What is the best way to generate bitcoin wallet?

Question

I am trying to create a cold storage, and I'm becoming so paranoid about everything on software and hardware (also afraid of myself forgetting/losing the wallet) related to the setup.

I have read some information online about cold storage setup, and I have come up with these questions:

1. What is the safest way to generate bitcoin wallet? From the existing software such as bitcoin-core? electrum? (I thought of writing my own codes to generate bitcoin wallet, but there are so many types of bitcoin wallet BIP32, BIP39, etc which makes me think that it's not a good idea to do so)
2. How are we sure that bitcoin-core and electrum is generating a safe wallet? (not pre-seeded)
3. Which standard is the safest way to generate bitcoin wallet? BIP32, BIP39?
4. Does bitcoin-core uses BIP32 to generate the wallet? if not, which one does it use?
5. Does electrum uses BIP39 to generate the wallet? if not, which one does it use? (I read that electrum is using an extended BIP39.
6. I also read that bitcoin-core is not using BIP39 because it is not sure, but why BIP39 is still used in many wallets?
7. Is it possible that a hardware (CPU, motherboard, SSD, old computer that has been used by me before) is infected with a malware (from previous use or even from the manufacturer)? This malware might be able to mess with the entropy and create something like a pre-seeded wallet?

Thank You

Answer 1

I would not consider generating the wallet as the primary security related issue, what i consider more important is the proper storage and encryption of your generated wallet. If you use open source wallets you will most likely be save.

I also thought about this a while ago and stumbled upon this guide for diy cold storage:

https://steemit.com/crypto/@guidedcrypto/diy-make-your-own-crypto-hardware-wallet

In essence it tells you how to create your cold storage which is:

• create your wallets (advice is to use official ones, but you can use any you choose) to the usb-thumbdrive
• store your access keys and passwords to the usb-thumbdrive
• test all is working
• encrypt everything to make it immutable (like this, malware or viruses have no chance destroying it and you are locking unauthorized people out)
• store the encryption key somewhere save (offline, please use long keys which are random to make it difficult to guess or brute force)

If you are paranoid about not catching viruses or other tempering you could do all of this from a live open source linux disto of your choice as to be sure nothing was altered in the OS. (it runs off RAM and basically gets recreated from scratch every time you start it)

I personally consider VM's not to be save as there have been security related issues with some VM infrastructure and the separation is not absolute from the base system.

Answer 2

What is the safest way to generate bitcoin wallet? From the existing software such as bitcoin-core? electrum?

1. Ensure you are using open source hardware and nothing is backdoored. I am not an expert but Luke Dashjr might help you with this considering some interesting tweets in past.

2. Ensure there are no malwares on system you use for bitcoin wallet. You can also use virtual machines or Qubes OS to keep things separate. Example: One virtual machine for bitcoin cold storage, One for hot wallet, One for social networking, One for office related work etc.

3. Don't use VM images from random sources, it can be backdoored: https://www.reddit.com/r/Bitcoin/comments/jrxgj8/bitcoin_core_node_hacked/

4. Use open source bitcoin wallet with more usage and active development, compile it yourself after reviewing the code for important things atleast: https://bitcoin.stackexchange.com/a/99480/

5. Create multiple backups for your wallet, test those backups and keep them safe.

6. Do not enter seed or anything on any website that helps other people get access to your bitcoin. Avoid entering seed on any online device.

7. Use hardware wallets like Coldcard if you find them safer compared to other things.

I also read that bitcoin-core is not using BIP39 because it is not sure, but why BIP39 is still used in many wallets?

https://bitcoin.stackexchange.com/a/88244/

Answer 3

A reputable hardware wallet is generally considered the best way for most users.

BIP39 refers to the mnemonic recovery phrase, but BIP39 wallets still use the BIP32 architecture.

The questions about why BIP39 is not implemented in bitcoin-core has already been answered (Is there a reason to why Bitcoin Core does not implement BIP39?)