Read now to learn how your Bitcoin are only as safe as you keep your private key.
I am a huge proponent of custodying one’s own Bitcoin, so much so that I’ve written an entire series on self-custody basics to help people understand what it is and why it matters.
I believe self-custody can be the best way to protect one’s Bitcoin. After 2022, it’s not hard to see why, what with all the crypto hacks and corporate implosions. Suffice it to say that your Bitcoin can never be safe if someone else holds your private keys. Many people will choose that route anyway, but let’s not forget that we’re at the mercy of whoever holds our private keys if we want to get our Bitcoin back.
Let me be clear though: there is no surefire way to keep your Bitcoin, or any money for that matter, 100% safe. I recommend self-custody over anything else, but even self-custody is not without risks.
Recent events give a painful, but potent example…
A Developing Story
News came out on Twitter earlier this week that a developer who works on the Bitcoin Core software had lost most of his Bitcoin that he was self-custodying:
For obvious reasons, this has a lot of people up in arms about self-custody, especially considering the skill set of the victim. After all, if someone helping to maintain Bitcoin’s software seemingly can’t protect their Bitcoin, can any of the rest of us?
Yes, we can.
A lot of details about the event have yet to be released, so the whole situation is a bit fuzzy at this point. But some of
Luke Dash Jr.’s comments on Twitter seem to indicate that he may have been keeping a lot of his Bitcoin holdings in an internet-connected “hot” wallet. It remains to be seen if that’s true, but if it is, it may be the key to understanding how the Bitcoin were taken.
Your Wallet’s Hot, The Trail To Your Holdings Is Cold
Bitcoin wallets are often divided into two types: “hot” wallets and “cold” wallets. Which group your wallet falls into really comes down to whether or not your wallet is connected to the internet. It really is as simple as that.
Why does internet connectivity matter? Because the internet is a worldwide network, accessible by anyone anywhere in the world at any time. Would you really want your private keys connected to the largest communication network in the world at all times?
There are certain instances where a hot wallet may be preferable to a cold wallet, or a wallet that isn’t (ideally ever) connected directly to the internet. For example, you probably don’t want to whip out your hardware wallet or whatever other cold wallet you may be using to buy your morning donut.
On the other hand, you also wouldn’t really need immediate access to all of your Bitcoin holdings in order to make small daily purchases. It’s for that reason that many people recommend keeping small amounts of Bitcoin that you want to easily access in a hot wallet, and the rest of your Bitcoin holdings in “cold storage”. That way, you get the best of both worlds to a certain extent and are less likely to lose all your Bitcoin from one second to the next.
The Choice Is Up To You
There is no “one size fits all” path as it relates to the decision to use a hot wallet, cold wallet, or both. You know your personal situation better than anyone else, and so you’ll need to make the decision that’s best for you.
I would caution however against jumping to conclusions regarding self-custody. Yes, self-custody has risks, but this episode isn’t evidence in my opinion that self-custody has more risks than custodial solutions. If anything, I’d say this event serves as a reminder that even the people who seem to be the smartest in the room, so to speak, can do things that history will likely reflect pretty poorly on.
Scams.
Rugpulls.
Shady companies that will take away your hard-earned money the first chance they get.
That’s what most content creators in the Bitcoin and Crypto spaces offer their communities in exchange for the *free* content they promote in newsletters, on talk shows, on social media, and anywhere else they can peddle their wares.
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This is not financial or business 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.
