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Author Topic: Time to bust a myth. Paper wallets are less secure than normal encrypted wallets  (Read 12195 times)
johnyj
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April 06, 2015, 03:52:48 PM
 #41

The horrible scenario is: One day you wake up and find out that your coins are gone  Grin

Then you will panic and start to check the security of each step of your operation

It basically falls into two categories:
1. The key generation was not secure
2. The key was stolen

The generation part is most difficult to defend, since there is no easy way to guarantee the true randomness of the key. Even if you have a true random key generated by dice casting, you could still become the victim if the conversion software intentionally provide you a key that software author makes

This concern even applies to hardware wallet, which is even less transparent than those webpages

So, in order to make sure every step is secure, either you rely on some authority (which against the "trust nobody" spirit of bitcoin), or you must be able to review the code that does the actual key generation and conversion. That's why many people dare not to put serious money in bitcoin unless they are good at code review

Maybe bitcoin foundation can act as an authorized code reviewer and publish the certified software and hardware

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April 06, 2015, 03:54:10 PM
 #42

If your going to buy a fresh PC use it for cold storage with an encrypted wallet, using a paper wallet provides no extra security and extra hassle.

A paper wallet is physically much smaller, and as a result is easier to hide. Also in the event that you are physically robbed (potentially unrelated to bitcoin) then the attacker is more likely to go after your airgaped computer then a paper wallet. Also by human nature, a computer that is air gaped, is more likely to have a weak password securing it's encryption if any at all. So someone may steal your computer hoping to have something to sell for drug money to fuel their addiction and may end up stumbling upon your massive amounts of bitcoin while never coming across your paper wallet (or even seeing it and ignoring it).

One avenue that a paper wallet is probably more secure is when you are needing to spend your bitcoin and know in advance that your computer has malware. With an encrypted wallet, it is going to be more difficult to get your encrypted wallet to a non-malware infected computer without also potentially bringing the malware with you. With a paper wallet on the other hand, all you need to do is simply find a computer that is secure and not infected with malware.

Another point that you might want to add is the fact that when someone is told they should encrypt their private key with a strong password, they are much more likely to use a weak password when using a paper wallet because they will think that the chances of someone ever getting access to the paper wallet to even try the password are slim
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April 06, 2015, 04:02:20 PM
 #43

A paper wallet is physically much smaller, and as a result is easier to hide. Also in the event that you are physically robbed (potentially unrelated to bitcoin) then the attacker is more likely to go after your airgaped computer then a paper wallet. Also by human nature, a computer that is air gaped, is more likely to have a weak password securing it's encryption if any at all. So someone may steal your computer hoping to have something to sell for drug money to fuel their addiction and may end up stumbling upon your massive amounts of bitcoin while never coming across your paper wallet (or even seeing it and ignoring it).

Right. Thats why I mentioned atleast an 80bit password. If you are going to use poor passwords despite all the warnings DO NOT have anything to do with Bitcoin as all of your exchange accounts and wallets will be hacked.

One avenue that a paper wallet is probably more secure is when you are needing to spend your bitcoin and know in advance that your computer has malware. With an encrypted wallet, it is going to be more difficult to get your encrypted wallet to a non-malware infected computer without also potentially bringing the malware with you.

I posted a guide before on what to do if you've been hacked, follow that guide and this won't happen:
https://bitcointalk.org/index.php?topic=929882.0
(I need to still fix that up, I hate that guide).

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April 06, 2015, 04:12:30 PM
 #44

One avenue that a paper wallet is probably more secure is when you are needing to spend your bitcoin and know in advance that your computer has malware. With an encrypted wallet, it is going to be more difficult to get your encrypted wallet to a non-malware infected computer without also potentially bringing the malware with you.

I posted a guide before on what to do if you've been hacked, follow that guide and this won't happen:
https://bitcointalk.org/index.php?topic=929882.0
(I need to still fix that up, I hate that guide).
It looks to be useful for someone who is trying to secure their coinbase account (for example) or their bitcointalk account, but not so much for a wallet that does not use any kind of central location to keep track of your passwords. For example you could simply enter your email/password on coinbase from a secure computer and change your password to secure that account. However when dealing with an encrypted file (wallet) then you would somehow need to transfer that file from a malware infected computer onto a "clean" computer and potentially risk that you infect the "clean" computer in the process.
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April 06, 2015, 04:18:40 PM
 #45

One avenue that a paper wallet is probably more secure is when you are needing to spend your bitcoin and know in advance that your computer has malware. With an encrypted wallet, it is going to be more difficult to get your encrypted wallet to a non-malware infected computer without also potentially bringing the malware with you.

I posted a guide before on what to do if you've been hacked, follow that guide and this won't happen:
https://bitcointalk.org/index.php?topic=929882.0
(I need to still fix that up, I hate that guide).
It looks to be useful for someone who is trying to secure their coinbase account (for example) or their bitcointalk account, but not so much for a wallet that does not use any kind of central location to keep track of your passwords. For example you could simply enter your email/password on coinbase from a secure computer and change your password to secure that account. However when dealing with an encrypted file (wallet) then you would somehow need to transfer that file from a malware infected computer onto a "clean" computer and potentially risk that you infect the "clean" computer in the process.

Yeah I wrote that guide mainly for those kinds of hacks because they are the most common. I probably should write more about the issue you describe. You should follow the 3,2,1 procedure when backing up an encrypted wallet, 3 copies, 2 mediums, 1 offsite. You could use a paper wallet as a backup medium, or a CD. You can use this copy of your wallet to restore it if your pc is infected and not risk tracking the malware across.

Paper wallets are useful for certain scenarios such as backups but they are not very useful as a security tool.

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April 06, 2015, 04:25:14 PM
 #46

Maybe bitcoin foundation can act as an authorized code reviewer and publish the certified software and hardware

That's a damn good idea

My negative trust rating is reflective of a personal vendetta by someone on default trust.
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April 06, 2015, 04:28:31 PM
 #47

Maybe bitcoin foundation can act as an authorized code reviewer and publish the certified software and hardware

That's a damn good idea

Not really. You still need to trust the people doing the review, which is the same situation we have now. And the Bitcoin foundation is broke and nobody trusts them.

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April 06, 2015, 04:29:57 PM
 #48

Maybe bitcoin foundation can act as an authorized code reviewer and publish the certified software and hardware

That's a damn good idea

Not really. You still need to trust the reviewers. And the Bitcoin foundation is broke and nobody trusts them.

You only need to trust one person who has reviewed the code.

I'm not necessarily endorsing review from the foundation. But maybe an open review platform. such as [1]Codereview?

[1] http://codereview.stackexchange.com/

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April 06, 2015, 04:44:41 PM
 #49

One avenue that a paper wallet is probably more secure is when you are needing to spend your bitcoin and know in advance that your computer has malware. With an encrypted wallet, it is going to be more difficult to get your encrypted wallet to a non-malware infected computer without also potentially bringing the malware with you.

I posted a guide before on what to do if you've been hacked, follow that guide and this won't happen:
https://bitcointalk.org/index.php?topic=929882.0
(I need to still fix that up, I hate that guide).
It looks to be useful for someone who is trying to secure their coinbase account (for example) or their bitcointalk account, but not so much for a wallet that does not use any kind of central location to keep track of your passwords. For example you could simply enter your email/password on coinbase from a secure computer and change your password to secure that account. However when dealing with an encrypted file (wallet) then you would somehow need to transfer that file from a malware infected computer onto a "clean" computer and potentially risk that you infect the "clean" computer in the process.

Yeah I wrote that guide mainly for those kinds of hacks because they are the most common. I probably should write more about the issue you describe. You should follow the 3,2,1 procedure when backing up an encrypted wallet, 3 copies, 2 mediums, 1 offsite. You could use a paper wallet as a backup medium, or a CD. You can use this copy of your wallet to restore it if your pc is infected and not risk tracking the malware across.

Paper wallets are useful for certain scenarios such as backups but they are not very useful as a security tool.
right. I think it is somewhat of an unrealistic expectation for everyone to backup their wallets in multiple locations and mediums as this level of security is foreign to most people, especially with the advent of cloud storage that allows their documents to be automatically backed up to their cloud service. I am not saying that I engage in this lack of security environment or that it is a valid excuse however it is unfortunately a reality for a lot of people.
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April 06, 2015, 04:48:28 PM
 #50

I tend to agree with you. Im more paranoid that the printed paper gets lost/deteriorated than a usb+hd backups.
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April 06, 2015, 05:24:17 PM
 #51

I found this information very interesting and valuable. I understand it as information what can possibly happen if someone did not follow basic and fundamental steps of security on computer he is using. I would like to understand what is good practice to avoid security break which can allow to steal and send away a private information (private keys).
What I would be intersted as well if there is someone who can confirm he lost Bitcoins from Paper wallet he created as safe Cold storage.
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April 06, 2015, 05:41:11 PM
Last edit: April 06, 2015, 05:55:06 PM by Blazr
 #52

right. I think it is somewhat of an unrealistic expectation for everyone to backup their wallets in multiple locations and mediums as this level of security is foreign to most people, especially with the advent of cloud storage that allows their documents to be automatically backed up to their cloud service. I am not saying that I engage in this lack of security environment or that it is a valid excuse however it is unfortunately a reality for a lot of people.

It's not that difficult to backup your wallet. To do it with electrum, simply create a wallet, write down the seed on paper with a pen (no printers), then do file>save copy and save it in cloud storage. Now you have 3 copies, 2 different mediums and 1 offsite. Electrum backups are forever (except for the labels, you can use the label sync feature if you want to back those up). The seed is at risk of physical theft however, and I wouldn't recommend encrypting it in case you forget your password.

What I would be intersted as well if there is someone who can confirm he lost Bitcoins from Paper wallet he created as safe Cold storage.

Paper wallets do get hacked a lot but this is usually due to people using crappy software to make them.

However I had a friend who had his paper wallet hacked recently, which is why I decided to make this thread. He typed the private key into his computer to send some bitcoins out of it and a few hours later the rest of the funds on the paper wallet were stolen. We're still looking into what exactly what happened but we found a RAT on his computer so my guess is that the hacker found out he had a paper wallet (he had a copy of bitaddress.org saved on his desktop) and keylogged him entering in the private key and stole the rest of the funds later. There are many other way the hacker could've done this, and I suspect we will see more sophisticated attacks on paper wallets soon.

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April 06, 2015, 06:10:17 PM
 #53

right. I think it is somewhat of an unrealistic expectation for everyone to backup their wallets in multiple locations and mediums as this level of security is foreign to most people, especially with the advent of cloud storage that allows their documents to be automatically backed up to their cloud service. I am not saying that I engage in this lack of security environment or that it is a valid excuse however it is unfortunately a reality for a lot of people.

It's not that difficult to backup your wallet. To do it with electrum, simply create a wallet, write down the seed on paper with a pen (no printers), then do file>save copy and save it in cloud storage. Now you have 3 copies, 2 different mediums and 1 offsite. Electrum backups are forever (except for the labels, you can use the label sync feature if you want to back those up). The seed is at risk of physical theft however, and I wouldn't recommend encrypting it in case you forget your password.

What I would be intersted as well if there is someone who can confirm he lost Bitcoins from Paper wallet he created as safe Cold storage.

Paper wallets do get hacked a lot but this is usually due to people using crappy software to make them.

However I had a friend who had his paper wallet hacked recently, which is why I decided to make this thread. He typed the private key into his computer to send some bitcoins out of it and a few hours later the rest of the funds on the paper wallet were stolen. We're still looking into what exactly what happened but we found a RAT on his computer so my guess is that the hacker found out he had a paper wallet (he had a copy of bitaddress.org saved on his desktop) and keylogged him entering in the private key and stole the rest of the funds later. There are many other way the hacker could've done this, and I suspect we will see more sophisticated attacks on paper wallets soon.

Thank you, I am taking this very seriously. I would welcome any information or guidance how to avoid such scenario. Reading your answer I see another problem in Not following basic rule to spend whole amount of BTC stored in Paper Wallet. When you once use your Private key is not "private" any more. I will follow your thread for sure. Thanks.
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April 06, 2015, 06:12:40 PM
 #54

Can someone please verify the security of bitcoins I have stored with this method:

0. I copied bitaddress.org source code onto a formatted flash drive.
1. Turned off my computer. I unplugged my computer from the Internet.
2. I booted from a Ubutnu Live DVD.
3. I opened the bitaddress website from the flash drive (not from the Internet, because the computer was not connected to the Internet during this boot up with Ubuntu Live).
4. I printed a bunch of private keys onto paper with my laser printer.
5. I turned off the computer and removed the Ubuntu Live DVD.

(have since printed hundreds of non-bitcoin-related documents from the laser printer, clearing its memory)

Also: I only use they private keys once. If I ever send funds from them, I destroy the private key and never use it again.
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April 06, 2015, 06:15:52 PM
 #55

right. I think it is somewhat of an unrealistic expectation for everyone to backup their wallets in multiple locations and mediums as this level of security is foreign to most people, especially with the advent of cloud storage that allows their documents to be automatically backed up to their cloud service. I am not saying that I engage in this lack of security environment or that it is a valid excuse however it is unfortunately a reality for a lot of people.

It's not that difficult to backup your wallet. To do it with electrum, simply create a wallet, write down the seed on paper with a pen (no printers), then do file>save copy and save it in cloud storage. Now you have 3 copies, 2 different mediums and 1 offsite. Electrum backups are forever (except for the labels, you can use the label sync feature if you want to back those up). The seed is at risk of physical theft however, and I wouldn't recommend encrypting it in case you forget your password.
I didn't say it is hard to backup. It is just that people don't care to do so. I don't like the idea of storing your seed in plaintext though, I would encrypt it with a weak PGP password (instead of a private PGP key) that way someone that hacks your cloud storage with social engineering cannot have immediate access to your private keys and you should have time to move your funds once you discover your cloud storage service is hacked. Plus if your computer is hacked then there is a good chance your cloud storage service account would get hacked as well.

You can do a very similar procedure with electrum as well.
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April 06, 2015, 06:43:21 PM
 #56


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He typed the private key into his computer to send some bitcoins out of it and a few hours later the rest of the funds on the paper wallet were stolen.

How is this even possible, the funds belonging to a private key needs to be spend all at once right?
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April 06, 2015, 06:53:17 PM
 #57

If you dont do it right no procedure will be ever safe. If you do it right both ways can be quite safe.


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April 06, 2015, 07:03:44 PM
 #58


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He typed the private key into his computer to send some bitcoins out of it and a few hours later the rest of the funds on the paper wallet were stolen.

How is this even possible, the funds belonging to a private key needs to be spend all at once right?

No. You need to "spend" all the funds in each input that you are sending however it is possible to make the chance go back to the address that originaly had the funds as is encouraged by the use of paper wallets.

It would be possible to have multiple inputs to an address and only spend one or some of them.
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April 06, 2015, 07:08:50 PM
 #59

I didn't say it is hard to backup. It is just that people don't care to do so. I don't like the idea of storing your seed in plaintext though, I would encrypt it with a weak PGP password (instead of a private PGP key) that way someone that hacks your cloud storage with social engineering cannot have immediate access to your private keys and you should have time to move your funds once you discover your cloud storage service is hacked. Plus if your computer is hacked then there is a good chance your cloud storage service account would get hacked as well.

You can do a very similar procedure with electrum as well.

When you do file>save copy in Electrum, the copy will be encrypted if the original was. Of course any wallet you put in the cloud should be encrypted, a few years ago dropbox had a security issue that allowed anyone to log in to anyone else account without a password. The issue remained for a few hours.

Only the hand-written seed should be unencrypted, I would not recommend encrypting it as if you forget your password you'll have no way of accessing your funds, you should always have the means to access your wallet in the event you've forgotten your password.

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April 06, 2015, 07:10:15 PM
 #60

Thank you, I am taking this very seriously. I would welcome any information or guidance how to avoid such scenario. Reading your answer I see another problem in Not following basic rule to spend whole amount of BTC stored in Paper Wallet. When you once use your Private key is not "private" any more. I will follow your thread for sure. Thanks.

I'm working on a guide right now that will show you step-by-step how to setup a secure and relatively simple hot/cold storage system using electrum that will provide significant protection. Keep an eye out for it.

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