Introduction to Bitcoin Paper Wallets and Cold Storage
Bitcoin security? UGH!!!
Bitcoin does so many things better than banks (trusts, escrows, programmable money, cheap transfers, instant accounts, etc.), but one area that is not quite so nice, is security.
While the bitcoin network, itself, appears bullet-proof, lots of bitcoins are being stolen, via hacking, malware and flaws in online wallets and even google's random number generator.
The answer is to get your bitcoins entirely offline, and the two ways to do this are paper wallets and cold storage. This video is an introduction to making both. Host, James D'Angelo, walks you through the software and ideas used in making 'sloppy' offline wallets (which are great to have). He also gives suggestions at making even better offline wallets. This is the first of many videos we will make on bitcoin security, and the least technical.
Hello. This is James D'Angelo and welcome to the Bitcoin 101 Blackboard Series. Today we're just going to do a very, very simple, the most basic possible tutorial on paper wallets and cold storage.
Now people are very concerned about how to store their bitcoins and how to protect their bitcoins and it is the most valid concern of any in the Bitcoin world because that's what we'll miss the most about banks. If you put your money in the bank you sleep okay at night. But with all these Bitcoin thefts and all these wallet thefts people are very, very nervous and like most things with Bitcoin the best solutions are so offbeat and so strange that there is sort of an awkwardness to setting it up.
So what we're going to do is we're going to walk through two of the best methods for storing your bitcoins but we won't go through all of the steps to make them the most secure. We're just going to give you an introduction on how people make paper wallets and how they do cold storage and point you in the right direction to protecting that better and then we'll eventually do more and more detailed videos about security and more and more detailed videos of how to store your paper wallets and how to protect them better and how to store your cold storage and how to protect that better but let's just run through and do a little flavor of how to make paper wallets and do cold storage.
So I'm sitting here right next to my printer and that's how we're going to make our paper wallet. We're going to run some stuff off in the printer but I'm also sitting here with my little USB thumb drive. Okay. And this is going to be my cold storage and my printer is going to make my paper wallet. So we're going to make paper wallets and start with cold storage but the real important thing that we're going to do and it's very important as we're going to basically be making practice wallets and practice cold storage so you can get good enough at it to do it seriously. And there's actually a real advantage to making sloppy wallets. Okay.
Sloppy wallets are things you leave around your house and let people take the address off or cold storage or, or figure out how to take the bitcoins off it. You put five cents on it, you put three cents on it, right. But you can actually track those addresses and if the five cents and three cents and all that's disappearing. Well, then you know that someone around is taking money off of your wallets. So I actually really like sloppy wallets. I leave them all over my computer and then I kind of watch them every now and then, right. And if your sloppy wallet is empty. Well, you know that somehow someone got to them, right. You might have some malware, you might have some hacking so sloppy wallets are actually a good first line of defense to find out if the thieves are coming and then when you make better and better paper wallets and better and better cold storage, right. That'll be so much more secure so you see them hitting your sloppy wallets and then you know you have to be even more careful. Okay. So, sloppy wallets are great. And today we're going to make a few of them.
So here we go. Let's get started. The best place to start with all of this stuff and there's a number of great offerings, right. I forget what they're all called but the most common place to start generating your own address is generating your own wallets instead of relying on an online wallet like Coinbase or some of these other wallets, right. We're going to actually create our own wallets and keep all the data and information ourselves. Now the danger clearly is if we print that paper wallet and we lose it. Well, then we lose our bitcoins. So, when we print a paper wallet we usually like to make one or two copies of them and put them in safe places. Remember if someone stumbles upon your paper wallet or your cold storage and gets access to your private keys that’s as good as giving your money away. So, most of this is common sense and people will be able to extrapolate how to better protect their bitcoins after watching this video. But our favorite place to start is bitaddress.org. And it comes right up.
Now as the web page is opening it's going to ask you to just kind of move your mouse around a little bit to add some randomness and it's actually calculating and seeding the random number generator with your mouse movements. And then the page comes up and back you have a brand new Bitcoin wallet. I'll open the page here a little bit so we can see it. Okay. And this wallet has two sides. The share side over here that's your public key, that's your public address. You can give this key or this address to anyone and they can send money to you. This address doesn't allow anyone to take money out. It only is one way it allows money to go in. It can also be used by anyone to check the account balance. So, if you go to blockchain.info, right which will also open up for this tutorial. And it is one of the best sites for Bitcoin because it has so much information and so many tools. You can go to blockchain.info and in their search window well you can put in and in that search window you can paste in that address and hit search and it will tell you everything about that account.
Well, hopefully bitaddress has done a good job in giving you a brand new address so it should say something like this. No transactions found for this address. It has probably not been used on the network before, but we could also put in another address. I can put in the donation address for our channel here World Bitcoin Network and you can see all the transactions that have happened. We don't get a ton of donations but we get some rather nice ones. And you can see exactly when they came in and how much they were for. Okay. So, I'm going to just stretch this window out so I can get the search window up there and then I'm going to paste in the donation address for World Bitcoin Network. And as soon as you hit return it brings up all the transactions that have ever happened on this particular address. And here they are. Okay.
So total received at this point is $5187 and 69 cents and the final balance is 23.19 so all the money has been taken out and moved around. Okay. And this is actually an address that I have through Coinbase. So, coinbase plays a lot of games with your bitcoins, right. They move them all over the place to protect them and this and that, but we haven't even pulled any of our bitcoins out. It just moves them to different spots on Coinbase. And you can see every single transaction that's ever been made and you can see the donations that we've gotten and we've gotten recently some really nice donations. We don't know who these people are but what a nice donation, 245 bucks. It was around 170 bucks a week ago when the donation came in and we have got a few of those. Okay. But you can see all of that right here on blockchain.info for any Bitcoin address.
All right, so let's go back to bitaddresse.org and these are really the two websites that we're going to be using to do all of the stuff today. So, what bitaddress.org is, it's a bit of open source code that generates Bitcoin addresses and it generates them in sort of different ways. You have a paper wallet option for you to print, you have Bulk Wallet, Brain Wallet, Vanity Wallet, Wallet Details and we’ll go into all of those in other videos. Today, we're just going to stay on the single wallet page. Okay. And what bitaddress claims to do when we've looked through the codes that they're really doing it is that they generate a fresh address for you and a fresh private key and we haven't yet spoken about the private key. But the private key is very, very sensitive.
If you have any real money you don't want to show off the private key. So, we've got this private key sitting right here. And this private key is probably going to be checked by some people when they see this video to see if there's money in here and maybe we'll put in a dollar or two just to see if people are watching the video and pulling the money off. But here's the private key. You don't want to let anyone see this. Anyone who sees this private key or gets a hold of this private key can pull all the money out of this public address. Okay. So, this is secret and this is private, right. Banks don't act like this. They never give you something that's so sensitive, right. If you forget your password at your bank or if you forget your ID they'll kind of work it out and decide whether to give you funds or sort of a human interface. Bitcoin is just completely amoral, right. If some thief gets a hold of this private key and takes out the funds no one at no bank is going to stop them.
Bitcoin just gives them the funds. Okay. So, you have to be very, very careful. Ten times more careful with your money than you've ever been. Bitcoin does a lot of things very, very well but individual security is not one of them. You have to take the entire responsibility for security onto your own shoulders. Everything else is kind of nice. It's kind of free, it's kind of easy to use ,it gives you banking on your phone, gives you trust on your phone, gives you the ability to send money around the world very fast very cheap, but security we're going to do lots of videos on this, right. This is a never ending topic and will be a never ending topic for Bitcoin. There is going to be no solution proposed that's going to make Bitcoin security a lot better than it is now. And right now it's difficult. You really have to know what you're doing. Okay. So, that's really it. You basically now understand how the public address works and the private address.
Now, if you lose the public address well that's okay because you can generate it from the private key. The private key really has all the information you need to do something with that account. So the public address and the private key are related mathematically via a one way function. So, you can just plug your private key into a function generator that will always generate the same public address, right. And they even have that function right here in bitaddress.org. You can go in the Wallet Details. I'm going to copy this, go in the Wallet Details and they would ask you enter your private key and you can paste it there and it will bring up the same public address every time. Okay. So, all you need is the private key. If you're really just going to store one thing just store your private key. Don't just store your public address because you'll have no way of accessing those funds. Okay.
So, we've been blabbing a little bit but let's move forward let's create a paper wallet. Okay. So, let's go back to single wallet and you'll see this button right here. You can click and generate a new address, right. And we’ve talked in other videos there are kazillion, quadrillion, jabillion different addresses in Bitcoin. So many that the odds of you ever generating two of the same ones is almost zero. Okay. So, it's unlikely that if you click here all day and click this generate new address that you would ever in your lifetime generate the same one. And that's how Bitcoin network is protected by the sort of actuary thing of big, big numbers. The number is so big that no humans really ever had to consider them. The amounts of addresses, different addresses in the Bitcoin network are comparable to the amounts of atoms in the universe. That's a lot. Okay.
So we're just generating some new addresses and their private keys. And what we're going to do is we're going to pick one that looks a little fun. Let’s see if anything fun comes up. Look at that 1FMTiYNnNKSF7tpQBCfSXJHnqv8W165CF6 Ah! 17SwcawAtnCQmemPDDBGurd28tTbEbuK5z . It's kind of interesting. Okay. I like that. So, what we're going to do now we're going to generate from this combination of private key and public address we're going to generate a paper wallet and I do it fairly simply. I actually copy the private key, the part that I'm really concerned with and then I just do a screen capture of this. Okay. And I take both the private key and the public key and then I get a little file on my desktop and I paste the private key into the name. Okay. And then I open that up and I say print and up comes my little HP Deskjet printer and it's kind of rotated nice so it will look nice on the page and I say print.
And I'm generating my first paper wallet. Remember a wallet is just any collection of a private key and a public address so it's really just a private key. Okay. That's a wallet because you can always generate the public address from the private key. Okay. And this should be printing and here we go. And ta-da this is a paper wallet. Okay. So, we've got one paper wallet fully usable. You can hold this up to your computer and it will scan these codes you can hold it up to your iPhone it will scan these codes and you can send money to this QR code. You can even hold up this QR code and your private key will be deposited in your phone, you could put it into a wallet or something like that or you could just send money to this address and that's what I'm going to do right now. I’m going to send money to this exact address and the first person who figures out how and it’s very, very easy, is going to be able to pull out the one dollar that I put in there or maybe they'll add some more money. We'll see how people react.
So, I'm going to go to my Coinbase account and I'm going to copy this public address because that's your send to address. I'm going to say send money. I'm going to paste it in here. Enter an e-mail or Bitcoin address and I'm going to put one dollar in. And always, always be careful I really kind of hate the fact that they always bring up the Bitcoin window or the dollar window and maybe you'll someday type in the wrong things. So, say I want to send ten dollars and accidently type ten bitcoins that would be a pretty big mistake, right. It would be nice if you could just turn off one of the other and only think in one format, but you have to be careful make sure you type one dollar in the one dollar or you can type any message you want. Voila! paper wallet and I hit send. And what's going to happen is within minutes this transaction is going to update so you'll see exactly when I shot this video you see exactly when I sent it. So, you sent bitcoin to an external account. I sent 0.001081 bitcoins. Okay. And that will go to this address on this paper wallet.
Now, clearly I'm doing things sloppy and I like to make sloppy wallets, right. I like to leave little wallets around because if some thief come to my house and he knows I'm own bitcoins he is going to see all these things all over the place and he's not going to know which one to use. It will slow him down, right. I also like to do sloppy wallets and leave them on my computer, right. So I have a dollar and a number of fifty cents. Because if someone's going to hack into my computer they're going to run into those things and start pulling the money out. My guess is malware is not going to go. Okay. Leave a dollar in or leave two dollars in. If I start seeing my sloppy wallets the ones that I leave all over my computer being emptied I know that someone's come on to my computer in some way and I have my other bitcoins my bigger stash of bitcoins protected in a much better way in a way that we'll talk about in other videos. But one way to start protecting your paper wallet is just to simply, and you'll see a lot of people do this, they kind of fold over the secret section, right. And then you can fold it over a number of times so that you can't hold it up to the light.
You can staple it there, you can put tape over it and then you can just sort of hide it somewhere, right. Hide it in behind your dresser or something so that any thief that comes in is going to have to do a lot of work to figure it all out. And fortunately most thieves right now who come in in your house probably won't even recognize this, but you can also put it on funny paper, you can put on news print, you can put it, you know, you can write like math equations on it, make it look like old homework or something like that, no thief will want to touch that. There’s a lot of ways to protect your paper wallet. The beauty of paper wallets is almost anywhere you put it in your house it's going to be safer than on your computer that's online all right. Hackers are coming for your bitcoins.
As the price of bitcoin goes up exponentially as more users are adopting bitcoin exponentially you're going to get thieves coming into bitcoin space exponentially. And the most thieves that you're going to see and we've already seen tons of them are running malware. They're hacking into people's computers and they're stealing their bitcoins. And clearly if I generated this paper wallet on a computer that wasn't attached to the Internet and never touched the internet it would be impossible for any computer hacker to get at this paper wallet and get the information off of it. Okay. So, that's one thing to start thinking about. I did mine on a computer right now that's attached to the Internet as sloppy as can be.
Again, I like sloppy wallets and that was one of our ideas to create a sloppy paper wallet. As you start thinking forward, think about doing it on a computer perhaps you gave to your mom that never connects to the internet and can't connect to the Internet, right. And then you can download this bitaddress software, right. And I like bitaddress because if you say save, right. File, save page as it'll save it as one file. Very few web pages if you say save page as will save as one file. Bitaddress.org wrote the software so it saves as one file and you can put the bitaddress software on any USB device or anything and now you can open it up on your mom's old computer that can't connect the Internet and you can generate your paper wallets there. They're a lot safer. Okay. We're done with paper wallets.
Now, we're going to move to cold storage. Really the same basic idea. Somehow you've got to put what you put on this paper wallet on to this. Okay. And the more secure you do it the more you do it on computers that are connected to the Internet the more secure it will be. So what am I going to do to put this on here. Well, it's pretty simple. I'm just going to take that file that I just printed and I'm going to copy it to this. That's cold storage. Really they're both cold storage but people like to call this paper wallet and people like to call this cold storage. So, I'm going to take the file I just printed where I copy the private key and just drag it on to my USB drive. Okay. So, I'm going to take the file I just printed and I'm going to copy it on to my USB drive.
Now clearly there's a million ways to be more secure than what I just did. You can encrypt the file that I just printed. You can do other things to protect it, but as soon as I put that file on to this and I erase it from my computer I have created my first level of cold storage and once again I'm connected to the Internet. This is a sloppy cold storage wallet, but I highly recommend getting started with cold storage and paper wallets with very small amounts of money and very sloppy wallets. And then after the ideas and how to print up your paper wallets and how to do your cold storage sink in then you are ready to move more and more money over but you got to really move slow with this stuff because mistakes, right. If you copy the wrong file or you didn't put the private key on there or if you printed it up wrong you're going to lose your money. Okay. So, this video is just an introduction to the ideas and as you start thinking more and more about how they work well, then you'll start thinking more and more how to make it more secure and we’ll make more videos on that but this is just the beginning.
So, let's go to the desktop. Okay. And there's my file that I printed up and it's got the private key right there. Juicy private key maybe I'll put a little money in there and see who takes it off. If they will tell me they took it off that'll be fun, but I'm going to put in my USB drive or my wife's USB drive. And there it is and now I'm going to take this file and I'm going to copy it here, done. Okay. Now I'm going to delete this file right here, gone. And I'll empty my trash and then I'll eject this. And now I have a copy of that Bitcoin wallet right here and I could store this put this away. Ideally, what you'll do is maybe you'll use a few of these, all right, because what if this gets a little buggy over time or some water spills on it or coke spills on it.
Now, to get rid of this I can just press generate new address. Now it's gone. Okay. So, if you had sent money to it and you hadn't copied it or you don't have a good copy of it that money's probably going to be gone forever. So, let's just do this all one more time really quick so you can see it all bang, bang, bang. Okay. Generate new address. Okay. 19ZXXVT that's cool to me. Do a screen capture. Okay. Make sure you get both the private key and the public key but I also like to copy the private key here. Okay. And there's ways to hide your private key even on your paper wallet using this BIP38 protocol and we're going to do a video on that. It's genius stuff. Okay. But we're going to copy the private key.
We're making sloppy wallets today. Copy then we're going to go to the desktop. Boom! We're going to see the screen capture that we just did and then replace the name with my private key. Pretty sloppy wallet but it's handy. Then I'm going to open it, drag it down so you can see it right. Here's my private key, here's my public address, here's the private key again and then I'm going to hit print. And I'm making a brand new paper wallet. Okay. And here's my paper wallet. Here’s the public address I can send money to.
Here's the private key I want to hide from everybody's eyes on earth. And then you can staple it, tape it, you can hide it behind you dresser, do whatever you want and now we're going to put that on to cold storage. So we've got the file on your desktop. You insert your USB. Wait for it to come up and then you copy that file over. Okay. Then you delete it off your computer. If you don't delete it off your computer and your computer is connected to the Internet it's not cold storage. That's hot storage. It's a warm storage, right. Hackers can get in. So, remember the idea is to take your bitcoins and put them in a place where no malware can get to. Okay. No malware in history can jump off the computer and start grabbing the information off this paper at least once it folded. Remember your cameras and stuff on your computer could see them. Okay.
Now, we'll take out a USB drive and we'll put that in a place where no one can find it or no one can get it and ideally make a few of them. Remember Bitcoin is great because you can back up your money. But Bitcoin is also dangerous because you can back it up and if you have it in five places well, it gets a little freaky. Okay, okay. So, here's the address we just officially put in cold storage and it will only go on cold storage when I get rid of it on my screen and I can't go back and notice you can't hit back in bitaddress this is java script, right. It's not going to remember what you've done. Okay. So, you can generate lots of new addresses but you can't go back to the ones you just missed.
Now, before we go we're going to do just one thing. I'm going to go to wallet details and I'm going to go back to our original Swcaw address because I had copied the private key and it was in memory. Okay. So, it was unofficially cold storage. And now I'm going to copy that public address and I'm going to go back to Bitcoin address and see if the money we sent is actually arrived into that address yet. Okay, here we go. So, you paste it right in there in the blockchain and you see if any action has happened at all. Okay. And there it is. There's the transaction I sent to 17SwcawAtnCQmemPDDBGurd28tTbEbuK5z. I sent a dollar and now it's worth ninety nine cents. I lost a penny. Okay. It's an unconfirmed transaction we talk about that in other videos. But the beauty is that transaction will be on the blockchain for all of time. So, as long as Bitcoin exists you'll be able to paste this transaction number and right this is the transaction number right here and see the exact time, date and amount that I sent to this paper wallet that's sitting right here. Where is it? Okay. And there's the private key. Okay.
Hope that helps. Hope that gets you started thinking about cold storage and paper wallets. Don't be intimidated by them, but definitely don't start and jump in and go all the way. Don't send a hundred bitcoins to your first paper wallet. Okay. Don't put a 100 bitcoins in your first attempt at cold storage. What you want to do is put money in your paper wallet, take money out of your paper wallet, play around with paper wallets for a week or so before you start doing the real serious stuff. And by then hopefully we'll have made some more serious videos as well to be able to walk you through the next steps. Okay.
So that's it. Sloppy wallets. They're great. Very important to have around, leave them all over the place, right. Sloppy wallets. Let the burglars come in and have no idea what they're doing. Okay. One way to throw off burglars is have a billion wallets around. That'll take him a while to just sort them all out. And if you printed up a billion wallets which you can you still won't have used one of the same addresses that’s ever been generated. Phenomenal math that's going on. Okay. Please remember to like, subscribe, comment. Do all those things that you do. We'll see you at the next video. The next video will move deeper into this world of security. Very, very important stuff with Bitcoin it's the one place where you're going to feel all on your lonesome. Okay. And it is a lonely place. Bitcoin security is a lonely place and you have to take it serious. See you at the next video.