How do I properly set up a server as a bitcoin wallet?

[NotATether]

Right now I'm holding a small amount of bitcoins, about $6, in an online wallet, which I don't like because there are any number of things that can go wrong within the wallet website, it could get hacked, they could run out of funds, etc., and I have a cloud computing service so I want to spin up a linux server to store my bitcoin in. It is not possible for me to set up an offline server. So my plan is to firewall the wallet server such that only one IP address belonging to another computer I control can make inbound connections to it with VNC or the like while still being able to send and receive transactions over the internet. (Yes, I realize I should be tunneling VNC over SSH.)

I'm going to run a server with 1 or 2 gigabytes of memory in it since that's all I'm going to use it for. I'm open to both GUI and command line wallets. I also want to have control of the fees I send. Segwit addresses are optional but would be nice.

I have a few questions about my set-up:

1) Which bitcoin wallet should I use?
2) How should I back up my wallet so I don't lose my money?
3) Not essential but is there a way to set up rotating receiving addresses? It would make it harder for people to correlate my transactions.
4) Are there any other measures I need to take to prevent unauthorized access of my wallet?

[joniboini]

Why don't you control your funds from your own computer? Like, using Electrum or any other SPV client. If your purpose is to only send and receive money from here and there I don't see the reason to run your own server just for the sake of running a wallet on another computer. It adds another layer which could further increase the risk of your private key/seed getting exposed or intercepted.

Anyway,
1. Bitcoin Core for a full node, Electrum for SPV client.
2. Write it down, use a strong passphrase, be careful with remote attacks etc, basically anything that could intercept and expose your seed or private key.
3. Like an invoice generation thing? Or you just need a lot of addresses that you can use whenever possible?

[OmegaStarScream]

Just to add more details to the above:

3. Electrum (the wallet that I would suggest you to use) automatically generates a new receiving address each time you receive some funds.
4. Just make sure to use a strong password and be careful with your browsing-habits (don't download random things online). You seem like a tech-savvy so I'm pretty sure that's not gonna be hard.

As additional advice, if you ever decide to accumulate more bitcoins, I highly suggest investing in a hardware wallet (Trezor or Ledger) instead.

[NotATether]

Why don't you control your funds from your own computer? Like, using Electrum or any other SPV client. If your purpose is to only send and receive money from here and there I don't see the reason to run your own server just for the sake of running a wallet on another computer. It adds another layer which could further increase the risk of your private key/seed getting exposed or intercepted.

I don't want to risk my computer, which is old, breaking and losing the wallet. I have special circumstances and it's difficult for me to get another computer let alone recovering the data off of it. I do have the money for one but getting computers where I am located is difficult.

3. Like an invoice generation thing? Or you just need a lot of addresses that you can use whenever possible?

Just a lot of addresses.

As additional advice, if you ever decide to accumulate more bitcoins, I highly suggest investing in a hardware wallet (Trezor or Ledger) instead.

I'm not planning on putting a lot of bitcoins in there, the most I'll ever put is a few hundred bucks.

[Thekool1s]

I don't want to risk my computer, which is old, breaking and losing the wallet. I have special circumstances and it's difficult for me to get another computer let alone recovering the data off of it. I do have the money for one but getting computers where I am located is difficult.

Once you have backed your seed i.e written it on a piece of paper or encrypted it on a flash drive there is no more backing up to do. Your seed is the backup so even if your pc breaks down you will still have access to your wallet that's the beauty of bitcoin.

Just a lot of addresses.

Just like @OmegaStarScream said, Electrum allows you to do this. It will automatically generate new Receive addresses once they have been used. Electrum usually shows only 20 addresses by default you can pre-generate more addresses by reading this: https://electrum.readthedocs.io/en/latest/faq.html

[NotATether]

An update,

I successfully set up a firewalled server running Electrum. It wasn't as hard as I though it would be and it's very lightweight, the whole system taking half of the 1GB of memory I gave the server.

What has intrigued me is that it has generated a lot of wallet addresses for me. I'm looking at about 20 right now. Wouldn't one be enough? Why are all of those addresses needed?

[BitMaxz]

An update,

I successfully set up a firewalled server running Electrum. It wasn't as hard as I though it would be and it's very lightweight, the whole system taking half of the 1GB of memory I gave the server.

What has intrigued me is that it has generated a lot of wallet addresses for me. I'm looking at about 20 right now. Wouldn't one be enough? Why are all of those addresses needed?

The 20 addresses from Electrum is auto-generated by default. One address is enough but if you don't want to use the other address just leave them there no matter what address you use it still your wallet. The important is to save the seed phrase backup somewhere safe.

But if you want to use only one address you can export one address from the Electrum wallet.
Here's how to export and import them.
- Choose any address you want then right-click then click private key.
- Copy it and save somewhere safe.
- Now, you can use the private key to import it on the same wallet by going to file on the top right of Electrum then New/Restore
- Make a new name of your wallet file then next
- Choose "import bitcoin addresses or private keys" then paste your backup private key
- Then next add the password to encrypt your wallet file.
- Done

It is just for an alternative if you want a single wallet and if you don't want to see all addresses generated by Electrum.

[Thekool1s]

Wouldn't one be enough? Why are all of those addresses needed?

It has to do with your privacy. Imagine having only 1 address to your name, now each time you transact, you give out this address, showing your wealth to everyone since Blockchain is a public ledger, if you don't care about your privacy then 1 address should do the trick but keeping the technical side of things in mind you will be exposing your public key of that address. In theory, you can use this key to work out the private key of your address, So it's always recommended to use more than 1 address. Without getting too technical, the more addresses you use the better it is for your privacy and security...

[NotATether]

if you don't care about your privacy then 1 address should do the trick but keeping the technical side of things in mind you will be exposing your public key of that address.

Since you mentioned it, I'm looking for a way to randomly select a bitcoin address at random from my 20 addresses every time I want to receive a payment. The goal is to thwart address clustering attempts. Do you know of any Electrum plugin that can do this? If one doesn't exist yet then I might develop one myself since I'm skilled in Python.

Currently I made a legacy wallet so the randomness algorithm would have to be made with clustering of legacy addresses in mind.

[OmegaStarScream]

Since you mentioned it, I'm looking for a way to randomly select a bitcoin address at random from my 20 addresses every time I want to receive a payment. The goal is to thwart address clustering attempts. Do you know of any Electrum plugin that can do this? If one doesn't exist yet then I might develop one myself since I'm skilled in Python.

Electrum will do that for you. Just make sure to use the receive tab. After receiving funds, a new one (that hasn't been used before) will be given to you.