A Beginner’s Guide to MetaMask
If you want to have more autonomy when buying and selling digital assets, MetaMask is the way to go. Here’s how.
We are so used to having centralized institutions serve as gatekeepers — whether a university or the government. Financial institutions, for example, promise to steward our resources, granting us some security and trust over our assets. They take our deposits and lend them out at scale.
That differs starkly from the approach in decentralized finance (DeFi) where users trade with others in a peer-to-peer fashion. In other words, there is no centralized entity that becomes the custodian of your resources. Rather, you are the custodian — the ball is in your court.
Centralized versus Decentralized Exchanges
The DeFi market has surged since 2021, growing from just over $20 billion to nearly $160 billion as of March 2022, compared with a rise in the total cryptocurrency market from $433 billion to $2.5 trillion.
How is it possible? Automated market makers (AMMs).
Whereas centralized exchanges function as a custodian of their customer’s funds and function as a matchmaker for demand and supply, decentralized exchanges (DEXs) do not have a custodian.
Instead, peer-to-peer lending is generally facilitated through a traditional AMM mechanism that relies on the following equivalent: x*y = K where x and y denote the two different cryptocurrencies being traded and K denotes the constant balance of assets that determines the token prices in the liquidity pool. For example, if an additional Ethereum is bought, then the price rises and the return to providing liquidity also grows.
Setting aside these mechanics, DEXs have several advantages. In my research, I’ve found that they foster community better than centralized exchanges. One of the ways that community is often built in the web3 community is through the use of airdrops — or gifts that are transferred to users tokens, usually as a reward for early engagement and interest.
For example, early participants on a DEX might receive an airdrop of tokens for joining, which may appreciate in value over time. While centralized exchanges sometimes do airdrops, my research has found that airdrops are associated with increases in market capitalization and volume growth, but only for DEXs (not centralized exchanges).
Admittedly, there are still reasons for preferring centralized exchanges and there is probably more variance in the DEXs out there than their centralized counterparts. For example, centralized exchanges tend to provide some amount of insurance so that if a transaction goes awry, there is recourse, whereas if it goes awry in a DEX, they might not have it.
Ultimately, the user needs to decide based on their comfort level, but given that you’re reading this article, let’s assume you want to go DeFi!
What is MetaMask
“MetaMask is a bridge that allows you to visit the distributed web of tomorrow in your browser today. It allows you to run Ethereum dApps right in your browser without running a full Ethereum node,” according to the official MetaMask page.
To understand what that means, let’s dive into the definition of a dApp, or a “decentralized app.” A dApp is just an app that runs off the blockchain. For example, it could be OpenSea, or even a play-to-earn game. Another example is Golem, an open source, decentralized supercomputer. The big difference with traditional apps, like Facebook, is that they are not centralized. Rather, the community owns them — or at least, the consensus making process that determines what gets recorded is decentralized.
That brings us back to MetaMask. We need a digital identity to interact with these dApps and other distributed ledger technologies. MetaMask provides people with such an identity on a standard browser, which allows you to connect to apps of your choosing. Technically speaking, it gives dApps the permission to access your private (digital) key.
How to Create a MetaMask
Choose a browser to install it on (Chrome, Firefox, Brave, Edge).
Go to MetaMask.io (make sure you are going to the real site!).
Click Download and Add to Chrome (if on Chrome browser).
Assuming you’re making a new wallet (rather than logging in— in which case you’ll want the seed phrase), then click and create a password.
Next, you will see the “secret backup phrase,” which refers to a very specific sequence of words that will be used to access your account, including if you forget you password or run into other problems.
Make sure that you write the seed phrase down and do not share it with anyone — it is intended to be yours, and yours only.
Now you’re ready to go! But before you can start using MetaMask to undertake transactions, you will have to transfer some Ethereum into it to cover the price of whatever you’re buying, and gas fees.
Remember, MetaMask is just a portal that takes you into the world of dApps and gives agency back to the user — not the centralized entity. But with that extra power comes extra responsibility, so augment your knowledge here with additional tutorial videos and play around with the wallet.
One tip that I’ve heard people underscore, and I use myself, is to avoid storing large sums of money in your account for a prolonged period of time. MetaMask makes transferring extremely convenient, but it too is susceptible to attacks, particularly phishing attacks where a malicious user might pretend to airdrop a gift into your account or take the alias of a safe user.
As multi-bridge technologies become more widely available — that is, dApps that allow users to swap tokens from one exchange to another (and FibSWAP is one extremely interesting one that I have gotten to know) — a digital wallet is going to be essential for buying and selling.
The question, and crucial opportunity, for developers, scientists, and frankly everyone is whether we can keep the technologies decentralized.
This article was written by Christos A. Makridis, the Chief Technology Officer and Head of Research at Living Opera. He is also a research affiliate at Stanford University’s Digital Economy Lab and Columbia Business School’s Chazen Institute, and holds dual doctorates in economics and management science & engineering from Stanford University. Follow us at @living_opera!
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