Keeping coins on an unaffiliated website?
USED TO BE a credible option. Not so much today.
Back in the day — say, when I was writing The Bitcoin Tutorial — there were a number of notable “online wallets” unaffiliated with an exchange. And they had some notable value-add on offer. There are still a number of unaffiliated online wallets, but for reasons unexplained, the notable value-add has markedly diminished. Therefore, this will be a short post.
An unaffiliated online wallet has all the risks of a exchange-based wallet, namely, your account may be hacked or the entire database may be hacked. And you can mitigate those risks in the same manner: good password hygiene, always use two-factor authentication (2FA), don’t keep all of your coins in a single online wallet, etcetera.
One reason to use an unaffiliated wallet still stands to this day: you can preserve a much higher degree of anonymity. All you need is an email address — and I will leave it to your creativity to pop one of those into existence with the wave a hand — and you’ve got an unaffiliated wallet. No need to provide bank account details and no need to go through a “verification” process (the latter can be fairly involved with an exchange).
Many folks new to crypto-currencies are understandably uncomfortable sharing financial details with an exchange. An unaffiliated online wallet is a reasonable choice if you are new to crypto-currencies, want to play around with some transactions, and familiarize yourself to get comfortable. (That presumes that you have a source of some coins to play around with, say, an enthusiastic colleague or friend.)
So what value-add did unaffiliated online wallets USED TO HAVE?
Exchanges are none too keen to have you yank your coins OUT of the exchange. Of course, you can always SEND the coins to a different wallet for an appropriate transaction fee. What you MIGHT want to do is put the coins in “cold storage” for security reasons. And one mechanism for doing so is called a paper wallet.
Paper wallets will get a full and proper accounting when we discuss hardware wallets in a future post. In short, a paper wallet is a piece of paper with the private key printed on it. (All other values can be calculated from the private key — public key, public key hash, etcetera — and are most often printed on the piece of paper for convenience sake.)
In the past few posts, we’ve driven home the fact that knowing the private key equals controlling the associated coins. So creating a paper wallet is a delicate matter. Exchanges are doubly-reticent to provide a paper wallet feature: (a) users might screw up and blame ANYONE but themselves and (b) a paper wallet literally YANKS the coins out of the exchange sans fees.
Item (b) is not an issue for unaffiliated online wallets — and you guessed it — some of them USED TO offer a paper wallet feature. As best I can find, none of them offer the feature any more … which could be the result of learning painful lessons vis-à-vis item (a) above. They’re not talking.
The indispensable Blockchain.info website offers the popular “My Wallet” for reference. It is streamlined and easy to use, plus its Security Center is a single stop for 2FA, cold storage, the works.
