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Bitcoin wallet software

A quote from bitcoin.org gives a good overview of what a wallet is.

Your Bitcoin wallet is what allows you to transact with the world. It gives you ownership of Bitcoinaddresses that you can use to receive coins from other users, and then lets you send those coins onwards. Just like email, you can receive Bitcoins when you are offline and all wallets are compatible with each other.

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Wallet software serves two purposes:

  1. Search the block-chain for any transactions being sent to one of the addresses in your wallet, and keep a log of all bitcoin’s you’ve sent and received.
  2. Store an encrypted copy of your private keys, which are used to send bitcoins to other addresses.

There are two approaches to searching for transactions.

Full-featured “thick” clients

The official bitcoin wallet downloads the full block chain do your local computer.  This means you have a copy of every transaction on your hard drive – which is currently over 10 GB. Bitcoin is a peer-to-peer (P2P) network, meaning that you download blocks directly from other people running the bitcoin client on their computers.

Advantages:

  • Helps secure the bitcoin network. The block-chain is based on a P2P network, so more people running the full client adds redundancy to the network and reduces the ability of an attacker to add fraudulent blocks to the network (which has not been observed).
  • You have all transactions on your computer, so you do not have to rely on other servers hosting the block-chain

Risks:

  •  Downloading the full client requires a significant amount of disk space (10+ GB)
  • It will take several days to get up-to-date on the block-chain.  That means outgoing transactions are halted, and it will be impossible to know the true value of your wallet on incoming transactions.
  • A constant connection is required to maintain updates on the block-chain. Reconnecting after several days off the network will result in several minutes to hours of delay.

“Thin” Clients

Thin clients do not require the entire block-chain to be downloaded locally. Instead the client queries a server to identify updates to wallet addresses.

Advantages:

  • The entire block-chain does not need to be downloaded.  This will significantly reduce the amount of time required to synchronize to the latest block.
  • Signifiicanly less disk space required to maintain the client (10 GB for a full client vs 10 MB for a thin client)
  • Mobile wallets will universally require thin clients, since 10GB of hard drive space is not typically available on mobile devices.
  • Risks:

  • Servers providing transaction information become compromised and do not send information, or intentionally provide inaccurate information

Clearly, the decision depends on the individual user.  If time and disk space are not a concern, using the full client will provide security to the network.  However – if one is constrained on disk space, or needs to quickly update block information – a thin client will probably be in their best interest.

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