A burner wallet is a short-term crypto wallet that people set up for engaging in possibly risky activities with different blockchain apps. These wallets aren’t designed for holding big sums of crypto; they should only have enough funds for a single transaction or a couple of them.
How Does Burner Wallet Works?
Burner wallets can be set up using hierarchical deterministic (HD) wallets, which allow you to create multiple accounts from just one secret seed phrase. Each account in an HD wallet has its own private key but is all linked to that same seed phrase.
When you want to use a burner wallet, you can easily generate a new account for engaging with potentially risky blockchain apps or smart contracts. The idea is to minimize risks by keeping your main wallet and funds separate from these activities. For instance, you might want to create one when you’re taking part in new airdrops or dealing with a smart contract that hasn’t been audited yet.
By dividing your assets into different accounts—like a main account for most of your holdings and a separate burner account for those riskier ventures—you can make sure that even if your burner wallet gets compromised, your primary wallet and the bulk of your crypto stay safe.
The Benefits
When diving into new blockchain platforms, users might encounter vulnerabilities or scam projects. It’s super important to use a burner wallet when trying out these new apps. This way, if a platform turns out to be sketchy or gets hacked, most of your crypto assets will still be safe. Using a burner wallet to deal with smart contracts helps keep the risks contained in a temporary account. This way, your main wallet stays protected from getting wiped out if a smart contract goes wrong.
Conclusion
Burner wallets are short-term cryptocurrency wallets that people use to reduce the risks that come with using different blockchain apps. They provide a layer of safety against possibly harmful smart contracts and allow users to explore new and unproven blockchain applications without worry.