Proof of keys
When you own cryptocurrency but have it stored on a (centralized) exchange, the exchange is the “custodian” of your assets, and they hold your funds. Hardware wallets enable you to store your holdings while owning your private keys. This way, you can access your funds by yourself without the need of third parties.
Every January 3rd the Bitcoin community is invited to participate in a “Proof of Keys” celebration by taking possession of all Bitcoins held by trusted third parties on their behalf. It was started by Trace Mayer founder of the “Bitcoin Knowledge” podcast, as a way to celebrate the financial freedom embodied by the Bitcoin philosophy.
Custodial wallets
Centralized exchanges do not provide you with your private keys. Instead, they let you log-in with a well known username-password combination. Not owning your private keys means that you do not truly own your assets. Instead, the exchanges are the “custodian” of your assets, and they hold your funds. Hardware wallets enable you to store your holdings while owning your private keys. This way, you can access your funds by yourself without the need of third parties.
Every year cryptocurrency owners celebrate their independence and autonomy with a test of trust. This initiative tests people, exchanges, corporations and other services by withdrawing all their cryptocurrencies to wallets they control (hold private keys). Managing your assets is in line with the founding principles of Bitcoin. Cryptocurrencies enable financial freedom and the ability to take control of your assets like never before. By not holding your keys, you’re giving up the fundamental freedom that Bitcoin and other cryptocurrencies provide.
“When you are not in control of your private keys and instead have your funds stored in a hot wallet on a custodial exchange account, you don’t truly own your cryptocurrencies and thus run additional and unnecessary risks.”
Traditionally, you store your currency at the bank in an account in your name. You think you have access and you can withdraw your currency at any time. In theory, this might sound correct, but usually, the bank doesn’t have your money. Banks typically have a fraction of what’s on their balance sheets in stock due to their business model of providing loans. On top of this, the bank is the legal owner the moment you store your funds with them.
“When you put your money in the bank, the bank becomes the owner of that money. With Bitcoin, you own your money. When the banks own that money, they spend it as they wish. When you own it, you spend it as you wish. It is censorship-resistant, and no one decides whether you can or cannot spend it and on what you will spend it on.” –Simon Dixon
Participating in Proof of Keys
By exchanging part of your fiat currency holdings into cryptocurrencies, you can store your funds privately and securely. In doing so, you can access and have full control of it anytime without counterparty risk. By becoming your own central bank(er) and taking back responsibility, you are also accountable for all risks, such as keeping your funds safe and secure. You must be aware of this as you might just as well lose everything if you’re not careful and cautious. This time you’re responsible, not the banks.
Taking part is easy. In the short-term, withdraw your funds from custodial exchanges for at least the entire day on the 3rd of January (every year).
- Preferably take your coins and assets from exchange accounts and store offline.
- Transfer to a hardware wallet or a desktop wallet, for which you have created (and control) a seed phrase.
- Copy & paste your address or scan a QR code.
- Transfer small amounts first to practice.
- Ask for help if needed!
