II. USING WARM STORAGE

Lets say you want some of your bitcoins in cold storage but you also want some bitcoins available on your computer for day-to-day use.

For example: You have received several bitcoin tips or donations to the encrypted wallet on your Bitcoin Core client, so now you're worried about computer theft, hacks, hard drive crashes, etc.

What you can do is use a combination of hot storage and cold storage. In other words, warm
storage.

You can do this by only leaving a limited amount of bitcoins in an encrypted wallet.dat file in your hard drive and the rest in a cold storage address. This is actually the way professional online wallets like Coinbase operate to keep their bitcoins safe.

The procedure is simple: Once you reach an amount of bitcoins you no longer feel it's safe to keep them in your hard drive, simply send most of the bitcoins to a cold storage address and leave the rest in your hard drive. Your coins are now secure in cold storage and you will only risk a small amount in hot storage.

How much bitcoin should you leave in your hard drive? That's up to you and your daily bitcoin needs. Coinbase puts over 90% of its users' bitcoins in cold storage. But if you're not going to need more than 20 dollars in bitcoin, then leave 20 dollars and move the rest to cold storage.

WHAT'S THE RISK?

Even if you have a good firewall and anti-virus package, and you are not at risk of being hacked, your hard drive may fail by accident. Usually you can simply unplug the hard drive and empty it to a new drive. But if, for examploe, water gets into the hard drive, there's a good chance you won't be able to recover the data. Thus, it's safer to keep most of your bitcoins in cold storage so as to avoid losing them in case of an accident.

So for those of you who only want a minimum amount of security other than encrypting your wallet, another warm storage option, if you are not worried about being hacked, is to simply make a backup of your encrypted wallet and save it to a thumb drive. If the hard drive is damaged, you can use the backup copy. Just make sure you backup your wallet regularly if you spend bitcoins on a regular basis, as the wallet changes, adding new change addresses, with every transaction you make.


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