Following the fall of FTX in 2022, MicroStrategy CEO Michael Saylor joined the chorus of self-custody advocates. The entrepreneur and Bitcoin evangelist now thinks differently and believes that the custody of Bitcoin should be ensured through large financial institutions.
In a recent interview with financial journalist Madison Reydi, the executive commented that large banks guarantee secure custody. Likewise, he described those who think that the government will seize their bitcoins as “paranoid crypto anarchists.” He adds that too-big-to-fail banks are ideal for custody because of their experience.
These statements made many bitcoiners jump out of their chairs. Saylor’s words immediately generated controversy and the reactions from figures in the crypto industry were immediate. The most striking was Ethereum co-founder Vitalik Buterin, who dismissed Saylor’s new position as total madness. To do this, he used the term batshit insane, which colloquially refers to a person who acts extremely irrationally.
Buterin warned that this position weakens the very foundations of Bitcoin, since it pushes towards centralization. He expresses that one of the basic concepts of the pioneer Cryptocurrency is decentralization. The custody of Bitcoin and other cryptocurrencies cannot be entrusted to third parties, he said.
The Bitcoin Custody Problem
For other figures in the crypto market, this change by Saylor may indicate that his company has a new strategy. In that sense, Simon Dixon stated that MicroStrategy has the mission of becoming a Bitcoin bank and hence Saylor promotes this type of third-party custody. In any case, Saylor remains one of the biggest propagandists of BTC.
The custody problem has deep roots in the world of cryptocurrencies. The community defends that BTC was born precisely to combat the risk of entrusting its assets to third parties such as governments or banks. The danger of the trusted third party or bank is more than demonstrated with the constant banking corralitos of the third and first world.
Sound cases such as the Argentine corralito at the beginning of the century join other recent horrifying cases. For example, in Greece (2015) there was a destructive corralito. In Canada, the government froze the bank accounts of truck drivers exercising their right to democratic protest.
As can be seen, governments do in fact have the disposition, when they consider it, to seize citizens’ funds. Nothing prevents them from asking banks to take action against people for any reason. It is at this point that the revolutionary concept of Bitcoin self-custody comes into play.
Self-custody as protection of funds
The historical examples of Argentina, Greece and Canada demonstrate that fearing governments is not the paranoia of crypto anarchists. To prevent centralized entities from seizing people’s funds, BTC has the perfect solution with self-custody.
It is a form of hoarding where people manage and store their cryptocurrencies without third-party intervention. Basically, they store their money in wallets that give them the private keys to the Blockchain where their funds are kept. These seed phrases are only known to the person, which makes them the absolute owner of their funds.
Unless you accidentally lose it and it falls into the wrong hands, no one can ever access your funds in these types of wallets. There are two types of self-custody wallets: hot and cold wallets. The former are generated offline and their level of security is extreme. The latter are also completely secure, but the big difference is that they are online.
Cold wallets are usually generated on special websites and also with hardware. Hot ones are popular wallets like Samurai and Coinomi, to name a few.
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