The term “digital wallet” is not clearly defined. Other names are electronic wallet (or e-wallet), mobile wallet, passcode wallet, cyber wallet or crypto wallet, depending on the wallet’s specific features. You can use a digital wallet to carry cash, debit/credit cards, loyalty cards as well as your identity card, driver’s license, public transport tickets, event tickets, coupons etc.
Usually, a digital wallet is a software application (app) on your smartphone or software on your PC. There are numerous applications and providers. Some digital wallets are specialized cryptocurrency wallets, while others focus on traditional means of payment, tickets or ID applications. Providers include banks, big players in the smartphone industry (such as Samsung, Apple or Google) or crypto-asset providers. Some digital wallets are multifunctional, while others focus on a single or a few applications.
Digital wallets can be hot or cold. Hot wallets are online – the smartphone or PC is connected to the Internet. Hot wallets include custodial wallets, which are managed online by a third party (e.g. a crypto trading platform or payment service provider) on behalf of the client.
Cold wallets (a.k.a. hardware or online wallets) or paper wallets are specifically designed for holding cryptocurrency. They are not connected to the Internet, which means they are best protected against cyberattacks from hackers. Cold wallets store crypto-assets using a unique address and the private (or secret) key. You need both the address and the private key to access and use your assets.
Most cold wallets are special hardware wallets, i.e. devices you can connect to your PC, for instance through a USB port, to manage your portfolio and make transactions. Smart cards can be used as hardware wallets, too. Once a cold wallet is connected to an online device, it should be considered a hot wallet.
Paper wallets are a special type of cold wallet where the crypto-asset’s address and the private key are printed on paper. This method comes with a number of risks, though. For instance, when the wallet is created, others may gain access to the private key (printer memory, Internet connection), and you will have to ensure safe storage in the long run.