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Is it wise to put all your bitcoin in one basket?

I've heard a number of people say splitting your stack across multiple cold storage wallets can be a hedge against failure in any one of them. So, you might have 70% of your stack in a multisig with geographically distributed keys, and then you might keep the remaining 30% in a single sig. It's unlikely that both get compromised at the same time. Or if it's user-error, it's unlikely (perhaps less so) that you make the same error twice.
I was most recently reminded of this approach when I saw a tweet by the ever provocative Udi Wetheimer.
Nick Neumann wrote a thoughtful reply where he countered most of Udi's concern with the reality that you can get scammed in tradfi, too.
The problems around phishing are rampant throughout self-custody, custodians like Coinbase, and the traditional banking system. I have seen and heard stories of people getting tricked into losing their life savings through all three venues. And I wouldn't even agree that we can conclusively say that it happens more frequently in self-custody.
Udi responded to Nick with an equally long post. As usual, Udi makes sharp points, just, in my mind, wrong-headedly:
phishers can get you in a moment of weakness and get you to send over $500 to a scammer and never get it back. that’s true. but it’s very hard, nearly damn impossible, to scam someone into emptying their IRA.
Isn't part of what we're doing here with Bitcoin countering the risk of losing your retirement savings when there's a banking crisis? The tradfi system is good at safety nets, but currently it comes at the cost of "too big to fail" and "systemically important institutions" and opening the door to a lot of Cantillon effect. It's fine to point out all the dangers of royal Nigerian fishermen, but the damage done by once-a-decade recession pattern isn't nothing.

Udi's 80-20 hedge against self-custody fuckups

note that my post didn’t say i don’t think people should use self custody at all. using it for say 20% of your portfolio makes sense to me, and is a good hedge against issues with custodians, it’s a good way to learn with lower risk, and it’s a good way to ensure satisfactory freedom to transact.
This is what I really want to talk about, though: as bitcoin has increased in dollar terms, what once was small stuff may have become a larger portion of one's life savings. Imagine the trend continues and these sats we're slinging around on here end up being kind of a lot of value.
Would there be a point where you would use a custodian for some portion of your stack in order to spread out your risk?
235 sats \ 20 replies \ @ek 14h
I have been considering trying Unchained or Casa for a while. So not a custodian (because I don't want to worry about the risk that comes with that), but just some professional help with my 2-of-3 multisig setup. But I also want to look more into Glacier. @nerd2ninja has mentioned it quite a few times.
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I'm skeptical of places like Unchained and Casa because I worry that they're honeypots. I'm pretty sure in both cases you have to give them your xpub or your descriptor.
If you rely on them for "collaborative custody" I worry that you give them more power over your stack than you realize. In the case where you share one key with them and one with a "third party," there's really not much control over collusion. In the case where they only have one key and you have two, I think you might be better off just giving the one key to a friend. Sharing custody is just really difficult.
Why not roll your own multisig? there's a number of good options for doing it these days (Liana, Nunchuk, Keeper, Bitcoin Safe, Bitcoin Core, Sparrow...)
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117 sats \ 5 replies \ @ek 12h
I don't want to reveal too much about my setup, but I already rolled my own multisig with Sparrow+TailsOS.
I just want them to hold another backup without any xpubs. Since I always need two keys anyway, I designated one key as the backup key with many copies, and none of these copies have xpubs. This way, I can give these copies to family and friends, and they can't look up my balance with them. They also can't collude against me, because they all have the same key.
I'm pretty sure in both cases you have to give them your xpub or your descriptor.
So yeah, that would be a deal breaker for me
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ah...the situation that you lose one of your keys, but still have the other and your xpub...so you could rely on a third-party held backup key that doesn't have a descriptor with it.
I wonder if Unchained would offer this service? I don't think at the moment they do (I've done no research to back this claim up). If they don't offer this service, it might be cool if someone did.
Backing up descriptors becomes pretty important in this scenario though, because without a descriptor, the extra key is useless. In the scenario where you lose one of your main keys and all you have left is your 2nd main key (and descriptor) and your backup key at the third party, your wallet is more or less a 1 of 1, though isn't it? Unless there are also a number of descriptor backups in alternate locations.
This is the kind of stuff that makes my mind fuzzy. It's very easy to paint yourself into a corner without realizing it.
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102 sats \ 3 replies \ @ek 12h
Unless there are also a number of descriptor backups in alternate locations.
😏
But in any case, if I don't have two keys, my descriptors are also useless, and one key is guaranteed to have the descriptors
This is the kind of stuff that makes my mind fuzzy. It's very easy to paint yourself into a corner without realizing it.
Yeah, but I'm actually quite happy with my current setup. It's my second iteration. In my first iteration, I had one of the three keys in my brain, but then I started to wonder what if I memorized it so hard I start saying it in my sleep? lol
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Very very early in my bitcoin experience, I experimented with memorized elements. I quickly abandoned this. There's just no good reason do memorize things (unless you're fleeing across an international border...that might make sense).
0 sats \ 1 reply \ @anon 12h
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I use Casa for collaborative custody because I don't trust myself
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The thing with glacier btw, is I'm not recommending people to use the glacier software necessarily (I've never used the glacier software), just that its a good reference as a guide for tools you know and love already.
The thing about custodians, is that I just don't like my collaborative custodian (because I'll never use full custodian eww) to be a company. I'd rather my collaborative custodian not be a government protected entity, but a real person and preferably, family. That's all, and even then, I'd prefer if those collaborative custodians only really have access to a timelocked key, such as what's provided in liana wallet.
In fact, because glacier does not include timelocks, its an incomplete guide and maybe even outdated?
And obviously descriptor wallets are not as easy to work with as "Just memorizing 12 words (and the wallet and version you generated it from to avoid additional footguns)
Here's a neat tool to help deal with that. I probably wouldn't bother with it until your Bitcoin starts to look more like a retirement account than a savings account tho. https://seedhammer.com/
So in other words, what I prefer as the ultimate solution, is full self custody with keys in multiple locations, which only failing that after a timelock, collaborative custody of keys where multiple people who are not likely to collaborate together, sign a psbt you create from a watch only wallet (to ensure they don't collaborate together).
But ah incorperating timelocks into people's setups and even multi-sig on its own is such a new idea to so many people. I was about to bring pre-signed transaction possibilities into this lol.
Anyway, arman the parman's guide is a little more simple and goes over "levels of custody" rather than "This is how you do it" You know like, imagine sending glacier to a newbie right? https://armantheparman.com/zerotrust/
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0 sats \ 1 reply \ @Artilektt 4h
If you think you might have trouble with multisig you will absolutely fuck up glacier. I don't understand what people think is so hard about multisig. Or, just like learning the basics, fuck around with it with a small amount until you understand it. Create a 2/3, wipe it. Wipe everything, build it back. Try to fuck it up. It's not that hard.
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102 sats \ 0 replies \ @ek 4h
damn, people really assume I'm new to multisig from just four sentences
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0 sats \ 8 replies \ @anon 13h
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0 sats \ 7 replies \ @ek 13h
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0 sats \ 6 replies \ @anon 13h
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0 sats \ 5 replies \ @ek 13h
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377 sats \ 8 replies \ @optimism 14h
LMAO! Udi was the guy that recommended people to use ftx instead of self-custody. There was a more direct one which I cannot find, but this carries the same message.
The best hedge thus is to ignore Udi & co, because they are trolls. Eff these guys.
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103 sats \ 0 replies \ @Artilektt 4h
Yeah Udi is a bad actor. I really have no idea why anyone continues to give him the time of day in the space.
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I mostly do ignore him. But every 1.5 years or so he seems to come across my attention and as unsavory as he is, I don't think ignoring him is the solution. It's kind of the same with the Bankless guys or eric wall -- if we pretend they don't exist, we risk having a blindspot.
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123 sats \ 5 replies \ @optimism 13h
Okay, let me entertain this for a moment just out of curiosity sake: Which past blindspots do you feel have hurt people by ignoring Udi, Eric or the Bankless podcast? This is a honest question; I don't know any myself, but this is because I no longer roam the tweeter sphere due to these types of people wasting my precious, precious time.
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I found the wizards stuff very annoying. I thought I had more eric tweets bookmarked, but the only one I have is this about OP_CAT. I remember various occasions where I've read critiques of his about Bitcoin culture that aren't wrong. Udi less so.
As for Bankless, I would say they believe (or have bags in) eth to the same extent that many bitcoiners believe (or have bags in) btc. I find observing their bias a healthy reminder that the bias also exists in our world. It's easier to see it when my base assumption is that they are shitcoiners, but seeing it there helps me see it here.
the blindspot into which these characters offer us visibility is unique: critics from traditional finance usually don't even engage with the main value propositions of bitcoin; the crypto bros -- especially the more bitcoin literate ones -- make me stay sharp in defending the usefulness of bitcoin.
It is also possible that I am less exacting with the value of my time and squander it in ways that I should not...
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177 sats \ 2 replies \ @optimism 12h
I remember various occasions where I've read critiques of his about Bitcoin culture that aren't wrong.
Not everything Eric or Udi says is wrong. That would be a Guiness-worthy achievement. However, most of the reasoning seems to be coming from a starting point and with a goal of maximum controversy (because that generates attention) and then you get recommendations like using FTX as your wallet, or normalization of shitcoinery.
If you want to generate maximum controversy because your goal is to change behavior, that is fine, but don't make victims out of the people that you actually influenced. That is imho spending your influence capital unwisely: solving a problem by creating another problem. Thus, ignoring is often the best choice because the solutions suck.
As for Bankless, I would say they believe (or have bags in) eth to the same extent that many bitcoiners believe (or have bags in) btc. I find observing their bias a healthy reminder that the bias also exists in our world.
I sometimes talk to shitcoiner (devs) at conferences and not online, not to validate them, but to learn what they're dealing with. I have tried also talking to influencers at conferences but they are not really interesting because there is nothing to learn. Even the philosophical ones. There are many cypherpunk devs involved with (select) shitcoins that, if you talk to them about the right things they try to achieve on (imho) the wrong platform, there is a conversation to be had when you focus on the tech, not the platform. I don't try orange pilling these people because often they found themselves excluded in the early days and I get that, because it was extremely hard to participate as an outsider back in the Gavin days for example, it scared me away too. Influencers on the other hand often have nothing solid to offer and I avoid most of the Bitcoin-native influencers too for the same reason.
the blindspot into which these characters offer us visibility is unique: critics from traditional finance usually don't even engage with the main value propositions of bitcoin; the crypto bros -- especially the more bitcoin literate ones -- make me stay sharp in defending the usefulness of bitcoin.
Agreed, but then these are, in my opinion, among the poorest of critics. Personally, I'd rather follow web3privacynow than bankless. Both are Eth oriented, but the former is working on solutions, the latter... shilling whatever makes more ad revs.
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100 sats \ 1 reply \ @Scoresby OP 12h
web3privacynow
Thanks for the rec! I hadn't heard of this. May the lord save me from speaking with influencers and keep me ever watchful from treading the dark path into influencer-dom myself.
223 sats \ 2 replies \ @k00b 13h
I think collaborative custody is the way to go for anyone that we'd recommend "hedging" to:
  1. "hedge" by having a company control one key
  2. dedicated software, handholding, and customer support
  3. most naive attacks will be unsuccessful
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202 sats \ 0 replies \ @optimism 11h
I've in the past helped designing secure (p2sh) multisig protocols for one of the collaborative custody providers and that implementation has tons of users. Real examples I've been confronted with the past decade that can happen when you lost a key and then find that:
  1. Sanctions against your country have been introduced
  2. KYC rules for your country/state have changed or you moved to another state
  3. New rules around using Chainalysis flag your coins
These companies commonly won't break the law for your coin, so be very careful when you consider this.
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The reason I went straight to using a custodian is that the collaborative custody services all feel very very close to custodianship to me.
The primary benefit of a collaborative custodian presumably is that they can't rug you. This is only true if you have control of the quorum of keys.
If you don't have a quorum, then you really really need to do the digiligence on who the third party is (how do you know the third-party keyholders won't collude? how do you know they are even that separate of entities?).
If you do have a quorum, then aren't you just better off keeping a backup key in a safe somewhere or giving it to a trusted friend, family member, lawyer).
I can be convinced the concept is misguided, though. It's more an interest in why self-custody isn't taking off and the somewhat elevated base-level of anxiety I carry with regard to my own efforts at self-custody.
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It is twice as likely to lose either part of a multisig key than a single mnemonic. Better have multiple copies of a single "wallet" in safe locations that only you know about. Then, after many years, maybe you will find at least one ))
For a wrench attack make sure your actual seed opens a decoy wallet, but for the real one you have a password only in your head!
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330 sats \ 1 reply \ @Scoresby OP 14h
perhaps if you do a 2 of 2 or something. However, if you have a threshold wallet (eg 2 of 3) I don't agree that it's twice as likely to lose a part.
The issue with multiple copies of a single key is that you are much more exposed to theft, and if theft happens, you won't even know which key was compromised. So if you stored one with a friend, one with your lawyer, and one in your own home and your bitcoin gets stolen, you now get to deal with the consequences of doubt and suspicion across all your relationships. Much better a 1 of 3 multisig where you would at least know which key did the signing.
Password only in your head is pretty risky, too, in my mind. If you are willing to take the risk that you forgetting something will lose all your bitcoin, then go for it. But in that case, why not just have one key and hide it well? or for that matter, just memorize your seed phrase and leave it at that? But if you hit your head, it's gone.
I'm interested in a solution that doesn't make me the single source of failure.
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That is why my seed leads to a decoy wallet. I will see immediately if it is compromised. I chose the word in my head such that I will never forget.
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202 sats \ 0 replies \ @OT 14h
It's hard not to feel sorry for this guy, but similar stories come up every now and then like this. If you are going to do self custody you need to remember the rules. Don't get complacent, stay a little paranoid.
I could see however for people who have a 401K or superannuation, this might be an ok "hedge" to have someone custody it for you since you can't access it till retirement anyway.
For the boomers or people that know deep down that they're forgetful or generally don't trust themselves, I guess they will need to find a trustworthy custodian.
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splitting your stack across multiple cold storage wallets can be a hedge against failure in any one of them
Who's saying this? That's retarded... you and your process are the single point of failure in self-custody.
Your HWW and its dodgy software are probably a single-point of failure, but if you're going to play with those gimmicky toys you should only do so in a multi-vendor set up.
scam someone into emptying their IRA.
Underrated feature of an IRA is that its harder for YOU to get it out. Most people don't lose life changing stacks to scammers or banking crisis, but their own stupidity.
countering the risk of losing your retirement savings when there's a banking crisis?
Not at all. Complete misread of what Bitcoin is.
First, when is the last time someone lost it all in a Banking Crisis? A few highly leveraged funds in bed with specific institutions in the last 100 years? No one alive has seen first hand a systemic collapse. Even those events largely only took out people without real assets, fiat is just a number you put on them.
People generally get rugged by loss of purchasing power over time, not bankruptcy. Bitcoin hedges that equally whether it's in an ETF or in Cold storage... actually no... ETF is MUCH better at this given tax advantages and lower spreads.
Second, fiat is why such crises happen in the first place. Bitcoin's portability, verifiability, supply immutability is about stopping crisis before it can start. It's free-banking, not post-banking.
Freedom from financial censorship is the biggest reason to self-custody, but for most people that's not nearly as big of a risk as fucking up self-custody.
80-20 hedge
The real 80-20 hedge (Pareto distribution) is who can keep Bitcoin honest by engaging in self-custody and running economic validating nodes. That is AT MOST 20% of people.
And we're a long way from getting to that 20% because self-custody tools are ABYSMAL still. The fact that seed phrases are the standard, with morons stamping them on metal, losing written paper, screenshots, getting fished... is an absolute joke.
If your net worth is tied to BIP39 then you shouldn't be self-custodying. With current tooling maybe 3% of people tops should self-custody.
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Who's saying this?
I don't remember where I heard it. Maybe I said it to myself.
you and your process are the single point of failure in self-custody.
Yes. This is why I was thinking it might be good to have two different processes. For instance, Make a multisig in core, distribute keys with copies of the descriptor. Okay. That's good. But maybe also have a BIp39 wallet with a proportionately smaller emergency stash. I always have this lurking fear in the back of my mind that maybe I did something wrong and the next time I do a test spend it won't work...
Even those events largely only took out people without real assets,
Great correction of my point. I agree that the major risk is loss of purchasing power. I remember my folks commenting once that they're retirement was more or less flat between the peak of the dot-com bubble and sometime in the 20-teens.
Freedom from financial censorship is the biggest reason to self-custody
The question I'm trying to get at is how to think about the calculus of self-custody. It's often pitched on moral grounds, and I'm less interested in that. It is very true that the biggest risk to my bitcoin stack is my own ignorance and stupidity. Yet, I want to benefit from bitcoin and the abilities holding it affords me.
who can keep Bitcoin honest by engaging in self-custody and running economic validating nodes.
Do you think it's at most 20% of people who hold coins or 20% of coins? (clearly all coins are always held in self-custody, but the behavior of an economic node that is holding coins on behalf of others might be fundamentally different than that of an economic node that holds coins for itself).
getting fished
It seems to me that the person who is likely to get fished is likely to get fished whether they have a seed phrase or a xpriv or almost any other backup scheme. Bryan Bishop replied to Udi asking: how do you design a solution for the most stupid person imaginable?
So: is it the case that we simply don't need to have an answer to Udi's observation (because stupid people shouldn't self-custody and if they lose their bitcoin that's evolution doing its thing)
Or: is it the case that we need to develop better tools (this is what I hear most often in the bitcoin community)
Or: is it the case that bitcoin better tooling is not possible and custodians are going to continue to be a major part of bitcoin forever?
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two different processes
Since you are the SPOF in both of them you're not solving anything by having two, better to go all-in on a process that is bulletproof. If you have two processes they're compromising with one another.
Not to say you shouldn't have tiers as @DarthCoin rightly suggests, like cold, cache, and hot. I'm referring to the most important tier, your BIP39 tier example I would rationalize as cache and that's perfectly reasonable.
20% of people who hold coins or 20% of coins
People (that should self-custody)
Political security is just as important to Bitcoin as the technical, even if Bitcoiners hate to admit it. Security is layered, and the technical layer is an enforcement arm of the political layer, but only if the technical layer is sufficiently distributed.
Political security is the only thing that prevents Google, Blackrock, Microsoft, Apple, the NSA, GCHQ, and god knows what other entities from stealing millions of coins... they have no purely technical blockers and having the majority of supply doesn't immunize them from the political fallout (and the technical resistance that could be brought with it.)
how do you design a solution for the most stupid person imaginable?
I think that's a fools errand, and that believing you can do so is hubris. Udi is right on this one, the best solution for 80% of people is either an ETF, Collaborative, equity in sats-flow, or a Family Office setup.
Everything I do with Lightning.Pub is part of a Family Office / Small Org vision of the future that keeps trust distributed to the edge and sats-flow as the gateway drug to that distribution.
Better tooling can get us from the 1-3% we should be at today to the ~20% I estimate is the (realistic) goal.
Even with better tooling custodians are going to be a major part of Bitcoin forever, the goal of such tooling shouldn't be to eliminate them but to keep them in a Mexican standoff by expanding the array of options people have.
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Seems right to split your bitcoins across different wallets, but never with custody. No room for mistakes when you’re just holding!
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155 sats \ 2 replies \ @freetx 15h
No room for mistakes when you’re just holding!
There is a balancing act. In order to ensure your family can access your stash you must both document it and have them practice accessing it, otherwise its pretty certain that they will be locked out of your stash.
Both of those things increase the complexity of self-custody (ie. documenting / having others practice accessing it decreases its security).
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I use Casa Keys or Hodl for cold storage assistance because I don't trust myself
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Yeah, I've done a practice recovery with my wife and it did not go well...
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the damage done by once-a-decade recession pattern isn't nothing.
This really is a big deal, but we think it's already out of control so we overlook it.
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If you guys really want to bring a company into your Bitcoin, go contact
The Bitcoin Way. Otherwise ping me and I'll try to provide suggestions that are best with your level of comfort with technology.
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112 sats \ 1 reply \ @DarthCoin 14h
This post remind me of this loser from BTC 2023 hahahaha
Would there be a point where you would use a custodian for some portion of your stack in order to spread out your risk?
No. Never. Custodians should be used only as temporary / decoy / test and with small amounts that are insignificant if you lose them.
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I am reminded of boating accidents: you aren't really on the ocean unless you've got no one to come to your aid, and you aren't really using bitcoin unless you can lose your coins. That's just the nature of bitcoin (as it may be arguably the nature of life).
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This comment is twelve words. Safe self custody is still relatively difficult.
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Be free of third party HW gadgets and services...and their constantly changing terms of service and updates that leave you dependent and hostage to these third party providers.
They undermine and incapacitate your ability and confidence to learn and operate your own monetary sovereignty.
Learn how to build your own secure long term cold storage. It's not difficult and is a solid investment in your monetary sovereignty. This is all you need.
Curious to know how many stackers are set up 100% self storage vs reliant upon third party HW and/or corporate custodians.
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