Bitcoin Wiki - User contributions [en]

Deflationary spiral

2012-06-12T07:15:52Z

Fordy:

'''Deflationary spiral''' is an economic argument that proposes that runaway deflation can eventually lead to the collapse of the currency given certain conditions and constraints. It is a common criticism made against the viability of [[Bitcoin]].
The ‘deflationary spiral’ is a real condition that affects the popular fractional reserve backing system. Bitcoin is not affected by this because it is fundamentally different from popular currency.

Deflation is a decline in the general price level. Deflation occurs when the price of goods and services, relative to a specific measure, decline. It is not necessarily that the value of the goods and services themselves declined, but can be because the value of the currency itself increased.

For example, let us consider an economy comprised entirely of beef and oranges where the medium of exchange is gold. Both beef and oranges can decay and are not consistent, and therefore cannot be used as a currency. In order to trade, people exchange gold for either beef or oranges. They see gold as a store of value that they can use to purchase beef or oranges in the future. What happens when the economy grows and we can produce more beef and more oranges? The price of both beef and oranges will decline. To the extent our productive capacity for both beef and oranges increased at the same pace, the exchange value between the two (the amount of beef for a given number of oranges) will likely stay the same; however, those who held gold as a store of value would now be able to purchase more beef and more oranges for a given amount of gold.

A deflationary spiral occurs when the value of a currency, relative to the goods in an economy, increases continually as a result of hoarding. As the value of the currency relative to the goods in the economy increase, people have the incentive to hoard the currency, because by merely holding it, they hope to be able to purchase more goods for less money in the future. A lack of currency available in the market causes the price of goods to further decrease, resulting in more hoarding.

In our economy of beef and oranges it is easy to see how this could occur. First, people see a significant gain in productivity on the horizon; we will be able to produce more beef and oranges for the same effort in the future. The supply of gold, however, is fixed. As a result, people desire to hold gold, because they will be able to purchase more beef and oranges with their gold in the future than they can now. This will lead to a decline in the price of beef and oranges as measured by gold (an increase in the value of gold). Limiting the amount of currency in the market available for exchange can also make transactions more difficult. In a complex system where we do not only have beef, oranges and gold, this can result in a deflationary spiral where no one wishes to spend their currency and the economy itself slows as a result of the limited number of transactions. Limited demand with fixed output results in a decline in prices, which further exacerbates the problem.

Alternative explanation:
A deflationary spiral occurs when the price of a traded article increases at some given rate, which causes people to hoard it. As people hoard the commodity, less and less of it is available thus causing the price to go up even more. In turn, even more people hoard the commodity. Thus a feedback loop or spiral of deflation occurs. 

In practice, there is only a limited amount of 'value' that can be placed upon a good before it becomes too attractive to trade for other goods (thus ending the spiral). The only time that the 'Deflationary Spiral' can happen (to it's conclusion) is when people can foresee a time where they are forced to use that particular traded article. See below for a dissenting argument on this topic.

==In The Popular Fractional Reserve Banking System==
The popular money that we trade consists of the principal of the loans of other people. All this money must be someday 'repaid.' When people save (pay back their loans), the total monetary supply contracts. When people spend (take out loans), the total monetary supply is increasing.

If you have people who are hoarding money, the principal still needs to be repaid. Hoarding will make it harder for other people in the economy to pay back their loans.

Because people foresee a time where they need to pay back their loans (a future fixed expense), when the value of the money starts to increase (deflation), those with loans will endeavor to pay back the loans quicker. This causes the monetary supply to reduce, reducing the total amount of money available for repayment of loans, again making it harder for people to pay back what they owe.

This Deflationary spiral diverts funds away from the legitimate economy, to the repayment of debt. Causing the economy to stagnate and stop.

==Bitcoin==
The key difference is that people don't foresee a fixed cost (unit amount) that they must pay with Bitcoin. If the value of the Bitcoins that they own increases, then any future cost will take a proportionally smaller amount of Bitcoins. There isn't any fixed incentive to holding Bitcoin other than speculation.

If the economy that uses Bitcoin grows, the per-unit value of Bitcoin proportionally increases also.

Everything is the opposite of the popular fractional reserve banking system (because Bitcoin isn't a debt but an asset). Bitcoins '''only''' deflate in value when the Bitcoin Economy is '''growing'''.

Because the Deflationary spiral is a real problem in the traditional monetary system, doesn't necessarily mean that it will also be a problem in the Bitcoin economy.

<blockquote>
"Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has," says Russ Roberts, professor of economics at George Mason University. The consequence will likely be slow and steady deflation, as the growth in circulating bitcoins declines and their value rises.

"That is considered very destructive in today's economies, mostly because when it occurs, it is unexpected," says Roberts. But he thinks that won't apply in an economy where deflation is expected. "In a Bitcoin world, everyone would anticipate that, and they know what they got paid would buy more then than it would now."
</blockquote>
--MIT Technology Review: [http://www.technologyreview.com/computing/37619/page2/ What Bitcoin Is, and Why It Matters], May 25, 2011

==Alternative Argument==
A deflationary spiral occurs when there is an incentive to hoard because of declining prices, which results in even less available currency on the market, further perpetuating declining prices.

How could this occur in the Bitcoin market?

1. Limited price stability has a negative impact on the acceptance of a currency. Vendors do not wish to speculate on the price of currency when selling goods or services.

2. Once prices do stabilize in the future, there will always be the knowledge that the number of Bitcoins in the market is limited. As a result, to the extent the GDP of the Bitcoin economy increases (the total value of all Bitcoin transactions completed increases in "real" terms), there will continue to be price deflation. The expectation of future deflation means that there will be a discrepancy in perceived values between parties valuing bitcoin on longer or shorter time horizons.
The apparent over-pricing of bitcoin from the perspective of people engaging in short term transactions will encourage the creation and adoption of competing systems.

While this is not a traditional deflationary spiral, the constraint on the actual money supply can produce the same result, which is a limit on the value of goods and services transacted using Bitcoins.

==See Also==

* [[Controlled inflation]]
* [[Bitcoin Days Destroyed]]
* [http://bitcoin.stackexchange.com/questions/408/does-hoarding-really-hurt-bitcoin Does hoarding really hurt bitcoin?] on stackexchange.com

[[Category:Economics]]

Myths

2012-06-12T05:38:35Z

Fordy:

Let's clear up some common Bitcoin misconceptions.

== Bitcoin is just like all other digital currencies; nothing new ==

Nearly all other digital currencies are centrally controlled. This means that:
* they can be printed at the subjective whims of the controllers
* they can be destroyed by attacking the central point of control
* arbitrary rules can be imposed upon their users by the controllers

Being decentralized, Bitcoin solves all of these problems.

== Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve ==

Unlike gold, bitcoins are:
* easy to transfer
* easy to secure
* easy to verify
* easy to granulate

Unlike fiat currencies, bitcoins are:
* predictable and limited in [[Controlled_Currency_Supply|supply]]
* not controlled by a central authority (such as [http://en.wikipedia.org/wiki/Federal_Reserve The Fed])

Unlike electronic fiat currency systems, bitcoins are:
* potentially anonymous
* freeze-proof
* faster to transfer
* cheaper to transfer

== Bitcoin is backed by processing power ==

It is not correct to say that Bitcoin is backed by processing power. A currency being "backed" by something means that it is pegged to something else via a central party at a certain exchange rate. You cannot exchange bitcoins for the computing power that was used to create them. Bitcoin is in this sense not backed by anything. It is a currency in its own right. Similar to gold - is gold backed by anything? No! It's just gold. The same applies with Bitcoin.

The Bitcoin currency is ''created'' via processing power, and the integrity of the block chain is ''protected'' by the existence of a large network of computing nodes from certain possible [[Weaknesses#Attacker_has_a_lot_of_computing_power|attacks]]. And that is all.

== Bitcoins are worthless because they aren't backed by anything ==

Gold isn't backed by anything either. Bitcoins have properties inherent to its design that are subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the [http://en.wikipedia.org/wiki/Subjective_theory_of_value Subjective Theory of Value].

See also: the "[[#Bitcoin_is_backed_by_processing_power|Bitcoin is backed by processing power]]" myth.

== The value of bitcoins are based on how much electricity and computing power it takes to mine them ==

This statement is an attempt to apply to Bitcoin the [http://en.wikipedia.org/wiki/Labor_theory_of_value labor theory of value], which is generally accepted as false. Just because something takes X resources to create does not mean that the resulting product will be worth X. It can be worth more, or less, depending on the utility thereof to its users.

In fact the causality is the reverse of that (this applies to the labor theory of value in general). The cost to mine Bitcoins is based on how much they are worth. If Bitcoins go up in value, more people will mine (because [[Mining|mining]] is profitable), thus [[difficulty]] will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost the amount of bitcoins it produces.

== Bitcoins have no intrinsic value (unlike some other things) ==

It is true that bitcoins have no intrinsic value, in the [http://en.wikipedia.org/wiki/Intrinsic_value_%28numismatics%29 numismatic sense], in other words, value in any realm outside of being used as a medium of exchange.

However, while some tangible commodities do have intrinsic value, that value is generally much less than its trading price. Consider for example that gold, if it were not used as an inflation-proof store of value, but rather only for its industrial uses, would certainly not be worth what it is today, since the industrial requirements for gold are far smaller than the available supply thereof.

While historically intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins lack 'intrinsic value' in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than [http://en.wikipedia.org/wiki/Commodity_money commodity money].

Value is ultimately determined by what people are willing to trade for - by supply and demand.

== Bitcoins are illegal because they're not legal tender ==

Chickens aren't legal tender either, but bartering with chickens is not illegal.

There are a [http://en.wikipedia.org/wiki/Local_currency number of currencies] in existence that are not official government-backed currencies. A currency is, after all, nothing more than a convenient unit of account. While national laws may vary from country to country, and you should certainly check the laws of your jurisdiction, in general trading in any commodity, including digital currency like Bitcoin, game currencies like WoW gold or Linden dollars, is not illegal.

== Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency ==

http://en.wikipedia.org/wiki/Definitions_of_terrorism#United_States according to this, you need to do violent activities to be considered a terrorist for legal purposes. This has no bearing on politicians and idiotic US attorney's public remarks.

Also, Bitcoin isn't domestic. It's a worldwide community. See this map of Bitcoin nodes
https://bitcointalk.org/?topic=2346.0

== Bitcoin will only enable tax evaders which will lead to the eventual downfall of civilization ==

Cash transactions hold the same level of anonymity but are still taxed successfully. It is up to you to follow the applicable state laws in your home country, or face the consequences.

While it may be easy to transfer bitcoins anonymously, ''spending'' them anonymously on tangibles is just as hard as spending any other kind of money anonymously. Tax evaders are often caught because of suspicious purchases, or undeclared assets, not because government is able to follow their money.

== Bitcoins can be printed/minted by anyone and are therefore worthless ==

Bitcoins are not printed/minted. Instead, [[Blocks]] are computed by miners and for their efforts they are awarded a specific amount of bitcoins + transaction fees. See [[Mining]] for more information on how this process works.

== Bitcoins are worthless because they're based on unproven cryptography ==

SHA256 and ECDSA which are used in Bitcoin are well-known industry standard algorithms. SHA256 is endorsed and used by the US Government so much there is a standard for it (FIPS180-3 Secure Hash Standard). If you believe that these algorithms are untrustworthy then you should not trust Bitcoin, credit card transactions or any type of electronic bank transfer. Bitcoin has a sound basis in well understood cryptography.

== Early adopters are unfairly rewarded ==

Early adopters are rewarded for taking the higher risk with their time and money. This argument is akin to saying that people who buy stock at a company IPO (Initial Public Offering) are unfairly rewarded. This argument also depends on bitcoin early adopters using bitcoins to store rather than transfer value. The daily trade on the exchanges (as of Jan 2012) indicates that smaller transactions are becoming the norm, indicating trade rather than investment.

In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.

The vast majority of the 21 million Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

== 21 million coins isn't enough; doesn't scale ==

One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.

As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller [[Units|units]], such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

== Bitcoins are stored in wallet files, just copy the wallet file to get more coins! ==

No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details (or bitcoin wallet) to someone else, that doesn't double the amount of money in your account. You can spend your money or they can spend your money, but not both.

== Lost coins can't be replaced and this is bad ==

Bitcoins are divisible to 0.00000001, so there being fewer bitcoins remaining is not a problem for the currency itself. If you lose your coins, all other coins will go up in value a little. Consider it a donation to all other bitcoin users.

A related question is: Why don't we have a mechanism to replace lost coins? The answer is that it is impossible to distinguish between a 'lost' coin and one that is simply sitting unused in someone's safe.

== It's a giant ponzi scheme ==
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters profit from the usefulness of a stable and widely accepted p2p currency.

== Finite coins plus lost coins means deflationary spiral ==
As deflationary forces may apply, economic factors such as hoarding are offset by human factors that may lessen the chances that a [[Deflationary spiral]] will occur.

== Bitcoin can't work because there is no way to control inflation ==

Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.

Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.

The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.

Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.

== The Bitcoin community consists of anarchist/conspiracy theorist/gold standard 'weenies' ==

The members of the community vary in their ideological stances.

== Anyone with enough computing power can take over the network ==

CONFIRMED, see [[Weaknesses]].

That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is quite ahead of the world's fastest supercomputers, together.

What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations. Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.

Furthermore, this attack scenario would only be feasible for as long as it was actively underway. As soon as the attack stopped, the network would resume normal operation.

== Bitcoin violates governmental regulations ==

There is no known governmental regulation which disallows the use of Bitcoin.

See also: the "[[#Bitcoins_are_illegal_because_they.27re_not_legal_tender|Bitcoins are illegal because they're not legal tender]]" myth.

== Fractional reserve banking is not possible ==

It is possible. See the main article, [[Fractional Reserve Banking and Bitcoin]]

== Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation ==

Transactions [[FAQ#Why_do_I_have_to_wait_10_minutes_before_I_can_spend_money_I_received.3F|can]] take tens of minutes to become ''confirmed'', and this won't change for the foreseeable future. Even after the computing power of the network is orders of magnitude larger than today, the difficulty of generating a block will self-adjust to maintain a target of 6 blocks per hour. Four potential solutions to allow POS transactions are:

'''1.''' For small transactions where there is some chance of recourse against fraud, simply assume the customer isn't ripping you off, or that there is a small-but-nonzero chance of a malicious customer getting caught in the act. Give the customer his latte immediately after the transaction posts to the network. The transaction should propagate through the network almost instantly, allowing the seller to see the transaction within seconds (albeit with zero confirmations.) The consequences of getting caught performing a double-spend attack, combined with the small value of the transaction, should make small-scale fraud not worthwhile.

'''2.''' Utilize a [https://bitcointalk.org/index.php?topic=423.msg3819#msg3819 'listening' period] prior to rendering the service or good. This has yet to be formally implemented in the standard Bitcoin client, but would allow a vendor to receive the transaction and then monitor the Bitcoin network for a certain period of time (maybe 10 seconds) for possible double spends. Vendors might utilize specialized payment processors with multiple well-connected nodes for this purpose. The original version of the bitcoin client software will only accept the first version of a transaction they receive to incorporate into the block they're trying to generate. When you broadcast a transaction, if someone else broadcasts a double-spend at the same time, it is a race to propagate them to the most nodes first. If one has a slight head start, it will geometrically spread through the network and get many times more nodes. Additionally, a payment "processing" company could blast out the transaction to thousands of nodes instantly and listen for double spend attempts. A payment processor could ''guarantee'' payments and eat the cost if a double-spend attempt actually succeeds. If a double-spend attempt is detected, the vendor is notified: no latte, and a call to the police should be put in immediately. Unfortunately [http://www.bitcointalk.org/index.php?topic=3441.msg48384#msg48384 finney attacks] are cheaply performed attacks on zero confirmation payments and do not provide any evidence of double spend until it is too late.

'''3.''' Create a network of transaction hubs. These entities would communicate using a common API. They would float short-term loans between each other to facilitate instant transactions.

Imagine that Alice uses Carol's Clearinghouse as her hub, and Bob uses Dave's Anonymous Exchange. Both Alice and Bob have accounts with their respective hubs, and have already deposited some bitcoins in their accounts. When Alice wants to buy a latte from Bob at a point of sale, Alice tells Carol "I want to send Bob ''x'' bitcoins. He uses Dave's Anonymous Exchange." After checking that Alice's account does contain at least ''x'' bitcoins, Carol sends a message to Dave, saying "Credit Bob's account with ''x'' bitcoins immediately; I'll send you the real bitcoins in the next block." Bob instantly sees his balance increase, and gives Alice her latte.

Optionally, option 3 allows all parties to circumvent use of the block-chain and its associated fees altogether. If Alice and Bob have accounts with Carol and Dave, then Carol and Dave are effectively functioning as banks. Carol and Dave can credit and debit millions of accounts millions of times daily and only "re-balance" money owed at the end of each business day through a single transaction in the Bitcoin block-chain.

Option 3 requires trust. Alice has to trust Carol's Clearinghouse, and the hubs have to trust each other. Due to competition, various hubs could develop with vastly different fee structures, membership requirements, trustability, etc. The advantage of option 3 is that it is instant. The disadvantage of option 3 is that trust is required. If trust is not established, option 2 can be used.

'''4.''' Anti-double spending multi-signature address. It's possible to create Bitcoin addresses which require the permission of multiple parties to spend. A service could offer to guarantee to never sign double spends. A user can lock up some of their funds so that they require signatures by both them and the anti-fraud service. When the user goes to spend these coins they send them to the anti-fraud service to obtain a signature. The merchant sees the signature by the well known anti-fraud service and accepts the transaction without confirmations. As of May 2012 no such service is yet established.

== After 21 million coins are mined, no one will generate new blocks ==

When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners will earn some profit from [[transaction fees]]. However unlike the block reward, there is [http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be/895#895 no coupling between transaction fees and the need for security], so there is less of a guarantee that the amount of [[Mining|mining]] being performed will be sufficient to maintain the network's security.

== Bitcoin has no built-in chargeback mechanism, and this isn't good ==

'''Why some people think this is bad''': Chargebacks are useful for limiting fraud. The person handling your money has a responsibility to prevent fraud. If you buy something on eBay and the seller never ships it, PayPal takes funds from the seller's account and gives you back the money. This strengthens the eBay economy, because people recognize that their risk is limited and are more willing to purchase items from risky sellers.

'''Why it's actually a good thing''': Bitcoin is designed such that your money is yours and yours alone. Allowing chargebacks implies that it is possible for another entity to take your money from you. You can have either total ownership rights of your money, or fraud protection, but not both. That said, nothing prevents the creation of services overlayed on top of Bitcoin that provide fraud protection services.

The statement "The person handling your money has a responsibility to prevent fraud" is still true; the power has been shifted into your own hands. Fraud will always exist. It's up to you to only send bitcoins to trusted entities. It is possible to trust an online identity without ever knowing their physical identity; see the [http://wiki.bitcoin-otc.com/wiki/OTC_Rating_System OTC Web of Trust].

== Quantum computers would break Bitcoin's security ==

Yes, but quantum computers don't yet exist and probably won't for a while. Bitcoin's security can be [http://en.wikipedia.org/wiki/Post-quantum_cryptography upgraded] if this were considered an imminent threat.

See the implications of quantum computers on public key cryptography here http://en.wikipedia.org/wiki/Quantum_computer#Potential

The ''risk'' of quantum computers is also there for financial institutions, like banks, because they heavily rely on cryptography when doing transactions.

== [[Mining|Bitcoin mining]] is a waste of energy and harmful for ecology ==

No more so than the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again. Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc.

As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others.

'''Economic Argument 1'''

[[Mining|Bitcoin mining]] is a highly competitive, dynamic, almost [http://en.wikipedia.org/wiki/Perfect_market perfect], market. Mining rigs can be set up and dismantled almost anywhere in the world with relative ease. Thus, market forces are constantly pushing mining activity to ''places'' and ''times'' where the marginal price of electricity is low or zero. These electricity products are cheap for a reason. Often it’s because the electricity is difficult (and wasteful) to transport, difficult to store, or because there is low demand and high supply. Using electricity in this way is a lot less wasteful than simply plugging a mining rig into the mains indiscriminately.

For example, Iceland produces an excess of cheap electricity from renewable sources, but it has no way of exporting electricity because of its remote location. It is conceivable that at some point in future Bitcoin mining will only be profitable in places like Iceland, and unprofitable in places like central Europe, where electricity comes mostly from nuclear and fossil sources.

Market forces could even push mining into innovative solutions that have a ''net'' electricity consumption of ''zero''. For example, electric heaters could come equipped with a cheap CPU instead of a resistance coil.

'''Economic Argument 2'''

When the environmental costs of mining are considered, they need to be weighed up against the benefits. If you question Bitcoin on the grounds that it consumes electricity, then you should also ask questions like this: Will Bitcoin promote economic growth by freeing up trade? Will this speed up the rate of technological innovation? Will this lead to faster development of green technologies? Will Bitcoin enable new, border crossing [http://en.wikipedia.org/wiki/Smart_grid smart grid] technologies? …

Dismissal of Bitcoin because of its costs, while ignoring its benefits, is a dishonest argument. In fact, any environmental argument of this type is dishonest, not just pertaining to Bitcoin. Along similar lines, it could be argued that wind turbines are bad for the environment because making the steel structure consumes energy.

== Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate ==

Your assumption is that bitcoins must be sold immediately to cover operating expenses. If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the exchange rate would be irrelevant. Larger adoption of Bitcoin would make prices [http://en.wikipedia.org/wiki/Sticky_%28economics%29 sticky]. Future volatility is expected to decrease, as the size and depth of the market grows.

In the meantime, many merchants simply regularly pull the latest market rates from the exchanges and automatically update the prices on their websites. Also you might be able to buy a put option in order to sell at a fixed rate for a given amount of time. This would protect you from drops in price and simplify your operations for that time period.

== Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down ==

* Hopefully Bitcoin will grow to the point where no single organization can disrupt the network, or would be better served by helping it.
* Terrorists fly aircraft into buildings, but the governments have not yet abolished consumer air travel. Obviously the public good outweighs the possible bad in their opinion.
* Criminal law differs between jurisdictions.

== Bitcoins will be shut down by the government just like Liberty Dollars were ==

Liberty Dollars started as a commercial venture to establish an alternative US currency, including physical banknotes and coins, backed by precious metals. This, in and of itself, is not illegal. They were prosecuted under counterfeiting laws because the silver coins allegedly resembled US currency.

Bitcoins are not coins at all, nor are they banknotes. They do not resemble US currency in any way, shape, or form. The word "dollar" is not attached to them in any way. The "$" symbol is not used in any way.

Bitcoins have no representational similarity whatsoever to US dollars.

Of course, actually 'shutting down' Liberty Dollars was as easy as arresting the head of the company and seizing the offices. The decentralized Bitcoin, with no leader, no servers, and no office, does not have the same vulnerability.

== Bitcoin is not decentralized because the developers can dictate the software's behavior ==

The Bitcoin protocol was originally defined by Bitcoin's inventor, [[Satoshi Nakamoto]], and this protocol has now been widely accepted as the standard by the community of miners and users.

Though the developers of the original Bitcoin client still exert influence over the Bitcoin community, their power to arbitrarily modify the protocol is very limited. Since the release of Bitcoin v0.3, changes to the protocol have been minor and always in agreement with community consensus.

Protocol modifications, such as increasing the block award from 50 to 100 BTC, are not compatible with clients already running in the network. If the developers were to release a new client that the majority of miners perceives as corrupt, or in violation of the project’s aims, that client would simply not catch on, and the few users who do try to use it would find that their transactions get rejected by the network.

There are also other Bitcoin clients made by other groups of developers that adhere to the Bitcoin protocol. As more developers create alternative clients, less power will lie with the developers of the original Bitcoin client.

[[de:Mythen]]

Securing your wallet

2012-06-12T02:38:52Z

Fordy: Small corrections

<div style="background:#dddddd;border:solid gray 1px;width:70%;margin:auto;">
Current releases of the bitcoin client offer passphase encryption for the keys in the wallet.

This article could use an update. See the discussion for this article for more.
</div>

==Introduction==

Wallet security can be broken down into two independent goals:
# Protecting your wallet against loss.
# Protecting your wallet against theft.

In the case that your current wallet hasn't been protected adequately (e.g. put online with a weaker password):
# Making a new secure wallet, using appropriate long-term protection.

''For a brief overview see also: [[Wallet Security Dos and Don'ts (Windows)|Wallet Security Dos and Don'ts]]''

==Paper Wallets==
[[Paper wallet]]s are a fairly simple way to store Bitcoins without needing a computer. When generated securely, a paper wallet also puts your Bitcoins well outside the reach of hackers and computer viruses.

"Storing" bitcoins is a little bit of a misnomer - what you are actually "storing" is a sequence of secret numbers that is used to prove your right to spend the Bitcoins you have received. This secret number is called a [[private key]]. The most common way to write a Bitcoin private key is as a sequence of fifty-one alphanumeric characters that always starts with a '5'.

One way you can print a paper wallet is at the website [[BitAddress]]. This website features a free client-side paper wallet generator written in JavaScript. This generator can be saved as a file and used on an offline computer. Using it online is relatively safe, but not airtight unless you take a couple of extra precautions to ensure your keys are not stolen by spyware. Alternatively blockchain.info offers a [https://blockchain.info/wallet/paper-tutorial tutorial on how to generate a paper wallet] with an online component so you can still check your balance easily.

To generate a safe paper wallet, you need to "clean-boot" your computer with a bootable CD (such as a Linux Live CD), with your computer not connected to the internet, to ensure that you do not have any active spyware that might steal the private keys you generate. Disconnecting from the Internet allows you to confirm that the paper wallet generator is truly self-contained and isn't depending on communication with a remote server. Run the saved paper wallet generator in a web browser, print your paper wallets (do not save them on the computer), and then shut down the computer. You may need to load an appropriate printer driver in order to print while booted from the Live CD.

A paper wallet lists multiple Bitcoin addresses and the corresponding "private key". You can send Bitcoins to any address on the page, and they will be inaccessible until the private key is loaded back onto a computer. The Bitcoin software does not yet have a built-in way to load private keys, but you can use the "Add Funds" - "Private key" screen at [[MtGox]] to recover digital coins from a private key. Coins are deposited in your MtGox account and can be sent out of MtGox shortly thereafter.

Remember that spyware and viruses often attempt to monitor your computer activities so that their authors can steal from you. They are interested in your passwords (such as to banking, etc.) and anything of value. Bitcoin wallets and Bitcoin private keys are something of value that will be targeted by malware. Paper wallets isolate you from much of this risk.

If your computer is infected with spyware or viruses - even if there are no symptoms or your antivirus isn't reporting anything - then anything you type, view, or save on your computer could potentially be stolen by someone remotely controlling your computer. Your private key could potentially be intercepted at the point you type it in to redeem it, so only enter a Bitcoin private key into your computer when your intent is to redeem its value ''immediately''.

==Importance of security updates==

No software is perfect, and from time to time there may be security vulnerabilities found in your Bitcoin client as well.
Be sure you keep your client up to date for the latest bug fixes, especially when a new vulnerability is discovered.
We maintain a [[CVEs|list a known vulnerabilities]] on this wiki - you can watch that page to get updates.
Note that you ''don't'' need to be running a bleeding edge client version: some clients, including the popular Bitcoin-Qt, have older versions available with bugfix-only updates.

==Securing an online wallet with the Bitcoin software==

Bitcoin transactions send Bitcoins to a specific public key. A Bitcoin address is an encoded hash of a public key. In order to use received Bitcoins, you need to have the private key matching the public key you received with. This is sort of like a super long password associated with an account (the account is the public key). Your Bitcoin wallet contains all of the private keys necessary for spending your received transactions. If you delete your wallet without a backup, then you no longer have the authorization information necessary to claim your coins, and the coins associated with those keys are lost forever.

The wallet contains a pool of queued keys. By default there are 100 keys in the [[key pool]]. The size of the pool is configurable using the "-keypool" command line argument. When you need an address for whatever reason (send, “new address”, generation, etc.), the key is not actually generated freshly, but taken from this pool. A brand new address is generated to fill the pool back to 100. So when a backup is first created, it has all of your old keys plus 100 unused keys. After sending a transaction, it has 99 unused keys. After a total of 100 new-key actions, you will start using keys that are not in your backup. Since the backup does not have the private keys necessary for authorizing spends of these coins, restoring from the old backup will cause you to lose Bitcoins.

Creating a new address generates a new pair of public and private keys, which are added to your wallet. Each keypair is mostly random numbers, so they cannot be known prior to generation. If you backup your wallet and then create more than 100 new addresses, the keypair associated with the newest addresses will not be in the old wallet because the new keypairs are only known after creating them. Any coins received at these addresses will be lost if you restore from the backup.

The situation is made somewhat more confusing because the receiving addresses shown in the UI are not the only keys in your wallet. Each Bitcoin generation is given a new public key, and, more importantly, each sent transaction also sends some number of Bitcoins back to yourself at a new key. When sending Bitcoins to anyone, you generate a new keypair for yourself and simultaneously send Bitcoins to your new public key and the actual recipient's public key. This is an anonymity feature – it makes tracking Bitcoin transactions much more difficult.

So if you create a backup, do more than 100 things that cause a new key to be used, and then restore from the backup, some Bitcoins will be lost. Bitcoin has not deleted any keys (keys are never deleted) – it has created a new key that is not in your old backup and then sent Bitcoins to it.

== Making a new wallet ==

In the case that a wallet has been distributed, or stored, in a (real or potential) compromised state, it is wise to create a new wallet and transfer the full balance of Bitcoins to an address contained only in the newly created wallet.

For example, this will be necessary if one created a wallet with a password of 12 characters, as suggested. However a few years have passed and the wallet is now more easily compromised. Just re-encrypting isn't secure. One needs to make a new wallet and make the old wallet worthless (spending the funds to the new wallet).

==Making a secure workspace==

===Linux===

The first step is to make a [http://www.howtogeek.com/howto/ubuntu/add-a-user-on-ubuntu-server/ new user,] so as root, run:

<code>adduser new_user_name</code>

When you get to the prompt 'Enter the new value, or press ENTER for the default', just keep hitting ENTER.

Then switch user to the new user. To get to the new user you can use the switch user icon for your system, which on Ubuntu is in the 'System/Quit' screen, or if there is no switch icon on your system you can log out and log back in as the new user. Then click on a folder in the new user to display the file browser, then keep going up folders until you see the new user home directory, then right click to bring up the Properties dialog, then click on the Permissions tab, then in the Others section, set the folder access to None.

For secure browsing, open Firefox, and then go into the Edit menu and click Preferences. Starting from the left, click on the General tab, and in the 'Startup/When Firefox starts' pop up menu, choose 'Show a Blank Page'. Then click on the Content tab, and deselect 'Load images automatically' and deselect 'Enable JavaScript'. Then click on the Privacy tab, and in the 'History/Firefox will' pop up menu, choose 'Never remember history'. Then click on the Security tab, and in the Passwords section, deselect 'Remember passwords for sites' and deselect 'Use a master password'. Then click on the Advanced tab, then click on the Update tab, and then in the 'Automatically check for updates to' section, deselect 'Add-ons' and 'Search Engines'.

When JavaScript is disabled, the [http://sourceforge.net/projects/bitcoin/files/Bitcoin/bitcoin-0.3.23/bitcoin-0.3.23-linux.tar.gz/download Linux download page] will not download automatically, so you'll have to click on the 'direct link' part of the "Problems with the download? Please use this 'direct link' or try another mirror." line.

After you've made your secure new user, to maintain security you should only use it for Bitcoin.

It's also a good idea to encrypt the Home directory of whatever user you run Bitcoin under using ecryptfs-utils. To do this:
# If the Home directory is not empty you should back it up first, by just copying the data to an external drive or something.
# install ecryptfs-utils (on Ubuntu: sudo apt-get install ecryptfs-utils)
# log out of X (graphical system) and press Ctrl+Alt+F1 to login to the command shell (you must be logged out or some files will be open and the tool won't be able to encrypt your data)
# change directory to something that's not in your home folder (ex: cd / )
# run the migration tool (on Ubuntu: sudo ecryptfs-migrate-home -u username)
# if it's successful, you can now press ALT+F8 to go back to the GUI and login
# run 'ecryptfs-unwrap-passphrase' and '''WRITE DOWN OR SAVE THE CODE IT RETURNS''' because you will need it if you ever have to pull your data off while the OS is not working. (You can run it again later if you need to, but run it now so that you can get your data if your Linux install gets botched.)
# run 'ecryptfs-setup-swap' to encrypt your swap partition (the encrypted folder data is not encrypted while it's in memory, and so if it's ever sent to the swap partition it can be stolen from there unless that too is encrypted - be aware that this will mean you cannot use Hibernate anymore, as the bootloader won't be able to restore the hibernation data)
(instructions from [http://bodhizazen.net/Tutorials/Ecryptfs/#Migrate])

===Mac===
This solution '''does not scale'''; the amount of needed space can grow beyond the image size.

=====Backup all data=====
Follow these instructions to backup all the bitcoin data (wallet and block chains) to an encrypted disk image.
# Open Disk Utility
# Click New Image and choose a big enough size, 128-bit or 256-bit (faster or more secure) encryption and single partition.
# Save it somewhere you won't lose it (like your Wuala, Dropbox, Strongspace or whatever)
# Choose a safe and strong password
# Move everything from ~/Library/Application Support/Bitcoin/ to the image
# Symlink it back so the app would be able to use it
:::ln -s /Volumes/Bitcoin ~/Library/Application Support/Bitcoin

Don't forget to mount your image before using Bitcoin and unmount it after quitting.

=====Backup just wallet.dat=====
Follow these instructions to backup just the wallet.dat file. This results in a smaller disk image, but it's more complicated to do.
# Open Disk Utility
# Click New Image and choose a big enough size, 128-bit or 256-bit (faster or more secure) encryption and single partition.
# Save it somewhere you won't lose it (like your Wuala, Dropbox, Strongspace or whatever)
# Choose a safe and strong password
# Move your wallet.dat file to the image
# Symlink it back so the app would be able to use it
:::ln -s /Volumes/Bitcoin/wallet.dat ~/Library/Application Support/Bitcoin/wallet.dat

[[File:MountWalletAndLauchnBitcoin_OSX_Automator.png|thumbnail|150px|Mount Wallet and launch Bitcoin]]
Don't forget to mount your image before using Bitcoin and unmount after quitting it.

'''Note''': If you start the Bitcoin application without having the image mounted, the application will overwrite your symlink with a new wallet. If that happens, don't panic. Just delete the new wallet.dat, mount the image, and recreate the symlink like above.

'''Automation''': You can create a small application using [http://en.wikipedia.org/wiki/Automator_%28software%29 Automator] (included in OS X) to automatically mount the wallet and then launch Bitcoin App. See the Screenshot on how to do this.

If one ''doesn't'' want to use encrypted Disk images, then a '''small shell script''' can be used instead that takes care of decrypting the wallet, launching bitcoin client, and encrypting it after the client exits. This script works on both OSX and Linux: [http://lorelei.kaverit.org/bitcoin.sh bitcoin-launch-script]

===Windows===

If you are using Windows XP or Windows 7, you can keep your wallet on an encrypted disk image created by third-party software, such as [http://www.truecrypt.org/ TrueCrypt] (open source) or [http://www.jetico.com/encryption-bestcrypt/ Jetico BestCrypt] (commercial). You can probably do the same with Windows Vista or Windows 2000.

'''NOTE:''' You should configure Bitcoin in this manner only on computers where you use Bitcoin, but do not use that computer to mine. For example, this is a good configuration for a notebook or tablet computer.

Assuming that you have installed the Windows Bitcoin client and run it at least once, the process is described below.

To mount the Bitcoin data directory on an encrypted drive
<ol start=1 type=1>
<li>Use the third-party disk image encryption program of your choice to create and mount an encrypted disk image of at least 100 MB in size.</li>
<li>Locate the Bitcoin data directory, and copy the directory with all contents to the encrypted drive.
For help finding this directory, see [[Securing_your_wallet#Locating_Bitcoin_s_data_directory|Locating Bitcoin's Data Directory]].</li>
<li>Create a Windows shortcut that starts Bitcoin with the <code>-datadir</code> parameter and specifies the encrypted drive and directory.
For example, if you installed Bitcoin in the default directory, mounted your Bitcoin encrypted drive as <code>E:\</code>, and stored your Bitcoin data directory on it as <code>Bitcoin</code>, you would type the following command as the shortcut Target:
<blockquote><code>C:\Program Files\Bitcoin\bitcoin.exe -datadir=E:\Bitcoin</code></blockquote></li>
<li>Open Bitcoin's settings and configure it NOT to start automatically when you start Windows.
This is to allow you to mount the Bitcoin encrypted disk image before starting Bitcoin.</li>
<li>Shut down Bitcoin, and then restart it from the new shortcut.</li>
</ol>

After doing this, any time you want to use Bitcoin, you must first mount the Bitcoin encrypted disk image using the same drive designation, and then run Bitcoin from the shortcut that you created, so that it can find its data and your wallet. :-)

== Locating Bitcoin's data directory ==

The [[data directory]] is the location where Bitcoin's data files are stored, including the wallet data file.

=== Windows ===

Go to Start -> Run (or press WinKey+R) and run this:

explorer %APPDATA%\Bitcoin

Bitcoin's data folder will open. For most users, this is the following locations:

C:\Documents and Settings\YourUserName\Application data\Bitcoin (XP)

C:\Users\YourUserName\Appdata\Roaming\Bitcoin (Vista and 7)

"AppData" and "Application data" are hidden by default.

=== Linux ===

By default Bitcoin will put its data here:

~/.bitcoin/

You need to do a "ls -a" to see directories that start with a dot.

If that's not it, you can do a search like this:

find / -name wallet.dat -print 2>/dev/null

To change the directory Bitcoin stores its data in:
Run in terminal or script: ./bitcoin(-qt) -datadir=./[Directory_Name]

=== Mac ===

By default Bitcoin will put its data here:

~/Library/Application Support/Bitcoin/

==Backup==

'''Note''': Using a service like Dropbox to back up your Bitcoin data is not recommended as doing so introduces [http://en.wikipedia.org/wiki/Dropbox_(service)#Criticism security concerns] such as:
# the fact that they store your encryption key (meaning that a disgruntled Dropbox employee or an attacker who gained access to the system could decrypt your Dropbox data and steal your Bitcoins)
# the fact that the Dropbox client only needs a password for the first login. After it authenticates once, the server assigns it a token which it uses to show that, at one time, its user knew the password rather than sending the actual password (meaning that if you ever use the Dropbox client on another PC, that PC's users can access your Dropbox - even if you change your password - and can steal your Bitcoins or get a virus that will steal your Bitcoins).

For these reasons, an alternative is Wuala which does not store your encryption key and requires a password each time. With Wuala, the client can be set to remember your password but the server will check each time to make sure that the client is sending the correct password. Like Dropbox, the basic, lowest-storage-space account with Wuala is free of charge, and coincidentally, Wuala [http://www.wuala.com/en/bitcoin is experimenting with allowing users to pay for "upgraded" plans using Bitcoin.]

Whether you use Dropbox as your backup or not, use what Steve Gibson calls "pre-Internet encryption" (which he [http://itknowledgeexchange.techtarget.com/security-corner/cloud-security-and-privacy-do-they-exist/ discussed in the context of Dropbox's security concerns]) and use some form of encryption on the files before you back them up -- just in case someone other than yourself ever gains access to that backup. Make sure to pick a password that's memorable but secure.

The only file you need to back up is "wallet.dat". Ensure that Bitcoin is closed, copy this file somewhere else, encrypt it, and put it somewhere safe. Ideally, you would put this file in two places: one nearby, and one 100+ miles away.

You can use the [[api|backupwallet]] JSON-RPC command to back up without shutting down Bitcoin.

=== General Solutions ===

Your wallet.dat file is not encrypted by Bitcoin, by default. The most current release of the Bitcoin client provides a method to encrypt with a passphrase the private keys stored in the wallet. Anyone who can access a wallet which is not using the passphrase encryption can easily steal all of your coins. Use one of these encryption programs if there is any chance someone might stumble upon your wallet.
* [http://www.7-zip.org/ 7-zip] - Supports strongly-encrypted archives.
* [http://www.axantum.com/axcrypt/ AxCrypt by Axantum]
* [http://lrzip.kolivas.org lrzip] - Compression software for Linux and OSX that supports very high grade password protected encryption
* [http://www.truecrypt.org/ TrueCrypt] - Volume-based on-the-fly encryption (for advanced users)
* [http://www.rarlab.com/ WinRar] - Commonly used archive software that supports verification records and encryption.

There is also a list of [[OpenSourceEncryptionSoftware|open source encryption software.]]

Decrypting and encrypting the wallet.dat every time you start or quit the Bitcoin client can be ''tedious'' (and outright error-prone). If you want to keep your wallet encrypted (except while you're actually running the Bitcoin client), it's better to relegate the automation to a [http://lorelei.kaverit.org/bitcoin.sh small shell script] that handles the en/decryption and starting up Bitcoin client for you (Linux and OSX).

There is also a method to Print out and encrypt your Wallet.dat as a special barcode. See details here: [[WalletPaperbackup]]

==== Password Strength ====
Brute-force password cracking has come a long way. A password of random [a-Z] [0-9] [!-~] of 8 characters long was previously thought secure but can be trivially solved now (using appropriate hardware). The recommended length is '''at least''' 12 characters long. You can also use a multi-word password. [http://www.baekdal.com/tips/password-security-usability The Usability of Passwords]

However, simply using dictionary words is also insecure as it opens you up to a dictionary attack. If you use dictionary words, be sure to throw random symbols and numbers in the mix as well.

If you use keyfiles in addition to a password, it is unlikely that your encrypted file can ever be cracked using brute force methods, even 10 years from now when even a 12 character password might be too short.

Assume that any encrypted files you store online (eg. Gmail, Dropbox) will be stored somewhere forever and can never be erased.

===== Choosing Your Password =====
Make sure you pick at least one character in each group: 

Lowercase: abcdefghijklmnopqrstuvwxyz
Uppercase: ABCDEFGHIJKLMNOPQRSTUVWXYZ
Number: 1234567890
Symbol: `~!@#$%^&*()-_=+\|[{]};:'",<.>/? (space)

<9 char = unsuitable for use
09 char = insecure
10 char = low security
11 char = medium security
12 char = good security (good enough for your wallet)
13 char = very good, enough for anything.

==== Storage of Archive ====
One of the most simple methods for storing a appropriately '''encrypted''' archive of your wallet.dat file is to send the archive as an email attachment to your own e-mail address. Services like gmail.com use very comprehensive distributed networks that make the loss of data very unlikely. One can even obfuscate the name of the files within the archive, and name the archive something less inviting, such as: 'personal notes' or 'car insurance'.

Another solution is to use a file storage service like [http://www.wuala.com/bitcoin Wuala] ( encrypted, [http://www.bitcoin.org/smf/index.php?topic=5817.0 instructions]), [http://www.dropbox.com Dropbox] and [http://en.wikipedia.org/wiki/Comparison_of_online_backup_services others], including the more secure [http://www.spideroak.com SpiderOak].

=== Linux solution ===

Linux users can setup backups using cron by telling it to run a backup script at set intervals of time. Run 'crontab -e' and add this line near the bottom:

01 */1 * * * /usr/local/bin/backupwallet.sh

This cron line will run the /usr/local/bin/backupwallet.sh script at the 01 minute of every hour. Remember to add a newline after the last line of the crontab file, or else the last line won't run. You may also wish to ignore the script's output by appending " > /dev/null 2>&1" to the line (this will also prevent emails from being sent).

Create /usr/local/bin/backupwallet.sh:

#!/bin/bash
# /usr/local/bin/backupwallet.sh
#
# Performs backup of bitcoin wallet.
#
# Written by: https://en.bitcoin.it/wiki/Securing_your_wallet

#
# Standard Options
#
TS=$(date "+%Y%m%d-%H%M")
WALLET=/tmp/wallet-${TS}
WALLET_E=/tmp/wallet-${TS}.crypt
BITCOIN=bitcoind # /path/to/bitcoind
GPG=gpg # /path/to/gpg
GPG_USER=username # Username of gpg recipient. User should have gpg setup.
RM=rm
RM_OPTS='--force'
USE_SHRED=0 # Flip to 1 to use `shred` instead of `rm`.
SHRED=shred
SHRED_OPTS='--force --iterations=9 --zero --remove'

#
# Storage Options
# Only 1 set of options should be un-commented (the last one will be used).
# Update CP_DEST paths as neccessary.
#
# CP - Storage on a local machine. Could be Dropbox/Wuala folder.
#CP=cp
#CP_DEST='/var/data/backups/' # '~/Dropbox/', etc.
#
# SSH - Storage on a remote machine.
CP=scp
CP_DEST='remoteuser@example.com:~/wallets/'
#
# S3 - Storage on Amazon's S3. Be sure s3cmd is installed and properly setup.
# You may need "s3cmd put --force" if you use a sub-directory in CP_DEST.
#CP=s3cmd put
#CP_DEST='s3://bucket'

do_clean() {
# Remove temporary wallets.
if [ 1 -eq $USE_SHRED ]; then
$SHRED $SHRED_OPTS $WALLET $WALLET_E
else
$RM $RM_OPTS $WALLET $WALLET_E
fi
}

do_fail() {
do_clean
echo failed!
exit 1
}

# Perform the backup.
echo -n Making backup...
$BITCOIN backupwallet $WALLET
[ ! -s "$WALLET" ] && do_fail # If the backup does not exist or is empty, fail.
echo done.
echo -n Encrypting backup...
$GPG -r $GPG_USER --output $WALLET_E --encrypt $WALLET
[ 0 -ne $? ] && do_fail # If gpg returns a non-zero result, fail.
echo done.
echo -n Copying to backup location...
$CP $WALLET_E "$CP_DEST"
[ 0 -ne $? ] && do_fail # If the $CP command returns a non-zero result, fail.
echo done.
do_clean

exit 0

The shell script:

* Calls bitcoind backupwallet to create a time/date-stamped wallet.
* GPG encrypts the wallet with your public key.
* Copies the result using one of several storage options (cp, scp, and s3cmd).
* Uses the rm or shred command to remove the temporary wallet files.

Be sure to modify the script options to fit your setup. After you save, make sure the file can be executed properly by the cron user. Common permissions for files in /usr/local/bin/ can be applied using (verify with your distribution!):

cd /usr/local/bin/ && chown root:root backupwallet.sh && chmod 755 backupwallet.sh

[[Category:Technical]]

==Restore==

Assuming your backup is recent enough that you haven't used up all of your key pool... restoring a wallet to a new (or old) location and rescanning the block chain should leave you with all your coins. Just follow these steps:
* Quit bitcoin(d).
* Copy your backed up wallet.dat into your bitcoin profile directory.
* If copying into existing profile, delete file ''blkindex.dat'' and ''blk0001.dat'' to make the client re-scan the block chain.

And you'll be good as new.

==Erasing Plain Text Wallets==

A good practice is to keep at least two wallets, one as a "current account" for everyday transactions and one as a "savings account" where you store the majority of your Bitcoins.

The "savings account" wallet should be backed up in encrypted form only and all plaintext copies of this wallet should be erased. In case someone gains unauthorised access to your computer (either by physically stealing it or by exploiting a system vulnerability via the internet), they will only be able to spend the coins in your "current account" wallet.

In most operating systems, including Windows, Linux, and Mac OS X, simply deleting a wallet.dat file will ''not'' generally destroy it. It is likely that advanced tools can still be used to recover the wallet.dat file, even after it has been deleted.

The Linux '''shred''' command can be used to overwrite the wallet file with random data prior to deleting; this particular copy of the file will then be practically impossible to recover. Using shred (and similar tools on Windows) however does not guarantee that still other copies don't exist somewhere hidden on your HD. That will depend on your system configuration and what packages you have installed. Some system restore and backup tools, for instance, create periodic snapshots of your filesystem, duplicating your wallet.dat.

In Mac OS, the equivalent of '''shred''' is '''srm''' (introduced in Leopard). Using the Finder to remove files, clicking "Secure Empty Trash" in the Finder menu will shred the contents of the trash can. As with any OS this doesn't guarantee that there are not other copies elsewhere on your system.

For Windows, the built-in command ''cipher /W'' will shred all previously-deleted files. [http://www.cylog.org/utilities/cybershredder.jsp CyberShredder] can securely deleted individual files.

==eWallet==

Storing bitcoins with an [[eWallet]] provider incurs risks as well. Basically you grant the third party, in this case eWallet, full access to your wallet. These eWallets, or Electronic Wallets have a number of pros and cons. For example, you can access your wallet on any computer in the world, but the wallet can be forged or hacked and your bitcoins could be lost. You can also get eWallet applications for your Android phone, which also download the block chain like the normal client but allow the user to send bitcoins by QR code or NFC. The problem with this is that Bitcoins can be intercepted through means of mobile hacking.

==See Also==

* [[Data directory]]
* [http://startbitcoin.com/how-to-create-a-secure-bitcoin-wallet/ Secure Bitcoin Wallet Tutorial]
* [[How to set up a secure offline savings wallet]]
* [http://arimaa.com/bitcoin/ Bitcoin Gateway - A Peer-to-peer Bitcoin Vault and Payment Network]
* [http://blog.cyplo.net/2012/04/01/bitcoin-wallet-recovery-photorec/ Find lost wallet eg. after disk format, using Photorec]
[[de:Sichere deine Geldbörse]]
[[zh-cn:保护你的钱包]]

Help:Installing Bitcoin Core

2012-06-12T02:28:54Z

Fordy: Updated Bitcoin Faucet amount

An account can effortlessly be created using an [[eWallet]] service. eWallet services provide an online wallet to hold your bitcoins.

This guide covers installing Bitcoin without needing a third party wallet service.

== For Windows computers ==

[http://sourceforge.net/projects/bitcoin/files/Bitcoin/bitcoin-0.5.2/bitcoin-0.5.2-win32-setup.exe/download Download Bitcoin] and install it.

[[File:Install fin.png|frame|none|Complete installation wizard]]

== For Mac computers ==
[http://downloads.sourceforge.net/project/bitcoin/Bitcoin/bitcoin-0.5.2/bitcoin-0.5.2-macosx.dmg Download Bitcoin] and expand the disk image.

[[File:BcOSX.png|frame|none|Contents of the Bitcoin disk image after expansion]]

Drag the Bitcoin icon to the desired install location, and double-click the icon to run the application.

== Initialization ==

The Bitcoin window will open and connections will start up in minutes. The blocks will begin downloading.

[[File:BcOSXrunning.png|frame|none|Main window]]
[[File:BcOSXPreferences.png|frame|none|Preferences window on OS X]]

Your wallet will automatically have your first bitcoin address.

[[File:Bitcoin-qt-wallet-address.png|frame|none|Receive coins window]]

== Getting my first coins ==

The [[Bitcoin Faucet]] [https://freebitcoins.appspot.com/ website] currently hands out 0.005 BTC to new bitcoin users. Fill in the form with your bitcoin address. See [http://en.bitcoin.it/wiki/Trade#Samples_and_Marketing_Offers Samples and Marketing Offers] for other methods.

[[File:Get some btc.png|frame|none|Getting free coins from the Faucet]]

The client will eventually show the transaction.

[[File:Bitcoin-qt-receive-transaction.png|frame|none]]

After about one hour the transaction should get 6 confirmations. You are able to spend the coins once the transaction shows at least one confirmation.

The confirmation counter (like the block counter) will increase by one roughly every 10 minutes. Six confirmations are considered as 100% sure a transfer has been processed.

[[File:Bitcoin-qt-receive-transaction-confirmed.png|frame|none|Transaction once confirmed]]

* The [[Trade]] article shows hundreds of merchants who accept bitcoins.

== Buying Bitcoins ==

Bitcoins can be bought from individuals, on trading exchanges or from other online services. See the main page about [[Buying bitcoins|Buying Bitcoins]] for more information.

== Points to remember ==

* You don't need to be online to receive BTC.
* You can create as many new addresses as you like. Using a different address each time helps keep you [[Anonymity|anonymous]].
* You can be [[Anonymity|anonymous]] with adequate precautions.
* You cannot send BTC to an invalid address. Typos are not a worry as the payment will refuse to send.
* The [[Wallet|wallet]] file holds the keys that allow spending and thus the computer should be [[Securing_your_wallet|protected]] from the risk of loss and theft.
* Leaving Bitcoin open improves connectivity for the network and ensures that you don't fall behind on the block chain. Also see [[FAQ#Do_I_need_to_configure_my_firewall_to_run_bitcoin?|the FAQ about port forwarding]]

Proceed to the [[Introduction|introduction]]

== Technical ==
=== Block chain ===
The [[block chain]] is a never-ending story of every transaction throughout the network from day 1 (genesis). The first time you run Bitcoin, it is downloaded and verified on your computer. Every new transaction is added to the end of this chain and verified by the network to be valid.

=== Addresses ===
Whenever you send a coin, you are actually sending a cryptographically signed message, associating your coin with the recipient's address. This effectively transfers ownership to to the recipient. Once they own the coin, they are free to transfer it to another person.

A wallet is a collection of addresses. You can create as many new addresses as you wish; having more addresses makes you more anonymous, because then people cannot see how much BTC you received. Your wallet contains the secret keys used for spending that money, and must be [[Securing your wallet|backed-up regularly]]. If you lose the wallet then you no longer possess the money.

=== Generating ===
New coins are mined through generating hashes. These generators are rewarded with a small fee for the computationally intensive task of incorporating your transactions into the block-chain. This fee halves each time 210000 blocks are added to the block chain, or approximately every 4 years. The fee will keep halving until it effectively reaches zero, at which point 21 million coins will be in circulation.

[[Category:Introduction]]

[[de:Erste Schritte]]
[[zh-cn:入门]]