Risk in losing Bitcoin client / balances

[Exqulior]

Hello,

I am fairly new to the community, and I might be asking the obvious, but I couldn't find a concrete answer anywhere on the forum and documentation.

What happens whenever my computer cashes (harddisk failure or whatever) and I cannot restore my Bitcoin client? Assuming I do not have any backups of my data ( I do. Multiple, actually. In multiple locations.. but I know for a fact ~99% of humanity doesn't ), would I have just lost my entire Bitcoin balance? As far as I can tell, I would have.

Now, this is a pretty big risk for an average user who just wants to pay for some 'stuff' and services on the web, for example. Also, I wonder what happens with the lost Bitcoins. As far as I can tell, they will be lost forever. So the actual total amount of floating Bitcoins will not stay stable at close to 21 million eventually, but will actually decrease over the long term due to losses here and there.

Can anyone elaborate on this view? Thank you very much!

[Pieter Wuille]

The first rule of bitcoin is to backup your wallet.dat.

The second rule of bitcoin is to backup your wallet.dat.


Other than that, yes lost wallets result in permanently unspendable coins - effectively removed from circulation.

If you don't like to take that risk, you can use an online wallet, like mybitcoin.com or instawallet.org (given that you trust the operator of these sites).

[Exqulior]

Okay. So I understood right :-) Thank you for the insight. I just want to be sure I understand everything 100%.

The wallet.dat does not have to be up-to-date, right? It will update itself once it is restored and connects to other peers using a Bitcoin client.

As I mentioned.. I will not run into this problem since I have plenty of (automatic) backup mechanisms in place. I am just concerned about the implications in terms of adoptability for the general public, and the economical implications in terms of elevated deflation.

Again, thank you for your reply!

[Meni Rosenfeld]

The wallet.dat needs to be up-to-date, with some leeway. To make a long story short, if more than 100 new addresses were created since the backup, you are at risk of losing your entire savings. A weekly update should be good.

Those who do not know how to do backups (most of the population) will be advised to use an eWallet service.

[Exqulior]

That's good to know :-) I thought the client would just sync with the rest of the network, no matter how old the database is.

How about a client that has been offline for more than a week? Does this also mean a client has to be online at least once a week? I'm pretty sure it doesn't, since the client database would be entirely consisten with the data in the network, but still.. better safe than sorry right?

[Meni Rosenfeld]

The critical data stored in the wallet.dat is your private keys (one for each receiving address generated). These are private and not shared with the network (if they were then anyone would be able to claim ownership of your coins), so there's no way to "synchronize them with the network". If you lose the keys to your coins they're lost forever (or at least until the current level of ECDSA is broken).

If the client is offline then it's not generating new keys, so there's no risk. You don't need to put it online once a week. For that matter, if there's no client running with a wallet file, there's no need to update its backups. (So you can create a wallet, put some coins on it, copy it to a flash drive, bury it and never run a client with this wallet. When you dig it up some years later, assuming the flash media persists, running a client with this file will allow you to retrieve the coins.)

[Exqulior]

Yeah I get the whole private key and encryption principle. Basic cryptology. I never said anything about syncing those over the network.

So the client generates new private keys every once in a while, and that's the reason the backup can't be too old. Thanks for that info, perfectly clear to me now!

Thanks again!

[tabshift]

Yeah I get the whole private key and encryption principle. Basic cryptology. I never said anything about syncing those over the network.

So the client generates new private keys every once in a while, and that's the reason the backup can't be too old. Thanks for that info, perfectly clear to me now!

Thanks again!

The client only generates new private keys when you create a new receiving address. If you don't do that, the backup can be as old as you want, I believe.

[Exqulior]

Okay nice. Can anyone verify this?

[gst]

The client only generates new private keys when you create a new receiving address. If you don't do that, the backup can be as old as you want, I believe.

That's incorrect. The client also automatically creates new addresses when you sent money (to send the "change" back to you).

[grue]

Yeah I get the whole private key and encryption principle. Basic cryptology. I never said anything about syncing those over the network.

So the client generates new private keys every once in a while, and that's the reason the backup can't be too old. Thanks for that info, perfectly clear to me now!

Thanks again!

The client only generates new private keys when you create a new receiving address. If you don't do that, the backup can be as old as you want, I believe.

it also generates addresses when you send a transaction. (for the change)

[darkwon]

I think the client lacks a lot of usability at this point in time. For example there should be a "Copy wallet to location" command integrated in the UI. Also auto-backup should be done by the client asking the user where to safely store the file.

But as i understand it from posts in this thread, the client is not intended for the normal average user? In this case there should be some links to trusted eWallet sites on the main Bitcoin.org page. It should be the thing you most likely click on when you google Bitcoins.


These are great times for a new gold-standard, but only if it's easy to use and convenient for the masses.

[Exqulior]

Thank you all for the information. For the general public, the client is indeed not the tool to use. At least not in its current form. They would have to use online accounts at web services sites who offer payment processing and will still charge a %ge on every transaction.

Still, this does not make Bitcoins useless or anything. I am just saying :-) They still offer a great way to store value without the need of buying gold/silver ETFs which are not actually owned by yourself and stored in a bank vault somewhere (at least, you are being told it is), and without the question how much there actually is or how much there is going to be.

[Meni Rosenfeld]

The client only generates new private keys when you create a new receiving address. If you don't do that, the backup can be as old as you want, I believe.

That's incorrect. The client also automatically creates new addresses when you sent money (to send the "change" back to you).

It also automatically generates an address when receiving payment to the currently selected address (or something like that).

Thank you all for the information. For the general public, the client is indeed not the tool to use. At least not in its current form. They would have to use online accounts at web services sites who offer payment processing and will still charge a %ge on every transaction.

Currently several such services exist which are free, eg instawallet.org and mybitcoin.com.