Proof of Keys day was initially created as a test for exchanges and other third-party custodians – a way for individuals to ensure that third parties holding bitcoin were not operating as a fractional reserve.
Let’s face it: many third-party bitcoin custodians are likely to do just that, and Proof of Keys day is unlikely to change anything. It is time for this Bitcoin vacation to go beyond a contrarian test of exchanges. It’s time to evolve this day into an educational celebration of private keys, where we help Bitcoiners, both new and old, understand the importance of self-control and take the first step towards keeping their own keys.
Why are private keys so interesting?
Private keys are one of the best technologies in existence for conferring asymmetric power on individuals. The source of that power lies in ownership and control of data – whether that data is Bitcoin or an SMS. Only the owner of the key who encrypted a piece of data can view or verify it, and it is practically impossible to break that check with technical brute force.
For example, a Bitcoin private key is a random number between 1 and 2 ^ 256. That means that, on average, a computer must guess more numbers than the estimated number of atoms in the universe before it can guess the correct private key.
That’s the power of private keys, and anyone can have that power. With the right tools in the hands of individuals, this technology is changing the world.
Sounds like a fun story, but give me a practical reason why I should carry my own keys.
Even if you don’t care about the philosophical reasons for holding your own keys, there is a very practical and important reason why you should take control of your bitcoin yourself.
One of Bitcoin’s greatest strengths is its decentralization. The Bitcoin software is operated by thousands of nodes and miners, and private keys are held by millions of individuals. Decentralization makes Bitcoin one of the most resilient technologies ever invented.
But what happens when most bitcoin owners decide that keeping their own keys is too difficult, and they prefer to have it done by a third party? On a large enough scale, this can even pose a systemic risk to the Bitcoin network as a whole.
Let’s just say the governments of the world wake up one day and decide to ban Bitcoin. It will be much easier for them to enforce that ban if they only need to seize bitcoin from a few major exchanges and custodians. On the other hand, it’s nearly impossible to knock on anyone in the world and make them give up their bitcoin.
Today, it is estimated that between 20 and 60 percent of all bitcoin is owned by third parties, such as exchanges. My co-founder at Casa, Jameson Lopp, wrote one excellent article analyzing the amount of bitcoin held by custodians. While this is a wide range, even 20 percent is too high for my peace of mind.
Not everyone may be legally self-administered; For example, many regulated institutions are obliged to use a depositary. But individuals are legally allowed to exercise self-care, and not enough of them make use of this right. Too much bitcoin in the hands of third parties is a systemic risk to the network, and we as a community (including custodians who hold funds) have a responsibility to educate individuals and help them take ownership of their bitcoin keys.
Your resolution for 2021: really own your money.
Proof of Keys Day is a holiday unique to Bitcoin users, and it will always have its roots in our philosophy of “Don’t trust, confirm” – as a test of customer exchanges with bitcoin. From this year on, let’s move forward and evolve the goal of Proof of Keys towards one focused on education. Let’s teach and welcome individuals to take that first step towards real ownership of their financial future.
Bitcoin’s success depends on it.
This is a guest post from Nick Neuman. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.