Digital wallets and how they differ from crypto wallets

Digital wallets make cashless payments, fast transactions and the secure handling of digital assets possible. Whether for online shopping, at the supermarket checkout or for cryptocurrencies, they’ve established themselves as a practical and versatile payment method. But what exactly is a digital or mobile wallet? And how does it differ from a crypto wallet? What should users pay particular attention to when it comes to security and data protection?

In our guide you’ll learn how a digital wallet works, what types exist and how you can use them effectively in everyday life and for cryptocurrencies.

• Digital wallets allow money, cards and cryptocurrencies to be stored securely and enable contactless payments.

• There are different types of digital wallets, including mobile wallets for smartphones, online wallets for cloud storage and software wallets for, e.g., cryptocurrencies.

• Security features such as encryption, two-factor authentication (2FA) and biometric identification protect wallets from unauthorised access.

• EUDI (European Digital Identity) wallets will in future offer a standardised digital identity across Europe under the eIDAS (Electronic Identification, Authentication and Trust Services) regulation and enable secure identity management.

Definition: what is a digital or mobile wallet?

A digital wallet is a software-based wallet that allows users to securely store and manage their payment methods, identity documents and digital assets. It replaces the physical wallet and enables fast and convenient transactions—both online and in physical stores. You can install digital wallets on mobile devices like smartphones, on your laptop or desktop computer. Digital wallets can store credit cards, bank accounts, cryptocurrencies and even digital identity credentials.

In short: digital wallets make everyday life easier by combining various payment methods and digital identities in a single electronic wallet. A mobile wallet is a type of digital wallet designed specifically for mobile devices.

Glossary: wallet terms at a glance – what’s what?

• Digital wallet: umbrella term for software-based wallets that let you manage payment methods, IDs or loyalty cards.

• Mobile wallet: type of digital wallet designed for smartphones, often used for contactless payments with Apple Pay or Google Pay.

• Crypto wallet: used to manage coins and tokens on the blockchain, allowing access to private keys and blockchain transactions.

• EUDI wallet: digital wallet for storing and using a standardised European digital identity under the eIDAS regulation.

Types of digital wallets at a glance

There are various types of digital wallets, each differing in function, security and usage.
Here are the three main categories of digital wallets:

• Mobile wallets

• Online wallets

• Software wallets

Note: Hardware wallets, such as Ledger or Trezor, are not considered digital wallets, as they operate offline and are designed for long-term security rather than transaction convenience.

How does a digital wallet work?

A digital wallet stores the user's payment information and transmits it in encrypted form during a payment process. In future, EUDI (European Digital Identity) certificates may also be integrated into wallets to securely manage digital identities. The wallet uses modern encryption methods such as AES (Advanced Encryption Standard) or public key cryptography to protect sensitive data. The actual payment data, like credit card details or bank account numbers, is not transmitted directly. Instead, a dynamic token or single-use transaction number is generated, valid only for that specific payment.

With mobile wallets like Apple Pay, Google Pay or Samsung Pay, this is done contactlessly via NFC technology or QR codes. Users can link their credit card or bank account to the wallet and pay in shops or online.

Mobile wallets and cryptocurrencies – what you need to know

Mobile wallets are also useful for managing cryptocurrencies. They allow digital assets such as Bitcoin or Ethereum to be stored, sent and received directly on a smartphone.

Unlike standard digital wallets, crypto wallets do not directly hold coins but manage the private and public keys required for blockchain transactions. There are two types: custodial wallets, where a provider manages the private keys, and non-custodial wallets, where users retain full control of their cryptocurrencies.

As mobile wallets are connected to the internet, they are considered hot wallets and are more vulnerable to cybercrime. Users should therefore rely on backup copies, two-factor authentication and regular updates to protect their assets. Anyone wanting to secure cryptocurrencies long term can use a hardware wallet, as it stores private keys offline.

The pros and cons of digital wallets

A wallet as a digital purse offers several advantages. But there are also challenges users should be aware of.

Advantages of digital wallets

• Fast and easy to use: Whether online shopping or contactless payment at the till, a digital wallet simplifies transactions and reduces waiting times.

• Versatility: Digital wallets store not just credit cards and bank account data, but also digital identities, EUDI certificates or loyalty cards.

• Integration with other platforms: Some digital wallets can be integrated into apps, online shops and financial platforms, making it easier to access various payment methods.

• Support for cryptocurrencies: In addition to traditional payments, some wallets can also be used to manage crypto transactions.

Disadvantages of digital wallets

•  Dependence on providers: Most wallets are tied to specific companies or platforms, which can limit their use.

• Need for a smartphone or computer: Without a compatible smartphone, tablet or app, you can't use the wallet.

• Limited acceptance: Not all shops and platforms accept digital wallets as a payment method, especially outside the EU.

• Data processing by third parties: Depending on the wallet, personal data may be shared with the provider or financial institutions.

Use cases: mobile wallets in everyday life

Mobile wallets are now more than just a digital purse—they simplify payments in many areas of life and offer additional features for flexible and secure use.

Contactless payments in retail

With a mobile wallet, you can easily pay in supermarkets, restaurants or at petrol stations contactlessly using your smartphone or smartwatch. Just hold the device to the payment terminal to transfer the money securely.

Online shopping without credit card data

Many e-commerce platforms and apps support payments via mobile wallets, so users don't have to enter their credit card number or bank details every time. With services like Apple Pay, Google Pay or Samsung Pay, the purchase process can be completed in just a few clicks.

Digital tickets and boarding passes

You can also use mobile wallets to store digital tickets. Whether for flights, concerts or public transport, many providers allow you to save documents directly in the wallet app and present them contactlessly.

Managing and using cryptocurrencies

Mobile wallets designed for cryptocurrencies allow you to store, send and use digital assets. In some countries, you can now pay directly with Bitcoin or other cryptocurrencies via wallets—whether in a café, online shop or while travelling.

Identity documents and loyalty cards

In addition to payment methods, many digital wallets also store electronic ID cards, EUDI certificates or membership cards. This turns your smartphone into a central wallet for personal data, which is securely stored and always accessible.

How do I create a digital wallet?

A digital wallet can be set up in just a few steps. The setup process is quite similar to creating a crypto wallet.

How to create a wallet for cryptocurrencies

1. Choose a wallet type that suits your security needs and usage (e.g. self-custodial or hardware wallet)

2. Find a trusted provider that offers security, ease of use and compatibility

3. Download the wallet app and set it up based on your selected wallet type

4. Create your wallet account—this automatically generates a wallet address and private key

5. Write down the recovery phrase for your wallet and make sure to record the words in the exact given order

6. Store your access data offline—avoid saving them in the cloud or on your smartphone

7. Test your wallet with a small transaction to ensure everything works properly

If you’d like to learn more about setting up a wallet, check out our guide on how to create a crypto wallet.

In contrast to a crypto wallet, digital wallets usually don’t require the generation and secure storage of private keys or a seed phrase. Instead, they focus on linking payment data or identity credentials, often via user-friendly sign-up processes and built-in security features.

Our tips for using your mobile wallet securely

To keep your mobile wallet secure, follow these tips:

• Use strong security features: Enable fingerprint, facial recognition or strong passwords to prevent unauthorised access to your mobile wallet.

• Use two-factor authentication (2FA): Turn on 2FA for added security so your money and card data are better protected.

• Only download official wallet apps: Install wallet apps only from the App Store or Google Play Store to avoid scams from fake apps.

• Use secure networks: Connect only to trusted Wi-Fi networks to avoid exposing your payments and EUDI data to hackers.

• Regularly check your transactions: Monitor your wallet activity to spot suspicious debits early.

• Don’t store sensitive data unencrypted: Don’t note down passwords or recovery codes on your smartphone—use a secure password manager instead.

Frequently asked questions about digital wallets

Our FAQ section offers further information and answers to common questions about digital and mobile wallets.

What are the best digital wallets?

The best digital wallet depends on your intended use—whether for contactless payments, cryptocurrencies or digital identities. Here are the most well-known digital wallets and their key features:

• Apple Pay for iPhone users: Apple Pay allows contactless payments with an iPhone or Apple Watch and securely stores cards in the Wallet app.

• Google Pay for Android devices: With Google Pay you can send money, pay online and securely store credit cards, benefiting from wide compatibility with many banks.

• Samsung Pay for contactless payments with Samsung devices: Works similarly to Apple Pay but also supports older terminals via Magnetic Secure Transmission (MST), simulating magnetic stripes for use where NFC is not available.

• Non-custodial wallets for cryptocurrencies: Allow secure management of digital assets and full control over private keys.

• Wallets with broad crypto support: These digital wallets support various cryptocurrencies and offer access to decentralised applications (DApps).

• Ledger Live as a combination of software and hardware wallet: Ledger Live manages crypto assets on a Ledger hardware wallet, offering high security via offline storage.

Are digital wallets safe?

Digital wallets are considered a secure payment method, as they use modern encryption technologies, biometric authentication and two-factor authentication (2FA). However, their safety largely depends on whether the wallet is custodial or non-custodial. While custodial wallets are managed by third parties and rely on their security measures, non-custodial wallets offer full control over private keys—though with the responsibility of securing them yourself.

In general, anyone using a digital wallet should rely on secure networks, regular updates and the protection of sensitive data. Whether a digital wallet is truly secure depends not just on the technology but also on your behaviour as a user.

Are electronic wallets and digital wallets the same?

The terms electronic wallet and digital wallet are often used interchangeably, but there is a slight difference: while digital wallets offer a comprehensive solution for storing and managing payment data, cards and identity credentials, the term electronic wallet is more commonly used for pure payment solutions.

An example of a digital wallet is an EUDI wallet, which stores not just money and cards but also a digital identity according to EU standards. By contrast, an electronic wallet usually refers to payment tools like Apple Pay or Google Pay, which are mainly used for transactions.

More topics around cryptocurrency

Want to know how to create a wallet or what a Bitcoin wallet is? Or are you interested in topics like tokenisation, cryptocurrencies or blockchain technology? The articles in our Bitpanda Academy provide plenty of reading to deepen your knowledge.