How Should a Business store Bitcoin?

How is Bitcoin stored?

Bitcoin storage involves safeguarding private keys, the cryptographic data that grants access to your bitcoin. Holding private keys means having control over your assets, but it also requires a high level of security and careful management. Whether your business is holding bitcoin for long-term investment, transactions, or as a reserve asset, there are unique storage options available.

How can Businesses store Bitcoin?

Businesses have four main methods to consider for bitcoin storage:

1. Institutional Custody Many businesses opt for institutional custody, where a trusted third-party manages bitcoin storage. Custodians typically offer robust security features, regular audits, and legal protections. However, using an institutional custodian does introduce some counterparty risk.

Pros:

- **Minimal effort** required from your team to manage funds.
- **Established security standards**: Reliable security measures put in place by the institution, reducing risk for the business.

Cons:

- **Counterparty risk**: Relies on a third party to secure and manage funds, meaning you are dependent on their stability and practices.

1. Self-Custody and Multisig Self-custody means the business directly manages its private keys, offering full control and reducing third-party dependencies. However, this option requires technical know-how and careful key management practices, such as using multi-signature setups to secure large holdings. A multisig setup can be customized to suit the business’s needs. For instance, in a 5-out-of-7 setup, five key business members would be required to approve any transaction.

Pros:

- **No counterparty risk**: Full control over your bitcoin
- **High security (if done properly)**: Self-custody can be very secure if best practices are followed.

Cons:

- **Requires significant time, effort, and technical knowledge** to manage safely.
- **Risk of loss from internal error**: Human errors, like losing keys or improper handling, can lead to permanent loss of funds.

1. Collaborative Custody This is a hybrid approach where the business manages a majority of its keys while entrusting some keys to a third party. Collaborative custody combines control with additional security but requires expertise and coordination.

Pros:

- **Flexible**: Allows customization of custody based on the business’s needs.
- **Minimal counterparty risk**: Spreads responsibility across multiple parties.
- **Very secure**: Multisig setups reduce the risk of any single point of failure.

Cons:

- **High overhead**: Requires more complex setup and coordination among parties, which may demand additional resources and time.

1. Bitcoin ETFs Bitcoin ETFs provide exposure to bitcoin’s price without directly holding bitcoin. While this can reduce the complexity of managing keys, ETFs come with management fees, lack real bitcoin ownership, and carry counterparty risk.

Pros:

- Easy to manage, as the ETF provider handles custody and management.
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Cons:

- **Counterparty risk**: You don’t hold your own Bitcoin
- **No direct access to bitcoin**: Cannot convert to actual bitcoin holdings.

How to Self-Custody Bitcoin

Businesses considering self-custody need to be prepared to manage all security aspects. Here are key steps:

• Avoid Hot Wallets for large Amounts A hot wallet, always connected to the internet, is convenient but vulnerable to online threats. Businesses (and anyone else as well) should store only small amounts in hot wallets for daily transactions, using cold storage (Hardware Wallets) for larger reserves.

• Establish Governance Protocols Clearly define who has access to the private keys, set up multi-signature authorization, and document all procedures. Distributing keys across secure locations can also help prevent unauthorized access.

• Develop a Backup Plan A robust backup strategy is essential. Store your seed phrase in a separate, safe location. If using a multi-signature wallet, ensure access recovery options are clear and securely documented.

How does it work at Bittr?

At Bittr, we believe in the principle of “not your keys, not your coins.” For this reason, we don’t offer custody solutions. Our approach aligns with the core philosophy of Bitcoin itself: personal ownership. By not providing custody, we avoid the potential counterparty risks associated with third-party control over funds. We encourage our users to learn about secure storage options, such as self-custody or collaborative custody solutions. We’re here to support you to full bitcoin ownership, not to hold your bitcoin for you.

Final Thoughts

• Bitcoin offers flexibility in custody solutions, from self-custody to institutional custody and hybrid approaches.
• Self-custody provides maximum control, but businesses need technical knowledge and rigorous security protocols.
• When choosing a custodian, verify their security practices, compliance, and audit history.