In a managed online wallet, all aspects of your wallet are controlled by the wallet's provider. Similar to email or internet forum accounts, you have an account with a username and password, allowing you to log in from any internet-connected computer and send or receive bitcoins. These services operate more like banks, where all funds are pooled together, and the provider keeps track of individual ownership. Notably, prominent examples of managed wallets include bitcoin exchange accounts like MtGox and CryptoXChange.
Advantages of storing bitcoins at an exchange are:
No Software Installation Required: Using a managed online wallet eliminates the need for software installation, providing convenience and easy access to your bitcoins.
Accessibility from Any Computer: You can access your bitcoins from any computer with an internet connection, offering flexibility.
Reduced Risk of Wallet Loss: Accidental deletion or loss due to computer or hard drive failure is not a concern when using managed online wallets.
Exchange and Currency Options: Bitcoin exchange wallets enable the exchange of bitcoins for other currencies, such as US dollars, and the storage of various currencies. This allows easy access to bitcoins without being affected by volatile exchange rates.
Green Address Feature: The MtGox exchange wallet, for example, offers a "green address" feature. This feature allows you to send bitcoins from a publicly known and trusted address, which some businesses accept without waiting for confirmations. It enables faster transactions compared to the standard confirmation time of up to an hour.
Privacy Benefits: By withdrawing bitcoins from an exchange, the coins you receive are not necessarily linked to the ones you deposited. This provides some privacy protection, making it more difficult for someone to trace your transactions on the internet.
Disadvantages of using managed online wallets are:
Password Dependency: There is a risk of forgetting the password associated with the wallet. Although most services allow password resets via email, relying solely on an email address for password recovery poses its own risks if the email account gets hacked.
Trust Dependency: Users must trust the provider to safeguard their wallet from failures or hacks. Instances like the failure of MyBitcoin, resulting in the loss of users' bitcoins, serve as cautionary tales.
Reduced Anonymity: The provider has visibility into all your transactions, impacting your privacy to some extent.
Limited Day-to-Day Usability: With the exception of specific wallets like BTCinch and the MtGox mobile wallet, most managed online wallets are not primarily designed for day-to-day usage. They may be less user-friendly and more cumbersome to use.
Popular options for managed online wallets include MtGox, CryptoXChange, Cavirtex, and Intersango. BTCinch wallet is specifically designed as a wallet but offers Bitcoin exchange features through other exchanges. For Android and rooted iPhones (through Cydia), MtGox provides the MtGox Live Bitcoin application.