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Security of Online Wallets

Different types of online wallets have emerged. Some store the private keys on the server side (some of which encrypt the private keys before storing them), while others store them locally in the browser of the user. Depending on where the private key is stored, online operators can gain unilateral powers over the BTCs of their users.

For example, in April 2013, a theft of 923 BTCs occurred in the mining pool OzCoin. A subset of the stolen BTCs were transferred to a web wallet hosted by StrongCoin. Although StrongCoin claims that it supports user privacy and does not have access to the user funds, StrongCoin intercepted the allegedly stolen BTCs and transferred them back to OzCoin [21]. This exemplifies the degree of control that an online wallet can have on the BTCs owned by its clients.

Note that if the private keys of clients are stored in the browser of the users or are stored encrypted (with a key stored at the user's premises), then private keys can still be lost if, for example, the computer breaks. Therefore, existing solutions that place minimum trust at the wallet operator might not necessarily increase the resilience against the loss of BTCs (e.g., due to hardware failure).

 
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