Best Practices for Storing Large Amounts of Bitcoin
Bitcoin’s promise as a decentralized, borderless store of value hinges on one crucial concept: self-custody. When you hold Bitcoin, you’re your own bank, and the keys to that bank are stored in a 12 or 24-word seed phrase. That phrase is your lifeline to your funds. If you lose access to it, your Bitcoin is gone forever. If someone else gets hold of it, your assets could disappear in an instant.
The stakes are high, and so are the risks. The challenge, then, is to securely store this seed phrase in a way that prevents theft, damage, or loss. With the increasing value of Bitcoin, getting your security strategy right has never been more important.
Below, we explore the three most secure ways to store your Bitcoin seed phrase, explain how multi-signature wallets add an extra layer of security, and walk through how to use some of the most trusted tools in the Bitcoin world to keep your holdings safe.
Choosing the Right Wallet Software Before getting into the details of seed phrase security, it’s helpful to know about the most trusted Bitcoin wallet software options available:
Sparrow Wallet: For PC or Mac users, Sparrow Wallet is a powerful, feature-rich desktop wallet. With its hardware wallet support, robust customization options, and multi-sig capabilities, Sparrow is a great choice for users who prioritize control and security.
Electrum: A mainstay in the Bitcoin community, Electrum is an open-source wallet that offers advanced features like multi-sig support and compatibility with various hardware wallets. It's been a go-to wallet for years and remains a trusted choice for desktop users.
Blue Wallet: If you're looking for a mobile solution, Blue Wallet is a versatile app for iOS and Android that supports both regular and multi-sig wallets. It has an intuitive user interface and supports hardware wallet integrations, making it a solid option for managing your Bitcoin on the go.
Nunchuk: For those focused on secure multi-sig wallets, Nunchuk is an app designed specifically for mobile devices. It emphasizes collaborative custody solutions, which are useful for families, businesses, or individuals wanting added security layers.
With the right wallet software in place, you can then focus on how to store the key to your wealth securely. Here are three methods that provide peace of mind without compromising on control.
1. Splitting and Separating Your Seed Phrase
One practical approach to protecting your seed phrase is to manually split it into smaller parts and store them in separate secure locations. For example, a 24-word seed phrase can be broken down into three sets of eight words each. These separate parts can then be stored in different places, so no single part gives away access to your wallet.
How does this work in practice? Let’s say you decide to split your 24-word seed into three parts. Each set of eight words can be stored securely in physically separate locations: one in a home safe, another in a safety deposit box, and a third with a trusted friend or family member. The idea is that all parts are needed to reconstruct the full seed phrase, preventing anyone from gaining access with just one part.
This manual splitting adds a layer of security through geographical distribution. Each part on its own is useless, which means that even if one location is compromised, your Bitcoin remains safe.
2. Metal Seed Storage with Geographic Redundancy
The reality of paper-based seed storage is that paper can be destroyed. Fire, water, and general wear and tear all pose risks. For added durability, many Bitcoin holders use metal backup plates designed to withstand extreme conditions. These plates allow you to engrave or stamp your seed phrase, ensuring that it remains readable in the event of a disaster.
The steps are straightforward. After acquiring a metal backup plate (typically made of steel or titanium), engrave or stamp your seed phrase onto the plate. To further improve security, you can split your seed phrase across multiple metal plates and store each in a different location.
For example, if you have a 12-word seed phrase, you can divide it into two metal plates of six words each, then store one plate in a home safe and the other in a separate location. The resilience of metal means that your seed phrase is protected from the typical threats that would destroy paper storage.
However, this method is only as good as the security of the locations where the plates are stored. While you have the assurance of physical durability, you must also ensure that storage locations are theft-resistant.
3. Adding a 13th Word for Maximum Security
While creating a Bitcoin wallet typically requires only a 12 or 24-word seed phrase, adding a passphrase, or what some call a "13th word," provides an added layer of security. This passphrase works like a password: without it, your seed phrase cannot unlock your wallet.
The idea is simple yet powerful. If an attacker gains access to your seed phrase, they still need this passphrase to access your Bitcoin. This additional layer of protection is a best practice for those holding larger amounts of Bitcoin, as it essentially doubles the security.
Choose a passphrase that is strong but memorable. A combination of unique words, phrases, or numbers that only you would understand is ideal. You then have two options: memorize this passphrase or store it separately from the seed phrase. Some choose to keep this in their memory only, making it nearly impossible for anyone else to obtain. Others may write it down and store it in a secure location far away from the other parts of their seed phrase.
However, there’s a risk: forgetting this passphrase makes your wallet irrecoverable. The additional security comes with a responsibility to safeguard the passphrase as carefully as the seed itself.
The Need for Multi-Signature Wallets For those holding significant amounts of Bitcoin, multi-signature (multi-sig) wallets are an essential security upgrade. A multi-sig wallet requires more than one key to authorize a transaction, adding redundancy and an extra layer of security. Think of it as requiring multiple keys to unlock a safe.
A typical setup might be a 2-of-3 multi-sig wallet, which requires any two out of three keys to sign a transaction. This setup prevents a single compromised key from putting your Bitcoin at risk, as at least one more signature is required to authorize any transfer.
Why Multi-Sig is Essential for Large Holdings The reasoning is straightforward: as your Bitcoin holdings grow, so does the risk. A multi-sig setup greatly reduces the threat posed by theft, hacking, or losing access to one of your keys. Even if one key is compromised, a multi-sig wallet requires the attacker to gain access to additional keys before any funds can be moved. For those holding substantial amounts of Bitcoin, the added peace of mind is invaluable.
Setting Up a Multi-Sig Wallet with Sparrow Wallet and BlockStream Jade Sparrow Wallet, paired with a hardware wallet like the BlockStream Jade, provides a strong multi-sig solution. Here’s how you can set up a 2-of-3 multi-sig wallet using these tools.
Generate Multiple Keys: To start, you’ll need three separate wallet keys, which can be a mix of hardware wallets and software wallets. You might use a BlockStream Jade as one key, a Trezor as another, and Sparrow Wallet's internal key generation as the third.
Create a Multi-Sig Wallet in Sparrow: Open Sparrow Wallet on your desktop. When creating a new wallet, choose the "Multi-Sig" option and set the parameters (e.g., "2-of-3"), specifying that any two keys are required to authorize a transaction. Sparrow will guide you through the process of adding public keys (xpubs) from each of your devices.
Import Keys and Configure: Connect each hardware wallet one at a time (such as the BlockStream Jade) to Sparrow and import its xpub. Once all three xpubs are imported, Sparrow will automatically configure the multi-sig wallet.
Distribute and Secure Keys: Each key should be stored securely. Keep one hardware wallet in a safety deposit box, another in a home safe, and store the Sparrow software key on a secure offline computer.
Backup All Seed Phrases: Each key has its own seed phrase. Back up these seed phrases carefully, using one of the aforementioned secure storage methods, and ensure they are stored separately to prevent complete compromise.
Whenever you wish to make a transaction, Sparrow will require at least two of the three keys to sign, adding that critical layer of security. Even if one device is lost or stolen, your Bitcoin remains safe, as the remaining keys are required for any access.
Using multi-sig wallets isn’t just for large institutions or advanced users. As Bitcoin adoption grows and its value continues to fluctuate, individual users are increasingly turning to multi-sig solutions to protect their wealth and ensure that no single point of failure jeopardizes their assets.
As Bitcoin becomes a more integral part of your financial life, securing it is paramount. With the right combination of secure seed storage and multi-signature wallets, you can confidently protect your Bitcoin for the long term.