Clear DefinitionsOnline Wallet
2 min read
Pronunciation
[on-lahyn wol-it]
Analogy
Think of an online wallet like the cash you keep in your physical wallet for daily use. It's readily accessible and convenient for everyday purchases and transactions. However, because it's easily accessible, you wouldn't carry your entire life savings in it due to the higher risk of loss or theft compared to money stored in a bank vault (offline storage).
Definition
A cryptocurrency wallet that is connected to the internet, allowing for quick and easy access to send, receive, and manage digital assets. While convenient, this connectivity makes them more susceptible to online threats compared to offline storage methods. This term is often used synonymously with 'hot wallet'.
Key Points Intro
Online wallets offer convenience and quick access to cryptocurrencies by being connected to the internet, but this comes with increased security risks.
Key Points
Internet-Connected: Keys are held on devices or platforms that are actively connected to the internet.
Convenience: Allows for fast transactions and easy access from various devices (desktop, mobile, web).
Higher Risk Profile: More vulnerable to hacking, malware, phishing attacks, and other online threats.
Common Types: Includes mobile wallets, desktop software wallets (if regularly online), and web-based exchange wallets.
Example
David uses a mobile app wallet on his smartphone to make small, everyday cryptocurrency payments for online services. Because this wallet is an online wallet, his phone is regularly connected to the internet, making it convenient but also requiring him to be vigilant about app permissions, software updates, and potential phishing links.
Technical Deep Dive
Online wallets (or hot wallets) store private keys in a way that is accessible to an internet-connected application. This could be encrypted on the local storage of a computer or mobile device, or managed by a third-party web service (in the case of custodial exchange wallets). While software wallets typically encrypt the private keys with a user-defined password, any malware on the device could potentially capture this password or exploit vulnerabilities in the wallet software itself. Communication with the blockchain network happens directly over the internet.
Security Warning
It is generally not recommended to store large amounts of cryptocurrency in an online wallet due to the higher risk of theft. Use strong, unique passwords, enable 2FA where possible (for exchange wallets or app access), keep software updated, and be cautious of phishing attempts. Consider them for smaller, spendable balances.
Caveat
The level of security for online wallets can vary greatly depending on the specific wallet software, the user's security practices, and whether it's custodial (exchange) or non-custodial. While convenient, the inherent online connectivity always presents a greater attack surface than offline storage solutions.
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