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There’s only one rule in the world of crypto, Trust no one!
“Not your keys, not your coins” is a saying that gets passed around a lot in this space.
What it means is that if you store your crypto assets on an exchange or with any kind of third-party custodian, you have no guarantee of ownership.
What can happen if you leave your bitcoin on an exchange?
Here are some of the Worst Cryptocurrency Exchange Hacks that happened in the past:
- June 2011: Mt. Gox ~$8.75 million stolen
- October 2011: Bitcoin7 ~ $50,000 stolen
- March 2012: Bitcoinica ~ $228,000 stolen
- May 2012: Bitcoinica ~ $87,000 stolen
- July 2012: Bitcoinica ~ $300,000 stolen
- September 2012: Bitfloow ~ $250,000 stolen
- May 2013: Vicurex: $160,000 stolen
- June 2013: PicoStocks: $130,000 stolen
- November 2013: PicoStocks: $3,000,000 stolen
- February 2014: Mt. Gox: $460,000,000 stolen
- March 2014: Cryptorush: $570,000 stolen
- March 2014: Poloniex: $64,000 stolen
- July 2014: Cryptsy: $9.5 million stolen
- August 2014: BTER: $1.65 million stolen
- October 2014: MintPal: $1.3 million stolen
- October 2014: KipCoin: $690,000 stolen
- December 2014: BitPay: $1.8 million stolen
- January 2015: 796exchange: $230,000 stolen
- January 2015: Bitstamp: $5.2 million stolen
- February 2015: BTER: $1.75 million stolen
- April 2016: Shapeshift: $230,000 stolen
- May 2016: Gatecoin: $2.14 million stolen
- August 2016: Bitfinex: $77 million stolen
- October 2016: Bitcurex: $1.5 million stolen
- February 2017: Bitthumb: $1 million stolen
- April 2017: YouBit: $5.3 million stolen
- December 2017: EtherDelta (DEX): $270,000 stolen
- January 2018: Coincheck: $500 million stolen
- February 2018: Bitgrail: $187 million stolen
- June 2018: Coinrail: $40 million stolen
- July 2018: Bancor (DEX): $23.5 million stolen
- Sept 2018 Zaif: $60 million stolen
- Jan 2019 Cryptopia: $17 million stolen
- Feb 2019 Quadriga CEO Death: $250 million lost
- May 2019 Binance: $50 million stolen
Incidents such as this prove the dangers of leaving your precious bitcoin with any third party custodians.
Not only are they susceptible to hacks, what happens if the exchange goes bust or its accounts get frozen by a regulator? This is what happened in Canada recently.
Inside jobs, exit scams, Ponzi schemes, and even a suspicious death made up the lion’s share of the $4.4bn lost in cryptocurrency crime in 2019.
You get the message.
After watching Netflix’s latest documentary, it further cemented my believe that the many promising facets of crypto use cases are being used extensively as an affront to fleece investors off their bitcoin.
This documentary investigates an array of possibilities where $250 million worth of bitcoin vanishes from QuadrigaCX, once Canada’s largest crypto exchange, and the only person who can get it back, Gerry Cotten who mysteriously dies.
It’s the swindler story you haven’t heard of… until now.
The untimely death of the 30-year-old Cotten, who lost his life under puzzling circumstances while traveling in India with his new wife Jennifer Robertson left the crypto exchange in limbo, as Cotten was the only person who knew the passwords to QuadrigaCX’s $215 million in assets.
That meant that every single person who left their bitcoin on that platform could no longer access them anymore. Not even with the help of company employees, or the authorities.
Cotten essentially brought the passwords to his ”grave”…
This guy lost $400,000 thinking he could make a quick buck with his money by buying bitcoin on QuadrigaCX in the US, and then selling them in Canada to his bank account for $500,000. This is called an arbitrage.
Long story short, he couldn’t withdraw his money and started going down the rabbit hole of conspiracy theories surrounding Cotten.
This is nothing short of an exposé about the gullibility of short term thinking coupled with the unreliability of the crypto-verse intersecting between the promise of untold wealth and the freedom it promises.
So if you ask me, what do I trust more?
The U.S. Dollar or Crypto…?
I’d tell you I would trust the U.S. Dollar more than I trust the notion of ”Crypto”.
In fact, ”Crypto” essentially exhibits the same old power structure marketed as a shiny new technology that promises freedom.
Don’t be mistaken. I trust the math and the programmatic immutability of Bitcoin, but not crypto in general.
Here’s why…
Crypto ”people/exchanges/platforms” is basically trying to be the new version of traditional banks and bankers.
Let’s just say there are certain aspects of this Bitcoin technology that affords people new freedoms at the expense of The State, but the trade-off is that it is open source and hence easily replicated for personal financial profit while selling it to unsuspecting newbies who has no capacity for this sort of nuance.
You have to learn how to discern it for yourself. But not let it scare you from learning this new technology.
A Paper published in the 1900s to scare people from electricity
Vitalik Buterin has this to say:
Many industries and fields follow a similar pattern. First, some new exciting technology either gets invented, or gets a big leap of improvement to the point where it’s actually usable for something. At the beginning, the technology is still clunky, it is too risky for almost anyone to touch as an investment, and there is no “social proof” that people can use it to become successful. As a result, the first people involved are going to be the idealists, tech geeks and others who are genuinely excited about the technology and its potential to improve society.
Once the technology proves itself enough, however, the normies come in – an event that in internet culture is often called Eternal September. And these are not just the regular kind of normies who want to feel part of something exciting, but business normies, wearing suits, who start scouring the ecosystem wolf-eyed for ways to make money – with armies of venture capitalists just as eager to make their own money supporting them from the sidelines.
In the extreme cases, outright grifters come in, creating blockchains and crypto with no redeeming social or technical value which are basically borderline scams.
But the reality is that the line from “altruistic idealist” and “grifter” is really a spectrum. And the longer an ecosystem keeps going, the harder it is for any new project on the altruistic side of the spectrum to get going.
One noisy proxy for the blockchain industry’s slow replacement of philosophical and idealistic values with short-term profit-seeking values is the larger and larger size of premines: the allocations that developers of a cryptocurrency give to themselves.
Source from Messari
Which blockchain communities deeply value self-sovereignty, privacy and decentralization, and are making to get big sacrifices to get it? And which blockchain communities are just trying to pump up their market caps and make money for founders and investors?
The above chart should make it pretty clear.
We live in a dangerous world, and protecting freedom is serious business
Try to imagine the feeling of relief – even elation– when the war started, and average, everyday Ukrainians had a solid option to move their families out of harm’s way with nothing more than a usb stick securing bitcoin in their pockets where no one but himself can ever access them… not even your friendly neighborhood banker.
In fact, some of the more learned ones were able to escape from harms way with nothing more than a 12 word seed phrase. Essentially crossing the border with a vault inside their heads.
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Naturally, there were many others who procrastinated over the years. They looked at the price of bitcoin and thought, “That looks interesting…” but they never took a minute to dig deeper into Bitcoin.
And now they’re stuck in Ukraine. Or they had all their money seized, lost, bankrupted…etc.
It’s not just Ukrainians either. Average, everyday Russians are largely in the same boat. Millions of them are trying to flee Putin’s regime and its cascading chaos.
Inflation is rampant. The Russian ruble went from around 70 per US dollar a month ago, to around 120 today.
Since Russia imports so many consumer products, many prices have doubled. Salaries and pensions, meanwhile, did not increase.
And regular Russian people are stuck with their rapidly depreciating rubles. It’s difficult (and now very expensive) to buy foreign currency. And banks that still do offer foreign currency exchange are demanding insane premiums.
But those who had enough foresight to have a Plan ₿ over the years are pretty much unaffected.
Now the iron curtain is descending once again, and Russians are only allowed to leave the country with the equivalent of $10,000 per person – hardly enough to move your life savings.People who saw the writing on the wall began acquiring BTC and holding them in a safe and private hardware wallet.
Plus the disconnection of almost the entire Russian banking system from SWIFT has made it very difficult to transfer money out of the country.
But those who bought BTC beforehand were in a much better position.
It wasn’t even necessary to hold much of your money in BTC… merely to have one open and available ( as a personal reserve asset ).
As the war was looming… and even immediately after the invasion started a few weeks ago… there was still a window of opportunity to transfer money via P2P – if you had a bitcoin wallet to send it to.
Now, if you noticed, I never personally recommended anyone to trade crypto. Merely to explore the possibility of treating Bitcoin as a long term savings mechanism or a store of value for your hard earned money.
And as you can see, once you understand the significance of bitcoin as one of the best ways to move wealth out of Russia, you will begin to understand why governments all over the world are still trying to crack down on self-custody-ing your bitcoin in your own hardware wallet.
Bitcoin is at its core a technology for defense – a technology that is fundamentally all about protecting people and helping them survive in such an unfriendly world.
It is, like the Phial of Galadriel,” a light to you in dark places, when all other lights go out”. It is not a low-cost light, or a fluorescent hippie energy-efficient light, or a high-performance light. It is a light that sacrifices on all of those dimensions to optimize for one thing and one thing only: to be a light that does when it needs to do when you’re facing the toughest challenge of your life and there is a friggin twenty foot spider staring at you in the face.
It is not money laundering or illegal activities they’re (politicians/bankers) concerned with when it comes to Bitcoin, it is the fact the they lose their power to surveil and exact control over the population.
Fiat money after all is the foundation where all governments derive their power from; hence it is a cesspool of theft, cronyism and corruption. It’s the escalator of wars, the source of wealth inequality and the reason why seemingly everything today is politicized.
Mankind can’t help themselves. When all you have is a hammer, every problem looks like a nail. Therefore, money printing seems to be the answer for all of society’s problem.
This however is not sustainable. And the ship is sinking.
Hence the need to separate money from The State.
In other words, we must separate the ”control & issuance” of units of money from any human hands/emotion.
And that is why Bitcoin has no OFF switch and no CEO.
That is what Bitcoin is about…
More power to the people!
Money doesn’t work the way you think it does
I didn’t always think this way. It wasn’t until 2018 that I started learning how fiat money, or our current system of central banking worked. I remember sitting there shocked asking what was going on with our money?
How Banks Really Make Money
We’re taught the basics of banking in school and it goes something like this. Alice deposits $100 into the bank and the bank pays her 3% interest on her money. Bob borrows $100 from the bank and pays 7% interest for the privilege. The difference of 4% is the bank’s profit.
Even a bank with a lot of money deposited, say $100M would only make $4M/year and that would have to pay for the buildings, ATMs, vaults, computer systems and lots of employees from the tellers, the loan officers, security guards, IT sysadmins and for some reason, many, many vice presidents. The numbers just don’t add up. So how do they make money?
Banks make money by creating money. In Latin, this would be fiat pecunia or “let there be money”, hence the term fiat.
The amount of money a bank can create is limited by something called the reserve ratio. To keep things simple, let’s say that a bank has a reserve ratio of 10. What does that mean? When a bank receives $100 in deposits from Alice, the bank now can lend out money. A reserve ratio of 1 means the bank can only lend out $100. In our example, the bank has a reserve ratio of 10, so the bank can lend out 10 times as much, or $1000 in loans to Bob. The $1000 lent to Bob generates $70 in interest for the bank and they pay Alice $3 for her 3% interest, so the net profit on the $100 deposit is $67! To put this in perspective, most banks nowadays have much higher reserve ratios than 10.
This system of banks creating money is called fractional reserve lending and it’s every bit as unfair as it sounds.
Who cares if your house went up by 20% when the next guy’s did too? We monetize real estate as a core store of value because fiat money is trash.
How Loans Work
The way loans work is not money lent out from savings, but money created to be lent. For example, if you want $500k for a mortgage at 3% over 30 years, this money is not coming from someone’s savings.
Think about it. Would you ever take the other side of that trade? If someone came up to you and said, “that $500k in the bank, I’ll give you 3% interest for 30 years”, would you ever take it? No, because the amount of capital is too high, the interest is too low and the term is too long. It’s a terrible deal and nobody invests this way.
Instead, that money is created by the bank for your benefit. The $500k did not exist until the loan was made by the bank, and the bank put the money into existence for you to buy that house. And the bank benefits because they can collect interest on the money they just created. This, by the way, creates the perverse incentive of making banks want to give out more loans. The 2008 mortgage crisis was due to banks making too many loans to people that shouldn’t have qualified.
Who’s Losing?
Are there any consequences at all? Does anyone lose or is it all just a win-win for everyone? The beneficiaries are obvious. You get access to capital and thus can buy the house only paying for a part of it. The bank gets interest from the loan.
So who’s losing? Everyone else who’s got dollars.
Everyone else loses as a result of the loan. Their dollars are now worth a little less. And it’s not just people in America. Heck, the people in the US have access to all sorts of loans that create money like credit cards, car loans, personal loans, and student loans. Who it’s really hurting are the people outside the US that hold around 65% of paper dollars.
Why do they hold so many paper dollars? They hold paper dollars because it’s more stable than their local currency and USD is seen as a good hedge against their own currency collapsing. For example, the Argentinian Peso has an inflation rate of 48%/yr which is much higher than the current USD inflation rate of 7.5%/yr, so keeping dollars around is prudent.
Dollar expansion by the banks hurt people in places like Argentina, Nigeria, Lebanon and Turkey. These are places where inflation is well into the double digits, where USD is not quite as bad as their local currency. It also impacts places like Venezuela, Zimbabwe and North Korea, whose black markets use USD as the primary currency. For these countries especially, black markets are where the real action happens.
So what happens when more money is created? These are the people that lose. The money creation by banks hurts the people of these countries, for example, North Korea has experienced surging food prices. The real victims are people that have no voice.
Higher Levels
I don’t want to single out mortgages, because that’s just the tip of the iceberg. Way more money is created by commercial banks for the benefit of large businesses and by the central bank of the US (the Fed) for the benefit of the US government. Large businesses can grow much larger by leveraging loans. And the federal deficit is a tally of how much money was created for the benefit of the US government plus interest.
The $800B bailout for banks was created by the central bank of the US to bail out banks. They diluted the money supply by 10% so that banks would become solvent. They bailed out irresponsible banks by taking from the poorest of the poor.
The trillions spent in Iraq and Afghanistan were created by the central bank to wage war. They diluted the money supply so that defense contractors could get rich. They brought suffering and death to the poorest of the poor.
The trillions spent on COVID relief PPP loans were created by commercial banks to appease the public. They diluted the money supply so that the politicians wouldn’t get the blame. They brought global instability to the poorest of the poor.
Even the billions created every day by retail banks dilute the money supply so that we can have things we otherwise can’t afford. They bring higher costs to the poorest of the poor.
Fiat money is not a necessary evil because it incentivizes the wrong behaviors at all levels. Banks have a license to steal and the ones who suffer the most are the weak and vulnerable. And if we’re honest, we’re more than a little culpable.
So what’s the solution?
Learn how to become your own ₿ank…
Learn how to self-custody your bitcoin. Meaning you alone control & manage your own money.
No more delegating that role to a third party custodian in terms of security & value.
No one but you have access to your own money.
Invest in Your Freedom and Call Your Own Shots today. Take Back Control with the most decentralized & scarce money on the planet.
Firewall Your Assets… with a Bitcoin hardware wallet. Protect what you’ve earned – especially your life-long hard earned savings.
You can reclaim your liberty, your prosperity, and your future.
We’ll show you how…
Overview of Bitcoin Wallet
Here you will only get a basic overview of self-custody.
This is not a guide on the most advanced security. It is an easy way to improve on what most people do. It is not about any one type of hardware wallet (HWW), but HWWs in general.
Aiming for extreme security right from the beginning is an unreasonable expectation; it must be done in stages, otherwise, you will have gaps in understanding, and such gaps are a security risk. It’s also a security risk to blindly follow advice if you are going to self-custody; you need to understand some of what you are doing too. (beware the Dunning-Kruger effect)
This may be challenging for you in the beginning. It does require some time to learn and experiment. However, continue to ask questions and do the necessary research, because self-custody is the entire purpose of owning bitcoin.
Why Self Custody?
The bitcoin you’re currently keeping on Coinbase (a crypto exchange) isn’t technically “yours” yet. If someone hacks your Coinbase account (or Coinbase itself), there would be no way to recover your funds or trace who did the crime.
Even if you’re not worried about hackers, it is in the bitcoin ethos to strive for self-sovereignty; after all, if the government can access and seize your bitcoin because it’s on a centralized exchange, doesn’t that defeat the purpose of this decentralized asset?
What does it mean to “own” your bitcoin?
In order to truly own and protect your bitcoin, you will need to have your own set of “private keys” that only you have access to, unlike the publicly shared invoice address that you use to receive bitcoin with.
Private Keys Explained
Private keys are essentially very complex, randomly-generated passwords that allow us to access our bitcoin and to verify or “sign” our transactions. These keys are then represented in a 12 or 24-word “seed phrase,” which allows us to more easily record, memorize, and backup our private keys.
On an exchange like Coinbase, your bitcoin is stored in a “hot wallet,” where Coinbase owns your private keys. Because they own your keys, if they get hacked, so does everyone who keeps their bitcoin on there — yikes.
Only when you have control of your private keys will you have secure control over your bitcoin transactions.
Keep in mind though, that self-custody means you’re responsible for keeping these seed phrases offline and in a safe place where you won’t lose access to them. While there are methods of backing up your seeds onto physical, stainless steel cards, it’s not as easy as storing it in an online password manager.
Many of us have heard the woes of those who lost access to or forgot their seed phrases, thus losing access to millions of dollars worth of bitcoin. Let this be a lesson to us all: Keep your seeds safe, secure, and accessible.
Easy Self Custody Methods
In this lesson, I’ll introduce two easy forms of bitcoin storage methods so that you can begin your self-custody journey:
1. Software wallets
There are a few open source mobile options out there that are great starting points for beginners, such as Blue Wallet and Muun Wallet. Desktop versions like Electrum are also an option.
Although these wallets are connected to the internet, they generate a new private key that only you can control, which is a big step up from exchange-hosted wallets.
The great thing about having mobile/desktop wallets is that you can easily access your bitcoin anytime. The downside is that if you don’t take the right security measures, someone who has access to your phone or computer could also have access to your online bitcoin wallet.
While mobile wallets are good for on-the-go use, they’re not the most secure. If you are just starting out with minimal funds, software wallets are a great, free option.
Fortunately, there are also more advanced options to utilize your software wallets as “watch only” wallets, where they merely act as a user interface for your cold storage but do not hold your private keys. This would allow you to generate invoice addresses for receiving bitcoin, but would prevent a hacker from transferring anything out.
2. Hardware wallets
DO NOT BUY THESE WALLETS ON AMAZON OR EBAY!
Hardware wallets are the most straightforward and popular form of offline cold storage. These wallets securely contain your private keys and typically come in the form of a flash drive-like device (popular ones include the Ledger Nano S or the Coldcard). The devices themselves are protected with a PIN so that your private key will still be somewhat safe even if your hardware wallet is stolen.
Because your hardware is not connected to the internet, it is considered “cold” and a much safer method of private key storage than online “hot” wallets. These physical devices allow you to access your bitcoin securely by storing your private keys offline.
You can check them out in more detail here:
https://coinzodiac.com/ironclad-bitcoin-wallets/
It’s a common misconception to think that your hardware wallets “hold” your bitcoin — your bitcoin lives on the blockchain; the hardware wallet is merely a means of storing and using your private key to authorize transactions that move funds. Although a hacker could guess your pin to access your hardware wallet, it is extremely unlikely as most wallets will wipe themselves out after a few wrong guesses.
If this physical device is lost or stolen, you can still recover your funds with a new hardware or software wallet, as long as you have access to your seed phrase.
Additional Security Measures
With great power comes great responsibility, and the ability to self-custody your bitcoin is a great power indeed. Aside from removing your bitcoin off of exchanges, making sure your seed phrases are kept private and secure is of utmost importance — this is your only backup.
Many people like to take on additional security measures by storing backups of their seed phrases in vaults, or setting up more advanced multi-signature wallets that require additional private keys to authorize transactions.
On another note, be aware of phishing scams like fake hardware wallets being sold by scammers on Amazon or Ebay; always purchase directly from the manufacturer to ensure that your hardware wallet is the real deal.
It’s time to take your first step in bitcoin self-custody.
And, remember, not your keys, not your bitcoin
Understanding Bitcoin Wallets
A) Your seed phrase (usually 12 or 24 words) produces a virtually limitless list of BTC addresses. The collection of these addresses is your “wallet”. They can be reproduced on any device using the same seed phrase. ColdCard, Trzor, Ledger, doesn’t matter…
B) If you lose your hardware wallet, or the manufacturer goes out of business, it should not be a disaster because you should have backed up your seed words and kept them hidden somewhere. Using the words, you can regenerate your wallet on any BIP39 compliant HWW (most of them).
C) Important to understand is that your seed words are HIGHLY SENSITIVE. Anyone who gains access to them does not need to break into your HWW. They simply enter the words into their own HWW, and send all your bitcoin to their own wallet. Another thing to appreciate is that the HWW does not hold any bitcoin. It’s just a digital safe for your seed words, locked with a PIN.
D) Yet another thing to appreciate is that the software you HWW connects to (eg Ledger Live, or Trezor Suite), typically shows you one address at a time to receive new coins…
E) You actually have limitless addresses, and a list of change addresses too, but these companies hide these details from the user to make the experience easier. The downside is that it keeps the power of Bitcoin hidden…
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