In Part-1 , we covered basics of Wallets & how we can set-up one. In this article , we will covers risks & challenges of wallets. We will also attempt to avail few ether on a test network for transaction on decentralised apps.
Risks & Challenges
While centralised exchanges are security holes & risky in its own sense, it is extremely user friendly & familiar for new users to interact with. In Crypto wallets, the strength of self-ownership becomes its biggest weakness. For a beginner, it can be overwhelming to master all the steps & manage burden for safely storing secret phrase/private keys.
For beginners, the onboarding itself can be very confusing. In traditional centralised world, users are accustomed to KYC norms. However, in crypto the seed phrase & keys will not be familiar to majority of users.
For non-technical users, the whole terminology might be extremely confusing. If the private key is lost or stolen, you lose all your funds with no recourse of recovery.
For investment, converting fiat into crypto requires through wallets incurs significant charges & only limited currencies are supported.
For large investments, ensuring safety of keys through hardware or cold storage itself can be a major cost overhead. But even hardware devices deteriorate overtime & can be damaged accidentally.
Though you might only be familiar with Bitcoin & Ethereum, there are many other Blockchains with its own currency & it is still increasing. Metamask does support all major currencies for Ethereum eco-system , however for other non-ethereum coins (Ripple, Monero, Solana etc.), you may need to set-up another separate wallet. One wallet to rule them all is not available yet. Imagine having to install & set-up separate apps for buying financial stocks vs IT stocks vs Retail stocks.
Crypto industry is like Internet in late 90s. It has it’s own share of frauds disguised as Nigeria king offering you money or you being lucky customer of 100 BTC. Even for intermediate level users, it can be difficult to guard against plethora of attacks possible. Here is one sample message below i have received from KFC for free giveaways:-
Even centralised exchanges rely on SMS 2FA for security. However, there have been countless cases of exploitation of SMS based 2FA.Fraudsters are often devising ingenious method to try & obtain your private keys- from free giveaways to dummy wallets. One bad experience can turn away any new user immediately.
Even though Blockchains itself are secure & safe, human beings operating & interacting are full of faults. Custody solutions designed at addressing some of the serious challenges mentioned above is a huge opportunity. As more & more institutional money pours in , i is not optional anymore.
There are improved solutions that address few of the challenges mentioned above:-
MultiSignature Wallets
Multi- signature wallets diversify the risks away by including more than one participant for each transaction execution. The added friction does impact UX further , however ensure enhanced safety. Multisig wallets requires a certain pre-defined number of owners to sign each transaction for it to become valid for execution. For example, for a transaction execution, any 3 out 5 owners must sign the transaction. Hence, even if 2 of the owners lose their private key, the funds can still be accessed.
Alternately, even if one of the private keys gets exposed or stolen, the funds cannot be drained. The multi-sig wallets on Ethereum are implemented through Smart contracts.
Few examples of multi-sig wallets are Gnosis, Ethereum Mist wallet & Parity multi-sig wallet. However, smart contracts itself may have bug & hence thorough auditing of the codes must be performed to enforce trust.
Even though multi-sig wallets are more secure, for newbie to crypto it can be overwhelming to set-up the complete system. The users will require multiple accounts & setting -up each account has its own costs involved. Multiple accounts also require constant monitoring & its own safety procedures & record keeping somewhere behind the scenes.
In summary, the current wallet solutions make trade-offs between increased security & convenience.
The first quadrant solution as the target will enable increased participation from retail users.
Avail Ether for Transactions on Test Networks
As covered in part-1, after set-up of our metamask wallet, we did not have any ether. We will now try to obtain ether for one of the test networks since these will be dummy ether with no intrinsic value. It will provide you with the necessary comfort before embarking on “Mainnet” transactions involving real money.
Now that your wallet is set, click on “Extensions” button in the brwoser & select Metamask.
The metamask window opens which displays your balance( currently 0) & the network you are connected to on the top( Ethereum Mainnet as default).
Click on the drodown besides “Ethereum Mainnet & change the network to “Rinkeby Test Network”/
Click on “Buy” Button.
The below screen will appear.Click on “Get Ether” under test faucet option.
You will be redirected to https://www.rinkeby.io/#stats with the below Home screen.
Click on “Crypto Faucet” option from the left side options. the below screen will load.
Since Ether supply is limited for testing, you can avail Ether from the faucet through your social media handles. Such constraint is designed to ensure that only select few do not exhaust the supply.
You will need to tweet the below sample tweet with your own public address on which you want the Ether.
You can also use Facebook account for this. Once tweeted, take the URL of the tweet. It will appear on your browser -
Copy the Tweet link displayed above & paste in on Rinkeby screen. Select one of the 3 options available regarding quantity of Ether & the duration. You can only request from faucet new ether after the said duration is over.
We will select 3 ether for 8 hours.You will receive a message confirming “funding request has been accepted”.
Wait for few mins & check your balance in Metamask.
After few mins, you can see that the balance in your wallet has been updated.
Since we aim to interact with more decentralised apps, ether is the necessary fuel which enables it. However, as you can imagine, test networks have limited functionality & very few Dapps( decentralised apps) are deployed on such networks.