Also known as a web wallet, an online wallet is a way of storing your bitcoin on the internet. In other words, it’s a wallet that runs on your browser, just like a website. Online wallets are regarded as more vulnerable to hacks than other types of wallet, but they are very convenient as you can access your wallet anywhere as long as you have an internet connection.
How do online bitcoin wallets work?
Web wallets are designed to be very user-friendly. You begin by signing up with your preferred provider, which is simple and quick. You will then access your account with a username and password. Sending or receiving bitcoin is easy because all you need is your wallet address (for receiving money) and the address you want to send bitcoin to (for transferring out).
So they’re like online banking?
Yes, online wallets are very much like online banking portals for bitcoin. Like online banking, you can log on with your password and carry out transactions, see your balance, and look at your transaction history on the website of your wallet provider.
What other types of wallets are there?
When it comes to bitcoin wallets there are a number of options from which to choose:
- Mobile wallets – These are wallets stored on your mobile phone in the form of an app. They make it easy to spend and transfer your bitcoin on the move.
- Desktop wallets – Desktop wallets work through software that you download onto your computer. Once you have installed a wallet client you can use its interface to store and transfer coins, as well as check your balance.
- Hardware wallets – Regarded as the most secure wallets around, hardware wallets are electronic devices specifically designed for storing cryptocurrency. They allow you to store your coins completely offline.
- Paper wallets – Like hardware wallets, paper wallets allow you to store your coins offline. These DIY wallets are literally printed on paper after you have generated a wallet address and private key through an online service.
Are online wallets free?
Yes, online wallets are completely free. All you need to do is choose your preferred provider, sign up, and start using your wallet.
Are there additional fees with online bitcoin wallets?
There are no additional fees that you have to pay to the provider in order to use your online wallet. However, there’s a small transaction fee charged when you spend bitcoin (but not when you receive it). These transaction fees are to pay the miners who verify the movement of bitcoin on the blockchain. Typically these are very low, usually around 0.2mBTC (which means two thousandths of a bitcoin – under £2). Most wallets will also give you an option of paying a higher amount in order to motivate miners to verify your transactions faster.
What are the best online bitcoin wallet providers?
There are many different web wallet services to choose from, here’s a small selection of some of the best known:
- Blockchain – One of the most widely used providers, Blockchain’s online wallet can hold bitcoin, ethereum, and bitcoin cash, and exchange between them within the wallet.
- Strongcoin – Strongcoin advertises themselves as the longest-running bitcoin wallet, having launched in 2011. Their focus is on security, using what they call a ‘hybrid wallet’ as it encrypts your keys before they’re saved on Strongcoin’s servers. They also allow you to print your entire account history and information as a PDF.
- Xapo – The primary focus of Xapo’s wallet is security – so much so they call it a ‘bitcoin vault’. If you’re looking for the safest way to store your bitcoins online, then it’s worth having a look at Xapo.
- Coinbase – Probably the best-known exchange out there, Coinbase’s online wallet allows you to exchange and hold many different coins in the same place and has one of the most user-friendly interfaces around.
- Binance – Like Coinbase, Binance’s online wallet is integrated with its capabilities as an exchange, meaning you can hold and trade a wide variety of coins – even more than you can on Coinbase in fact.
- Bittrex – Another exchange with an integrated wallet, Bittrex is a place where you can trade and store hundreds of different coins.
- Gatehub – Gatehub’s wallet is also attached to its exchange, on which you can track the value, trade, and hold almost any coin.
Can online wallets hold multiple cryptocurrencies?
Yes, you will find online wallets, such as Blockchain, that support a variety of different cryptocurrencies – including Ethereum and bitcoin cash. The widest variety of coins, however, will usually be able to be held in web wallets that have integrated exchanges, such as Coinbase.
So online wallets can be connected to exchanges?
In some cases, online wallets are exchanges. If you use an option such as Coinbase, you can not only store your coins, but also buy and trade other cryptocurrencies that are then automatically held in the wallet. Other online wallets that hold multiple currencies will often allow you to transfer different currencies between each other (for instance changing bitcoin into litecoin) within the wallet.
Can I back up an online bitcoin wallet?
Yes, but exactly how will depend on your chosen platform. As a web wallet is like an online account, each company will have security features that allow you to gain access in case you forget your password. Wallets such as Blockchain allow you to set up your recovery seed and enter the 12-word recovery phrase when you lose your password in order to create a new wallet with your balance. Others such as Coinbase have an option for resetting your password, where you get an email with a link to set up a new password. Just to be safe, its better you write down your password somewhere and keep it safe in case you ever forget it.
How to set up an online wallet
Setting up an online bitcoin wallet is much like registering for an account on any other online service. Every provider will be slightly different, but usually this is how it will go:
- Select the online wallet provider you want to use.
- Go to the website and click ‘sign up’ or ‘register’.
- Fill in your details (usually this will be your first name, last name, and email address) and agree to the terms and conditions.
- Set up your password. Sometimes you do this on the registration page, and sometimes it’s through a link in your confirmation email. Make sure you set your own secure password as it is what will protect your bitcoin wallet.
- (Optional): Download the mobile app offered by the wallet provider so you can access your coins on the move.
- Set up any additional security features offered by your web wallet provider (e.g. a recovery seed).
- Transfer bitcoins into your wallet using the wallet address. If you don’t have any Bitcoins, you can buy some here.
What are the risks of using an online wallet?
Web wallets are the least secure type of wallet and are not recommended for storing anything more than a small number of bitcoins. The major risks associated with them are being targeted by hackers, as their servers will hold the information of a lot of different bitcoin wallets. This isn’t to be alarmist, all online wallet providers will have strong security, but the risks are there.
And what are the advantages?
The main advantage is being able to access your bitcoin wallet anywhere and on any device, provided you have an internet access. Also, the fact that many online wallets are exchanges means you can change your coins into other cryptocurrencies and react quickly to market fluctuations to cash in on the profits.
Should I use an online bitcoin wallet?
It depends. Yes, if you want to be accessing your coins quickly for the purpose of making payments and exchanging; no, if you are looking for a safer option to store a large amount of coins. If your goal is long-term investment, you are better off with a hardware or paper wallet. An online wallet is only recommended for holding a small amount of bitcoin.
How do I find the best online wallet?
Right here. We have reviewed all the options to help you narrow down to the best online wallet for your needs. Go ahead and read through our reviews to find your perfect web wallet. Or continue to the next lesson.