Whether to buy cryptocurrency as a long-term holding may be the biggest decision that investors interested in digital assets must make, but where to store crypto? Bitcoin It can be the most consequential.
Following this year’s wildfire in California, social media posts have begun to appear in claims of Bitcoin loss. Some users displayed metal plates intended to protect burnt-out and unreadable seed phrases, explaining the complexity of recovering encryption keys stored in the safety deposit boxes of fire-affected banks. While it is impossible to verify individual claims regarding fires that consume hard drives, consuming so-called hard storage crypto wallets and laptops and other storage devices that contain seed phrases certainly presents a unique set of security issues for Bitcoin’s self-customers. And the risks for them are increasing.
Crypto holders usually use some form of what is called a “wallet.” There are also some amount of controls embedded directly in the wallet for transactions and transfers, whether the wallet is connected to the internet. There is also the underlying question of whether crypto investors are using third parties for custody, or whether they maintain full custody and transaction control over their holdings.
Standard third-party platform “Hot Wallet” – Coinbase Or BlockChain.com – Always connected to the internet. Cold storage and “cold wallets” on the other hand contain hardware devices that hold private keys offline (such as USB sticks), or simply seed phrases (master recovery codes, collections of 12-24 words used to recover access to crypto wallets). You can access cryptographically by connecting to the internet through another device using a seedphrase hardware wallet or offline backup.
Third-party management options provide steps to help owners stay vigilant against threats posed by cybercriminals who have access to internet-connected platforms, such as the use of two-factor authentication and strong passwords. The former US s-service within the Department of Justice, responsible for the confiscation of assets from US law enforcement, uses Coinbase Prime to provide custody of seized digital assets.
Many crypto bulls prefer self-supporting digital assets like Bitcoin for the same reasons they are initially interested in cryptocurrencies. Detention wallets from Crypto Brokers exchange convenience for exchange hacking, shutdowns, or fraud, as in the case of a high-profile explosion of FTX. Wildfires are also just one example of a recent series of global events, raising more questions about the changing custody debate on cryptography. There was an ongoing conflict in the Middle East and the Russian-Ukraine war, which led the code bull to rethink its approach from abroad.
Nick Neuman, co-founder and CEO of self-compulsory company CASA, said that physical risks around the world, like natural disasters, are an opportunity to revisit how Bitcoin security works, and that common security is folded into the practices of most people. “Most people protect Bitcoin with one private key. If that key is on a single device or is written down on paper as a seed phrase, that’s a single point of failure. If you lose that key, Bitcoin is gone,” he said.
It is clear that retaining seed phrases on paper gives the lowest level of fire protection, but that is a common practice, Neumann said. Sliding these pieces of paper into a fireproof bag or safe will provide some protection, but not much. Additionally, some fault points are displayed by performing additional steps to prepare seed phrases on the “undestructible” metal storage plate. For one, they may prove that they are not so immortal, and second, they may not be possible to find in the tile ble.
“The logic is that, given the location of the California fire and the story shared by X, there’s a very good chance that Bitcoin has been lost,” Neumann said. “Some of them are pretty convincing,” he said.
CASA runs annual stress tests with seedphrase backups.
Some independent services, like CASA, offer multi-signature setups that reduce the risk of single point failure. The multi-key encryption “Vault” can include cell phone keys, multiple hardware keys, and recovery keys held on behalf of the owner by companies that like CASA.
The multi-SIG Custody approach allows owners to hold most keys, while trusted partners hold a few keys. John Haar, managing director of Swan Bitcoin, said that in such a setup, the owner must lose all the physical devices and all copies of the seed phrase at the same time. Bitcoin can be recovered as long as the owner has access to at least one device or one seed phrase. This approach should significantly limit the chances of losing all devices in events like natural disasters, Haar said.
“You can spread these keys to multiple regions or countries. You need three out of five keys to approve a Bitcoin transaction,” Neuman said of CASA’s five-key approach.
Jordan Baltazor, Chief Admin Officer of Fortress Trust, a regulated crypto custodian, says the best practices we use in other areas of our personal life should apply to cryptocurrencies. One is diversifying storage approaches and measuring risk. So does digital assets, he says, backing up personal, sensitive data on the cloud to secure data against loss or corruption.
Companies including Coinbase and Jack Dorsey blocks offer products that try to blend some of these ideas and create more secure versions of crypto wallets that remain convenient to use. There is Coinbase Vault. This includes enhanced security steps before users can access Crypto Holdings for transactions. There is also Coinbase Wallet and Block’s Bitkey. These bit keys have a mobile app that acts like a traditional wallet, and easily move Bitcoin, but pair it with a hardware wallet and add security and are associated with cold storage.
Bitkey Hardware, like “multi-sig wallets”, requires multiple approvals for transactions to add security. Also, Bitkey offers recovery tools, so one of the biggest risks of self-duty – losing the code and phrases needed to recover your cold wallet – doesn’t matter.
Solutions like Dorsey may help to resolve the tension between convenience and security. At the very least, they stress that this tension exists, and perhaps it would be a kind of obstacle to wider adoption of cryptography. Beyond risks in the form of wildfires, natural disasters of all kinds, war, Bitcoin’s independence is vulnerable to the greatest personal risk of all: the unexpected death of the owner of Bitcoin. When it comes to unlocking the custody chain of cryptographics, there is definitely nothing more complicated than inheritance.
Coinbase requires probate court documents and specific Will designations before releasing funds from custody, but the physical wallet has little or no support, and all its digital value may be stuck on the private key. Bitkey deployed inheritance solutions in February for what Bitkey executives called “waiting for billions of dollars to come.”
“People who have a significant investment in Bitcoin need to think differently about how to protect it,” Neumann said. He says that after a disaster like a California wildfire, or when exchanges bust like FTX, the industry will see more crypto holders taking action to move towards a more secure storage setup. “I think it’s human nature to wait until something bad happens.” “But if they’re more aggressive, people think it’s better. Otherwise they risk ‘bad things’ happening to them, and then it’s too late,” he said.
