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You only own bitcoin if you have control of the keys. Can you prove you own your coins?
Each year on January 3, bitcoin clocks off another year and bitcoiners around the world celebrate Proof of Keys day. This day commemorates bitcoin’s genesis block through a ceremony spreading awareness of self-custody, the act of independently securing and managing one’s bitcoin.
As is tradition, this article will highlight the case for self-custody, especially in light of recent unfortunate events that could have been avoided. Read on and share this article to help bring greater independence to bitcoin.
Custody is easy when you keep it simple
When it comes to security, there’s a tendency to think that a more complex system is more secure. But the opposite is usually true. Each extra level of security you add increases the attack surface of your security model and can introduce room for error. That’s why it’s better to choose on one proven standard, and focus on using it properly.
Keeping your bitcoin safe ultimately comes down to one thing: making sure that your seed is unique and that only you will ever have access to it.
The simplest way to do that is to create and store your keys offline on a single-purpose device, a hardware wallet, and store the recovery seed it creates in a separate secure location as a backup. No matter what happens to your device, that list of recovery seed words can recover your funds.
How to prove ownership of your keys and keep them safe
The entirety of your wealth can be managed using a single hardware wallet and a single backup, or split across multiple ones. What is important is that you keep your system manageable and reproducible, as you may one day forget the specifics of any custom changes you make to your model. Do not introduce your own cyphers or encryption, simply follow the procedures properly.
Easy to use, easy to secure
Even highly competent developers can fall victim to an overcomplicated security setup, or simply be so overconfident it makes them complacent. One well-known Bitcoin Core developer, LukeDashJr, announced the loss of hundreds of Bitcoins stored on a laptop he thought to be offline.
Using an air-gapped laptop to create and manage keys is a commonly cited alternative to hardware wallets, especially among very technical users. The problem with using a highly flexible device like a laptop instead of a single-purpose hardware wallet, is that the system is too complex to properly understand, and a hidden vulnerability could be introduced.
A hardware wallet is a computer built only to create, store and manage crypto keys. It has a Trusted Display, a screen that allows you to verify transactions, and it generates a back up to restore your funds if the device breaks. Trezor is built to do this so using only verifiable code, rather than trying to obscure its security methods and potentially introducing hidden exploits.
Even as a complete beginner, getting a hardware wallet lets you simply follow a few basic steps and achieve the security level needed for bitcoin, right from the start. Choose your Trezor now.
Independence from exchanges
Leaving your coins on an exchange may feel secure — we are all but hardwired into trusting a user-account model for our bank accounts and other services — but it is simply not adequate when dealing with an asset like bitcoin where transactions cannot be reversed and keys cannot be recovered.
Looking after keys is a huge responsibility, one which a custodian cannot provide at the level each individual needs it. The only long-term solution is to protect them yourself.
Custodial exchanges, which give users accounts and hold the keys to funds on behalf of their users, are not by their nature compatible with Bitcoin. They are centralized solutions and therefore face specific risks such as hacks, phishing, government interventions, and mismanagement. When there’s a mediator involved that manages user accounts, there is motivation for abuse. So, what can you do?
Cut out the middlemen. Bitcoin was designed to be transacted between two people, without the need for an intermediary. By continuing to use a centralized exchange, you voluntarily expose yourself to risks that bitcoin is meant to prevent, and until you withdraw it, the bitcoin you think you own is never truly yours.
If the withdrawal fees seem too high, consider buying direct to your Trezor through one of the many options provided in Trezor Suite by Invity, including dollar-cost averaging and peer-to-peer trading.
Trust yourself
Don’t be afraid to take the step of using a hardware wallet. It is the single biggest improvement you can make to your security in just a few simple steps. Leave exchanges behind and use bitcoin as it was meant to be used, peer-to-peer between two independent people, with the keys safe in the palm of your hand.
The catastrophic failures of multiple high-profile exchanges and custodians in 2022 have proven that self-custody is a crucial, integral part of cryptocurrency. The drama may have simmered down for now, but there are still many over-leveraged unbacked custodians holding user funds that could collapse at any moment, and those funds will be lost if they are not under their owners’ sole possession. Only once you hold your keys for yourself will you realize how liberating it is to truly own your money.
Take custody of your bitcoin was originally published in Trezor Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.