Learn about Bitcoin
Users who hold their own keys are isolated from the collapse of centralized exchanges.
Self-custody can seem like a mental barrier for many Bitcoiners. It’s intimidating to be self-dependent, but a lot of that fear is due to inexperience. When it comes to money, we have learnt to let someone else protect it for us: banks, brokers, building societies, and so on. But bitcoin is new money, designed to be much easier to secure, all on your own.
Lost in the unfolding drama of collapsing crypto exchanges, is the fact that a large portion of the bitcoin community are completely isolated. As long as your keys are on a hardware wallet, there is no exposure to the ‘contagion’ many exchanges are afflicted by. Once again, bitcoin is being conflated with the crypto industry built around it. bitcoin itself does not care about the events unfolding in the media, and is not significantly affected by them despite what mainstream analysts may state.
Self-custody is ownership. When you and only you have access to your bitcoin, you control what happens to your money. It’s like having a bank account, but you are free to decide where you send your money, or how much you can spend at once. No-one can censor your payment.
Even if you have faith in your bank to act in your favor, none are out of reach of the government, who are equipped and ready to freeze your accounts, even for exercising your right to free speech.
Taking full responsibility for what happens to your assets is intimidating. But it is much easier to protect bitcoin than cash or gold, as bitcoin depends on digital tools rather than physical barriers. With your money in a hardware wallet, you are the only one with the power to access it, and all you need to safeguard is your recovery seed.
Bitcoin does not need middlemen. It is a peer-to-peer currency, meaning two individuals can transact without involving anyone else. Trading on a custodial exchange is a quick way to lose money, for several reasons:
- exchanges have been shown to trade against their customers, front-running their positions
- fees are not transparent and you pay a premium when the time comes to withdraw funds
- leveraged positions which can liquidate your bitcoin are encouraged
- you do not own the keys, so the exchange can use your money as it wants, lending it out or even trading against bitcoin
- there is no on-chain record of your bitcoin, so the exchange doesn’t need to hold the asset they sell until a user asks to withdraw it. Only by trying to take custody will you find out if the asset you bought exists or not.
- they can sell more bitcoin than will ever exist, artificially suppressing the price.
There’s no good reason to leave money on an exchange longer than necessary. Every time you buy bitcoin, remind yourself that the purchase is not complete until it is in your custody. Put off by the high withdrawal fees? You can have bitcoin sent directly to your wallet on purchase, skipping the extra expensive step.
Thanks to Invity.io, part of the SatoshiLabs Group, you can buy, sell, exchange, and save bitcoin directly in Trezor Suite. Invity thoroughly vets, verifies, and monitors a selection of non-custodial exchange providers. Whatever you buy is transferred directly into your Trezor, without it sitting on the exchange.
Companies like the bankrupt BlockFi offered their users interest in return for giving away their funds for BlockFi to invest in various cryptocurrencies as they see fit, a system not far from some savings accounts in conventional banking.
Other than the aforementioned custody issue, investing in altcoins is often a very volatile and risky undertaking with an uncertain outcome. If you want to invest in crypto long-term, bitcoin dollar-cost averaging is regarded as one of the safest methods, and is now also available in Trezor Suite. With DCA in Trezor, you overcome market ups and downs and slowly accumulate bitcoin while never losing control over your funds.
Should you want to avoid exchanges whatsoever, we bring good news for you as well — with Invity and their partner Hodl Hodl, we recently introduced the option to buy bitcoin peer-to-peer directly in Trezor Suite. With this feature you can get your bitcoin anonymously yet still securely thanks to multisig escrow.
Of all the crypto lost in 2022, it is difficult to find a single case where the lost funds were secured offline. The vast majority has been from the collapse of lenders Celsius and the FTX exchange, exploits in smart contracts, or various so-called ‘rug-pulls’ which include both exchanges and projects where the founders stole or lost user funds.
At the time of FTX’s collapse, the exchange had liabilities of over a billion dollars’ worth of bitcoin, while allegedly not holding a single bitcoin in their reserves. It is easy to speculate as to what happened to the missing funds, but more important is the fact that an exchange with millions of users was able to hide the fact that they did not have enough bitcoin to pay back more than a handful of users when the bank run started, and that they sold bitcoin which did not exist.
At the recent Afrobitcoin conference in Ghana, our Bitcoin Analyst Josef Tětek addressed the issue of this ‘paper bitcoin’, which undermines the limited supply of Bitcoin and obscures it’s true value. Watch his speech here:
It’s time to stop trusting exchanges that do not themselves support bitcoin with your money. Self-custody makes bitcoin stronger and puts an end to the incidents we’ve seen of late. Keeping your keys safe under your sole control is easy with a hardware wallet. With a recovery seed backing up your money and no vendor lock-in, there’s no need to depend on anyone else at any point of your journey.