Protect yourself against $5 wrench attacks!!!
This is my first post, I'll do an introduction soon, but I wanted to get this off my mind.
Hardware wallets have been growing in popularity, in part because they are awesome new tech for a pretty affordable price, but they're also becoming more desired by investors, holders, and everyday users once they see their cryptocurrency worth cross a certaitain threshold (for a lot of people I've talked to this is around $1000).
The most trusted hardware wallet on the market is Slush's Trezor, it's an open source project, simple to use and fairly robust. Just for the sake of not sounding like a shill for Trezor I'll mention that Keepkey and Ledger wallets are also well trusted and might provide better altcoin support.
Unfortunately using one of these wallets does not mean that your coins are safe, you own the private keys, the coins are yours, but you're still very vulnerable to $5 wrenches.
So what is a $5 wrench attack?
Hypothetically, someone finds out you have a lot of crypto and threatens you with a cheap wrench they tell you that if you don't hand over your btc, passwords, mnumonics, etc. you're going to be hurt or killed.
In this situation, you're royally screwed! It's damage control time. If you can convince them that you have far less btc than you really have and that you won't turn him/her in you're going to be able to walk away without too many bumps and bruses and with some btc left to boot.
Two things are essential to bamboozle this attacker:
- They must not know how many coins you hold. You should never tell anyone that you have more btc than you are willing to lose. Lying/bragging about how many coins you have (saying you have more than you do) could get you in a lot of trouble in these spots.
- You need to keep your coins in separate places. Paper wallets made a lot of sense before hardware wallets came into the picture, but now they are the gold standard assuming you're planning on moving these coins around now and then.
How do you put your coins in separate places on a hardware wallet?
The Trezor team explains here: https://doc.satoshilabs.com/trezor-user/advanced_settings.html
In summary you can have different passphrases open different accounts. A slightly more expensive alternative could be to own multiple hardware wallets.
This feature of hardware wallets is rarely emphasized, however, protecting yourself in this way is the equivalent of walking around with two wallets when you walk down a street filled with thieves. Not a bad idea.