You can do what you want with your own custody and pay whomever you like, whenever you want, at any fee you wish. This is what you will see if you have ever tried to move bitcoins from an exchange but were stopped by the exchange because you had to provide additional identification documents or prove that you are a source of income. You might have exceeded the 24-hour withdrawal limit. Unscheduled system maintenance may have rendered your funds unavailable. You have bitcoin, but you are powerless.
Transactions
- Bitcoin doesn’t care about who you are or how much money you transact. You can move 100,000 bitcoin without any restrictions, even on Christmas Eve if you have the bitcoin.
- Your coins might not be there. You see a promise that they will give you your bitcoin if you ask. All coins could be lost if the exchange is hacked, if the CEO pretends his death and steals the private keys, or if government intervention is required.
- New users log in to their exchange and see “Balance =1.0 bitcoin”, which they believe is their bitcoin. It isn’t. It is just a number on a screen. The entity that generated the address private key is the one that can move the bitcoin from one address into another. The bitcoin is stored on the Bitcoin blockchain, a global distributed ledger. It is their bitcoin. The private key is not owned by the user of an exchange, it is owned by the exchange! The private key to bitcoin is the property of the owner. This is important to understand.
- The exchange only has a legal agreement that bitcoin belongs to the user. They also show the user their balance. The user only has a username, password, and a promise. It does not contain a private key.
- Blockchain.com uses a 24-word password for website logins. It is a website password. It looks like a bitcoin private keys, but it’s not. Blockchain.com holds the private key. This is misleading and confuses beginners about the true nature of Bitcoin.
Hacking
Many exchanges have been hacked, and coins have been taken from them. Mt. Mt. Quadriga CX, a Canadian stock exchange, went bankrupt after its CEO, who was the only person with access to the company’s private keys, died while on a trip in India.
Cryptopia is a New Zealand exchange. All bitcoin was lost by the users. Binance. Binance. Users lost their funds after they were hacked. The CEO demanded a rollback in the Bitcoin blockchain to recover the funds, but was ridiculed.
There are many more that I have not heard of. The CEO of a Turkish exchange fled the country recently with $2 billion in bitcoin.
It is impossible to determine if an exchange was hacked or if it was an inside job by a rogue employee. You can trust them to act honestly, safely, and responsibly if they have your bitcoin.
Self-Custody
It might be something you don’t trust. It is understandable. It is your responsibility to learn about self-custody, or at the very least, partially-custodial collaboration custody. The majority of early Bitcoiners have a lot of bitcoin. It doesn’t matter how small the initial bitcoin stacks are if they aren’t stored on an exchange. They must take responsibility for their coins. You are too late. You have to take responsibility. All information is online and available for free.
Coins can be left on an exchange to engage in fractional reserve lending. This effectively inflates the supply of bitcoin. Exchanges can and have gone bankrupt if there is a large withdrawal by the public. Coins go bye-bye.
Fractional reserve refers to the fraud of accepting a deposit and lending it out. However, the depositor is made to believe that their money is still available. This is legal and common in the fiat banking industry. The depositor should not be able to access the bitcoins if they are deposited and then loaned out. This is similar to a term deposit. This would be either full reserve or one-to-1 banking.
If the depositor asks for their funds, they will be returned funds from another depositor. In theory, this means that no one is hurt. However, if there are multiple people who want their funds at the same time, the obligations can’t be fulfilled.
This practice is not only a way to increase the money supply but also poses a systemic risk.
Eliminate The Risk
You can withdraw your coins to eliminate the risk of a bitcoin bank ran.
Trace Mayer, a beloved Bitcoiner, created Proof-of-Keys Day on January 3, the anniversary of the first Bitcoin block. It was the start of a movement in which Bitcoin users celebrated by withdrawing all their coins simultaneously from exchanges. This put stress on the system and helped to keep the exchanges open. If enough people participated, any exchange that was running on only partial reserves could be exposed.
Someday, governments might outlaw withdrawals from private wallets. This will make your coins less valuable and more stuck. The true bitcoin economy would be a peer-to-peer marketplace outside of exchanges, while coins held inside exchanges would be ineffective.
I fully expect governments to make it very difficult for coins to leave exchanges and go into private wallets. We will fight back, we are certain. The majority of bitcoin is not available on exchanges. However, governments will not succeed in their efforts. My estimate is that around two million of the 18.7million coins mined are on exchanges.
Peer To Peer
Bitcoin’s future will be peer-to-peer, with most transactions made on the Lightning Network. This function cannot be served by coins on an exchange. To make payments, you will need permission from an intermediary who will be present on exchange coins.
Due to laws, coins that are stuck on an exchange cannot be used in the same way as bitcoin is intended. They will also be less valuable. If I offer a service in bitcoin and charge for it, I will only accept bitcoin from outside exchanges. I won’t be the only one. I will not accept payment from trapped bitcoin to pay my exchange wallet. There will be a price difference between real bitcoins and IOU-trapped bitcoin.
Some powerful people who want Bitcoin’s demise may be naked shorting it in futures markets. We, The Resistance, can buy bitcoin and take it out of the trading pool. This will eventually lead to a decoupling between the price of physical bitcoin and paper bitcoin.
We are against those who print fiat. They can easily shorten bitcoin and suppress its price, as they can print money and have no real risk.
Here’s why they won’t succeed: There is an army of true believers who regularly buy bitcoin and withdraw coins from exchanges. The majority of the coins are already off exchanges. Bitcoiners will be eager to grab the cheap sats and take even more bitcoin off the exchanges if the naked short attack succeeds.
The supply of coins can be replenished by miners. Currently, miners could theoretically dump 900 Bitcoin per day onto exchanges. Wild price swings can occur despite this, however, as traders trade coins and buy and sell bitcoins between themselves. The price of bitcoin is fairly stable when HODLers remove 900 bitcoin per day. As more coins are taken out and the mining supply decreases (halved every 4 years), there will be a point where not enough bitcoin is available. This will result in a decrease in the paper price for bitcoin on the futures exchange and real bitcoin that is desired by HODLers and merchants.
Join the army to make bitcoin more successful and bring this day forward. Regularly stack bitcoin – Dollar Cost average (DCA), and remove the coins.
Remember
You will never fully understand how Bitcoin works if you don’t take your coins into your own hands. It’s hard to buy enough of it if you don’t understand it. This is something you will regret.
You will need to learn about self-custody, and how to run a node. This will blow your mind and bring you closer to the truth about how amazing this technology really is. You might become obsessed with the Lightning Network. It’s a great way to be.