Protecting the U.S. Bitcoin Reserve and Stockpile from Cyber Threats

As you no doubt have heard, plans are in place to establish a Strategic Bitcoin Reserve and Digital Asset Stockpile, with the goal to position the U.S. as a leader in cryptocurrency. The Strategic Bitcoin Reserve will presumably be funded with Bitcoin seized in criminal or civil asset forfeiture proceedings, ensuring no additional cost to taxpayers.

This overall initiative seeks to capitalize on Bitcoin's fixed supply and its potential as a unique store of value in the global financial system. An executive order dictated that as part of this initiative, federal agencies must provide a comprehensive accounting of their digital asset holdings to ensure proper oversight.

In addition to the Bitcoin reserve, the order established a stockpile to manage other digital assets obtained through forfeiture. The administration emphasizes that this move is part of a broader strategy to harness the power of digital assets for national prosperity. David Sacks, appointed as the White House's AI and crypto czar, likened the reserve to a "Digital Fort Knox.”

This development marks a shift in U.S. policy, reflecting a recognition of the importance of cryptocurrencies and digital assets in our economy. Securing this stockpile and reserve, however, will require addressing security issues across multiple layers of infrastructure. This brief note from our team at TAG presents our view of the threats and possible defenses.

Security Threats to U.S. Crypto Reserve

It is reasonable, before we propose our security plan, to first pore through the threats relevant to this new Bitcoin reserve. The bottom-line regarding security is uncomfortable, but here it is: If hackers, criminals, or nation-states find a way to compromise or steal our national stockpile of crypto, then it will be gone. Period. End of story.

Some readers might protest, suggesting that surely there would be a centralized means for establishing control, but the whole point of crypto is to avoid such control. Crypto is based on a decentralized peer-to-peer system which evades traditional oversight. With Bitcoin, you swap the security of regulatory oversight with the security of the software that holds your coins.

Let’s tick through nine specific threats that should worry any practitioner tasked with tending to security for this stockpile. We should also remember: When you have any type of stockpile, you are just screaming to adversaries that you’ve placed a large number of eggs, so to speak, into one basket. Our reserve will be a target for every crypto hacker on the planet.

One more thing: We do not have decades of experience protecting crypto, so this is all new ground for most security teams. We can therefore be 100% certain that security errors, misconfigurations, and oversights will occur. I should say this again: Since this is a new area of security, we will see protection mistakes made – for sure.

Threat 1: Keys.

We should begin with cryptographic keys. Our national stockpile will be protected by various public and private key pairs, which assumes that we would distribute the stockpile across accounts. Lose the private key for any wallet with crypto, and you are breached. Private key compromise through hacking, insider threats, or physical attacks is thus a major threat.

Threat 2: Handling

The crypto in the stockpile will presumably be used for different purposes, including payments, withdrawals, and other operations. The problem is that any bugs or exploitable vulnerabilities in the smart contracts that govern these fund withdrawals and spending could lead to security issues – and again, this is not something that can be adjudicated in court.

Threat 3: Exchanges

If reserves are held on or moved through crypto exchanges, which seems likely, then they become big targets for hacking and insider threats. Recognize that exchanges are built from software, including open-source, and they are thus prone to insider attacks, malware, and other types of exploits that we see so often across various industries.

Threat 4: Nation States

State-sponsored hacking groups using zero-day exploits, social engineering, or supply chain attacks will most definitely use whatever means available to steal from our reserve. This is likely to include novel zero-day (0-Day) vulnerabilities discovered by elite offensive actors in countries such as Russia and China.

Threat 5: Insiders

Rogue U.S. government employees or contractors or ones that are vulnerable to coercion tactics (e.g., blackmail, bribery, extortion) will be a major source of security challenge for the management of our stockpile. People will be required to manage this asset, and if a sufficient number go bad or collude, then we will lose our money.

Threat 6: Transactions

Attackers intercepting transactions or exploiting network vulnerabilities can create havoc for our national stockpile – and I am not sure that sufficient controls would be in place to even detect that this was happening in real-time. This is an area that demands more government-funded research, especially if we are going to stockpile crypto.

Threat 7: Malware

Malware introduced via compromised software, firmware, or hardware is an obvious threat. In fact, this is one that perhaps resonates most clearly with practitioners. The supply chain for the tools, systems, wallets, and other tools that will be used to manage and trade crypto will be tough to easily characterize (e.g. using a SBOM or similar).

Threat 8: Quantum

Future advances in quantum computing breaking existing cryptographic security are an obvious concern. Remember that we are relying on public key cryptography to protect this pile of money. If some nation-state has quantum machines in their Intelligence Basement doing cryptanalysis, then they can break the anonymity of transactions.

Threat 9: Extortion

Criminal groups targeting individuals with access to keys via ransomware or coercion will be a threat vector we can expect. That is, when someone gains access to one of our systems, we should expect that they will not only steal our currency but will probably also assign some sort of additional ransom or extortion demand.

Proposed National Plan to Protect the Crypto Reserve

The list of threats outlined above should come as no surprise to anyone (like me) who has been tasked with protecting national infrastructure and resources at scale. Thus, I feel obliged and reasonably well-positioned to propose a series of protection strategies that our government had better engage before we see our stockpile disappear like smoke.

My approach is to describe controls that line up roughly with the vulnerabilities listed above. I will admit that this is a richer topic than I’ve been able to apportion time to review, so I’m 100% certain that I’m leaving some things out here. But hopefully, whoever will be doing this work (and I have no idea who that will be) will benefit from this first pass.

Control 1: Custodial and Wallet Security

A process must be put in place to ensure that the team engaged with protecting our stockpile is using multi-signature wallets that require multiple trusted parties to approve transactions. I know this sounds obvious, but it must be reinforced. I’d also recommend using hardware security modules (HSMs), air-gapped cold storage, and regular rotation and refresh of keys.?

Control 2: Smart Contract and Protocol Vulnerabilities

We should conduct regular security audits with third-party security firms to ensure avoidance of weaknesses in smart contract and other protocols. The money amounts will be large enough to perhaps even use formal verification methods to validate contract integrity. The goal should be time-locked transactions to delay withdrawals and enable security responses.?

Control 3: Exchange and Trading Security

I think it would be wise to leverage non-custodial storage to minimize reliance on exchanges. Whoever is in charge should employ whitelisted withdrawal addresses for fund movement. And, as with pretty much all of these controls, there should be continuous monitoring and review of exchange security posture.?

Control 4: Nation-State Cyber Threats

I worry about nation-states, because it is na?ve to not expect Russia, North Korea, and China to set their sights on this stockpile. Sadly, we might see Canada, Mexico, and (ahem) Greenland come after us as well. To that end, we’d better maintain separate and redundant security layers to minimize the threat (e.g., redundant cold storage).?

Control 5: Insider Threats and Physical Security

This is a tough one, because compromised insiders are tough to spot. Obviously, we must implement role-based access control (RBAC) and need-to-know access. I’d suggest use of multi-person authorization for transactions and key management. I guess we should also conduct background checks for personnel with access (even though DOGE has broken this habit).?

Control 6: Infrastructure and Network Security

This one involves the infrastructure. Someone should be ensuring that we are using private, permissioned blockchain nodes to manage the reserve. This should involve use of end-to-end encryption for blockchain transaction communications. All the usual network security measures should also apply (e.g., regular patching and hardening of Internet-facing systems.?

Control 7: Supply Chain Attacks

The use of commercial vendors will be required (hint: preference will be given to U.S. firms), and I guess security assessments and audits should be used to reduce risk. I’d also recommend maintaining offline backups and forensic tools to detect tampering. As you would expect, we will also need to regularly refresh and verify wallet integrity.?

Control 8: Quantum Computing Threats

I know NIST is predicting several years of safety, but I suspect that nation-states are farther along in their use of quantum computer to cryptanalyze ciphertext than we think. To that end, we should transition to post-quantum cryptography (PQC) as it becomes available, perhaps using hybrid cryptographic approaches to ensure long-term resilience.?

Control 9: Ransomware and Extortion

I don’t have a great solution here, but maybe by deploying air-gapped, geo-distributed cold storage, we can avoid extortion. I think we can also implement self-destruct mechanisms for wallets under duress conditions but I’m not sure how that would work. I would also train security personnel (whoever they are) on anti-extortion protocols.?

Closing Remarks

I have tried to identify likely hacking threats to the U.S. stockpile and reserve, and I hope my security plan helps the right person or group to build a good defense. My fear is that this will not happen – and we will build the reserve with little security oversight. If this happens, then my prediction is that the balance will be hacked, and we’ll be left with an empty U.S. wallet.

Let me know what you think.