DeFi Wallets: Everything You Need to Know to Secure Your Crypto

DeFi Wallets: Everything You Need to Know to Secure Your Crypto

DeFi wallets like Coinbase Wallet, MetaMask, and Argent are decentralized wallets that give you complete control over your crypto.

DeFi Wallets: Everything You Need to Know to Secure Your Crypto
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Published Dec 9, 2021Updated Jan 21, 2022

Crypto

Crypto

Technology

Technology

Global Markets

Global Markets

When it comes to storing your crypto, there's a long list of wallet options. And while the cryptocurrency world is built around the principles of decentralized finance (DeFi), not all wallets are DeFi wallets.

If you invest in crypto, it's important to understand what a DeFi wallet is, why it's often more secure than a centralized wallet, and where you can open one. Here's what you need to know about crypto DeFi wallets.

What is a DeFi wallet?

A crypto DeFi wallet is a wallet that's decentralized, meaning you hold your own private keys rather than relying on a centralized custodian to manage the wallet and your keys. Traditional banking relies completely on centralized institutions to hold, secure, and manage the money you deposit, but cryptocurrency offers the option of decentralized finance in that you can have full control over your funds by opening a crypto DeFi wallet.

Not all crypto wallets are DeFi wallets. When you buy cryptocurrency and keep your coins in a crypto exchange vs wallet, that's considered centralized because the exchange holds your private keys for you in their own wallet. On the other hand, if you buy crypto on an exchange and then move it to your own wallet, that's decentralized.

There are also several different types of crypto wallets. These include:

  • Hardware wallets
  • Mobile wallets
  • Web wallets
  • Desktop wallets
  • Paper wallets

 

Within each type of wallet, there can be varying degrees of decentralization involved. For example, many mobile wallets are considered centralized because they're hosted by a crypto exchange that acts as the custodian of your wallet. On the other hand, a hardware wallet—such as a USB drive you own that holds your private keys—is considered a DeFi wallet. You have complete control over your private keys, and on top of that, they're typically not connected to the internet.

Are DeFi wallets safe?

Crypto enthusiasts typically argue that DeFi wallets are safer than centralized or custodial crypto wallets. This is because you have full control over your crypto and how it's secured, so you can take additional precautions to avoid loss and theft. When you keep your crypto in a centralized wallet, you're putting your trust in a third party that may or may not be trustworthy. 

While many wallets are offered by established crypto exchanges that have extensive security measures in place, if they don't give you access to your own keys, this still means your private keys are held in a centralized location with hundreds of thousands of other users' information. This makes these centralized wallets a more appealing target for cyber attackers.

On the other hand, holding your crypto in a DeFi wallet puts full control over security in your hands, and if you don't take the proper precautions, your crypto could end up being less safe than it would if it were controlled by a trustworthy organization. For example, if you use a paper wallet that keeps your keys on a printed piece of paper, and you leave that paper out in the open in a house full of roommates, someone could easily steal your keys—and thus, your crypto. If you're using a software or hardware wallet, you'll have recovery phrases that grant you access to your crypto in the event that you lose your keys, but if you lose your recovery phrases too, your crypto might be lost forever.

Are DeFi wallets free?

Different DeFi wallets come with different costs and fees, although most of them are free to open. However, there might be transaction fees associated with transferring or trading your crypto. Sometimes these fees are more than what you'd pay to complete transactions with a centralized crypto wallet, although they still tend to be minimal—especially if you're holding onto your crypto for longer periods of time rather than actively trading. If you opt for a hardware wallet, you'll have to spend around $50 to $200 upfront to purchase the device, although that's a small price to pay to keep your crypto secure.

Is Coinbase a DeFi wallet?

Coinbase Wallet is offered by Coinbase, one of the top 3 biggest crypto exchanges. While it's offered by a crypto exchange, Coinbase Wallet is a self-custody wallet—you hold your own keys, so it's considered a DeFi wallet. This wallet offers the added convenience of being able to link up with one of the most popular exchanges, giving you access to over 4,000 different crypto assets as well as decentralized exchanges and NFT storage. 

coinbase
Coinbase

4.3

Crypto

Is Crypto.com a DeFi wallet?

Crypto.com is another major crypto exchange that offers a DeFi wallet. The Crypto.com Wallet is a non-custodial wallet, meaning you're in control of your own crypto and private keys. You also don't need to provide your identity to open a Crypto.com Wallet, which makes for added security. You do hold your own recovery phrase, so if you lose that, you'll lose access to your crypto. There are some transaction fees associated with the Crypto.com Wallet. Crypto.com also offers a custodial wallet—the Crypto.com App—that doesn't charge fees on transactions that stay within the Crypto.com ecosystem. However, since this is a custodial wallet and not a DeFi wallet, you'll need to provide proof of identification, and you don't control the private keys to your crypto.

cryptocom
Crypto.com

Crypto

What is the best DeFi wallet?

The Coinbase Wallet and Crypto.com Wallet are both DeFi wallets and some of the most popular and convenient options. However, there are other options for crypto DeFi wallets that aren't associated with a crypto exchange. Here are a few of the best DeFi wallets on the market.

Trezor

Trezor offers some of the most popular hardware wallets for crypto with models ranging from $63 to $221 depending on how many additional features you want. Their high-end wallet, the Trezor Model T, is considered one of the most secure DeFi wallets out there because it doesn't require an internet or Bluetooth connection and offers highly secured recovery seeds in case you lose your device. It also comes with a touchscreen and supports a long list of more than 1,200 coins.

MetaMask

MetaMask is a non-custodial or DeFi wallet that comes in the form of a browser extension designed to give you easy access to the Ethereum blockchain. As such, it offers greater access to the DeFi network and DeFi apps than almost any other DeFi wallet. You get full control over your keys with MetaMask, but it is a "hot wallet," meaning it relies on internet connectivity. This can be less secure than a "cold wallet" like Trezor that doesn't utilize the internet. Also, you can only use it to store Ether (ETC) and other Ethereum-based tokens.

Argent

Argent offers a mobile wallet for your crypto that's considered a DeFi wallet. It's non-custodial, so no one has access to your keys but you, and transactions are free. As a mobile app, it's also one of the most user-friendly DeFi wallets. Argent has also developed their own secure recovery system that doesn't rely on seed phrases or paper back-ups, so you don't have to worry about losing those. It's also a "hot wallet" that relies on an internet connection, so it's not quite as secure as a hardware wallet.

True or False:

In addition to DeFi wallets, another crucial component of decentralized finance is DeFi forms of payment. Since cryptocurrency was created on principles of decentralization, all crypto coins are considered DeFi.

True or False:

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