Decentralized Wallet Application: A Review

Abstract

With the rise of decentralized digital currencies powered by blockchain technology, a new era of peer-to-peer transactions has emerged. The growing use of cryptocurrency wallets, which facilitate secure transactions without relying on centralized authorities, has brought about both opportunities and challenges. Despite their potential, cryptocurrency wallets are increasingly targeted by hackers, exposing users to risks such as theft, fraud, and data breaches. Blockchain’s immutability and cryptographic techniques provide robust solutions to these issues, yet security concerns persist due to vulnerabilities in wallet design and implementation. This paper reviews the current state of cryptocurrency wallets, highlighting the critical security risks associated with their use. It introduces a multi-dimensional taxonomy for classifying wallet designs and evaluating their security implications. We identify common vulnerabilities and map them to corresponding defense strategies. The paper also explores the role of key management, security vulnerabilities in blockchain protocols, and the need for continuous improvements in wallet architecture. We propose a decentralized, secure, and user-friendly digital wallet solution built on Ethereum’s distributed ledger, ensuring privacy, transaction transparency, and eliminating third-party intermediaries. The research also discusses the potential for integrating blockchain wallets with decentralized applications (dApps) toenhance functionality and user control.

Introduction

This paper presents a comprehensive review and analysis of decentralized cryptocurrency wallets, which are essential tools for interacting with blockchain networks. The key points are as follows:

1. Blockchain and Wallet Basics

• Blockchain is a decentralized, immutable ledger that enables trustless transactions via cryptographic hashes and peer-to-peer networks.

• Crypto wallets manage public-private key pairs to authorize transactions but do not store actual currency; instead, they store proofs of ownership.

2. Wallet Types

• Hot Wallets (e.g., MetaMask, Trust Wallet): Internet-connected, user-friendly, but more vulnerable to cyberattacks.

• Cold Wallets (e.g., Ledger, Trezor): Offline, highly secure, but less accessible and harder for beginners.

3. Existing System Challenges

• Key management is difficult; losing private keys results in permanent loss.

• Scalability issues lead to high transaction fees and delays.

• Fragmentation and lack of interoperability require users to manage multiple wallets.

• No customer support and irreversibility of transactions make recovery hard.

• Regulatory uncertainty further limits adoption.

4. Literature Review Highlights

• Researchers classify wallets, analyze security flaws (e.g., phishing, seed phrase misuse), and propose improvements like:

  • Multi-signature support

  • Hardware wallet innovations (e.g., CryptoVault)

  • Decentralized user-friendly designs

5. Security and Usability

• Security concerns include weak password protection, software flaws, and centralization in supposedly decentralized services.

• There’s a trade-off between usability and security. Better UI/UX, tutorials, and gamified onboarding are recommended for non-technical users.

6. Research Contribution

• This work addresses gaps by proposing a hybrid wallet framework that blends hot wallet usability with cold wallet security.

• It emphasizes:

  • Improved private key protection

  • Seed phrase recovery mechanisms

  • Education for safer user interaction

7. Methodology

• The study evaluated 5 popular wallets (MetaMask, Trust Wallet, Coinbase Wallet, MEW, and Electrum) based on:

  • Security features (e.g., 2FA, encryption)

  • Blockchain and smart contract support

  • Usability and recovery options

  • Performance and scalability

• Evaluation involved literature analysis, user surveys, source code inspection, and hands-on testing.

8. Comparative Findings

• MetaMask and Trust Wallet scored high on user-friendliness and blockchain support.

• Electrum is highly secure but supports only Bitcoin.

• Common features across wallets include:

  • Seed phrase recovery

  • Support for dApps and DeFi

  • Multi-chain integration

• Gaps: Lack of standard UI, inconsistent smart contract support, and limited fiat integration.

9. Future Scope

• Developing hybrid wallets that balance usability and security

• Integrating advanced cryptography (e.g., multi-party computation)

• Enhancing onboarding and recovery with gamified tools

• AI-powered threat detection and cross-chain interoperability

• Ensuring decentralization while avoiding reliance on third-party infrastructure

Conclusion

Cryptocurrency wallets play a vital role within the blockchain ecosystem, acting as the core interface through which users manage digital assets and interact with decentralized finance platforms. Existing literature highlights a persistent tension between usability and security. While intuitive, user-friendly wallets can accelerate adoption by lowering entry barriers for both novice and experienced users, they often expose users to significant risks—including those stemming from poor key management and susceptibility to cyberattacks. This paper has examined a range of wallet frameworks and shed light on recurring security flaws, such as improper seed phrase handling and insufficient authentication mechanisms, that threaten asset safety. It has also assessed emerging solutions that aim to merge the convenience of hot wallets with the enhanced protection typically associated with cold storage. In particular, hybrid models that leverage hardware-level key storage, advanced cryptographic tools, and interactive user guidance present a promising path forward. By integrating conceptual insights with practical implications, this research underscores the need to approach wallet development through both technological and human-centred lenses. The path toward more secure and accessible wallets lies in addressing the intricacies of user behaviour, improving interface design, and embedding advanced security measures. Continued innovation in real-time threat detection, multi-factor and multi-signature verification systems, and decentralized recovery protocols will be instrumental in shaping the next generation of cryptocurrency wallet solutions

References

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Copyright

Copyright © 2025 Vimal Singh, Yash Bhardwaj, Tilak Jain. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.