The Importance Of Testing Your Bitcoin Custody Setup
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If you want to make sure you’ll be able to recover your Bitcoins if there’s a problem with your storage settings, there’s only one way to do it!
This is an opinion piece written by Will Schoellkopf, “It’s so early!” Bitcoin podcast.
We often hear, “No your keys, no coins,” but have you done the “big scare?”
Delisting your satoshi has received a lot of attention, and rightfully so! Mt. Gox exchange hack has resulted in lost coins, but ‘recent market conditions’ have also led to the removal of large assets under management by major institutions such as Binance and Celsius. These are not lostbut denied access introduces a new vulnerability for sovereigns to consider: If your kid resets your hardware wallet or your dog eats your seed phrase, can you get your money back?
Despite all the emphasis on safety, not enough attention is paid to recovery. Buy yourself peace of mind today! Test key recovery so you can use your sati. Do it now; before you panic about security compromise.
The “big scare” is losing access to your hardware wallet, so you really need your seed phrase to recover. Only when you have proven that you have the keys to yourself are you truly a sovereign individual. Fortune doesn’t favor the brave, it favors the prepared! Follow the steps below to prepare for the worst so you know your safety and recovery is in your best interest. Of course, fill the following ones with smaller sat amounts so you don’t risk losing your life savings. We are No in a stone boat while we try this!
Single Sig Recovery Check
- With your seed phrase in hand, perform a recovery phrase check on your hardware wallet.
- “The Big Scary”: Intentionally enter your PIN incorrectly three to sixteen times to reset your hardware wallet.
- Disconnect and then reconnect your hardware wallet to the wallet software to make sure it recognizes it as a “new” device with no balance.
- Retype your initial statement in the hardware wallet and make sure the wallet software now validates the same satoshi balance of your UTXO.
*Note: After verifying that this process works, it is recommended not to use the returned wallet as your main wallet.
Collaborative Custody (2/3) Multisignature
- Key A is under your control via hardware wallet A (and you back up the wallet configuration file).
- Key B is under your control via hardware wallet B (and you backed up the wallet configuration file).
- Key C is controlled by your co-custodian (e.g. Casa, Unchained Capital).
- The key S is under your control through the hardware wallet S. It is a single signature seed phrase.
*With Multisig, you need not only the keys to the treasure chest, but also a map of where it can be found! With one sig, as long as you have the only seed phrase, you can lead xPub again. In Multisig, you don’t need all three keys, but you do need the wallet configuration file to manage all three xPubs again! Note that these platforms can also provide (3/5) multisig service.
Step 1: Practice all three nominal cases on the collaborative storage platform
- Send sati from the hardware wallet to your S multisig address.
- Try not to use those satts with just wallet A, wallet B and wallet C.
- Use hardware wallet A+B to send one signature to wallet S.
- Use hardware wallet A + custodial key C to send one signature to wallet S.
- Use B+C to send to S.
- You should feel good. Now send more sats back to your multisig address, but not too many!
For storage, you kept your cold storage wallet in your sweaty gym bag that you never use and no sane thief would want to rifle through! And you buried your paper copy of your seed phrase in the ground so it would be safe from anyone looking for it and easily destroyed if you got into trouble. Unfortunately, Bitcoin Dog had other plans! He loves the smell of sweaty socks and loves digging a freshly dug hole in the yard. Fortunately, you’re not in physical danger, so you can easily restore your multisig vault.
Step 2: “The Big Scary” – Lose the key, but not your soul mate
- Reset hardware wallet A and hash seed phrase A (equivalent destruction as above).
- Report the “lost key” with your partner custodian (e.g. Casa or Unchained Capital).
- Create a new seed phrase for key A and upload it to hardware wallet A.
- Partner replaces/creates new 2/3 multisig with new wallet A and original B.
- Sign your hardware wallet B with the original initialization B with your trading partner to send sats from the old warehouse to the new warehouse.
Note: In this scenario, it is not an emergency. If it were an emergency, you would send your Bitcoin directly to a single token address controlled by hardware wallet S. For example, if seed phrase A was stolen from a trusted family member’s home and an attacker now comes to your home. to steal another seed phrase, this is an emergency. Break the glass. Send your vault balance to a single seed hardware wallet with your cooperative custodian before an attacker tries to impersonate you as your custodian or steal another seed phrase from you.
- With new vault A+B, send sati to S to prove you control the new vault.
- You feel good, now send the rest of the old vault to the new vault.
- Use A+C to send to S.
- Use B+C to send to S.
- Just send the test sums to S. No need to send them back to the multisig vault!
Stage 3: Final Boss – Collaborator Compromised
- Download and install Caravan, Electrum or Sparrow.
- Restore the multisig vault to the new location by downloading the wallet configuration file.
- Partial Sign Bitcoin Transaction (PSBT) with hardware wallet A.
- PSBT with hardware wallet B.
- Send the tests to the hardware wallet S and then everything.
You did it! The apocalypse happened. Your partner was compromised, but you were still able to recover your bitcoins yourself and take care of your satoshi. After this nightmare is over, you may be wondering why you even filed for joint custody in the first place?
- “Comforting” to trust the asset manager with one key.
- Relying on the wallet configuration file and the three xPubs is comforting.
- It’s comforting to have a guardian to help with inheritance and setting up a multisig key with your loved one when you pass.
- “Simpler” to replace the lost key and send the sat to the new vault.
Now that you have implemented multisig yourself, are you looking for a new partner or are you going back to step 1? There is no right answer. Everyone’s security needs are unique!
This is a guest post by Will Schoellkopf. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
Source: Bitcoin Magazine