Hello!
Here are some of my personal notes about creating an offline bitcoin "savings account". I am still learning myself so I thought that I'd contribute these notes in hopes that someone else will find it helpful and that people smarter than me would reply and point out any errors or crucial omissions.
About offline addresses :
- Bitcoin addresses can be created with an offline computer because there is no central key database; downloading the blockchain for this purpose is not necessary.
- Even though there is no central database the bitcoin address is created with a cryptographic function that makes it very unlikely that someone else accidentally generates the same address.
- If someone sends bitcoins to your offline address you can verify that they have been added to the blockchain; there is no need to ever bring the offline wallet online unless you want to use the address for payments. See:
https://blockchain.info/- Just like a bank account number the bitcoin address can be safely given to the public; the private key is the equivalent of the PIN number and should be kept offline and secret. It is stored in the wallet.dat which should be kept private and backed up in several locations. If the private key is lost there is no way to retrieve your money.
Possible weaknesses:
- It is possible, however unlikely, for someone to generate address identical to yours; this is called a collision. The Bitcoin Wiki says "...you have about 215,000,000,000,000,000,000,000,000,000,000,000,000 addresses per capita." See:
https://en.bitcoin.it/wiki/Weaknesses#Generating_tons_of_addresses- If an address collision were to happen the other party could sign payment orders (spend the money) because their private key fits the public address.
- A "brainwallet" is possibly less secure than a randomly computer-generated one. Hackers may use dictionaries to generate addresses from random passphrases and use the collision attack to spend all the funds currently held by that address as well as all the funds transferred there in the future.
- A way to mitigate the risk of address theft (for any reason) and to increase your anonymity is to use multiple addresses with a smaller sum stored in each. See:
https://en.bitcoin.it/wiki/Anonymity &
https://www.youtube.com/watch?v=-FaQNPCqG58Best course of action:
- Create your wallet offline or if you don't have a dedicated offline computer, use a Linux boot CD:
https://en.bitcoin.it/wiki/How_to_set_up_a_secure_offline_savings_wallet- Always remember to make backups and store them in multiple locations in case of a fire, etc. Remember that backup media degrade over time so keep your backup media fresh. See:
https://en.wikipedia.org/wiki/Bit_rot- Think twice before trusting the cloud services for backup, they are vulnerable to attack or illegal actions by a rogue employee. See:
https://en.wikipedia.org/wiki/Dropbox_(service)#Reception- If you are mortal your relatives might find themselves going through your things in the future. If you choose to encrypt your backup media you could be considerate and leave a note with a clue about the password that only they will know. See:
http://www.truecrypt.org/- Collision is extremely unlikely to be a problem unless you opt to use a "brainwallet" with poorly chosen keywords. If you insist on using a "brainwallet" plan it well. See:
https://en.bitcoin.it/wiki/Brainwallet &
http://www.reddit.com/r/Bitcoin/comments/14os4j/i_dont_understand_brainwallets/- It is possible that the Bitcoin network might be updated in the future (in case some core encryption is broken, etc) and the new version might not be backwards compatible. Keep an eye out for new developments and update your wallet at least every few years.
- Don't tell everyone that you own a million coins. It might make you "cool" but it will also make you a target.
- Do your homework. There is no reason you should ever trust a random person on the Internet.
References:
https://en.bitcoin.it/wiki/Weaknesseshttps://en.bitcoin.it/wiki/Private_keyhttps://en.bitcoin.it/wiki/Securing_your_wallethttps://en.bitcoin.it/wiki/How_to_set_up_a_secure_offline_savings_wallethttps://en.bitcoin.it/wiki/Technical_background_of_version_1_Bitcoin_addresseshttp://codinginmysleep.com/bitcoin-cold-storage-in-plain-englishhttps://bitcointalk.org/index.php?topic=17240.0https://bitcointalk.org/index.php?topic=89061.0https://bitcointalk.org/index.php?topic=125600.0
