Author: info@teamsosindia.in

Since the collapse of MyBitcoin in August, managed online wallets have seen a decline in popularity. However, there is one exception that stands out – Instawallet.

Instawallet offers several advantages that make it an appealing choice for users:

User-Friendly Interface: Instawallet is incredibly easy to use. You don’t even need to create an account. Simply visiting the website automatically generates a new wallet for you. To access it later, you can revisit the same URL.

Green Address Feature: Instawallet includes the green address feature, which enhances the security of transactions.

Accessible from Any Computer: You can conveniently access your bitcoins from any computer with an internet connection.

Protection against Loss: There’s no need to worry about accidentally deleting your wallet or losing it due to computer or hard drive failures.

However, it’s important to consider the disadvantages of using Instawallet:

Lower Security Level: Instawallet employs a “URL as password” mechanism, making it less secure compared to other options. Instawallet itself advises users not to store significant amounts of bitcoins there, recommending it only for casual use or keeping spare change.

Trust Dependency: When using Instawallet, you have to place a significant amount of trust in the provider. Since the code cannot be audited, there is a risk that the provider or a hacker could abscond with the funds unexpectedly.

Additionally, there is an Android frontend for Instawallet called Bitpay (not to be confused with the Bitcoin payment processor). Bitpay offers a potentially more secure option as it stores the URL behind the scenes, though it remains accessible to the user.

Lightweight bitcoin clients provide an alternative approach to wallet storage, as they do not store the entire blockchain on the user’s computer. Instead, they rely on a server to handle transactions.

Advantages of lightweight bitcoin clients include:

Comparable Security Level: Lightweight clients offer a similar level of security to locally stored desktop wallets, ensuring the safety of your bitcoins.

Suitable for Slow or Limited Internet Connections: These clients are well-suited for environments with slow or limited internet connectivity, such as mobile phones or rural areas with dial-up connections.

Disadvantages of lightweight bitcoin clients are:

Dependency on Server Reliability: Users must trust the server to be consistently available and reliable for receiving and sending transactions.

Privacy Concerns: Similar to browser and online wallets, lightweight clients may have privacy disadvantages. Users should consider the level of privacy offered by the specific client they choose.

Limited Options for iPhones: Unfortunately, there are no available options for lightweight bitcoin clients on iPhones, even for rooted devices through Cydia.

Two notable options for lightweight bitcoin clients are Electrum for desktop usage and Bitcoinspinner for mobile phones (Android only).

It’s important to stay updated on the evolving landscape of lightweight bitcoin clients, as new options may emerge or existing options may undergo changes. Consider the specific features and requirements that align with your needs when selecting a lightweight client.

In a managed online wallet, all aspects of your wallet are controlled by the wallet’s provider. Similar to email or internet forum accounts, you have an account with a username and password, allowing you to log in from any internet-connected computer and send or receive bitcoins. These services operate more like banks, where all funds are pooled together, and the provider keeps track of individual ownership. Notably, prominent examples of managed wallets include bitcoin exchange accounts like MtGox and CryptoXChange.

Advantages of storing bitcoins at an exchange are:

No Software Installation Required: Using a managed online wallet eliminates the need for software installation, providing convenience and easy access to your bitcoins.

Accessibility from Any Computer: You can access your bitcoins from any computer with an internet connection, offering flexibility.

Reduced Risk of Wallet Loss: Accidental deletion or loss due to computer or hard drive failure is not a concern when using managed online wallets.

Exchange and Currency Options: Bitcoin exchange wallets enable the exchange of bitcoins for other currencies, such as US dollars, and the storage of various currencies. This allows easy access to bitcoins without being affected by volatile exchange rates.

Green Address Feature: The MtGox exchange wallet, for example, offers a “green address” feature. This feature allows you to send bitcoins from a publicly known and trusted address, which some businesses accept without waiting for confirmations. It enables faster transactions compared to the standard confirmation time of up to an hour.

Privacy Benefits: By withdrawing bitcoins from an exchange, the coins you receive are not necessarily linked to the ones you deposited. This provides some privacy protection, making it more difficult for someone to trace your transactions on the internet.

Disadvantages of using managed online wallets are:

Password Dependency: There is a risk of forgetting the password associated with the wallet. Although most services allow password resets via email, relying solely on an email address for password recovery poses its own risks if the email account gets hacked.

Trust Dependency: Users must trust the provider to safeguard their wallet from failures or hacks. Instances like the failure of MyBitcoin, resulting in the loss of users’ bitcoins, serve as cautionary tales.

Reduced Anonymity: The provider has visibility into all your transactions, impacting your privacy to some extent.

Limited Day-to-Day Usability: With the exception of specific wallets like BTCinch and the MtGox mobile wallet, most managed online wallets are not primarily designed for day-to-day usage. They may be less user-friendly and more cumbersome to use.

Popular options for managed online wallets include MtGox, CryptoXChange, Cavirtex, and Intersango. BTCinch wallet is specifically designed as a wallet but offers Bitcoin exchange features through other exchanges. For Android and rooted iPhones (through Cydia), MtGox provides the MtGox Live Bitcoin application.

In addition to online and software-based wallets, another option for storing bitcoins is offline storage, either on physical mediums like CDs or USB keys or even on paper.

A private key, which allows you to send transactions from a specific bitcoin address, is actually quite small. For example, the bitcoin address XeUeNpFjbQK45ri73FWbvoXHdFT has the private key SfN0hAdCmtSkvwOkjv9QMRw9vXluVMJCd7O3kCAnIjwf5ok886. These two strings are all you need to send and receive transactions from that address, and you can store them even on paper if you prefer. The reason this works is that your wallet doesn’t actually hold the bitcoins themselves; they are stored in the public blockchain. Your wallet stores the necessary keys to access and use those bitcoins. The only time you need to be connected to the internet is when you actually want to spend the bitcoins using a client.

Advantages of offline wallet storage include:

Strong Security Potential: By keeping your private keys offline, they are protected from viruses and other malware until you use them. This offers a high level of security.

Enhanced Privacy: Maintaining fine-grained control over each address you own allows you to potentially prevent the linkage of your transactions.

Offline Receipt of Bitcoins: Even when your wallet is offline, you can still receive bitcoins since you are only storing the keys.

Minimal Trust Requirement: The only time you need to trust any Bitcoin software is when you send bitcoins. However, even then, you can exercise tight control over the process and independently verify the transaction to ensure there is no malicious activity. You can even create the addresses offline.

However, there are a few disadvantages to consider:

Management Complexity: Offline wallet storage requires more effort to manage compared to other wallet types.

Physical Security Risks: Paper wallets or unencrypted CD/USB wallets can be physically stolen, and even encrypted versions can be lost.

Lack of Comprehensive Software Solutions: There is no single software package that provides a complete solution for offline wallet storage. To create addresses and keys, options include bitaddress.org, blockchain.info, and vanitygen. To check your balance, you can manually review addresses on blockexplorer.com or use the read-only wallet functionality of blockchain.info or Armory.

To send bitcoins, there are two distinct steps: creating the transaction and then publishing it. To create a transaction, you can use offline wallet tools provided by blockchain.info, BTCurious’s tool, or the Armory bitcoin client in offline mode. It is important to disconnect from the internet during this process. For added security, you can delete all data except the signed transaction afterwards. Once you have the transaction, you can push it onto the network by using tools like http://bitsend.rowit.co.uk.