Physical Disaster as a Co-Location Risk
Co-Located Backup Loss From Physical Disaster
This memo is published by CustodyStress, an independent Bitcoin custody stress test that produces reference documents for individuals, families, and professionals.
Custody Artifacts Stored in One Place
A person holds bitcoin in self-custody. The hardware wallet is at home. The seed phrase backup is at home. The documentation about the custody arrangement is at home. Then the person thinks: what if my house burns down? A fire, a flood, or some other disaster could destroy everything in one place. What would happen to the bitcoin?
This assessment considers how disaster scenarios surface uncertainty about single-location dependency. The question is not really about fires specifically. It is about what happens when all custody artifacts are stored in one place and that place is destroyed. The fire is a concrete scenario that reveals an abstract vulnerability: co-location risk.
Custody Artifacts Stored in One Place
Many people store all their bitcoin custody materials in one location, typically their home. The hardware wallet sits in a drawer or safe. The seed phrase backup sits somewhere in the same building. Any documentation, passwords, or other related materials are nearby. Everything is together.
This co-location happens naturally. The home is where people keep important things. The hardware wallet belongs with other valuables. The seed phrase belongs somewhere secure in the home. The person does not necessarily think about geographic distribution; they think about local security.
The co-location creates a single point of failure at the location level. The custody arrangement might be secure against many threats, but it concentrates everything in one physical place. If that place is compromised, everything is compromised simultaneously.
The disaster scenario makes this concentration visible. The person imagines the house destroyed. They realize that the hardware wallet and the seed phrase and everything else would be destroyed together. The scenario reveals what co-location means in practice.
Disaster Imagined as Total Loss
When the person imagines a house fire, they typically imagine total destruction. Everything inside is lost. The hardware wallet melts. The seed phrase burns. The safe's contents are destroyed by heat. Nothing survives.
This imagination may or may not be accurate. Fires vary in intensity. Some fires destroy everything; others leave parts of the structure and contents intact. A safe might protect contents from some fires but not others. The reality of disaster is less uniform than the imagination.
But the totality of the imagined loss is instructive. It represents the worst case for co-location: complete destruction of a location taking everything at that location with it. Even if actual disasters are often less complete, the possibility of total loss at a single location exists.
The question about what happens if the house burns down is asking about this worst case. What if everything in one place is lost at once? The answer depends on whether the custody arrangement has any elements outside that place.
Location Dependence Collapses Options
If all custody artifacts are in one location, and that location is destroyed, options collapse. The hardware wallet is gone. The backup is gone. The documentation is gone. The person survives but has no way to access their bitcoin.
This collapse happens because redundancy was also co-located. The person might have had a backup, but the backup was in the same building as the device. The backup does not help if it is destroyed along with the thing it was meant to back up.
The collapse illustrates that redundancy requires separation. Two copies of something provide redundancy only if they are not both at risk from the same event. Two copies in the same house are both at risk from a house fire. The second copy provides no protection against location-level destruction.
The person asking about the house fire scenario may be realizing this for the first time. They thought they had a backup. They realize the backup only protects against certain failures, not against destruction of the location where both the original and the backup reside.
Scenarios That Trigger the Question
A person reviews their home insurance coverage. The process makes them think about disasters the insurance covers: fire, flood, theft. They think about what they would lose in such events. The bitcoin custody materials come to mind. They wonder if their bitcoin is protected against these scenarios.
A person watches news about natural disasters affecting other people. Homes destroyed by fires, floods, or storms. The news shows people who lost everything. The person thinks about their own situation. What if that happened to them? What about their bitcoin?
A person creates an emergency preparedness plan. They think about what to take if they need to evacuate quickly. Documents, medications, essentials. They wonder where bitcoin custody fits into emergency preparedness. What happens if they cannot take the hardware wallet? What if the house is gone when they return?
A person learns that someone else lost bitcoin because their backup was destroyed in a disaster. The story makes the abstract risk concrete. They wonder if they are vulnerable in the same way. They ask what would happen if their house burned down.
What the Disaster Would Actually Affect
A disaster destroying the home would affect the physical custody materials: the hardware wallet, paper backups, any storage devices containing relevant information. These are physical objects that can be destroyed by fire, flood, or other disasters.
The disaster would not directly affect the bitcoin itself. The bitcoin exists on the blockchain, distributed across nodes worldwide. No house fire can touch the blockchain. The bitcoin would still be at the same addresses, controlled by the same keys, regardless of what happens to the physical location.
The disaster would affect the ability to access the bitcoin. The keys needed to move the bitcoin are derived from the seed phrase. If the seed phrase is destroyed and no other copy exists, the keys cannot be regenerated. The bitcoin remains on the blockchain but becomes inaccessible.
The distinction matters. The bitcoin is not destroyed by the fire. The access to the bitcoin is destroyed. The bitcoin continues to exist but can no longer be reached. This is a subtle but important difference from losing physical assets that cease to exist when destroyed.
Disaster as Dependency Exposure
The disaster scenario exposes dependencies in the custody arrangement. It asks: what does the custody depend on, and what happens if that dependency fails?
If custody depends on a single location, custody fails when that location fails. If custody depends on multiple locations, custody survives as long as at least one location survives. The disaster scenario tests whether the custody arrangement has location redundancy.
Many people discover through this thought experiment that their custody has a location dependency they had not considered. They have a backup, but the backup is nearby. They have multiple devices, but the devices are in the same building. The redundancy they thought they had turns out to be illusory against location-level events.
The exposure is valuable even though uncomfortable. It reveals a gap that can be addressed. The person can create off-site backups. They can distribute custody materials across locations. The disaster scenario that exposes the dependency also points toward the solution.
Addressing Co-Location Risk
Co-location risk is addressed through geographic distribution. At least one copy of the critical custody material—typically the seed phrase—is stored in a separate location. If the primary location is destroyed, the remote copy enables recovery.
The remote location might be a safety deposit box, a trusted family member's home, a secure storage facility, or any other place geographically separated from the primary location. The key is that a disaster affecting one location does not affect the other.
Distribution creates its own considerations. The remote location must be secure. The seed phrase must be protected there as well as it would be at home. Access to the remote location must be possible when needed. Distribution solves co-location risk while introducing other factors to manage.
The person who asks about the house fire scenario may be ready to consider distribution. The question reveals the vulnerability. The answer involves addressing that vulnerability through thoughtful geographic separation of custody materials.
Summary
The question about what happens if the house burns down surfaces uncertainty about single-location dependency. When all custody artifacts are stored in one place, destruction of that place destroys the ability to access the bitcoin. The disaster scenario reveals co-location risk.
The disaster would not destroy the bitcoin itself. The bitcoin exists on the blockchain and is unaffected by physical events. What the disaster destroys is the access path: the seed phrase and other materials needed to reach the bitcoin. The bitcoin remains but becomes inaccessible.
Co-location risk is addressed through geographic distribution. Storing at least one copy of critical custody material in a separate location ensures that no single disaster can eliminate all access. The disaster scenario that exposes the dependency also points toward the solution of distributed storage.
System Context
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