Online storage, or “hot” wallets, are services designed to store bitcoin online. What purpose are they used for and how do they function?
We have already looked at local wallets for storing bitcoin and other cryptocurrencies. Now we will look at services that provide the service of storing cryptocurrencies on the Internet.
An online wallet, or as it is also called “hot storage,” is a service that allows you to store, transfer and receive bitcoin and other cryptocurrencies on the Internet without using local software or hardware.
Usually access to such services is a regular web interface, similar to a client-bank or electronic currencies. In general, using such a service is similar to using WebMoney, AdvCash or Payeer.
The main and main disadvantage of such services is that you trust your funds to third parties. And if in the case of a bank a certain level of trust is ensured by a strict system of state licensing, then in the case of storing cryptocurrencies, there is often no other information about the owners and creators except for a company registered in an offshore jurisdiction.
So why do users continue to use online storage? The main disadvantage of local wallets is the volume of blockchain that needs to be downloaded, which is not always possible. The limitation can be either a slow and expensive Internet connection or a lack of free space on the computer’s hard drive. In the case of mobile devices, downloading blockchain becomes unrealistic.
Of course, there are software wallets that do not store the entire blockchain, but rely on third-party services to verify transactions. But online storage has other advantages. For example, such a service, as a rule, is available from any device from anywhere in the world - if only there was Internet. But in the case of a software wallet - if you want to use the same account, for example, at home and in the office - you will face some rather unpleasant technical difficulties.
Online wallets often provide additional services, for example, VISA and MasterCard bitcoin cards, declare the provision of “cold storage”, and also often support several different cryptocurrencies. For example, blockchain.info now works with bitcoin, Ethereum and Bitcoin Cash..
Another feature that online wallets implement is support for multisig transactions (transactions with multiple signatures). BitGo has announced this possibility.
For mobile devices, online storage offers special applications that provide additional security, as well as a convenient interface.
To summarize: such services are well suited for small amounts that must be accessible quickly and from anywhere. We would not recommend storing large sums in online storage, since such services are prime targets for hackers.
Usually online wallets provide additional security features, such as two-factor authentication, but stealing funds from such a service using keyloggers and other malware is often easier than from local storage.
And finally, here are a few examples of online storage:
- Blockchain.info
Initially, the blockchain.info service was developed as a block explorer (block explorer), that is, a service for quickly and conveniently viewing records in the blockchain of the bitcoin cryptocurrency. The service allows you to view transactions, the status of bitcoin addresses and provides an API for application developers. One of the oldest online wallets provides basic functions such as receiving and sending bitcoins, viewing transactions and wallet status. In 2017, Ethereum and Bitcoin Cash were added.
Additional security is provided by two-factor authentication via email and SMS. Has an application for iOS and Android.
At the time of writing, SigWit does not support addresses or multi-signature addresses. There are no means to provide additional anonymity.
- BitGo
Wallet positioned as a service with advanced security. At the time of writing, it supports Bitcoin, Litecoin, Bitcoin Cash and Bitcoin Gold.
The main advantage is support for multi-signature wallets and the ability to create “organizations” of multiple users. For example, you want the general director to be able to send funds, but the payment sent by the accountant must be approved by the financial director.
Allows you to simply save your wallet keys on your local computer.. Support for the Ledger Nano S hardware key is also implemented.
Despite statements about increased anonymity, the wallet uses a fixed set of addresses for transactions, unlike the same blockchain.info.
- XAPO
Online wallet, interesting primarily because it allows its users to receive a VISA card and use it at regular points of sale. That is, you can pay with bitcoin in a regular store or withdraw cash from an ATM. Unfortunately, since November 2017, this opportunity is available only to residents of the EU.
Also, in addition to the actual function of the wallet, “storage” is declared - a service with increased safety of funds.
A phone number and a short pin are used as a login; a one-time password is sent via SMS or mobile application. At the time of writing, Bitcoin, Bitcoin Cash and Bitcoin Gold are supported.
Of course, this list is far from complete, but only provides examples of online wallets. We did not pay attention to such well-known services as BitPay, CoinBase, block.io. In our subsequent publications we will consider each of these services in detail and in detail.
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