Devastating California Fires Are A Wake-Up Call

The fires ravaging Los Angeles have left behind an apocalyptic landscape of destruction. So far, over 12,000 structures have been damaged or destroyed, more than 180,000 people have been displaced, and entire neighborhoods now resemble moonscapes of charred foundations and twisted metal.

As residents return to the places they once called home, they face the overwhelming task of rebuilding their lives, coping with the emotional trauma of loss while grappling with the practical challenge of recovering what property they have left.

Amid this devastation lies a less-discussed but equally important casualty: bitcoin self-custody. The cryptocurrency community has long championed the mantra “not your keys, not your coins,” but natural disasters like these expose a critical flaw in common storage practices.

Many bitcoiners store their seed phrases on paper, an option that provides zero protection against fire. Fireproof bags and safes are better than nothing, but also not so reliable that one should trust them to protect a large amount of wealth.

Even those who have opted for seemingly indestructible metal storage plates face a sobering truth: when your home is reduced to rubble, retrieving that metal plate becomes a hazardous or even impossible task.

Imagine standing in the smoldering remains of your home, inhaling toxic air, surrounded by debris, and unsure if the site is even safe to enter. Emergency management teams may block access, and looters may be circling. Even if your metal plate survived, could you safely recover it?

This unsettling scenario underscores a hard truth: the time to rethink your bitcoin custody strategy is not during a crisis but well before one arises. The California fires are a stark reminder that stability is always temporary on a long enough timeline. Natural disasters, political upheaval, or personal emergencies can strike without warning, turning even the most well-laid plans into desperate scrambles.

Options for Bitcoin Preparedness

The key to robust bitcoin preparedness is making decisions from a position of strength rather than during moments of chaos. If you’re reading this from a place of stability, use it as an opportunity to take proactive steps. Your current circumstances offer the clarity of mind needed to make rational choices.

If you are committed to true self-custody, understand that secure bitcoin storage goes beyond memorizing the phrase “not your keys, not your coins.” Robust custody practices require thoughtful planning, redundancy, and an understanding of the tools available.

When you set up a hardware wallet, you have the option to use a single-signature (“single-sig”), or multi-signature (“multi-sig”) setup. Single-sig is exactly what it sounds like – one key will provide access to all of the bitcoin in that wallet.

Multi-signature (multi-sig) setups allow you to distribute your keys across multiple locations, reducing single points of failure and mitigating the risks posed by natural disasters, theft, or technical failures.

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“Collaborative custody” utilizes a multi-sig setup to further manage risk of loss. In this approach, a company that specializes in bitcoin custody keeps one or more backup keys on your behalf so that you can get help recovering your bitcoin in an emergency.

Bitcoin Custody Tradeoffs

Learning how to properly secure your critical data, set up an encrypted vault, and run your own bitcoin node for direct network access are essential components of comprehensive bitcoin security. Every approach to self custody – single-sig, multi-sig, and collaborative custody – comes with trade-offs. Here’s how each custody model relates to key aspects of bitcoin security:

Single-Signature (Single-Sig)

A single-signature wallet requires only one private key to sign transactions, making it very private and reliable, as long as you do not lose your key. If you store that key in a single location, it becomes a single point of failure. A natural disaster, theft, or other catastrophic event could leave you unable to recover your funds. This is a reasonable solution for many people, just make sure you are comfortable with your disaster recovery protocol.

With a single-sig setup, there is no external safety net. If you lose your private key or experience an issue accessing your wallet, there’s no one to help you recover your funds. While this maximizes sovereignty, it also leaves you solely responsible for securing your bitcoin.

Inheritance planning with a single-sig setup can be challenging. If your heirs don’t know how to access the key because the instructions are lost, or simply unclear, they could be locked out of your bitcoin forever. On the other hand, if you document access too explicitly and store it insecurely, recovery instructions could leak and increase the risk of theft. Balancing security and accessibility requires careful planning.

Single-sig wallets offer maximum control over your funds. You can transact without asking anyone else and retain full, permissionless access to your money, which is one of the most extraordinary properties of bitcoin. However, this also means that if you lose your private key, you have no fallback option and your funds will be lost forever.

Multi-Signature (Multi-Sig)

Multi-signature wallets that you manage yourself allow you to distribute keys across multiple locations, mitigating the risk of total loss due to localized events. You might keep one key at home, another in a secure location in another city, and a backup key with a trusted relative.

Multi-sig wallets offer built-in redundancy, but without external support, you’re still responsible for maintaining all the necessary backups and documentation. In the event of a crisis, your recovery success depends entirely on your preparation.

For inheritance planning, a well-implemented multi-sig wallet allows you to distribute keys among trusted parties or secure locations, making it harder for a single failure to lock out your heirs. However, if something goes wrong, your heirs may still struggle to navigate the recovery process.

Self-managed multi-sig, where only you know where all your keys are, but they are stored securely and are easy to recover, provides a balance between control and redundancy. You retain the ability to transact independently if you hold enough keys but have backup options if some keys are lost. However, this flexibility comes at the cost of additional complexity. There are countless stories of security-minded people who made their bitcoin recovery process too complicated. When they went to recover their bitcoin, they were devastated to find out that they couldn’t.

Collaborative Custody

Collaborative custody providers offer a managed approach to geographic distribution. In a typical setup, a “2 of 3” multi-sig wallet is created, and you hold two keys in secure locations. You pay a service fee for a third party to maintain the third key. This allows you to have redundancy across different locations without personally managing all the keys.

Providers specializing in collaborative custody offer expert support during emergencies, such as key loss or estate planning, helping users navigate complex recovery processes. This can be a significant advantage during stressful situations, but it requires Know Your Customer (KYC) verification, which can compromise your privacy. If you have bitcoin that you acquired privately, without going through KYC, moving it to a collaborative custody wallet will cause you to lose your hard-won privacy.

Collaborative custody offers peace-of-mind by providing a built-in backup key in case of emergencies by introducing an element of shared control. However, involving a third party means you must trust them not to track your activity or become a bottleneck in emergencies. You must trust that they will remain available and cooperative, especially during crises. Additionally, some providers may impose restrictions, such as transaction delays or limits on withdrawal addresses, which can undermine one of bitcoin’s key advantages as a permissionless, bearer asset.

Drawbacks of Collaborative Custody

While collaborative custody offers a middle ground between full self-custody and third-party custodianship, it’s important to understand that this model has its own set of trade-offs. Experts at The Bitcoin Way argue that while collaborative custody can enhance resilience by distributing keys and providing recovery support, it also introduces new vulnerabilities.

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For instance, sharing control of even one key with a third party may compromise privacy, as these providers can often see your wallet balance and transactions. This creates a situation where every financial move you make is able to be monitored by authorities.

Another concern is the false sense of security that collaborative custody can create. If you lose one of your keys, the third party may assist with recovery, but this also means you’re dependent on their cooperation. In extreme cases, such as a regulatory crackdown or a widespread breakdown of civil institutions, this reliance could delay or even block your ability to access your funds.

Moreover, some collaborative custody providers restrict the tools you can use, such as requiring app store-based wallets or browser-specific interfaces, which can introduce additional risks tied to censorship, tracking, or technical limitations. An important question you should be asking yourself is, “If my collaborative custody provider becomes unavailable, do I know how to recover my bitcoin without using their tools and without their assistance?” If the answer is “no,” you need to be better prepared.

Ultimately, while multi-sig setups can be an excellent way to enhance security, remember that you can create and manage a multi-sig setup entirely on your own, no third party required. The decision to use collaborative custody should be made with a clear understanding of the trade-offs involved. Bitcoin is fundamentally about freedom and sovereignty, and any custody solution, whether collaborative or independent, should align with your comfort level and security goals.

Steps to Enhance Your Bitcoin Security

Audit Your Current Setup

Take stock of your current custody arrangement, including where your keys and backups are stored. If you need to write anything down, write it on a piece of paper that can be burned later.

Identify potential single points of failure, whether physical or procedural. Test your recovery procedures to ensure they work in practice, not just in theory.

Research Your Options

If you are not comfortable with setting up your own bitcoin wallets, evaluate providers offering consultation services.

Understand the trade-offs involved in single-sig, multi-sig, and collaborative custody solutions. If you are setting up a multi-sig wallet, consider strategies for geographic distribution, such as splitting keys across multiple trusted locations or jurisdictions.

Go Slow and Proceed With Care

When moving bitcoin to your new wallet, start with a small amount of bitcoin as a test to familiarize yourself with the process. Practice recovering your wallet by erasing it and then loading your seed phrase back in to restore it. This will prove that the technical aspects of your recovery process works.

Plan for the Unexpected

Create clear instructions for your heirs that outline how they can securely access your bitcoin. Establish emergency contacts who can provide support in a crisis. Regularly review and update your procedures to account for changes in your assets, technology, or personal circumstances.

Avoid the High Cost of Inaction

As bitcoin continues its march toward becoming a global monetary standard, custody solutions will evolve to meet the needs of everyday consumers. The Los Angeles fire disaster reminds us that no matter how digital our assets are, we remain physical beings bound by the constraints of the physical world. The most resilient custody solutions acknowledge this reality, combining the mathematical certainty of cryptography with practical considerations for human limitations.

Too often, people who own bitcoin know that they should pay more attention to their custody solution, but put it off indefinitely. Do not do this. There are likely bitcoiners in Los Angeles who are experiencing deep regrets about not being more careful with their bitcoin custody. Disasters are not distant possibilities – they are inevitabilities on a long enough timeline.

Our hearts go out to the people affected by the California fires. Their experience should serve as a wake-up call for the rest of us. The time to improve your bitcoin security is now, while you have the luxury of deliberate planning and careful implementation.

Take a moment to reflect on your own custody practices. Are you confident that your bitcoin would remain secure and accessible in the face of a sudden disaster? If the answer is anything less than an unequivocal yes, it’s time to act.