In February 2014, one of the biggest bitcoin exchanges at the time, Mt. Gox, lost over $463 million worth of user bitcoins. Numerous other online wallets, exchanges and markets have lost huge amounts of user funds.
There are quite a number of excellent local bitcoin wallets available. Electrum is a lightweight, GUI bitcoin wallet that is very easy to use and set up. It uses a technique called Simple Payment Verification (SPV) to verify bitcoin transactions. This enables you to have a small-sized wallet on your system, compared with Full Node clients, which can use as much as 2GB. This article shows how easy it is to set up and manage your bitcoins with Electrum.
Note: Electrum is available for most platforms, including Windows, Linux, OS X and Android. In this article, we will be dealing with the Linux (Ubuntu) version.
For Ubuntu, you need to install some packages first. Run the following command to install the dependencies,
sudo apt-get install python-qt4 python-pip
then install Electrum by running
sudo pip install https://download.electrum.org/Electrum-2.0.3.tar.gz
For the most recent Windows and OSX versions, visit the Electrum download page.
Create a Wallet
The first time you run Electrum it will ask if you want to create a new wallet. There are different types of wallets available. The standard wallet is most likely what a normal user would want. A wallet with two-factor authentication has an additional security check (which becomes very useful if your computer is compromised), using TrustedCoin. A multi-signature wallet is a special type of wallet which consists of separate wallets, usually on separate machines that have to be used together to access the funds.
A seed is then generated for your wallet. These are a sequence of words that enable you to recover your wallet in extreme cases. Preferably write this down on a piece of paper and store this securely (think safe deposit box). Your wallet can be completely recovered from its seed. Do not just copy and paste it in a file on your desktop.
The next step is to choose a password for your wallet. The normal rules about passwords apply. Use a non-dictionary word, preferably with numbers and a mix of upper and lower case letters.
Your wallet will then be generated. Wait patiently until it’s complete.
While your wallet is local, bitcoin payments can only be made through connections to remote servers. It is advisable to let Electrum auto connect.
Electrum is very easy to use. There are tabs for easy navigation.
View a list of all transactions that have occurred on your wallet. This includes sent and received bitcoins.
To send bitcoins, click the send tab, enter the recipient bitcoin address (or contact name if in your contacts, or bitcoin alias), enter a description (which is optional and is not sent to the recipient; it is only shown in the history tab), and amount. If the amount is less than what’s in your wallet, Electrum helpfully indicates this by displaying the amount in red.
From the Addresses tab you can receive bitcoins into any of the addresses under receiving. Double click (or right click) on any of these addresses to show a drop down list. The “Receive” tab enables you to enter an address (with message and amount), which is then used to generate a QR code that you can then distribute to those who will be sending you bitcoins. Received bitcoins will automatically appear in your wallet as long as Electrum is online.
If you have contacts that you transact with frequently, the contacts tab can be very helpful. It helps you associate people with their bitcoin addresses.
1. Do NOT under any circumstance have your wallet seed sitting in an unencrypted file on your computer. Preferably do not have it on your computer at all. Write it down on a piece of paper or in a book. Your wallet can be retrieved using this seed in case of mishaps.
2. Electrum supports cold wallets. This is a wallet that is not connected online at all and only used for signing transactions. Consider using cold wallets if you have a substantial amount of bitcoins.
Think of bitcoin like you would real money. Would you hand over your hard-earned cash to a person you don’t know on the Internet? Certainly not, so why hand over your bitcoins? Do due diligence; find an online wallet that is registered in your country with a known address or store and manage your bitcoins locally.
Photo Credit: Future Money