Bitcoin Security (Hot vs. Cold Wallets, Address Re-Use)

Bitcoin addresses were intended to be used for a single payment only.

MindPay passphrase Bitcoin addresses are good for single-use only. MindPay passphrases generate a Bitcoin address not a Bitcoin wallet. This makes MindPay passphrases a good choice if you want to create a cold storage system or quickly

There are a number of reasons why it is not advisable to re-use a Bitcoin address. First and foremost, although it is possible to re-use a Bitcoin address, it is an unintended “feature.” Bitcoin addresses were intended to be used for a single payment only, for reasons explained below.

Because of the way Bitcoin works, all transactions are recorded on a public ledger. By definition, that means that it is possible to see information about a specific Bitcoin address such as the amount of Bitcoins it has sent and received and details for every individual transaction. This can be considered very private information, and even though there is no personally identifiable information attached to a Bitcoin address, it is possible to determine that the address belongs to you (e.g. you gave them the address so they could send you Bitcoins or post the address on your website).

There is also a security risk involved with using the same Bitcoin address twice. Without going into the messy cryptographic details, when you send Bitcoins from a Bitcoin address, you are sending a message to the Bitcoin network that you authorize the transaction and it is signed by the Bitcoin address’s private key. Once that private key signature is posted on the network, it significantly reduces the work needed to derive the private key from the public address.

Mitigating the privacy and security risks is automatically handled by a Bitcoin wallet application; it will give you a new address every time you receive Bitcoins. A Bitcoin “wallet” is essentially a collection of different Bitcoin addresses (with no way of relating them together).

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