Why You Should Red Team Your Bitcoin

Many security plans look great on paper but fail when stressed. Red teaming reveals gaps before an adversary does. For Canadian holders the stakes include bank interactions, provincial emergency laws, and real-world coercion risks. A regular, safe testing routine helps ensure you can sign transactions, restore from backups, and hand over access to an executor when required.

Core Principles and Safety Rules

• Never test with your full balance. Use testnet coins or a tiny, pre-designated amount on mainnet you can afford to lose.
• Define scope and goals. Every drill needs a clear objective, timeline, and rollback plan.
• Use watch-only and sign-only workflows. Reduce risk by observing before spending.
• Document and learn. Capture lessons immediately and update procedures and backups.
• Respect legal and privacy boundaries. If your drill involves other people, get consent and keep it legal.

Preparing for a Drill - Checklist

• Choose test environment: Bitcoin Testnet or a small mainnet amount (eg. under the dust+fee you are comfortable risking).
• Create pre-drill backups: hardware wallet seed, encrypted passphrase files, and a watch-only descriptor saved separately.
• Record device firmware versions, wallet software versions, and derivation paths to a secure offline note.
• Define roles: owner, observer, and an external verifier if available.
• Prepare recovery tools: a second hardware wallet, a laptop for restoration, and paper/steel backups for verification.

Drill Types and Step-by-Step Playbooks

1. Backup-and-Restore Test

Goal: Confirm you can restore a wallet from seed and access funds or create a watch-only view.

1. Pick a small funding amount or use testnet.
2. On a clean device, create a new wallet and fund it with the chosen amount.
3. Record the seed phrase and create the intended backup method (paper, steel, or Shamir split).
4. Factory-reset the hardware wallet or use a separate clean device and attempt a full restore from backup.
5. Verify balances and ability to create unsigned transactions or a watch-only account.
6. Document time-to-restore and any issues encountered.

2. Multisig Quorum and Key Loss Simulation

Goal: Validate multisig spends when a key is missing and prove you can replace a lost signer.

1. Set up a small multisig wallet (eg. 2-of-3) using two hardware wallets and one software signer or a cosigner service you trust.
2. Fund the multisig with the test amount.
3. Simulate loss: power off or remove one signer and attempt to create and execute a spend using the remaining keys.
4. Practice key rotation: add a new signer using the documented backup procedure and test spending again.
5. Record steps and update the recovery runbook for next time.

3. Social Engineering and Coercion Table-Top

Goal: Test your decision-making and responses to real-world pressure scenarios without exposing secrets.

• Run a table-top exercise with a trusted friend or legal counsel playing an adversary.
• Work through scenarios: phone call requesting your seed, a fake email from a bank, or an in-person demand.
• Practice non-technical responses: who to call, where to go, and whether to activate a pre-agreed silent alarm or legal step.
• Document limits: what you will never reveal, and who is authorized to act on your behalf.

4. Device Compromise Simulation

Goal: Confirm you can detect and respond to a compromised hot device or compromised wallet software.

1. Use a secondary laptop to mimic the compromised device. Attempt to broadcast a malformed or high-fee transaction from a watch-only wallet.
2. Verify your detection mechanisms: alerts from block explorers, notifications from watch-only wallets, or unexpected UTXO changes.
3. Practice containment: revoke API keys, change passwords, and move funds to a secure cold address if possible.

5. Executor and Inheritance Drill

Goal: Ensure an executor or trusted contact can access funds using the documented legal and technical steps.

1. Work with your planned executor to walk through the documented process to access a watch-only wallet, identify necessary documents, and perform a mock recovery on a test wallet.
2. Include legal steps: locating wills, contacting your lawyer, and verifying identity requirements specific to your jurisdiction.
3. Update your estate documents and technical notes after the exercise.

Safe Tools and Workflows for Testing

Use established, well-reviewed tools and keep risky operations offline when possible. Best practices include:

• Watch-only wallets to view balances without exposing keys.
• Partially Signed Bitcoin Transactions (PSBT) for air-gapped signing workflows.
• Hardware wallets with verified firmware and open-source companion software.
• Testnet for rehearsals that avoid mainnet risk.
• Steel backups and geographically separated copies for disaster resilience.

Canadian Considerations

When you run drills in Canada consider banking and regulatory implications. Keep these points in mind:

• Interac e-transfer and bank freeze risks - if you use Canadian fiat rails to fund tests, keep clear records and limit interactions with unknown buyers. Avoid using Interac as part of a red-team unless you understand banking policies and have a safe small test amount.
• Record-keeping for taxes - the Canada Revenue Agency expects transaction records even for small transfers. Keep logs of your drills for possible future audits.
• FINTRAC and commercial custody - if you are testing corporate treasury procedures, align your drills with Anti-Money Laundering and Know-Your-Customer obligations under FINTRAC where applicable.
• Using Canadian exchanges for fiat on-ramps - confine testing to small amounts on trusted platforms like major regulated Canadian exchanges when needed for a fiat leg.

Sample 90-Day Red Team Schedule

• Weekly quick check - Verify device health, firmware versions, and that watch-only balances match expectations.
• Monthly functional test - Restore a watch-only view or sign a PSBT using a single test UTXO.
• Quarterly full drill - Backup-and-restore, multisig rotation, and an executor table-top exercise using testnet or a tiny mainnet amount.
• Annual external audit - Consider having a trusted third party review your runbook and perform a dry-run with legal counsel present if possible.

Post-Drill Incident Playbook (Quick Reference)

1. Assess damage - confirm loss, compromise, or procedural gaps.
2. Contain - power down compromised devices, revoke keys, and stop any automatic services.
3. Recover - restore from verified backups on clean devices and move remaining funds to new addresses under tighter controls.
4. Notify - contact your legal advisor, executor, and any necessary institutional counterparties if corporate custody is involved.
5. Remediate - update runbooks, rotate seeds or keys, and schedule follow-up drills to validate fixes.

Measuring Success and Updating Your Runbook

After each exercise score yourself against measurable criteria: time-to-restore, number of errors, and clarity of instructions for an executor. Use the results to update your documented procedures, backup storage locations, and legal paperwork. Small iterative improvements compound into a robust defense over time.