Bitcoin 101: Hosted Wallets – Part 7

For part 7 in the Bitcoin 101 Series, I want to talk about Hosted Wallets.

Hosted Wallets are websites where you can sign up for an account and have a bitcoin wallet created for you. The wallet can then be used with almost all the functionality of a normal bitcoin wallet except it is controlled and managed by a 3rd party. The 3rd party is the website where it exists.

The best example that I can relate to is Coinbase. (  Coinbase is the company that is a hosted solution for bitcoin wallets that many people have been using. I started using Coinbase back in 2013. Before choosing them, I had looked through a few other wallet vendors. The reason I went with them is because I watched a video where Brian Armstrong talked about Coinbase and the security behind it. The video was done at the Coinbase headquarters and featured Brian and the interviewer talking about the features of the online Coinbase wallet. I found the video to be very insightful without being too complicated for the new bitcoin user to follow along.

Each person that is new to bitcoin has to choose whatever wallet best suits their needs. The important thing to know about hosted wallets is that they have risk associated with them. All hosted wallets control the public and private keys of their user’s wallets. That can be a very bad thing when talking about some really bad hosted wallet websites.

The most popular example of this is Mt. Gox.

When I got started in mid-2013, Mt. Gox had around 70% of the bitcoin market in its wallets.  Most people knew about Mt. Gox and that everyone else was using them. What most of the public didn’t understand at the time was that the company was being mismanaged terribly by its CEO Mark Karpeles.  In March of 2014, I came across the wired story “The inside story of Mr. Gox, Bitcoin’s $460 Million Disaster.”  That story shed a lot of light on what was going on with Mt. Gox from the early stages of the downfall until the end.

The lesson to be learned is that hosted wallets are very risky. There is a chance that the website could either get hacked or it could just shut down at any point in time and the risk of losing all of your funds is real.

Full Disclosure:  I still have over $100 in my Coinbase wallet and it is my most popular hot wallet that I use today. I have also bought the Shift debit card and use it as my primary means of paying for things anywhere that VISA is accepted.

I encourage everyone that is looking to get an online, hosted wallet to do their research. The choice that you make is your own and you will have to live with the consequences – just like the rest of us.



Thank you for visiting. Be sure to stay tuned to the Bitcoin 101 series where I dig into the various parts of the bitcoin ecosystem and explain various subjects to new users of bitcoin.

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