A digital wallet, or e-wallet, is a software application designed to enable users to store and manage digital assets, including various cryptocurrencies such as Bitcoin, Ethereum, and Litecoin, as well as fiat currencies, such as the dollar or euro and more. Functioning as a digital or virtual equivalent of a physical wallet, these e-wallets provide users with the convenience of storing their currency digitally and having access to it whenever required. But you are not really storing actual cash!
You use them to for storage of the your private keys. These keys are needed to verify and sign transactions. And they must kept (pardon the pun), under lock and key.
For the average consumer, there are several options to store your keys.
Desktop Wallets are installed on a user’s desktop computer and offer enhanced security since they are not accessible from the internet. These wallets typically support multiple cryptocurrencies and offer advanced features like multi-signature (multisig) support. Sparrow is a good one.
Mobile Wallets are digital wallets installed on a user’s smartphone for ease of use and convenience. Users can make transactions while on the move and some mobile wallets offer additional features like QR code scanning and more. All from the ease of your phone. BlueWallet is a popular option.
Hardware Wallets offer the highest level of security since they are external and not connected to the internet. That makes them less vulnerable to hacking attacks, and are relatively more expensive compared to other wallet types. They can be fireproof, water-proof and sturdy — or at least tough. Think of them like small safe or a slightly bigger USB stick. If you lose or damage a hardware wallet, there are workarounds so don’t fret.
Web Wallets are digital wallets that can be accessed through a web browser. However, these wallets are less secure than desktop or hardware wallets since they are connected to the internet. Typically free, web wallets offer basic features like the ability to send and receive cryptocurrency but make sure you have your private keys. No keys, no coins as they say.
Paper Wallets are physical documents that contain the user’s private keys, making them one of the most secure types of digital wallets. However, they are less convenient for everyday use and are easily lost or damaged.
If you are just starting out with a small amount of Crypto, you can be safe with a desktop or mobile wallet — make sure to transfer from your exchange to the wallet. Once you get into four figures of investing you might want to look into a hardware wallet like Trezor.