There are three possible ways to store your crypto: wallet, vault and exchange. All three have different use cases and deserve their own place under the sun, but for a new cryptocurrency user, the choices can be overwhelming. Furthermore, there are a lot of things to consider when it comes to the difference between a Bitcoin wallet and a safe.
This article examines the difference between a BTC wallet and a vault, and later focuses on exchanges and their implementations. If you don’t care about the technical details and are simply looking for “cryptocurrency storage 101”, we have a nice infographic on the topic that explains the basic differences without going into the reasons behind them.
What is a bitcoin wallet
To explain exactly what a bitcoin wallet is, we first need to explain what bitcoin is and how it works.
Bitcoin (and any other unit of any cryptocurrency) is a unique digital token. For example “SaMpLe1rPe34nu5hbn3rx6pj4”. These tokens are stored in the Blockchain – a digital ledger that is encrypted and simultaneously updated on all devices connected to it. Each of these devices has a Bitcoin address (public key) that is used to identify it. Some of them have more than one.
A Bitcoin wallet is a unique address on the Blockchain that shows how many tokens (and what kind) that user holds. It is visible to everyone, but in order to access it and transfer bitcoins somewhere else, you need to decrypt them. To do this, you need a private key that only the owner of the bitcoin wallet knows.
And now for the reason why some wallets have more than one address. After using one of the addresses in a transaction, the user must generate a new address and replace the used one. The old one remains usable, but is considered compromised and is not recommended for use. Some wallet users create many addresses in advance to avoid being caught without them.
Advantages of Online Bitcoin Wallets
- Online wallets are accessible anytime and from any device.
- Online wallets are easy to use and perfectly suited for everyday bitcoin payments;
- Online wallets can be recovered if the user has authenticated with the wallet provider.
Disadvantages of Online Bitcoin Wallets
- Online wallets store bitcoins outside of users’ devices, which poses a security risk;
- Online wallets require users to trust the wallet provider, which poses a security risk.
- Online wallets do not provide users with their private keys, which is a security risk and sometimes inconvenient.
Bonpay has its own online wallet where you can create an account in less than a minute. Other popular options are Bitcoin Wallet and Exodus. We also recommend that you learn how to secure cryptocurrency online wallets.
What is a Bitcoin Vault?
The name Bitcoin Vault, pardon the pun, was coined by CoinBase in 2014 as a “safer option for storing bitcoins” compared to their own online bitcoin wallet. Since then, many other companies have started providing both wallets and vaults as separate services. The main differences between a Bitcoin wallet and a vault are:
Advanced account protection. All Trezor payments are delayed for 48 hours, during which the Trezor provider will try to contact the account holder personally. The payment will not take place until the account owner says confirmation. If there are multiple owners (which is possible with group vaults), everyone must approve the transaction.
Geographical distribution. Most bitcoins are not stored on the same server. For example, Coinbase Vault stores 97% of Bitcoins in a geographically distributed network of servers that are not directly connected to the global internet.
Other functions. Some companies provide their Safe users with Premium features. For example, Xapo provides insurance for all Xapo Vault accounts.
However, if you are looking for a significant difference between a Bitcoin wallet and a safe – you may be a little disappointed. At the end of the day Vault is just a Wallet on steroids with some extra paranoid protection systems and some additional services. So when it comes to the BTC Vault vs Wallet battle, the choice is entirely yours.
What is a bitcoin exchange and how does it store bitcoins?
A bitcoin exchange is a place to trade bitcoins for other crypto and fiat currencies. And for the exchange to work, it needs to store each user’s cryptocurrency. Except that giving each user their own separate wallet would seriously cripple the exchange’s performance – as cryptocurrency prices change every second, and a lot can change in the 20 minutes it takes to confirm a trade.
Unocoin is the fastest growing crypto exchange in India
This is why the exchange stores all bitcoins (and other cryptocurrency tokens) in a single wallet. Each user only gets a different address and limited access to only a certain amount that they “own”. I use quotes because these people don’t actually own anything – all tokens legally belong to Coinbase and users only have “access” to them.
This single “fat” wallet is of course an attractive prize for hackers and therefore a massive security risk. Not to mention that in case of hack it will be impossible to get any refund.
If “Bitcoin Vault vs Bitcoin Wallet” is a toss up, “Bitcoin Wallet vs Exchange” isn’t even an option. You should not store your bitcoins (or any other tokens) on exchanges.
But if you need to exchange your BTC for different tokens, you can try Coinbase and Unocoin.
Please find the list of authentic Unocoin accounts for all your queries below:
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- App store link: https://apps.apple.com/us/app/unocoin/id1030422972?ls=1
- Playstore link: https://play.google.com/store/apps/details?id=com.unocoin.unocoinwallet
Disclaimer:Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research).