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I have a web wallet that meets all or most of the requirements recommended by Colin Dean at An online wallet service could "lose" my bitcoins? Unless they’re lying or I’m misunderstanding, both of which are always possible.

Assuming neither happened, a cracker or employee might take control, and then

If I don’t have a backup, I will have lost my coins, but the bad guy can’t spend them. True or false?

Since I have a backup, I will have lost nothing, though the weird format of the backup might mean it takes a bit of time/effort to recover. True or false?

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  • This is nearly impossible to understand. If anyone takes control of your wallet it will always be spendable. The point of a backup is to keep a second copy of your wallet in a safe place for circumstances where you lose your wallet. – John T Mar 22 '14 at 19:36
  • I’m a newbie. It’s not hard for me to believe that the answer to my question might be “no,” but how is the question “impossible to understand”? They do indeed claim that it is safe because they “encrypt everything.” – WGroleau Mar 23 '14 at 1:31
  • What exactly are you asking? I have trouble understanding what you mean :( – Joe Pineda Mar 23 '14 at 1:35
  • In many languages, including English, a question mark on the end of what would otherwise be a statement, implies “True? or false?” I will make it explicit. – WGroleau Mar 23 '14 at 1:38
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I think I understand your question. Let me try to answer.

Assume:

  • the online wallet operator stores only an encrypted version of your private keys

  • key decryption and transaction signing is done on the client side, without giving the operator access to your unencrypted keys at any time

  • you have a strong passphrase on your private keys

  • the client-side software is correctly implemented and not compromised

Then an attacker or dishonest employee who gains access to the operator's data will not be able to spend your coins.

They could conceivably delete the operator's copy of your encrypted keys. If you have a backup, this won't really bother you, since you can decrypt the keys and use them to spend the coins yourself. If you don't have a backup, then the coins may be permanently lost: neither you, the attacker, nor anyone else would ever be able to spend them.

They could also threaten to delete them, or demand ransom to return the encrypted keys to you. Again, if you have a backup, you can ignore their demands. If you don't, then they have you over a barrel, and you might be motivated to pay them a sizeable fraction of the value of your coins to get the encrypted keys back, because otherwise those coins would be lost to you.

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  • Client-side! Why didn’t I think of that? :-). No offense, Peter, your answer was good but this was a tad better. Now, does that mean if (1) I had no backup, and (2) I had not cleared cache, cookies, or history, and (3) I were extremely talented or extremely determined, I could figure out how to recover the keys that had been used before? (or should I be posting that as a new question?) – WGroleau Mar 23 '14 at 3:12
  • @WGroleau: It's possible that copies of your encrypted keys would still be around somewhere. That would depend on the details of the software implementation. You certainly shouldn't count on it. In general, though, good software practice is not to leave extra copies of sensitive data around in random places. – Nate Eldredge Mar 23 '14 at 3:24
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If you have a backup but a cracker gains access to the online wallet then both of you (yourself and the cracker) can spend the bitcoins. If you spend them before the cracker does you are safe, if the cracker spends them first you have lost them.

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  • If, as I believe, the site meets the encryption requirements Colin stated, then the cracker should not be able to get my private key, no? – WGroleau Mar 22 '14 at 19:32
  • Hmmm, thinking about it more, it occurs to me that although they claim everything is encrypted by my password, the fact that they are able to send me a backup containing the private key means that if I pull a backup, it could be intercepted by someone on the inside prior to hitting the SSL layer. If that’s the case, then the weak spot is not their wallet code, but their staff and their intrusion prevention. Would they be able to see the private key during a spend? – WGroleau Mar 22 '14 at 19:37
  • for that matter, if they can send me the private key in a backup, then they must be able to send it to someone else—or to themselves. – WGroleau Mar 23 '14 at 1:34

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