What does "Not your keys, NOT your Bitcoin" mean?
“Not your keys, not your bitcoins” is a saying that gets passed around a lot in the Bitcoin space.
It can be confusing if you don't know much about Bitcoin and how it all works. Don't worry you're not alone.
There is a lot of jargon and new terminology when it comes to bitcoin and there's also a lot of memes too.
I saw this tweet below recently and I thought I would answer it in a post thinking others probably have the same questions.
“What is meant when you say; not your keys not your Bitcoin?
If you hold on Binance/Coinbase etc is that not safe?
The short answer is no, it’s not safe.
To understand this deeper, we need to understand what a Bitcoin wallet is and what public and private keys are.
Bitcoin Address & Keys
A Bitcoin wallet works by generating a public-key-and-private-key pair that is necessary to engage in a transactions with the coins locked in the wallet.
Like you need a key to get inside a safe, the same holds true for a Bitcoin wallet.
These keys are stored in the wallet which has a public address that can be shared with people that you want to send bitcoin to you.
Most Bitcoin addresses are 34 characters and consist of random digits and uppercase and lowercase letters.
A bitcoin private key is a secret number that allows you to spend your Bitcoin. Every Bitcoin address has a matching private key, which is saved in the wallet file of the person who owns the balance.
The private key is mathematically related to the address, and is designed so that the Bitcoin address can be calculated from the private key, but importantly, the same cannot be done in reverse.
Because the Bitcoin private key is the "ticket" that allows someone to spend bitcoins, it is important that these are kept secure.
The public key is a very long string of numbers. The private key generates a public key which in turn generates a public address.
The public key can be shared so people can send things to the wallet.
The private key is what is needed to retrieve things from the wallet in order to sell, withdraw, or transfer.
Private keys can be kept on computer files, but they are also short enough that they can be printed on paper.
The question is now how do you keep your keys secure this is where the subject of custody comes in.
If you don't have custody of both of these keys you can't access your Bitcoin.
What does Custody mean?
Custody is about control and ownership of your assets.
If you had a bar of gold in your home safe, you are in custody of your gold. If you ask a bank to hold your gold the bank is now in custody of your gold.
The whole saying “not your keys not your Bitcoin” is about custody.
If you don't hold the keys to your Bitcoin you don't have control over it and it's not really yours.
Custodial wallets on exchanges
When you buy Bitcoin on an exchange like Coinbase or Binance or the many other crypto exchanges you are asking those companies to hold the keys to your Bitcoin for you in exchange for simplified trading.
They like simplified trading because they earn their revenue through trading fees as well as withdrawal fees.
When your Bitcoin is on an exchange they are in custody of it; you are using what is called a custodial wallet.
It's a promissory.
You don't have the keys because you agreed that they will custody your assets on your behalf.
Many exchanges state in their terms that if they go bankrupt, the bitcoin that they have as user deposits will go towards paying off anyone that they owe money to.
Read the fine print…
“General unsecured creditor” ouch!
You don't have to look far to start seeing this happening in the current crypto crash.
Celsius Network halted withdrawals because people were taking their money out of this project at a rapid rate.
"Not your keys, NOT your Bitcoin"
Self custody is safer
Keeping bitcoin in your own wallet is the safest and most secure way of holding your Bitcoin.
The only risk is YOU and you not managing your keys properly.
Bitcoin is about taking ownership and responsibility for your assets.
How to self custody your Bitcoin?
There are many options for Bitcoin wallets where you hold the keys.
Here are a few I recommend.
Bitcoin Core full node
You can run a full Bitcoin node on your laptop or computer which comes with unlimited wallets. Here is a guide I wrote on how to do this.
The Electrum wallet
The Electrum wallet is described as a lightweight Bitcoin wallet. Electrum’s focus is speed, with low resource usage and to simplify Bitcoin.
Startup times are instant because it operates in conjunction with high-performance servers that handle the most complicated parts of the Bitcoin system.
The Sparrow wallet
Sparrow is described as the “Bitcoin wallet for those who value financial self sovereignty.”
Their emphasis is on security, privacy and usability. Sparrow aims to provide as much detail as possible about your transactions and UTXOs, but in a way that is manageable and usable.
I hope this provided you with a decent explanation of what "Not your keys, NOT your Bitcoin" is about.
Most of all, I hope that if you still have bitcoin on an exchange like Coinbase or Binance that you decide to take ownership and responsibility of your keys and get your bitcoin off and into your own self managed wallet.
If you have questions or need more clarification, please leave a comment below or come reach me on Twitter @CraigOnBitcoin.