One of the most well-known examples of an online wallet is Coinbase.
Coinbase was set up in 2012 by its now CEO Brian Armstrong and, as of August this year, had a little over 10 million users. Initially, the platform was solely an online wallet but it now offers Cryptocurrency exchange facilities. Find out how to trade USD to XLM or EOS to USD with Rubix.
Other popular alternatives include Kraken, Gemini, and Circle, although the latter has recently started experiencing difficulties, and its future is uncertain right now.
Many bitcoin holders prefer to hold their cryptocurrency in what is called cold storage. This is where your wallet provider generates a private key, and you make a record of said key offline (say, on a piece of paper). The key is removed from anything digital, meaning it cannot be accessed by a hacker and you have complete offline access to it.
This is mostly regarded as the safest way to store bitcoin.
Outside of cold storage, however, there is also one more method of storage that is becoming increasingly popular – hardware storage. This is where you store your private keys on a digital device that is not connected to the internet, but that can facilitate payments through a highly secure network. The most popular of these devices right now is called Trezor but many are still in the beta phase, and access to even Trezor units is limited.
So, let’s say you are an average user and you want to buy bitcoin and store it in an online wallet.
How do you go about doing that?
We will use Coinbase as an example. First up, you need to register an account with the platform, and they will ask for some type of identification to verify that you are who you say you are. These sorts of regulations have been put in place by the governments of the nations in which companies like Coinbase operate and – much to the disdain of complete autonomy fans – are likely going to be a mainstay of the cryptocurrency space moving forward.
Anyway, once verified and once you have an account, all you need to do is link a payment method to said account, and you can start buying bitcoin. With Coinbase, you can either purchase bitcoin directly using the payment method you have attached to the account and Coinbase will deposit the bitcoin in your online wallet or you can upload fiat currency (so, USD, EUR, etc.) and use that to buy bitcoin as and when you require it.
Most of these wallet providers also include fiat wallets, so you can store your money in USD and switch to and from bitcoin relatively freely. For somebody who is looking to trade bitcoin intraday, for example, this sort of (pretty much) instantaneous conversion ability can be a real bonus.
So, you have bought bitcoin, you’ve got somewhere to store it – what about if you want to send it to someone or something to purchase goods or services?
To explain this part of the process, it’s probably simplest to set up a basic example and illustrate the concept that way.
You may want to buy a new computer from an online retailer that accepts bitcoin as a payment method. The laptop costs $2,000, which translates to 0.5 BTC (BTC is the widely used abbreviation for bitcoin).
You get through to the checkout page on the retailer’s website and want to send 0.5 BTC to the retailer in question.
You will see two things:
- First, you will see a bitcoin address. These are strings of numbers and letters.
- You will also sometimes see a QR code, which you are able to scan using an application on your mobile device and which correlates to the address in question.
So, you have two options. You can either use the QR code using, as mentioned, an application on your mobile device or you can use the bitcoin wallet address provided by the retailer.
Both options result in the same thing – bitcoin being sent from your wallet to the retailer’s wallet – so it’s very much personal preference. Most transactions are done using wallet numbers right now.
Further, let’s stick with Coinbase and the concept of an online wallet to keep things simple.
The first thing to do would be to log into your online wallet and ensure you’ve got the 0.5BTC necessary to make the transaction. You then click ‘Send BTC’ or something similar, depending on what platform you are using.
All platforms vary slightly, but all will only require two pieces of information:
One, the amount of BTC you wish to send and two, the address to which you want to send it.
Note here that if you were transacting using anything other than an online wallet, you would need your private key as a separate input. With an online wallet, however, logging into the account is generally used in place of providing private keys at transaction time.
Once you have inputted the necessary information click send, and the transaction process will begin. Usually, the bitcoin will appear in the retailer’s wallet instantly but will be unverified. This means that the block associated with the transaction has not yet been mined and signed off on the blockchain. Depending on how many transactions are being carried out at that particular time, the time it takes for your transaction to verify can vary.
However, because of the code that underpins bitcoin and it’s blockchain, the bitcoin you have sent cannot be double spent, meaning while they remain unverified in the receiver’s wallet, they are debited (or blocked off) in your own wallet.