If I back up unencrypted wallet.dat somewhere safe (TrueCrypt volume) and then encrypt the wallet by Settings / Encrypt Wallet, will my backup still be useful? I think the message after encrypting the wallet said something about other unencrypted backups being useless as soon as encrypted wallet starts to be used - how could that be possible at all, I don't believe that claim and I hope it's not true :/
Besides storing your current private keys, bitcoin wallet file also contains some pool of unused private keys. When encrypting wallet, this pool is flushed.
If you make some transaction using new (encrypted) wallet then change is sent to one of addresses from the pool, which is not present in old (unencrypted) wallet.
For example, you had 1BTC incoming transaction and spend 0.1BTC, then remaining 0.9BTC will be send to a change address. Then old (unencrypted) wallet will not be able to use this 0.9BTC, and they will be lost. But if you haven't done any transactions involving your coins, the old wallet will work.
Awesome explanation, thank you! I understand now... just this: so when I change my password, there should not be the same issue, right?– davidhqDec 16, 2013 at 15:02
PS: my last question: I want to use 8-character password -> is this really not enough? Does making it 10-chars as recommended make it unbreakable?– davidhqDec 16, 2013 at 15:04
@DavidKrmpotic: 1) From source code it seems the key pool is not renewed when changing passphrase, so old backup should be usable. But I'd recommend to back it up anyway just to be on the safe side. 2) Bruteforcing a bitcoin wallet is not limited by some external means (like CAPTCHAs etc), so good password for a web service might be not secure enough for a wallet. The recommended length is at least 12 random characters.– alandDec 16, 2013 at 15:24