The Halving Report

12 vs 24 Words: Secure Your BTC!

January 21, 2024 Brad Mines Season 1 Episode 112
The Halving Report
12 vs 24 Words: Secure Your BTC!
Show Notes Transcript Chapter Markers

Welcome back to Halving Report, hosted by Brad Mines. In this episode, we're excited to have Pedro from MemeFactory, the brains behind the iconic laser eyes meme, joining us again. After our engaging discussion about the upcoming Halving Party in El Salvador, we shift our focus to a critical topic as the 2024 Halving approaches: the intricate world of Bitcoin security, encompassing seed phrases, running Bitcoin Core, and the robustness of multi-signature wallets.

Dive in with us as Pedro offers his expert insights on the importance of understanding these security mechanisms. From the nuances of seed phrase security to the added layer of protection afforded by multi-signature wallets, this episode is packed with essential knowledge for anyone looking to safeguard their Bitcoin investments in these pivotal times.

πŸ“– Episode Chapters:

0:00 πŸŽ™οΈ - Intro: Navigating Bitcoin Self-Custody
0:03 πŸ”‘ - Bitcoin Fundamentals & Self-Custody Choices
0:11 πŸ› οΈ - Effective Self-Custody Methods & Tips
2:04 πŸ’» - Using Bitcoin Core for Secure Transactions
2:18 🌐 - Sparrow Wallet: Enhancing Control & Privacy
3:42 🧠 - The Philosophy Behind Bitcoin Self-Custody
4:27 πŸ“ˆ - Bitcoin: A Game of Accumulation & Custody
7:13 🌱 - Starting Small with Bitcoin Investments
7:27 πŸ” - Multi-Signature Wallets Explained
8:32 🧐 - Seed Phrase Security: 12 vs 24 Words

Connect with Pedro and the MemeFactory:
https://x.com/re_tweet?s=21&t=tGZ0eLlcyemnfapJkemxKQ
http://bitcoinhalvingparty.com/
https://www.memefactorytm.com/

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Speaker 1:

You have an interest in a lot of fundamentals with Bitcoin. When it comes to Bitcoin and self-custody as part of that, where do you recommend people go? Do you have a favorite hardware wallet?

Speaker 2:

I always just recommend that somebody. If somebody's already self-custodying, I don't like to fud whatever method they're doing that. I think it's much more likely that there would be some sort of mistake on their part that would cause them to lose something because they're trying to move to a different system or whatever. I sort of prefer just sharing some of the different ways to self-custody without having to mess with their setup, as it is, one of them being make sure they've got something in steel. There's just ways to do that without having to go buy expensive products from anybody. You can just go to like a Home Depot, buy some washers right, people do that all the time and stamp it into the washers. There's some way to make sure that you've got a backup scenario where you're protected against fire or water damage or different things like that. Then I always sort of follow up with, just saying make sure you're running core somewhere. If you're at that point where you've taken self-custody and you own a UTXO or more than a UTXO, you probably have a PC somewhere. You shouldn't put any of your information, any keys, into that computer, but you should, at the very least, run Bitcoin Core on a computer. You can do it pruned, so you're not having to deal with downloading the entire blockchain or at least keeping a record of the entire blockchain. Then you can just you would like put your XPUB into that and at that point you would be able to verify your own transactions. Now you're not trusting Ledger. You're not trusting anybody's instance of Electrum Server to verify that your money is what you think it is right. You're using your own software to do that. You're going to something that is very hard to change in terms of Bitcoin Core. Now you've got a very self-sovereign way of saying this is my money, I own it, these are my rules for my money, and nobody can change the rules that I want in terms of what my money is.

Speaker 1:

So on your PC you're downloading Bitcoin Core and you're saying you're not relying on anybody else to verify that transaction. So what is actually happening there? Are you confirming the first confirmation on the blockchain or what's happening there? I?

Speaker 2:

wasn't totally complete with what it would take to download Core and just verify your transactions without putting your seed phrase into that computer. There's other wallets that you would use to connect to Core. Something like Sparrow Wallet is my favorite. Sparrow Wallet is a fantastic desktop wallet that gives you a lot of control. It gives you the opportunity to CoinJoin, if you want to do something like that in a really easy way. Connected to your own Bitcoin Core instance, you can have all of that run over tour, so you're not broadcasting any information that you wouldn't want anybody else to see. So now you're verifying your funds in a very self-sovereign way and in a very private way, and in a very easy way, frankly. I mean, it's just really easy to run Sparrow, to run Core in a pruned way and connect Sparrow Wallet to Core. There's these easy instructions that Sparrow will offer. Still on that, there's an even easier way called Specter Wallet. When you download Specter, it will offer you the opportunity to run Core itself in the background and it's just running the version of Core that's out there and available right now. When you do that, specter has really easy UI, has a way to put your XPUB in there very easily and what it'll do is it'll check that XPUB for any public addresses that have had funds deposited to it and it'll show you timestamps of that and the amount that you have in your wallet Very cool.

Speaker 1:

It seems like these are things that people who are philosophically motivated would like to do, like people that are first getting into Bitcoin. Self-custody is gonna be that first big leap. I feel like that they should aim towards, because initially they don't even a lot of new people coming into the space don't even want to hold their own keys, like they're just looking to possibly make a buck on their trading. But people like us were here telling them about the long-term game plan and how the broken financial system, the legacy financial system, is broken and we have this new paradigm shift and that Bitcoin should be your saving technology, not just something you should hop in and hop out of, as this is a game of accumulation, would you say.

Speaker 2:

It's a game of accumulation. It's a game of getting out of the game. It's a you know, I know that a lot of people are in this for the number go up, technology, for the fact that you know, every cycle, bitcoin has a new, all-time high and they'll own more in terms of what it's worth against fiat, right. But I think there's a group of people out there that aren't necessarily motivated by that or think that they have other ways to put their money into something where they'll make more money. I mean, there's a lot of beautiful things about the Bitcoin system, but one of them is the fact that you can self-custody your wealth. You can do that in different ways. It's probably best to just start in an easy way with a small amount. Those that would be what I would recommend to anybody is just take a small amount, but you can use a hot wallet if you want to, just so that you can feel what it's like to self-custody and write down 12 or 24 words or whatever methods that you're gonna do. You know, I don't know that that is something that the broad public is even aware of. Those are fundamental things that nobody talks about. You don't hear Pomp talking about that on CNBC or whatever? Where are you saying you know, generate a public private key, pair and download and put your money there? Like that would be scary for CNBC broadcasters to hear and you know everybody would be worried about that Like nobody. There's a reason why people don't stuff dollars on anything mattress anymore. They put it in a bank account, right, and nobody talks about self-custody and gold. When you're buying gold, they're just buying it on the paper gold and not interested so much in the self-custody aspect, because it's super hard and that's not the case with Bitcoin. It can be scary but it's not hard and everybody should. Anybody who owns Bitcoin and is here for the longterm. You should at least start with a small amount. Get familiar with that spend from that wallet, you know, get comfortable with what that looks like. My belief is that when people do that, they get become more comfortable with that and I've seen it happen. I've helped onboard friends and family to self-custody and I've seen them take those small steps and then get more interested in it over time and then be less concerned. Right Be, maybe I helped them put something into metal so that they could feel confident that you know it's not gonna be destroyed if something were to happen or you know, and then that's something that you can save somewhere. Right, you put that in a safe and now you've got a lot more confidence about being able to send more money to that wallet. And then you know some people are more interested in moving to multi-sig after they've started that journey and considering other tag vectors of having things in a single signature wallet.

Speaker 1:

So yeah.

Speaker 2:

I mean I think it's anybody should start with a small amount for sure.

Speaker 1:

You know multi-sig. Now, multi-sig you can kind of take into your own hands, right, like if you have a seed phrase like you could distribute that yourself, and that. Would that not be considered a multi-sig?

Speaker 2:

You know the issue with breaking apart a seed phrase, you mean, and having it in different areas.

Speaker 1:

Yeah, and then I know some multi-seed services like allow you to have the full seed in various different places, right, but you could break that up yourself with maybe physical copies, or you know what are your thoughts around that.

Speaker 2:

Yeah, so that's what you're describing is using a single-sig and having the words sort of in different, geographically separated environments. I guess that's one way to do it. I would be. There's a. The trade-off you're making there is that you still have a single point of failure, right, if you lose one of those sense of words somewhere. then you have a complete and total loss of funds versus a more robust multi-signature setup where you're using the full 12 words in, like either a two of three or three of five setup, and now you've got a scenario where, if you were to lose one of those keys, you would still have the other backups that you could confidently rebuild a wallet with and be able to spend from it again.

Speaker 1:

So when you're using that service that you're talking about, where you have the full, the full seed, so are they stored in a physical environment, like, or are you saying they're stored somewhere else?

Speaker 2:

I mean, you can do that different ways too. So like we have a multi-sig where we all have our own seed and there's like seven or eight of us right and it would require four or five of us to spend. That's more like a business setup where each of us has a seed, and maybe we're just saving it in our own version of the cloud, right, because who cares If I lose my seed? Their funds are safe. And our funds are safe still because it would require multiple of us to lose those seeds. And then there's if you're doing it yourself, if you have your own multi-sig, what you would want is you would have a seed at home, or and then you would have the other keys distributed geographically maybe some of your parents' house, some of your sister's house, whatever, whatever is safer, whatever you feel most confident in. Or you could just use a. Some people use something at the post office. Right, we're just depositing a key there, in whatever those little boxes are called the mailbox, right? Well, no, post office box. Yeah, no, it's what do they have?

Speaker 1:

Like a lock box, anchored box or something yeah like a lock box. While we're on the topic, cause I think this is very educational for new people and new people that are gonna be. A lot of new people coming into the space right now are gonna be buying on centralized exchanges and hearing the phrase self-custody, self-sovereignty and these types of things. And while we're talking about it, like we've seen you know 12 option, like back in the day, like we would have that big, long string private key, and now we've had a Bitcoin improvement protocol where we can do like 12, 12 words, 18 words, 24 words. You know what are the differences between using you know 12, 18, 24 words, and why do different wallets have different amounts of words?

Speaker 2:

That's just a lot different levels of entropy. Personally, I don't think that there's anything wrong with a 12 word seed phrase, and whenever I see somebody saying something that there's wrong with them on Twitter or whatever, I'll usually call that fud. And you know, just share my thoughts that there's. There are a lot of people walking around right now with 12 words and that's all then and that's their entire self custody, and that that isn't generally what attackers are going after. That's not low hanging fruit. It's really hard to crack 12 word seed phrase and so people just aren't doing that. That's not the attack factor that people are going after. They're doing fishing schemes. They're doing things where they're trying to be a man in the middle attack where there's a software on your computer or on a phone when you, when you send Bitcoin somewhere, it swaps out that address. That's low hanging fruit. That's what people are. That's what attackers are doing right now. They're not attacking 12 word seed phrase because it's so hard to do that, and so I don't think there's anything wrong with doing 12 or 18 or 24. And if you're really that concerned about, for example, not having enough entropy, you should probably be concerned about Having a single point of failure in terms of having just 12 words, and that's it right. And now you're talking about adding a passphrase to your setup. We're talking about multi-sig. That's probably the path for you. If you're worried about is 12 words and a venturi. Yeah for sure.

Speaker 1:

And I just started using a new wallet where you know I'm using a 12 word backup and you know I'll just kind of curious and all like you know what are the chances. Someone just types in 12 words one day, you know, down the future, you know when, you know billions of wallets have been created and billions of secret phrases have been created. What are the chances that that happens? And I was doing the math or whatever, looking up the math on that, and they say that it's like harder to find a Singular grain of sand on earth and it would be to crack those 12 words.

Speaker 2:

Yeah, that's, that's the numbers. Right, that's the entropy. Is you could, you would more easily find that single grain of sand and finding that somebody's.

Speaker 1:

Wilds like that to me, mind-blowing numbers. Think more stars.

Speaker 2:

That's just like entropy in a nutshell right. That's like or else we wouldn't have used 12, we would have started with right, 24 or 48, whatever the whatever. It would take for it to be really difficult for, like a state-of-the-art computer, to Be an attacker in terms of going after you like that. Yeah, so like reverse engineering.

Speaker 1:

It's just public 12. Yeah, 12 words is just wildly secure, like in it, that's you know. So what well said on your part? I don't think you don't. You don't complain if it's 12, 18 or 24 and you kind of call that out as you see it, I think. I think that's a really good play, considering the numbers that I've seen and how hard that would be difficult to actually hack.

Recommendations for Self-Custody and Bitcoin Fundamentals
Importance of 12-Word Backup and Passphrase