On a Saturday afternoon, I had decided to explore wallets not the traditional ones but crypto wallets. I had read about private/public keys and how it powers everything in the Web3 world. But I did not have my private keys even when I had bought Bitcoin and Ethereum on Binance. On further research, I stumbled upon the concept of different types of wallets.

1. Custodial Wallet - trusted 3rd party keeping your private key like Binance

2. Non-Custodial wallet - decentralized wallet where the user has to keep their key

   Recovery phrase used for getting access in case private key is lost

   1. Software/Hot wallets - Where the key is stored on browser extensions or Mobile Apps like MetamaskCoinBase Wallet.
   2. Hardware wallets - Where the key is stored offline on a hardware device. These are safer as the key is stored offline.

Of course, I realized I was using a custodial wallet. But for interacting with the Defi world, I needed a non-custodial wallet. Therefore, I set up a quite popular Metamask wallet. During the step-up came the step of storing my recovery phrase and the warning that if I lose this phrase, I will lose complete access to the wallet including all my assets, and no one can help me! It was recommended to not store it digitally. Knowing myself, I knew I can lose it any time. That spooked me but yet I continued scribbling the catchphrase in a notebook deciding to just use it for exploration and buildspace projects. When I started putting in some money, this recovery phase became important. The problem was that I could not store too many copies since if anyone found the key, they could just drain my funds right away. But I had to keep as many copies as possible so that I could recover. This is a critical pain point and problem right at the start of the crypto journey for the user. Potentially blocking and scaring many people away from the space even the enthusiasts.

Tip: I have memorized one word of the catchphrase and stored 11 others physically. This way even if someone finds my catchphrase they can’t recover and I only have to remember one word which is easy!

There are many companies working in this direction. Multisig wallets and Social recovery wallets seem most promising to me. Multisig wallets refer to multi-signature wallets. As the name suggests, it requires 2 or more users to sign the transaction individually before the transaction is signed. This is really helpful in case a hacker steals your keys. Social recovery wallets are more interesting. These are based on the concept of attestations. The concept is that you can choose your guardians (Which can range from 3 to any odd number). In case you lose your wallet key, you can initiate a special transaction to generate a new key, and if more than 50% of guardians sign the transaction. You would be able to recover your wallet. Of course, there is a possibility of your guardians colluding and stealing your money away. But this can be addressed if you choose Guardians from different social circles and people you absolutely trust. Argent and Loopring wallet are the major players providing this solution. I am planning to switch to these soon and so should you!