital assets. It is like the key to your wallet; anyone with it can access your digital assets.
Web3 wallets enable interaction with dApps. Integrating Web3 wallets in dApps allows users to send and receive digital assets and interact with smart contracts on the applications.
As we know, dApps, decentralized applications, are your normal applications. Still, they are decentralized, which means information dissemination is not regulated by a centralized entity on these platforms.
Smart contracts are self-executing contracts with the terms of the agreement written into code. Web3 wallets can interact with these contracts by sending and receiving data, triggering contract executions, and verifying ownership of digital assets.
Achievements of Web3 Wallets in the Present World
Web3 wallets have left their mark on various aspects of the digital world. From asset management to tokenization, the areas in which Web3 wallets are changing are:
- Asset Management
- Interaction with dApps
- Transaction Management
- DeFi Participation
- Non-fungible token (NFT) management
- Identity and Authentication
- Security and Privacy
Asset Management
Web3 wallets allow users to securely store, send, and receive cryptocurrencies and digital assets such as Ethereum, Bitcoin, ERC-20 tokens, and other blockchain-based assets.
Interaction with dApps
Users can access dApps directly from their wallet interface, interact with smart contracts, and perform various actions such as token swaps, lending, borrowing, and yield farming.
Transaction Management
With the integration of Web3 wallets into the dapps interfaces, users may see transaction histories, transfer money to other wallet addresses, and receive money from other users to follow the flow of their digital assets.
Decentralized Finance (DeFi) Participation
Web3 wallets let users use decentralized finance (DeFi) protocols and services. Users can provide liquidity, stake assets, borrow funds, and earn yields directly from their wallet interface.
NFT Management
Web3 wallets support the buying, selling, transferring, and showcasing of non-fungible tokens (NFTs), unique digital assets representing ownership of digital art, collectibles, virtual real estate, and other digital assets.
Identity and Authentication
Users may maintain their digital identities and identify themselves across blockchain-based services and platforms by integrating Web3 wallets with decentralized identity (DID) solutions.
Security and Privacy
Web3 wallets use multi-factor authentication, safe key management, and strong encryption as a priority for security and privacy. Users maintain full control over their private keys. Therefore, the security of funds and data is in the user’s hands.
On the other hand, the decentralized nature of Web3 wallets increases the risk of data loss or theft.
Future Predictions for Web3 Wallets
There is still a long wave of opportunities and diverse paths for the Web3 wallet system to follow. The following are areas which might see significant changes in the next decade:
- Decentralized Identity and Authentication
- Privacy and Security
- Wallet Interfaces and User Experience
- Further Integration with Present Technologies
- Smart Wallet Technology
- Integration with Emerging Technologies
Decentralized Identity and Authentication
There is ongoing competition across initiatives, standards, and protocols for acceptance in the decentralized identity field.
Widespread acceptance and usage might be hampered by ecosystem fragmentation and barriers caused by a lack of standards and compatibility among various decentralized identification solutions.
Promoting a decentralized identity requires educating users about the benefits, risks, and complexities of managing their digital identities and credentials.
In the next decade, widespread adoption of decentralized identity solutions may be achieved by adopting significant investment in user education, awareness campaigns, and user-friendly tools and interfaces.
Privacy and Security
Web3 wallets require users to manage their private keys securely to access and control their digital assets on blockchain networks.
Future Web3 wallets will prioritize security measures to safeguard users’ digital assets and personal data. This may include advanced encryption techniques, biometric authentication, hardware wallet integration, and decentralized key management solutions.
Privacy-enhancing technologies such as zero-knowledge proofs, homomorphic encryption, and secure multi-party computation to protect users’ privacy and confidentiality when interacting with blockchain networks and dApps might also be in place in the next decade.
Wallet Interfaces and User Experience
Interacting with Web3 wallets and dApps often involves navigating complex user interfaces and interacting with unfamiliar terminology and functionalities.
Web3 wallets of the next decade may come down to more user-friendly interfaces, making them more accessible and interoperable.
Further Integration with Present Technologies
Integrating Web3 wallets with Decentralized Finance (DeFi) services has brought about a tremendous increase in the range of available user services.
In the next decade, we expect to see Web3 wallets evolve into full-fledged financial platforms, allowing users to participate in lending, borrowing, trading, and other DeFi activities directly from their wallets.
Web3 wallets are also integrated with other technologies, such as the NFT market, Decentralized Autonomous Organizations (DAOs), Decentralized computing platforms, and decentralized Identity solutions.
Further integrations in the next decade can allow users to manage their digital assets directly from their wallets, participate in governance processes, and manage their digital identities directly from their wallets.
Smart Wallet Technology
The rise of account abstraction technology-driven smart wallets is anticipated to transform Web3 wallet onboarding by the next decade.
They significantly improve Web3 wallet security by providing programmable accounts, multi-factor authentication, safe enclaves, on-chain fraud protection, and smart spending restrictions.
Integration with Emerging Technologies
In the next decade, Web3 wallets will integrate with emerging technologies. Both technologies are already present and emerging in the future and will get a chance to be integrated with Web3 wallets.
In the future, Web3 wallets might integrate with Artificial Intelligence (AI), Virtual Reality (VR) and many other technologies.
Conclusion
The future predictions for web3 wallets show that the future of Web3 wallets is bright and full of promise. As blockchain technology continues to evolve and mature, Web3 wallets will play a central role in shaping the decentralized economy of tomorrow.
With decentralized identity and authentication, enhanced privacy and security, further integration with present technologies, and smart wallet technology, Web3 wallets will empower users to unlock the full potential of the decentralized ecosystem and usher in a new era of financial dominance and innovation.
