Embedded Wallet, is becoming increasingly popular due to its convenience and ease of use. So what is an embedded wallet? Let’s learn more about embedded wallets in the following article.
What is Embedded Wallet?
An embedded wallet is a type of cryptocurrency wallet that is integrated directly into an app or platform as part of that app itself, with the goal of creating a seamless and convenient user experience.
Unlike standalone wallets like MetaMask or Trust Wallet, which users have to download and log into separately, embedded wallets provide a “one-click” experience for managing cryptocurrencies, making them suitable even for beginners. Users can conduct transactions and manage crypto assets right within the interface of the app they are using without needing to download or switch to a separate wallet application.
When did Embedded Wallet exist?
Embedded wallets are still relatively new, only gaining significant traction around 2021 with the explosion of Web3 and NFTs. Before that, most cryptocurrency wallets were standalone wallets like MetaMask, Trust Wallet, or hardware wallets. These types of wallets required users to download and set up a separate application to manage their assets.
With the DeFi and GameFi boom in 2021-2022, developers recognized the critical need for a smoother user experience. As a result, they began building embedded wallets to integrate into DeFi applications and platforms, enabling users to utilize cryptocurrencies without leaving the native app.
How Embedded Wallets Work
Embedded wallets work by integrating directly into decentralized applications (dApps), creating a seamless and convenient experience for users. Unlike traditional wallets that require separate app installation and management, embedded wallets exist within the dApp’s interface, simplifying the transaction process while ensuring security.
Additionally, these wallets often support private key recovery through multi-party computation (MPC) technology. The private key is linked to multiple recovery sources such as personal devices or email, making it easier for users to regain access when needed. To enhance security, embedded wallets typically incorporate two-factor authentication (2FA), providing an extra layer of protection against unauthorized access.
Below is the detailed process of how Embedded Wallet works:
1. Private Key Generation:
- On-Device Generation: When a user creates an embedded wallet, the private key is generated directly on their device, ensuring they have sole ownership and control.
- Entropy and Mnemonic Phrases: The process utilizes 128 bits of randomly generated entropy, which is then converted into a mnemonic phrase (seed phrase) according to the BIP-39 standard. This mnemonic phrase acts as a backup for the private key.
2. Key Sharding:
- Enhanced Security and Recovery: To further enhance security and recovery options, the private key (or mnemonic phrase) is split into multiple parts (shards) using a technique called Shamir Secret Sharing.
- Distributed Ownership: In systems like Privy, the mnemonic is divided into three shards. The user holds two shards, while Privy securely stores the third. This ensures that neither party has unilateral access to the complete key, enhancing security and user control.
3. dApp Integration:
- Seamless Experience: Embedded wallets are integrated directly into the dApp, eliminating the need for users to download or set up a separate wallet application. This streamlines the user experience and makes dApps more accessible, especially for newcomers to crypto.
4. Meta-Transactions:
- Removing Transaction Fees: Embedded wallets often utilize meta-transactions, where a third party (relayer) executes transactions on behalf of the user and covers the associated gas fees. This removes a significant barrier to entry for users and makes the dApp experience smoother.
5. Recovery Mechanisms:
- Multiple Recovery Options: In case of lost access, embedded wallets offer various recovery methods, such as using email, another device, or a password. This ensures users can regain access to their funds without relying solely on the mnemonic phrase.
6. Enhanced Security Measures:
- Two-Factor Authentication (2FA): Many embedded wallets offer 2FA for added security, requiring users to provide a second form of verification to access their wallets.
- On-Device Processing: To protect sensitive data, embedded wallets often process all operations locally on the user’s device, preventing private keys or sensitive information from being transmitted over the network.
What problem was Embedded Wallet developed to solve?
Integrated within an app or platform: an embedded wallet doesn’t exist as a standalone application. Instead, it’s directly embedded into a specific application such as a blockchain game, a DeFi app, a decentralized exchange (DEX), or a Web3 platform. This allows users to conduct transactions without leaving the main application.
No need to download or install a separate wallet: embedded wallets typically don’t require users to download a separate wallet application like MetaMask or Trust Wallet. The wallet is already integrated into the main application, and users simply need to create an account or log in to use it.
Seamless experience without switching apps: users can manage their assets and conduct transactions directly from the interface of the main application. This means they don’t have to open a different app to complete a transaction, creating a convenient and seamless experience.
A survey from the Crypto Adoption Research Report 2023 found that:
- 65% of new users find it difficult to set up a standalone wallet for the first time, including tasks like managing private keys and backing up seed phrases.
- Meanwhile, 85% of users reported greater satisfaction when using embedded wallets due to their direct integration within the application and the elimination of switching between platforms.
Simplified private key management: embedded wallets often automate or minimize private key requirements. Depending on the platform, the security key may be managed by the platform itself or by a custodian. This eliminates the need for users to remember or safeguard their private keys, reducing the risk of asset loss.
Suitable for new or non-technical users: by eliminating many complex technical steps, embedded wallets are often designed to be user-friendly and cater to mainstream or new users who want to experience blockchain without a deep understanding of technical concepts like private key management.
Furthermore, according to data from DAppRadar, platforms using embedded wallets have:
- Reduced development costs related to supporting external wallet integration by 30%.
- Shortened deployment time by 25%, allowing platforms to launch products quickly and easily attract new users.
Disadvantages of Embedded wallets
While embedded wallets offer many advantages, they also have some limitations:
Limited control over private keys
Designed for simplified use, many embedded wallets eliminate the recovery seed phrase. This makes it easier for new users to get started but also poses a significant risk. If someone hacks into the account, users could lose control with no way to recover their assets, creating a sense of insecurity.
Platform dependence
Because embedded wallets are integrated into an application or website, users become dependent on that platform. If the platform discontinues support, it could impact the ability to access the wallet and assets.
For example, if you’re using a dApp and that platform experiences issues, your assets could be temporarily “locked” within the app without your full control.
Limited functionality
Compared to standalone wallets, embedded wallets primarily support basic operations like storing and transferring assets. Those who want to participate in more complex activities like staking or trading on multiple chains may be disappointed by the lack of support or basic functionality offered.
Some current embedded wallets include:
- Alchemy Embedded Wallet
- Privy
- Magic
- Dynamic
- Bitzaro
- Blockradar
Read more: What is a non-custodial wallet? Why own a non-custodial wallet?
