Backup Seeds » Advanced Considerations
Think Hard About Your Risks
It is a natural human bias to believe theft is a greater risk than loss, despite data indicating the opposite. (An analogy that gives some insight into the relevant psychology: we are all terrified of homicide despite suicide being more common.) Non-expert users should question themselves when taking extreme steps to protect against theft over loss.
There are many tradeoffs between security/redundancy below and only you can decide what the appropriate balance is for your needs.
Not only does storing all of your bitcoin information in one place make it less secure, it also makes you a target! You don’t want a home-invader to be able to hold you at gunpoint for your life-savings. The downside is that funds secured by a “geographically split” scheme will be harder to spend because you must visit multiple secure locations to gather signatures. For day-to-day funds, you might choose a simpler single-key signature wallet setup that is easy to spend (but not as secure).
If you keep all
m seeds in one location and there is a fire (or flood) you could lose everything, perhaps when you need it most.
In the unlikely event you need to evacuate, you don’t also want to be carrying your life-savings on you (see previous section on physical security).
Imagine you have a
2-of-3 scheme with 1 seed in each of 3 cities (A, B, and C).
Should you need to evacuate city A, you can take seed A with you to city B or to city C.
As you are only carrying 1 (of a needed 2) seeds, if you are robbed during this time your attacker will be unable to spend your bitcoin.
Important note: in the event a seed is compromised you need to retrieve
m seeds ASAP to “rotate” out the seed that was stolen (this is accomplished by moving your funds to a new multisig scheme where you control all 3 seeds again).
The hardest bitcoin security question for most bitcoiners to answer is “what happens to your bitcoin if you get hit by a bus?” Unfortunately, ensuring your bitcoin is recoverable by your loved ones and nobody else is a very challenging task. Multisig is the best tool we have to aid in this process.
Give One (or More) Seeds to Someone You Trust
Anyone who has a quorum of seeds can spend your bitcoins! (even if they don’t, it’s important to know that they can) Depending on your personal situation, this may be a good thing (perhaps a spouse who you want to have complete access) or a bad thing (perhaps a financial manager who might be tempted to steal).
Imagine you have a
2-of-3 scheme with seeds A, B, and C, all of which you initially control.
You and your spouse want to always have access to your bitcoins, and you want your children to only get access in the event both you and your spouse are dead.
You might do the following:
- Give your family (you, your spouse, and your children) a copy of seed A. You/spouse store seed A at home or work and your children also store seed A somewhere that only they have access to (perhaps their home, work, or a safe-deposit box).
- Put seed B in a safe-deposit box that only you and your spouse have access to.
- Give seed C to your lawyer or other trusted-friend, to share with your children only after the death of you and your spouse. They will also share it with you if needed as part of an emergency recovery.
As a result of this scheme:
- You and your spouse always have regular access via seeds A & B, provided that you didn’t lose your copy of seed A and that you can get into your safe-deposit box for seed B. If you lose seed A, you can ask your spouse or children for their copy as a backup. In the event of a problem retrieving seed B from the bank, you can ask your lawyer for assistance in recovery (as they have seed C). Keep in mind that if you lose both seeds A and B, your bitcoins are permanently lost.
- In the event both you and your spouse die, your children can recover. They already have seed A, they just need seed B (from the bank) or seed C (from the lawyer). They can get access to seed B by contacting the bank (assuming you designated your children as the next-of-kin for your safe-deposit box) or seed C by contacting the lawyer.
Of course, there are many tradeoffs/choices to be made:
- If both your lawyer and the bank are dishonest (or compelled by a government order), they can collude to steal your bitcoin (they have access to seeds B and C)!
- If both your lawyer and the bank are unlucky/negligent (perhaps they both suffer catastrophic fires in the same day!), you can be locked out of your bitcoin forever (seeds B and C are lost, as seed A alone is not enough to meet the
- If your children want to steal their inheritance before you die and are able to collude with (or trick) either the bank or the lawyer, they can get seed B or C and combine it with seed A (which they already have).
- Your lawyer and your children may have some insight into your bitcoin transaction history, which could implicate how much bitcoin you have.
Read more here.
While not perfect, this is far superior to single-key signature schemes.
Each of these situations can be addressed with a different quorum, giving different people different access, making more backups, etc. However, each of those choices will introduce new risks.
You can quickly see that this scheme lends itself better to something like
3-of-5, so you can have more entities/redundancy, and clearer organizational lines (less copies of keys floating around, so you can know for sure who signed each transaction).
Protect Your Backups
Use durable metal for bitcoin seed storage instead of paper, which can fade, burn, or smudge.
Archival Paper & Ink
Archival paper is obviously not as durable as metal, but better than regular paper. Place your paper into a plastic bag with a good seal (vacuum sealed even better) so that it doesn’t get destroyed in the event of water damage.
Fireproof Document Bag
You can use these to protect seed backups, and also to protect your physical hardware wallets.
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