‘Why do I need to custody Bitcoin on a hard device?’— Foundation Devices CEO explains

People will often ask, ‘What’s the difference between me, custodying it myself, me letting someone else like Coinbase custody, but then they might understand that distinction, but why do I need to custody it on a hard device?’

People will often ask the question, ‘What’s the difference between me, custodying it myself, me letting someone else like Coinbase custody, but then they might understand that distinction, but why do I need to custody it on a hard device?’

That was the question posed by Roundtable host Rob Nelson during an interview with Zack Herbert, CEO of Foundation Devices, a company specializing in Bitcoin self-custody hardware.

Herbert broke down the different levels of Bitcoin self-custody and the risks involved with keeping digital assets on internet-connected devices.

The risks of hot wallets

Herbert emphasized that there are two main types of self-custody. Hot wallets, which are connected to the internet and typically found on mobile devices or computers. Cold storage, where Bitcoin is held on a device that remains offline, making it much more secure against hacking attempts.

"Firstly, I think there’s two different types of self-custody. One is on an internet-connected device, like your phone—we would call that a mobile wallet. Or even a hot wallet is the more common term," Herbert explained.

He pointed out that while hot wallets are convenient, they come with inherent risks.

“With Bitcoin or crypto, you really don’t want to put too much money’s worth on an internet-connected device because it’s susceptible to things like hacks or if there’s a vulnerability in the software,” he said.

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Herbert urged users to research past security breaches, noting, “Over the last decade, you can go Google. There’s been dozens and actually probably hundreds of different kinds of hacks and vulnerabilities and thefts for software wallets, for wallets on your phone or on your computer.”

Why cold storage is essential

For those holding large amounts of Bitcoin, Herbert strongly recommends using offline storage solutions like hardware wallets.

“It’s okay to store a small amount of Bitcoin or crypto on an internet-connected device. But best practice is you want to actually store a large amount—if it’s tens of thousands of dollars, hundreds of thousands of dollars, or millions of dollars—on offline devices that are not connected to the internet.”

This method, known as cold storage, ensures that even if an attacker compromises a user’s online wallet, the funds remain safe.

Herbert highlighted Foundation Devices’ Passport, a Bitcoin hardware wallet designed for maximum security.

“With our Passport device, for example, it’s fully offline. We call it air-gapped. The only way you can get data to and from it is with the camera, which scans QR codes, or with the SD card slot on top.”

He further explained, “Even if you were using a wallet on your phone that was compromised, it would not be able to trick you and not be able to steal your funds, keeping those funds offline.”