Shikhar Vaibhav on January 02 2020
There is a popular saying in crypto that goes like — “Not your keys; not your Bitcoin!”. Unlike the traditional finance space, crypto enables the user to be in charge of their assets. Keeping your private keys secure is essential for true financial freedom through cryptocurrencies. Unfortunately, we see a lot of cases of people losing their funds by keeping them on an exchange. The infamous Mt. Gox hack of 2014 and the recent Quadriga CX disaster, where the keys to the funds on the exchange were lost with the demise of the CEO.
Apart from the loss due to storing funds on exchanges, a lot of people lose their crypto funds by not storing their private keys or the seed phrase securely. Billions of dollars have been lost in crypto due to these improper crypto storage practices since the genesis block of Bitcoin was mined.
What does this all have to do with 3rd January and Proof of Keys ?
Proof of Keys was conceptualized by Trace Mayer, a cryptocurrency investor and podcaster. The idea revolves around the crypto users and traders taking control of their funds by removing it from exchanges into a wallet for which they own the keys. It is a celebration of financial sovereignty. January 3 2019, marked the 10th anniversary of the Bitcoin ‘genesis block’ being mined and that was the first time the Proof of Keys event took place.
To summarize it in a single sentence, Proof of Keys is an annual event that is celebrated on January 3, as a celebration of monetary autonomy where the users withdraw their funds from exchanges into a wallet for which they own the keys.
So what do we gain from it?
As stated earlier, most people are aware of “Not your keys; not your Bitcoin”. But many people choose to ignore it for whatever reason. Proof of Keys acts as a reason for all the crypto traders to come together and take their funds in their control. It aligns perfectly with the Bitcoin philosophy of removing any intermediary parties with a trust-less system to transfer value securely. Every individual in the crypto space can learn something by participating in proof of keys:
- Users learn, re-familiarize themselves with the basics of using cryptocurrencies. New investors are usually stuck with exchanges. This acts as a reason to withdraw their coins from the exchanges, create and use wallets, and learn how to move their coins around. This gives the user a necessary exposure to the wider crypto space out of the realm of exchanges.
- Many new users get to create their first wallet for which they own the keys. This comes as an important reminder that the coins only belong to the user when they are the sole owner of their keys.
This practice helps the user to develop a greater understanding of how risky it can be to leave their coins on the exchanges. Cryptocurrency, in general, offers a level of freedom that no centralized authority can offer and for some, the taste of freedom can be addictive. So this creates better and overall more informed users.
- Institutions are infamous for practicing Fractional Reserve Banking, which means, some institutions might engage in more lending than their deposits. This is the crux of the traditional FIAT banking system and it essentially creates value out of thin air and contributing to the ever-rising inflation. This means a ‘bank run’ could help to bring out the names of dishonest exchanges as they would not be able to return the deposits of all the investors.
Proof of keys encourages everyone in the crypto space to withdraw their funds from exchanges, at least for a single day keeping the practices of exchanges on a leash. Fortunately, the open nature of Bitcoin and most other crypto blockchains makes it easier to verify the practices of exchanges.
- “Declare and re-declare our financial sovereignty!” as said by Mayer, which was also one of the core principles of Bitcoin. So this an apt way of celebrating the birth of Bitcoin and the anniversary of the genesis block. The genesis block has the first Bitcoin transaction in which Satoshi Nakamoto sent 50 BTC to Hal Finney.
How can the users participate in Proof of Keys?
It is a celebration that invites every individual in the crypto space to declare their financial autonomy. Users should also remember that it becomes the top priority to secure your keys when you decide to become the person in charge of keeping your funds safe. Cypherock X1 is a first of its kind hardware wallet with special emphasis on keeping the private keys safe, it lets the user separate the keys from the hardware wallet and store it safely in an encrypted format at different locations or with different people, which prevents a single point of failure. No other hardware wallet currently offers this kind of security in the market. No matter, if you are a new user or an expert, it is always good to familiarize or re-familiarize oneself with the basics of using cryptocurrencies.
- Users can start by tracking down the amount of crypto stored in various exchanges. This practice will help the user in compiling the crypto. You might be surprised by how much cryptocurrencies you hold when you bring it together in a wallet you own.
- This event helps users more familiar with the ecosystems of the coins they hold.
- Users can familiarize themselves with many kinds of different wallets and choose the one which they feel is most secure for them, based on their usage. Cypherock X1 can be used in various ways based on how frequently the users need to access their funds.
- Teach other users about the importance of keys.
Last year saw widespread participation of people in Proof Of Keys and with more familiarity of the space, hopefully, the movement will gain greater traction and involve more users. Many crypto enthusiasts take part in events like Proof of Keys and events like these are what keeps the spirit with which the whole crypto movement was begun, alive.
With more people using a wallet for which they own keys, it becomes very important to secure those keys or risk losing all the funds. Cypherock X1 is the best solution right now, that is easy to use and does not compromise with the security of the funds. The private keys are never stored on the device, nor it is ever stored at a single place. It can be used by traders as well as HODLers as it adapts to the degree of freedom required by the user.