Wallets
Note: Data in this section last updated May 28th, 2022
What are Wallets?
Wallets serve as a user’s gateway to Web3.
The term itself is a bit of a misnomer, as they do so much more including:
Provide Access to Funds: As the name implies, wallets grant users access to their funds
Connect with dApps: In Web3, wallets replace passwords – once you connect to your wallet you can automatically use this to connect to any dApp
Interact with dApps: Once you are on a dApp, wallets allow you to use your coins for a variety of purposes, such as spending them in games, staking them on a smart contract platform, buying NFTs, gambling with them, trading them on decentralized exchanges, etc…
To understand the importance of wallets better, let’s look at MetaMask, the most used wallet for the Ethereum network.
How do Wallets Work?
The most popular wallet is MetaMask, an Ethereum-based online – or “hot” – wallet. “Hot” wallets are always connected to the internet. While this makes them less secure, it also makes them much easier to use than “cold” wallets (such as Ledger Nano) which aren’t connected to the internet.
Metamask is free to use, easy to setup and – perhaps most importantly – is completely anonymous (all they’ll ever see is a number).
As discussed above, the product has three key functions. It serves as a wallet, a connection point and a Web3 “browser”.
1. Wallet
Like all crypto wallets, MetaMask does not hold cryptocurrencies (remember that they are stored on a blockchain), but instead holds a user’s private keys. Like all crypto wallets, a user maintains full control over these keys (and therefore their funds), and they can’t be forcibly confiscated by anyone (unless someone physically coerces you to give up your password).
Although MetaMask is closely connected to the Ethereum blockchain, it does not limit the wallet to hold Ether. The wallet can host a vast selection of different ETH-based currencies and tokens built using, for example, the ERC-20 and ERC-721 standards.
2. Connecting to dApps
One of the cool things about Web3 is that you don’t need passwords.
Once you are logged in, wallets such as MetaMask give you access to a variety of Web3 services – anything from DeFi exchanges to NFT marketplaces to online banks to games.
3. Interacting with dApps
Once connected to a dApp, users can spend their coins in games, stake tokens in gambling applications, make loans, etc…. For instance, through MetaMask, users can:
DeFi: Buy, sell, trade, stake, borrow or lend cryptocurrencies
NFTs: Buy, sell, trade, stake, borrow or lend NFTs
DAOs: Vote in DAOs
Web3: Play blockchain games, stream songs, purchase articles, etc…
Basically, you can do almost anything you can do on the internet with Metamask!
Key Players
Although MetaMask is the market leader, there are several popular crypto wallets including Rainbow, Wallet Connect (a software that connects cold wallets such as Ledger to dapps), Coinbase Wallet and Phantom (Solana’s most popular wallet).
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