What is DeFi Crypto Wallet How It Works and How to Create Your Own
Participating in the exciting and diverse markets of decentralized finance (DeFi), including non-fungible token (NFT) art and exotic derivatives, requires the use of a non-custodial DeFi wallet. These wallets provide investors with the means to enter this game-changing ecosystem.
Non-custodial DeFi wallets serve as the modern alternative to the traditional login screens found on Web 2 platforms, where users sign in with their Facebook or Google accounts. In contrast, Web 3 wallets offer interoperability across major DeFi protocols and, to a certain extent, even across different blockchains.
What is DeFi Crypto Wallet
The primary function of crypto DeFi wallets is to serve as a storage facility for digital assets.
Digital wallets operate similarly to traditional ones with the exception that they have been designed specifically with storing virtual currency in mind. DeFi wallet proves to be the safer option when compared to a physical wallet, and accessing your wallets mandates utilizing not only passwords but also key phrases or seed phrases usually made up of twelve random words aiding recovery.
It's worth noting that the DeFi space provides an avenue for accessing diverse products and services, and the opportunity to build decentralized applications and crypto assets exists.
Decentralized crypto wallets open the door to a vast ecosystem built on decentralization. These wallets grant you access to an innovative financial and economic system that operates independently of traditional intermediaries. With the power of DeFi wallets, you can engage with this transformative landscape while preserving your privacy and security. These wallets act as tools that allow platforms to recognize and interact with you without requiring any personal information.
Non-custodial wallets offer a distinct departure from wallets provided by centralized exchanges. In the latter, users often surrender control over their assets, similar to the way they would with a traditional bank. However, a significant disparity between banks and crypto exchanges exists: deposits in banks are typically regulated and protected by government deposit insurance schemes. Conversely, unfortunate incidents like the loss of customer funds and the subsequent struggles faced by victims, as witnessed in cases such as Mt. Gox, Quadriga CX, and Einstein Exchange, highlight the risks associated with centralized exchanges.
A DeFi wallet empowers you to engage in various activities such as asset swapping, earning from lending, staking, and farming services, checking your non-fungible tokens (NFTs), and connecting to platforms for minting and purchasing them. These wallets are crucial because they provide the tools necessary to prove ownership of your assets when accessing these platforms.
To recap, here are the key functions and purposes of a DeFi wallet:
- Security: DeFi operates on the foundation of smart contracts and decentralization, making it more challenging for hackers to attack compared to centralized systems with a central database. However, it's crucial to take preventive measures to safeguard your assets. For example, avoid storing copies of your keys or seed phrases on devices and instead keep them offline in a secure location like a piece of paper.
- Inclusion and Anonymity: DeFi wallets enable anyone, regardless of credit score or financial history, to access DeFi services as long as there is an internet connection and sufficient funds to cover transaction fees. The anonymity provided by DeFi wallets ensures equal access to financial services.
- Versatility: DeFi wallets allow you to perform a wide range of operations, including transactions, utilization of financial products, access to decentralized applications, and even building your applications and creating new crypto tokens. Consider these wallets as gateways to DeFi, similar to traditional login or signup pages on conventional websites.
- Peer-to-peer Transactions: DeFi wallets facilitate peer-to-peer transactions and enable the use of DeFi financial services while maintaining anonymity.
- Proof of Ownership: DeFi wallets strike a balance between proving ownership and maintaining anonymity. When accessing any DeFi platform with your wallet, your unique wallet address represents you as a string of numbers and letters. By using your password or seed phrase to access the wallet, you confirm your ownership and exclusive right to access and transact with those assets.
It is important to note that you must take caution with your keys and store them securely. Since no third parties are managing your wallet, losing your keys means losing access to your blockchain-based assets without the possibility of retrieval.
The Main Benefits of DeFi
- The responsibility of managing your finances lies with you. Take charge of your finances by using crypto accounts to store and manage your funds instead of relying on traditional institutions. Your money will not be lost if either a financial institution or government falls prey to unscrupulous individuals
- Swifter than the typical approach to finance, the process of depositing money in the bank or getting a loan is time-consuming in traditional banks and may take several days. The speed of completing transactions in DeFi ranges from just a few seconds to several minutes based on the underlying blockchain
- Maximum transparency ensures the safety of DeFi projects as they all operate under open-source codes that enable thorough checks. The functioning of both the banking and governmental structures remains unknown to users.
- Enhanced Confidentiality: DeFi smart contracts and apps prioritize pseudo-anonymity, utilizing public addresses instead of personal identity. Connecting personal information with a DeFi project is unnecessary.
- Improved Economic Efficiency: Users of DeFi applications can earn passive income from various crypto assets such as deposits, loans, and insurance. Additionally, they can save on fees associated with transfers, loans, deposits, and insurance.
- Streamlined Automation: Smart contracts enable the automation of numerous business processes within decentralized finance, reducing execution time, costs, and reliance on third parties.
- Greater Independence: DeFi grants users complete control over their assets without the need for centralized intermediaries or regulators.
- Enhanced Safety: Information recorded on the blockchain is immutable, ensuring data integrity and preventing any manipulation. The absence of a single point of failure makes the entire system more resilient to attacks.
- Increased Accessibility: DeFi offers universal access, allowing anyone to connect their crypto wallet to the blockchain network and utilize its services, irrespective of geographic or regulatory constraints.
Security Measures for DeFi Wallets
DeFi wallets employ various security measures to ensure a comprehensive understanding of the importance of the associated keys.
- Select a reputable DeFi wallet provider that offers software or web extensions for download.
- Create a new wallet: Upon creating a new wallet, the service provider provides you with a seed phrase. It is crucial to write down this phrase accurately. To verify its accuracy, you may undergo a test or review the phrase. If any mistakes are detected, you can usually go back and recheck the phrase. Once you confirm the accuracy of the seed phrase, you can proceed with the creation of the new wallet. This seed phrase acts as a crucial backup that allows you to recover your wallet if your device is lost or changed.
- The service provider typically prompts you to set a password, which enables convenient access to your wallet without having to enter the seed phrase.
- This entire system empowers users to leverage DeFi platforms without divulging personal information or relying on third parties.
It's important to note that the crypto space offers various types of wallets, each with its own characteristics and security features.
Primary and Additional Functions of a DeFi Wallet
- User Registration: Offer a simple and secure registration process that doesn't require sensitive data. Provide users with the option to configure essential elements during registration, such as seed phrases, security settings, preferred cryptocurrencies, and payment methods.
- Money Transfer: Enable users to send and receive funds within the DeFi wallet. Allow for the creation of contact listings for convenient future payments.
- Balance Checking: Display the balance prominently on the start screen, with customization options for appearance, crypto-addresses list, and selected currency rates.
- Card-Based Deposits and Withdrawals: Facilitate funding the wallet account using debit or credit cards, as well as withdrawing funds to these cards.
- Bank Account Integration: Simplify deposit and withdrawal processes by integrating bank accounts. Ensure robust protection of confidential data.
- Transaction History: Provide users with a view of recent transactions, enabling them to track their activity and expenses. Include categories and filters for easier navigation.
- Promotions and Offers: Enhance user engagement and loyalty by offering cashback, vouchers, bonus points, and other incentives for utilizing DeFi services.
- Referral Program: Encourage user growth by implementing an invite friends function and rewarding referrals.
- Ratings and Reviews: Gather feedback from users to identify areas for improvement in design and functionality.
- Verification and Authorization: Implement a secure verification and authorization process for administrators to ensure authorized access.
- Profile Management: Track user-profiles and transaction data passing through the wallet. Enable administrators to manage users, including banning and deleting accounts.
- Detailed Analytics: Provide administrators with concise and easily readable statistics about Crypto DeFi wallet usage, such as quantity, volume, and average speed of transactions.
- Offers and Discounts: Enable administrators to create and plan various offers to enhance customer engagement and loyalty.
- Support: Facilitate communication between administrators and users to address any issues or concerns.
- Chatbot Integration: Integrate a chatbot to provide 24/7 customer support at a lower cost.
- In-App Camera: Allow users to scan QR codes for deposit/withdrawal links and verify important actions, such as payment confirmation for DeFi services.
- One-Time Password: Increase wallet security by sending a one-time password to users' registered mobile numbers for each payment transaction.
- Pop-up Notifications: Deliver notifications to users about payments made and received, recent transactions, special offers, and other significant events to enhance user engagement and awareness.
How to Develop a DeFi Wallet
DeFi wallet development diverges from traditional software creation due to its decentralized nature, devoid of financial institutions or central regulators. The entire service logic is executed through blockchain technology and smart contracts. Developing or customizing these solutions necessitates a profound understanding and expertise in this field. Therefore, if you're seeking to create a cryptocurrency wallet, it is advisable to entrust this task to a DeFi wallet development company that specializes in such projects, such as Stfalcon. Our experience and knowledge can ensure a robust and tailored crypto DeFi wallet solution to meet your specific requirements.
Step 1: Define Project Goals
Begin by understanding the purpose and objectives of your DeFi wallet. Analyze the market, target audience, and competitors to identify the specific user tasks your wallet should address. Determine whether you need to create the software from scratch or opt for a script clone of an established crypto DeFi wallet, considering time and cost-saving factors.
Step 2: Choose the Type of DeFi Wallet
Select the appropriate type of DeFi wallet based on your requirements and user preferences:
- Desktop Wallets: Installed on computers or laptops, offering extensive functionality (e.g., Electrum and Bitgo).
- Web Interfaces: Users interact through a browser, necessitating secure connections (e.g., MetaMask, Guarda, and MyEtherWallet).
- Hardware Wallets: Safest option, storing private keys on a memory card or flash drive (e.g., Ledger Nano and TREZOR).
- Mobile Wallets: Installed on smartphones, providing convenience and global access (e.g., Coinbase, Trust Wallet, and Argent).
Step 3: Design the Architecture
Decide the location of your crypto DeFi wallet (local servers, cloud, or hybrid), blockchain integration, supported tokens, and external server integrations. Determine whether your wallet will store user funds and private keys, and establish the corresponding security measures.
Step 4: Develop the Platform Design
Design the user interface for your wallet, considering the overall concept, user flow, color scheme, and tone of voice.
Step 5: Code Your DeFi Wallet
The development stage involves implementing the architecture, design, and functionality of your DeFi wallet. Front-end, back-end, blockchain, and mobile developers use technologies such as Ethereum, Binance Smart Chain, smart contracts (Ethereum Virtual Machine, BSC Virtual Machine), and languages like PHP, JAVA, MEAN Stack, and Laravel. Utilize appropriate databases (e.g., MySQL, MongoDB, Redis) and deployment options like LAMP, AWS, Google Cloud Platform, and MS Azure.
Step 6: Wallet Testing
Conduct comprehensive testing to ensure reliability, usability, security, and performance under various conditions. Resolve any critical issues before scaling the wallet and considering integrations with other technologies like third-party DeFi protocols, AI, Big Data, IoT, etc.
By following these steps, you can successfully develop your DeFi wallet and prepare it for deployment, meeting the needs of your target audience in the decentralized finance space.
SDK for a cryptocurrency wallet
Stfalcon.com undertook the development of an SDK for a cryptocurrency wallet, designed to provide a smooth experience on both Android and iOS platforms. Our key focus was to unify the business logic and utilize a shared codebase across multiple platforms. To achieve this, we leveraged the power of Kotlin Multiplatform technology.
DeFi, short for decentralized finance, encompasses a range of financial applications and protocols that operate without central control, instead relying on decentralized algorithms or multiple independent individuals and institutions. The primary objective of DeFi projects is to empower users to have complete control over their finances, eliminating the need for intermediaries. If you are interested in creating your crypto wallet, just contact us, a free consultation is available.