Web-based vs. desktop vs. mobile bitcoin wallets

Assuming you’ve decided to download a bitcoin wallet, do you want a web, desktop or a mobile version?

This is more confusing than it sounds, since each performs a different function, with different levels of security. As we’ve seen before, a wallet is simply a way to store your public and private keys, and to display the net amount of bitcoin that you have associated with those keys. They can usually also show you the transaction history of those keys.

The word “wallet” may be confusing as it implies that your bitcoins are stored in it. They’re not, they’re actually stored on the blockchain, which itself is stored on servers (bitcoin “nodes”) around the world. Thanks to the user interface, the wallet just looks like it stores your bitcoins. And just like an online bank, it can show you your transaction history.

bitcoin wallet

Web-based wallets

Web-based wallets store your keys online, which is convenient as you can access them from any computer. However, it is not as secure as some other options, as your keys are stored on someone else’s server. Those servers are well protected – no wallet service provider wants to be hacked – but they’re not under your control. Since this is what bitcoin was created to avoid – your funds being in someone else’s control – this solution may seem ironic. It is convenient, though, especially if your wallet service provider also allows you to purchase bitcoin through their exchange.

Some web-based wallets such as Blockchain encrypt the keys before storage in the online server, which is a slightly more secure option than those that store the keys on their servers, such as Coinbase.

Desktop wallet

It’s worth remembering that an online wallet is not the same as a desktop wallet, although you access your online wallet via your desktop. For a desktop wallet, you install the software directly on your PC. Assuming that your security is thorough, this is one of the safer options, but if your hard drive is hacked, chances are your bitcoin keys will be copied and your bitcoins transferred without your knowledge. In other words, your bitcoins will be stolen.

Most desktop wallet are “lightweight”, which means they don’t download the entire blockchain (just as well, since it currently occupies almost 50GBs). Lightweight wallets only store block headers, rather than entire blocks – this allows them to take up less than a tenth of the space. However, the trade-off is that they are less secure than full blockchain wallets as they can’t examine all the transactions in the blocks to make sure that they are valid, because they doesn’t have the transaction history. Lightweight wallets, otherwise known as “SPV” (for Simplified Payment Verification), can only validate the transactions that concern them. They trust the fully validating nodes to check all the others.

If you have downloaded the bitcoin protocol, that acts as a wallet as well as a full node.

Mobile wallet

The mobile wallet is the most practical option in that your bitcoin are accessible at any time. Your smartphone can be used to pay for products with bitcoin, or to easily transfer funds to someone else. Your camera scans the recipient’s QR address, which is so much easier than typing in a long string of letters and characters. True, the desktop and web versions usually allow for copy and paste, but pointing your phone at a pixelated square is simpler and faster. Some phones enable NFC connections, which means that all you have to do in certain circumstances is tap your phone against a reader to pay.

Mobile wallets are also SPV or “lightweight” (see above), which compensates a reduction in necessary space with a reduction in thoroughness and blockchain integrity, but for most daily applications, they work very well.

However, since your phone can be lost or stolen, and your keys along with it, you could lose your bitcoins unless you have been smart enough to keep secure backups.

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This may seem like a confusing sea of options, and differentiating between the different providers can get complicated. But it is not necessary to choose just one. Most bitcoin users have several wallets, to cover a variety of different needs. I have three, two of them web-based (Coinbase and Blockchain) and one mobile version (Blockchain, for now).

The three options covered here are especially useful for frequent transactions. With a few taps or clicks you can send bitcoin to any other wallet, move funds amongst your own, or purchase more to top up your holdings. These wallets do, however, imply a trade-off between ease of access and level of security. They are easier to use, but not as secure as some other more complex options. To safely hold a significant amount of bitcoin, offline storage is a stronger solution, and we’ll talk more about that next week.

(For more on how Bitcoin works, see Bitcoin Basics.)

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