What’s the first rule of cryptocurrencies? Not your keys, not your coins…
Technological changes are complex processes, and it is perfectly normal for a certain amount of confusion. The process of reinventing money as we know it is no less so: it is complex, faces strong resistance, and generates all kinds of incentives for people from all walks of life to try to take advantage of it, often at the expense of the trust and assets of many others.
In the picture, two of the great villains of the crypto world: South Korea’s Kwon Do-Hyung, known as Do Kwon, co-founder of Terraform Labs; and the American Sam Bankman-Fried, known by his initials SBF, founder of FTX. Between them, they have generated huge losses for many users and companies, along with a crisis of confidence in the crypto world, with significant drops in value for all the players involved. Between November 6 and November 13 alone, users around the world withdrew the equivalent of more than $3.7 billion in bitcoin and $2.5 billion in ether from exchanges in a bid to protect their assets.
Does this panic make sense? In principle, fleeing from a particular asset because someone, through mistakes, irresponsibility, stupidity or bad faith, has sparked a situation that leads to people losing their money is like losing confidence in the dollar after the fall of Enron. The actions of a bad actor do not undermine the system. Calling into question the entire crypto environment because of the actions of these two characters is simply the result of ignorance, panic or both at the same time.
At this point, we should remember that the crypto world preaches decentralization, and yet the problems that have occurred throughout its history, since the crisis of the Japanese exchange Mt. Gox in 2014, were due to centralization, to placing trust in an actor that was growing and centralizing more and more transactions. The figures related to this type of crisis are also similar cases: over a short period of time, Do Kwon and SBF had become cult figures.
Under these conditions, it is only a matter of time before some of these deified figures decide to build a house of cards by refinancing their debts with new issues of invented currencies and complex assets of all kinds. And when they do, they may do it well, or they may do it blindly, in schemes that end up, like Terraform Labs with its Terra and Luna currencies or FTX with its FTT, collapsing. Again: should we consider the dollar a fraud because there was once an Enron?
Where, then, is the question? Very simple: as the title of this article says, “no keys, no coins”. If you don’t have your private key, the coins are not yours, and therefore, they will be in the hands of someone else, some company that is doing “stuff” with them, probably lending them or creating complex assets of all kinds that, and that as we have seen, are not always done with the best judgment. Who loses when one of these schemes collapse? Either the uninformed who didn’t even know they existed, or the very ambitious who foolishly believed they were getting free money. When Do Kwon or Sam Bankman-Fried invent some shitcoin to finance their house of cards because they can seriously believe they will find fools to buy them, we have in front of us a scheme that will probably lead to disasters. Let’s “simply” reinvent money first, and leave the “derivative-synthetic-leveraged-indexed-whatever” for later, please…
Nowadays, onboarding, that is, buying cryptoassets with traditional money, is best done through an exchange like Coinbase or Binance. But once you have acquired those cryptoassets, what you should do is move them to your own wallet, task yourself with its custody and then make sure you don’t lose those keys.
Let’s be clear: there’s no cryptocurrency crisis: cryptocurrencies remain the future of money. But the advice remains the same: have something in bitcoin or ether, learn how to use them, how to buy them, how to transfer them to your wallet, how to manage them in general, because that will prepare you for the world to come. But have them yourself, handle them yourself, and familiarize yourself with what that implies, because if you don’t have them yourself, you will most likely be relying on a more or less centralized third party that will most likely repeat the familiar schemes of traditional banking. And if you centralize, you lose the true value proposition of cryptocurrencies, which lies fundamentally in their decentralization.
If there is one good thing about these types of scandals, it’s that the crashes they cause are merely temporary, but the memory they generate is powerful and indelible: if you trust a third party to hold your money, you assume the risks inherent to it, and you can lose it. The millions of bitcoins and ether that have been withdrawn from exchanges in recent days into private wallets is certainly good news. Hopefully, we won’t have to see too many more scandals before people learn. But again: the problem is not cryptocurrencies: the problem is not understanding their fundamental value proposition.
(En español, aquí)