Electrum: watch-only and offline signing

Electrum can split one wallet across two machines. The online one watches the blockchain, shows your balance, and builds transactions but holds no keys and can spend nothing. The offline one holds the keys, never touches a network, and does nothing but sign.

That arrangement is cold storage built out of computers you already own, and it predates most hardware wallets. It is more work than buying a signing device, and it is genuinely useful when you want a spare recovery path, a second setup that depends on entirely different hardware, or simply to understand what a hardware wallet is doing on your behalf.

Before any of that, though, one warning that matters more than the setup.

Two laptops on a desk, the older one with its wifi card visibly removed or a sticker over the port, a USB stick between them.

Image to come

1Verify the download before you run anything

Electrum publishes a GPG signature alongside each release. Checking it confirms the file came from the project rather than from whoever bought the search advert above the real site.

• Type electrum.org into the address bar yourself. Do not arrive from a search result, an email, or a forum link.
• Download the release and its matching signature file.
• Verify the signature against the developer key published on the site.
• Do this on both machines, and re-verify on every update.

• An update prompt that appears inside the wallet is not how Electrum ships updates. Malicious servers have used exactly that to distribute malware. Close it and go to the website yourself.
• A wallet that asks you to enter your seed to 'validate', 'migrate', or 'unlock' anything is stealing from you.

2How the split actually works

The trick is that watching a wallet and spending from it need different information. Watching needs only the master public key, from which every address can be derived. Spending needs the private keys, which never have to leave the offline machine.

Compromising the online machine gets an attacker your transaction history and your privacy. It does not get them your bitcoin, because nothing there can produce a signature.

3Prepare the offline machine

The offline machine should be genuinely offline, not merely disconnected for the afternoon. Its value comes entirely from never having been exposed.

• Physically remove or disable the wifi card if you can, and never plug in an ethernet cable.
• Ideally use a machine that has been wiped and freshly installed, not one with years of history on it.
• Install Electrum from a file you verified on the online machine and carried across on a USB stick.
• Do not use this machine for anything else. No browsing, no email, no other software.

4Create the wallet offline, and export the public key

Create a new standard wallet on the offline machine. It generates the seed there, where nothing can watch it.

• Write the seed down by hand, in order, and note that it is an Electrum seed — the format differs from BIP39 and matters when restoring elsewhere.
• Set a wallet password. It encrypts the keys on disk, so a stolen machine is not immediately a stolen wallet.
• Export the master public key and copy it to a USB stick.
• Carry only that public key to the online machine. Nothing else crosses, ever.

5Create the watch-only wallet online

On the online machine, create a new wallet and choose to import a master public key rather than create a seed. Paste in the key you exported.

Electrum will scan and show your balance and history. It has no ability to spend, and it will tell you so — the wallet is marked watch-only.

• Confirm the wallet reports itself as watch-only before you use it.
• Generate a receive address here, then confirm the same address appears on the offline machine. Matching addresses prove both halves belong to the same wallet.
• Never paste your seed into this machine, for any reason, at any point.

6The signing loop

Every spend follows the same circuit. It feels laborious the first time and becomes routine quickly.

• Online: build the transaction as normal, then save it to a file instead of sending. Electrum writes an unsigned transaction, or PSBT.
• Carry: move the file to the offline machine on a USB stick.
• Offline: open the file in Electrum, review the recipient and amount carefully — this is your last chance — sign it, and save the signed version.
• Carry back: move the signed file to the online machine.
• Online: load the signed transaction and broadcast it.

• The USB stick is the weak point of this air gap. It is a data path, and malware can travel along it in either direction. Use a stick dedicated to this purpose and nothing else, and prefer a QR-based workflow if you would rather have no shared media at all.
• Review the transaction on the offline machine, not just the online one. The online machine is the one that might be lying to you.

7Choose what your wallet talks to

Electrum verifies transactions with SPV, but it still asks servers for your history — and the server it asks can see which addresses belong to one wallet.

• For small amounts, the default public servers are workable.
• For meaningful balances, connect to your own Electrum server or Bitcoin Core node.
• Route through Tor if you are staying on public servers.
• Remember that server choice affects the transaction information you are shown, not just your privacy.

8Test it before it holds anything

• Send a small amount to an address from the watch-only wallet and confirm it appears.
• Run the full signing loop to send it back out. That exercises every step of the arrangement at once.
• Restore the seed into a fresh Electrum installation and confirm the same addresses appear.
• Only then move an amount you would miss.

What this protects against, and what it does not

• It protects your keys from an internet-connected machine. That is a large category of real attacks, and it is the same thing a hardware wallet does.
• It does not verify addresses on a trusted display. A hardware wallet has a screen the computer cannot rewrite; here, the offline machine's screen is doing that job, and it is only as trustworthy as the machine.
• It does not survive a compromised offline machine. Everything rests on that machine never having been exposed, which is a discipline rather than a hardware guarantee.
• It does not remove the USB risk, which is why the transfer medium deserves the care it gets above.

For most people a hardware wallet is simpler and stronger. This arrangement earns its place as a second, independent setup — one that shares no manufacturer, no firmware, and no supply chain with your primary device.

Menu wording and file formats change between Electrum releases. Confirm the current flow against Electrum's own documentation — reached from electrum.org typed by hand, never from a search result.