Special Mention: The Bitcoin Brain Wallet

Using the brain wallet to store bitcoins is a unique and somewhat mind-blowing technique. In this method, you store bitcoins entirely in your brain by memorizing your private key. We should note in advance that this storage method is impractical in several respects and recommended only for Bitcoin/cryptography experts. Because nothing tangible exists to steal or seize, you can use this method to store your bitcoins when you don't have control over your physical environment (e.g., living in a dorm room, crossing through security checkpoints, etc.). However, you must create a long, unforgettable passphrase that you can commit to memory, especially if you will be storing large amounts of bitcoins. Then you feed the passphrase into a computer program (running on an offline computer) that accepts any text as input and outputs a private key and Bitcoin address. In the following example, the passphrase is short and easy to guess, so your stored bitcoins would be at risk.

However, the following passphrase is sufficiently complex.

After generating your passphrase on an offline computer, you ignore the private key and copy only the Bitcoin address. You do not want to store the private key anywhere, even on an offline computer. You'll need the private key when you want to move your bitcoins, and at that point you can re-create it from your memorized passphrase (and import it into a Bitcoin wallet, like Electrum, or use it for offline transaction signing). By not storing the private key anywhere, you prevent others from stealing it from you, either physically or digitally. You can write down your passphrase and keep it hidden in a safe place, of course, but then it wouldn't strictly be a brain wallet (however, it can be a good idea).

Brain wallets are useful for reasonably long-term storage (a few years) of significant amounts of bitcoins, but they are not convenient for day-to-day transactions. Also, storing large amounts of bitcoins in a brain wallet for decades could be risky, because you might forget the password. Additionally, people are inherently deficient at choosing passphrases that computers cannot guess, and increasingly powerful computers might be capable of guessing every possible passphrase that a human could generate. For very long-term storage of large quantities of bitcoins, it is safest to use a randomly generated private key (with a high-quality source of randomness).

Choosing the Storage Method That's Right for You

The best storage route to take is to start small and choose an easy storage method that you're comfortable with (see Figure 3-2). Keep in mind that human error while using a complicated Bitcoin storage scheme is a real risk factor. Once you're more comfortable with how Bitcoin works, you can gradually increase the amount of bitcoins you own and the level of security you use.

Although no system is 100 percent secure, you can store your bitcoins more securely than gold or traditional currencies. Storing bitcoins might seem less secure than having cash in a traditional bank account, but the reason might be simply that many people feel less comfortable with unfamiliar technology. Someday we might look back and think it should have been obvious that a decentralized currency that is impossible to counterfeit and is built on cryptographic principles is more secure than traditional currencies.

A summary of Bitcoin storage methods. These strategies span the spectrum from low security (but convenient) to high security (but inconvenient). This chart is not comprehensive because new methods are constantly being developed. For example, one of the best methods on this chart, the hardware wallet, was not possible until 2014, five years after the start of Bitcoin.

Figure 3-3: A summary of Bitcoin storage methods. These strategies span the spectrum from low security (but convenient) to high security (but inconvenient). This chart is not comprehensive because new methods are constantly being developed. For example, one of the best methods on this chart, the hardware wallet, was not possible until 2014, five years after the start of Bitcoin.

 
< Prev   CONTENTS   Next >