The Flipside of the CryptoCoin: Cryptowallet Confusion
What is a digital wallet? What is the difference between a regular wallet and a digital wallet? What is the difference between a regular digital wallet and a cryptocurrency wallet? These are very good questions. This article serves as an introduction to digital and cryptocurrency wallets.
Digital Wallet
The idea behind a digital wallet is similar to the idea behind an actual physical wallet. The difference is instead of fiat cash being used, a digital wallet uses an encrypted electronically stored value. The stored value is usually located on a remote server whose location is usually unknown to the user of the digital wallet. As technology improves and evolves, the idea is that the need for consumers to carry a physical wallet decreases.
A digital wallet is an electronic wallet that functions either through an online facility or an application that is part of an actual electronic device such as a Smartphone or an iPhone. This enables a consumer to make an electronic payment either online or at an electronic payment terminal using Near Field Communication (NFC). Digital Wallets are commonly used for E-Commerce transactions.
Most people do not realize how many digital wallets they already know and/or use. Examples of well-known digital wallets include Apple Wallet, Google Wallet, Microsoft Wallet, PayPal and Visa Checkout.
Advantages of a Digital Wallet
There are many advantages of digital wallets. The major advantage is the ability to safely pay for a product or service remotely online. Thereby eliminating the need to make a trip to a shop or retail outlet. Another advantage is the relative ease in transacting international commerce that involves multiple currencies. For example, an American buy something from England on ebay.com. In such transactions one is able to tap and pay with a digital wallet without the need for either the consumer or the merchant being concerned about exchange rates, exchanging currencies, having enough money to cover the purchase, or having the correct change.
Disadvantages of a Digital Wallet
There are many digital wallets to use. However, they are usually also exclusive to certain sites. The major disadvantage of digital wallets is they carry high fees for transactions. In order to solve the high fees and keep the safe payment advantage, cryptocurrencies were created.
Cryptocurrency Wallet
A cryptocurrency wallet is a type of digital wallet that specialises only in cryptocurrency transactions. Key features of a cryptocurrency wallet are encryption, decentralisation, safety, and low fees. A typical cryptocurrency wallet contains both public and private encrypted keys. When a buyer pays in cryptocurrency, the public key is used to record the transaction on a distributed ledger. The private key’s function is to ensure the buyer has enough cryptocurrency to make the transaction, while the wallet displays the current balance and a confirmation of the latest transaction. With the cryptocurrencies using decentralised technologies such as blockchain and Directed Acyclic Graph (DAG), the stored value of a cryptocurrency wallet is usually located in multiple locations across the blockchain or DAG.
There are also many different types of cryptocurrency wallets. These include Software wallets, Hardware wallets, Multi-Signature wallets and Watch-only wallets. Cryptocurrency wallets are also split into categories, for example, hot and cold wallets.
Well known cryptocurrency wallets include Bitcoin wallet and Ethereum wallets. Some cryptocurrency wallets such as Cryptonator support multiple cryptocurrencies.
What’s in a name?
Both digital and cryptocurrency wallets are computer technology based. Neither have the ability to carry cash, credit cards, or ID cards. They do not have any physical resemblance to an actual wallet. Therefore many people ask the why use the name wallet when referring to digital, or cryptocurrency, wallets. The main reason is the commonality between physical and digital, or cryptocurrency, wallets is the concept of a consumer using their wallet in order to pay for goods and services. In that respect, both physical wallets and digital, or cryptocurrency, wallets ultimately serve the same purpose.
Conclusion
There are vast differences between fiat currency wallets and digital wallets. Digital wallets were supposed to be a solution for online payments. However with high fees and the maintenance of the middle man, digital payments are not a preferred way to pay. Cryptocurrency wallets have been created to lower fees and cut out the middle man, however at present the scaling problem and high fees for micro payments still need to be addressed. There are various cryptocurrencies that are working on these problems.
