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Most people have the bulk of their funds stored in cold storage. Just as how you track your fiat through bank statements or mobile apps, wouldn’t it be great to have a means to easily track your Bitcoin? Enter Bitcoin watch-only wallets.
Why use a Bitcoin watch-only wallet?
There are many ways to track your balances. One method is unlocking your Bitcoin wallet each time you need to check your balance. If you use a hardware wallet such as Ledger or Trezor, this would mean accessing them to view your balance. But this method is time-consuming and troublesome. What happens if you store your Ledger in a vault? Furthermore, regularly accessing a live wallet (one with the private keys) increases the risk of theft of your private keys.
This is where Bitcoin watch-only wallets come into play. As only public keys are used to create such wallets, funds in their associated addresses cannot be spent. Thus Bitcoin watch-only wallets offer a good way to view your transactions and balances.
How to create a Bitcoin watch-only wallet?
We first need to collect all the addresses we would like to track.
If using Hierarchical Deterministic (“HD”) wallets such as Ledger or Trezor, you need to extract the Extended Public Key. The Extended Public Key (a.k.a Master Public Key) allows the wallet to derive all addresses controlled by the key.
However, if using a non-deterministic wallet (“non-HD”), then you need to manually gather all the receiving addresses associated with your wallet.
As should be obvious from the above two paragraphs, always go with a HD wallet.
Instructions for setting up both HD and non-HD wallets on iPhone, Windows, and Android are included below:
Is it safe to import my Extended Public Key or addresses into other apps or programs?
If someone has your Extended Public Key only, they wouldn’t be able to spend your funds. But there are some downsides to exposing them by entering them into electronic devices. Your privacy will be compromised if your Extended Public Key falls into the wrong hands.
- Anyone with your Extended Public Key can view and identify all your previous transactions. This person may then establish your identity by analyzing your previous transactions.
- If this person is somehow able to obtain a single private key from your wallet, he can derive all private keys to your wallet and steal all your funds. Effectively, this person would have gotten the Extended Private Key to your wallet.
For non-HD wallets, exposing your addresses would likewise compromise your privacy. However, this would be to a lesser extent since an attacker would not be able to view all addresses where your funds are stored (only those that have been exposed).
If you are uncomfortable taking such risks, what can you do?
Alternative methods of setting up your Bitcoin watch-only wallet
Instead of importing your Extended Public Key, you can send your entire wallet balance back to yourself in the same wallet. Just select the next receiving address and instruct your wallet to send all funds there.
This would aggregate funds spread across multiple addresses into a single address. You would then set up watch-only wallets to track that particular address.
As a side note, if you do send funds from this particular address, the app would not show the new, lower balance. Instead, a zero balance would show. This is the way Bitcoin works. The remaining balance is not kept in the same address but instead forwarded to a different address within the same wallet. You then need to track this new address to monitor your balance.
The concepts discussed for HD wallets are equally applicable to non-HD wallets. Users should avoid reusing addresses and periodically move funds to different addresses.
To set up watch-only wallets that track a particular address, see the non-HD sections of the following guides: