Proof of Keys Day is coming

Originally published with Amber

PoK Day is January 3. This is the anniversary of when the first Bitcoin block, the “genesis block”, was mined by Satoshi Nakamoto. The block with the famous words inscribed forever, “Chancellor on brink of second bailout for banks”

 Left: Front pages of The Times

Right: Bitcoin’s first Block

On the tenth anniversary of the beginning of Bitcoin, Bitcoiners began the ritual of mass withdrawing bitcoin from custodial services all over the world, to their own private wallets. This event was created by the infamous Trace Mayer, now a fallen hero – He either was lost to shitcoinery, or performed the greatest ever “boating accident” exit for financial privacy reasons. This is not an issue for Bitcoin, as Bitcoin doesn’t “need” individuals – “We are all Satoshi”.

Trace Mayer

What the purpose of Proof of Keys Day is, is the subject of this article.

#1 – Fractional reserve hurts scarcity

One of the biggest value propositions of Bitcoin is its absolute digital scarcity of 21 million coins. But this limit is the limit of real coins, not coins that an exchange tells you that you own. If you have, say, 1 bitcoin in your exchange wallet, that is a promise that the exchange is holding 1 bitcoin on your behalf. It’s like owning a bar of gold, leaving it in a bank, never seeing it, but being able to log in to your online account and seeing a photograph of the bar of gold. It begs the question; “how many other people are being shown the same photograph?”

We know fractional reserve exists in the banking sector – you deposit a dollar in the bank, they can lend out 90 cents of that dollar while giving you access to your dollar at all times. This is legalised fraud and works until there is a bank run. 

So what did PoK Day aim to do? – A bank run on all the exchanges. This “keeps the bastards honest”. In fact, there have been exchanges that have failed to do this orchestrated bank run from PoK Day. While some fractional reserve in Bitcoin probably exists, the threat of PoK Days at least keeps it somewhat in check.


#2 – Awareness

The PoK Day campaign creates awareness amongst Bitcoiners about the problem of fractional reserves.

It also creates awareness around the other reason to hold your own bitcoin, as will be described below.

#3 – Not your keys, not your cheese.

“Your keys, your bitcoin. Not your keys, not your bitcoin” – a famous line, by Bitcoin evangelist, Andreas Antonopoulos. Now the second half has become a meme, “Not your keys, not your bitcoin”, and morphed into “Not your keys, not your corn”, and then, “Not your keys, not your cheese”. No, it doesn’t make sense, but it rhymes, so just go with it.

Every bitcoin claim has a private key associated with it. If you don’t have the key, someone else has. Whoever has the key has the power to spend it. Knowledge of the private key IS ownership. Everything else is an IOU.

If you hold your keys, you get to decide 24 hours a day, 365 days a year if you want to spend or move the coins on the blockchain. You don’t need to ask anyone. You don’t need to show your papers, prove who you are, or where the funds came from. 

#4 – Responsibility

If you hold your own keys, you are responsible for the safety of your bitcoin. Only you and no one else. If you lose your keys, you lose your bitcoin. This is a scary thought for some people who don’t want to take this responsibility. But the alternatives are 

  • to trust an unknown and unregulated company to hold your bitcoin (ie exchanges). And many have been hacked. With them holding many coins on customers’ behalf, they are a honeypot attracting hackers. 
  • to trust a regulated company to hold your coins. You then give up your privacy in addition to giving up your coins (because you must submit KYC documentation). This exposes you to regulation risk. What if the government decides to limit withdrawals from exchanges? Your coins then become trapped in the fiat system and will become worthless compared to coins free from such entrapment. Limiting withdrawals is not good, but what about confiscation for the “greater good”? With the socialist direction the world is headed, there is a non-zero chance of this happening. That would be disastrous and easy to do if everyone left their coins on regulated exchanges. If coins were in self custody, they’d have to come for your bitcoin, one person at a time, rather than all bitcoins, one exchange at a time.
  • The best thing to do is to learn how to hold your coins safely. The time and money you invest into doing this is well worth it, especially for early Bitcoiners of today. There are many resources, but for people who need or want guidance, I offer this service through my mentorship program.

#4 – Enforce the rules of Bitcoin

If you hold your own bitcoin, that’s not quite enough to choose which rules of bitcoin you want to adhere to if there is a contentious fork. For example, in 2017, powerful people and companies tried to change bitcoin for their own benefit. Including Coinbase. Those that just left their coins on Coinbase were at their mercy. They got an email letting their customers know of the change – not asking, mind you, telling. This attack on Bitcoin was resisted by those who held their own coins and ran their own node. To enforce the rules you subscribe to, you need to have your own keys, in your own wallet, communicating with your own copy of the blockchain (node). I’ll expand on this in another article. In the end, Bitcoiners were able to resist unwanted changes, and the attack resulted in a new altcoin, Bitcoin Cash, which by most standards, has failed. For those who are interested, the book, “The Blocksize War” by Johnathan Bier is an excellent historical review.

#5 – Lightning

The future of Bitcoin payments will be lightning. All the transactions in the world will not fit on the Bitcoin Base layer, and don’t need to, and shouldn’t. To participate in this future, where you are in charge of your own lightning channels, you need your own bitcoin, and your own node. I’ll write more about lightning in another article.

#6 – Privacy

Bitcoin transactions are pseudonymous. That means clusters of coins can be identified on the public blockchain as belonging to the same person, without fully identifying them. If one of those coins is identified externally, say through KYC documentation provided to regulated exchanges, then ALL the coins in the cluster are identified, and all future movements are identified. There are ways to avoid this tracking, through coinjoin (or “mixing”), and other more advanced methods, to increase privacy. There will be other privacy improvement to Bitcoin too, but you cannot access them if your coins are held by someone else.

Summary:

The purpose of Proof of Keys Day is to 1. keep fractional reserve in check, which keeps Bitcoin scarce. And 2. is to increase the awareness of the public about all the benefits of self-custody and being self-sovereign.

This was a great initiative by Trace Mayer, and he deserves our gratitude for it.

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