Paper wallets and change addresses. Please help me understand a warning

[orz.dk]

Ok, now I am trying the bitcoinpaperwallet.com wallet. This one has a warning in the instructions, stating:

"When withdrawing your funds from this wallet, you should remove the ENTIRE BALANCE. If you attempt to spend only some of the funds you will likely lose the remaining bitcoins forever."

I'm not sure I understand this message. Lets say i have 1 BTC in the paperwallet. Wouldn't I just import my private key to bitcoin-qt, rescan and watch my qt-wallet balance go up by 1 BTC, - then destroy the paperwallet and spend any amount from qt as usual ??

I suppose it has something to do with change addresses. Can someone outline a case where a "loss of funds forever" would occur by using (only part of the funds on) a paperwallet? I'm not even sure I understand how I would spend/remove "only some of the funds" ??

Thanks for help !

/orz.dk

[CIYAM]

If you are importing the private key into a bitcoin client such as bitcoin-qt or even into a blockchain.info wallet then you will have no problem (as the tx will be generated for you and a change address automatically created in your wallet).

The warning is for those that are going to do a "raw tx" (in which case a "change" output needs to be included if you are not going to transfer all the BTC).

If you fail to specify a change address and don't transfer *all* the funds to the destination address then what remains is the *fee* (so not *lost* forever but instead gifted to the lucky miner).

[escrow.ms]

http://www.reddit.com/r/Bitcoin/comments/1c9xr7/psa_using_paper_wallets_understanding_change/

[orz.dk]

Thank you CIYAM and escrow, I am getting closer to understanding the warning. "Lost forever" means that the money went to fees, because the sender forgot to add a change address to a raw trx, but that does not seem to be a problem related to paperwallets as such.

I did check out the reddit link b4 posting, but it confused me even more.

Second part in the reddit says:  "This time, I am going to send 1BTC to an address from my 5BTC wallet, and keep 4BTC in my paper wallet for later".... which seems an slightly odd way to describe it. He is not sending anything from the paperwallet, he's sending 1 BTC from the qt-wallet to which the paperwallet private key has been imported?

The only way i can understand the warning, is if someone creates a qt-wallet, imports 5 BTC to it from a paper pk, spends 1 BTC from the qt-wallet, and then expects to be able to import the "remaining" 4 BTC to another clean wallet from the same paper pk. (assuming that the money co-exists in both the qt and paper wallet)

Wouldn't a more simple (and less unnerving) way to convey the core message to new users be "Once you have imported your paperwallet into any client, the paperwallet cannot be used anymore and should be destroyed [, all your funds are now stored in the bitcoin client]. In case you need to put any remaining funds from your bitcoin client, back on paper, you should create a new paper wallet, and send the funds to that address"

[Remember remember the 5th of November]

If you are importing the private key into a bitcoin client such as bitcoin-qt or even into a blockchain.info wallet then you will have no problem (as the tx will be generated for you and a change address automatically created in your wallet).

The warning is for those that are going to do a "raw tx" (in which case a "change" output needs to be included if you are not going to transfer all the BTC).

If you fail to specify a change address and don't transfer *all* the funds to the destination address then what remains is the *fee* (so not *lost* forever but instead gifted to the lucky miner).

LOL, lucky he says. Nothing lucky here, we all know that 99.99% of the times, it's a pool that will get it.

[CIYAM]

LOL, lucky he says. Nothing lucky here, we all know that 99.99% of the times, it's a pool that will get it.

True - although *luckily* for me when I accidentally paid the biggest fee ever paid (I think the record still stands at 111 BTC) the pool that mined it was kind enough to send most of it back to me.

[DannyHamilton]

- snip -

The only way i can understand the warning, is if someone creates a qt-wallet, imports 5 BTC to it from a paper pk, spends 1 BTC from the qt-wallet, and then expects to be able to import the "remaining" 4 BTC to another clean wallet from the same paper pk. (assuming that the money co-exists in both the qt and paper wallet)

- snip -

This is exactly what the warning is attempting to state.  There are many who try to use a "paper wallet" without understanding how bitcoin works and how transactions are structured.  People have lost bitcoins because they assued that they could send 10 BTC to the paper wallet, then import that private key just long enough to create a transaction to spend a portion of it, then immediately delete the Bitcoin-Qt wallet.dat file.  They didn't realize that the transaction would send the "change" to a new address and that the entire balance of the previously received transaction would be spent.

Wouldn't a more simple (and less unnerving) way to convey the core message to new users be "Once you have imported your paperwallet into any client, the paperwallet cannot be used anymore and should be destroyed [, all your funds are now stored in the bitcoin client]. In case you need to put any remaining funds from your bitcoin client, back on paper, you should create a new paper wallet, and send the funds to that address"

Yes.