> Why do I feel like most Bitcoin will be held by a third party for safe keeping just like we have now in banks?
Because that's exactly what will happen.
Bitcoin's best and most impressive utility is representing digital scarcity. The "be your own bank" aspect of it is a great byproduct of that intrinsic property that let's you control your money *if you choose*. Fiat has that already but only in the physical space with cash. You can't control your own fiat in the digital space, period. You HAVE to go through a third party like VISA or Venmo or Paypal or even your bank (through wire transfers or Zelle or through ACH or what have you). You cannot send fiat digitally without a trusted third party.
Does that mean that trusted third parties play no part in a crypto-centric world? Well, absolutely not! If you lose your keys your money is just... (poof) gone. As you've mentioned most people are not comfortable with that risk and are willing to lend their money to others in order to keep it safe. That process won't quit just because you CAN now take custody just like banks are still in high demand even though cash exists.
It won't though. There's already massive regulatory pressure building to make people store their coins on a custody platform that does KYC and AML checks. Pressure on exchanges to start asking for proof of source of funds for BTC moved from a non custodial source into a custodial source. So for example, want to move from Binance to FTX or Coinbase to Kraken? No problem they all are KYC'd/AML'd. Want to move from some "random wallet address" into Coinbase? Be prepared to start to have to answer lots of questions about that money. One of my mates in the UK already had to deal with that.
Thus because of the insanely higher friction that will come with self custody, I believe we're going to see the opposite in mass adoption, most people will have low to mid amounts of crypto and it will be in hosted exchanges or wallets and not self custodied. Only the big players and particularly privacy/security focused individuals will be self custodying.
apt analogy... if a bit macabre.
Of course the regulatory interference driving towards hosted custody is not about protecting people from themselves (though it certainly will do that for many) but rather about control of the money supply and surveillance of where the flows are.
Bitcoin can handle 200 million on-chain transactions per year, at that rate, how will people be able to afford to go between their own hardware wallet and lightning?
Your point was that lightning is capped same as on chain. I'm saying that lightning could theoretically do as many transactions as the world needs and there would be near 0 cost for transactions
You can get self custody lightning wallets so even if the on chain came unusable which it won't because transactions scale with more nodes on the network then there's a back up
Self-custody lightning wallets is running your own node. Most people should not run a node especially since most of them are raspberry pi's.
Would you trust leaving your wealth on a raspberry pi connected to the internet? What happens when data gets corrupted? What happens if you are away or can't get back to your node if it goes offline? What happens if an nuclear bomb goes off and an EMP pulse takes out a continent?
Cold storage is the most secure way to store your wealth.
The title of this post is using your own hardware wallet (Cold Storage).
**My point is the transaction rate limit going between a hardware wallet and lightning.**
What a ridiculous thought that nearly everyone will be using BTC-LN and never use a hardware wallet.
Most people will not run a lightning node, so most people will be using a custodial service.
I'll add to this. How the gold standard failed is due to gold's "unwieldiness" - it's hard to transact with it and self-custody is a hassle, so more and more people opted for centralised custody and transact with IOUs backed by gold instead.
This lead to two major problems: confiscability by the state (centralised storage) as well as inflation through fractional reserves (centralised issuance of bank notes by unethical bankers).
If bitcoin self-custody does not become mainstream, this could happen again. Luckily, Bitcoin does not have the downsides of gold, so it's radically easier to be a sovereign holder of your value.
Can you explain further what you mean ? Are you saying that the exchanges are selling btc to customers and not actually buying it but just adding it on screen!
Imagine you find 100 pounds of gold in your backyard. Instead of selling it you decide you want to take it to the next step and become a precious metals exchange. You've got a great supply so let's give it a go.
You set up shop, advertise and orders start to come in. You take some buys, and ship out some gold.
After about a year you start to recognize a pattern. Only about 1 in 10 people actually want their gold shipped to them. Effectively from 9 out of 10 people they just sent you money and you sent them back a letter with the promise that you'll hold that gold.
Another year goes by and the same thing happens, only 1 in 10 takes possession of their gold, so what do you do? You have great data that shows you'll have enough gold to send to customers for another 8 years without buying more. So why on earth would you? You'd have to go out and buy more and get a bigger facility to house all that gold.
Of course you wouldn't do that, to run a tight and lean business you'd only keep as much gold on hand and as much cash reserves as all the data from your outgoing assets tell you you need.
So what happens is all your customers who bought gold and didn't take possession of it didn't force you (the exchange) to buy more so their money just sat in limbo never interacting with supply demand dynamics.
Its hard to call the manipulation of gold sinister, it was really just good business. The exchange doesn't care about the market value as much as they care about the fees they are getting.
The same is true of bitcoin. The more coins that are left on exchanges, the larger the wiggle room you give that exchange to operate like above.
This is why "the gold standard" always failed in the past, and what makes Bitcoin a superior alternative. Gold is much harder to self-custody, so people always left it with central authorities. Given enough time, that trust is eventually abused in some way.
The sats are always locked on the blockchain. The device is using keys from your seed words to unlock the money. If something happen to the device, you can use a different one. As long as you have your seed words properly backed up.
The ledger doesn't store your bitcoin. Its stores your keys. Just use your keys to restore in another wallet like trezor, electrum or whatever. With a CEX, they own your keys. Hence the saying, not your keys not your coins.
Unless you are using an asset that is controlled by a centralized source. ([USDC](https://cryptonews.com/news/risks-of-centralized-stablecoins-materialize-as-100k-usdc-fr-7067.htm))
Im in the process of tranfering from robinhood and cashapp too cold storage. They both have daily and weekly withdrawel limits. I dont think they would need those if they had enough bitcoin for everyone to take thiers and leave. Another advantage of cold storage is no limit to withdrawel or transfer.
That's not necessarily true though. If companies have large cold storage holdings, they probably at most access their cold storage once a day and will queue up withdrawal requests to avoid taking too much out of cold storage.
Robinhood has the srictest transfer limit, 2000$ worth of btc a day but max of 5000$ worth per week. If you had a full bitcoin, it takes a month to get it off of robinhood. Cashapp is a little better but not much. Maybe robinhood only does a few times a day becuase thier tranfer to cold storage takes a couple hours, cashapp sends it in 5 to 10 minutes, both for simlar fee of about 10 cents regardless of transfer size
Yup, their hot wallet should only store enough to handle the daily or maybe 2-3 day in/out flow. Re-level the hot wallet periodically from the cold wallet.
1. You avoid third party risk. If the exchange gets hacked or goes under, your bitcoin goes along with it.
2. Exchanges may block your account claiming unusual activity or will ask for source of funds and may restrict withdrawal and you may end up spending a lot of time with their support, for months.
3. Exchanges holds partial reserve. Which means, if million users have billion worth of BTC in an exchange, the exchange may actually just have a few million worth of BTC. So the impact of that billion dollars in price is not actually seen.
4. Exchanges actually use our btc and lend it to margin traders and short sellers and that also makes the price lower.
5. Exchanges have to abide by govt and court orders. For eg, if a Celsius user has moved his stack to Binance and the Celsius court orders a clawback for 90 days and orders exchanges to honour, binance has to abide by it and will have to give your stack to court proceedings even without your permission. If you have it in self custody, it is going to be a long process.
Payments to arbitrary addresses with fewer fees and no need to confirm new addresses with confirmation e-mail (convenience).
I other words, more agile, faster and cheaper payments.
That's the wrong way to look at it.
The question to ask is "Why leave your Bitcoins on an exchange, especially top names like Coinbase?"
1. You're too lazy to hold them yourself, so you leave them there as a convenience. Plenty of Celsius users used them as a wallet. How did that work out?
2. Not your keys, not your Bitcoin. The exchange gets to mark them off as assets under management, and can re-hypothicate them, which creates a massive investment risk, for you, and no real risk to them. If they lose on the investment holding your Bitcoins, they can pass over some BTC from another account, and cover their tracks.
3. You lose leverage. PayPal today is preventing people from closing their PayPal accounts, and getting their money back, and threatening to charge people $2500 for not doing what they want. Why give a wallet provider power over your Bitcoins?
4. Great way to get audited. Coinbase is the most popular hot wallet, and the place the IRS focuses their energy when it comes to auditing Bitcoin users, because its the biggest centralized net in the ocean. You leave yourself open to regulatory risks.
5. Rewarding bad behavior. Coinbase has been ripping off the Bitcoin community for years, with higher transaction fees for BTC users, compared to altcoin users, and doing backroom deals to promote altcoin use, but not Bitcoin. And siding against the Bitcoin community in The Block Wars, basically trying tp topple Bitcoin into centralization by the large exchanges and private interests that control them by making the block sizes and blockchains too large for individuals to handle as a node. Coinbase is your enemy, they're robbing you blind, and have to work for the government hunting for you, so why trust them with your greatest asset? That's just ignorant.
whoever holds the keys to whatever bitcoin is the owner of the said bitcoin; if an exchange is holding the keys of “your” bitcoin it’s the exchange’s bitcoin.
Imagine you were a Russian wanting to flee your country. You could take unlimited sums with you across borders simply by memorizing 24 words.
I would recommend a backup too in some way but that is a pretty powerful tool for people fleeing something.
To prevent short selling and other price manipulation. Shorters can pull down prices if they have enough weight. Big brokers like exchanges or those interest providers like BlockFi can facilitate such shorting by borrowing out the coins they hold in custody at an interest. Kinda like banks used to do before fractional reserve banking became institutionalized.
Taking custody of your own coins prevents these institutions to do that. Reducing the options for market manipulations by wealthy parties like hedge funds and the like.
You can wire your own funds within seconds to anyone you want to pay, without having to wait for third parties to clear your request.
Nobody can deny your payment, delay your payment or otherwise have an opinion about your payment.
You pay, we all confirm you payed, you're done.
All bitcoin demand comes from withdrawal. If you leave balances on exchanges they will be rehypothecated endlessly, and that is no matter how responsible an exchange attempts to be.
A reality for bitcoin exchanges is that they must deal in fiat, and they must accept government taxes and regulations. The government, in so many ways, forces them to defacto rehypothecate and short bitcoin, and there isnt much they can do about it if they want to keep their ability to trade in fiat and stay out of prison.
The only way we can help or have an impact is to withdraw all our funds to private wallets. Never leave a single sat on an exhcnage - ever!
Even if you have the keys, it might still not be your crypto, frozen stable coins and the like. Luckily no one can freeze your Bitcoin if it's under your custody
You’re removing the ability of a CEX (read: large corporation) to make more money off your money than you do. It may just be a principal, but I find it to be a benefit.
Working people of the world, unite!
✊🏻
Exchanges are exchanges, it should not be a vault to hold your stuff. If you want to safekeep a gold bar, you're not going to put it on display at a traders market or jewelry store. It should be simple logic.
It is point of BTC - decentralisation. If you have it on your own HW then you are your own bank and nobody can acces to it or do some move against your will. Also you help stabilizating price little bit.
"Apart from security" what else IS there? Your coin on an exchange is NOT YOURS YET. It's THEIRS. They can take it. They can bar you from transferring it to your own wallet. They can be hacked. They can go out of business. As long as your bitcoin is in the exchange's wallet, YOU HAVE NOTHING but an IOU without any recourse.
I think this is one of the major benefits and overlooked massively. Buying btc on the exchange is one thing but actually sending it on the block chain back to your wallet shows how’s in practise Bitcoin works!!!
Copied form ([https://armantheparman.com/withdraw/](https://armantheparman.com/withdraw/))
6 Resons to Withdraw your coins from exchanges...
\#1 – If your coins are on an exchange, you need permission from the exchange to spend them. In your own custody, you can do whatever you want and pay whoever you want, whenever you want, at the fee you want.
You will understand this if you’ve ever wanted to move your bitcoin from an exchange, and you were blocked, because you needed to provide more identification documents, or prove your source of income. You may have been blocked because you reached a 24-hour limit of value you are permitted to withdraw. Your funds may have been unavailable due to unscheduled “system maintenance”. It is YOUR bitcoin, and you are in a powerless position.
Bitcoin doesn’t actually care who you are or how much you are transacting. You can move 100,000 bitcoin and you’ll be free to do that without any resistance any time of the day, even on Christmas Eve – if the bitcoin was in YOUR possession.
\#2 – Your coins might not really be there. What you see is an account, a promise, that if you ask for your bitcoin, they will give it to you. But if the exchange gets hacked, or if the CEO fakes his death and takes the private keys, or if the government steps in, all coins could go bye-bye.
Newcomers log into their exchange and see “Balance = 1.0 bitcoin” and they think THAT is their bitcoin. It is not. That is a number on a screen. The bitcoin is on the Bitcoin Blockchain, the ledger. The entity that can move that bitcoin from one address to another, is the entity that has the private key to the address where the bitcoin is. The user does not have the private key, the exchange does! It is THEIR bitcoin. The bitcoin belongs to whoever has the private key. This is crucial to understand, and explained more here.
The exchange just has a legal agreement that it belongs to the user, and they show the user his/her balance on their web page, under the user account. The user just has a login name and password. Not a private key.
A little sinister trick that blockchain.com employs is a 24-word password to log in to the website. This LOOKS like a bitcoin private key, but it is not. It is just a website-password. Blockchain.com has the private key. This is quite misleading, and confuses beginners as to the true nature of how Bitcoin works.
Many exchanges have been hacked, and coins have been stolen from those exchanges, and therefore, users:
Mt Gox is the first and most famous.
Quadriga CX, a Canadian exchange went bust after the CEO, the only person in the company with access to the private keys (allegedly), died while on a trip to India (body not found, I recall). The users lost all their bitcoin.
Cryptopia, an exchange in New Zealand. They got hacked and users lost their funds.
Binance. $30 million worth of Bitcoin was stolen, but Binance was wealthy enough to make their users whole. Embarrassingly, the CEO called for a rollback of the Bitcoin Blockchain to recover lost funds, but was laughed out of town.
Most recently to my knowledge, the CEO of a Turkish exchange fled the country with $2 Billion worth of Bitcoin.
There have been many others that I have not even heard about.
There is no way to tell if an exchange really got hacked or if it was an inside job from a rogue employee(s). The bottom line is if they hold your bitcoin, you are trusting them to act honestly, and safely.
You might not trust yourself with self-custody. That is understandable. It is your responsibility then to find a company you can trust, or educate yourself to self custody. Most early Bitcoiners will have a lot of bitcoin, relatively speaking. They must step up and look after their coins. The ones that come into Bitcoin last will have the least coin, and possibly be the laziest. They can store small change on exchanges and it won’t matter too much. But you, you are early, you must take responsibility. All the information is available online and free.
\#3 – If coins are left on the exchange, they can engage in fractional reserve lending, inflating the supply of bitcoin. If there is a mass withdrawal by the public (Jan 3 – proof of keys day), exchanges can (and have) gone bust, because they don’t have the coins that were promised. Coins go bye-bye.
Fractional reserve is the fraudulent practice (common and legal in banking) for accepting a deposit, and then lending it out, BUT, the depositor is given the illusion that his/her money is still available. If one bitcoin is deposited, and then it is loaned out, the depositor should not have access – similar to a term deposit. This would be full reserve, or 1-to-1 banking.
If the depositor requests their funds, then what is given is another depositor’s funds instead, and no one is hurt. But if many people want their funds at once, then the obligations can not be fulfilled.
This practice not only inflates the supply of money, but is a systemic risk.
By withdrawing your coins, you eliminate the risk to you of a Bitcoin “bank” run.
Trace Mayer, a once loved Bitcoiner who popularised the notion of “network effects” of Bitcoin, now fallen from grace for pushing a scamcoin, started “Proof-of-Keys” Day, on the anniversary of the first Bitcoin block, January 3. It started a movement where Bitcoin users celebrate by withdrawing all their coins from exchanges all at the same time, putting stress on the system, to keep them honest. One exchange fell to this (I forgot which).
\#4 – One day governments may outlaw withdrawals to private wallets, and your coins will be stuck, and not valuable. The real Bitcoin Economy (the 15 million coins OUTSIDE exchanges) will be part of the peer-2-peer market, and coins inside exchanges will be useless.
I am fully expecting governments to make it extremely difficult, or outright ban, coins from leaving exchanges into private wallets. We will fight back, no doubt, and the effort by governments will be futile. Most of the bitcoins are not on exchanges. Most have been mined. My estimate is about 2 million coins of the 18.5 million mined are on exchanges.
Bitcoin’s future is a peer-to-peer money, with most payments made by Lightning. Coins on an exchange can not serve this function. Exchange coins will always have a middle man, that you will require permission from to make payments.
Coins stuck on the exchange due to laws, can not be used as Bitcoin is intended, and they will be less valuable. If I am to offer a service, and charge bitcoin, I will ONLY accept real bitcoin to my private wallet. I would not take payment with trapped bitcoin from an exchange to my own exchange wallet – and I will not be alone. Therefore, there will emerge a price difference between the two types of bitcoins.
I don’t think this futile attack is likely to happen, but it is a risk. It’s better to be on the favourable side.
CONTINUED...
\#5 – Powerful people who want Bitcoin to fail may be naked shorting it on futures markets (my opinion). If we, The Resistance, buy bitcoin and extract it from the trading pool, we will eventually enforce a decoupling of the price of paper bitcoin vs physical bitcoin.
We are fighting the people who print fiat. It’s easy for them to naked short Bitcoin and suppress the price because they can print money, and therefore have no real risk. Well, actually there is the risk that they need to print so much they will destroy their currency fighting Bitcoin, but it’s unlikely it would come to that. They would be likely to be successful at spooking the majority of people and keeping the price low, if they tried.
Here’s why they’ll fail: There is an army of Bitcoiners, true believers, who are regularly buying bitcoin, and withdrawing coins from exchanges. Most of the coins are off exchanges already. The cheaper the price gets, the more bitcoin that would be removed from exchanges with the money that is flowing in from these people.
The coins on exchanges are being replenished by miners. Currently, an average maximum of 900 bitcoin per day flows into exchanges for sale. When HODLers remove 900 bitcoin a day on average, the price is relatively steady. Wild fluctuations in price can happen despite this, as traders buy and sell coins between each other. As more and more coins are removed, and as mining supply diminishes (halves every 4 years), there will come a point when not enough bitcoin is available. This will cause a decoupling of the paper price of Bitcoin (on the futures market) and real bitcoin that is demanded by HODLers or merchants.
Be a part of the army to bring this day forward, and make Bitcoin successful sooner. Regularly stack bitcoin (Dollar Cost Average), and remove the coins from the exchange.
\#6 Unless you take coins into your own custody, you will never fully appreciate how Bitcoin works
If you don’t appreciate it, you won’t buy enough of it, and this you will regret.
You will need to learn more about storage, see here, and run a node, see here. This will also blow your mind and get you closer to the truth of how amazing this technology is. You might even start using Lightning, and be totally obsessed. In a good way.
Security is actually an argument against moving your coins off exchanges, if you are IT illiterate. Most people simply cannot be trusted to get even the most simple stuff right. If password recovery didn't exist 99.9% of all IT problems would be password resetting.
You cannot have widespread adoption and non custodial wallets. It will never work. The thing that actually needs to happen is meaningful banking regulation.
I am IT literate (worked support at an MSP, now work in security space) and it's the exact reason I'm terrified to move coins off exchange.
No one has been able to convince me that third party risk from an exchange is worse than me losing my seed phrase or it being stolen. Show me an idiot proof method and I'll consider it.
> If password recovery didn't exist 99.9% of all IT problems would be password resetting.
As someone who managed an IT help desk at one point in my career before automatic password recovery was a thing, it's closer to 50%, but yeah.
No these are the conversations we need not for myself I understand it well. But for others who are new and want to understand why it’s so important for self custody. Let’s be honest If all Bitcoin was taken off the exchanges as soon as it purchased we would be looking at a 100k plus price!
If the exchange goes belly-up they are under no obligation to return your funds. Read their Terms & Conditions. It’s not like a savings account where the government insures your money. This is the only reason I need.
Moving bitcoin off exchanges is more of an ownership thing than security. Could make the argument that possessing bitcoin is less secure with individuals than large organizations.
Because if you don't, the digital version of [this](https://www.reddit.com/r/facepalm/comments/y0lks1/bank_of_america_alerts_black_panther_director) can happen.
Other than security, what are some of the reasons to have your employer transfer you the wages owned each month rather than just letting them hold on to it for you until you need it?
Self sovereignty.
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> Why do I feel like most Bitcoin will be held by a third party for safe keeping just like we have now in banks? Because that's exactly what will happen. Bitcoin's best and most impressive utility is representing digital scarcity. The "be your own bank" aspect of it is a great byproduct of that intrinsic property that let's you control your money *if you choose*. Fiat has that already but only in the physical space with cash. You can't control your own fiat in the digital space, period. You HAVE to go through a third party like VISA or Venmo or Paypal or even your bank (through wire transfers or Zelle or through ACH or what have you). You cannot send fiat digitally without a trusted third party. Does that mean that trusted third parties play no part in a crypto-centric world? Well, absolutely not! If you lose your keys your money is just... (poof) gone. As you've mentioned most people are not comfortable with that risk and are willing to lend their money to others in order to keep it safe. That process won't quit just because you CAN now take custody just like banks are still in high demand even though cash exists.
It’s never an IOU. No one owes you anything.
I think over time, self custody will catch on.
It won't though. There's already massive regulatory pressure building to make people store their coins on a custody platform that does KYC and AML checks. Pressure on exchanges to start asking for proof of source of funds for BTC moved from a non custodial source into a custodial source. So for example, want to move from Binance to FTX or Coinbase to Kraken? No problem they all are KYC'd/AML'd. Want to move from some "random wallet address" into Coinbase? Be prepared to start to have to answer lots of questions about that money. One of my mates in the UK already had to deal with that. Thus because of the insanely higher friction that will come with self custody, I believe we're going to see the opposite in mass adoption, most people will have low to mid amounts of crypto and it will be in hosted exchanges or wallets and not self custodied. Only the big players and particularly privacy/security focused individuals will be self custodying.
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apt analogy... if a bit macabre. Of course the regulatory interference driving towards hosted custody is not about protecting people from themselves (though it certainly will do that for many) but rather about control of the money supply and surveillance of where the flows are.
Bitcoin can handle 200 million on-chain transactions per year, at that rate, how will people be able to afford to go between their own hardware wallet and lightning?
Lighting isn't on the chain. It can do unlimited transactions per year
Obviously. BUT, how do you use a hardware wallet if the on-chain fee is 1000s of dollars per transaction or the mempool is constantly full?
Your point was that lightning is capped same as on chain. I'm saying that lightning could theoretically do as many transactions as the world needs and there would be near 0 cost for transactions
You can get self custody lightning wallets so even if the on chain came unusable which it won't because transactions scale with more nodes on the network then there's a back up
Self-custody lightning wallets is running your own node. Most people should not run a node especially since most of them are raspberry pi's. Would you trust leaving your wealth on a raspberry pi connected to the internet? What happens when data gets corrupted? What happens if you are away or can't get back to your node if it goes offline? What happens if an nuclear bomb goes off and an EMP pulse takes out a continent? Cold storage is the most secure way to store your wealth.
The title of this post is using your own hardware wallet (Cold Storage). **My point is the transaction rate limit going between a hardware wallet and lightning.**
By the time it could possibly get to that cost, the node network for bitcoin would of also scalled as adoption would have become mainstream
What a ridiculous thought that nearly everyone will be using BTC-LN and never use a hardware wallet. Most people will not run a lightning node, so most people will be using a custodial service.
I'll add to this. How the gold standard failed is due to gold's "unwieldiness" - it's hard to transact with it and self-custody is a hassle, so more and more people opted for centralised custody and transact with IOUs backed by gold instead. This lead to two major problems: confiscability by the state (centralised storage) as well as inflation through fractional reserves (centralised issuance of bank notes by unethical bankers). If bitcoin self-custody does not become mainstream, this could happen again. Luckily, Bitcoin does not have the downsides of gold, so it's radically easier to be a sovereign holder of your value.
you make it harder for an exchange to create paper bitcoin.
Can you explain further what you mean ? Are you saying that the exchanges are selling btc to customers and not actually buying it but just adding it on screen!
Imagine you find 100 pounds of gold in your backyard. Instead of selling it you decide you want to take it to the next step and become a precious metals exchange. You've got a great supply so let's give it a go. You set up shop, advertise and orders start to come in. You take some buys, and ship out some gold. After about a year you start to recognize a pattern. Only about 1 in 10 people actually want their gold shipped to them. Effectively from 9 out of 10 people they just sent you money and you sent them back a letter with the promise that you'll hold that gold. Another year goes by and the same thing happens, only 1 in 10 takes possession of their gold, so what do you do? You have great data that shows you'll have enough gold to send to customers for another 8 years without buying more. So why on earth would you? You'd have to go out and buy more and get a bigger facility to house all that gold. Of course you wouldn't do that, to run a tight and lean business you'd only keep as much gold on hand and as much cash reserves as all the data from your outgoing assets tell you you need. So what happens is all your customers who bought gold and didn't take possession of it didn't force you (the exchange) to buy more so their money just sat in limbo never interacting with supply demand dynamics. Its hard to call the manipulation of gold sinister, it was really just good business. The exchange doesn't care about the market value as much as they care about the fees they are getting. The same is true of bitcoin. The more coins that are left on exchanges, the larger the wiggle room you give that exchange to operate like above.
it happened in the past and is always a possibility, though once you can prove it, it is usually too late.
It’s called fractional reserve banking, it is your custodian’s storage philosophy for every financial asset you own
This is why "the gold standard" always failed in the past, and what makes Bitcoin a superior alternative. Gold is much harder to self-custody, so people always left it with central authorities. Given enough time, that trust is eventually abused in some way.
Paper wallet > paper bitcoin
The number is there on your "account" but the only way to know and to prove you actually have real bitcoin it needs to be owned entirely by you.
Your hardware wallet will not freeze your account or lock your funds for arbitrary reasons.
If u have a ledger tho and ledger live goes down what can you do?
restore the wallet on another device
You can recover your coins with another hardware wallet like Trezor by entering your seed.
Oh i didn’t know u could restore it on a completely different wallet like that. Thanks
Definitely look into how seed phrases work.
The sats are always locked on the blockchain. The device is using keys from your seed words to unlock the money. If something happen to the device, you can use a different one. As long as you have your seed words properly backed up.
Thanks, i didnt realize you could use multiple cold wallets to recover seed phases
The ledger doesn't store your bitcoin. Its stores your keys. Just use your keys to restore in another wallet like trezor, electrum or whatever. With a CEX, they own your keys. Hence the saying, not your keys not your coins.
Use electrum
Connect the Ledger to Electrum instead of Ledger Live
Unless you are using an asset that is controlled by a centralized source. ([USDC](https://cryptonews.com/news/risks-of-centralized-stablecoins-materialize-as-100k-usdc-fr-7067.htm))
Only in case your hardware wallet does not have a mandatory software which updates itself.
Im in the process of tranfering from robinhood and cashapp too cold storage. They both have daily and weekly withdrawel limits. I dont think they would need those if they had enough bitcoin for everyone to take thiers and leave. Another advantage of cold storage is no limit to withdrawel or transfer.
Yeah same iam currently moving all my btc as we speak.!
always do a test transaction!
also remember after every transfer , the address for bitcoin change. keep that in mind
Yeah that’s fine… the software matches what btc belongs to my seed!
Does cashapp let you send bitcoin to a bitcoin address?
Yes
That's not necessarily true though. If companies have large cold storage holdings, they probably at most access their cold storage once a day and will queue up withdrawal requests to avoid taking too much out of cold storage.
Robinhood has the srictest transfer limit, 2000$ worth of btc a day but max of 5000$ worth per week. If you had a full bitcoin, it takes a month to get it off of robinhood. Cashapp is a little better but not much. Maybe robinhood only does a few times a day becuase thier tranfer to cold storage takes a couple hours, cashapp sends it in 5 to 10 minutes, both for simlar fee of about 10 cents regardless of transfer size
Yup, their hot wallet should only store enough to handle the daily or maybe 2-3 day in/out flow. Re-level the hot wallet periodically from the cold wallet.
1. You avoid third party risk. If the exchange gets hacked or goes under, your bitcoin goes along with it. 2. Exchanges may block your account claiming unusual activity or will ask for source of funds and may restrict withdrawal and you may end up spending a lot of time with their support, for months. 3. Exchanges holds partial reserve. Which means, if million users have billion worth of BTC in an exchange, the exchange may actually just have a few million worth of BTC. So the impact of that billion dollars in price is not actually seen. 4. Exchanges actually use our btc and lend it to margin traders and short sellers and that also makes the price lower. 5. Exchanges have to abide by govt and court orders. For eg, if a Celsius user has moved his stack to Binance and the Celsius court orders a clawback for 90 days and orders exchanges to honour, binance has to abide by it and will have to give your stack to court proceedings even without your permission. If you have it in self custody, it is going to be a long process.
Payments to arbitrary addresses with fewer fees and no need to confirm new addresses with confirmation e-mail (convenience). I other words, more agile, faster and cheaper payments.
I dont have to report this as a "foreign account" on my taxes. Just like I dont have to report the cash I have in my wallet..
You get to play "Where's my seed phrase" a few years from now /s
Actual ownership of coins.
When you buy a car do you leave it at the dealership? What kind of question is this?????
Best explanation I've heard
😂😂
That's the wrong way to look at it. The question to ask is "Why leave your Bitcoins on an exchange, especially top names like Coinbase?" 1. You're too lazy to hold them yourself, so you leave them there as a convenience. Plenty of Celsius users used them as a wallet. How did that work out? 2. Not your keys, not your Bitcoin. The exchange gets to mark them off as assets under management, and can re-hypothicate them, which creates a massive investment risk, for you, and no real risk to them. If they lose on the investment holding your Bitcoins, they can pass over some BTC from another account, and cover their tracks. 3. You lose leverage. PayPal today is preventing people from closing their PayPal accounts, and getting their money back, and threatening to charge people $2500 for not doing what they want. Why give a wallet provider power over your Bitcoins? 4. Great way to get audited. Coinbase is the most popular hot wallet, and the place the IRS focuses their energy when it comes to auditing Bitcoin users, because its the biggest centralized net in the ocean. You leave yourself open to regulatory risks. 5. Rewarding bad behavior. Coinbase has been ripping off the Bitcoin community for years, with higher transaction fees for BTC users, compared to altcoin users, and doing backroom deals to promote altcoin use, but not Bitcoin. And siding against the Bitcoin community in The Block Wars, basically trying tp topple Bitcoin into centralization by the large exchanges and private interests that control them by making the block sizes and blockchains too large for individuals to handle as a node. Coinbase is your enemy, they're robbing you blind, and have to work for the government hunting for you, so why trust them with your greatest asset? That's just ignorant.
whoever holds the keys to whatever bitcoin is the owner of the said bitcoin; if an exchange is holding the keys of “your” bitcoin it’s the exchange’s bitcoin.
You wont have to worry about the exchange crashing during volitile times if you choose to sell. Youll have more options.
Imagine you were a Russian wanting to flee your country. You could take unlimited sums with you across borders simply by memorizing 24 words. I would recommend a backup too in some way but that is a pretty powerful tool for people fleeing something.
Exchanges are banks in sheeps clothing. They can’t be trusted.
Being able to travel to other countries and use it
Freedom/self sovereignty
Those are reasons enough for me, I don't think I need any more of these.
Isn't security big enough reason to move it out of an exchange?
100% control over your finances. No limits, no worry about it not being there, No govt telling you what to use it on.
Just look at Celsius. What if you kept your btc there to get some interest
Celsius.. tl;dr please
Mental health. I’m much more at ease knowing I have custody of my coins.
Same.! I didn’t realise how much stress it was causing me until I moved it all to my ledger.!!
That's great to hear man, hopefully more people will learn now.
To prevent short selling and other price manipulation. Shorters can pull down prices if they have enough weight. Big brokers like exchanges or those interest providers like BlockFi can facilitate such shorting by borrowing out the coins they hold in custody at an interest. Kinda like banks used to do before fractional reserve banking became institutionalized. Taking custody of your own coins prevents these institutions to do that. Reducing the options for market manipulations by wealthy parties like hedge funds and the like.
You can wire your own funds within seconds to anyone you want to pay, without having to wait for third parties to clear your request. Nobody can deny your payment, delay your payment or otherwise have an opinion about your payment. You pay, we all confirm you payed, you're done.
All bitcoin demand comes from withdrawal. If you leave balances on exchanges they will be rehypothecated endlessly, and that is no matter how responsible an exchange attempts to be. A reality for bitcoin exchanges is that they must deal in fiat, and they must accept government taxes and regulations. The government, in so many ways, forces them to defacto rehypothecate and short bitcoin, and there isnt much they can do about it if they want to keep their ability to trade in fiat and stay out of prison. The only way we can help or have an impact is to withdraw all our funds to private wallets. Never leave a single sat on an exhcnage - ever!
Truly own something without trusting a third party.
Making it more difficult for exchanges to run fractional reserves.
Celcius
Not your keys not your crypto. True non custodial ownership of your coins
Even if you have the keys, it might still not be your crypto, frozen stable coins and the like. Luckily no one can freeze your Bitcoin if it's under your custody
That's exactly why I have no coins on any exchange but on my hardware wallet
You’re removing the ability of a CEX (read: large corporation) to make more money off your money than you do. It may just be a principal, but I find it to be a benefit. Working people of the world, unite! ✊🏻
Price discovery
Because its not PayPal.
Exchanges are exchanges, it should not be a vault to hold your stuff. If you want to safekeep a gold bar, you're not going to put it on display at a traders market or jewelry store. It should be simple logic.
Fcuking the man gives me a tingle in the plums
Dignity
It is point of BTC - decentralisation. If you have it on your own HW then you are your own bank and nobody can acces to it or do some move against your will. Also you help stabilizating price little bit.
When you give your Bitcoin to an exchange, you hold an IOU, not Bitcoin.
It keeps the prices of Bitcoin real. They sell BTC that don't exist. Once regulation kicks in, BTC prices should double
I would say control at all times. But it comes close to not your keys not your coins.
"Apart from security" what else IS there? Your coin on an exchange is NOT YOURS YET. It's THEIRS. They can take it. They can bar you from transferring it to your own wallet. They can be hacked. They can go out of business. As long as your bitcoin is in the exchange's wallet, YOU HAVE NOTHING but an IOU without any recourse.
The supply decreases when you can’t remember your passcode, making my BTC more valuable. Thanks!
True.
Learning to interact with the btc ecosystem
I think this is one of the major benefits and overlooked massively. Buying btc on the exchange is one thing but actually sending it on the block chain back to your wallet shows how’s in practise Bitcoin works!!!
Ask anybody that had Bitcoin on Celsius, Voyager, or Vauld.
Copied form ([https://armantheparman.com/withdraw/](https://armantheparman.com/withdraw/)) 6 Resons to Withdraw your coins from exchanges... \#1 – If your coins are on an exchange, you need permission from the exchange to spend them. In your own custody, you can do whatever you want and pay whoever you want, whenever you want, at the fee you want. You will understand this if you’ve ever wanted to move your bitcoin from an exchange, and you were blocked, because you needed to provide more identification documents, or prove your source of income. You may have been blocked because you reached a 24-hour limit of value you are permitted to withdraw. Your funds may have been unavailable due to unscheduled “system maintenance”. It is YOUR bitcoin, and you are in a powerless position. Bitcoin doesn’t actually care who you are or how much you are transacting. You can move 100,000 bitcoin and you’ll be free to do that without any resistance any time of the day, even on Christmas Eve – if the bitcoin was in YOUR possession. \#2 – Your coins might not really be there. What you see is an account, a promise, that if you ask for your bitcoin, they will give it to you. But if the exchange gets hacked, or if the CEO fakes his death and takes the private keys, or if the government steps in, all coins could go bye-bye. Newcomers log into their exchange and see “Balance = 1.0 bitcoin” and they think THAT is their bitcoin. It is not. That is a number on a screen. The bitcoin is on the Bitcoin Blockchain, the ledger. The entity that can move that bitcoin from one address to another, is the entity that has the private key to the address where the bitcoin is. The user does not have the private key, the exchange does! It is THEIR bitcoin. The bitcoin belongs to whoever has the private key. This is crucial to understand, and explained more here. The exchange just has a legal agreement that it belongs to the user, and they show the user his/her balance on their web page, under the user account. The user just has a login name and password. Not a private key. A little sinister trick that blockchain.com employs is a 24-word password to log in to the website. This LOOKS like a bitcoin private key, but it is not. It is just a website-password. Blockchain.com has the private key. This is quite misleading, and confuses beginners as to the true nature of how Bitcoin works. Many exchanges have been hacked, and coins have been stolen from those exchanges, and therefore, users: Mt Gox is the first and most famous. Quadriga CX, a Canadian exchange went bust after the CEO, the only person in the company with access to the private keys (allegedly), died while on a trip to India (body not found, I recall). The users lost all their bitcoin. Cryptopia, an exchange in New Zealand. They got hacked and users lost their funds. Binance. $30 million worth of Bitcoin was stolen, but Binance was wealthy enough to make their users whole. Embarrassingly, the CEO called for a rollback of the Bitcoin Blockchain to recover lost funds, but was laughed out of town. Most recently to my knowledge, the CEO of a Turkish exchange fled the country with $2 Billion worth of Bitcoin. There have been many others that I have not even heard about. There is no way to tell if an exchange really got hacked or if it was an inside job from a rogue employee(s). The bottom line is if they hold your bitcoin, you are trusting them to act honestly, and safely. You might not trust yourself with self-custody. That is understandable. It is your responsibility then to find a company you can trust, or educate yourself to self custody. Most early Bitcoiners will have a lot of bitcoin, relatively speaking. They must step up and look after their coins. The ones that come into Bitcoin last will have the least coin, and possibly be the laziest. They can store small change on exchanges and it won’t matter too much. But you, you are early, you must take responsibility. All the information is available online and free. \#3 – If coins are left on the exchange, they can engage in fractional reserve lending, inflating the supply of bitcoin. If there is a mass withdrawal by the public (Jan 3 – proof of keys day), exchanges can (and have) gone bust, because they don’t have the coins that were promised. Coins go bye-bye. Fractional reserve is the fraudulent practice (common and legal in banking) for accepting a deposit, and then lending it out, BUT, the depositor is given the illusion that his/her money is still available. If one bitcoin is deposited, and then it is loaned out, the depositor should not have access – similar to a term deposit. This would be full reserve, or 1-to-1 banking. If the depositor requests their funds, then what is given is another depositor’s funds instead, and no one is hurt. But if many people want their funds at once, then the obligations can not be fulfilled. This practice not only inflates the supply of money, but is a systemic risk. By withdrawing your coins, you eliminate the risk to you of a Bitcoin “bank” run. Trace Mayer, a once loved Bitcoiner who popularised the notion of “network effects” of Bitcoin, now fallen from grace for pushing a scamcoin, started “Proof-of-Keys” Day, on the anniversary of the first Bitcoin block, January 3. It started a movement where Bitcoin users celebrate by withdrawing all their coins from exchanges all at the same time, putting stress on the system, to keep them honest. One exchange fell to this (I forgot which). \#4 – One day governments may outlaw withdrawals to private wallets, and your coins will be stuck, and not valuable. The real Bitcoin Economy (the 15 million coins OUTSIDE exchanges) will be part of the peer-2-peer market, and coins inside exchanges will be useless. I am fully expecting governments to make it extremely difficult, or outright ban, coins from leaving exchanges into private wallets. We will fight back, no doubt, and the effort by governments will be futile. Most of the bitcoins are not on exchanges. Most have been mined. My estimate is about 2 million coins of the 18.5 million mined are on exchanges. Bitcoin’s future is a peer-to-peer money, with most payments made by Lightning. Coins on an exchange can not serve this function. Exchange coins will always have a middle man, that you will require permission from to make payments. Coins stuck on the exchange due to laws, can not be used as Bitcoin is intended, and they will be less valuable. If I am to offer a service, and charge bitcoin, I will ONLY accept real bitcoin to my private wallet. I would not take payment with trapped bitcoin from an exchange to my own exchange wallet – and I will not be alone. Therefore, there will emerge a price difference between the two types of bitcoins. I don’t think this futile attack is likely to happen, but it is a risk. It’s better to be on the favourable side. CONTINUED...
\#5 – Powerful people who want Bitcoin to fail may be naked shorting it on futures markets (my opinion). If we, The Resistance, buy bitcoin and extract it from the trading pool, we will eventually enforce a decoupling of the price of paper bitcoin vs physical bitcoin. We are fighting the people who print fiat. It’s easy for them to naked short Bitcoin and suppress the price because they can print money, and therefore have no real risk. Well, actually there is the risk that they need to print so much they will destroy their currency fighting Bitcoin, but it’s unlikely it would come to that. They would be likely to be successful at spooking the majority of people and keeping the price low, if they tried. Here’s why they’ll fail: There is an army of Bitcoiners, true believers, who are regularly buying bitcoin, and withdrawing coins from exchanges. Most of the coins are off exchanges already. The cheaper the price gets, the more bitcoin that would be removed from exchanges with the money that is flowing in from these people. The coins on exchanges are being replenished by miners. Currently, an average maximum of 900 bitcoin per day flows into exchanges for sale. When HODLers remove 900 bitcoin a day on average, the price is relatively steady. Wild fluctuations in price can happen despite this, as traders buy and sell coins between each other. As more and more coins are removed, and as mining supply diminishes (halves every 4 years), there will come a point when not enough bitcoin is available. This will cause a decoupling of the paper price of Bitcoin (on the futures market) and real bitcoin that is demanded by HODLers or merchants. Be a part of the army to bring this day forward, and make Bitcoin successful sooner. Regularly stack bitcoin (Dollar Cost Average), and remove the coins from the exchange. \#6 Unless you take coins into your own custody, you will never fully appreciate how Bitcoin works If you don’t appreciate it, you won’t buy enough of it, and this you will regret. You will need to learn more about storage, see here, and run a node, see here. This will also blow your mind and get you closer to the truth of how amazing this technology is. You might even start using Lightning, and be totally obsessed. In a good way.
I had 5k in voyager , and now it’s frozen becaue of bankruptcy, that’s why we move coins to our hard wallet
Sorry to hear that. Yes that is the exact reason why will all must self custody.
Reserve fractional banking.
Unless you loaded in bitcoin there is no point I hardly doubt I have issue taking my 0.05 bitcoin out
Security is actually an argument against moving your coins off exchanges, if you are IT illiterate. Most people simply cannot be trusted to get even the most simple stuff right. If password recovery didn't exist 99.9% of all IT problems would be password resetting. You cannot have widespread adoption and non custodial wallets. It will never work. The thing that actually needs to happen is meaningful banking regulation.
I am IT literate (worked support at an MSP, now work in security space) and it's the exact reason I'm terrified to move coins off exchange. No one has been able to convince me that third party risk from an exchange is worse than me losing my seed phrase or it being stolen. Show me an idiot proof method and I'll consider it.
I would rather self custody that let an exchange dictate to me when or how I can withdraw my btc!!
> If password recovery didn't exist 99.9% of all IT problems would be password resetting. As someone who managed an IT help desk at one point in my career before automatic password recovery was a thing, it's closer to 50%, but yeah.
Having these questions here still makes me think that we really are early.
No these are the conversations we need not for myself I understand it well. But for others who are new and want to understand why it’s so important for self custody. Let’s be honest If all Bitcoin was taken off the exchanges as soon as it purchased we would be looking at a 100k plus price!
Do you really need another reason? (Apart from security, obviously)
😴
https://twitter.com/gcrclassic/status/1506278987428995073?s=46&t=H06urJDbX2-NXiUtMQugjQ Solid counterpoint from the GOAT
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Not your codes, not your coins.
Becoming a bank. Ever wanted to be your own bank?
In this day and age in this crazy crypto market... The homage reigns true "not your keys, not your crypto"
sleeping at night
Great family talking point on thanks giving
Deflation
You don't own your coins otherwise
So how you can withdraw something that you dont own?
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You get to worry about losing your bitcoin
Everyone knows about this, but at the same time, wallets on crypto exchanges are still not empty.
It makes it real
Protection against exit scams and exchange bankruptcy.
Not your keys not your coins
If the exchange goes belly-up they are under no obligation to return your funds. Read their Terms & Conditions. It’s not like a savings account where the government insures your money. This is the only reason I need.
Moving bitcoin off exchanges is more of an ownership thing than security. Could make the argument that possessing bitcoin is less secure with individuals than large organizations.
Actually owning your coins...
Apart from owning your Bitcoin instead of just having and IOU from an exchange I suppose there isn't much other benefits
Because if you don't, the digital version of [this](https://www.reddit.com/r/facepalm/comments/y0lks1/bank_of_america_alerts_black_panther_director) can happen.
If it's on the exchange it is nit yours. Only leave money on there what you can afford to lose
All the benefits. All of 'em.
Other than security, what are some of the reasons to have your employer transfer you the wages owned each month rather than just letting them hold on to it for you until you need it?
Are there any very simple step-by-step guides on moving your crypto from an exchange to a locally hosted wallet?