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Bitcoin cold wallets are the best way to store a large amount of coins on. By definition, cold wallets are set up in a way that prevents the theft of your funds as a result of a compromised machine or a Bitcoin stealing malware. This guide will teach you how to set up your own Bitcoin cold storage wallet using Electrum in a few easy steps.

Electrum is one of the best Bitcoin clients available for desktops and laptops. It contains a vast amount of features yet appeals to the average user at the same time. It is the best wallet to use for newbies because it does not require the download of the whole blockchain, since it connects to other user-run servers which already have the whole chain downloaded. The benefit of such a system is the quick set up time, but the negative is that by connecting to random servers there is a potential that someone may find a zero-day exploit and possibly create a malicious server which would steal users Bitcoins.

Such a scenario is highly unlikely but if you have a vast amount of bitcoins, one can never be too careful. Luckily, you can also setup whats called a watching-only wallet using Electrum. These types of wallets are also commonly called offline-wallets because the machine containing the private keys never touches the internet. Lets set up a watch-only wallet using Electrum using 4 simple steps.

In order to set up the wallet we need to download the Electrum client first.Select your operating system, then download and install the appropriate client.

This process needs to be done on an offline machine, meaning a computer that has never been connected to the internet. That is the only way to ensure 110% that there are no possible spyware or any other programs that could possibly compromise the private keys. Create the wallet like you would any other regular wallet and make sure to save the recovery seed phrase.

Navigate to Wallet -> Master Public Keys. The MPK will show up in a small box and will look like this:

Take that master key and copy it onto a notepad, take that .txt file and put it onto a flash drive. Take the flash drive and plug it into the online computer which will contain corresponding watch-only wallet.

Using the master public key from your offline machine, create a new Electrum walletby going to File -> New/Restore. Select a name for your wallet then in the prompts select Standard Wallet -> Use public or private keys. Enter your MPK and Electrum should create the wallet. You will receive a warning saying that the wallet you just created is watching-only. Meaning any Bitcoins sent to addresses of this wallet will not be able to be spent. You would needthe offline wallet to sign transactions in order to successfully spend the coins.

Congratulations! You have just created your first cold storage wallet. Now if you do want to send a transactionyou would need first to create an unsigned transaction using the watching-only wallet. Simply fill out the fields under the Send tab like you normally would and then click preview, a window will popup with the transaction details. Save the transaction by clicking the save button and put it onto your flash drive. What you have is an unsigned transaction, there are 2 things left to do, sign it and broadcast it.

Navigate back to your offline machine and select Tools -> Load Transaction -> From File. Select the transaction you just created. This time the same window will pop up but you will see an option to Sign. Click the Sign button and enter your cold wallet password. Once the transaction is signed you will also see a transaction id at the top of the window. You are not done yet, as now you have to transfer that signed transaction to your online computer and broadcast it to the network.

On your online machine go to Tools -> Load Transaction -> From file. Select that same file but this time the button will change to broadcast. Click that and the transaction will be sent to the network. Now you are finally done, while it may seem like a tedious process of moving a txt file between two computers just to send some Bitcoins, the amount attacking vectors that you are preventing by keeping your wallet offline is well worth the 2 extra minutes of fussing around with flash drives. You coins security is priceless and I hope this guide will entice you to look at your own Bitcoin wallet security more closely, and while you may not set up a cold wallet, at least make sure all your seeds are backed up!

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How to Set Up a Bitcoin Cold Wallet - The Merkle