Storing Large Amounts of Bitcoins
Cold storage methods, as described earlier, require physical access to information that is not accessible via the Internet. These five storage methods dramatically reduce the risk of theft:
• Paper wallets
• Encrypted paper wallets
• Offline transaction signing
• Fragmented private keys
• Multi-signature addresses
Instead of worrying about cyber-thieves, you only have to worry about local burglars (and only those who are Bitcoin-savvy). Most of these methods are suitable for safely storing large amounts of bitcoins for long periods of time. However, if you are storing a large Bitcoin fortune, consider having a security expert audit your storage method.
Note that you can safely experiment with any of these five methods using an online computer, as long as you use small amounts of bitcoins. Once you are comfortable with a particular method, you'll need either a dedicated offline computer (preferred) or at least a computer you can take offline temporarily.
When you're evaluating cold storage methods, it's handy to have the open source Bitcoin wallet generator at bitaddress.org/.
You can download the entire website at bitaddress.org/ and run it on your computer after you disconnect from the Internet.
When you first access the website, you'll be asked to move your cursor over a box of letters and numbers (or type letters) randomly to provide a source of randomness that the site uses to generate a Bitcoin address. The reason you need to do this that it is very challenging for computers to generate random numbers by chance because they follow strict instructions, making the results more predictable. For unimportant applications, such as playing Solitaire on your computer, a mediocre random number generator used to shuffle the virtual deck is no big deal, but for storing money, high-quality randomness is very important.
Using a paper wallet is perhaps one of the simplest and most popular cold storage methods. This involves generating a Bitcoin address and private key on an offline computer and then writing both down on a piece of paper but not saving a copy of the information on the computer itself. You can then store the piece of paper in a file cabinet, a personal safe, or in a safety deposit box at a bank. With the piece of paper safely locked away, you can continue sending bitcoins to the associated Bitcoin address for safekeeping. When you eventually decide to spend your saved bitcoins, you can use the import private key or import paper wallet function that most Bitcoin wallet programs include. At this point, your bitcoins will no longer be in cold storage.
If you want to spend only some of your saved bitcoins and keep the rest in a paper wallet, after importing your private key into a hot wallet, you should immediately store the remainder of your bitcoins in a new paper wallet (paper wallets are one-time use only). But be sure to prepare the new paper wallet ahead of time before importing bitcoins from the old paper wallet.
Alternatively, you can spend a fraction of your paper wallet bitcoins by using a
technique known as offline transaction signing, which is described in "Offline Transaction Signing" on page 40.
Provided you keep the paper private key in a safe place, the paper wallet method is suitable for storing large amounts of bitcoins indefinitely. However, keep in mind such physical risks as flooding and fire. Also, do not scan, take photos of, or expose your paper private key to other methods of duplication, or you will compromise your paper wallet. Your bitcoins are only as safe as the least secure method by which you store your private keys. In particular, consider that some office photocopiers maintain records of every document they copy. The safest way to make a duplicate of your paper wallet, which is recommended, is to clearly handwrite a few extra copies and store those copies securely.