News Analysis: Bitcoin Self Storage Dilemma

At the BalticHoneybadger conference in Riga, wallet makers talked about how to make Bitcoin Self Storage private keys in the safest way.
News Analysis: Bitcoin Self-Storage Dilemma
News Analysis: Bitcoin Self-Storage Dilemma

Bitcoin Self Storage is hard to get right: There are pros and cons to every kind of offline, or “cold,” storage we have today. Bitcoin software developers and wallet makers are still arguing about which one is the most secure.

When you have your own money, you have to take care of it. Experienced bitcoiners would tell you that it’s not enough to just buy bitcoin; to really start your journey to financial independence, you need to be in full control of your cryptographic private keys, which means your bitcoin should be on your own device.

But picking a place to store your bitcoin is a task in and of itself. In the past few years, companies that work in this field have come up with a number of options, each of which has pros and cons.

The easiest way to get started is to get a software wallet or an app that makes Bitcoin Self Storage and saves them on your computer or phone. But phones and computers can be lost or stolen, break, or get malware on them. A new industry called “hardware wallets” offers a different solution: a small device that can store bitcoin keys and sign transactions, but has no other features and can’t stay connected to the internet.

But it’s still not clear what the best solution is for the average Bitcoin user. This past weekend, some of these points were brought up during a panel at the Baltic Honeybadger conference in Riga, Latvia, which was only for bitcoin.

Tricky hardware For Bitcoin Self Storage

The CEO of a company that makes hardware wallets, Pavol Rusnak, said that his company’s product is the safest way to store bitcoin because it has a “limited attack surface.”

“The hardware is simpler, and the software isn’t as hard to use as Windows, MacOS, or Android. And it’s offline most of the time,” Rusnak reported. “Most attacks are done remotely using malware, and the hardware wallet protects you against that.”

Peter Todd, a cryptography consultant, said on a panel about Bitcoin security that he doesn’t use hardware wallets. Instead, he said, “I’d rather use a laptop, since it’s unlikely that it would be specifically targeted, and put [the laptop] in a safe box.”

Hardware wallets, which you can usually order online and have sent to your home, could make you a target if you own bitcoins. Todd told CoinDesk that if they used a laptop, people might never find out.

Also, the factories that make hardware wallets could be hit by an attack on the supply chain, he said. Someone could change the devices and make them look different in order to steal bitcoin from people who use them.

So, “My advice to a lot of people is to get a phone, put your hardware wallet on it, and don’t use it for anything else. No one is after your phone. “Your phone’s supply chain is not a target,” Todd said.

Todd said that using a multi-signature wallet, in which you use more than one device to sign every bitcoin transaction, would be the best way to set things up. But, “the software stack for multisig technology isn’t very good or easy to use right now.”

Todd said on stage that there is no way for a regular person to check if the device being used does what it says it does. “Have I ever bothered to get my Trezor, which I don’t use for a variety of reasons, and do all the work to make sure it works the way it says it does? No, it’s a whole bunch of work, and chances are it doesn’t work,” he said.

He also said that it gets worse. If a wallet uses open-source software, which means that its code is available on the internet, you might be able to check that code. However, there is another type of software called a compiler that turns high-level code into machine language that a regular computer can understand, and this is even harder to check.

Todd said, “These systems are so incredibly complicated.” He also said that compilers are like “giant factories” of code that are hard to go through and where not all of the code is open source.

From left: Douglas Bakkum, Peter Todd, Rigel Walshe, and Pavol Rusnak at Baltic Honeybadger 2022 in Riga, Lativa (Anna Baydakova/CoinDesk)

To air-gap or not to air-gap

How hardware wallets should talk to other devices is another point of contention.

A hardware wallet needs to be connected to an internet-connected device, like a laptop or phone, in order to get information about a transaction it is about to sign. They can talk to each other using a USB cable, a microSD card, or QR codes that a wallet makes and a phone camera can read.

Some hardware wallet makers make sure there is no wire connection between a wallet and a computer. Instead, they have an air gap, which is a security feature where a device is never connected to the internet.

Rodolfo Novak, co-founder and CEO of Coinkite, which makes the Coldcard hardware wallet, said in an email that synchronous attacks will be much less likely if electronic information is transferred physically, such as through a MicroSD card, rather than through a computer network. (Coinkite did not give a talk at the conference in Riga.)

“USB gives attackers direct access to hardware, which makes it easier for them to do attacks from a distance. “The fact that the computer’s operating system has to choose the correct driver for USB devices based on their serial numbers creates an anonymity problem for devices like Trezor, whose data clearly includes a serial number at boot,” Novak said, adding that “any malicious actors who may have gotten into your computer’s internet connection may be able to access your keys if you are connected by USB.”

Novak said that a USB connection makes the wallet vulnerable because it lets the wallet’s existence and unique serial number be seen on the internet. On the other hand, no important information is lost when a micro-SD card is used with a live internet connection, he said.

The Baltic Honeybadger panelists did not agree, though, that an SD card is safer than a USB cord.

Todd said onstage, “The wire between your wallet and your computer doesn’t have to be a bad thing.” “The question is how you make that wire, how much current, or electrons, flow through it every second, and how quickly that number can change.”

He also said that modern SD cards used in air-gapped wallets aren’t as simple as they look. An SD card is “a whole 32-bit microprocessor,” he said.

Rusnak from Trezor said the same thing. He said, “SD cards today use more processing power than my first computer.” “What worries me more is that this SD card might steal some information from my computer.”

Novak disagrees. “A MicroSD attack is several orders of magnitude harder to pull off than a USB attack,” he said, adding that the microSD cards Coldcard gives out with its wallets have “a much smaller amount of code” than the USB, which makes it easy to check for bugs that can be used to steal money.

In the end, anything can be broken into.

“The job of a hardware wallet maker is to make it too time- or money-consuming for an attacker,” said Douglas Bakkum, who started the hardware wallet company BitBox.

Bakkum said in his presentation, which was similar to a company blog post from October, that hardware wallets can be attacked on three levels: the communication layer, the logic layer, and the physical layer. Attacks on the communication layer mean that the protocol connecting a wallet to a laptop is broken, whether it’s a USB port, QR code, or SD card. Attacks on the logic layer mean that malicious software is put into the wallet (attacker breaks open the device, attach probes and tampers with it).

Rusnak said that a supply-chain attack is a risk for both USB devices and SD cards.

“If an attacker wants to attack you through a USB port, they might as well give you a malicious SD card.” “That’s not a problem if your attacker is a regular thief, and even an SD card won’t help if your attacker is the FBI or another federal agency,” he said.

Rusnak said, “When you go down the rabbit hole where you can’t trust anything, you need to draw a line in the sand somewhere.”

Bigger picture

Rusnak said that if you want to keep your bitcoin safe, you shouldn’t make things too hard for yourself. People who set up complicated security for their bitcoin storage, like writing their seed phrase (a key to getting their money back if they lose their wallet) in the wrong order, might “shoot themselves in the foot” if they forget the right order or their heirs can’t figure it out.

“Your setup should still work in 10 or 15 years,” Rusnak said on stage, suggesting that users always write down the steps they take to build security for the future.

Bakkum repeated, “Just don’t trust your brain.”

Rigel Walshe, who used to be a police officer in New Zealand and is now a developer at Swan Bitcoin, a company in California that helps people save in bitcoin, reminded the audience that it’s important to take care of your physical safety no matter what technical solution is used. This means that you shouldn’t tell anyone where you (or your bitcoins) are.

Walshe said that you can hide your real location by using a post office box or an LLC company as your mailing address. Even your utility bills can be sent to a different address than where you are. Even if someone finds your personal information online, they still won’t be able to find you (and your bitcoin).

“Assume that your information will be doxxed and it will be out there,” Walshe said.

Todd brought up another possible security measure. He poked fun at the Ethereum blockchain, which die-hard bitcoiners think is a worse technology.

“Because there are bad security ecosystems like Ethereum, bitcoiners aren’t as at risk as they could be,” Todd said. “What would you focus on if you were a bad guy who knew how to break things? You will focus on stealing from [decentralized finance], which is easier than stealing bitcoin. It keeps hackers from messing with us.”