What is a burner wallet in crypto and why would you need one?

• A burner wallet is a temporary, single-use crypto account used for specific transactions.

• Burner wallets aim to protect privacy and valuable assets while interacting with potentially risky blockchain applications.

• Despite their temporary nature, burner wallets can be easily created and discarded, aiming to provide a layer of security in the crypto world.

A burner wallet in the crypto world is a single-use account, designed to interact with potentially risky blockchain applications. It's similar to a burner phone, meant to be discarded after serving its purpose. However, unlike getting a new phone, creating a burner wallet is a quick and easy process.

A burner wallet should only contain the amount of crypto necessary to cover the transaction it has been set up for. It should not hold a large amount of crypto or any asset, nor should it have any markers that make it easily linkable to its owner.

A burner wallet works by generating a temporary key, which allows the user to sign transactions. This key pair is automatically generated and stored in your web browser, eliminating the need to memorize a seed phrase.

A notable feature of burner wallets is their hierarchical deterministic (HD) nature. HD wallets can generate a near-infinite amount of distinct accounts, all accessible with one secret recovery phrase. This means you can create as many burner wallets as you need without worrying about recording a new secret recovery phrase each time.

The primary reason for using a burner wallet is to protect your privacy and valuable assets while navigating the world of web3. As scams involving malicious smart contracts become more common, burner wallets aim to provide a layer of protection.

For instance, if you're interacting with an unverified decentralized application (dApp) or minting NFTs, a burner wallet can aim to keep your primary assets safe. Even in a scenario where a hacker gains access to your burner wallet, only the limited crypto in your account would be at risk. The main wallet and the assets it holds are intended to remain secure.

If you decide to use a burner wallet, there are a few safety tips to keep in mind. It's advisable to give your wallet a nickname to avoid confusing it with your permanent wallet. It's also recommended to regularly move assets from your burner to your more secure, permanent wallet. Lastly, it's a good practice to swap burners occasionally for added security.

Burner wallets are being used more frequently in the NFT space. They allow users to mint NFTs without risking their primary assets. If a project turns out to be a scam or a hacker gains access to the burner wallet, only the limited crypto in the burner wallet would be at risk, with the intention of keeping the main wallet and its assets safe.