What Is A Digital Wallet?

10 Sep 2017

Okay, so you have your head around the idea of the currently emerging Blockchain technology and you pretty much understand what a cryptocurrency is, now onto the next step -- what is all this talk about a 'digital wallet'?

While it can be quite a daunting task to get your head around all of these new concepts, we promise it's far easier to come to terms with what a digital wallet actually is -- it's really as simple as it sounds.

Digital Wallets Explained

Think of your current wallet and how that works. You have access to your physical coins and notes, known in financial terms as fiat currency, and you can put them all into your wallet where you can keep track of how much you have and store it for as long as you like.

According to Lachlan Feeney, the senior technology officer and blockchain developer at Civic Ledger, a company that uses blockchain systems to solve public sector problems, the concept of a digital wallet works in exactly the same way -- except the money you store, cryptocurrency, is digitised into online coding as is the technology behind your wallet.

"In its simplest form, a digital wallet is just an application that stores or holds onto your cryptocurrency," he told HuffPost Australia.

"It can be as simple as an app that you download on your phone just like someone may download the Commbank app to get access to their Commonwealth Bank transaction account.

"You can download an app on your phone which could be a Bitcoin wallet and you can send bitcoin to that wallet. They're just simply a way to hold onto your cryptocurrencies."

Essentially, that makes digital wallets based on the same idea as current online banking mobile applications that are available to display the funds you have stored with a bank.

The only difference? Digital wallets usually don't deal with the current legal national currency that is the Australian Dollar because they're used to store cryptocurrencies such as Bitcoin, and they also don't need a bank to operate because they're built on blockchain technology.

What Is Blockchain, Again?

In technical terms, blockchain is a peer-to-peer decentralised, distributed database known as a 'digital ledger' used to democratise the management of records and online transfer of objects of value -- the most popular of which at the moment is money -- from one person or group to another. It's comprised of permanent entries known as 'blocks' that are all connected, publicly monitored and unchangeable.

So what does that actually mean?

It means it's a technology aimed at simplifying financial transactions of value -- which can be in the form of anything from money to land titles to music royalties and identity information -- between person to person without the intrusion of a third-party, such as a bank, government or streaming or hosting service.

The actual technology framework behind blockchain is very complex, however the plus side is -- all of the really technical, complicated 'nuts and bolts' of a blockchain process happens behind-the-scenes.

If you want to know more, we've summed up all the really juicy bits of information that you need to know, here.

How Do Digital Wallets Work?

If you are interested in the back-end workings of a digital wallet, however, we've got you covered for that too.

Such as with anything that is built on blockchain technology, digital wallets come with both public and private keys. They're essentially the digital address of your wallet and the password to get into it.

So, if you imagine your physical wallet once again -- the fact that you and everyone else around you, or in a blockchain network if we're talking digitally, can see the existence of that wallet is basically the purpose that your public key serves.

When it comes to your private key, that serves as the unique digital code that only you have access to in order to unlock what would essentially be a big padlock on the front of your physical wallet -- except all of this happens within the mechanism behind whichever mobile wallet app or service you choose to use and you never actually see the process at work.

Publication: HuffPost