Coinbase’s Cold Storage Shifted From USB Drives to Key Ceremonies

Coinbase’s cold-storage procedures progressed from offline USB drives and paper backups to controlled key-generation ceremonies, adding safeguards around how private keys were created and how funds could be restored.

On Oct. 9, 2012, 87% of customer funds were held offline. The keys were generated offline, encrypted with AES-256 and stored on USB drives and paper backups in a bank safe-deposit box. About 90% offline storage was a target, not the amount already held.

The keys could be physically accessed to restore funds to live servers if withdrawals exceeded 10% of customer deposits in one day.

A 2018 key-generation ceremony took place inside a Faraday tent, which helps block wireless signals. Staff chose between two laptops with a coin toss, and the process was recorded for later auditing.

Later custody procedures used factory-sealed laptops without wireless components, multiple independent sources of randomness and an independent auditor at each ceremony. Cold-storage keys were also divided using Shamir’s secret sharing, a method that splits a key into pieces and requires a quorum of holders to restore it.