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.