What does it mean to build an online Bitcoin Wallet service?


I know this question has been asked before but none has a satisfactory answer.
I understand that there are third party apis available which let one host online bitcoin wallet service. These type of apis does not work because I am building it for educational purposes.

After all the reading it looks like there is no such thing as online wallet. If a user creates a new online wallet, he will be just given an account from existing offline wallet.All the transaction details will be saved in to the database and synced with offline wallet.
Is it true? Is this the way how it works?
Found a very detailed question on similar but nobody answered it.

Himanshu Yadav

Posted 2014-02-18T02:36:39.477

Reputation: 111



Typically what is meant by an online wallet service is that the service handles the key and address management for you. You typically don't have to worry about creating new addresses or backing up your private keys. However, an online wallet has the downside that if it gets hacked, there is a chance that an attacked could steal all of your Bitcoin because that attacked would have access to your private key. Some online wallets, like Coinbase claim to have 90% of the funds in cold storage. Cold storage typically means that the coins are sent to addresses that haven't been used AND were generated on a non-networked computer. These keys then are printed to paper and saved to USB drive and then put in a physical security box in a place like a bank.

JP Richardson

Posted 2014-02-18T02:36:39.477

Reputation: 266