The next talk is the man here, Jameson Lopp, talking about the best practice of Bitcoin storage, please.
All right.
I'm Jameson Lopp, co-founder, CTO of CASA, which is a self-custody cold storage solution.
I've been focused on self-custody and multi-signature wallets for about six years now.
And this is the great challenge that I've been given, is only 20 minutes to discuss Bitcoin security,
because we could talk about this for hours or days.
But let's get started with the basics.
Why are we here?
Well, hopefully you at least understand that Bitcoin, if you hold it yourself,
allows you to have money that cannot be confiscated from me.
It allows you to have money that cannot be censored.
No one can tell you how you're using your Bitcoin if you hold the keys yourself.
Now, the flip side to this is that if you screw up, there is no authority that you can go to that can get your money back.
So, at the very high level, all of these wallets have public keys, they have private keys.
We're very interested in keeping those private keys safe.
If you have the private keys, you can do what you want.
If someone else gets the private keys, unfortunately, they can do what they want with your funds.
And when we're talking about wallets, there's a number of different ways you can categorize them,
from hot wallets to cold wallets, single signature to multi-signature.
The vast majority of wallets only require a single signature,
which means there is one key that needs to be used,
and whoever has that key can decide where the Bitcoin moves to.
A multi-signature wallet is one where you have to have several different keys,
and you have to have signatures created that essentially authorize that the Bitcoin can move.
So, this is a bit more complicated, but also can be a lot more robust.
And we can also decide to describe these different wallets from a perspective of self-custody,
which is where you have the keys, or custodial, which is where someone else has them.
The best way to think of custodial is that it's like a bank.
And with a bank, they have the money, and you have to ask for permission to use that money.
If they want to, they can shut down your account for any reason.
The funds can be seized. There's a lot of additional risks here.
When it comes to self-custody wallets, generally, you can break those down into two different types.
One is the software wallet, where you're running some application on your phone or on a computer,
and the keys are also on that machine.
This can be very convenient, but it means that they are exposed to the internet
and to a number of different risks, such as malware, hackers, and such.
If you have a dedicated hardware device, however,
it will still need to use a software wallet to manage different aspects of your funds,
but the keys will never be on an internet-connected device.
The keys are kept offline. They are very safe from hackers and malware.
It protects you from a lot of different attacks.
So we can look at history, and if we look at what has happened in the Bitcoin space over the past decade,
we can make some good estimates. We can't know for sure, but from looking at the blockchain,
there is a pretty good reason to believe that nearly 20% of all Bitcoins have been lost,
because they have not been moved in many years.
We can also look at the headlines from a lot of the large exchange hacks
and other major losses at big companies over the years, that over 2 million Bitcoins have been stolen.
The number is actually probably higher than that,
because we don't hear about all of the individuals who have money stolen from them.
And I could spend hours just talking about some of these threats.
Many Bitcoin have been lost due to any number of things on this list,
which are trying to get to those private keys, which is very important information.
But since we don't have time to go into every specific attack,
we can talk about just the higher-level categories of what most of these attacks fall into,
and therefore, some of the high-level security steps that you can take to protect yourself from it.
Of course, not your keys, not your coins. This is the reason to have self-custody.
This is just a few large hacks of exchanges, I think, in 2017 or 2018.
The list, of course, is much longer, can't even fit it all on the page.
Why is this an issue that we have to keep talking about over and over again?
It's because Bitcoin is different from any other system.
Generally, people are used to having a service provider with a support service that they can call up.
If something goes wrong, you call up your bank, your credit card, whatever institution that you're working with,
and they help fix your problem.
But that doesn't really exist in Bitcoin, especially if you're holding your own keys.
People are not used to thinking about preventative measures, about essentially buying insurance upfront.
The fact that this is a digital bearer asset, where if someone can steal it from you,
there's no way to get it back, it changes the incentives for attackers.
And even if you may not have what you consider to be a lot of money in Bitcoin,
it is still probably a very attractive target to somebody else out there in the world
who wants to get into your setup and steal your money.
Also, just from a very high level, if we fail at a general perspective to be able to self-custody
and be able to be our own bank and be confident about it without being a highly technical, deep Bitcoin person,
I don't see how this space is going to be mainstream.
We may end up falling back to a worse security model where we're once again trusting third parties.
And I believe that it's our mission to make that not required.
It is one of the fundamental reasons for this space existing.
If we look at some of the high level categories of loss and attacks,
a very simple one to think about, of course, is physical theft.
This is something that humans have been dealing with for all of history.
And so we have a pretty good idea of how to physically secure things.
You can have safes. You can hire guards.
This is what banks and other high security institutions tend to do.
When it comes to self-custody, you may think about putting your keys in a hiding place that is not an obvious target.
If someone breaks into your house, just a crime of opportunity, and they're not looking for Bitcoin related stuff,
then they may not find something that you have reasonably well hidden.
I'm more of a proponent of the distributed key model.
This is a bit more technically complicated.
But that's one of the great things that this space allows us to do, is to actually distribute keys into multiple different locations
so that even if one location is compromised, you're not going to lose your money.
Digital theft, of course, is also fairly simple to think about how to resolve.
And that's what we need the hardware devices for.
We get those keys off your phone, off of your laptop,
and make sure that someone can't just hack into a device and steal everything.
Physical disaster is actually a very boring data management problem.
You have to have backups.
And I think even highly technical people like myself tend to be lax about backing up their data.
It's not an attractive thing to think about.
It's basically like doing household cleaning.
It's just something that you have to do.
Otherwise, after a very long period of time, you may end up regretting it.
I think one of the most difficult things to resolve in this space,
which we certainly won't be able to resolve in this talk, is the social engineering aspect.
Over the years, I've seen the technical security aspects of Bitcoin wallets and key management improve
to the point that now it seems instead of as many hacks at the big exchanges happening
or many hacks of people who are keeping large amounts of money on their computer happening,
it's instead turned into spearfishing of very specific targeted individuals,
basically crafting campaigns to do what I consider to be hacking your brain.
And I believe that unfortunately there is no technical way to protect against this.
You can put as many different security and authentication protocols in place,
but if someone has been tricked and their brain has been hacked
into going through all of the technical precautions to sign off on spending the coins,
there's not much you can do.
So this is why we need education.
We need people just to be more cautious when you're doing things related to Bitcoin.
Slow down, think about what you're doing, because once you click those buttons, there's no going back.
And finally, with collusion, this is related to custodial providers.
If you're not using a custodian provider, you don't have to worry about it so much.
But in other cases, you may have issues of inheritance or groups of people who are collectively owning things.
And this is less of a technical issue and more of a sort of game theory problem.
You have to think about who has access to keys
and how can you ensure that no single person can essentially run away with all of the money.
So what are we trying to do?
Obviously, protect people from third parties.
That's the entire point.
I think a lot of people tend to believe that protecting from attackers should be the next one.
But just based on the statistics, based upon my own knowledge, what I've seen happen over the years,
I do believe that if you are self-custodian, you are more likely to screw up and lose access to your own money
than you are to have someone attack you and steal that money from you.
This is a natural consequence, I believe, of pushing the security further away from the centralized exchanges
and distributing it out amongst the individual users on the network.
So what happens when you go and you create a Bitcoin wallet, even if it's a hardware wallet, software wallet, whatever,
the first thing it says is, write down this seed phrase and put it somewhere safe.
Unfortunately, there's an entire iceberg of security knowledge under that phrase, put it somewhere safe.
So you have to think of this key phrase, it's like dynamite, it's like toxic waste.
It is incredibly important, it's incredibly dangerous.
You don't want to be handling seed material at all.
You want to minimize how much you're touching your seed phrases.
And here's an example, is that there are many malicious websites out there that will pretend to be a wallet.
And what this one here is doing, and even from a technical standpoint, it's hard to tell that it's fake,
it looks like a Trezor web interface, but what will happen is they will try to scare you,
they will try to trick you and hack your brain into thinking that something is wrong
and you need to type in your seed phrase.
And you should never ever type in your seed phrase, especially if you're nervous about something.
If you do that on a website like this, all of your money will be gone in a matter of seconds.
How do we protect these seed phrases and back them up?
You may have heard of something called paper wallets.
This was fairly common, I would say, in the 2014 era.
As of today, paper wallets are not recommended.
There are many problems that can happen with them, they can be stolen,
they, of course, can burn or water can damage them,
but there are also other technical issues where a lot of people have lost money
because the actual process of spending money from a single key paper wallet can result in you losing it.
I won't go into the technical details, but unless you really know what you're doing,
this is not something that I recommend anyone using.
Metal backups for your seed phrases are better, but you still have to be careful.
In many cases, people are still putting their seed phrases on there unencrypted,
so if someone finds it, they can still take the money.
You may believe that it is going to survive a house fire or a flood or a collapse of a building,
but you should not assume that, and that's why I recommend that you go to my website here,
which is a project dedicated to stress testing every one of these devices on the market,
because about half of them do not hold up as well as I believe that they should.
What are the best practices?
I believe that if you have more than a small amount of money, you should be using a hardware device.
Probably more than a few hundred dollars, it starts to make sense to pay 50 to 100 dollars
to get one of these dedicated devices.
And if you are at that level, then you should also be worrying about
how do I back up the seed phrase for that device.
And of all of the devices, the metal backups that I've tested,
what it really comes down to is keeping it simple,
and the simplest things that you're going to find is a single steel plate
that you use a center punch to essentially put the dots of the letters for the words into.
It's very, very difficult to destroy one of these devices.
If you're going to the extreme, if you have a life-changing amount of wealth
that it would be terrible for you to lose access to or to have someone take,
this is when you want to start looking into a more complex setup.
This is where the multi-signature distributed key setup is what I believe
allows Bitcoiners to get better than bank level security.
Because even at a bank, even if, say, you take your seed phrase from your individual
treasurer, ledger, whatever, and you put it in a safety deposit box at a bank,
which is highly physically secure, that is still a single location
that could be compromised.
It could be compromised by environmental disaster.
It could be compromised by a government agent coming in.
It could be compromised by an employee at the bank going rogue.
You never know.
And really what I have focused the past six years on is trying to figure out
how do we eliminate single points of failure from systems like this.
So if you have keys, they are on multiple different devices,
they are geographically spread out, then this will give you a level of protection
not only against theft, because if an attacker gets into your house
or one other location, they won't have enough keys to spend your money,
but it also automatically gets you that redundancy, that backup level,
so that if a disaster happens, you don't even have to plan for a specific one.
If the keys are separated, then most likely you lose one key, that's okay.
You can still recover, you can move forward, you can replace it,
and you can basically have more of a self-healing type of setup.
So there are a number of different wallet softwares that you can do this with,
CASA on the left, Electrum in the middle, Spectre on the right,
and then there are also several others, and generally these all support the ability
to also use the hardware key management devices in conjunction with them.
So you can essentially travel around and add signatures to a transaction
with your hardware devices whenever you need to move those funds.
But of course, this is very inconvenient.
It is inconvenient by design, because this is supposed to be for funds
that you almost never move.
This is if you have a level of wealth where you are really storing
a significant portion of your total savings,
and you want to make sure that nothing can possibly go wrong.
This is the level of security and the convenience trade-off
that I think you need to make.
So once you get through all of these hoops,
and you're fairly confident that your keys can't really be lost or stolen,
there's one final thing you have to worry about, inheritance.
And inheritance is actually a friction when you try to introduce it
into your own system, because when you are self-custodying,
the goal is to ensure that only you have access to the keys to spend your money.
The goal with inheritance is to ensure that someone other than you
has access to the keys to spend your money,
preferably only after you have passed away.
So this is where it can get even more complex.
Entire books have been written about this subject.
I do recommend Pamela Morgan's Cryptoasset Planning Guide,
because it talks not only about the technical issues,
but some of the social issues with inheritance.
And what we found is if you want to thread the needle
in between these very different objectives,
then you probably want some sort of multi-key setup,
where there are some keys that can be accessed by both you and someone else,
but never enough keys that can be accessed by someone else, of course,
that they can spend the funds.
So the final thing, which is not really technical at all,
is operational security.
And the first rule of Bitcoin is to talk about Bitcoin
to as many people as you feel comfortable doing so.
But the second rule is to not talk about your Bitcoin specifically.
And this is just one example, possibly hard to read,
but someone, a Coinbase user, is posting about they lost all of their money
because someone hacked into their Coinbase account and cleaned it out.
And then on Twitter, this person says,
oh, this is terrible because I have all of my money on Coinbase,
and it would be terrible if that happened to me.
Within 24 hours, that person on Twitter got attacked.
Their cell phone number was swapped out to an attacker,
and all of their Bitcoin was withdrawn from their Coinbase account.
So this is why you don't talk about the specifics
of how you are storing your Bitcoin,
how you acquired it, how much you have, so on and so forth.
And this can be a scary subject, but you can do it.
You can be your own bank.
You can be safe and sovereign if you're willing to put in the effort.
Thank you.