How to Start DeFi: Preparing Necessary Wallets and ETH (or the Native Currency of Each Chain)
Alice: "Hello, Rabbit-senpai! I heard about this magical financial district called DeFi the other day, and I'm so excited! I want to go to that magical world too, but how do I get started?"
Rabbit-senpai: "Oh, Alice, your head is already full of your next adventure! Hmm, so you want to open the door to the world of DeFi. That's a great attitude! Alright, let me, Rabbit-senpai, teach you the first step of your DeFi adventure and how to prepare for it! If you prepare properly, you won't have to fear any adventure!"
Alice: "Wow, really? Thank you, Rabbit-senpai! What should I start with?"
Rabbit-senpai: "Hehe, no need to rush. To enter the world of DeFi, you first need your very own "magic wallet"your very own "magic wallet" and some "special coins" "special coins" to use there. Come on, let's go get your adventure gear ready, Alice!"
The entrance to DeFi starts with your very own "magic wallet"
Alice: "A magic wallet? Can't I just use the bank account I always use or my account at a cryptocurrency exchange?"
Rabbit-senpai: "Good question, Alice! That's the first major point. The bank account you use daily is like keeping your money with a vault keeper in a big city. And your cryptocurrency exchange account is also like depositing your coins at a shop called an exchange."
Alice: "Yes, that's right. It feels convenient and safe, but..."
Rabbit-senpai: "It is convenient, but the world of DeFi is a free market without a central administratora free market without a central administrator like a bank or an exchange. Therefore, you need to manage your own assets directly. That's where a non-custodial wallet comes in,non-custodial wallet which is a wallet where you manage your own private keysa wallet where you manage your own private keys. This is the true identity of what we call a "magic wallet.""magic wallet".
Alice: "A wallet I manage myself... that makes me nervous! But I can't use the magic of DeFi without it?"
Rabbit-senpai: "Exactly! DeFi services are used by connecting this personal magic wallet directly. You can't even access DeFi services with coins left sitting in an exchange. Protecting your own assets and moving them yourself—this is the basic spirit of DeFi and your first trial."
Alice: "I see... so having my own wallet is the first step for a DeFi adventurer! What kind of wallets are there?"
Rabbit-senpai: "Well, there are many types of wallets, but there is a representative one that is easy for a beginner like you to use and supports many DeFi services. That is... MetaMask!"MetaMask.
Most Popular! Preparing MetaMask: Alice Gets a Fox Wallet
Alice: "MetaMask? Is that the one with the fox logo? That's a cute name!"
Rabbit-senpai: "Yes, that's the one with the fox icon! MetaMask is a very convenient wallet that you can install as a web browser extension on your computer or use as a smartphone app. It has become the de facto standard, especially if you're using Ethereum-based DeFi services; you can't go wrong with it."
Alice: "Wow! Then I want to prepare MetaMask right away! How do I do it?"
Rabbit-senpai: "Alright, let's install MetaMask together! It's very easy, so don't worry and just follow along."
Steps to Install MetaMask
Rabbit-senpai: "First, try opening the web browser you usually use on your computer, like Google Chrome."
Alice: "Yes, it's open!"
Rabbit-senpai: "Next, search for 'MetaMask' in the Chrome Web Store (or the respective extension store for other browsers). You'll see a fox icon, so click it and press the 'Add to Chrome' button."
Alice: "Oh, you're right! The fox appeared! Click..."
Rabbit-senpai: "Good, the installation should start now. Once it's finished, the fox icon will appear in the top right of your browser. Click it to start the initial setup for MetaMask."
Initial MetaMask Setup and the Super Important 'Recovery Phrase'
Rabbit-senpai: "Now, this is the most important part, so listen carefully, Alice. During the initial MetaMask setup, you will create a new wallet. In the process, a 'Recovery Phrase' (or seed phrase), which is a combination of 12 (or 24) English words, will be displayed."
Alice: "A recovery phrase...? It sounds like a magic spell!"
Rabbit-senpai: "It is exactly a magic spell! This recovery phrase is the only key to restoring your magic wallet. Even if your computer breaks or you lose your smartphone, as long as you have this recovery phrase, you can restore your wallet on a new device. Conversely, if you lose this recovery phrase, you will lose the contents of your wallet forever! And what's even scarier is that if someone else finds out this phrase, they will steal everything in your wallet!"
Alice: "Eek! I-is it that important!? I must never lose it or let anyone see it!"
Rabbit-senpai: "That's right! I, Rabbit-senpai, have said this hundreds, no, thousands of times: managing your recovery phrase is the most important thing for surviving in the world of DeFi, or rather, cryptocurrency! Listen, there are rules you must absolutely follow."
Rabbit-senpai's Iron Rules for Recovery Phrase Management!
Never save it digitally! Taking a screenshot is out of the question! Saving it in a computer or smartphone notepad, cloud storage, or email drafts is suicidal! If you get hacked, it will be stolen in an instant!
Always write it down accurately on paper! Furthermore, it is ideal to divide it into multiple locations and store them in safe places. For example, keep one in your home safe and entrust another to a trusted family member. Check it multiple times to make sure there are no spelling errors or incorrect sequences!
Never tell anyone! Even if it's Rabbit-senpai or someone claiming to be MetaMask support, never tell them! Real support will never ask for your recovery phrase!
Alice: "Y-yes! I'll keep that in mind! I'll write it on paper, put it in a safe, and never show it to anyone!"
Rabbit-senpai: "Good, that's the mark of a future DeFi adventurer! Once you've safely stored that recovery phrase, the MetaMask setup is complete. You now have your very own magic wallet, Alice."
Alice: "Yay! I feel like I've grown up a little! Now I can go into the world of DeFi!"
Rabbit-senpai: "No, no, Alice, not yet. Just because you have a wallet doesn't mean you can buy anything at a shop, right? Next, you need to prepare the money to put into that wallet, in other words, special coins."
Adventure Funds! Let's Get ETH (Ethereum)
Alice: "Special coins... are they different from Bitcoin?"
Rabbit-senpai: "Bitcoin is a wonderful coin, but in the world of DeFi, especially when it comes to compatibility with MetaMask, the coin you want is Ethereum (ETH). Since many DeFi services run on the Ethereum blockchain, ETH acts as the base currency of the DeFi world."
Alice: "Base currency... is that like money that can be used anywhere in the world?"
Rabbit-senpai: "That's exactly what it's like. ETH is often used as the capital for trading or depositing money in DeFi services. And there is one more important role. That is the payment of gas fees."
Alice: "Gas fees? Is that like gasoline money for a car?"
Rabbit-senpai: "Yes, that's a good analogy! In order to have a transaction recorded on the Ethereum blockchain, you need to pay a fee to the people who maintain the network (miners and validators). That is what's called a gas fee, and it's paid in ETH. So, if you don't have ETH, you won't be able to do anything in DeFi services because you can't pay the fees."
Alice: "I see! ETH is essential fuel for a DeFi adventure! So, how do I get that ETH?"
Rabbit-senpai: "The most common way to get ETH is to purchase it at a Japanese cryptocurrency exchange."
Steps to purchase ETH at a domestic exchange and send it to MetaMask
Rabbit-senpai: "First, you need to open an account at a cryptocurrency exchange registered with the Japanese Financial Services Agency. Alice, do you already have an exchange account?"
Alice: "Yes! I opened a few accounts after you taught me about them before, Rabbit-senpai!"
Rabbit-senpai: "That's wonderful! Then we can move quickly. You deposit Japanese yen into that exchange and buy ETH. DMM Bitcoin and GMO Coin sometimes have great campaigns or offer free cryptocurrency withdrawal fees, so it might be good to check those out. Well, as for Rabbit-senpai's recommendation... but let's talk about that another time. Hehe."
Alice: "(Rabbit-senpai seems like he wants to brag a little...) Yes! Once I buy ETH, what do I do?"
Rabbit-senpai: "Once you've purchased ETH, it's finally time to send it to your MetaMask wallet. This is a task that makes you a bit nervous, but if you do it calmly, you'll be fine."
Steps to send ETH to MetaMask
Check your MetaMask address: When you open MetaMask, you should see a long string of alphanumeric characters starting with '0x' somewhere below the fox icon. That is your Ethereum wallet address. Copy that address accurately. Don't ever try to type it in manually! If you make even one mistake, your coins will disappear into the depths of space forever!
Go to the exchange's withdrawal (send) screen: Open the ETH withdrawal (send) page of the exchange you are using.
Enter the destination address and amount: Paste the MetaMask address you copied earlier into the destination address field. Then, enter the amount of ETH you want to send. I recommend that you always do a test transfer with a small amount the first time. If you send a large amount right away and make a mistake, it would be a disaster.
Confirm the network (chain): This is also important! When sending ETH, you usually select the 'ERC20' network (the Ethereum standard). Some exchanges select it automatically, but check it just in case. If you choose the wrong network, your coins might get lost again.
Perform two-factor authentication and approve the transfer: Follow the exchange's security settings, enter your two-factor authentication code, etc., and confirm the transfer.
Rabbit-senpai: "With that, the transfer procedure from the exchange to MetaMask is complete. If you wait a while (it depends on network congestion, but maybe a few minutes to a few tens of minutes), the ETH should arrive in your MetaMask."
Alice: "Wow...! It feels a bit like a bank transfer, but it's even more exciting! I'll point and confirm to make sure I don't get the address wrong!"
Rabbit-senpai: "That caution is important, Alice. Once the ETH safely reaches your MetaMask, you'll finally be ready to use DeFi services!"
To Other Lands of Adventure! Currencies of Various Chains
Alice: "Rabbit-senpai, is DeFi only for Ethereum? I think I heard there are DeFi services on other blockchains too...?"
Rabbit-senpai: "Oh, Alice, you've been studying well! That's right, Ethereum is the pioneer of DeFi, but recently, many DeFi services have been emerging on other blockchains as well."
Alice: "What kind of chains are there, for example?"
Rabbit-senpai: "Well, let's see, for example, BNB Chain (Binance Smart Chain), Polygon, Solana, and Avalanche are famous ones. These chains are gaining popularity because they have features like lower gas fees and faster transaction speeds than Ethereum."
Alice: "Oh! So, do I need ETH when using DeFi services on those chains too?"
Rabbit-senpai: "No, that's the key point. Each blockchain has its own native currency. For example, BNB for BNB Chain, MATIC for Polygon, and SOL for Solana. These native currencies are used for paying gas fees on that chain and as the base currency."
Alice: "Then, if I wanted to use Polygon DeFi, I would have to put MATIC into my MetaMask, right?"
Rabbit-senpai: "Correct! That's exactly right. MetaMask can actually be configured to support not just Ethereum, but many of these chains as well. So, if you want to use a Polygon DeFi service, you first need to buy MATIC on an exchange and send it to your MetaMask's Polygon network address."
Alice: "I see! The currency I need to prepare changes depending on the land of adventure (chain) I want to go to. It's like traveling the world, it's fun!"
Rabbit-senpai: "Yes, yes, it's exactly like that! Finding out what kind of adventures await on which chain is one of the real thrills of DeFi."
Things to Know Before Entering the Forest of DeFi: Is Risk Your Friend?
Alice: "Rabbit-senpai! Now I have my magic wallet and special coins ready! I want to go explore the Forest of DeFi soon!"
Rabbit-senpai: "Whoa there, Alice, I understand how you feel, but wait a little longer! The Forest of DeFi is full of attractive treasures, but at the same time, many dangerous traps are lurking. Before you go on an adventure, you need to fully understand those risks."
Alice: "Eh, dangerous traps...? What kind of traps are there?"
Rabbit-senpai: "Hmm, the world of DeFi runs on new technology, so there are a few risks you should be aware of."
Main Risks of DeFi
Hacking Risk: DeFi services run on programs called smart contracts, but those programs can have bugs (defects), and malicious hackers can steal funds. Major hacking incidents have happened many times in the past.
Smart contract bugs: Even if it doesn't lead to a hack, program bugs can cause unexpected behavior, potentially locking or losing your funds.
Price volatility risk: The cryptocurrencies handled in DeFi can fluctuate significantly in price. While there is a possibility of earning high yields, there is always the risk that the value of the coins you deposited will decrease.
Rug pull (exit scam): Unfortunately, there are scams where malicious developers initially make a project look attractive to collect funds, only to suddenly abandon the project one day and run away with the money. It's like eating what you thought was a delicious mushroom, only to find out it was poisonous.
Impermanent loss: This is a somewhat unique loss that can occur when you provide liquidity on a DEX (decentralized exchange). I'll explain this in more detail another time.
Alice: "Wow... that sounds like a lot of scary stories... Is DeFi really that dangerous...?"
Rabbit-senpai: "Well, I can't say there's no risk. But, Alice, every adventure has its risks, right? The important thing is to understand the risks correctly and take your own precautions. And, start with an amount of money that won't affect your daily life if you lose it. This is the golden rule. DeFi is a world of self-responsibility. Since no one will help you, you need the knowledge and caution to protect yourself."
Alice: "Self-responsibility... that's a heavy word. But if I study properly and am careful, will I be okay?"
Rabbit-senpai: "Of course! You have me, Rabbit-senpai, by your side. Besides, understanding the risks is the first step to enjoying DeFi more safely and wisely."
Gathering information is your lifeline! Look for reliable information
Rabbit-senpai: "And, what is essential to protect yourself in your DeFi adventure is gathering information."
Alice: "Gathering information? What kind of information should I collect?"
Rabbit-senpai: "First, read every corner of the official website of the DeFi project you are planning to use. Read the project's purpose, mechanism, team members, and if a design document called a whitepaper is published, read that carefully as well."
Alice: "A whitepaper... that sounds difficult."
Rabbit-senpai: "It might feel that way at first, but it's a document that contains the soul of the project, so it's worth deciphering. Also, take a look at the community. It's important to see what kind of discussions developers and other users are having on Discord, Telegram, Twitter, etc., whether it's active, and whether they answer questions properly."
Rabbit-senpai: "Furthermore, checking if an audit report by a specialized audit firm has been published is also a checkpoint. This is a report on the results of experts checking whether there are any vulnerabilities in the smart contract. Of course, just because it has been audited doesn't mean it's 100% safe, but it will be one piece of evidence for peace of mind."
Alice: "I see... so I should gather information from various places to determine if the project is truly reliable!"
Rabbit-senpai: "That's right! Don't just jump at sweet words or overly high yields; the spirit of DYOR (Do Your Own Research), which means 'do your own research', is more important than anything else in the world of DeFi."
Gas fees, the toll for passage ~Can we save money wisely?~
Alice: "Rabbit-senpai, you mentioned gas fees earlier, but is that always the same amount?"
Rabbit-senpai: "No, that's another tricky part. Especially for Ethereum, gas fees fluctuate significantly depending on network congestion. When everyone tries to use Ethereum at once, the network becomes congested like a traffic jam, and gas fees can skyrocket."
Alice: "What! So even if I make a profit in DeFi, there's a chance it could all disappear due to gas fees?"
Rabbit-senpai: "Yes, unfortunately, that kind of case is possible. You have to be careful, especially when trying out DeFi with small amounts, because you might end up losing money to gas fees. That's why it's important to be clever, like aiming for times when gas fees are relatively low, choosing DeFi services that help save on gas fees, or using chains other than Ethereum that have lower gas fees."
Alice: "So I have to think about gas fees strategically too. It's so profound..."
Rabbit-senpai: "Haha, the world of DeFi is a series of adventures that truly test your wisdom and courage! But if you have the basic preparations and mindset, I'm sure you'll enjoy it."
Rabbit-senpai's Quick Break Column: The Recovery Phrase 'Fall Seven Times, Stand Up Eight' Incident Report (This is a story about a friend of Rabbit-senpai's... okay?)
Now, let me tell you a story from Rabbit-senpai that might make your spine chill, but is also funny (?). Of course, this is a story about my careless friend, 'Shiro the White Rabbit', so it's definitely not about me, Rabbit-senpai, okay? Got it?
When Shiro first created his MetaMask, he was so excited. He said things like, 'Now I'm a billionaire, pyon!' And he properly wrote down that recovery phrase on a piece of paper. So far, so good.
His first mistake was doing this: 'I'll copy and paste it into a notepad on my computer so it's easy to read, pyon!'. A few days later, Shiro's computer was successfully infected with a virus, and the contents of the notepad were... well, you can imagine. Fortunately, he only had a small amount of practice money in that wallet, so the damage was minimal. Shiro turned pale. He said, 'The paper, the paper is still here, pyon!'
The next mistake. Shiro learned his lesson and kept the paper with the recovery phrase written on it very carefully, sewing it into the inside of his favorite hat that he always wore. 'This way I'll never lose it, pyon!' he said. One windy day, that prized hat... went flying and splashed into the river! Oh no. He managed to recover the hat, but the ink on the recovery phrase had bled, and some of the words were unreadable. 'The unreadable words... I'll just guess them, pyon!'... Of course, he couldn't restore it with that.
The third time's the charm, or was it the third failure? This time he thought, 'This is definitely a safe place, pyon!', and hid it at the bottom of an ice cream box in the freezer. One summer day, Shiro's nieces came over to play, and they ate the ice cream so happily... and tossed the box away! By the time Shiro noticed, the garbage truck was already far away...
Alice: "Whaaaat! Shiro, was he okay!?"
Rabbit-senpai: "Haha, well, he wasn't okay in many ways, but in the end, after repeating his mistakes many times, he finally learned a safe way to manage his recovery phrase. Now, he has it engraved on a metal plate, keeps it in a fireproof safe, and keeps the hint in a different location... it's as strict as a spy movie. These many failure stories of Shiro (a friend of Rabbit-senpai's) will be the best cautionary tale for you, Alice! Managing your recovery phrase is really, really, really important!"
Alice: "Y-yes! Shiro's story was very helpful! I'll be careful not to make such mistakes!"
Rabbit-senpai: "Good, that's the best way! Now, are you ready?"
Summary
Alice: "Yes, Rabbit-senpai! Today you taught me plenty about the first preparations for starting a DeFi adventure! I understand very well that it's important to create a self-managed wallet (MetaMask), put ETH (or other chain coins) to serve as adventure funds into it, and above all, protect the recovery phrase with my life! Also, I've engraved in my heart that DeFi has various risks, which is why gathering information, being cautious, and having a sense of self-responsibility are important! I feel like I've equipped myself and finally got the map for the adventure!"
Rabbit-senpai: "That's the spirit, Alice! The world of DeFi is deep, and sometimes there are tough trials, but I'm sure new discoveries and excitement await beyond them. If you don't forget what you learned today and move forward one step at a time, you'll be fine. Now, are you mentally prepared? Next, let's finally take a look at specific DeFi services!"
Alice: "Yes! I'm really looking forward to it!"
Next Episode Preview
Alice and Rabbit-senpai have finally stood at the entrance to the forest of DeFi! With a magic wallet and adventure funds in hand, where will they head next? To the mysterious exchange without bankers, a 'DEX (Decentralized Exchange)', or perhaps a 'magic vault' where they can deposit coins and earn interest?
Next time, "Alice, Trying Her First Coin Exchange on a DEX!? ~The Swap Spell and the Fountain of Liquidity~." Stay tuned!
☕ Adventure Tips Corner ☕
Alice: "Rabbit-senpai! Today's story was so interesting! Somehow, after reading this article, I've started wanting to buy some cryptocurrency!"
Rabbit-senpai: "Whoa there, Alice. I understand how you feel. But haste is forbidden. This adventure log is just a 'map' to help you understand how Wonderland works. It's not a 'treasure map'."
Alice: "Not a treasure map...?"
Rabbit-senpai: "That's right. This is by no means investment advice telling you to 'buy coins here'. Investing is something you do based on your own judgment and responsibility, using money you can afford to lose without affecting your daily life after studying it thoroughly yourself. If you get that wrong, you'll end up lost in Wonderland. I really need you to promise to follow that rule."
Alice: "Yes, I understand! At my own responsibility, right! But, I also got a little worried about what I should do if the information in this article is wrong."
Rabbit-senpai: "You've noticed a good point, Alice. This Rabbit-senpai is trying his best to provide the most accurate information possible, but this world changes at the speed of light. Information might become outdated, or there might be misunderstandings. So, if any of our readers notice, 'Huh? This information might be a bit off,' it would be a huge help if you could kindly let us know. We want to grow this adventure log into something even more wonderful together with everyone!"
Alice: "So it's an adventure log we create together! That's wonderful!"