The entire point of bitcoin is that you can self custody your bitcoin. In fact while many seem to think “be your own bank” means run your own node, it is really all about self custody. Think about why we have banks in the first place. Banking as we know it (international banking) goes back to the times of The Knights Templar.
In this time people would make pilgrimages to the holy lands. You may imagine at such a time only those with means could make such a journey. The journey would be long, hard and expensive. You’d also have to pay for things while in the holy land, then have enough to get back to say England.
At this time gold was money. And if you had gold it had value you could use anywhere. If I stole your gold there was not much you could do about it. If I got away it was just gone. So the Templars invented a banking system. You could give them gold, they gave you a receipt and you could get your gold back anywhere they had a “bank”.
Since marauders would not be given your gold the receipt was your claim on the gold but basically worthless to thieves. This strategy worked, banking began to become something like we think of today. In the end though people use banks for two primary reasons….
- To safely hold money
- To utilize the bank as a payments system (money in like direct deposit and out like say a check to pay a bill)
While some people do “live on bitcoin” and are very concerned with the second point, those people already tend to be self custody types. So we are going to focus just on #1 for this issue, safely holding bitcoin. Because people are comfortable with modern banks they tend to be okay with a crypto exchange pretending to be a “crypto bank”, yet as we will see today your money isn’t even that secure in a “real bank”.
Join Me Today to Discuss…
- The stories of how banks came into existence
- Grain bills and pharos
- International banking
- Regional banking (wild cat banks) – link
- Why people think banks are secure places to hold money
- Modern banking in general works very well
- FDIC insures almost 100% of deposits for the average person
- Schools teach use banks are safe from early childhood
- Many services in our lives pretty much require a bank account
- Credit/Debit cards have protections built into them
- Why banking is not as secure as you think
- State and federal governments can and do lock and seize accounts
- Your holdings can be locked for lawsuits, etc.
- A bank can pretty much lock up the funds of any account at any time
- Why crypto exchanges have the same risks but also have
- Significant counter party risk – no guarantee of reserves
- Very little regulation and hence no probability of being “bailed out”
- Often co mingle funds into high risk activities like “yield farming”
- What is self custody and is there any down side
- Self custody means you hold your own keys (12 words)
- No party can take, lock, etc. your bitcoin
- Determining exactly how much you have is difficult for a third party
- But if you loose access and your phrase you are screwed
- What forms of self custody are there
- Software wallets – bronze standard
- Hardware wallets – silver standard
- Hardware wallets with your own node – gold standard
- Other options and why you might use them
- 2 of 3 multi sig
- Custodial accounts for things like IRAs
- Software wallets with a cold device
- In the end bitcoin without self custody is probably worse than dollars in the bank
Resources for today’s show
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- All the Bitcoin/Crypto Tools & Gear I Recommend
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