If I have a deterministic wallet which previously held bitcoin but is now empty and is no longer needed, what information should I keep? I think there are three options:
- keep nothing
- keep the master public key only
- keep the seed phrase
I can think of some implications of the options:
- If I don't keep the seed phrase, any funds accidentally sent to an address associated with the wallet will be lost forever. This becomes even more likely if the master public key is kept, as new addresses can still be generated for the wallet.
- If I keep anything at all there is a potential privacy leak waiting to happen if the details I kept fall into anyone else's hands, so over time I'm stuck with an increasing quantity of mostly useless information to keep secure.
- If I may need to prove the wallet was mine later on (e.g. to a tax authority claiming I sold coins when I was really just moving them around between my own wallets):
- I probably need the seed phrase to show this unambiguously.
- Having just the master public key might provide convincing if not bulletproof evidence the wallet was mine.
- Pointing to a chain of transactions terminating in non-empty wallets I still control might prove what's necessary without needing any information about the old wallet at all.
What are the best practices here? Does it make a difference how much bitcoin was held in the wallet and how long for? Compare, for example, a cold storage wallet which is being retired vs a wallet created with a negligible amount of bitcoin to play around with a new piece of software.