Web3 for TradBiz — Web3 and Crypto Foundations (6 of 14)
Using crypto wallets
Learn about crypto wallets, including setting up MetaMask to hold crypto and interact with decentralized Web3 applications
Now that you’re equipped with a solid foundation of Web3 knowledge, it’s time to roll up your sleeves and set up your first self-custodied crypto wallet. If you’re already familiar with crypto wallets, feel free to skip to the next chapter, Web3 use case categories. Otherwise, let’s learn about the different kinds of crypto wallets, their common features, and some of the most popular wallets currently available. We’ll then take you through the steps to setup the MetaMask mobile wallet, a popular Ethereum-compatible software wallet. Finally, we discuss how you can use blockchain explorers like Etherscan to track transactions that you and others have made.
Crypto wallets are used to secure, receive, spend and track cryptoassets. It’s worth emphasizing that cryptoassets are different than the physical wallet used to store credit cards, identification, and money. Cryptoassets are not stored in wallets; instead, crypto wallets are the software or hardware that manage the private and public keys controlling cryptoassets on their respective blockchains. Custodial wallets store crypto keys on third-party servers, such as crypto exchanges or the cloud-based servers of software applications. Self-custodied wallets store crypto keys directly on user devices, giving owners full access, control, and responsibility over their cryptoassets. Wallets can utilize either hot or cold storage. Hot wallets are those connected to the Internet, making them more accessible, but also opening the risk of being hacked or compromised. Cold wallets store keys offline, providing higher levels of security in exchange for lower accessibility. Wallets come in a variety of formats, including mobile, web and desktop apps, hardware, and even paper.
Most wallets provide basic security and management features, with some providing advanced functionalities. Up until recently, crypto wallets were quite difficult to use and often had limited functionality; however, wallets are getting both easier and more fully featured as Web3 evolves. Expect most wallets to require a password or pin to secure access, backup and recovery of private keys using 12–24 seed words, and generation and scanning of QR codes for faster, less cumbersome transactions. Common features also include importing or exporting paper wallets, supporting multiple cryptoassets and blockchains, and providing customer support to address issues and concerns.
Look for some wallets to provide many more advanced features. These include two-factor authentication using a mobile device or security key, multi-signature transactions that are confirmed by more than one private key, and cross-platform availability across desktop, mobile, and web applications. Other useful features include trading cryptoassets directly in the wallet via integration with exchanges, paying merchants with cryptoassets, exploring blockchain transactions, and monitoring live crypto market data in portfolios.
Most crypto users start with online wallets, migrating over time to software- and hardware-based wallets. People usually get started in crypto by setting up an online, custodied account with a crypto exchange like Coinbase or Binance, or a crypto-enabled securities account like Robinhood. These companies provide web wallets that also serve as onramps into crypto by linking user bank accounts, thus enabling movements to and from fiat currencies like U.S. dollars. In this case, users place trust in these companies to custody the crypto they indirectly own.
As people become more familiar with crypto, a frequent next step is to move some of their holdings to software wallets, such as MetaMask or Exodus. These can be mobile apps, browser plugins, or desktop-based applications. Unlike web wallets, software wallets require users to self-custody their private keys within the app. While this provides the advantage of maintaining complete control over one’s keys (remember “not your keys, not your crypto”), it also opens the possibility of losing access to crypto through theft or lost backup seed phrases. These wallets are also needed to utilize a wide variety of Web3 applications, including decentralized finance (DeFi) and nonfungible tokens (NFTs).
Hardware wallets, on the other hand, allow users to self-custody their private keys with a higher level of security. Popularized by companies like Ledger and Trezor, these store private keys on small hardware devices that are needed to authenticate transactions done using software-based wallets. If you’re accessing a meaningful amount of cryptoassets value, we highly recommend using a hardware-based wallet.
Use MetaMask to store and transact Ether and other ERC-based cryptoassets. If you’re just getting started with self-custodied software wallets, consider setting up a MetaMask mobile software wallet. MetaMask is a leading Ethereum compatible wallet, available as both a mobile app and a Chrome-compatible plugin. The wallet provides access to both Ether (ETH) and other Ethereum-compatible tokens, is used to access decentralized applications (dApps) built on Ethereum and compatible blockchains, and allows users to exchange any ERC-standard token for another.
To get started, download MetaMask from the Apple or Google app store. Open the app and tap on “Get Started.” If you already have another Ethereum-compatible wallet, you can import it into MetaMask by following the directions; otherwise, create a new wallet. You will start by creating a password for your next wallet. After that, write down the 12 seed words the app provides as your backup phrase. You will then be asked to input the seed words back in the correct order for confirmation. When storing passwords and backing up seed phrases, best practice is to not store this information on a computer or mobile device. Since these devices are connected to the Internet, they are thus at risk to hacking, theft or other loss. Instead, we recommend you write down your password and seed phrase on paper, which you can then secure in a home safe, bank safety deposit box, or other safe location. Remember if a malicious actor discovers your seed phrase, you will likely lose access to your cryptoassets forever.
Once you’ve set up MetaMask, you will have the option to buy some crypto through integration with crypto onramp providers or receive some crypto from a friend. We recommend you start by obtaining a small amount of Ether (ETH), as that is used to pay gas fees on the network that cover transaction costs.
Every transaction made using a wallet can be accessed using a blockchain explorer. Most blockchains, including Ethereum and Bitcoin, provide open, transparent access to all the transactions that have been recorded on them. This is a big deal in Web3, as it means there is detailed, accessible data about every public address that can be used not only to track activity, but for analyzing and developing intuition about every distributed application (dApp) running on a blockchain.
Blockchain explorers like Etherscan provide access to a wide variety of additional information that you can explore. Blockchain statistics allow you to learn about a blockchain’s overall activity, including transaction volumes, value exchanged, gas fees, active addresses, and hash or validation rates. You can also view details about all pending and completed transactions for any public address, along with the type and amount of assets held in any given wallet. Watch lists allow you to track and be alerted about any activity within specified addresses. Etherscan also enables dApp activity monitoring and a broad range of other resources.
Check out Etherscan to understand better how transactions work on Ethereum. If you’ve set up your MetaMask account, paste your public address (not your private key!) into the search box. Any cryptoassets you have in or transactions you’ve completed using your MetaMask account will be listed in plain view. If your Ethereum address is empty you’ll see nothing because you haven’t had any transactions yet, and thus the blockchain doesn’t know your address is active.
If this is the case, try exploring what’s in the public bags (wallets) of some well-known personalities with DappRadar, an application that tracks portfolios across blockchains. For example, check out rapper and record producer Snoop Dogg, investor and entrepreneur Gary Vaynerchuk, entrepreneur Mark Cuban, TV show host Jimmy Fallon, and more here.
With your crypto wallet setup, you’re ready to explore Web3 use cases and value propositions. This chapter introduced how crypto wallets are used to secure, receive, spend, and track cryptoassets stored on blockchains. We’ve discussed how most crypto users start with online wallets, migrating over time to self-custodied software and often hardware wallets. By now you’ve hopefully set up your mobile MetaMask wallet and perhaps have a small amount of Ether (ETH) to play with on the Ethereum network. You’ve also spent some time exploring how the Etherscan blockchain explorer allows anyone to access and make sense of blockchain transactions. If so, you’re now ready to jump into the wide and rapidly evolving set of Web3 use cases and value propositions, including decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), and participate-to-earn (P2E) models. Keep reading, starting with Web3 use case categories.
Monchester Macapagal and Kris Caigas of AcceleratingBiz contributed significantly to the research, writing, and production of this series.
Explore other Web3 for TradBiz insights and resources at acceleratingbiz.com.
Click on the links below to progress through the Web3 for TradBiz series:
[1] Web3 for TradBiz introduction
Web3 and crypto foundations
[2] Why embrace Web3 now
[3] Inevitable Web3 future
[4] Crypto and Web3 basics
[5] Advanced Web3 topics
[6] Using crypto wallets
Use cases and value propositions
[7] Web3 use case categories
[8] Decentralized finance (DeFi)
[9] Non-fungible tokens (NFTs) and the Metaverse
[10] Decentralized autonomous organizations (DAOs)
Web3 implications and opportunities
[11] Web3 impact on TradBiz market and business models
[12] Emerging Web3 investment opportunities
[13] Evidence of mainstream Web3 adoption
