At its very core, the private key (generated by the mnemonic seed words) IS your wallet and access to all your crypto accounts. There are several DeFi wallet options for accessing your private keys for signing transactions. In the early days, there were paper wallets printed with a private key and/or a QR code. These are not very useful for interacting with DeFi apps, so nowadays, there are four types of wallets: browser extension wallets., hardware wallets, mobile wallets and desktop wallets.
Browser extension wallets
Browser extension wallets (XDEFI Wallet, for example) are software installed on the browser itself. These wallets have many integrations for connecting to dApps and provide frequent updates for use with new protocols and apps. In the case of XDEFI Wallet, it’s possible to load multiple private keys and accounts into the wallet at the same time, giving access to many different blockchains all within one extension. XDEFI Wallet can also be connected with a Ledger hardware wallet. This combines the security of the hardware wallet with the functionality of the browser extension wallet.
In addition to the security of the computer or phone being used, the security settings of the browser also determine overall safety of using such wallets. Users who know how to protect their keys, avoid suspicious wallet connections, and safeguard their devices and network connections, will be able to maintain the best safety practices in day-to-day use regardless of which wallet they choose.
Hardware wallets are manufactured by companies such as Ledger, Trezor, Keepkey, etc. and they provide the highest level of security. This is because the private key remains “offline” on the secured microchip of such devices. Therefore they are also known as cold wallets. When doing transactions, you first need to connect the hardware wallet to the relevant software/website via USB cable or Bluetooth. At the stage of actually making the transaction, you can check the details on the hardware wallet itself and physically press buttons on the wallet to approve the transaction. Only the signed transaction instructions are transmitted from the wallet. The drawbacks are the cost of buying these physical devices and having to carry them around to make transactions.
Wallets that are on devices connected to the Internet are considered hot wallets. The security risk of leaking the keys is higher for hot wallets because of their frequent interaction with websites and dApps. Digital hot wallets may be secured by a password or biometrics, which adds another layer of security.
Mobile wallets are software/applications installed on mobile devices. Security level depends on the software itself, but also on the mobile device itself (e.g. iOS vs Android, presence of security chip on the device, whether jail-broken or not). Some experts recommend this option as generally safer vs desktop/browser wallets, especially for non-expert users.
Desktop wallets are software installed on desktop/laptop computers. There are various options from very advanced, high-configurable to very user-friendly versions. Security level depends on the software itself, but also on the desktop/laptop itself, e.g., different OS, use of antivirus software, privacy settings, etc.