Everything about Bitcoin involves trade-offs. Those already familiar with Bitcoin understand this, but it’s an important concept to discuss for anyone that is just discovering Bitcoin and considering their options.
The first trade-off everyone makes is with their time, because there are no shortcuts to understanding Bitcoin. If you want to wrap your head around what it is, how it works, and why it’s useful, you need to allocate some precious time that you might otherwise have spent elsewhere. For a lucky few, this process might take a dozen hours. For many it takes a hundred hours or more, but eventually, everyone tends to reach a “eureka” moment where the idea of Bitcoin crystalizes, and its value proposition becomes undeniable.
Naturally, this leads to interest in the trade-offs of acquiring bitcoin. Typically, this involves trading away something of value, such as trading away valuable energy (ie. mining for bitcoin) or trading away valuable time and skills (ie. working for bitcoin), but the most common method of acquiring bitcoin is trading away fiat currency (ie. buying on an exchange).
For the most part, exchanges hold coins on behalf of their customers. In doing so, they act as trusted third parties (TTP’s), which renowned cryptographer Nick Szabo warned were “security holes” because they are vulnerable to hacking, fraud, and coercion. As with other TTP’s, there is no assurance that exchanges won’t breach the trust placed in them. In fact, Bitcoin’s history is littered with cautionary tales of exchanges that went bankrupt, lost coins, or prevented customers from accessing coins.
Given that the creator of Bitcoin, Satoshi Nakamoto, specifically engineered Bitcoin to solve the problem posed by TTP’s, it should be obvious why storing bitcoin on an exchange is self-defeating. To take full advantage of all the benefits that Bitcoin has to offer, and to mitigate the risks posed by TTP’s, it is strongly recommended that you take self-custody of your coins.
As a bearer asset, Bitcoin gives you complete control. You can send coins to anyone, or receive them from anyone, anytime, anywhere. The only trade-off required to enjoy these benefits is that you assume full responsibility for your coins’ safekeeping. There are many options for taking self-custody, and each one – such as hot wallets, cold storage, and multi-sig – has its own trade-offs that can be measured in terms of complexity, convenience, and security. Assessing the pros and cons of each to determine which best suits your needs, and then acting accordingly, is the first hallmark of a Bitcoiner who understands this key principle: there’s no such thing as risk-free return. It’s trade-offs all the way down.
By Jesse Berger
Learn more about Jesse Berger [HERE]
