Bitcoin Core Wallet: Basic Setup, Encryption, Backup & Recovery

Use a disposable practice wallet first. Install Bitcoin Core from the official source, keep the operating system current, and pause if you have any reason to suspect malware. Bitcoin Core can run and stay synchronized without a wallet loaded, which is the clean state used at the start of this exercise.

Do not send meaningful funds to this wallet until you have completed and tested the entire backup and recovery workflow.

Select Create Wallet and enter a local name. The screenshots in this guide use disposable Test Wallet and Tutorial Wallet examples. A wallet name is only a local identifier; it does not need to reveal your identity or the purpose of the funds.

Leave Disable Private Keys, Make Blank Wallet, and External signer unchanged for this basic setup.

Check Encrypt Wallet. Bitcoin Core encrypts the wallet's private-key material and requires the wallet passphrase when those keys must be unlocked for signing or spending.

Encryption does not make the entire wallet invisible. When the wallet is loaded, addresses, balance, transaction history, labels, and other metadata may still be visible. Signing requires private keys; broadcasting an already signed transaction does not.

Bitcoin Core recommends ten or more random characters or eight or more words. For this exercise, use a password manager such as KeePassXC to generate at least eight randomly selected words.

• Do not invent a memorable sentence.

  Use words selected randomly by a password manager instead of a phrase designed to feel clever or familiar.

• Do not reuse a password.

  A breach of another service must not expose the passphrase that protects your wallet.

• Do not include personal information.

  Names, dates, quotations, and familiar patterns make a passphrase easier to predict.

• Separate the two recovery components.

  Keep the real passphrase physically separate from every copy of the wallet backup.

Enter the generated passphrase in both fields. The entries must match exactly. Verify the phrase carefully before continuing, then return it to its separate, deliberate backup location. A real wallet passphrase should not remain in your clipboard or in a screenshot.

Bitcoin Core warns that losing the passphrase means losing the ability to use the encrypted private keys. There is no password reset service. Before meaningful funds are involved, create a deliberate passphrase backup strategy; do not rely on memory as the only copy.

Bitcoin Core warns that wallet encryption cannot fully protect bitcoin from malware. The passphrase protects encrypted keys at rest. If the signing computer is malicious while the wallet is unlocked, the environment can observe secrets, alter transaction details, or misuse the keys. Encryption cannot make a compromised signer trustworthy.

Before continuing, choose the environment deliberately. On a general-purpose computer, first install pending operating-system and security updates, then run a trusted antivirus or anti-malware scan. If the scan finds anything suspicious, stop, clean or replace the environment, and begin the wallet procedure again. A clean scan reduces obvious risk, but it is not proof that the computer is free of malware.

For serious cold storage, the stronger approach is a generic dedicated computer booted from trusted Tails media. Unlock encrypted Persistent Storage only for files the signing environment must retain. Obtain and verify Bitcoin Core on a separate trusted computer before moving the documented release to the signer. Start Tails in Offline Mode and keep the signer disconnected for wallet creation, key generation, and signing. Bitcoin Core does not need a synchronized blockchain on the signing computer.

• Reserve the machine for keys and signatures.

  Do not turn the offline signer into another general-purpose computer.

• Keep everyday network activity away.

  Do not use it for browsing, email, messaging, or daily work.

• Use a separate online Bitcoin Core node.

  Move unsigned and signed PSBTs carefully between the online node and offline signer.

• Verify before signing.

  Confirm destinations, amounts, and fees on the offline signer before approving a signature.

This removes reliance on the operating system installed on the laptop's internal disk. It does not prove that the Tails USB, BIOS, firmware, hardware, or physical keyboard path is clean. Pause before continuing: decide whether this practice wallet belongs on the current computer or whether your intended cold storage warrants the dedicated Tails-based signer.

Open Receive, add a local label such as Test Transaction, and select Create new receiving address. Bitcoin Core displays the address and a QR code. Labels help you remember an address's purpose; the label itself is not written to the Bitcoin blockchain.

Bitcoin can technically be sent to the generated address, but this exercise is not complete until the backup has been restored and checked.

Choose File → Backup Wallet, select a destination, and save the wallet file. Because this backup was made after wallet encryption, its private-key material remains protected by the Bitcoin Core wallet passphrase. Do not assume that every item of wallet metadata is encrypted.

One digital backup is not enough. Create redundant copies across more than one failure domain: USB drives, external drives, optical media, another computer, geographically separated storage, or encrypted cloud storage may all be appropriate depending on the threat model.

Choose File → Restore Wallet. Restoring an encrypted wallet does not necessarily trigger a passphrase prompt. Bitcoin Core can load the wallet and show metadata while the private keys remain locked. The passphrase is required later when those keys must sign or spend.

Navigate to the backup location, select the wallet .datfile, and choose Open. For a real recovery test, use a safe environment and confirm that you selected the intended backup rather than an unrelated file with a similar name.

Open Restore Wallet again, select archive.dat, and complete the import. Confirm that the expected wallet loads and that its labels, addresses, and history are present. If the backup was encrypted, that encryption remains in effect. Loading the wallet and unlocking its private keys are still two separate operations.

A restore test proves that Bitcoin Core can load the backup and recover the expected wallet data. It does not by itself prove that you can complete your full signing workflow. For meaningful savings, follow this with the operational Signet PSBT exercise in theself-custody curriculum.

Review the checklist below before treating the exercise as complete. A backup strategy is only credible after you have restored it, understood when the passphrase is required, and separated the wallet backup from the passphrase backup.