A browser-based wallet or wallet service is an online account with an external provider where bitcoins can be stored. Examples include accounts on currency exchange Markets, online Services and with ecommerce transaction processors such as MyBitcoin, Bit-Bank or Flexcoin.
- Use of a browser-based wallet provider may help improve anonymity against third-parties who watch your IP address use.
- An account with a wallet service can generally be established in just minutes.
- Some bitcoin users store some or all of their bitcoins in a browser-based wallet to avoid having to worry about keeping a local wallet secure.
- Some services that allow withdrawals to any Bitcoin address, such as MtGox, can be used like browser-based wallets for making payments. Simply using the withdrawal feature to withdraw to an address that is not yours is functionally equivalent to sending a Bitcoin payment to that address.
- Some services offer instant, internal transfers. If two users own an account at Bit-Bank and want to send bitcoins to each other, the transaction is instant as opposed to the typical long wait for confirmations.
Things to be aware of
When bitcoins are stored online, the provider retains full control of those amounts. You are trusting a third party to maintain your Bitcoin balance on your behalf. In comparison, if you run the Bitcoin software yourself, you are in full control of your coins so long as the wallet file stored on your computer is kept secret and secure.
Other relevant things:
- You typically have less anonymity with respect to those who run the online wallet site.
- If a payment is made from an online wallet, the transaction's "from" address is an address for the wallet provider and not an address reserved specifically for the sender. This is because the wallet service provider may service the payment from any coins in its possession - your balance is not associated with any particular coins, any more than your balance at your local bank is associated with any specific bills. Thus if the recipient were to "return" any bitcoins to the same address they were sent from, the sender would not receive those bitcoins.
- Not all wallet providers reserve a bitcoin address for the account holder indefinitely. Bitcoin addresses generally work best when one is assigned for each use. There is the risk of showing an address from a wallet provider in a directory or on a web page (for donations, as an example) as there is the possibility that at the future date when those bitcoins are sent that the intended recipient still has the wallet account. The same concern applies should the wallet provider cease operations.
- There is no trivial way to guarantee that the amount of bitcoins showing for the account holder's balance are truly being held in reserve by the wallet provider.
- Some providers describe their reserve policy in their terms of service (TOS). For example, MyBitcoin's TOS states:
- 6. OBLIGATIONS OF MYBITCOIN LLC
6.1 MYBITCOIN LLC will ensure that for all Bitcoins in circulation in the MyBitcoin System there is at all times an identical quantity of unencumbered Bitcoins held in MYBITCOIN LLC's master Bitcoin wallet.
- 6. OBLIGATIONS OF MYBITCOIN LLC
- Transactions to a Bitcoin address from the same wallet provider are usually completed internally and, if so, will not be processed on the Bitcoin P2P network. Auditing tools such as the Block Explorer will not show any activity for this transaction.
- Some wallet providers allow amounts below 0.01 BTC to be sent if the transaction is to another account holder on the same service. This allows an inexpensive and immediate method to detect if the recipient is using the same wallet provider. For example, MyBitcoin will report an error when attempting to send an amount smaller than 0.01 BTC to a Bitcoin address that is not for another MyBitcoin account.
- The wallet service provider's wallet may be vulnerable to security breaches, loss, or theft. Because Bitcoin transactions are irreversible, there may be limited or no recovery if a provider's master wallet is compromised. Wallet providers who implement preventative controls - such as keeping their reserves in an offline wallet - are likely to be safer.