Exploring Crypto - Buying Cryptocurrency
This is the third article in a series Exploring Crypto which will lead to a profile on Minke, a crypto wallet aimed at democratising access to decentralised finance (defi) through intuitive design.
A crypto wallet is a gateway to purchasing crypto and experiencing defi. This article will explore what a crypto wallet is and my experience buying cryptocurrency with Metamask and Minke’s public beta app. I found the process more intuitive with Minke, thanks to its fintech design philosophy.
I hope sharing my first crypto purchase will help others in their journey into this space. Armed with cryptocurrency and wallets, the next article will explore defi and AAVE.
1) What is a Wallet?
2) Crypto On-Ramps
3) Signing up for Metamask
4) Signing up for Minke
What is a Wallet?
A previous article discussed how a blockchain is a digitised record of transactions. These transactions occur via the use of public and private keys that are analogous to a person’s bank account and password, respectively.
Sending someone cryptocurrency involves signing off ownership with the private key and sending currency to the recipient’s address on the blockchain.
Therefore, unlike a normal wallet, crypto wallets do not store any currency. Instead, think of them as a tool that allows users to interact with the blockchain network which records a person’s cryptocurrency balance.
Wallets generate pairs of public and private keys. When a user transfers or sends cryptocurrency, she/he enters the recipient's public key and signs the transaction with her/his private key. The wallet then broadcasts the transaction to the blockchain network. When validated by the miners, the cryptocurrency is recorded under the recipient’s public address, thereby completing the transfer.
Most wallets help users generate public and private key pairs through the use of a seed phrase. This is a series of words generated when the user sets up her/his wallet, as shown below.
The wallet uses this seed phrase to generate private keys and public keys. As such, it acts as a master password that gives the user access to all the private keys (and therefore cryptocurrency) in the wallet.
Diagram showing how a crypto wallet generates a user’s blockchain address from a seed phrase
Crypto wallets are important on-ramps to cryptocurrency. An on-ramp allows users to exchange fiat (government-issued currency such as Australian dollars) for cryptocurrency. I.e. move value between 2 separate monetary systems.
On-Ramping into crypto will require some proof of identification that will provide a means of tracing crypto transactions to prevent criminal activity. As such, crypto trading is not anonymous.
Historically, most on-ramping was done by centralised cryptocurrency exchanges such as Coinbase. These exchanges operate custodial wallets. A custodial wallet is a wallet where a third party holds the private keys. Therefore, it is the exchange, rather than the user, who controls and owns the crypto assets. This is similar to a bank where the money in the account belongs to the account holder, but the bank controls the funds.
Custodial wallets are easy and convenient to use. However, there can be security risks as all these private keys and crypto funds are attractive targets to hackers. Examples of exchanges where funds have been lost include Mt Gox and QuadrigaCX.
More recently, platforms such as Wyre have offered know your customer (KYC) compliant integrations for decentralised, non-custodial wallets. In these wallets, users own their private keys and have total responsibility for their funds. They also have greater flexibility to integrate with various decentralised finance (defi) applications.
Minke and Metamask are non-custodial software-based wallets. Metamask is one of the most popular wallets and has been a gateway for many into defi. I will explore signing up for both a Metamask and Minke wallet and comparing the experiences.
Signing Up for Metamask
Metamask acts as an extension to a browser such as Google Chrome. The signup process is shown below.
Reviews are mixed with a sub-3.5-star score.
This password is specific to my laptop device.
The wallet guides me through setting up my seed phrase. This also involves a test to ensure I recorded it correctly. Remember to keep your phrase secret. I would recommend writing it down to avoid storing it on the computer.
Success! I've set up my wallet
Clicking ‘Buy’ allows me to buy cryptocurrency with fiat via the Wyre integration discussed previously.
Selecting the amount and type of crypto assets to buy
I bought my first cryptocurrency!
While this is an extremely versatile wallet, I found the signup process slightly intimidating, and I had to watch a few youtube videos before completing the process.
I then tried signing up with Minke.
Signing Up for Minke
Minke is a mobile-based software wallet. It uses many of the same principles (e.g. Seed Phrases) as Metamask. The key differences are highlighted below.
Minke signup page clearly stating that it is a finance app
Minke’s dashboard looks like a regular fintech app with savings, borrowing, etc.
Overall, I found the signup process intuitive and similar to any other financial services app. In contrast to Metamask’s versatility, Minke aims to be a defi app, and this shows in its intuitive fintech design. As such, it has the easy feel of a typical centralised fintech app but with the benefits of a decentralised, non-custodial wallet.
Armed with cryptocurrency and wallets, the next article will explore defi and AAVE.