Controlling Your Keys
So far we’ve touched on the things you absolutely need to get started in Bitcoin: a wallet attached to a bank account or credit/debit card and the knowledge to acquire Bitcoin and move it from place to place. If you were to stop now you’d be able to function in the Bitcoin ecosystem. But I don’t want you to stop now because you’d be missing out on the parts of Bitcoin that make it so disruptive. I want to talk about the part where you and only you control your money. Let’s talk about Private Keys.
Time for another short lesson. We’ve talked about Bitcoin Public Addresses. That is only half of the story. Every Public Address has associated with it a Private Key. Think of the Public Address as a night drop box on the side of a bank. The bank can hand keys to the public side of the box to anyone it chooses to do business with. That way anyone can put stuff into the box. But the inside keys are private and only given out to people the bank wants to be able to remove stuff from the box. You need the Public Address to receive and hold the Bitcoin. You need the Private Key to send it out again. Now imagine a different night drop box for every transaction you do. That is Bitcoin. Look in my Education section for a more in depth explanation of Public Addresses and Private Keys.
You may wonder why we never discussed Private Keys before this. As I wanted to get you started in Bitcoin as quickly as possible my tutorials encouraged you to use Coinbase and Circle. These two services handle your Private Keys for you. But what you gain in simplicity you lose in control. While I very much like both of these services I remind you of this truism, “If you don’t solely hold the Private Keys you don’t own the Bitcoin.” Anyone with access to your Private Keys can take your money. I’m not suggesting that Coinbase and Circle would do this. I’m simply suggesting they could. I continue to use both Coinbase and Circle to this day, but my long term storage is held in wallets to which only I control the Private Keys. I recommend you do the same.
The first thing you need is a wallet that doesn’t use a web wallet as a back end. Coinbase and Circle mobile wallets aren’t exactly wallets. They’re extensions of their respective web wallets, which is why they control the Private Keys. Again, this is good for simplicity and learning. It’s not good for control. What we need is a wallet that produces and controls Public Addresses and Private Keys on its own, stores them locally, and allows you to create and restore backups.
For the purposes of this tutorial I’m choosing to use Copay. It’s a mobile wallet available on Android, iOS, and Windows phone. It’s also a desktop wallet available on Linux, Mac, and Windows. It’s even available as a Chrome browser extension. It’s also nearly identical on every platform, so if you learn it on your phone it’ll be the same on your desktop. This should allow anyone to use it. It’s open source, feature rich, intuitive, and released by one of the most reputable companies in Bitcoin: BitPay. You can read more about Copay in my Review section. Copay is a wallet that keeps the Private Keys in the background, local to the device on which you use it. Nobody can see them unless you export them. This means that nobody can steal your money unless you give them your keys.
Start by going to the Copay website and downloading the software. Initial setup is easy after you get Copay installed. It sets up a single user wallet by default and you agree to the terms of service. It then brings you to an initial wallet screen with no funds. We will soon remedy that, but first we need to go through best practices. Every time you create a wallet you should create a backup in case something goes wrong.
Click on the gear icon in the upper right to get to the wallet preferences. Then go to Backup. Copay will display a list of 12 words. Write these down somewhere safe. I put them in a password wallet that allows me to store encrypted backups locally and in the cloud. Click continue.
Click on the words to prove you’ve written them down correctly. Then click continue. If you ever lose your wallet you can now recreate it on another device. Then go back into the wallet preferences menu and delete the seed words. This will ensure nobody can see them and recreate your wallet on a different device. You can even use this backup to recreate your wallet on another device like your desktop and use it in two places at the same time.
There are a lot of settings, preferences, and features in the menus. You’ve already seen the wallet settings menu in the gear. The settings in there pertain specifically to the wallet in which you’re currently working. There is also a global settings menu in the main menu in the upper left. The settings in there pertain to the Copay program itself. I recommend you explore both sections. You can change a lot of the look and feel in here to customize Copay to suit you. If you don’t know what something is or what it means feel free to leave it at default.
The only setting I would definitely recommend you change is to password protect your wallet in the wallet preferences menu. I recommend you do so because there is no password or PIN on the app itself. If someone were to get hold of your phone or get into your computer they would be able to sweep your wallet. Go to the wallet preferences menu again. Click on the Request Password slider button. It will open a window in which you can enter a password. Do so and then click Set. You’ll have to then reenter the password and click Set again. Your wallet is now encrypted.
Now all that is left is to move a portion of your funds out of Coinbase or Circle and into Copay. This will take your Bitcoin out of a system that controls your private keys into a system that puts all the control in your hands. You can do this all in one shot with one transaction, but if you have a fairly significant number of Bitcoin I encourage you to do it in smaller transactions to get the practice sending Bitcoin.
In the lower left hand corner of Copay you’ll see a button that says Receive. Click on that. It will bring up a screen that says “My Bitcoin address”. You’ll also see a QR code that will produce the address below the code. You can either use the QR code, if the device you’re sending from has a camera, or you can copy/paste the address text. In the Android version there is a “Share Address” button which will bring up Android’s share menu. Use any of these methods to send the code to Coinbase or Circle and send yourself some Bitcoin.
Once the first transaction hits Copay you’ll notice that the address in the Receive section of Copay changes. This is an example of how wallet software discourages address reuse. So select the new address in the same manner you selected the old address. Get the address to Coinbase or Circle again and send yourself some more Bitcoin. Do this over and over until you have all of your Bitcoin in Copay.
Congratulations. You’ve taken full control of your Bitcoin. Your Bitcoin is more secure than it once was. But there are even safer ways to store your Bitcoin. In my next Tutorial, I’ll show you how to make a paper wallet.