Summary

Electrum is a lightweight, simple downloadable hierarchical deterministic (HD) wallet. While it doesn’t have all the features of competitors like Bitcoin Armory, it is a thin client meaning users needn’t download the entire blockchain and act as full nodes to use the wallet.

The Electrum online wallet

The Electrum wallet is HD, meaning that the public keys are algorithmically connected to the private key, and thus wallets and all corresponding addresses can be restored with just the seed, at any compatible HD wallet provider. This is extremely convenient for users that require more than one address, as the first backup is all that is required to import to Electrum or compatible wallets all associated addresses as needed.

After download, users are asked if they would like to 1) create a new wallet, 2) restore an existing wallet from a seed, or 3) create a watch-only version of an existing wallet. When creating a new wallet, a seed, represented as a 12 word mnemonic passphrase, will be generated which must be written and stored securely offline, and the user must create the password used to un-encrypt the wallet. The password and seed are maintained only client-side. If both are lost, Electrum cannot restore the wallet, which would be locked forever.

If users would like to use Electrum for cold storage, they must follow the following process:

1. Download Electrum, and place the executable file on a usb cable.
2. Run the installation on an entirely offline computer.
3. Generate the seed, navigate to settings->import/export, and copy the master public key to the usb.
4. Create a watch-only Electrum wallet on the online computer, entering the public key when prompted.
5. To sign transactions offline, create a transaction in the watch-only wallet. Electrum, detecting a seedless-transaction request, will ask where to save – save the transaction on the USB.
6. Load the transaction on the offline wallet, sign, and return to the online client to complete the transaction.

Bottom Line

If you are looking for a client-side cold storage solution and you don’t want to invest in specialized hardware, the decision comes down to Electrum or Bitcoin Armory. Electrum is a lighter solution that doesn’t require downloading the blockchain. Armory is a heavier version filled with more functionalities, including a multiple-signature option. The HD functionality on Armory is more robust, but overall, it is a more difficult solution to master.