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?