With the rise of cryptocurrency, online banking, electronic payment systems and other technological breakthroughs, it’s safe to say that we’ve come a long way since the era of the barter system. Two-hundred years ago, it was a long, incredibly labor-intensive process to transfer money to someone outside of your local community. Today, substantial quantities of money can be sent to someone located thousands of miles away in a startlingly short amount of time and with almost no hassle or a headache. More and more people around the world are gravitating to digital money systems for the sake of convenience, simplicity, and security.
If you’ve signed up for online banking or utilize one of the well-known electronic payment systems, you may be familiar with “digital wallets.” Digital wallets represent one more technological improvement in the modern financial industry. Simply put, digital wallets do away with the necessity of carrying a physical wallet as they allow you to store your funds and make purchases electronically. With digital wallets, you can store cash and then electronically transfer your funds when you either purchase an item in a physical store or buy something through e-commerce. In this article, we will discuss in detail the basics of how digital wallets function and then highlight some of the advantages offered by these new technologies.
The Basic Mechanics of Digital Wallets
The mechanics of digital wallets is relatively straightforward. You simply download the app for the digital wallet of your choice on your smartphone (a smartphone is required, by the way), input your personal and security data, and then you’re able to begin making digital purchases. Smartphones are equipped with sensory reading technology which enables them to digitally transfer payments by being placed up next to a scanning device. Once your digital wallet becomes usable, you will literally be able to make all of your purchases in just seconds regardless of whether you’re shopping online or in person.
Digital wallets fall into one of two main categories: client-side wallets and server-side wallets. Client-side wallets are those which involve the user managing and storing all of their personal payment and shipping information on their own hard drive; the data on server-side wallets, on the other hand, are stored and managed by the company associated with the wallet.
Advantages Over Physical Wallets
Digital wallets offer several significant advantages when compared with traditional, physical wallets. For one, digital wallets simplify the process of both storing and using your funds. As just about everyone would agree, physical wallets can sometimes become cluttered, messy things; many people choose to hold not just their cash but also their credit cards, membership cards, coupons, driver’s license and various other items in their wallets, and this inevitably creates a hassle for the wallet owner. Digital wallets effectively eliminate this hassle; with a digital wallet you won’t have to commingle your funds with other items or documents, and this will ultimately make things easier in the long run.
Another benefit conferred by digital wallets is increased security. If you carry cash in a physical wallet, no matter what level of precaution you take, there is always a risk that this cash can be lost or stolen. Digital wallets add a new layer of security. Digital wallets are secured by advanced cryptographic systems which are exceptionally difficult to hack or break. This means that when you store cash or other items in your digital wallet, you can be highly confident that these things won’t be stolen by an outside party. Businesses also benefit, as the incidence of fraud will be much lower with the use of digital wallets.
Digital wallets also have the ability to confer a general economic advantage to society. Data regarding the purchasing habits from digital wallets can be made available to companies who utilize customer feedback. This has the potential to be something of value to businesses as this feedback can be a means to sell additional products or services to digital wallet owners.
Looking Forward to the Future
Digital wallet ownership is still somewhat uncommon when compared with physical wallets: in 2015, only about 13 percent of Americans had a digital wallet, and only a small percentage of that group used the digital wallets on a regular basis. Old ways tend to have great inertia, and so even though digital wallets clearly provide substantial benefits, it will still take a bit more time before they become universal. But given enough time, it’s not at all unreasonable to expect that digital wallet ownership will reach a very high percentage as more people realize that the benefits outweigh the costs.
No matter how popular or widely used digital wallets become, there’s no question that they are a solid step in a long line of recent technological innovation in the world of finance. The implications of a society in which the vast majority of people have and use digital wallets are not fully known, but it’s safe to say that high ownership levels will create a bunch of complex issues. If digital wallet use becomes standard practice, we might expect to see ever-increasing levels of cryptographic sophistication underlying the digital transactions. Whatever the case may be, the relevance of digital wallets is clear, and so we shouldn’t be surprised to see this topic in the news more and more often in the coming years.