Digital wallets are the new age payment methods that have emerged as a replacement to regular banking accounts. These wallets can be linked to credit cards, debit cards, and other such account types of a user. Users don’t need to link their bank accounts with digital wallets. In this article, you will learn what is a digital wallet, its types, how they are different from payment gateways and other similar topics related to digital wallets. Read on to know more about the topic
What is a Digital Wallet?
A digital wallet is a software program that is used to store the users’ digital currencies like Bitcoin, Ethereum, and other cryptocurrencies. The user can operate their digital wallet from any of the computer/mobile devices. A digital wallet is also known as a cryptocurrency wallet, crypto wallet, or crypto account. The wallets are similar to an online bank account. A crypto wallet stores users’ crypto assets such as Bitcoin, Ether, and other altcoins. The wallet can be linked to other services such as exchanges, mining pool, and other such services.
Types of Digital Wallet
The digital wallets can be classified based on the protocols used to store the data. The digital wallets can be categorized as the software wallets, hardware wallets, and hybrid wallets. – Software Wallet – The software wallets are online/web-based wallets. They are used to store the users’ digital assets. The wallet can be accessed from any computer or smartphone. These wallets are created and hosted by the blockchain technology providers themselves or the wallet-hosting companies. The wallets can be accessed via any browser or app. The best part of the software wallets is that they are not hosted by any third party. Therefore, the users can’t lose their funds in case the wallet provider gets hacked. – Hardware Wallet – The hardware wallets are physical devices that are used to store the private keys of the digital assets. The private keys are the access codes that authorize the transactions. The private keys are printed on the physical wallet and are never seen by the users. The keys are generated by the software and are then stored on the hardware wallet. Therefore, it is very important to keep the wallet in a safe place. The safest way to store the hardware wallet is in a fireproof safe, which has multiple layers of security. The best part is you can carry the fireproof safe anywhere with you as it is a portable wallet. The device resembles a USB flash drive. It acts like a software and stores the assets inside a blockchain. It is similar to a bank account, where the users can transfer funds and pay bills such as electricity or gas. – Hybrid Wallet – The hybrid wallets are a combination of both software and hardware wallets. They store the cryptocurrencies in software wallets and operate the funds in the hardware wallets. Therefore, the users can access their funds easily and send them to any other wallet address. The best part is the funds are protected by both software and hardware wallets. The funds are stored in software wallets like a bank account and can be transferred immediately. Hybrid wallets are recommended for trading purposes as the funds are stored inside software wallets. The funds can be transferred to other exchanges easily and traded as per the trading rules.
How Are Digital Wallets Different from Payment Gateways?
Digital wallets are different from payment gateways because the wallets are not operated by any financial companies. The wallet providers are not regulated by any authority and are therefore unregulated. Therefore, the wallet services are not regulated by any law or rule. The digital wallet providers are not supervised by any regulator. Due to the absence of any kind of rules, the digital wallets are vulnerable to cyber attacks and scams. The users are advised to keep their funds in a separate wallet as the wallet providers are not liable to provide any kind of assistance if the funds get lost. The best practice is to keep the wallets in a separate location so that if any fire accident takes place, there is no loss of funds.