Read now to learn how Bitcoin are only as safe as you keep them, and how Bitcoin custodied by someone else aren't really safe at all.
We live in unprecedented times. Earlier this month, we spoke about the fundraising platform GoFundMe getting mocked around the globe after it froze millions of dollars’ worth of donations for Canadian truckers protesting COVID-19 vaccine mandates put in place by their elected government. If you thought that was the end of the story, then you’ll likely be unpleasantly surprised to hear how the situation has escalated in the intervening weeks.
What started as a targeted response by the Canadian government has seemingly evolved into a full-fledged assault against the truckers, their families, and anyone around the country who supported them. If you think I’m exaggerating, I’m not. In a drastic turn of events, the Canadian government has for the first time in history activated the “Emergencies Act”, legislation enacted into law over two decades ago that grants the government far-reaching authority over Canadians, their property, and their ability to exercise their rights.
Shortly thereafter, the powers granted by the Emergencies Act were used to forcibly clear out and arrest protestors. But perhaps even more stunning was the use of the Emergencies Act to freeze financial services for people involved in the protest, including those who donated to the cause. Not just bank accounts either: credit cards, insurance policies, and brokerage accounts have also been locked in an attempt to coerce protesters and supporters into abiding by the government’s directives:
Whether or not you agree with the protests, the fact that a government can completely lock its own citizens out of the financial system should be alarming. After all, so much of what we do relies pretty heavily on financial institutions. Imagine paying for insurance on your house or car for years, and then the government forces the insurance company to drop your policy. Imagine trying to buy groceries, but your credit card has been cancelled against your wishes and your bank refuses to allow you to withdraw your cash. For most of us, our lives are so intertwined with the financial system, that being locked out if it could very nearly be a death sentence.
Custodians and Self Custody: One Of These Things Is Not Like The Other
I believe strongly that the main purpose of Bitcoin is to allow holders to take back their financial sovereignty, or in layman’s terms, their power over their own money. However, while Bitcoin can be extremely resistant to seizure, whether or not it actually is depends almost entirely on your choice of where and how to store your Bitcoin:
With a Custodian
When we hear the word “custodian”, we typically think of cryptocurrency exchanges, crypto banks, and other crypto companies. Those companies like to make us think our holdings are safe with them. Their websites are full of references to the “military-grade” security and insurance policies backing up the assets they custody. But they’re usually less willing to broadcast the hacks and inside jobs that result in massive losses for customers, or the fact that if a regulator comes knocking and demands your information and your assets, they will be forced to comply. Or I should say, most of them are unwilling to broadcast it:
Kudos to Kraken’s CEO, Jesse Powell, for telling the honest truth.
No matter how good the intentions of the company holding your Bitcoin are, there is no way to guarantee they won’t sell you out to save their skins. Your Bitcoin can be resistant to confiscation. But not when you entrust someone else with the private key controlling your Bitcoin.
In a Self-Custodied Wallet
People often laugh when they hear about someone hiding cash under their mattress or in their attic. But when it comes to self-custodying one’s Bitcoin, there’s actually a pretty strong parallel with that type of behavior. Self-custody is essentially a vote in favor of your ability to protect your own interests and a vote against someone else’s commitment to serve your interests over their own. After all, how many companies are going to risk being shut down and how many CEOs are going to risk going to prison to protect their customers’ rights to financial freedom? Not many.
Before you immediately rush out to buy a hardware wallet or set up a multisig configuration, it’s important to remember that even self-custodied assets aren’t completely safe from theft or confiscation if you don’t protect them. Just think of the couple accused of laundering Bitcoin stolen from Bitfinex who kept the associated private keys in the cloud where they could easily be confiscated by the Department of Justice. Their intentions were bad, and their self-custody solution was just as bad.
In other words, your Bitcoin are only as safe as you keep them. And if you don’t protect them, then your financial sovereignty is not much more assured than if you kept your Bitcoin on an exchange or in a crypto bank.
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This is not financial advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.
