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I'm not sure I understand all of the bitcoin storage options

I know there are bitcoin addresses and bitcoin wallets

what is the relationship of an address to a wallet? is a wallet mandatory and a given when talking about any bitcoin storage option?

if I had an account at a bitcoin exchange, how could I quickly move those coins from the exchange to the same wallet that I am using to dump the coins I mine?

I might not be asking the right questions, because I am not sure about the relationship between the various storage options of bitcoins (wallet, exchanges)

I would like to understand this

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2 Answers 2

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If you have the private key that relates to an address, then you can use that to instantly make transactions with bitcoins that are stored against that address.

However, most exchanges and online wallets provide you with a unique address without providing you with the private key for it. This is probably because they consolidate the bitcoins sent to all their addresses into a single address for the exchange, which helps them reduce transaction fees and also allows them to operate with a fractional reserve system.

In the case of a 3rd party controlling your bitcoins, you are at their mercy when it comes to the timeframe of the transaction.

There are some online wallet services that allow you to have the private key for your bitcoins, which gives you the ability to import the private key to your own client and spend your bitcoins. In that case, you have a good level of control over your bitcoins.

The relationship between addresses and a wallet: one wallet can hold many addresses, and can even hold bitcoins against hidden addresses that have received "change" from a previous transaction.

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Wallets:

  • The Bitcoin.org client (e.g., Bitcoin-Qt) is a local wallet.
  • Most online services which provide a bitcoin account for you provide what is called a hosted (shared) EWallet.
  • Some online services provide a hybrid EWallet which acts like a local wallet but is accessible online. Blockchain.info/wallet is an example of this.

When you use a hosted (shared) EWallet, you have no control over the funds. When withdrawing you are simply placing a request and the provider's systems (which are usually automated) respond to the withdrawal request.

Generally when you withdraw from a hosted (shared) EWallet, the transaction is broadcast fairly quickly -- within seconds. Because the provider might use a cold wallet for storage of most of the service's funds, it keeps a limited amount of coins in a hot wallet to serve withdrawal requests. It can't know in advance how many will be requested, so the level is based on whatever the provider estimates are needed.

So it can occur that a withdrawal request cannot immediately be honored and that the hot wallet needs to be replenished with additional funds from the cold wallet. That could take from under an hour or much longer, especially if the "keys" to perform that transfer are locked in a bank vault and unavailable until the next business day.

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