You might recall how daunting that experience can feel as a first timer. Not only are you risking hard earned money on a notoriously volatile asset you barely understand, but you’re also using websites or apps that are unfamiliar, may look sketchy and draw unwelcome attention from your bank’s fraud department - which you’ve probably never had to deal with before.

As you start to really understand bitcoin better, you quickly realise you don’t have enough exposure to bitcoin and it becomes urgent to buy more - perhaps a LOT more - and you’ll want to do it fast before the price rips upward again.

Why is buying a lot different to buying a little?

As the amount you want to convert over increases, you’ll quickly encounter friction when attempting to move larger amounts (eg $10,000 or more at a time) from your traditional fiat bank accounts to a bitcoin exchange and then into cold storage.

Hurdles such as daily or monthly transfer limits, bank policies that automatically block your account whenever you attempt to transfer money to a “crypto” exchange and exchanges who also demand extensive KYC information in order to comply with arguably “guilty until proven innocent” Anti Money Laundering (AML) rules.

Most bitcoin exchanges only allow relatively small daily limits when you first open your account - lifting those limits can take a while…

Moving your bitcoin off the exchange and onto a cold wallet address can also come with additional hurdles - such as needing to record a scripted video while holding your driver’s license up to a camera and waiting for a few days while it gets approved.

Did I mention bitcoin is a volatile asset? While your next large purchase is being delayed by banks, your exchange, on hold music from call centres that “care for your safety”… the bitcoin price will inevitably do what it always does at the most inconvenient of times - run away from you - inducing further panic and FOMO (Fear of Missing Out).

Let’s imagine you’ve come into a windfall of some kind - an investment property sells, a wealthy aunt bequeathes you an inheritance, your lotto numbers came up or your super fund rollover has finally arrived.

You now have $1,000,000 in your account and you want to buy and self custody bitcoin before inflation eats your nest egg’s purchasing power away.

Australia’s largest bank, CommBank, for example, would block you from buying more than $10,000 worth per month, so if you bank with them, it would take you 100 months (over 8 years) to move that $1 Million over to Bitcoin. Meanwhile…

It would be great if there was a way of buying large amounts of bitcoin without such punitive and arguably arbitrary transaction limits or daily and monthly restrictions.

Outside of moving money into Bitcoin, Banks seem quite happy to allow you to do large daily transactions for investments they do approve of and encourage, like shares in public companies or ETFs (Exchange Traded Funds).

Bitcoin ETFs - Buying a large amount quickly

The recent advent of Bitcoin ETFs has now made it possible to get bitcoin price exposure using your existing share trading platform - go ahead, check - if you’ve ever bought or sold shares before, you probably already have an app on your phone that can do it:

Bitcoin ETF products provide exposure to Bitcoin in a regulated security that Banks are more comfortable and familiar with. There is generally no limit to the value of shares or ETFs you’re allowed to purchase on any given day.

ETF units are also a convenient wrapper around the complexities of holding and managing your own bitcoin private keys - something that people new to bitcoin or not as technology savvy can otherwise find difficult to tackle at first.

In exchange for an annual fee (from 0.15% - 0.25%), ETF units are like shares that track the underlying price of bitcoin.

ETF units can be bought and sold near instantly when the market is open, just like a share and, for new bitcoiners, you don’t need any knowledge of how bitcoin works.

Monochrome v other ETFs

Recently, an ETF product has come to the market in Australia - the Monochrome BTC ETF - that offers an off ramp back and forth from cold storage self custody bitcoin without incurring a CGT (Capital Gains Tax) event.

This is known as “in-kind” creation or redemption.

Unlike many other Bitcoin ETFs, the Monochrome ETF has been structured as a “Bare Trust” - meaning that the ETF units you purchase on the exchange represent direct beneficial legal ownership of the underlying asset in your brokerage account’s name.

This means that when you buy the ETF units from your brokerage account and later ask for them to be redeemed and transferred into your cold storage wallet, there is no change of beneficial ownership and therefore no CGT event occurs.

With other cash settled Bitcoin ETF products, each time you want to move Bitcoin from the ETF units to Bitcoin held in Cold Storage, you have to sell the ETF for its cash equivalent value in your local currency, then re-purchase the bitcoin on an exchange using those funds and then transfer the bitcoin back to cold storage - loosing to both transaction fees and having to pay any applicable capital gains taxes at the time.

Even if you don’t think holding your own bitcoin in a cold self storage wallet is important to you now compared to quickly getting the upside of bitcoin price growth, as you learn more about bitcoin, you’ll be very happy you have this option.

ETF v Exchange

What trade offs do you have when buying bitcoin in bulk on an exchange versus the Monochrome ETF?

As you’ll see, the advantages of using the ETF for buying large amounts are:

• Fast and Easy to Buy (even a very large amount can be done same day)

• Lock in today’s Bitcoin Exchange Rate (useful when price is running up fast)

On the downside:

• Withdrawal process to self custody takes a while

• Has some costs (currently $500 per in kind redemption request)

• Redemption involves a lot of steps, especially the first time

When buying bitcoin on an exchange, its generally faster, easier and cheaper than the ETF to withdraw to self custody, but daily limits from either your bank or the exchange (or both) mean that buying large amounts will spread your transaction over multiple days at least or even much longer depending on the limit versus total amount you want to move.

When a significant upswing in Bitcoin price is underway, every delay in buying and locking in that price can be very frustrating.

From your Brokerage to your Cold Storage Wallet

This article will now walk you through in detail the steps of how to buy the ETF units and then everything you need to do to enable in-kind withdrawals to your cold wallet.

In summary, here’s the main steps we will cover:

1. Buying IBTC units on your brokerage app

2. Register your IBTC holdings with the Automic Unit Registry

3. Create a BTC account on the Gemini cryptocurrency exchange

4. Complete the Monochrome In Specie Redemption Form

5. Move your BTC from Gemini to your Cold Storage Wallet

Getting price exposure to BTC via the ETF is nearly immediate.

You should expect that the process to move the underlying Bitcoin to Cold Storage, depending on the complexity of the entity holding the units, can take around a couple of weeks of elapsed time or more.

Step 1: Buying IBTC Units

If you already have a brokerage app that allows you to purchase exchange traded funds (ETFs) chances are you can just go to that app, search for “IBTC” and select the “Monochrome BTC ETF”.

You will usually then be presented with the market depth screen - which shows you how many individual parcels of ETF units are for sale at each price point:

Don’t worry if there doesn’t appear to be enough units for sale to immediately meet your requirements - as you place a large order, additional units will be made available to meet demand.

You can also advise Monochrome and they will be able to work with the market makers to provide extra liquidity if required.

Then select how much you want to purchase either in dollars or in total number of ETF units and choose whether you want to offer to buy at a specific purchase price (known as a limit order) or you’re happy to accept whatever the current market price is.

When setting your limit order price, you are setting the maximum price you are prepared to pay per unit. Recognise that your order may be filled at a lower price or if the units start to trade above your limit price, that your order may not be filled.

You’ll then be prompted to confirm your order with a PIN code, FaceID or whatever security settings you’ve configured.

The CBOE Australia ETF market (where Monochrome’s IBTC product is listed) is open from 10:00 AM to 4:13 PM Sydney time, from Monday to Friday excluding public holidays. If you’ve placed your order during these times, you’ll see your order get fulfilled usually within a few minutes and the holdings will now appear in your NAB Trade app.

Otherwise, if you placed the order after market hours, keep an eye on your app after the market opens and be prepared to adjust your order price and quantity if the market price has shifted significantly in between.

Step 2: Register your IBTC holdings with Automic

If you’ve been trading securities for while, you may already know about share clearance and settlement registries like CHESS and Automic.

The Monochrome BTC ETF requires you to register your IBTC holdings with Automic (available at https://automic.com.au) as part of their in-species redemption process:

If you’ve never signed up for Automic before, you’ll need to hit the register button. Remember that you will need to register on Automic as the same entity name as the entity you used to purchase the IBTC ETF units on your share brokerage platform.

Enter your preferred email address, user name and password:

You’ll be sent an activation link via the email address you used to register - click on it and your account will now be activated.

Multi-factor authentication is mandatory for Automic - so you’ll need to make use of an app like Google Authenticator to set this up.

Follow the on screen instructions and when complete you’ll see this:

Once you’re registered and logged in, the next step is to register your new IBTC units with Automic. Press the Add Holding button on the main dashboard and you’ll be presented with the following pop up form:

You’ll now need to locate your HIN Number (Holder Identification Number) on the NABTrade portal (or whichever share brokerage platform you are using).

Enter that number on the pop up form and submit your request.

Your Automic dashboard will now display your ETF holdings, showing both the number of ETF units and current dollar value.

Before allowing you to redeem your bitcoin from the ETF units, Automic will require you to complete the US Government’s FATCA Tax Residence Self Certification form:

It’s worth getting your accountant or legal professional’s advice on how to correctly complete this form, especially if you are a US Citizen or you or any of your co-owners of your investment vehicle are US tax payers.

With Automic setup, FATCA form completed and your IBTC units connected, you’re ready to go to the next Step.

Step 3: Setup your account on Gemini

Gemini (one of the world’s oldest and largest crypto exchanges) is a custodian of the Monochrome BTC ETF coins. The redemption process requires your investment entity to register for an account on Gemini.

After redemption of your Bitcoin from the ETF units, your Bitcoin will be credited to a wallet accessible from your Gemini Account. You’ll then be able to withdraw the BTC using the Gemini crypto currency send function.

But first, you’ll need to register, if you haven’t already, an account on Gemini in the same entity name as you used when purchasing your IBTC units from your brokerage account.

Here’s a glimpse at what the new user registration process for Gemini looks like at the time of writing:

The registration process will feel familiar to any prior crypto currency exchange onboarding process you’ve previously been through.

However, one thing to note is that Gemini, as a US company, will require you to complete US Tax forms to verify your obligations towards US Tax liability - if any.

If registering as a business, Monochrome strongly encourages you to reach out to them by email or phone and notify them of your intention to redeem IBTC units.

There is an escalation process between Monochrome and Gemini that will mean your Business account application is treated with a higher priority (otherwise Gemini business applications from Australia can take days or weeks to receive an initial response).

The online registration within Gemini will require you to submit a W-9 - this is what that form looks like:

If you are applying on behalf of a business entity, instead of as an individual, the application process will continue offline via email and a secure portal for exchanging documents.

Examples of a business versus personal application would be if you are redeeming units you’ve purchased on behalf of a superannuation fund, a trust structure or a company.

In this case, after submitting your application, Gemini will follow up by email and request you provide additional business documentation on their secure document exchange portal including:

• Redacted statements of your business/entity bank account

• Copies of Company Incorporation Documents/Trust Deeds etc as applicable

• A Portfolio Holdings Report from your Brokerage Account

• A recent ASIC Company Extract

You’ll also be required to complete a W-8BEN-E IRS form - this is the form applicable for Australian incorporated companies to complete. The only complicated part of the form is Part 1 Question 5 where you will need to determine which is the correct US tax law classification for your entity and then complete further questions in the relevant section:

Once the documents have all be internally approved, you’ll receive an email welcoming you to the Gemini exchange platform and you’ll be able to sign in.

Upon signing in for the first time, you will have no BTC or AUD assets as yet:

We now need to generate a wallet ID / Receive Address for our bitcoin to be transferred to our Gemini Bitcoin Wallet.

To do this, click on the Transfer link in the top main menu, then “Receive Crypto”:

Next select “Bitcoin” as the asset type:

This will then generate an address such as “bc1….” like the one shown:

Copy this address and paste it in a document/note taking application as you’ll need this later.

You’re now ready to request the redemption of the bitcoin from your IBTC ETF units over to your newly created Gemini BTC Wallet Account.

Step 4: Submit the In-Specie Redemption Form

Contact Monochrome if you haven’t already done so - their contact details are on their web site (https://monochrome.au). Ask for the In Specie Redemption Form. Note that at the time of writing, the In Specie redemption process requires a $500 fee payable to Monochrome’s bank details as shown on the bottom of the form.

Here’s what the form looks like:

For the SRN/HIN enter the same number you used to register your IBTC securities with Automic. The account name will be the entity name you registered as the owner of the securities at Automic.

Enter the total number of ETF Units you’d like to redeem or choose “Entire Investment” to move all the bitcoin from your ETF units in Gemini.

For the Gemini Wallet ID, use the BTC Receive address starting with “bc1….” that we noted down from the previous step. The Account Name will be the same as the entity name we entered when signing up for the Gemini Account.

The last page of the form is where all the required authorising signatories are to sign off on the redemption and accept the terms and conditions of the process:

The form can then be scanned and emailed or posted to the Monochrome PO Box address.

Once the form has been received and the redemption fee has been paid, you can expect the bitcoin to be transferred to your Gemini account within a few working days.

You’re then ready to move the bitcoin over to your cold storage.

Step 5: Sending BTC to your Cold Storage Wallet

Once you receive notification from Monochrome that your ETF units have been redeemed, your portfolio in your brokerage App and Automic will reflect the reduction in those ETF units. Remember, you’ve not sold any ETF units, only redeemed the underlying bitcoin, so no taxable event has taken place.

It’s now time to open up your preferred cold storage wallet and generate a receive address. There are many different cold storage solutions to choose from. For this example, we’ll use the BitBox 02 Bitcoin Only Edition. Your cold storage wallet may have a different interface and workflow for receiving funds, but its likely to be very similar to the example shown below:

We now copy and paste this cold storage receive address into the Send Crypto option on the Gemini exchange wallet as shown:

IMPORTANT: When moving large amounts of bitcoin, do not initially send all the funds without first doing a small test transaction first.

After validating your request with a multi factor code (eg a Text message, a passkey or an Authenticator app) you’ll be presented with a confirmation.

You can now click on the “View on Block Explorer” button to view the transaction and watch it go through the network in real time on the block chain:

You’ll then see your BitBox desktop app display the incoming transaction and after the first confirmation, your bitcoin is now spendable:

The Finish Line

Congratulations, you’ve now completed the full end-to-end process of buying bitcoin in bulk using your existing share brokerage app and you’ve redeemed the IBTC units for their equivalent value in Cold Storage bitcoin.

Sure, fiat friction has not been eliminated - there’s still plenty of steps, paperwork and waiting on multiple parties before you get your bitcoin.

But using the ETF allows you to shift the friction from the initial buy side to the self custody side of the transaction - and this is especially useful when a bull market is poised to rapidly take off.

Ready to learn more about bitcoin self custody?

Please visit mineracks.com/training to book a 1-on-1 consultation on the ideal bitcoin custody setup for your needs.

Missing any tools for generating and backing up your self custody setup?

Please visit mineracks.com/shop for everything you need to get serious about bitcoin.

The author and mineracks pty ltd have no commercial affiliation or marketing arrangement with Monochrome. The author has made use of the IBTC product in researching this article.

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What’s it like to build and operate a bitcoin mine?

Perhaps you’ve put together your first NerdMiner, a larger GPU mining rig, a Bitaxe or you may have spun up an old S9 or S19 ASIC in your garage.

Maybe you’ve put together your first few racks of miners and you feel ready to graduate to the next level of scale and complexity.

Now that you’re hooked on becoming a full time bitcoin miner, what comes next?

Let’s use a recent project we’ve built at mineracks to show you through the steps you can expect: from finding a business problem to solve, the first concept and design through to manufacturing, installation on site, practical completion and then the daily challenges of operating a bitcoin mine efficiently and profitably.

The Project

We partnered with an energy company to demonstrate the viability of generating additional revenue from bitcoin mining at a power station during times when the spot price for power goes negative or when bitcoin mining pays better than selling power on the national energy market (NEM).

This solves a business problem that many power stations that use gas fuelled generators face. You can’t easily turn gas generators on or off - there is a whole start up and shutdown procedure that takes a lot of time and expertise to do well without shortening the life of your equipment.

This means potentially running your generator at a loss during some times of the day unless you can quickly redirect the energy you produce away from the grid and towards a customer who will pay more for the power when no one else wants it.

The example above shows the Queensland energy grid spot price during a sunny afternoon weekday. With wind blowing on our turbines and sun shining on our solar panels, the price the grid will pay for additional power you produce at this time is only $0.002 per kWh - that’s not much! Meanwhile, an energy consumer on the same grid is paying $0.25 per kWh or 125x more.

The forecast shows that 30 minutes later, there’s so much power being generated relative to demand that you’ll actually get charged $0.026 per kWh to put your power onto the grid, creating a strong incentive to turn the generator off or to find another customer willing to pay more.

Fortunately, as we know, Bitcoin mines will happily always pay something for power. It was our job to find out how much more and to prove the business case by deploying a container load of bitcoin mines at the power station.

Selecting a Container

We started off by sizing up the different types of containers and mines we could put on the site.

We looked at whether it made more sense to go with air cooled, liquid immersion or water cooled mines.

In the end, the liquid immersion cooling container turned out to be the best option for the site given that we wanted minimal maintenance (air cooled and water cooling both require a lot more hands on attention to keep running).

Fabrication

With drawings accepted, we got underway. We selected a container manufacturer with an excellent track record.

Simulataneously, we started work on preparing the site and realised that we did not have sufficient access to town water for the design of our intended cooling unit.

So we quickly made the decision to change over from a water cooling tower unit and instead selected a dry cooler. Dry coolers can cool down a container without using any external supply of water, it just needs additional electricity to power pumps and fans.

It took about 25 days for the factory to complete construction - right on schedule.

Testing

Because flying to the factory in China for progress inspections wasn’t practical at the time, we figured out a way we could run remote acceptance testing of the container’s components over HD video calls.

During these calls, we realised that the internal wiring of our switchboard - though not visible to anyone using the container - was not cabled with the correct coloured sheathing for Australian wiring standards.

We had to make the difficult call to open up the switchboard and re-do all the wiring with the correct colours - fortunately this didn’t delay our overall schedule and we made it onto the Brisbane bound ship in port on time for the month long sea journey.

Shipping & Groundworks

Meanwhile back at the power station, works were underway to prepare the ground, cable ducts, foundations and footings for the container and dry cooler.

We hoped to have all these works completed in time for the container’s arrival.

After a long but safe 26-day sea voyage, our shipment cleared customs and we received delivery of our equipment at our staging area in Brisbane.

Unpacking the tight fitting components inside the 40” container our shipment came in required a variety of heavy forklift equipment and some experienced logistics.

Once transported to site, we needed to coordinate the hire of a mobile crane to lift the 6 ton of equipment onto the concrete footings and precisely control the final placement.

Install, Commissioning, Energising

With all the power and internet cabling now hooked up and connected to the container, the next step was to check those connections with a test mine.

Now that the container was in place and all services connected and validated, it was time to purchase the mining machines and get them installed.

Of course on the day of installation, the weather decided to make life more interesting. With a liquid immersion setup, we needed absolutely no water contamination, not even a drop, on any of the fluid lines or immersion tanks.

Fortunately nothing could dampen our enthusiasm for getting these machines hashing just before a bitcoin halving - so with an abundance of tarps, spare hair dryers and wet weather gear, we got to work unpacking the mines.

The first step was to turn on and test each mine while also configuring each mine to our mining pool, then power off.

The mines we purchased were normally designed to be run in air rather than in liquid immersion. So we had to strip away all the fans that would not be needed and prepare the mines for going into the immersion tanks. Next we had to cable up each mine with power and network cables.

After the weather cleared up, we were finally able to connect the fluid lines between the container and dry cooler and then bleed off the excess air in the dry cooler side fluid lines (for safety these are pressurised during transport). We were at last ready to fill the immersion tanks.

With everything setup, we turned on the pumps and fans for the dry cooler, and pumped a bit more fluid in for the extra volume needed inside the dry cooler. We knew we got this right when the fluid levels stabilised and the pumps had been running for a while.

Next we turned on banks of mines one by one and started seeing our first hash rate come online. We were hashing!

Transition to Operations

With the container running and all setup, it was time to put everything in place to make it as smooth as possible to remotely manage and monitor the operations.

While waiting for an industrial PC to arrive, we setup temporary monitoring and remote administration software on a laptop installed inside the container. Now from anywhere in the world, we can make sure the container is still producing uninterrupted hash rate while also doing routine maintenance tasks.

We can update the firmware running on each mine, reboot mines, change mining pools, move up or down our power consumption and hash rate in response to changing energy market signals, etc.

Here’s a glimpse inside the completed container:

We also needed to carefully look after the security of the bitcoin we mined. Fortunately at mineracks we take this really seriously and were able to leverage our stock of SeedSigner, SeedSleeve and SeedHammer products to secure our bitcoin in multisig offline cold storage.

Mission Accomplished?

So with the container operational at the power station for several months, what conclusion did we reach?

Had we succeeded in proving the project objective that adding bitcoin mining to a power station could improve the bottom line?

We compared 3 different scenarios. Scenario 1 was using the power station to power our bitcoin miners 100% of the time, essentially disconnecting from the energy grid. Scenario 2 was to ignore the option of mining bitcoin altogether and just sell on the spot market, including at times when grid prices go negative or less than can otherwise be earned by mining bitcoin.

In the 3rd scenario, we only power on our bitcoin mines when the spot price is less than what we can make with bitcoin and here we go: an 18% boost to the power station’s normal revenue.

Also we found that on average 61% of the time the power station could earn more from bitcoin mining than from spot prices.

But what about the environment? By running bitcoin mines instead of powering homes, wouldn't the power station be harming our planet? If you want to have this misconception thoroughly challenged and conclusively debunked, my friend Daniel Batten has you covered.

Our Call to Your Action:

Do you know of a power station who’s struggling to sell 100% of their power 100% of the time?

If you do, please consider asking them to learn more about bitcoin mining and how it can change the economics of their business and in turn contribute to lowering power costs for all of us.

Do you need help with your bitcoin mining project? mineracks offers a turn-key Engineering, Procurement, Construction and Operations consulting service.

Reach out to us today and we’ll be happy to help.

What if you already have the ability to recreate literally a dozen or more bitcoin wallets, even if you don’t have access to all your physical backups?

Restoring hundreds of words in exactly the correct order for many, many wallets, some singlesig, some multisig, sounds like an impossible task and especially given how frail our human memories can be, it is super likely we will make a mistake too, right?

Thanks to the power of BIP-85, you can actually do this mostly by having access to a single set of 12 words.

So what is BIP-85 and how does it enable us to unlock this self custody super power?

Put simply, BIP-85 makes it possible for a bitcoin hardware signing device to take any “parent” seed of 12 or 24 words and generate 10,000 (or more) “child” seed words.

It does this using “deterministic entropy” a term that means that every child seed you generate from a parent seed will appear to be completely random. However, every time you use this function, and regardless of which hardware signing device you use, the child seed for a given parent will always be the same.

Let’s see how it works on my favourite open source signing device, the SeedSigner:

If you’re already familiar with SeedSigner, then you’d recognise that the image above shows us the seed menu for a seed we have entered.

You may not have seen the highlighted “BIP-85 Child Seed” option before though. That’s because you need to enable this option in the settings before it will become available. Here’s how:

Remember that the SeedSigner is stateless. Unless you choose to persist your settings on your SD Card you use to load the SeedSigner software, you’ll need to enable this feature each time you power on the SeedSigner.

Ok, with this is place, how do we set up our secret master key? Well, there is a catch. The only way this works is if we setup and create the master key BEFORE each of the wallets we want that master key to unlock.

Let’s assume you’re willing to recreate your wallets using new seeds.

First we need to pick the 12 words for our master key in a completely random way. The best tool I’ve seen and used to do this in an intuitively random way is with Entropia from SeedSigner and BTC Hardware Solutions.

If that’s not available, you can also use the open source randomised seed generator within your SeedSigner by taking a random picture with the device’s camera:

Tthis set of seed words will make up our secret master key.

Importantly, I am not advocating for you to store any funds in the wallet that could be created using this Master Key, we’ll see why later.

Once your Master Key has been generated and loaded onto the SeedSigner, we’re ready to go and can now generate “child” seeds.

Here’s how we do it on the SeedSigner:

The key part of the process is selecting our Index. This is a number you can pick entirely at random from 1 to 10,000. It does appear though that the SeedSigner can also support larger numbers than 10,000 but perhaps avoid going beyond 10,000 in case you ever need to recover using a different type of signing device that doesn’t support indexes larger than the standard.

Depending on the purpose of this child key and wallet we are creating, we may have a number we know well and is easy to memorise. Let’s say for example that we’re making this wallet for our daughter Alice. In this case, we could use an index that is based on Alice’s birthday - it’s a number we’re also unlikely to forget.

Note that SeedSigner only generates the child key words - it does not, for your safety, have a one tap function for loading the child words up as a working seed. You’ll need to write the generated child words down and then re-enter them into SeedSigner using the load seed function in order to start working with your new child wallet on the SeedSigner.

Alice will have no idea that her wallet was generated from our secret master key using BIP-85. As we intend to send funds to this wallet, it’s a good idea to backup this child key. My preference for this is to use SeedHammer as our ideal air gapped metal engraving tool:

Now let’s extend this concept further. Let’s say we have 3 children, Alice, Bob and Carol. We’d like to setup a series of singlesig wallets for each of them. Here’s how we could do it:

Now Alice, Bob and Carol each have their own wallet, nicely backed up onto seperate unique steel plates. None of them have any idea that each of their wallets are actually generated from our secret master key. In this case, if one of our children lost their key, it would be possible for us to recover their bitcoin simply by remembering the 12 words that make up the Master Key plus that child’s birthday.

In this example, we have a single parent key, generating multiple child keys on the same level - we’re expanding the number of wallets we can manage horizontally.

There’s another incredible property of BIP-85 though. We can take a child seed that was generated from our master key and generate another child seed of that seed - in other words, we can also create a “grandchild” seed, and even a “great grand child” seed of the “grandchild” seed. This enables us to expand the number of wallets we can generate vertically as well, like so:

As we progress along our bitcoin self custody journey, we gradually get more and more interested in eliminating single points of failure in our setups. Inevitably, this can lead us to exploring multisig wallets. Can BIP-85 be extended to helping us manage and later recreate multisig wallets as well?

Yes, and here’s an example:

In this example, we want to create a 2-of-3 multisig wallet. To do this, we need to generate 3 keys. We can use BIP-85 to derive the 3 keys we need using, for example, Key 1 being generated from the day of component of Alice’s birthday, Key 2, the month number and Key 3 the Year component.

Using the SeedHammer, we can backup each of these keys onto seperate metal plates and then distribute those plates to 3 geographically seperate secure storage locations.

This is already a very safe setup - there is no single point of failure. Loosing access to a single key storage location or having one of the keys lost, compromised or destroyed will not result in any loss of Alice’s funds.

In an unanticipated scenario where Alice lost not just 1, but 2 of her 3 keys, it would still be possible to recovery her wallet through our knowledge of both the memorised Master Key, her Birthday and remembering that this is how we configured and setup her wallet.

What if all of our wallets need this same level of protection, not just Alice’s? Well, this concept can extend out to encompass multiple multisig wallets as well, like this:

With distributed backups in place, we can safely move funds onto Alice, Bob or Carols multisig wallets. Even if we were to one day forget our master key, no funds are lost provided we can still access at least 2 of the 3 physical backups made for each wallet.

No one other than ourself knows of the master key’s existence - to Alice Bob or Carol, their wallets look like they have each been generated entirely randomly.

So if today you are used to using a Ledger, Trezor or ColdCard, you are probably already familiar with the idea of splitting your wallet up into sub accounts (technically known as BIP-44).

Here’s how a wallet with a single set of 12 or 24 words can be split up into accounts and even child and grand child accounts using this feature:

If Sub Accounts can be used to carve up our bitcoin into multiple stacks, why not just use that instead of BIP-85?

BIP-44 creates multiple accounts within a single wallet structure, while BIP-85 generates entirely separate wallet seeds, each capable of functioning as an independent wallet.

BIP-85 offers a higher level of separation and segregation between wallets, which adds to our security and allows us to split apart the backups to just the people or entities that the wallet is destined to.

What practical use is there for structuring our wallets using BIP-85 and having our Secret Master Key?

Let’s imagine for moment that we could very reliably memorise the 12 words that make up our Master Key.

By committing your secret master key to memory only, you are ensuring that you and only you can ever make use of your key. It also means that you’re able to recreate any of the child wallets you created from this master key, even when you are overseas.

With this super power, you could also cross an international border with nothing on you at all, simply knowledge in your head, and upon arrival, you could sit down at any internet connected computer, and control your bitcoin across dozens of singlesig and mutisig wallets within minutes.

Scared that you can’t memorise the 12 words? My fellow bitcoiner TATWD has you covered here on how to use a memory palace and some regular practice.

Worried that you could make your setup of wallets so complicated that you end up forgetting how you set it up? Maybe check out a service like SatsKeeper.com which can help you manage your own encrypted “treasure map” that you can securely access online but that can also be released to your loved ones under certain conditions you specify.

Is this a practical solution for you and your use case? For most people, especially those in the early part of their bitcoin self custody journey, the answer is probably not.

The fact that it is possible to leverage BIP-85 in this way does benefit every user of bitcoin though, even if you never intend to use any of these techniques.

Because there are so many ways to store and custody bitcoin, no one could ever know which technique(s) it is that you have used to store your bitcoin, and that alone is a huge security benefit for everyone.

Want to learn more about bitcoin self custody?

Please visit mineracks.com/training to book a 1-on-1 consultation on the ideal bitcoin custody setup for your needs.

Missing any tools for generating and backing up your self custody setup?

Please visit mineracks.com/shop for everything you need to get serious about bitcoin.

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This means finding 3 or maybe even 5 different locations to store your plates.

You might have one or two physical locations you have direct control over, not many of us can say we can feasibly control more than 2 storage locations.

So perhaps you’ve thought of using an additional location where you know you won’t regularly visit or have complete control over the access to your backup at that location.

Popular choices for such a location could be a safety deposit box at a private vault, or perhaps one of the many new Bitcoin specific key storage locations.

So how can you be sure, if you leave a seed plate for one of your keys at this location, that the security of your multi signature setup has not been eroded by the plate potentially having been read by the custodian you have entrusted its safekeeping to?

This was a problem I couldn’t find an off-the-shelf solution for, so I thought about what might it take to be able to VERIFY, not TRUST, that if I left a seed plate at a custodian, that when I return to pick it up and make use of it, that I could be absolutely sure no one had read the contents in the meantime.

So why couldn’t I just leave the plate inside a tamper evident sealed bag?

If the seal of the bag is broken, then that means the plate could have been read by someone.

If the seal is intact, then surely that means no one could have read the contents, right?…Right?

Well it turns out, there is an entire industry, present in just about every country and major industrial centre, that has equipment capable of reading the content of metal plates stored like this - and they can do it without leaving a trace of having done so even if it is inside a tamper evident sealed bag.

NDT Labs (Non Destructive Testing) are an important part of the steel and construction industry. Their job is to inspect and test the integrity of structural welded metal parts.

They do this using powerful X-rays. Here’s how much detail they can see when scanning through metal:

So, the first thing we needed to check was, is it possible to read the engravings of a metal plate via such an X-ray machine without breaking any of the seals of a Tamper Evident bag. We went to one such NDT testing lab here in Brisbane, with an engraved seed plate all nicely wrapped up, and here’s what the machine could see:

Those with keen eyesight can already glean some of the seed words present on the plate and with not much additional work, it would clearly be possible to recover the seed words without breaking the sealed tamper evident bag.

The plate could then be returned to the storage location with the plate owner none the wiser that the custodian has been able to capture the data being stored.

So this meant we needed to come up with a method to:

1. Make it much harder to read the engravings on the metal plate using NDT equipment

2. Make it obvious that someone had attempted to do so

Reaching out to fellow bitcoiner colleagues with experience in 3D printing (thank you FNQ and Dan!) and after a lot of iterations and false starts, here’s the solution we came up with:

Behold the SeedSleeve! “So what” you say, “that just looks like a 3D printed plastic sleeve to put your seed plates into - surely the X-rays at the NDT lab will be able to see right through plastic and still be able to read the plate’s contents?”

Let’s tear open the seed sleeve and see what’s inside:

In this cut away image, you can see the multiple layers that make up the SeedSleeve. The Sleeve actually contains a 3mm thick plate of solid lead on both sides. The lead is intended to make it extremely hard for the X-rays to be able to see what’s sandwiched in between - your seed plate.

The SeedSleeve also has a hole in the top left corner which perfectly aligns with the hole in the metal plate for SH-01, SH-02 and SH-03 format seed plates - through which a serial numbered zip tie can be threaded - proving that the plate has not been removed from the sleeve.

But there is also an X-ray sensitive sticker on the outside of both sides of the SeedSleeve. This sticker says “INDICATOR NOT IRRADIATED” - the “NOT” will visibly turn black when exposed to X-Ray radiation of the kind that would be used in an NDT lab to inspect the metal.

Finally, we need to make sure no one who has triggered the X-Ray sensitive stickers, can simply replace the stickers with fresh ones, so we wrap the whole enclosure inside an A5 sized Tamper Evident Sealed bag - and we get this:

So now we had to test the SeedSleeve and see if it works. This was an exciting process.

After trying every permutation and combination of radiation doses, the NDT lab couldn’t get any pictures of the engravings on our test plate better than this one:

Additionally, the attempts to read the plate using X-rays quickly led to the X-Ray sensitive sticker on one side of the enclosure being triggered, making it obvious that someone had attempted to extract the plate’s contents:

The conclusions from the lab included:

1. The lead sandwich design is highly effective - no sensor they had could be configured to be able to read the contents of the plate.

2. The lab believes it is actually impossible to read the contents of the plate using NDT equipment, and especially so without triggering the radiation sensitive stickers.

So, mission accomplished. SeedSleeve has finally solved for the most paranoid offsite seed storage scenario. There’s nothing stopping your plate custodian from ripping apart all the tamper evident seals and packaging to read your plate contents - but when you come to retrieve your plate, there will be no way to hide from you the fact that they have done this.

A well constructed multi-sig setup will still mean you’ve not lost control of your funds, even if a bad actor has access to one of the keys that make up your wallet - but there is obviously some additional value in KNOWING, provably, that if the seals are intact, that there is no known way your plate could have been read.

This certainty may enable more people to embrace multi sig and to feel more comfortable in using third party custodians as key storage agents.

It could have another use case too - securely sending a seed plate through the mail (which is often X-rayed by postal and courier services) or when travelling by air (I’d recommend putting your plate in checked baggage, as if you take it through airport security, it is sure to get the attention and interest of the gate security staff who will see a rather large black rectangle on their X-ray scanners).

Want to get hold of a SeedSleeve for your multi sig setup? We now have them for sale here:

https://www.mineracks.com/shop

We started out mining and then began offering a hosting facility for bitcoin miners in the CBD of Brisbane.

Today we’ve gotten even deeper down the bitcoin rabbit hole and now also help businesses, ASX listed energy companies, SMSF investors and family offices with the design, construction and operations of bitcoin mining projects in Australia and beyond.

Having worked so hard to mine bitcoin, it should come as no surprise that we’re also really passionate in sharing our knowledge and learnings on how to securely self custody bitcoin holdings.

We were early adopters of the SeedHammer air gapped metal engraving system - in our view a breakthrough technology for democratising secure multisig self custody. We provide training and supply self custody tools - we have an online shop where you can pick up any of our recommended devices and services: mineracks.com/shop

Our substack is where you can read about the learnings, tools and techniques we’re developing to help people and businesses who are ready to get serious about bitcoin.

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