Offline USB/CD and Paper Bitcoin Wallets

You can also store your
wallet offline either on a digital medium like a CD or USB key or on paper.

A private key for an address, which allows you to send
transactions with it, is really quite small;
for example, the bitcoin address 17CXktyFpiMYpPktkSVWhgbMGj27QA3jNY has the
private key 5Jr8W5D5zsjq9ckX26rz5imJqNVUmPSrP9PJYujFowQKvuLoHMt. Those two
strings are all you need to send and receive transactions from that address,
and you can keep them stored even on paper if you want. The reason why this
works is that your wallet does not actually store bitcoins -bitcoins are stored
in the public blockchain. Your wallet stores the two keys needed to access and
use the bitcoins. To actually spend the bitcoins, you will need to use some
kind of client, but that is the only time you need to be connected to the
internet at all.

Advantages include:

§  The potential for
very strong security; your private keys cannot be stolen by viruses until you
use them, at which point it’s too late for them to be any good.

§  The potential for
the best possible privacy; by maintaining fine-grained control over every
single address that you own, you can potentially ensure that none of your
transactions can be linked to each other.

§  You can still
receive bitcoins even when your wallet is offline, since you’re just storing
the keys

§  The least trust
required; the only time you have to trust any Bitcoin software at all is at the
moment you’re sending bitcoins, and even then you can have very tight control
over the process and check the transaction yourself to ensure that nothing
malicious is going on. Even creating the addresses can be done offline.

The disadvantages are:

§  The most difficult
of all to manage

§  Paper wallets, or
CD/USB wallets that aren’t also encrypted, can be physically stolen, and even
if encrypted they can always be lost

There
is no single software package that represents a full solution for this type of
wallet. To create addresses and keys, the options are bitaddress.org (use in
Firefox’s private browsing mode or Chrome’s incognito mode offline for added
security), blockchain.info (save advice) and vanitygen (an installable command
line tool which also has the advantage that it can generate cool addresses like
1NiNja1bUmhSoTXozBRBEtR8LeF9TGbZBN). For added security, you can use a Linux
LiveCD distribution for this process. To check your balance, you can manually
look at the addresses at blockexplorer.com or use the read-only wallet
functionality of blockchain.info or Armory.

To
send bitcoins, there are two distinct steps that you need to take: create the
transaction, and then publish it. To create a transaction, you can use the
offline blockchain.info wallet tools (very easy to use but cost 0.01 BTC per
transaction), BTCurious’s tool at http://ge.tt/9XKMag9/v/0 or the Armory
bitcoin client in offline mode. Make sure to turn off your internet connection
when you are doing this and, if you are especially paranoid, you can delete all
your data except the signed transaction afterwards. Once you have the
transaction, you can push it onto the network by pasting it into the tool at
http://bitsend.rowit.co.uk.

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