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+---
+title: "The Promise of Decentralized Currency and the Issues with Custodians"
+date: 2022-12-04T19:54:58-05:00
+draft: false 
+tags: []
+math: false
+---
+
+*Disclaimer: I'm not an active participant in the Bitcoin community and the comments of this post are from an outside perspective.*
+
+[FTX, one of the largest crypto exchanges](https://en.wikipedia.org/wiki/FTX_(company)), collapsed last month taking many people's investments and savings with them. Investigations are currently underway for if FTX [illegally lent customer funds to a partner company Alameda research](https://www.nytimes.com/article/ftx-bankruptcy-crypto-collapse.html), the beginning of the strategies used by FTX to hide their insolvency.
+
+As this is among a [series of collapses](https://www.nerdwallet.com/article/investing/crypto-winter), it has people skeptical on the value of Bitcoin. From my memory, the last major collapse of similar magnitude is that of [Mt. Gox](https://en.wikipedia.org/wiki/Mt._Gox) in 2014. Even with these collapses, I however, don't see this as the reason to avoid Bitcoin altogether.[^1]
+
+## Who owns the Bitcoin?
+
+When you buy Bitcoin off any of these exchanges you don't **own** the Bitcoin. What do I mean by this? Well let's look at a higher level on how Bitcoin works.
+
+From the original whitepaper:
+
+> Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin.
+
+What do you need then to perform the transaction?
+
+- Your private key
+- Destination's public key
+- Public ledger which denotes the funds associated with your account 
+
+Now where is your private key stored on these exchanges? It terms out, as a user of their service, you don't have access to it. Instead you're granting them permission to handle the money on your behalf, what you receive is much like an IOU.
+
+Now we trust banks to hold our funds, how is this different? Banks are FDIC/NCUA insured. This means that you are guaranteed to receive $250,000 per insured bank, per depositor, per account ownership category. If your bank ever goes bankrupt, all your money does not go with it.
+
+What this is more similar to is the PayPal model. [PayPal is itself not a bank](https://www.forbes.com/advisor/banking/paypal-as-bank-account/), so leaving money in a PayPal acount is not protected under FDIC insurance. In fact, they are also under a [class action lawsuit for freezing customer funds](https://arstechnica.com/tech-policy/2022/01/paypal-stole-users-money-after-freezing-seizing-funds-lawsuit-alleges/). Nothing says that you don't own the money more than not being able to access it.
+
+## Bitcoin is meant to be a decentralized currency
+
+We really shouldn't be holding large amounts of Bitcoins with these *custodians*. Instead, each person should control their own private keys. We can do this through a non-custodial wallet. This requires the generation of private keys which are often done through *seed words*. I won't go into detail on this as per my disclaimer above, however, I find [bitcoiner.guide](https://bitcoiner.guide/) to be a nice and honest resource.
+
+## Do not confuse ownership with privacy
+
+Often purchasing Bitcoin from an exchange passes through a *Know Your Customer* (KYC) organization. Simply moving the money off a custodial account into your own Bitcoin wallet does not mean that it can not be associated with you. [Bitcoin transactions are public information by design](https://www.blockchain.com/explorer/blocks/bch). In terms of controlling your privacy, I can't provide much advice. However, look into Bitcoin Escrow services to facillitate anonymous purchasing/selling as well as the [coin join techinque](https://bitcoinmagazine.com/technical/a-comprehensive-bitcoin-coinjoin-guide) for granting some plausible deniability.
+
+
+
+
+[^1]: I understand other arguments more such as the un-sustainability of the *Proof-of-work* protocol.