What is a Social Wallet?

Different Types of Web3 Wallets

There is a phrase in crypto culture, "Not your keys, not your crypto." It may come as a surprise but a crypto wallet does not actually hold cryptocurrencies. It holds keys. One key is a public key. This is a publicly available address used to locate and transact with that address. The other key is a private key. A private key unlocks the ability to make a transaction. The transactions are what the blockchain uses to determine what amount of a certain coin or token any given wallet has control of.

The question now is, is a crypto wallet the same as a Web3 wallet? Before analyzing this question more, let's go over the different types of crypto wallets.

Cold Wallets - Hardware Wallets

A cold wallet, or hardware wallet, keeps crypto more secure than other types of wallets, in many ways, because it keeps the private keys disconnected from the internet. Because the wallet is offline, it is protected against hacks, vulnerabilities, and unauthorized access.

Types of cold wallets are hardware wallets and paper wallets. A hardware wallet its typically some sort of drive that stores keys. A paper wallet is two pieces of paper (or other material) that stores keys. Cold wallets keep the keys offline but can run the risk of theft, destruction, or becoming misplaced.

Cold wallets were originally called cold storage. Storage is, for the most part, the purpose of cold wallets. However, if someone wants to transact with the blockchain, they are going to have to connect to the internet.

Warm Wallets

Warm wallets are wallets that are connected to the internet. Warm wallets differ from hot wallets because the warm wallet keys are in control of their user, not an outside entity such as an exchange. There are three main types of warm wallets.

Web Wallets

Web wallets are crypto wallets that are in a web browser. The most popular web wallet is most likely Metamask. However, Metamask also has a mobile wallet.

Mobile Wallets

Mobile wallets are wallets that function inside a mobile application. The most used mobile wallet is probably Trust Wallet.

Desktop Wallets

Desktop wallets are wallets that operate on desktop computer. The first Bitcoin wallet was a desktop wallet. 

Burner Wallets

Burner wallets could be any of the above warm wallets that are used to connect with higher risk applications. In life, but especially in crypto, one should always do research before interacting with things that have financial or security repercussions. There are malicious applications on the internet that are looking to get ahold of people's private keys. The point is, if there is little to nothing in a burner wallet, the risk does not require much reward.

Airdrops are a good example of when to use burner wallets. Many new projects reward people in tokens for testing out or using their new technology. This is a high risk situation to connect a wallet to. Do not connect a wallet in control of something of value to something that could take control of that thing of value.

Hot Wallets

A hot wallet is wallet that is connected to the internet like a warm wallet but the person using the wallet does not have the keys to the wallet. Typically, it is a centralized exchange that knows the keys to a hot wallet.

The difference between a hot wallet and a warm is the same as the difference between custodial and non-custodial wallets. This topic will be elaborate on later.

Exchanges like Coinbase and Crypto.com have a "Web3" wallet and "DeFi Wallet" respectively. Crypto.com does not hold the private key for the DeFi Wallet. This makes the DeFi wallet a warm wallet whereas trading on Crypto.com would use a hot wallet.

However, "Coinbase holds half of your private keys and the device that your Web3 wallet is on stores the rest." What that even means or how to classify the Coinbase Web3 wallet is unclear. It seems, because it is recoverable, that means someone other than the user knows the private and that means the Coinbase Web3 wallet is a hot wallet. The important part here is to know the difference between hot and warm wallets and how it relates to the private key.

Wallet Summary

Cold wallets, warm wallets, and hot wallets are the major types of crypto wallets from a technological perspective. The key difference is that cold wallets are not connected to the internet but warm and hot wallets are connected to the internet.

So far, in this blog, the wallets have been termed "crypto wallets". However, the same technological classifications of hot and cold wallets apply to whether someone calls it a crypto wallet or a web3 wallet. But does that make a web3 wallet the same as a crypto wallet?

Is a web3 wallet the same as a crypto wallet?

All crypto wallets are web3 wallets but not all web3 wallets are crypto wallets. The technical functionality of crypto wallets and web3 wallets are the same but the purpose and actions of the person in control of the wallet decide whether the web3 wallet is a crypto wallet or not. The values derived from assets controlled by web3 wallets do not require those values to be measured as currencies.

A digital asset is an asset because it has value. In terms of access, how far does this go? A crypto wallet and web3 wallet, as previously described in the "Different Types of Wallet" section, do not hold assets, they control assets. They grant access. This is the difference between crypto wallets and web3 wallets. Crypto wallets grant access to money. Web3 wallets grant access too access.

The difference between crypto wallets and web3 wallets does not negate their strong overlaps. Beyond being technologically identical at the core, money itself grants access. Web3 grants access. But web3 is not limited to money nor should it be narrowed to an economy. Web3 grants access to the internet in new ways. One of these ways is to access finance in new ways. But web3 also gives new ways to access things like information, education, and socialization.

What is a social wallet?

A social wallet is a Web3 wallet for storing keys that control digital access and assets for social uses. These social uses could include but are not limited to access of data like profiles, posts, access tokens, or even currencies that have use in social networks. However, access can mean two different things here. Access can mean who can view the data but in is this case the emphasis of access means who can control the data.

The purpose of social wallet is different from a crypto wallet because it is used to gain access to a social network. However, a social wallet is similar to a crypto wallet because it allows the owner to control access to things of value. It's just that value in social wallet is different than a crypto wallet.

A social wallet is a great example of how web3 wallet is not always the same thing as crypto. The main purpose is to have access and interact with a social network online. A social wallet doesn't require any crypto or monetary value. But this does not mean social access doesn't hold monetary value. Just because it is a social wallet does mean that their are not benefits to controlling cryptocurrencies involved with that social network.

What is a gaming wallet?

Similar to social wallets, gaming wallets hold assets used to participate in a game. In gaming, achievements can be unlocked and put into the control of the wallet that qualified for that achievement. Achievements, profiles, characters, costumes, power ups, and more can be attached to the person who controls them through the keys that are in that person's wallet.

A currency may or may not be part of the game and the in-game assets may or may not have financial value. Gaming, for many, is also a social activity. The rising use of social and gaming wallets shows that Web3 wallets are not limited to being crypto wallets.

Why is it important to have a social wallet?

A social wallet is a hot or warm wallet because it is connected to the internet. Looking back at the section about burner wallets, the more things a wallet connects with the more risks that are assumed. Think about how many times you have signed up for a social media account. How many different social media platforms have you signed up for? How many times have you signed in?

Each of those sign ups, signs in, and even of some of the interactions within the social network and individuals in the social network, in Web3, would mean signing a transaction with your wallet. Granted, well researched and established social networks are more likely to be considered safe than a brand new project giving airdrops, people should always assume some risk when connecting and transacting with a web3 wallet.

Whether you trust your social interactions or not, it is not wise to keep your high value items in the wallet you use when interacting socially online. With the rise in Web3 social networks, it is important to have the knowledge to keep your items of high monetary value separated to the access of your social interactions and gaming interactions.

Blockchain Domains and Digital Identities

A blockchain domain is a digital identity minted onto the blockchain that can act as a decentralized website domain, payment address, marketing tool, or as proof of identity to do things like sign in to social networks. This digital identity can be used to login with same name to any application that accepts that domain service. This identity replaces an un-rememberable wallet address with the name the person chooses, if it is available. Instead of signing in with a user name and password, it uses the domain name and signature of the wallet that controls it.

There are services that will set up a renewable domain name plan but with something like Unstoppable Domains a person can mint a domain name and have complete control of it forever. That is, of course, someone gets the private key to their wallet.

This is a key element to the discussion of social wallets. In web2, "64% of companies worldwide have experienced at least one form of cyber attack." The security of Web3 domain avoids many of the issues of a web2 domain. But what happens if you build a website, build a brand, build a social identity, and someone gets your private key? Should people be logging into social networks with the same wallet they host their website on? People definitely shouldn't be connecting wallets of high value to connections that are not well researched. But what happens when your digital identity is high value?

At the time of this blog Amazon.eth is listed for 12.21 ETH, or $23,378.24 on OpenSea. Obviously that is an exceptional name to own and Amazon wouldn't go signing in to unchecked applications. It is an example of perceived value a name could achieve. Nevertheless, people with high value social identities may want to sign into a social network. It is interesting quandary to think that thing that proves a high value social identity. could be the thing leads to the loss of the high value digital identity.

This risk should always be always.

Tips for protecting a digital identities:

1. High value assets should be separate from digital identities
2. Limit social connections to established and well researched applications
3. Test applications with a burner wallet before connecting a valued social wallet

Other Types of Web3 Wallets

As more and more blockchain use cases evolve there will most likely be a rise in purpose-specific wallets. The lessons of the different types of wallets used to store and transact with crypto currencies will still be valid. The lessons learned from keeping utility based wallets separate from high value wallets will still be valid. But there is still a discussion this blog have not fully covered, who ulitmately has control of the wallet can also determine what type of wallet it is.

Custodial vs. Non-custodial Wallets

The difference between a custodial and non-custodial wallet is who has custody of the private keys. 

Image Credit: MoonPay

Custodial Wallet

A custodial wallet is when a third party has custody of a wallet's private keys. This is how centralized exchanges work. While a trading wallet would be a hot wallet on a centralized exchange, a custodial wallet could also be a cold wallet. Revolut is an example of a third party that will hold custody of private keys and keep crypto in cold storage.

Non-custodial Wallet

A non-custodial wallet is when the user had self-custody of the wallet's private key. Examples of these are when a user has a warm or cold wallet and never shares the private key.

The importance here is that web3 embraces the idea of self-sovereignty and self-custody. As we examine social wallets, this is important because many people are attracted to web3 because it allows them to control their own data. Currently, social media companies like Facebook and Twitter have custody and control of users' data. So, for the most part, a social wallet, to truly embellish web3, should be a non-custodial wallet. However, the purpose of the wallet may determine the importance of the custody..

Future Web3 Wallets

As blockchain technology evolves and more utilities to come to fruition, it is only logical more purpose-based wallets will be introduced. Looking back at gaming, many users may have a wallet simply to play a game. It may even be a wallet specifically for that game. This could transpire to other uses.

Educational Wallet

An educational wallet could be something schools or other place of education keeps some sort of student records on chain and interact with it using a wallet. This is an interesting case because it offers a reason for a custodial wallet. As a simple hypothesis, it would make sense the schools held the private keys. Students being in control of their own grades would most likely not go well. 

This scenario also offers a new topic, non transferrable tokens. These tokens, or grades in this case, would be bound to single wallet. This would be avoid students "trading" grades. There are all sorts of variables in these thoughts but for the purpose of going over wallets, this is sufficient as is.

Job Wallet

Possibly in the future when people get a job, it will be come with a wallet. A person could punch in to work, track hours, and be paid through their wallet. This is an interesting idea but mainly serves to contrast the significance of custodial vs non-custodial wallets. Most likely, an employee would not be in control of the private keys of a job wallet. What happens if they get fired?

Tokens as Wallets

Tokens, in a way, can also act as wallets. With non-fungible tokens like the EIP-6551, other tokens can be bound and "owned" to central token. Technically, without a private key, these tokens would not be wallets. However, in functionality, they can hold assets and interact with applications similarly to web3 wallets.

In the job and education wallet examples above, if an employee has a self-custody wallet, possibly the job or enrollment is a token. Each class could be another token, and from that, all the grades could be more tokens. All these could be bound to that central EIP-6511 token. The EIP-6551 token would have to non-transferrable, or have approval for transfer, unless there was another way to identify the credits. This would prevent people from selling their diplomas.

This examples serves to show how control of a wallet can be handed to the user, but control of how the asset is used it still up to source of the token (known as a smart contract). In some cases it may be appropriate for healthcare, legal, and social wallets to hold non-transferable tokens as well.

Not Your Keys, Not Your Content

This blog has danced around using the word "ownership" and "possession" and stuck to the term "control." A private key controls transactions of a wallet but the source smart contract of what is being transacted controls the terms of the token. If we think about this as social media access, maybe you "own" the access token, but that doesn't mean you own access.

"It may come as a surprise but a crypto wallet does not actually hold cryptocurrencies. It holds keys."

Taking the above quote further, if the blockchains and smart contracts dictate transactions that are initiated by web3 wallets, there is no possession of assets in a wallet, merely, possibly, proof of ownership. In accordance with many laws, unless someone can prove something belongs to them, the person in possession is the rightful owner. Therefore, the proof of ownership is left up to the blockchain and smart contract.

This illustrates the utmost importance of doing your own research. Even if a wallet is accepted as possession and ownership, the value or even "possession" can be changed based on the smart contract. This is why you must not interact with malicious contracts. This is also why it is importance to understand the keeping the the private key private.

In a recent ruling on the Celsius bankruptcy a district court of New York ruled "...the Court finds that Earn Assets in Earn Accounts constitute property of the Estates, and that the Debtors may sell stablecoins outside of the ordinary course of business." In summary, this meant that Celsius, a centralized crypto exchange, legally could sell stablecoins because they were in possession of them. The centralized exchange had control of the custodial wallets because they held the private keys.

This ruling does support another thing though, a US court declared ownership by who had the private key. So while a cryptocurrency may boil down to a transaction held in control of a wallet's private key, it seems it is accepted that the wallet does declare ownership. As it should.

This topic transfers to social media in terms of users' data being shared or used because it was in control of the platforms. While the legality of money and data has some differences, the functionality remains the same and, because the content in tracked by the blockchain in web3, if you do not own your wallet keys, you do not own your content.

This has many implementations. With current social media like Facebook and Twitter, there is no private key. In the case someone else gets your private key and transfers your web3 content, it then belongs to that other person. If you go to trade crypto and someone steals your social identity online, it is no longer your social identity. If you go to post on a social network and someone steals your crypto, it is no longer your social wallet. Security and ownership are the underlying importance of a social wallet and reasons why it is important to distinguish the difference between a web3 social wallet and a crypto wallet. 

---

Thank you for reading "What is a Social Wallet?" I saw a missing part in the available educational material as we move forward and more people join the web3 space. Many will not join because of crypto but through social networks. As people move from crypto to web3 social networks, they may better understand the risks of connecting wallets, but as people enter web3 through social networks they may not understand the significance of what can happen when connecting their wallets. Stay Web3 🤙

@Webb3Fitty #TreeFitty
vv Profile and more blogs vv