Bitcoin’s innovation as a trustless, immutable form of money requires more user responsibility than most people are accustomed to. We trust banks with the money in our bank account, and we trust a financial intermediary to securely hold stocks. To truly possess Bitcoin and take advantage of its trustless nature, users need to hold their own private keys rather than allow a third party to do so on their behalf. As a bearer instrument, whoever is in possession of these private keys has ultimate control of the bitcoin in a wallet. There are no refunds or chargebacks in Bitcoin. If an attacker steals your private keys, that bitcoin is unrecoverable. Thus, properly securing private keys is the single most important topic for Bitcoiners to learn and stay up-to-date on. Let’s discuss three vital lessons with regard to properly securing bitcoin.
1. Keep your seed phrase completely offline
Any Bitcoin wallet that allows you to hold your own private keys will generate a seed phrase. A seed phrase is a series of 12 or 24 words that serves as the backup recovery to all of the bitcoin in a wallet. With basic Bitcoin wallets, as long as the seed phrase has been securely stored, you will always be able to recover your wallet balance if the wallet is lost or stops working for some reason. Of course, this also means that anyone who gains access to your seed phrase can take all of the bitcoin in the wallet. As such, extreme precaution should be taken when securing a seed phrase. The most important rule is to never enter your seed phrase into an online device or server. Under no circumstances should you type your seed phrase into a Google Doc, send it over text, or take a photo of it. Record your seed phrase using pen and paper (or using steel plates to ensure it is fireproof and waterproof). Do not read your seed phrase out loud. The importance of keeping the seed phrase completely offline may seem counterintuitive given Bitcoin’s digital nature. However, it is the single most important thing to remember about securing your bitcoin.
2. Physically separate your wallet from your seed phrase
Now that we understand where not to store a seed phrase (i.e., online), we can move on to discussing where to store a seed phrase. It is poor practice to keep the seed phrase in the same location as the wallet. For example, you would not want to keep the seed phrase for your hardware wallet in the exact same location as the hardware wallet itself. Storing your wallet and seed phrase in the exact same location creates a single point of failure. In the event of a fire or flood, it is possible that both your wallet and seed phrase would be destroyed, leaving you with no way of recovering your funds. Most wallets have a security feature such as biometric verification or a passcode to access, whereas a seed phrase has no such verification. If you have the wallet, you don’t necessarily have access to the bitcoin, but if you have the seed phrase, you have full access to the bitcoin. As such, securely storing the seed phrase is vital. Common locations to store a seed phrase are safety deposit boxes, private safes at a home or office, or securely with a trusted friend or family member. The optimal location for storing a seed phrase varies based on each individual’s circumstances, but the key takeaways are to ensure that the seed phrase is not easily accessible and that it is in a different physical location than the wallet itself.
3. The 10x Rule of Security
A commonly cited rule in the Bitcoin space is to secure your bitcoin as if it was worth 10x its current value. This ensures that as the price of Bitcoin continues to increase, users won’t wake up one day in a panic due to lack of security. Imagine someone from 2012 storing a few hundred dollars worth of bitcoin. While they were probably not concerned about security back then, a few short years later they could be holding significant amounts of value due to the exponential price increase of Bitcoin. Thus, it is best practice to secure your $200 worth of bitcoin as if it were worth $2000, your $2000 worth of bitcoin as if it were $20,000, and so on. If you would feel uneasy about holding 10x your amount of bitcoin in a mobile wallet, perhaps it is time to upgrade to a hardware wallet. Likewise, if you would be nervous about 10x your bitcoin holdings in a single hardware wallet, it may be time to look into multisig solutions.
Security is of top priority at ChainMyne and even if you don’t have your wallet set up and your seeds in hand, sometimes you don’t want to miss out on a great price. Rest assured that ChainMyne holds 99% of coins in cold storage and they are secured until you’re ready to withdraw to your own personal private key.