Cryptocurrencies_6. Backups _ Offline Storage - Why is it important, how to do it

Lesson 6: Backups & Offline Storage - Why is it
important, how to do it

Why Set up an Offline Savings Wallet?

Modern operating systems constantly leak information without the user’s knowledge
or consent.

No matter how many precautions you take, it is very hard to ensure your wallets is
reasonably secure on an Internet connected computer.

Because Bitcoins can be stored directly on your computer and because they are real
money, the motivation for sophisticated and targeted attacks against your system is
very high. Previously, only large organizations had to worry about advanced attacks.

Overview of existing solutions

The bitcoin ecosystem is still relatively young and unfortunately not many user
friendly and highly secure wallets have been developed yet.

Today these are the two best ways to secure your bitcoins against theft:

1. Using a hardware wallet such as TREZOR.

A hardware wallet has two functions - it stores your Bitcoins in a hardened device
that is designed to be simple and highly resistant to the usual range of attacks
(viruses, hackers, keyloggers).

2. Create a cold storage wallet using BitKey.

Cold storage wallets generates and stores private wallet keys on a clean air-gapped
computer.

Used correctly, an air-gapped wallet is safe from all online threats, such as viruses
and hackers. It is however still exposed to offline threats, such as hardware
keyloggers, extortion, or people looking over your shoulder.

To spend funds from cold storage securely, an unsigned transaction is generated on
an Internet connected computer. An unsigned transaction is akin to to an unsigned
check. The unsigned transaction is then transferred to the air-gapped computer to be
verified & signed with the wallet keys.

Using a cold storage wallet on an air-gapped computer may seem tedious, but
remember that security almost always comes at the cost of convenience.

Security warning

When you deposit money at a bank, you let them worry about security. Bitcoins,
however, are stored on your computer and that means you are fully responsible for
securing them.

Unfortunately, most people are not security experts, which means it's very hard for
them to fully understand the risks. They usually don't. This increases the risk of
making a fatal mistake that will result in Bitcoin theft.

For example, paper wallets are typically generated by potentially compromised PCs
connected to the Internet, then printed for offline storage. This is not enough as
malware running on the computer may steal your private keys and then later steal
any Bitcoin you send to that address. Many Internet connected printers also save
printed documents to memory.