Analyze the top 5 Bitcoin security threats

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Identify a threatening needle in a haystack.

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Heavy is the head that wears the crown. As the world’s leading digital bearer asset, owning Bitcoin carries a different set of security risks than owning traditional assets. To develop a personal security plan, you should strive to consider every threat imaginable and prioritize accordingly.

However, before you can properly prepare, you must first assess the danger. Threat modeling is a process I perform on a regular basis as a co-founder and CTO of a Bitcoin security provider.

I recently ran a straw poll that asked “What’s the biggest threat to your Bitcoin?” The poll received over 1,600 votes, and while far from scientific, it’s an interesting look at how Bitcoiners assess security threats. In this first edition of Lopp’s Threat Index, I cover each individual threat from both a historical and a practical perspective. Think of this as an introduction to modeling your own unique security risks.

Accidental loss

Race rank: 1st

Poll rank: 1st (39.8%)

Accidental loss is the most pernicious threat to your Bitcoin. At the start of the protocol, it was very easy to lose Bitcoin, and many people did. It is estimated that around 4 million Bitcoin has been lost, or nearly a fifth of all Bitcoin that will ever exist.

Today, part of that risk has been mitigated through technology, such as metal seed storage devices and multi-signature functionality. But accidents still happen. Many people do not actively back up their most important data. If you’re not careful, a forgotten password or misplaced wallet could wipe out your holdings.

How to Prepare: Start by saving your seed phrase (offline!) Or using a multisig arrangement if you have a significant amount of Bitcoin. After you’ve created and tested your backups, check them at least once a year.

It’s also important to pay close attention to major life changes, such as moving or switching to a new phone or computer. These are cases where it makes sense to have additional redundancy in your Bitcoin security plan.

Theft / Digital Attack

Race rank: 2nd

Poll rank: 3rd (19.6%)

Digital theft is an ever-evolving threat in Bitcoin security, and this underscores the importance of self-defense. In the beginning, exchanges and custodians were major hacking targets because most people left their Bitcoin there.

Today, improved cold storage practices by large custodians have shifted the threat of digital attacks to individual account holders. Rather than trying to hack into an exchange’s wallet, bad actors deploy sophisticated spear-phishing and SIM-swapping tactics to compromise an individual’s exchange account and authorize large withdrawals. that cannot be recovered.

Social engineering is another common digital tactic. Scareware / fake airdrops / malicious text messages and emails will try to trick you into entering sensitive information so that attackers can steal money from you.

How to Prepare: The first layer of security should always be privacy. Don’t share intimate financial details with others. Likewise, it is dangerous to shop around for cash in public, it is a bad idea to talk about your Bitcoin. Most people are easy to find.

As for social engineering: beware, check. These threats are nuanced, so be careful when browsing the web, reading unsolicited messages, and dealing with third parties in general.

Government seizure

Race rank: 3rd

Poll rank: 2nd (27.1%)

At this point, the government’s response is a largely theoretical attack vector, unless you are a political dissident or operate outside the confines of your local laws. There have been seizures as a result of criminal investigations and countries have banned certain activities. However, I am not aware of any large-scale government confiscation of Bitcoin.

Make no mistake: government action is a threat to consider, especially from a historical perspective. Just look at the gold for a comparison. In 1933, President Franklin Roosevelt signed Executive Order 6102 banning the possession of gold above a certain threshold. The ban proved ineffective and the rule was repealed in 1974.

It is impractical to impose an outright ban on owning Bitcoin, but that doesn’t stop a desperate nation state from trying. This threat might be a higher priority in the future, because if it ever happens, many people will be affected unlike other individualized threats. Government action is like a dormant volcano that may one day erupt. Keep an eye on it.

How to Prepare: If a government were to take action against Bitcoin, it would first have to determine who has it. If you are buying Bitcoin from a regulated exchange, it is safe to assume that you are a known entity. This process can be bypassed by buying Bitcoin on a peer-to-peer basis, but this also comes with its own risks.

If you want to prevent confiscation, make sure you don’t have all of your private keys in one place or in a configuration that could be physically compromised.

Physical theft / Attack

Race rank: 4th

Poll rank: 4th (13.4%)

Physical attacks are quite correlated with the evolution of prices. When Bitcoin is on the rise, it makes headlines, which attracts the attention of criminals. Physical attacks enjoy significant media exposure, making them visible to the public.

In reality, physical attacks are rare. Today, most physical attacks target people who trade Bitcoin in person, a high-risk situation. Outside of these dates, attackers tend to target public figures and people who flaunt their wealth. The salary of a physical attacker is not very high compared to the average person, so physical attacks are often premeditated to ensure that the target is of great value.

How to Prepare: If you are buying Bitcoin in person, be sure to double check the counterparties. Don’t just meet random people in a secluded location. Be careful who you trust and try not to attract unnecessary attention.

Threat surprise: inheritance planning

Many security threats are not the result of an attack at all. A simple oversight like poor estate planning can be just as devastating.

There have been many instances where families and heirs have been unable to locate or transfer Bitcoin. It is usually the result of poor communication. Overly complex security plans can do heirs a disservice.

Unlike every other threat on this list, inheritance is a certainty. Bitcoin is designed to last forever. If you believe in Bitcoin as a long-term store of value, make an inheritance plan even if you plan to live a long life. Your loved ones will thank you.

When assessing your own unique security risk, try to stay aware of all threats, not just one. Over time and practice, you will come to recognize threats that are not even on this list. Combine self-defense with self-discipline and your Bitcoin will have higher security than a bank.

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