Bitcoin Forum

Can anybody tell me the difference in storing your Bitcoins in a dedicated online wallet vs an exchange?

What confuses me is that you guys seem to have more trust in an exchange then a online wallet that is dedicated for storing your Bitcoins. For all you know, the online wallet might have better security than the exchange.

Can somebody give me some insight as to why this is?

Which storage method you trust more is a matter of your own judgement.  Personally, I trust my own abilities to secure my home network and computers more than I trust any online service.  The problem with that is it's very difficult to exchange between dollars and bitcoins from your personal private wallet.  Just as you would have to "load up" your exchange account with dollars before you can buy bitcoins, you have to load up your exchange account with bitcoins to buy dollars.  So you're exchanging convenience for risk.

There is no right answer, and there are risks to your coins wherever you keep them.  Compare allinvain's recent loss of coins from his wallet stored on his home computer, with potential losses from the mt.gox hack in the last few days.  Which people were wrong?  Neither (in general, although there are probably things they would each do differently in hindsight).

As the Bitcoin project matures, there will likely be more and more providers of more and varying secure online services.  They will gain their own reputations for trustworthiness.  You might even see your current bank offer Bitcoin facilities -- you'd already have a trust relationship with them.

The important thing about Bitcoins is that all of these options are available to you at your option; rather than (as we have with traditional currencies) being a necessity to enjoy the conveniences of modern life.  i.e. I have to have a bank account to receive my salary and to be able to pay my bills, or buy stuff online; one day Bitcoins will let me do these things without a bank.

Similarities: They're both types of wallets.

Differences: You can't have fun making money in a dedicated online wallet.

Exchange site is not your wallet, it is an account of yours in exchange site owners' wallet.
In other words, your BTCs are in his wallet.

Web wallet allows you to create your own wallet on web server.
They are exposed to the internet environment, which can be risky.
Your BTC safety relies on the how well your web wallet provider protects their server.

Software wallet allows you to store your private keys/BTC in your own devices(PC/phones/tablets).
You have the full control and responsibility of keeping it safe.
Remember, when your devices are connected to the internet, it becomes risky, too.
Hackers have many methods of stealing your private keys/BTC, such as malware, Trojan, controlled WIFI, and many others.

Offline wallet/ cold storage allows you to store you private keys/BTC on a physical isolated device(away from the internet).
You have the full control and responsibility if keeping it safe as well.
The difference between offline wallet and other wallets is that it is much less likely to be hacked.



 

Although this is a recently neoarco'ed thread, I think it is very reliant as there are a lot of people who are trying significant amounts of money on exchanges.

With storing your bitcoin on an exchange you will always be at risk that the exchange operator will either run away with your money or be incompetent and end up loosing your money (see mtGox). You are essentially trusting the exchanage to properly keep track of your bitcoin balance which kind of goes against the principles of owing bitcoin in the first place. 

You shouldn't group all exchanges and all online wallets together like that. I think you need to measure this metric on a company-by-company basis.

I keep most of mine off line. I keep a small amount on block chain.info and anything i have on exchanges is only what I trade alt coins with. I do not store BTC on exchanges. They get hacked all the time and look at the recent bullshit with Mintpal. They still have all our BTC locked up. Grrrr.

I prefer to save in exchange.
because there you have a lot of addresses automatically, not only for BTC.
 and, if you try to trade then you can play it directly without having to send from wallet charged

Now many exchange also have the wallet feature, but any wallet providers not have trading feature

You own the private keys like on blockchain or offline wallets like Qt but with exchanges like coinbase they hold it for you.
I prefer offline wallets like core, multibit etc

Well this should be clear:
You only own a Bitcoin if you have the private key of its address.

Thus if you hold BTC on an exchange you do not own them.

And you only WHOLLY own them if you're the only one with the privkey of the address. i.e. not the webwallet site, not the paper wallet gen site, not the chinese hacker who thinks your balance is too low to bother with right now.

Always do your own wallet when you can, unless you neeeeeed them on an exch for trading asap.

Don't just "leave" them sitting on an exch.

Coinbase provides web and mobile Bitcoin services. The mission of the founders is to provide Bitcoin value added products for consumers and merchants. Their users deal with the company rather than directly with the network. Coinbase is recognized as “the PayPal” of the Bitcoin Network.

Yes, it's real that many online wallets could be scam, as the most of the exchanges, but in several case online wallets are deterministic and allow users to backup and export their private keys, so they are quite safe.
Above all Blockchain.info wallet I think is the most secure online wallet, as well as it's the more used. So if blockchain.info will scam and disappear with the money, maybe the Bitcoin itself will die.

Coinbase is more like Joe's Cut-Rate Check Cashing next to the liquor store. Merchants don't keep money in Coinbase for more than a few hours. Bitcoins go in, and US dollars are deposited to the merchant's account that night.

You can keep money in Coinbase, but shouldn't.

It's nearly the same difference between having your cash in a current account at your bank, or in a safety deposit box underground. I remember once I wanted to withdraw a substantial sum from my current account, my very own money, and the teller told me I couldn't, because they don't handle large cash transactions. I had to come back each day for 4 days to split one large single transaction into smaller ones.

You'll have the same issue if you want to withdraw many BTC in one go from an exchange.

Why are people posting responses to a thread that was created almost 3 and a half years ago?

At least the guy is getting his answer. Better late than never. lol  ;)

No difference for me in terms of security whether i want to keep in online wallet or exchange. Maybe if i am a trader that trades frequently so it will be exchanges as i will have funds readily available anytime

I would somewhat disagree with this, especially when you are dealing with very small amounts. I would argue that people need to be able to spend some time to understand bitcoin and how it works, and good security practices before they should be controlling their private key and keeping their private key (and money) safe.