Wrapping my head around the idea of an e-wallet.

[ECore]

Ok...so i have bitcoin wallet up and running on my computer.  I have bitcoins.

What's the first step of securing my wallet?

What I did was file/backup wallet.  I encrypted my wallet with axcrypt and burned it on a disk and put it in my safe.

Now is it safe to run bitcoin on my computer?  I deleted the encrypted wallet on my computer with a file shredder after I burnt it on a disk.

How often should I backup my wallet?  I visit faucets often so I go through alot of transactions....so I think I read after 100 transactions redo the backup.

I believe I need to store the backup in different locations to ensure loss...


So how am I doing?  I still don't know how one secures their wallet that is stored in AppData without messing up the Bitcoin client that one uses on their computer?  I guess the idea is to make a wallet that you don't use online and send your bitcoins to that address....

[Stephen Gornick]

So how am I doing?

Well, it depends.  Are you using the Bitcoin.org client without encryption?  You mentioned encryption with a third party tool, I presume that was just an encrypted copy of the wallet.dat so that you can store a backup securely elsewhere.

If you use the Bitcoin.org passphrase encryption, that will encrypt the private keys with AES.   That alone is secure enough to protect your keys from theft -- you do not need to use any third party encryption for the wallet.dat after that, though the transaction data is not encrypted so to keep your transaction history private, you might also want to use a third-party encryption tool like you mentioned you had.

Know that if you already have bitcoins received and then encrypt, after encryption you'll want to do a spend transaction and spend the entire amount of funds to a new address post-encryption so that there are no funds sitting on bitcoin addresses which existed prior to having passphrase encryption.

As far as using many addresses, you can increase the size of your keypool so that you won't need to backup as often.    Note that a new address is consumed only with each change transaction when you spend or when you click "New Address".  Simply receiving multiple times to an existing address (which is possibly the method you are following with those "free bitcoin" services) doesn't consume any new addresses from the keypool.

 - http://en.bitcoin.it/wiki/Securing_your_wallet
 - http://en.bitcoin.it/wiki/Key_pool

[odolvlobo]

Securing your wallet against loss

You should make offline backups of your wallet periodically -- at least every 100 outgoing transactions. Encrypted digital copies are fine.

Securing your wallet against theft

This can be much more complicated depending on how secure you want to be. At a minimum, you must use the Encrypt Wallet option with a strong password. This should be sufficient for most people. If you have a large amount of BTC, you should consider storing some of it offline (in a paper wallet, for example). Making an offline wallet is pretty easy, but has its own set of small risks. Finally, there is a wallet called Armory that requires a second computer that is never connected to the internet. If you don't mind this requirement then the increased security you get might be worth the inconvenience.