Of the 18.5 million Bitcoins in existence, at least 20% are in inaccessible wallets. These unit “losses” run into billions of dollars. That said, Bitcoin is rarer than we stated because of these lost Bitcoins. Last week, the story of the German programmer Stefan Thomas caused a sensation in the world press due to a small but costly oversight. Forgotten your password. And you’re a couple of tries to lose 7,002 bitcoins (about $ 220 million).
The news is striking for the ridiculousness of the matter. How is it possible to lose $ 220 million if you forget a password? It seems like a joke. But we can’t help but laugh nervously. The pain of this forgetfulness seems too strong. Of course, Bitcoin’s orthodoxy will surely start with your arguments about personal responsibility. The spartan attitude of the individual who suffers from the consequences of his actions in a ruthless universe. When you have your private key, you own your money. If you don’t have a private key, you don’t have anything. Of course, if you’ve lost your private key, you lose everything.
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Stefan Thomas has to unlock his hard drive because he lost the document in which he wrote his IronKey. You have the private key for your digital wallet on your hard drive. In the “normal” world, you could go to the wallet offices where you have your money and get a new key with your ID. But that would mean that you “don’t own your money”. Property seems to be a matter of self-preservation.
Now money is an essentially social enterprise. People use money in different ways. The most limited avenue of all is to have money in self-management. Having money under your mattress is arguably the most primitive way of managing our finances. This is the most conservative stance there can be. Bitcoiners inherited it from the most extreme gold beetles. During the world wars, many hid gold in secret hiding places so as not to lose everything. Could a German Jew trust a Nazi-controlled bank? In this context, trusting a third party meant not owning your money. Self-care was the most sensible option.
However, under normal circumstances, self-management is not the safest option of all.. In fact, it is often precisely for security reasons that people choose to put money in the hands of a third party. That doesn’t necessarily mean we don’t trust ourselves. It’s not about low self-esteem. In many cases it is a matter of capacity. A third party may have the infrastructure that we don’t have. In the case of gold, we would speak of large vaults. However, digital assets are various types of insurance that protect us against theft, hacks or forgetting of keys.
Not all banks are created equal. We cannot compare a reliable bank in a reliable jurisdiction to a state bank controlled by a corrupt and dictatorial regime. The risk in Switzerland is not the same as in Venezuela or Argentina. But since we live in a world of paranoia, any authority is now suspicious. If the institution is big and respected, it is part of the system. Hence it is not reliable. The best option is secret. The anti-system. The money under the mattress.
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Nobody could get the most orthodox out of their ideas about custody. It’s hopeless. Because after a while, radicalism becomes an element of personality. However, there are still thinking people out there. In other words, custody is not a panacea. It has its advantages and disadvantages. Everything falls on our shoulders. That’s the good. At the same time, everything falls on our shoulders. That’s the bad. I mean there are no profits. There is no such thing as a plan B. You are alone when it comes to a problem.
Here I am inquiring about this issue as it is a key element in the massive adoption of Bitcoin. The Spartan ways of Orthodoxy are in stark contrast to the wishes of the public. The public wants custody services for Bitcoin. You want to invest, but you don’t want the hassles associated with private key, theft, and hacking. You don’t want to be Stefan Thomas. In other words, stories of lost bitcoins are not good for bitcoin’s reputation. Bitcoiners tend to view this as an inevitable fact of life. That is, the sacred ways of the almighty San Satoshi Nakamoto. However, the general public does not share the same pseudo-religious respect for Bitcoin and its mandates. Many people fear that simply forgetting the password can lead to losing everything.
When we talk about basics, we are also talking about infrastructure. Infrastructure also means more and better depot services. For example, the anarchist money model under the mattress does not apply to institutional capital. Large financial institutions are much more complex organizations than the individual acting alone. A hedge fund, for example, is basically a broker that invests someone else’s money. Your manager can’t afford to put money under your mattress. It would be extremely irresponsible. It would make most sense to use an escrow service. That way, there are greater guarantees.
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Let’s be honest. The Bitcoin community is divided into two parts. On the one hand, we have a group with a political agenda. These are the libertarians who are promoting your revolution. They want a major reform of the banking and economic system. On the other hand, there are speculators who simply want their portfolios to perform better. The first group wants to change the ways of the world. The second group wants to develop a better product and listen to the customer. In the latter case, we don’t have Bitcoin as a revolutionary movement. We have Bitcoin as a useful and profitable technology. This is a completely different approach. The first group has many influencers on social media and a virtual monopoly on storytelling. The second group, however, has a greater influence on prices, since large buyers belong to the second group.
That explains the great gap between what is said and what is being done in this room. For example, Exchange CEOs speak in their testimonies and interviews as libertarians fighting for the revolution. In reality, however, they are busy developing products for institutional capital. They speak like revolutionaries but act like bankers. Why? Because the public doesn’t want a revolution. The public wants better products.