Bitcoin Extortion Threat

Custody Behavior Under Extortion or Threat

This memo is published by CustodyStress, an independent Bitcoin custody stress test that produces reference documents for individuals, families, and professionals.

Public Knowledge and Targeting

A bitcoin holder receives a credible threat. The threat demands transfer of bitcoin or threatens harm to the holder or their family. The threat comes from someone who knows the holder has bitcoin. This knowledge might come from public statements, blockchain analysis, data breaches, or social relationships. The holder faces a scenario where custody security designed to prevent unauthorized access must be breached under duress.

Bitcoin extortion threat scenarios expose gaps between custody protection mechanisms and human vulnerability to coercion. Technical security prevents remote theft. It does not prevent in-person threats that compel the holder to use their own access. Custody arrangements assume the holder acts voluntarily. Duress creates situations where voluntary action frameworks fail to account for coerced compliance.

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Public Knowledge and Targeting

Some holders discuss bitcoin publicly. Social media posts, conference attendance, or business activities reveal holdings. This creates targeting information. An extortionist identifies the holder as someone likely to have bitcoin worth threatening for. The public activity that seemed harmless becomes the information source enabling targeting.

Blockchain analysis can identify large holders. Transactions cluster around certain addresses. Exchanges leak customer data. Multiple information sources combine to identify individuals with significant holdings. The holder's identity becomes linked to addresses holding bitcoin. Extortionists use this linkage to select targets and demonstrate they know specific holding amounts.

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Threat Credibility Assessment

Holders receiving threats must assess credibility. Some threats are empty attempts that pose no real danger. Others are genuine and demonstrate capability to carry out harm. The holder must evaluate threat credibility without expertise in threat assessment. They face immediate pressure to comply or resist without time for careful evaluation.

Demonstration of knowledge increases credibility. A threat that includes specific details about the holder's life, family, or holdings appears more credible than generic threats. The extortionist proves they have information that required research or access. This demonstration creates fear beyond what a generic threat would generate.

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Immediate Compliance Pressure

Threats often include deadlines. The extortionist demands bitcoin transfer within hours. This prevents the holder from seeking help or developing response strategies. The deadline creates urgency that overrides careful decision-making. The holder must decide whether to comply, resist, or seek authorities within a compressed timeframe while experiencing fear.

Some threats target family members. The holder is told their child will be harmed unless bitcoin is transferred. Threats to family override other considerations for many holders. They comply immediately without analyzing whether the threat is credible because the potential cost of wrong assessment is unacceptable.

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Multisignature Arrangements Under Duress

Multisignature custody requires multiple parties to authorize transactions. A holder using two-of-three multisignature faces a threat. They hold one key. Their spouse holds one. A third party holds the backup key. The extortionist demands the holder transfer bitcoin. The holder cannot do this alone. They must convince their spouse to cooperate or reveal to the spouse that they are under duress.

Involving additional key holders spreads the duress. The spouse learns of the threat. Now both are experiencing coercion. The threat may explicitly demand silence preventing the holder from telling other key holders about the threat's nature. The holder must obtain cooperation without explaining why, or must violate threat demands by disclosing duress.

Some multisignature arrangements use geographically distributed key holders. The holder needs cooperation from someone in another location. Time zones and availability complicate coordination. The extortionist's deadline does not account for multisignature complexity. The holder cannot comply quickly even if willing because the custody structure prevents immediate access.

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Time Lock Mechanisms

Some custody arrangements include time locks preventing bitcoin movement for specified periods. The holder faces a threat demanding immediate transfer. The custody structure prevents this. They cannot comply even under duress because the technical limitations do not yield to coercion. The extortionist may not understand or believe this. The holder's inability to comply might escalate threat severity.

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Exchange Account Versus Self-Custody

Exchange-held bitcoin can be transferred quickly. The holder logs in and sends bitcoin to the extortionist's address. Self-custody using hardware wallets requires physical device access and potentially multiple security steps. Exchange custody becomes a vulnerability under duress because compliance is technically simple. Self-custody creates compliance barriers that might protect the holder or might escalate extortionist frustration.

Some exchanges have withdrawal limits. The holder can transfer only a certain amount per day. The extortionist demands more than the daily limit. The holder explains the limitation. The extortionist views this as resistance. Whether technical limitations are accepted as genuine or interpreted as non-compliance depends on the extortionist's knowledge and patience.

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Law Enforcement Involvement Risks

Threats often explicitly prohibit contacting authorities. The holder must choose between seeking law enforcement help and complying with this prohibition. Involving police might protect the holder but might also trigger threatened harm before law enforcement can intervene. The decision must be made under duress without clear information about enforcement response capability or timeframes.

Some jurisdictions have limited bitcoin-related law enforcement expertise. The holder contacts police. Officers are unfamiliar with bitcoin extortion scenarios. Their response may not account for the technical and time-sensitive nature of the situation. Delayed or inappropriate law enforcement response could escalate danger while preventing the holder from pursuing other options.

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Partial Compliance Dynamics

Some holders attempt partial compliance. The extortionist demands all bitcoin holdings. The holder transfers a smaller amount hoping to satisfy the threat while limiting loss. This might end the situation or might demonstrate that the holder has more bitcoin than they claimed, encouraging additional demands. Partial compliance is attempted negotiation under duress without knowing how extortionists respond to negotiation attempts.

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Ongoing Threat After Compliance

Compliance does not guarantee threat termination. The holder transfers bitcoin as demanded. The extortionist could disappear satisfied or could return with new demands. The holder demonstrated willingness to comply and capability to transfer bitcoin. This makes them a target for repeated extortion. One incident of compliance may establish a pattern of vulnerability.

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Documentation and Evidence Collection

Law enforcement responding to extortion needs evidence. The holder receives threats via encrypted messaging apps. Screenshots might be possible but might not capture complete message threads. Blockchain transactions are permanent records but do not inherently prove duress. The holder transfers bitcoin under threat. The blockchain shows the transfer. Proving the transfer was coerced rather than voluntary requires evidence beyond the transaction itself.

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Insurance Coverage Uncertainties

Some holders have insurance covering theft or extortion. Policy terms were written for traditional assets. Whether bitcoin extortion is covered is unclear. The holder complies with extortion demands and files an insurance claim. The insurer questions whether this constitutes covered theft or uncovered voluntary transfer. Duress might or might not satisfy policy definitions depending on language and interpretation.

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Family Safety Versus Asset Preservation

Holders prioritize differently when threats target families. Bitcoin loss is financial harm. Family member harm is unacceptable. Most holders comply immediately when family safety is threatened. Custody security that prevents loss under other circumstances becomes irrelevant when family coercion is involved. The holder's threat response prioritizes human safety over asset preservation.

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Anonymous Threats and Response Uncertainty

Some threats come from anonymous sources. The holder receives a message demanding bitcoin but has no way to identify the extortionist. This affects response options. Law enforcement cannot pursue unknown individuals effectively. The holder cannot evaluate threat credibility when they know nothing about the source. Anonymity increases both holder fear and response uncertainty.

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Public Figure Exposure

Public bitcoin advocates face increased extortion risk. Their public statements about bitcoin make them known targets. They receive threats more frequently than private holders. Each threat requires assessment. Most may be non-credible but credible threats hide among the noise. High-profile holders develop threat fatigue making it harder to distinguish genuine danger from background harassment.

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International Jurisdiction Complications

Extortionists might operate from jurisdictions with limited law enforcement cooperation. The holder is in one country. The threat originates in another. Local law enforcement has limited ability to pursue international extortion. The holder's response options are constrained by jurisdictional boundaries that extortionists exploit.

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Digital Versus Physical Threat Vectors

Some threats are entirely digital. Messages demanding bitcoin under threat of releasing private information or launching cyberattacks. Others involve physical presence or threats of physical harm. Physical threats create immediate danger that digital threats do not. Holder response to physical presence differs from response to distant digital threats. Custody security is irrelevant when someone is physically present demanding access.

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Post-Incident Custody Restructuring

After an extortion incident, holders might restructure custody to prevent recurrence. They move remaining bitcoin to new addresses. Change custody methods. These changes occur under stress following a traumatic event. Hasty restructuring can introduce new vulnerabilities while attempting to address the weakness the extortion exposed. The holder acts from fear rather than careful planning.

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Conclusion

Bitcoin extortion threat scenarios combine custody technical security with human vulnerability to coercion. Public knowledge of holdings creates targeting information through social media, blockchain analysis, or data breaches. Threat credibility assessment must occur under duress without expertise or time. Immediate compliance pressure from deadlines and family-targeted threats overrides careful decision-making. Multisignature arrangements spread duress across key holders or create compliance barriers when coordination is required.

Time locks and other technical limitations prevent compliance even under duress potentially escalating extortionist frustration. Exchange custody enables quick compliance while self-custody creates barriers. Law enforcement involvement faces prohibition demands and jurisdiction limitations. Partial compliance attempts might satisfy or encourage additional demands. Compliance does not guarantee threat termination and may establish vulnerability patterns.

Evidence collection faces encrypted communication and blockchain record limitations. Insurance coverage for bitcoin extortion encounters policy language uncertainties. Family safety threats override asset preservation priorities. Anonymous sources prevent effective law enforcement pursuit. Public figures face elevated targeting with threat assessment fatigue. International jurisdictions limit law enforcement response capability. Physical versus digital threat vectors create different risk profiles. Understanding these dynamics explains how bitcoin extortion threat exposes gaps between custody security designed for technical failures and human vulnerability to coercion requiring access compromise under duress.

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