WARNING: How I lost Bitcoins using a paper wallet

in bitcoin •  3 years ago  (edited)

It turns out there's a tiny gotcha regarding "paper wallets" that could lead to disaster if you're not careful.

I've been wanting to get into "cold storage" of my bitcoin for a while now. I've always heard that "paper wallets" are more secure than "hot wallets". So, decided to do some testing of my own to see how it works.

http://www.bitaddress.org/

http://www.bitcoinpaperwallet.com/

NOTE: Always use a small amount of Bitcoin when testing out paper wallets. I used 10,000 satoshis on my first test... so, I didn't actually lose that much when I made the mistake.


The Problem:

So, let's say you received 3 transactions of 2.7 BTC each. So, now you have 8.1 bitcoins in your wallet right? Well, yes and no.

You actually have 3 tokens, each representing 2.7 BTC each. Bitcoin wallets hold coins in the exact amount they were received by the wallet. So, when Bitcoin breaks a larger coin into pieces to make a smaller payment, there is an amount remaining that is considered the "change" back. It's kinda like when you buy a candy bar for 75 cents and you pay with a $1 dollar bill. You get 25 cents change back.

The problem is that the change goes to a different address!! You have to specify that address or you lose the BTC. When I sent my first test from a paper wallet, I did not create a new paper wallet for the change. I assumed the change would be sent back to the original address... and proof... they're gone.

The Solution:

When you need to spend bitcoin from a paper wallet, the full amount of bitcoin should first be swept into a wallet like blockchain.info or Mycelium where you can then spend the bitcoin. My advice is, don't try and spend directly from a paper wallet unless you really know what you're doing.

http://www.blockchain.info/

http://www.mycelium.com/

Other Options:

If paper wallets scare you, but you need better security... why not try a hardware wallet like Trezor or KeepKey. A hardware wallet is a special type of bitcoin wallet which stores the user's private keys in a secure hardware device.

http://www.bitcointrezor.com/

http://www.keepkey.com/


Sincerely,

Michael Matthews

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Sorry this makes no sense, it's entirely the responsibility of the wallet you're using to know what changes addresses are yours. In this case remaining funds should have come back to the same single key paper wallet

Very helpful post.

How did you "spend" the coin? If you used a regular bitcoin client, it should have automatically created change addresses that would hold the change (and therefore be in your control).

i think he just didn't notice when writing this as i thought the same as you. I think he over looked in haste, easy mistake to make though!

  ·  3 years ago (edited)

Yes when you spend bitcoins , the "unspent" bitcoins will go by default to other addresses, but these addresses are inside your wallet... so you never lose the ownership of them.

You don't need to any third party wallet provider like blockchain.info, you can do everything with the bitcoin client.

When you do a transaction, check in the blockchain to which addresses the unspent bitcoins went, then open the console in the bitcoin client and write dumpprivkey [Address], you will get the private key of those addresses in case you want to store them or you can simply send all the bitcoins back to the original address, in other words, you never lose control of your funds, just they are sent to other addresses inside your wallet.

By default bitcoin sends the unspent coins to other addresses so its harder to trace the flow of the funds.

One of the best replies i have seen on this site!! :D thanks man!!

Wow. This is a great solution. Thank you. I'm still learning all the command line stuff.

Good to know thanks for the info. Glad you made back some of the money in steem...

Very good info to save if you are into bitcoins.

Hey... I think I just made back the satoshis I lost... in Steem.

wow awesome article

Thanks!!

welcome

Is cold storage safer than paper wallet?

Thank you for sharing this information. I would have assumed the same thing you did. You have helped a lot of people!

Or you can import private key in Bitcoin qt, but using blockchain.info and sweeping the full amount is easiest.

What's wrong with just saving the blockchain and your wallet on an external HDD > ?

Great tip about paper wallet. Thanks for letting us know. By the way, do you know where the most up-to-date resource is on all the ins and outs of paper wallets?

Thank you so much for that detail. Appreciate it.

Gracias por la info. Saludos

nice post, check out https://www.xidoacorp.com for trusted coin recovery services however,

You can also use a ledger (nano S) https://www.ledgerwallet.com/products/12-ledger-nano-s
For long term people this is a MUST!