According to a 2021 survey by consulting firm McKinsey, more than 80% of Americans have used some form of digital payment app and 1 in 5 have held some form of cryptocurrency. Digital wallets are becoming more widely adopted technology, and increasingly they are holding cryptocurrencies for their users. What does this mean and what should you know when you’re considering using a digital wallet to store cryptocurrency? We have some answers for you.
What Is A Digital Wallet?
A digital wallet, which is often in the form of a mobile app, is a software application that stores money, payment credentials, loyalty cards, and other personal and membership information. With payment information and passwords stored digitally, a digital wallet allows you to make faster and easier transactions.
A good example of a digital wallet is the widely-used ApplePay. Using ApplePay to make purchases in-store and through your mobile phone becomes a seamless, secure process because they are “pulling” from the already stored digital credentials held in your wallet.
Increasingly, digital wallets, such as PayPal or Venmo, are being used to store cryptocurrencies on behalf of the user. This is similar to how some digital wallets can now store multiple currencies (e.g., euros, U.S. dollars, Mexican pesos); however, there are several attributes to consider when holding your cryptocurrency in a digital wallet, which we go into below.
Are Digital Wallets Secure?
First it is important to understand the protection provided by digital wallets. While individual wallets can differ, digital wallets tend to offer superior security when compared to physical means of payments, such as credit or debit cards. As software, digital wallets utilize multi-factor authentication and heavy encryption to ensure the use of these credentials is limited to those that can prove their ownership of these credentials. For example, when paying using ApplePay, it is necessary to provide either a passcode or your biometrics (face scan or fingerprint) for payment to be processed.
When it comes to holding cryptocurrency in a digital wallet, the security is similar. Purchasing, selling, or transferring of the cryptocurrency is in most cases only allowed once the user has appropriately validated their identity. Thus, the security attributes of the digital wallet also apply to the cryptocurrencies and any important actions users take with regards to these assets.
Benefits of Using a Digital Wallet
Storing all your information and assets, including cryptocurrencies, in one place in the form of a digital wallet provides several benefits, including:
- You can see your total balance and sub-balances across all currency holdings, be it dollars or bitcoins.
- Buying or selling cryptocurrencies becomes easier and faster because there is no need to link to a third-party store of funds (e.g., a bank account). Everything is right there in your digital wallet. For example, if you want to purchase $50 of bitcoin, you can do that using your wallet’s dollar balance. In a most available digital wallets, this happens in real-time
- If you lose your device, your payment credentials and personal information do not need to be reloaded into the wallet on a new or different device. This is thanks to cloud computing and the ability to store this information independently from the device itself.
One additional note, however; some cryptocurrency-specific wallets hold the crypto credentials on the device itself, which poses a risk that a lost device means a loss of cryptocurrency. These wallets are known as non-custodial wallets.
Can I Throw Away My Real Wallet?
While digital wallets offer a number of benefits, it is important to note that they are still relatively new when compared to those items we find in our physical wallets. As such, digital wallets cannot be used for all the financial interactions we encounter in our everyday lives. Even though you can’t do every transaction through your phone just yet, digital wallets and other apps are allowing our physical wallets to get smaller and smaller.
Digital Wallets For Cross-Border Payments
You can also use digital wallets to send or receive money transfers in many countries. When you want to send money abroad, perhaps to family or to pay bills, using our dedicated money transfer app is fast and simple. You can use the online Price Estimator on the Western Union website to understand how much local currency will be received and estimate how much exchange fees will be charged.
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