How to securely hold Bitcoin in your start-up

Figure 1: A hardware wallet is the most secure way of storing cryptocurrency in your company.

With recent spikes in inflation, holding a part of your company’s cash balance in Bitcoin can be a tempting strategy. But how can you secure a digital asset among multiple co-founders without trusting a third party with your private keys? This article provides a step-by-step guide on how to hold your Bitcoin securely in your company.

Why Bitcoin belongs on your company’s balance sheet

To keep your company operational, you have to hold a certain amount of cash to cover your employees’ salaries and other recurring expenses that will occur in the foreseeable future. Being a startup founder myself, I experienced that your cash reserves will not grow in a linear and predictable way. After a successful funding round, you might find your company holding more cash than you are willing to spend in the short term. With inflation rates of 7% or more and an average supply growth of 15–20% per year in all major fiat currencies, you are actively losing money by holding cash.

If you have a time horizon of at least 4 years, it might be a good time to think about holding some Bitcoin instead of cash for your company. Since the advent of Bitcoin in 2009, there hasn’t been a single time period of 4 years in which just holding Bitcoin didn’t give you a positive return. Some tech companies and asset managers have realized this opportunity and started holding Bitcoin instead of cash to preserve the buying power of their funds. Famous examples are Tesla, Microstrategy, and Michael Novogratz’s investment company Galaxy Digital, which holds around $761 million worth of bitcoin.

Should your company trust exchanges with its Bitcoin?

Holding your digital assets on an exchange might be a feasible option for smaller amounts, but crypto exchanges have been the target of hackers again and again in the past years. Even big players with established names like Binance are not immune to this thread. In 2019 the crypto exchange was hacked and more than 7,000 Bitcoin — about 40 Million USD at the time — were stolen. Here is a quick overview of the drawbacks and advantages of holding your coins on a centralized exchange:

Table 1: The pros and cons of holding your coins on an exchange

Not your keys, not your coins

At first glance, it might seem more convenient to hold your company’s coins on a centralized exchange, but with the right setup, holding your coins in self custody allows for a much higher security level without having to compromise the ease of use. After all, you are independent of third parties when you hold your own private keys.

Traditional company bank accounts are usually managed by multiple employees, and the right to spend money can be shared among all trusted persons in the company with certain limits. The risk of unauthorized spending of funds is usually low, since transactions on the company credit card can often be reversed or reimbursed when a fraud occurred. This is not the case for transactions on the blockchain. That’s why a sole employee holding the private keys to your company wallet might pose a security risk.

How to set up your companies multi signature wallet

The solution to this problem is a multi signature wallet. Imagine your company having three co-founders, each holding their own private key. To spend the Bitcoin in your company wallet, two out of three people have to sign the transaction. If one of you loses the private key, the other two can move the funds to a new wallet and no coins are lost. There are many wallets, that support the multi signature feature. You can find a helpful list here.

Figure 2: A multi signature wallet can be set up, so that two out of three keyholders need to sign a transaction to spend your company’s funds.

Getting additional security is a good idea

Let’s say you want to hold your own keys, but also want the convenience of having a trusted third party, that will help you in case of an emergency. Then you might want to take a look into providers like Casa. They will act as a store for your private keys for your multi signature wallet. Let’s imagine your company has a wallet that requires three out of four parties to sign a transaction to spend the funds.

You and your co-founders can each hold a private key, and the fourth one can be held by a service like Casa. In case one of your co-founders leaves the company or loses access to his key, you can contact Casa and still access all your coins. Splitting your private key like this is especially recommended for larger sums above 100,000 EUR.

Don’t forget to do proper accounting

A company wallet is not treated like a bank account in Germany, and some founders might hesitate to hold Bitcoin in their company due to regulation. In our case, the wallet is treated like a foreign currency account. It is important to document all the transactions with their respective value in your local fiat currency and provide a receipt for every purchase and sale of coins.

If you are just dipping your toes into the crypto space, starting with a simple exchange wallet and a small amount is a viable option. Keeping track of your transactions and holdings can be tricky and time-consuming. There are many good tools for crypto accounting out there. If you want to get a quick glance at what accounting for digital assets looks like, you can connect any wallet to basenode.io, and we take care of the accounting and reporting for you — completely for free.

Stay tuned for my upcoming podcast with Pekuna, one of Germany's leading crypto tax firms consultancies, in the coming weeks. I will share my journey on how to hold Bitcoin in your company step by step there.

About basenode.io

At basenode.io, our mission is to eliminate the gap between traditional accounting and blockchain-based accounting. Basenode.io is the first token-based accounting solution that offers seamless fiat-to-crypto invoicing. We provide a self-explanatory user interface with a clean and modern look, that naturally supports your workflow. Furthermore, we will integrate support for the most popular networks like Bitcoin, Bitcoin Lightning, Ethereum, Binance Smart Chain, Polygon, and more. Find out more on our website.

Author

Oliver Schantin has been deeply involved in the blockchain and entrepreneurial space for several years. He founded his first blockchain startup in 2019 and is a frequent speaker and guest in various crypto-related podcasts, conferences and summits. You can contact him via LinkedIn or Email.