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Digital wallets have evolved to meet the demands of decentralized solutions built with blockchain technology. Current mobile wallet trends support fiat currency transactions, while some of them also hold documents in the form of PDFs, which are susceptible to manipulation, theft, and misuse.
There is a sizeable e-wallet adoption in India but as technologies in the fintech space progress these mobile wallets are not compatible with decentralized technology-based products creating the need for digital wallets. While there are some payment solutions such as Stripe that support crypto payments in recent developments as a cross-over between Web2 and Web3 wallets, these are enabled by APIs and are not core Web3 solutions.
In the current technological landscape, several leading companies and startups have paved the way for digital wallets offering varying features. Each wallet is aimed at solving the problems presented to it, while some are built to address the broader needs of the decentralized solutions infrastructure.
Types of digital wallets:
- Crypto wallets – to hold crypto assets
- Credential wallets – to hold verifiable credentials
While the wallets themselves can be exposed to external threats based on their code’s vulnerabilities and at the ports of inputs and outputs, there are loopholes at the wallet/ID creation and data genesis level that need to be addressed with a sense of urgency. Below are conceptual issues that lead to multiple vulnerabilities at the wallet creation and transaction level.
Threats from AI bots
This compromises proof of personhood that requires staying one step ahead of AI evolution.
Authentication through biometrics without compromising privacy and security
Ensuring that the individual who created the wallet is the same person applying for credential verification involves verifying that both actions were initiated by the same identity through secure, cryptographic proof, ensuring integrity and authenticity.
Bridging the gap between Web2 and Web3 identities for frictionless transition
The burden lies with the user to prove their identity and data ownership until the issuing bodies build trust-based relationships and processes to establish the sanctity of data.
Loss of access to wallets
Without solutions to retrieve lost phrases (private keys), users are highly vulnerable to loss of identity and data. Establishing key methodologies with advanced blockchain wallet solutions to ensure alternate ways to open wallets is a high priority.
Bridge digital wallet vulnerabilities
Poorly designed and deployed bridges for digital wallet interoperability on different platforms are hackers’ paradise. Creating interoperability protocols and layers that go beyond bridges can close this vulnerability to ensure a seamless and hack-proof mobile payment security platform for transactions.
At the core of digital wallets lies the value proposition sought and needs to be understood by those designing and building them. The building blocks of IPs that address these above concepts will ensure phishing attacks, hacking instances, replay attacks, man-in-the-middle attacks, and complete loss of data are addressed. They will lay the foundation for digital wallet security that will prove their mettle in the face of malicious actors, AI advancements, and quantum threats.