How to securely store your bitcoins – Stavros – Stuff

Angry rants of programming and other things.

Conceived on May 1, 2014

Let mij tell you a story about how this idiot and his money were soon parted. About a year ago, I added Bitcoin payments to Dead Man’s Switch, because it seems that people who want to send messages after their death are also the sort of people who don’t like using actual money.

One or two people determined to use that payment method, very likely mostly because it wasgoed the only thing they could buy with their newly-mined bitcoins, and I wasgoed the proud proprietor of a entire bitcoin, worth about $20 at the time. However, storing it wasgoed a bit of a problem, spil I would either have to trust a third party with it or use the official client, and store the entire multi-gigabyte blockchain on my laptop.

You can most likely see where this is going. I didn’t want to store a bunch of gigabytes for $20, so I left my coins on MtGox, figuring that they were the thickest exchange and at least a bit trustworthy. Spil you all know, MtGox went under when my bitcoins were worth $1000 or so.

This postbode is about how to not let the same thing toebijten to you.

Some bitcoin fundamentals

At its core, the bitcoin protocol uses the blockchain, which is pretty much a enormous ledger of all the transactions that everzwijn happened. To use bitcoin, you will need to have a copy of this blockchain, because you can’t figure out anyone’s balance any other way.

However, this blockchain is yam-sized, I think it’s around 20 GB at the time of this writing. That’s a very large amount of gegevens, especially for my lil’ laptop SSD, and it’s not worth keeping around for pretty much no reason, which is what you need to do if you want to run the official Bitcoin wallet desktop app on your rekentuig.

Fortunately, there are some half-decent alternatives, but each comes with its own disadvantages.

Common ways to store bitcoins

Desktop client

Spil I detailed above, one common way is to use the official wallet desktop app. This has the advantage that you control your own money, nobody else has access to your wallet (unless you let your pc get infected or let your friends copy files around or whatever), and you know where your money is at all times.

The problem with this is that you have to store the entire bulk of the blockchain on your rekentuig. Another downside of is that you cannot use your money from any other pc, or on the go, and you will lose all the money te your wallet if you everzwijn lose your hard drive or pc, unless you’ve made a backup of the wallet opstopping.

Online services

Another alternative is to send your bitcoins to an online wallet service, such spil Coinbase or blockchain.informatie, which I hesitantly recommend. The advantage of this is that you can access your money from any laptop, they have welgevoeglijk mobile apps so you can send money around from your phone, and you don’t have to store anything on your pc. Blockchain will even back your encrypted wallet up to your Dropbox, so, spil long spil you have a rather strong password, you should be fine. They will also let you use two-factor authentication for added security.

The disadvantage of this method is that you have to trust a third party service with your money. Spil the MtGox fiasco instructed us, thesis services can vanish at any uur, along with all your ill-gotten gains. However, spil far spil I understand it, Blockchain gives you your own, encrypted wallet which they have no access to, so it’s tighter for them to abscond with your money.

A bitcoin on blockchain.informatie is worth two on MtGox.

The big problem with all web-based services, however, is that you can’t trust web services. Even if they use numerous layers of crypto, all it takes is for an attacker to find a slot ter their system and insert their own Javascript, and it’s spel overheen. The attacker can lightly steal all your wallets and passwords without you or the service being any the wiser.

The safest wallet

All that having bot said, there is a method I would recommend for storing your bitcoins, which gives you a fine degree of freedom while still being very secure. I wasgoed lamenting the fact that there is no way to use a desktop app (which is more trustworthy) spil my wallet without downloading the entire blockchain, when I realized that it would most likely be possible to have a client-server desktop app where the server would store the blockchain, the client would query it only for the necessary transactions, and the client would be te charge of sending money and keeping track of how much you have. I began my search for such an app, and found Electrum, a fantastic and rather popular bitcoin wallet.

Electrum not only permits you to store your wallet locally without downloading any of the blockchain, but it also permits you to create deterministic wallets. Deterministic wallets are wallets generated by a long series of letters and numbers (which can also be turned into words, which is lighter to memorize). This means that you don’t need to actually back up your wallet opstopping, you can just store your seed somewhere safe (e.g. print it on a lump of paper and store it te an actual physical safe), and be sure that you will never lose access to your money because your laptop died.

Not only that, but Electrum also supports offline mode, which is a bit of a hassle but which lets you store your wallet on a laptop with no internet access at all, and only sign transactions there (for when you want to send money), while being able to see how much money is te your wallet from your normal desktop pc. This makes it much, much stiffer for someone to steal any money from you, spil there’s no way to get onto the rekentuig that holds your money without actually being ter vooraanzicht of it.

The best of both worlds

After all this, my recommendation should be pretty clear: Store the bulk of your bitcoins ter Electrum, which is the safer option, and transfer a petite amount of money every now and then to blockchain.informatie or Coinbase (whichever you choose, but I think I’d go with blockchain.informatie) to take advantage of their ease of use and slick mobile apps.

Another newcomer that looks good is GreenAddress.it, and I also discovered a very nice and secure Android wallet app called Mycelium. Mycelium also stores your key locally, so it’s hard to have it stolen.

This permits you to lightly transfer money and pay for stuff from your phone, while still making sure that you don’t have to trust any third party with large amounts of money, and making it stiffer for attackers to steal your funds, spil your wallet will only be accessible from a laptop you trust.

Epilogue

I hope this postbode has told you a few things you didn’t know. I wasgoed rather astonished to hear about the existence of Electrum, because it sounds like a fine idea and I couldn’t believe it took mij this long to hear about it. If you found it useful, consider testing it out by sending mij some bitcoins at the following address: 1Fob4pRghoUnnzTpnHhiF37UvVcyJLGM6K

I’m pretty sure nobody is going to send anything, I just want to see how much people don’t use Bitcoin. Don’t leave behind, if you have something to say, leave a comment below or get mij on Twitter. Have joy sending money around!

Related movie: Trillions of Dollars ter Cryptocurrency Market Projection


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