Digital Wallet Authentication from authID

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Digital Wallets and Wallet Authentication 

Over the past decade, contactless payment methods exploded in popularity because of the expansion of cloud technology and pressures wrought by the pandemic. Even as the pandemic has subsided, many consumers and merchants opt for contactless payments, including digital or electronic wallets.

According to an analysis by Juniper Research, electronic wallets are expected to be used to complete more than $16 trillion in transactions globally by 2028. In the U.S., the average annual electronic wallet transactions per user are expected to reach $8,566.

You can use an electronic wallet to store your debit and credit cards, allowing you to make purchases with your smartphone instead of having to carry your cards with you. However, digital wallets offer versatility beyond simply storing your card information.

You can store loyalty cards, membership cards, store gift cards, plane tickets, and more. Many wallets also have the capability of transferring money to others. Here is a comprehensive guide to fully understand the benefits of electronic wallets and the importance of securing them.


What is a Digital Wallet?

A digital or electronic wallet is an application enabling financial transactions used on devices connected to the internet. You use the wallet to store passwords and payment methods securely in the cloud. You can access your wallet from your computer or your mobile wallets on your smartphone or other mobile device.

With an electronic wallet, you can pay with your device instead of your physical credit or debit card. Your credit, debit, and bank account information can be entered into the wallet, allowing you to pay for purchases with your phone or other device.

A few subtypes of electronic wallets are described below:

Web3 Wallets

Web3 wallets work with Web3 applications. These are decentralized apps that use blockchain technology. With a Web3 wallet, you can manage and store your digital assets, including NFTs, cryptocurrencies, and digital tokens.

The following are three types of Web3 wallets:

  1. Self-custody wallets – These require you to use a pair of public and private keys to control your assets. Your public key is a unique code used to receive assets and cryptocurrency on the network, and it is generated from the private key. The private key is a complex, long number you keep secret.
  2. Custodial wallets – These are wallets for which a third party manages your private keys for you. The third party could be an exchange. Since the third party will have access to your private key and assets, it must be trustworthy.
  3. Smart contract wallets – These are wallets managed on a blockchain network by a smart contract, which is a program that controls its security requirements through its logic.

Blockchain Wallets

Blockchain wallets allow you to manage and store cryptocurrency, including Bitcoin, Ethereum, and others. This term can also refer to a wallet service Blockchain provides, which is a software company. Blockchain wallets allow you to make cryptocurrency transfers or to convert cryptocurrency into your preferred currency type.

Crypto Wallets

Crypto wallets are wallets that hold your private keys safely and securely. Your private keys are the passwords you use to access your cryptocurrency assets. With a crypto wallet, you can receive and send cryptocurrency. There are several types of crypto wallets, including hardware wallets and mobile apps.


Importance of Security

According to McKinsey & Company’s 2023 Digital Payments Survey, security is a key factor when consumers select which electronic wallets to use. Out of those surveyed, 69% reported security and their trust in the provider were the top criteria in choosing a digital wallet.

Experian reports that while digital wallets can be safe, they remain vulnerable to hackers. Users must take proactive steps to ensure their wallets protect their financial information by choosing strong passwords, monitoring their accounts, and being careful when using them to avoid prying eyes.

Digital wallets come with the following risks that could lead to digital wallet fraud:

  • Losing your phone or having it stolen
  • Using an unreliable network
  • Using a service that isn’t FDIC-insured
  • Phishing attacks
  • Manipulation of biometrics used for digital wallet identity verification
  • Data breaches
  • Introduction of vulnerabilities by third parties

Fortunately, there are steps you can take to increase the security of digital payments with strong wallet authentication.

What is Wallet Authentication?

With wallets, the authentication process allows users to log in to apps and websites with their wallets by clicking on a button. Since it uses a paired private and public key, it offers more security than signing in with a traditional password. Wallet-based authentication is also less susceptible to data breaches caused by phishing attacks.

Wallet-based authentication is the process involved with verifying the user’s identity when they try to access an electronic wallet and is critical for security. Authentication ensures that only authorized users can access the wallet and its contents. A variety of different authentication methods might be used for digital wallet identity verification, including:

  • Password or PIN requirement
  • Biometric authentication, including fingerprints, iris scans, or facial recognition
  • Two-factor authentication in which two separate methods are used to verify the identity of the user
  • Tokenization in which tokens are used as an added layer of authentication by generating one-time codes
  • Multi–signature authentication of crypto wallets in which several private keys from several parties are required to authorize a transaction

Crypto wallet authentication might include all of the above plus a cryptographic key pair that includes a public and private key as previously described.

Wallet Verification

Wallet verification involves confirming the identity of users by using various methods, including asking users to upload government-issued IDs, use digital IDs, upload other documents, and using database verification through which information supplied by a user is compared to information contained in a database. Verification is used to confirm a user is the individual they claim to be.

Authentication of a wallet, including crypto wallet authentication, involves determining whether a user should be granted access to the contents of an electronic wallet. While verification focuses on confirming the identity of the individual by reviewing documents to prove their identity, authentication focuses on ensuring the individual is the same person logging in to access the wallet each time.

Why Use Wallet Authentication?

Wallet and crypto wallet authentication can help to protect consumers through more stringent security measures. For example, tokenization replaces sensitive financial information with unique digital tokens. The tokens themselves do not have a meaning or value but are randomly generated. This means that if a hacker tries to access them without authorization or steal a token, it will be useless.

When you complete a transaction with your electronic wallet, a digital token will be created through tokenization. The token will represent your sensitive payment data and will be sent to the payment process instead of the actual information. Instead of your credit or debit card number, the merchant will use the token to complete the transaction.

The token is meaningless, so it can’t be used to gain access to your sensitive payment information or complete a fraudulent transaction. The real data will remain stored securely in your wallet and can only be accessed with your authorization.

Major Digital Wallets

Many different electronic wallets are available. The following are among the most popular wallets used today:

  • Cash App – Cash App is a peer-to-peer (P2P) payment app and financial platform that allows users to quickly send and receive money via their mobile devices. While CashApp is not a bank, its bank partners provide FDIC insurance for money in individual accounts. It also allows users to purchase Bitcoin and stock, but these transactions are not FDIC-insured.
  • Apple Pay – Apple Pay is a mobile wallet and payment app provided by Apple that uses biometric wallet authentication methods, including fingertip and facial authentication. The technology allows individuals to complete transactions through near-field communication using a chip embedded in their Apple device. Financial payment information is tokenized for added protection against data breaches.
  • Google Wallet – Google Wallet is a secure electronic wallet available on Android devices. People can use Google Wallet to store digital IDs, cards, keys, tickets, and passes. People can use it to pay anywhere that accepts Google Pay.
  • PayPal – PayPal is an online payment platform available on computers and mobile devices. People can set up two-factor authentication on their PayPal accounts to make them more secure. PayPal can be used to complete transactions online instead of entering your bank account, debit card, or credit card information.
  • Venmo – Venmo is a mobile payments platform individuals can use to send and receive money from their mobile devices. The app links to your bank account or card to complete digital transactions and uses a multi-factor authentication process for security.
  • Walmart Pay – Walmart Pay is offered by Walmart, Inc. It is a mobile wallet within the Walmart mobile app and allows you to pay for purchases in-store without using a card or cash. Walmart Pay works with debit cards, credit cards, and Walmart gift cards. This wallet also uses two-factor authentication for added security.

Major Crypto Wallets

Some of the leading crypto wallets include:

  • Coinbase Wallet – Coinbase Wallet is a self-custody wallet, which means you manage your private keys instead of having a third party manage them. Instead of storing your private keys on the Coinbase exchange, they are stored directly on your mobile device, helping to ensure you are the only person who can access your cryptocurrency.
  • Trust Wallet – Trust Wallet is decentralized and is a self-custody wallet, allowing users to take complete control over their private keys and cryptocurrency. Users can also store their cryptocurrency anonymously since Trust Wallet does not collect personal identifying information from its users.
  • MetaMask – MetaMask is a leading self-custody wallet for NFTs, cryptocurrencies, and other digital assets and allows users to safely and securely access web3 and blockchain apps.
  • – The Blockchain wallet is a crypto wallet offered by Blockchain. This wallet allows users to buy, sell, and swap cryptocurrency. It allows users to have self-custody of their assets and private keys across multiple platforms, including Ethereum, Bitcoin, Polygon, and others.
  • Exodus – Exodus is a wallet that allows you to buy cryptocurrency using your local currency with your bank account, credit card, debit card, Google Pay, or Apple Pay. It is a multichain web3 wallet that allows you to connect to 12 or more networks using its extension in the Chrome browser.
  • Ellipal Titan – Ellipal Titan is a hardware wallet with enhanced security to combat offline and online attacks. Users don’t have to connect to WiFi, Bluetooth, networks, or USB and instead can scan QR codes to complete transactions.
  • – The Crypto Defi Wallet is a non-custodial wallet that allows users to browse Dapps and swap, mine, and farm on popular Defi protocols. Users can also store, share, and view NFTs in this wallet.

Web 3 Authentication

Web3 authentication relies on a user’s public key instead of a username or email to authenticate their identity during the login process. The user might connect their digital wallet to access an application to authenticate by using on-chain data or to access an identity wallet to use personal information that is not located on the chain.

Web3 authentication uses decentralized identifiers (DID), blockchain, a passwordless digital wallet, and verifiable credentials to preserve the privacy of the user. Blockchain is the foundation of web3 authentication. Instead of entering a password, the passwordless digital wallet allows users to scan a QR code. Users will then receive a notification in their identity wallets about the types of information requested. The decentralized identifiers mean they do not have a single point of failure and are more secure than centralized forms of authentication.

In Web 2, authentication is achieved by logging in with the user’s social media credentials such as Facebook or Google instead of with a password, email, or username. While more secure than Web 1, Web 2 is less secure than Web 3 because it lacks decentralization.

Web 1 is static. With it, users access static websites by entering usernames or emails and passwords. Authentication is centralized, meaning single points of potential failure and vulnerability exist.

Web3 allows users to own and control their digital assets with tokenization, decentralized identifiers, and blockchain technology. This type of authentication is much more secure than Web 1 or Web 2. Since identity information is decentralized, it doesn’t exist at a single point that can be accessed. The passwordless wallet with its wallet passkey allows authentication to occur with information from the user’s public key.

Wallet Biometric and Facial Authentication

In addition to wallet identity verification, web3 wallets might also include biometric wallet authentication, including facial wallet authentication and other types of biometrics. When facial wallet authentication is included in crypto wallet authentication, the user’s face is not stored as a graphic.

Instead, a code is created that represents their facial markers and stored in the user’s identity wallet as a source of identity data that can be used for wallet identity verification. The facial wallet authentication process is also decentralized and not easily accessible by hackers.

Other forms of biometric wallet authentication might also be used, including fingerprints or retinal scans. These authentication measures provide much more security than passwords, emails, or user names that can easily be spoofed or hacked.

How Digital Wallet Authentication Works

Several types of contactless payment technologies exist, including:

  • Near-field communication (NFC) – First launched by Google Pay and later adopted by Apple Pay, near-field communication (NFC) works during in-person transactions and allows users to make contactless payments with the payment information stored in their wallets. This technology relies on electromagnetic induction and produces a unique code the merchant then uses to get the payment. The code is meaningless if stolen. NFC is not used for crypto, however.
  • Magnetic secure transmission (MST) – This technology interacts with terminals that only use the older magnetic stripes without EMV or chip technology. Users can transact payments wirelessly with their smartphones when they are within three inches of the terminal. However, MST is proprietary and is owned by Samsung. It is used in Samsung Pay.
  • QR codes – Many crypto wallets have integrated QR code technology. Users can scan a QR code, choose an amount of cryptocurrency to send, type in the transaction fee, and click send.

Shared Device Digital Wallets

When using a shared device digital wallet, users should exercise additional caution. They should make sure to keep their passkey protected and ensure no one else can see them entering their passcode. However, tokenization should still help to keep information secure as long as the user exercises caution.

Passwordless Digital Wallet

A passwordless wallet is a wallet that doesn’t require users to enter passwords, usernames, or email addresses. Instead, the passwordless wallet relies on a paired public and private passkey owned by the user, blockchain technology, and information contained in the user’s identity wallet. This makes authentication and digital wallet identity verification more secure than with password-protected wallets.

Strong Wallet Authentication

Wallet strong authentication is a requirement of the European Banking Authority beginning from the time a payment card is enrolled in the wallet. Digital wallet strong authentication requirements are meant to protect the user from potential fraud and abuse.

Wallet strong authentication requires payment providers to ensure that only the authorized payment service user is associated with their personalized credentials securely. Strong customer authentication measures must be used within the wallet to comply with European banking regulations.

Digital Wallet Passkeys

A digital wallet passkey is a unique code that is generated using cryptography and blockchain technology instead of a password login. Unlike passwords, wallet passkeys are generated on the user’s device and aren’t stored anywhere, which means they are more secure from hacking. Passkeys are used for crypto wallets, too.

Pros and Cons of Current Wallet Authentication


  • More secure than traditional methods with the use of tokenization, biometrics, and encryption technology
  • Added convenience without having to carry around a physical wallet, cash, cards, and identity documents
  • Greater accessibility by being able to store payment information and identity documents in a digital format and have them available at your fingertips through your wallet
  • Decentralization means there isn’t a single point of vulnerability



  • Dependent on technology, so if you misplace your phone or don’t have internet access, you might not be able to access your wallet
  • Security concerns still exist, making it important for users to safeguard their information

Wallet Authentication User Experience

For users, it’s important to ensure a smooth authentication experience. It can be difficult to deliver strong security with a good user experience, however. It can be challenging to find secure and reliable authentication technology.

Users want convenience and to know their information is safe. They do not want to have to answer numerous personal questions to be authenticated or to have to wait for a one-time passcode to be sent by email. A secure authentication solution should be simple to use to improve the user experience with digital wallet strong authentication.

Future of Wallet Authentication

Cashless payments were popular even before the pandemic, but they have exploded in popularity since that time. People today want more alternatives than traditional in-person transactions using physical credit or debit cards. Many people also do not want to carry government-issued IDs and other important documents because of the risk of identity theft or loss.

Electronic wallets and new authentication technologies have transformed how individuals and businesses complete transactions both online and in person. The future of wallet authentication promises to bring even more transformative changes, including technologies to store your car and house keys in your wallet, creating identity tokens known only to the user combined with a gesture to replace a PIN or password, and storing information from loyalty and membership cards in your wallet.

Digital Wallet Authentication Vertical Uses

Authentication has broad applications in many industries as more organizations conduct business online. The increased reliance on the internet and cloud technologies means companies in many sectors must also ensure security measures are enhanced.

The online environment has also broadened customer bases beyond geographic confines, meaning companies must maintain regulatory compliance with stringent standards around the world. For example, if your company completes transactions with clients or customers in Europe, authentication should comply with eiDAS 2.0, the defining standard for the European Union.

Some examples of how authentication of wallets can be used in different industries are discussed below.

Financial Services and Fintech

Financial services and fintech can benefit from authentication with wallets and it’s significant security improvements over passwords and two-factor authentication methods. Verified™ Human Factor Authentication with authID allows biometric matching with a selfie, anti-spoofing technology, and authenticated credentials to ensure an individual is the authorized person to access an account or complete a transaction.

Insurance Companies

Insurance companies hold substantial volumes of sensitive customer information, and data breaches and attacks could expose customers to identity theft and the insurer to significant losses and legal liability. Implementing stringent authentication measures with wallets can remove many points of vulnerability, ensure that only authorized individuals can access information, and eliminate multiple risks.

Online Dating

Strong identity verification and authentication measures can help online dating apps root out illegitimate actors and ensure those with profiles are who they claim to be. With authentication with wallets, dating apps can weed out sexual predators, prevent underage people from using the apps, and protect their customers.

These are only a few use cases for authentication. Authentication with wallets has applications across industries and can benefit companies in any sector that conduct transactions or business online.

How to Choose a Digital Wallet Authentication Provider

When searching for an identity verification and authentication provider, it’s important to choose one that has the following key characteristics:

  • Demonstrated dedication to customer privacy
  • Provision of 24/7 customer support
  • Strong fraud protection
  • Meets both private sector and governmental regulatory standards
  • Provision of unique identifiers
  • Flexible and able to meet diverse customer needs
  • Strong authentication
  • Valuable use cases
  • Global coverage

Headquartered in Denver, Colorado, AuthID provides a patented biometric platform that easily integrates and quickly verifies the identity of users with unparalleled accuracy. Its Verified products include Verified Workforce and Verified Consumer to ensure integrity, prevent phishing attacks, prevent fraud, and deliver the highest levels of security. AuthID offers global coverage and counts international corporations among its clients. With its seamless integration, strong verification, and excellent authentication methods, AuthID is a leading choice. To learn more and receive a free quote, contact AuthID today to schedule a demo and see how your company might benefit.


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