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CH11: edits for consistency with rest of the book

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- s/bitcoin/Bitcoin/ when appropriate
- Proof of work is only part of security
- Mining is separate from verificatino
- Kill BIP38 encrypted private keys section (mention seeds instead)
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David A. Harding 2023-06-06 13:43:52 -10:00
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@ -1,34 +1,35 @@
[[ch11]] [[ch11]]
== Bitcoin Security == Bitcoin Security
Securing bitcoin is challenging because bitcoin is not an abstract Securing your bitcoins is challenging because bitcoins are
reference to value, like a balance in a bank account. Bitcoin is very are not like a balance in a bank account. Your bitcoins are very
much like digital cash or gold. You've probably heard the expression, much like digital cash or gold. You've probably heard the expression,
"Possession is nine-tenths of the law." Well, in bitcoin, possession is "Possession is nine-tenths of the law." Well, in Bitcoin, possession is
ten-tenths of the law. Possession of the keys to unlock the bitcoin is ten-tenths of the law. Possession of the keys to spend certain bitcoins is
equivalent to possession of cash or a chunk of precious metal. You can equivalent to possession of cash or a chunk of precious metal. You can
lose it, misplace it, have it stolen, or accidentally give the wrong lose it, misplace it, have it stolen, or accidentally give the wrong
amount to someone. In every one of these cases, users have no recourse, amount to someone. In every one of these cases, users have no recourse,
just as if they dropped cash on a public sidewalk. just as if they dropped cash on a public sidewalk.
However, bitcoin has capabilities that cash, gold, and bank accounts do However, the Bitcoin system has capabilities that cash, gold, and bank accounts do
not. A bitcoin wallet, containing your keys, can be backed up like any not. A Bitcoin wallet, containing your keys, can be backed up like any
file. It can be stored in multiple copies, even printed on paper for file. It can be stored in multiple copies, even printed on paper for
hard-copy backup. You can't "back up" cash, gold, or bank accounts. hard-copy backup. You can't "back up" cash, gold, or bank accounts.
Bitcoin is different enough from anything that has come before that we Bitcoin is different enough from anything that has come before that we
need to think about bitcoin security in a novel way too. need to think about securing your bitcoins in a novel way too.
=== Security Principles === Security Principles
((("security", "security principles", id="Sprinc11")))((("decentralized ((("security", "security principles", id="Sprinc11")))((("decentralized
systems", "security of")))The core principle in bitcoin is systems", "security of")))The core principle in Bitcoin is
decentralization and it has important implications for security. A decentralization and it has important implications for security. A
centralized model, such as a traditional bank or payment network, centralized model, such as a traditional bank or payment network,
depends on access control and vetting to keep bad actors out of the depends on access control and vetting to keep bad actors out of the
system. By comparison, a decentralized system like bitcoin pushes the system. By comparison, a decentralized system like Bitcoin pushes the
responsibility and control to the users. Because security of the network responsibility and control to the users. Because the security of the network
is based on Proof-of-Work, not access control, the network can be open is based on independent verification, the network can be open
and no encryption is required for bitcoin traffic. and no encryption is required for Bitcoin traffic (although encryption
can still be useful).
On a traditional payment network, such as a credit card system, the On a traditional payment network, such as a credit card system, the
payment is open-ended because it contains the user's private identifier payment is open-ended because it contains the user's private identifier
@ -43,61 +44,50 @@ when customer data is compromised, the customers are exposed to identity
theft and must take action to prevent fraudulent use of the compromised theft and must take action to prevent fraudulent use of the compromised
accounts. accounts.
Bitcoin is dramatically different. A bitcoin transaction authorizes only Bitcoin is dramatically different. A Bitcoin transaction authorizes only
a specific value to a specific recipient and cannot be forged or a specific value to a specific recipient and cannot be forged.
modified. It does not reveal any private information, such as the It does not reveal any private information, such as the
identities of the parties, and cannot be used to authorize additional identities of the parties, and cannot be used to authorize additional
payments. Therefore, a bitcoin payment network does not need to be payments. Therefore, a Bitcoin payment network does not need to be
encrypted or protected from eavesdropping. In fact, you can broadcast encrypted or protected from eavesdropping. In fact, you can broadcast
bitcoin transactions over an open public channel, such as unsecured WiFi bitcoin transactions over an open public channel, such as unsecured WiFi
or Bluetooth, with no loss of security. or Bluetooth, with no loss of security.
Bitcoin's decentralized security model puts a lot of power in the hands Bitcoin's decentralized security model puts a lot of power in the hands
of the users. With that power comes responsibility for maintaining the of the users. With that power comes responsibility for maintaining the
secrecy of the keys. For most users that is not easy to do, especially secrecy of their keys. For most users that is not easy to do, especially
on general-purpose computing devices such as internet-connected on general-purpose computing devices such as internet-connected
smartphones or laptops. Although bitcoin's decentralized model prevents smartphones or laptops. Although Bitcoin's decentralized model prevents
the type of mass compromise seen with credit cards, many users are not the type of mass compromise seen with credit cards, many users are not
able to adequately secure their keys and get hacked, one by one. able to adequately secure their keys and get hacked, one by one.
==== Developing Bitcoin Systems Securely ==== Developing Bitcoin Systems Securely
((("decentralized systems", "bitcoin as")))The most important principle ((("decentralized systems", "bitcoin as")))The most important principle
for bitcoin developers is decentralization. Most developers will be for Bitcoin developers is decentralization. Most developers will be
familiar with centralized security models and might be tempted to apply familiar with centralized security models and might be tempted to apply
these models to their bitcoin applications, with disastrous results. these models to their Bitcoin applications, with disastrous results.
Bitcoin's security relies on decentralized control over keys and on Bitcoin's security relies on decentralized control over keys and on
independent transaction validation by miners. If you want to leverage independent transaction validation by users. If you want to leverage
bitcoin's security, you need to ensure that you remain within the Bitcoin's security, you need to ensure that you remain within the
bitcoin security model. In simple terms: don't take control of keys away Bitcoin security model. In simple terms: don't take control of keys away
from users and don't take transactions off the blockchain. from users and don't outsource validation.
For example, many early bitcoin exchanges concentrated all user funds in For example, many early Bitcoin exchanges concentrated all user funds in
a single "hot" wallet with keys stored on a single server. Such a design a single "hot" wallet with keys stored on a single server. Such a design
removes control from users and centralizes control over keys in a single removes control from users and centralizes control over keys in a single
system. Many such systems have been hacked, with disastrous consequences system. Many such systems have been hacked, with disastrous consequences
for their customers. for their customers.
((("transactions", "off blockchain")))((("off-blockchain
transactions")))Another common mistake is to take transactions "off
blockchain" in a misguided effort to reduce transaction fees or
accelerate transaction processing. An "off blockchain" system will
record transactions on an internal, centralized ledger and only
occasionally synchronize them to the Bitcoin blockchain. This practice,
again, substitutes decentralized bitcoin security with a proprietary and
centralized approach. When transactions are off blockchain, improperly
secured centralized ledgers can be falsified, diverting funds and
depleting reserves, unnoticed.
Unless you are prepared to invest heavily in operational security, Unless you are prepared to invest heavily in operational security,
multiple layers of access control, and audits (as the traditional banks multiple layers of access control, and audits (as the traditional banks
do) you should think very carefully before taking funds outside of do) you should think very carefully before taking funds outside of
bitcoin's decentralized security context. Even if you have the funds and Bitcoin's decentralized security context. Even if you have the funds and
discipline to implement a robust security model, such a design merely discipline to implement a robust security model, such a design merely
replicates the fragile model of traditional financial networks, plagued replicates the fragile model of traditional financial networks, plagued
by identity theft, corruption, and embezzlement. To take advantage of by identity theft, corruption, and embezzlement. To take advantage of
bitcoin's unique decentralized security model, you have to avoid the Bitcoin's unique decentralized security model, you have to avoid the
temptation of centralized architectures that might feel familiar but temptation of centralized architectures that might feel familiar but
ultimately subvert bitcoin's security. ultimately subvert bitcoin's security.
@ -123,12 +113,12 @@ operating system to higher-level system services, and finally across
many servers layered in concentric circles of diminishing trust. many servers layered in concentric circles of diminishing trust.
((("mining and consensus", "security and consensus")))Bitcoin security ((("mining and consensus", "security and consensus")))Bitcoin security
architecture is different. In bitcoin, the consensus system creates a architecture is different. In Bitcoin, the consensus system creates a
trusted public ledger that is completely decentralized. A correctly trusted public ledger that is completely decentralized. A correctly
validated blockchain uses the genesis block as the root of trust, validated blockchain uses the genesis block as the root of trust,
building a chain of trust up to the current block. Bitcoin systems can building a chain of trust up to the current block. Bitcoin systems can
and should use the blockchain as their root of trust. When designing a and should use the blockchain as their root of trust. When designing a
complex bitcoin application that consists of services on many different complex Bitcoin application that consists of services on many different
systems, you should carefully examine the security architecture in order systems, you should carefully examine the security architecture in order
to ascertain where trust is being placed. Ultimately, the only thing to ascertain where trust is being placed. Ultimately, the only thing
that should be explicitly trusted is a fully validated blockchain. If that should be explicitly trusted is a fully validated blockchain. If
@ -141,12 +131,12 @@ under the control of a malicious actor. Take each component of your
application, in turn, and assess the impacts on the overall security if application, in turn, and assess the impacts on the overall security if
that component is compromised. If your application is no longer secure that component is compromised. If your application is no longer secure
when components are compromised, that shows you have misplaced trust in when components are compromised, that shows you have misplaced trust in
those components. A bitcoin application without vulnerabilities should those components. A Bitcoin application without vulnerabilities should
be vulnerable only to a compromise of the bitcoin consensus mechanism, be vulnerable only to a compromise of the Bitcoin consensus mechanism,
meaning that its root of trust is based on the strongest part of the meaning that its root of trust is based on the strongest part of the
bitcoin security architecture. Bitcoin security architecture.
The numerous examples of hacked bitcoin exchanges serve to underscore The numerous examples of hacked Bitcoin exchanges serve to underscore
this point because their security architecture and design fails even this point because their security architecture and design fails even
under the most casual scrutiny. These centralized implementations had under the most casual scrutiny. These centralized implementations had
invested trust explicitly in numerous components outside the Bitcoin invested trust explicitly in numerous components outside the Bitcoin
@ -166,7 +156,7 @@ constantly exposed to external threats via always-on internet
connections. They run thousands of software components from hundreds of connections. They run thousands of software components from hundreds of
authors, often with unconstrained access to the user's files. A single authors, often with unconstrained access to the user's files. A single
piece of rogue software, among the many thousands installed on your piece of rogue software, among the many thousands installed on your
computer, can compromise your keyboard and files, stealing any bitcoin computer, can compromise your keyboard and files, stealing any bitcoins
stored in wallet applications. The level of computer maintenance stored in wallet applications. The level of computer maintenance
required to keep a computer virus-free and trojan-free is beyond the required to keep a computer virus-free and trojan-free is beyond the
skill level of all but a tiny minority of computer users. skill level of all but a tiny minority of computer users.
@ -185,17 +175,17 @@ we have seen ever-escalating thefts. Bitcoin escalates this problem
because it doesn't need to be fenced or laundered; it is intrinsic value because it doesn't need to be fenced or laundered; it is intrinsic value
within a digital asset. within a digital asset.
Fortunately, bitcoin also creates the incentives to improve computer Bitcoin also creates the incentives to improve computer
security. Whereas previously the risk of computer compromise was vague security. Whereas previously the risk of computer compromise was vague
and indirect, bitcoin makes these risks clear and obvious. Holding and indirect, Bitcoin makes these risks clear and obvious. Holding
bitcoin on a computer serves to focus the user's mind on the need for bitcoins on a computer serves to focus the user's mind on the need for
improved computer security. As a direct result of the proliferation and improved computer security. As a direct result of the proliferation and
increased adoption of bitcoin and other digital currencies, we have seen increased adoption of Bitcoin and other digital currencies, we have seen
an escalation in both hacking techniques and security solutions. In an escalation in both hacking techniques and security solutions. In
simple terms, hackers now have a very juicy target and users have a simple terms, hackers now have a very juicy target and users have a
clear incentive to defend themselves. clear incentive to defend themselves.
Over the past three years, as a direct result of bitcoin adoption, we Over the past three years, as a direct result of Bitcoin adoption, we
have seen tremendous innovation in the realm of information security in have seen tremendous innovation in the realm of information security in
the form of hardware encryption, key storage and hardware wallets, the form of hardware encryption, key storage and hardware wallets,
multisignature technology, and digital escrow. In the following sections multisignature technology, and digital escrow. In the following sections
@ -208,54 +198,51 @@ wallets")))((("wallets", "types of", "paper wallets")))((("paper
wallets", see="also wallets")))Because most users are far more wallets", see="also wallets")))Because most users are far more
comfortable with physical security than information security, a very comfortable with physical security than information security, a very
effective method for protecting bitcoin is to convert them into physical effective method for protecting bitcoin is to convert them into physical
form. Bitcoin keys are nothing more than long numbers. This means that form. Bitcoin keys, and the seeds used to create them, are nothing more than long numbers. This means that
they can be stored in a physical form, such as printed on paper or they can be stored in a physical form, such as printed on paper or
etched on a metal coin. Securing the keys then becomes as simple as etched on a metal coin. Securing the keys then becomes as simple as
physically securing the printed copy of the bitcoin keys. A set of physically securing a printed copy of the key seed. A seed
bitcoin keys that is printed on paper is called a "paper wallet," and that is printed on paper is called a "paper backup," and
there are many free tools that can be used to create them. I personally many wallets can create them.
keep the vast majority of my bitcoin (99% or more) stored on paper Keeping bitcoins
wallets, encrypted with BIP-38, with multiple copies locked in safes.
((("cold storage")))((("storage", "cold storage")))Keeping bitcoin
offline is called _cold storage_ and it is one of the most effective offline is called _cold storage_ and it is one of the most effective
security techniques. A cold storage system is one where the keys are security techniques. A cold storage system is one where the keys are
generated on an offline system (one never connected to the internet) and generated on an offline system (one never connected to the internet) and
stored offline either on paper or on digital media, such as a USB memory stored offline either on paper or on digital media, such as a USB memory
stick. stick.
==== Hardware Wallets ==== Hardware Signing Devices
((("wallets", "types of", "hardware wallets")))((("hardware ((("hardware
wallets")))In the long term, bitcoin security increasingly will take the signing devices")))In the long term, Bitcoin security may increasingly take the
form of hardware tamper-proof wallets. Unlike a smartphone or desktop form of tamper-proof hardware signing devices. Unlike a smartphone or desktop
computer, a bitcoin hardware wallet has just one purpose: to hold computer, a Bitcoin hardware signing device has just one purpose: to hold
bitcoin securely. Without general-purpose software to compromise and keys securely. Without general-purpose software to compromise and
with limited interfaces, hardware wallets can deliver an almost with limited interfaces, hardware signing devices can deliver an almost
foolproof level of security to nonexpert users. I expect to see hardware foolproof level of security to nonexpert users. Hardware
wallets become the predominant method of bitcoin storage. For an example signing devices may become the predominant method of bitcoin storage.
of such a hardware wallet, see the https://trezor.io/[Trezor].
==== Balancing Risk ==== Balancing Risk
((("risk, balancing and diversifying", seealso="security")))Although ((("risk, balancing and diversifying", seealso="security")))Although
most users are rightly concerned about bitcoin theft, there is an even most users are rightly concerned about theft of thir bitcoins, there is an even
bigger risk. Data files get lost all the time. If they contain bitcoin, bigger risk. Data files get lost all the time. If they contain Bitcoin keys,
the loss is much more painful. In the effort to secure their bitcoin the loss is much more painful. In the effort to secure their Bitcoin
wallets, users must be very careful not to go too far and end up losing wallets, users must be very careful not to go too far and end up losing
the bitcoin. In July 2011, a well-known bitcoin awareness and education their bitcoins. In July 2011, a well-known Bitcoin awareness and education
project lost almost 7,000 bitcoin. In their effort to prevent theft, the project lost almost 7,000 bitcoin. In their effort to prevent theft, the
owners had implemented a complex series of encrypted backups. In the end owners had implemented a complex series of encrypted backups. In the end
they accidentally lost the encryption keys, making the backups worthless they accidentally lost the encryption keys, making the backups worthless
and losing a fortune. Like hiding money by burying it in the desert, if and losing a fortune. Like hiding money by burying it in the desert, if
you secure your bitcoin too well you might not be able to find it again. you secure your bitcoins too well you might not be able to find it again.
==== Diversifying Risk ==== Diversifying Risk
Would you carry your entire net worth in cash in your wallet? Most Would you carry your entire net worth in cash in your wallet? Most
people would consider that reckless, yet bitcoin users often keep all people would consider that reckless, yet Bitcoin users often keep all
their bitcoin in a single wallet. Instead, users should spread the risk their bitcoin using a single wallet application. Instead, users should spread the risk
among multiple and diverse bitcoin wallets. Prudent users will keep only among multiple and diverse Bitcoin applications. Prudent users will keep only
a small fraction, perhaps less than 5%, of their bitcoin in an online or a small fraction, perhaps less than 5%, of their bitcoins in an online or
mobile wallet as "pocket change." The rest should be split between a few mobile wallet as "pocket change." The rest should be split between a few
different storage mechanisms, such as a desktop wallet and offline (cold different storage mechanisms, such as a desktop wallet and offline (cold
storage). storage).
@ -284,10 +271,10 @@ Bitcoin users are told to use complex passwords and keep their keys
secure and private, not sharing them with anyone. Unfortunately, that secure and private, not sharing them with anyone. Unfortunately, that
practice makes it almost impossible for the user's family to recover any practice makes it almost impossible for the user's family to recover any
funds if the user is not available to unlock them. In most cases, in funds if the user is not available to unlock them. In most cases, in
fact, the families of bitcoin users might be completely unaware of the fact, the families of Bitcoin users might be completely unaware of the
existence of the bitcoin funds. existence of the bitcoin funds.
If you have a lot of bitcoin, you should consider sharing access details If you have a lot of bitcoins, you should consider sharing access details
with a trusted relative or lawyer. A more complex survivability scheme with a trusted relative or lawyer. A more complex survivability scheme
can be set up with multi-signature access and estate planning through a can be set up with multi-signature access and estate planning through a
lawyer specialized as a "digital asset executor."((("", lawyer specialized as a "digital asset executor."((("",
@ -297,5 +284,5 @@ startref="Suser11")))((("", startref="UCsecurity11")))
Bitcoin is a completely new, unprecedented, and complex technology. Over Bitcoin is a completely new, unprecedented, and complex technology. Over
time we will develop better security tools and practices that are easier time we will develop better security tools and practices that are easier
to use by nonexperts. For now, bitcoin users can use many of the tips to use by nonexperts. For now, Bitcoin users can use many of the tips
discussed here to enjoy a secure and trouble-free bitcoin experience. discussed here to enjoy a secure and trouble-free Bitcoin experience.