In our previous blog post, we saw the need for Web3 wallets. In this blog, we’re going to look at how a Web3 wallet functions and its uses.
Functioning of Web3 Wallet
Web3 Wallet Creation
The first step is to create a Web3 wallet, which can be done through various providers such as Metamask, MyEtherWallet, Trust Wallet, and others. During this process, the user will create a unique username and password and sometimes, a recovery key or seed phrase for backup purposes.
Web3 Wallet Accession
Once the user has created their Web3 wallet, they can access it through a browser extension or mobile app. The Web3 wallet will connect to the blockchain network, such as Ethereum or Binance Smart Chain, and display the user’s balance of digital assets.
Digital Asset Transactions
The user can send and receive digital assets, such as Bitcoin or Ethereum, directly from their Web3 wallet. To send digital assets, the user will need to input the recipient’s address and the number of assets to be sent. To receive digital assets, the user will need to provide their wallet address to the sender.
Web3 wallets allow users to interact with dApps on the blockchain network. When a user accesses a dApp, the Web3 wallet will prompt the user to connect their wallet to the dApp. This connection allows the user to make payments on the dApp, such as buying and selling digital assets or participating in decentralized finance (DeFi) activities.
When a Web3 transaction occurs, the user signs the transaction with their private key upon a prompt. This signature verifies the transaction and authenticity to prevent unauthorized access to the assets or commit fraud.
Managing Digital Assets
Web3 wallets can manage many digital assets, such as cryptocurrencies, non-fungible tokens (NFTs), and other digital assets. Users can view their balances and transaction history for each value within the Web3 wallet.
Web3 wallets are designed to maintain security and prevent unauthorized access to the user’s digital assets. To maintain security, users should keep their private keys and recovery phrases safe and secure and never share them with anyone.
Eventually, Web3 wallets provide users with a secure and convenient way to manage their digital assets and interact with decentralized applications on blockchain networks. By connecting to the blockchain network and using private keys to sign transactions, Web3 wallets allow users to send and receive digital assets, participate in decentralized finance activities, and manage multiple digital assets from a single platform.
Web3 Wallet Authentication
Authentication is an essential part of using decentralized wallets, as Web3 wallets store digital assets and interact with decentralized applications (dApps). To prevent unauthorized access and protect user funds, authentication is crucial. Web3 wallets use a combination of public and private key cryptography to authenticate users and authorize transactions.
Further, when a user creates a Web3 wallet, a public key and a private key are generated, which are used to identify the user’s wallet and sign transactions, respectively. Web3 wallets prompt users to input their private key or sign a transaction using their private key to verify them.
Following, the signature is verified by the network ensuring that the payment is genuine and authorized by the user. Moreover, these wallets also offer additional security features such as two-factor authentication (2FA) and biometric authentication (e.g., fingerprint or face recognition) to provide further protection to user accounts from unauthorized access.
Consequently, a Web3 wallet authentication occurs by simply signing in by connecting the wallet to the dApp. This doubles as an identity for the user in the DLT universe, thus providing a seamless experience.
Uses of Web3 Wallets
Alternatively known as decentralized wallets, Web3 wallets interact with decentralized applications (dApps) on blockchain networks such as Ethereum, Binance Smart Chain, and others. Some other examples of the uses of Web3 wallets are:
Storing Cryptocurrencies: The primary use case of a Web3 wallet is to store cryptocurrencies, such as Bitcoin, Ethereum, and other digital assets. These wallets allow users to manage their digital assets directly, without a central authority or intermediary.
dApp Interaction: Web3 wallets allow users to interact with dApps on blockchain networks. Users can sign transactions verify their identity, and make payments using their Web3 wallet.
Blockchain Governance: Web3 wallets allow users to participate in blockchain governance by voting on proposals, making suggestions, and contributing to the expansion of decentralized networks.
Trading Cryptocurrencies: Web3 wallets are useful for trading cryptocurrencies directly on decentralized exchanges (DEXs) such as Uniswap and PancakeSwap. These DEXs allow users to trade cryptocurrencies without a centralized exchange.
NFT Transactions: Web3 wallets can be used for buying, selling, and storing non-fungible tokens (NFTs), unique digital assets in the Web3 ecosystem.
Overall, Web3 wallets provide users with greater control, privacy, and security over their digital assets and transactions on blockchain networks.
The functioning of a Web3 wallet starts with its creation and address generation. One can access the digital wallet from browser extensions or mobile applications. Further, these digital wallets sign transactions and ensure secure payment.
Moreover, Web3 wallets provide an identity, to store NFTs and other cryptocurrencies. It can also help in trading your crypto assets, help with blockchain governance, and help you interact with DApps.
If you’re ready to start using your Web3 wallet beware to choose from the top Web3 wallets for 2023 and set afoot in the world of Web3!