As the FTX crash sent shock waves through the crypto world, it was said over and over again: “Not your keys, not your coins.”
The popular saying revolves around the aftermath of the recent stock market crash. But what does that really mean?
The phrase “not your keys, not your coins” or “not your keys, not your crypto” expresses the belief that investors cannot be safe in their cryptocurrency holdings unless they are held in a wallet in which they personally own the keys. FTX kept users’ wallets and keys, which means access to funds depends on the exchange’s ability to send them – which became a problem when FTX faced a “liquidity crunch”.
This is called self-guarding, and can mean using a web or mobile wallet for small amounts, or a physical hardware wallet for larger collectibles.
The “key” in question is your private key, which acts as a kind of password to access the funds.
Of course, as cryptocurrency adoption is becoming more and more popular, many people who don’t want the technical hassle of managing their own wallet are turning to storage solutions.
In other words, they use third parties like exchanges or investment managers that allow you to invest in cryptocurrencies without having to learn how to use the wallet for self-care. But this does mean that the broker controls the keys to your property.
According to proponents of the “not your keys” philosophy, a wallet on a centralized exchange does not really belong to the account holder. When withdrawals are paused, as happened by FTX in November, users lose access to their cryptocurrency. And if the worst happens, be it a stock market crash or a cyber attack, these holdings could be lost completely.
There’s Even Legal Support For ‘Not Your Keys’ in 2020, California Court Ruling Archer vs Queen BeesRegarding the 2017 Bitcoin fork, I found that the exchange is not obligated to pay out Bitcoin Gold that would have been generated by the user’s Bitcoin holdings.
But there are those who argue that “not your keys, not your coins” is counterproductive in the pursuit of cryptocurrency adoption on a larger scale.
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