Listen to Satoshi!

The collapse of the centralised exchange FTX makes people learn their lesson about cryptocurrencies the hard way: trust no one!

Sam Bankman-Fried, the founder of CEO of FTX, apparently cheated his customers out of their money. The bankruptcy of the second largest crypto exchange triggered a fall in the price of all cryptocoins and dragged many other companies down with it. FTX created their own FTT token out of thin air and “backed” daredevil financial manoeuvres with it. People trusted the 30-year-old billionaire, who was on the covers of Forbes and Fortune and rubbed shoulders with former leaders like Bill Clinton and Tony Blair.

This is exactly what one should not do. The basic idea of Bitcoin is not to entrust your money to anyone, not to a bank, not to the government, not to “the next Warren Buffet” (as Fortune called Bankman-Fried). Bitcoin was invented by Satoshi Nakamoto to avoid any dependency on third parties, as trustworthy as they may seem.

“The root problem with conventional currency is all the trust that’s required to make it work,” Nakamoto wrote in a post on the P2P Foundation forum in February 2009 explaining the reason for Bitcoin. “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”

Bitcoin is based on the peer-to-peer principle. If you use it the way it has been designed, there is no need to trust anyone, only the cold, hard laws of math and cryptography, but no human being. Unfortunately, not everyone understood that. People are so used to entrusting their money to institutions that they do the same with Bitcoin and cryptocurrencies.

In 2014, people lost a lot of Bitcoin when Mt. Gox, the dominant exchange of the early years, went under. Time and again, crypto investors have been robbed of their money, be it through hacks or through fraud. It is hard to believe that despite all this evidence, people still leave their money with companies like FTX when they should know better.

I have to admit that I made the same mistake when I first started discovering Bitcoin. I had some coins in an account with Coinbase, a company that claimed all funds were stored in cold wallets and guaranteed nothing could happen. I fell for a very well done phishing attack. A hacker replaced my phone number for second factor authentication with his own. Suddenly I no longer had access to my account and the coins were gone. Despite all their promises that my coins were safe, Coinbase was unable to refund my money.

Since that experience I only store my money on a hardware wallet. It requires some effort to set it up and to store the twelve word seed phrase in a safe place, but it is definitely worth it.

If you use an exchange to buy cryptocoins, don’t leave them there, but immediately transfer them to your own wallet. If you want to daytrade and speculate with your coins, use a decentralised exchange like Sovryn. All trades are executed by smart contracts, the keys to your coins stay in your own Web 3 wallet like Defiant.

One cannot repeat Bitcoin’s mantras often enough:
Don’t trust, verify.
Not your keys, not your coins.

By Aaron Koenig

Key visual: Statue of Satoshi, Graphisoft Park Budapest, by Réka Gergely and Tamás Gilly