This is a warning for fledgling bitcoiners. In the words of Isaiah Jackson, “Not your Keys, not your Cheese.” Feel free to gander the disclosure below. Then grab a coffee and ponder it a bit.
Welcome back! And if you didn’t get that coffee, too bad. The problem here is that you have no assurances other than their word that your funds are secured. Unfortunately, Bitcoin is a high risk asset, like gold or cash. If you friend started an S-Corp. and named it BullionBrace and offered a means for you to trade paper gold in exchange for mailing your physical gold to them… do you still own any gold? Are those Gold Deposits FDIC insured? The only products covered include that word ‘deposit’ in their products. Federal deposit insurance, right? NOT federal Bitcoin insurance, or paper-gold-in-name-only insurance. That means, in plain english, that IT DOES NOT MATTER WHO OR WHERE YOU STORE YOUR BITCOIN. You’re still facing high risk by trusting someone else will have both the technical competency and financial runway to keep the lights on and business operating…BEFORE keeping your Bitcoin safe.
Best Practices
While we’re here, let’s take a moment to review some of the proper methods to hold onto your bitcoin, in this order:
- HD wallet Bip39 (mnemonic seed phrase) etched with metal punches on corrosion resistant washers
- Hardware wallet that you can build yourself with off the shelf with open source components (like a seedsigner or perhaps a Blockstream Jade)
- Hardware wallet offered from a WELL-KNOWN, vetted company. I usually suggest Coldcard and Trezor for that purpose.
- Sparrow wallet with backups (preferably metal, like step 1) on a device whose sole purpose is to act as a wallet (as in, NO WEB SURFING, avoid going online with it pretty much all the time, except to send a raw transaction hex that your wallet generated).
- Decorative coin/paper wallets and/or throwaway Bitcoin-purposed thumb drives (like the OpenDime). These are great to set and forget (so long as you periodically check the balance to make sure eveyrthing is all and well) – if you made backups of this, then what was the point? What’s nice about these is that you can give them away fairly easily if they had set denominations, and they often make fun wall art or paper weights (that function as your Bitcoin storage – so don’t just let anyone know what’s there – or better – have it be a decoy stash with .0001 bitcoin on it and rest easy if someone wishes to take that key.
Using something stupid like a DEX or CDBC or yield farm swap put you at risk of sybil attacks and more importantly: impermanent loss. There is nothing worse then fractional shares in a proverbial casino (Decentralized Exchange or DEX), only to find out that the token which was acting as the baseline liquidity has been exploited by a rogue developer so that your once lofty altcoin base currency that you forked over .1 bitcoin to acquire is now worth .001 bitcoin in total and due to the lack of any sort of volume (because people move on) you have less than a 1% chance of seeing recovery occur with that token. It’s actually a pretty old and repeated scam. Scammers went about it like this:
- Crypto Stocks – (literal unregulated shares that you could buy in that had a payout yield)
- Gen 1 Altcoins – (think Novacoin, Feathercoin, and Devcoin where you had devs build in a large premine)
- Crowd sale Altcoins – (think Ripple, Mastercoin/OMNI, Counterparty, then the well known one: Etherum)
- Bitcoin mining hardware preorders – many scams happened where they collected prepayment in Bitcoin but failed to deliver the product or delivered it so much later that it was obsolete by the time of delivery (places like BFL, Hashfast, and Cointerra to name a few)
- Initial Coin Offerings (aka ICOs)..which was basically Altcoins in 2017, after people were sick of plain old Altcoin scams
- Forks/Airdrops (which was a speculative attack to get you to trade your Bitcoin in hopes that you could gain more Bitcoin when the price of said forked coin ‘would flip’) – think Clams, Lumens, Bitcoin Cash, Bitcoin Gold, Bitcoin Diamond, etc. etc. Some of these airdrops required you to sweep private keys – stealing your actual Bitcoin in the process
- MLM scams – using multi-level marketing to get people to buy into your ‘scheme’ whereby they are investing in ‘bitcoin’ that is being held in the protective custody of a 3rd party. Furthermore, the expectation is that when you refer friends or family to invest their own bitcoin, you earn a SUBSTANTIAL bonus (which is essentially you just taking your friends share of coin they just deposited.) No one owns any bitcoin, except for the originator of the scam. The well known ones were mmGlobal and Bitconnect.
- MasterNodes – Bought a specific altcoin that is designed to allow staking but ONLY if you have a minimum amount to configure within your wallet. In other words, buy .1 bitcoin worth of an altcoin and it will promise to pay you 7-10x in gains per year. Except impermanent loss happens and the initial dev who created the masternode coin will have a mechanism or setup infrastructure such that THEY themselves mine a substantial portion of their own altcoin through these Masternodes (like a premine) and will ultimately rug-pull (sells a HUGE amount of that altcoin to crash the price and take the underlying liquidity value). Left with a bunch of altcoin for a Masternode that might be worth .0001 Bitcoin
- Yield Farming – You buy an altcoin that stakes aggressively so it looks like 7-10x gains per year. Someone rug-pulls so that you can now not recover the initial value of the bitcoin you used to start yield farming. That token is called a liquidity provider. Sometimes certain yield farming schemes will involve NFTs, but that’s simply to act as a buzzword/diversion
- NFTs – LOL wtf are those? Well, you know how you have bitcoin and altcoins like blah blah blah right? Those are tokens with fungibility – you can transact with one bitcoin on the network and there are 21 million of them that can be equally transacted with… for a random altcoin like Blah blah, it has 10 billion billion units of em right? That means there’s 9.99 billion billion others that can be traded for your one unit right? Okay… NFT is just a 1 OF 1 token for it’s own given blockchain. That’s whay it is NON-FUNGIBLE. In other words, it’s pretty much a 1 of 1 coin, a unique entity in and of itself. The way NFTs work is that you have one or more of these tokens that make up a given project, but what you’re buying is bragging rights to say you own access to a specific NFT’s address on a given blockchain – THAT’S IT. Speculating on any given one of these address spaces as “it could be a reasonable store of value”, is like saying “Buy Starbucks gift cards because they’re provisioned by a valuable company. Perhaps one day, those gift cards will be more valuable to the next person wishing to use them!” (maybe I’m wrong but that’s how I’ve wrapped my head around it – tell me how wrong I am below and we’ll hash it out)
These examples above are precisely how you go from Finding out about bitcoin to getting into crypto to getting scammed to becoming a bitcoin maximalist to becoming a toxic maximalist.
What is a Bitcoiner to do?
Stay the course and stack on! Use Strike to dollar cost average (DCA) 50 cents an hour, that breaks down to about $360 per month. This mechanism is the lowest fee I’ve seen for available flexibility DCA your money to get the most out of the dips. From there, setup a schedule to get your money off of Strike, I’d suggest you withdraw your money weekly to a self custody wallet you feel comfortable using.
More importantly, setup a documentation plan and exercises to show your family how to use and interact with the bitcoin so that they understand how to use and access the coin in the event of an emergency or in the event that you can no longer give them instructions on how to recover it. SERIOUSLY THIS IS IMPORTANT! Don’t underestimate data rot in your mind (that you may forget a password one day, 28 years from now) or the fact that you may die within moments and not have had a set of instructions for your family or loved ones. Don’t let them be absolutely clueless as to what ‘sweeping your physical bitcoin wallets’ even means or that they need to guard those metal washers with their lives or that YES they also need to know or remember this special 25th ‘password’ that isn’t etched anywhere, just in case someone DOES steal your metal washers: All of those loose ends should make your butt hole itch and keep you awake at night. Write a Bitcoin recovery plan for your loved ones so they know how to maintain the bank you’ve secured for them and for their progeny.
