A digital wallet is a popular mechanism referring to an electronic device, online service, or software program that allows one party to make electronic transactions with another party.
This involves the bartering or exchange of digital currency, including cryptocurrency for goods and services.
Money can be deposited in the digital wallet prior to any transaction, which also includes an individual's bank account that is linked to the digital wallet.
A digital wallet can include more than just digital currency, but also credentials such as a driver’s license, a health card, or other forms of ID.
Cryptocurrency Digital Wallets
Within the crypto space, digital wallets are a necessity and the only method for exchanging crypto or engaging in transactions.
In order to own cryptocurrency, you must be in control of the crypto coin’s private keys. Private keys represent long strings of alpha-numeric characters.
A digital wallet is the place where these private keys are stored.
There are three types of cryptocurrency wallets: hardware, software, or paper. A cryptocurrency wallet can also be characterized as either “hot” or “cold”.
A hot wallet is a wallet that is connected to the internet. These include wallets that are stored on web-connected devices such as computers or mobile phones.
Some hot wallets allow you to store your cryptocurrency on your own device while others store your cryptocurrency for you on their own devices or depositories.
Conversely, cold wallets are devices that are not connected to the Internet. These include encrypted storage devices and paper wallets.
Both hot and cold wallets have their own positives and negatives. Security of a digital wallet is paramount as a breach can threaten the security of all its contents.