Web 3.0 Basics - What is a Wallet

What is a Wallet

A Wallet is a medium that allows one to operate in the different ecosystems within the blockchain and cryptocurrencies world.

It is a digital wallet, based on cryptography and used to carry out transactions, i.e. to send and receive digital assets such as cryptocurrencies (BTC, ETH, SOL, etc.) or tokens (e.g. NFTs).

Each Wallet has its own address made up of letters and numbers, which can be compared to an IBAN and enables asset transfers.

Contrary to what one might think, the Wallet does not contain the assets owned by the user, but rather contains the information needed to interact with one's assets on the blockchain.

How does it work

Each time a Wallet is created, a pair of keys is generated, a public key and a private key.

The private key is strictly personal and must not be disclosed in any way, as it allows access to the Wallet and disposal of the assets held in it.

The public key is an alphanumeric string and represents the address of the Wallet, comparable to the IBAN.

Providing this address to the sender makes it possible to receive transactions. Conversely, to send transactions it is necessary to know the recipient's address.

In order to carry out a transaction, it is necessary to pay a fee to use the blockchain and obtain confirmation of the payment. Generally, once the transaction is made and confirmed on the blockchain, it is irreversible.

How is it created

Creating a wallet on centralised exchanges (Coinbase, Binance, etc.) involves undertaking the KYC (Know Your Customer) procedures necessary for compliance.

This requires the disclosure of personal data such as full name, email, mobile phone number and other personal details. Once these have been verified, the account is created and it is possible to complete the authentication procedure.

Conversely, when creating a decentralised wallet, no such information is required, as the creation will take place autonomously, by generating a seed phrase (a randomly generated set of words, between 12 and 24).

This seed phrase is the Master Key, i.e. the key that gives access to the wallet and its private keys (with their associated public keys).

Once the wallet has been created and the seed phrase saved, a password is set that allows it to be opened and used.

These two cases are significantly different, in that with centralised exchanges the user has to rely on a third party and can look for its support when in need, whereas with the decentralised wallet the sole responsible party is the owner.

Losing the seed phrase means losing access to one's wallet and the assets it contains.

Coming next in the Web 3.0 series..

Now that we know what a Wallet is, how it works and how to create one, the next step is to put this information into action.

The next article will therefore cover the procedure of creating a Wallet on Metamask, the main Software Wallet used to interact with the Ethereum Blockchain.