Why Threat Modeling Matters for Bitcoin Holders

Bitcoin is bearer digital money. Whoever controls the private keys controls the coins. That single fact makes security a personal responsibility for anyone using self-custody. Threat modeling is a structured way to identify assets, list potential attackers and attack vectors, and then prioritize protections. It helps you avoid cookie-cutter advice that may be overkill or insufficient for your situation.

Who should read this

• New Bitcoin holders moving coins off exchanges in Canada or abroad.
• Experienced hodlers who want to harden custody or build a family vault.
• Small Canadian businesses accepting Bitcoin payments.

Step 1 - Define Your Assets and Threat Surface

Start by listing what you value and where it is stored. A clear inventory makes the rest of the process practical.

• On-chain Bitcoin balance: total BTC and key UTXO details if you use them.
• Private keys and seed phrases: hardware wallet seeds, passphrases, and any derived keys like BIP-85 child seeds.
• Recovery artifacts: paper backups, steel backups, seed shards, multisig cosigner devices.
• Accounts and endpoints: exchange accounts (Bitbuy, Coinsquare, or international exchanges), email, phone number, and custodial services.
• Devices: computers, phones, air-gapped signing machines, hardware wallets.

Step 2 - Enumerate Threats Specific to Canada and Globally

Think like an attacker. Below are common threat actors and attack vectors relevant to Canadians and global users alike.

Threat actors

• Individual criminals: theft, burglary, coercion.
• Organized cybercrime: malware, phishing, supply chain attacks.
• Insider threats: family disputes, compromised service providers.
• Telecom attackers: SIM swap, number porting for account takeovers.
• Regulatory or law enforcement action: freezes or compelled disclosure where applicable.

Attack vectors to watch

• Exchange hacks and custodial failures.
• Compromised firmware or fake hardware wallets from untrusted sellers.
• SIM swap attacks that target two-factor authentication via SMS or phone-based resets.
• Interac e-transfer scams and social engineering during peer-to-peer trades.
• Physical disasters: fire, flood, or hardware failure without proper geographic backups.

Step 3 - Evaluate Likelihood and Impact

Assign each threat a likelihood and an impact score so you can prioritize mitigations. For example:

• SIM swap: likelihood medium, impact high for users relying on SMS 2FA.
• Exchange hack: likelihood low to medium depending on exchange, impact very high if funds are custodial.
• Home theft: likelihood low, impact varies with on-site storage of seeds and devices.

Prioritize low-effort, high-impact controls first. For example, disabling SMS 2FA and enabling hardware keys reduces SIM swap risk for little cost.

Practical Mitigations and Configurations

Below are concrete controls you can implement now. I group them into simple, intermediate, and advanced playbooks so you can match protections to your holdings and threat tolerance.

Simple Playbook - For small balances and beginners

• Buy a reputable hardware wallet and initialize it yourself on an air-gapped machine or secure environment.
• Write your BIP39 seed on paper and create a steel backup as soon as possible.
• Use a unique, non-SMS 2FA method for email and exchange logins. Prefer an authentication app or hardware security key.
• Avoid e-transfer trades with strangers. If you must, use escrow services or meet in person at a public, secure location and keep transfers reversible only after receipt confirmation.

Intermediate Playbook - For medium balances

• Adopt a multisig setup, for example 2-of-3, with one key on a hardware wallet, one on a second hardware wallet, and one as a geographically separated backup.
• Use a passphrase in addition to your seed to create hidden wallets for plausible deniability. Test recovery thoroughly and store passphrase fragments securely with trusted parties.
• Harden telecom accounts: contact your Canadian carrier to set porting and SIM swap freezes, and remove SMS as a recovery channel where possible.
• Keep small hot wallet balances for spending and move long-term holdings to cold storage.

Advanced Playbook - For high balances and institutions

• Professional multisig with geographically and jurisdictionally separated cosigners and robust governance policies.
• Air-gapped signing workflows using PSBTs and dedicated signing hardware or offline machines.
• Shamir backup splits or BIP-85 child seeds distributed to trusted custodians, with legal agreements and clear recovery procedures.
• Regular security audits, firmware verification of hardware wallets, and documented incident response plans.

Canadian-Specific Considerations

A few security considerations are particularly relevant in Canada.

• Interac e-transfer safety: Be cautious when using Interac to buy Bitcoin. Scammers can social-engineer or fake confirmations. If you use e-transfer for peer trades, use tracked receipts, verify counterparty identity, and avoid releasing Bitcoin until verified funds are irrevocably deposited. Prefer exchanges or regulated OTC desks for larger trades.
• KYC and FINTRAC: Canadian exchanges are subject to reporting and compliance. While this does not directly affect your private key security, be mindful that custodial accounts can be frozen or flagged. Plan withdrawals and custody transitions with compliance timelines in mind.
• Telecom security: Major Canadian carriers provide options to lock lines against porting. Request account-level security measures and remove SMS-based recovery from critical accounts where possible.

Operational Security (OpSec) Best Practices

Good OpSec reduces your exposure to targeted attacks.

• Use a dedicated clean computer for seed generation and avoid taking pictures of seeds or backups.
• Buy hardware wallets from official vendors or authorized resellers and verify firmware checksums before first use.
• Rotate hot wallet keys periodically and practice signing transactions on testnet before performing high-value operations.
• Limit the number of people who know the full recovery plan. Use written governance for family vaults and test recovery with your trusted contacts.

Recovery Tools and Testing

Recovery is only useful if it has been tested. Tools and practices include:

• Use recovery tools like btcrecover only when you understand the source of your loss. Keep plaintext seeds offline and never paste seeds into unknown websites or online forms.
• Perform dry-run recoveries on a separate device to validate that your backups and passphrases work.
• Document recovery steps and keep them with your trusted executor or legal counsel for inheritance planning.

Security is not a product. It is a process that you must design, test, and revisit as your holdings and threat environment change.

Sample Risk Checklist - Quick Walkthrough

• Have you moved long-term holdings off exchanges into hardware wallets? If yes, which one.
• Is SMS used for any recovery or 2FA? If yes, switch to a hardware security key or authenticator app where possible.
• Do you have at least one geographically separated steel backup of your seed?
• Is there a written, tested recovery plan shared with at least one trusted person under controlled conditions?
• Have you verified firmware authenticity for your hardware wallet?

Putting It Together - A Simple Governance Template

Create a one-page governance document that includes:

• Inventory of wallets and balances with last reconciliation date.
• Custody model: single-sig, multisig with cosigner names and locations.
• Recovery steps, including contact information for trusted recovery agents and legal counsel.
• Incident response steps: who to notify, how to freeze assets, and how to communicate publicly.

Conclusion

Threat modeling turns abstract fear into a prioritized list of actions. For Canadian Bitcoin holders the most impactful controls often start with removing SMS from critical recovery paths, using reputable hardware wallets, adopting multisig for meaningful balances, and creating tested recovery plans. Security is proportional to the value at risk and the sophistication of attackers. Follow the playbooks above to align your security posture with your needs, and revisit your model regularly as technology and personal circumstances change.