Holding Bitcoin is a foreign concept for most of us; the idea of a digital bearer asset is something we’re still coming to grips with and will take years before it becomes an acceptable way of seeing money. We’re so used to cash having a physical representation with the likes of paper money or gold. We have become used to having the backing of a central body of which we have permissioned access to trade our currency on these rails.
Fiat money has no value apart from governments mandating that it be used as the most liquid medium for battering since backing was removed in 1971. Precious metals have value due to their scarcity and the costs involved to acquire new supply, but they’ve taken a backseat as we continue to digitise the world economy.
Regardless of the medium, we know that money of any kind is valuable, and we should take appropriate measures to protect our savings. Physical cash or precious metals can be kept in a safe at home or trusted with third parties like banks or investment firms who would custody your funds and give you access on request.
Bitcoin, however, is the first money where we can take complete custody of it regardless of the value. You could hold $100 worth or $100 million worth, and your custody solution could be the same. Bitcoins NGU technology forces it to be repriced by the market in four-year cycles, and the price appreciation should give you some idea of the potential value you’ve already acquired.
The obligation of hodlers.
As a hodler, you’re taking your excess spending power and locking it into Bitcoin to be released at a later date. As your purchasing power increases, you should feel obligated to improve your security. Your Bitcoin could be appreciated as your sit on your position over time, or you could be adding to it by dollar-cost averaging.
Either way, the potential value increase will make your Bitcoin an attractive honeypot for others who did not stack and are looking to steal your wealth.
Upgrade your Bitcoin security.
If you’re new to Bitcoin or want to ensure your Bitcoin security is top-notch, then this checklist may be for you.
1 – Remove third party risk
The majority of us will start our Bitcoin journey by purchasing BTC from a centralised exchange or financial institution. These businesses normally provide custody solutions so you have a claim on Bitcoin in their reserves and did not take ownership of a unique UTXO that only you can spend. Your first step is to remove this third party risk. If anyone gains access to your account or the exchange goes down, you will lose access to those funds.
Removing the BTC from an exchange and placing it in a wallet only you have the keys to access and sign transactions should always be your first consideration when adding a layer of security.
I realise this isn’t always practical for every Bitcoin balance, but as your balance grows, you should consider transferring it on-chain to a wallet of your choice.
2 – Own your keys
As I mentioned in my first point, if you’re not using a wallet that generates private keys, then you are not in control over your Bitcoin. Creating your seed phrase can be done using a desktop or mobile hot wallet software for free.
So do you really have an excuse not to create a wallet?
You can create a single wallet or multiple wallets and keep different balances in each of them to spread risk. Should you lose access to one wallet, you know that you still have access to the others should you require the funds.
As the saying goes, not your keys, not your coins.
3 – Hardware wallet
A hardware wallet offers you an additional layer of security as this device generates a private key that is separate from the device that connects to the internet. While a hot wallet is a great start for securing your balance, the device you’re using as a laptop or Smartphone is not completely secure. Malware can be added to these devices to expose your keys and gain access to your Bitcoin.
When we consider all the weird and wonderful places we visit on the internet or apps we download, you can imagine all the potential vulnerabilities we expose our Bitcoin to by keeping our keys on a computer or phone.
A hardware wallet gives you added security by allowing you to keep your keys separate from your internet connection and only sign transactions when the device is connected.
4 – Running a node
Running a node is not only a great way to support the decentralisation of the Bitcoin network but also provides you with several advantages. When you transfer Bitcoin from an exchange or wallet without your node, you’re trusting that wallet provider or exchanges node, to be honest.
More often than not, they will be, but in Bitcoin, we do not trust; we verify. By running your own node, you can verify that the addresses and UTXOs are legit and the transactions you made have hit the chain and been processed by miners and secured.
While not a must to use the Bitcoin network, this level of surety and security is important, especially if you’re in a country that is hostile to bitcoin.
As the saying goes, not your node, not your rules.
5 – Seed storage solution
Once you’ve generated your private key/seed phrase, those 12 or 24 words are the most important words in the world. They give anyone who can find those words in the correct order free access to your wallet and, of course, any Bitcoin in that wallet.
Making sure you store your seed phrase in a safe place is paramount. Many leave it on a piece of paper that is hardly that secure or robust, sure you can store it in a safe and laminate it, but that paper can deteriorate over time or could be damaged.
Instead, it would help if you considered acquiring or creating a steel engraved seed storage solution that can be locked. This provides you with a physical barrier and another layer of security when protecting your Bitcoin.
6 – Multi-sig storage solution
Most hardware and software wallets generate a single signer key solution. You have one private key that you use to sign any transaction from that wallet. If anyone were able to access those keys, they would be able to transfer your Bitcoin.
A multi-sig solution allows you to split your signer keys into a 2 of 3 or 3 of 5, for example. So you would need multiple keys before you can sign a transaction, and this method so far has been the most robust form of key management to date.
7 – Creating a duress wallet
So far, we’ve spoken about how to protect your Bitcoin from device failure, hackers and mistakes, but we have not covered in-person attacks. It’s unfortunate, but it’s a reality we have to face; if you are sitting on a sizable amount of wealth, there is a chance someone would want to remove it from your ownership forcibly.
In the case that you are physically attacked for your Bitcoin, having a duress wallet can provide you with some level of security. A duress wallet allows you to partition your Bitcoin into levels, so even if the attacker gets your private keys, you may have additional keys that access the full balance.
You could give up your main key to an attacker to appease them with a certain balance while keeping your main balance behind the additional key phrases.
8 – Using a CoinJoin
When you transfer Bitcoin from an exchange or a wallet that can be traced back to your identity, those coins can be monitored throughout their lifetime. If you want to avoid users being able to tie UTXOs back to you, then using a CoinJoin can offer you some much-needed privacy.
9 – Never re-using addresses
When you re-use the same Bitcoin address, you give away your balance amount as public knowledge. Instead of showing the chain, you’re sitting on one massive balance that could make you a target should that wallet be tied to your real-world identity; it’s better to use an address once.
10 – Transacting via the Tor network
When you’re using the Bitcoin network on another node or your own node, you’re broadcasting certain data like your IP address which could provide a breadcrumb of data that can be used to trace transactions back to you. Instead, you should consider completing your transactions with a Tor network setup that hides your devices identity data and gives you additional security and privacy.
11 – Keeping a burner device
I spoke about the dangers of using the same device for your Bitcoin as you do for your daily internet usage. If possible, you should consider keeping a separate computer or Smartphone for all your Bitcoin needs and reduce the number of apps or data on the device.
This way, you reduce the possible attack vectors and keep your Bitcoin activity separate from your day to day surfing.
Privacy and personal responsibility come at a cost.
Yes, I know, it sounds laborious and costly but should you really be skimping on cost and effort when it comes to your life savings. Taking complete custody of your money can be scary and daunting, and sometimes annoying.
But, do you know what is worse?
Losing your Bitcoin due to a vulnerability in your security setup. Nothing can be more painful than losing a life-changing amount of money and then being forced to start stacking sats from zero.
I trust that the potential to lose your wealth will be enough of a motivation to make sure you continue to improve your security and reevaluate it regularly.
I hope this post was helpful and gave you something to think about, and I wish all of you safe stacking for the future.