Not your keys, not your coins

Today is the 15th Genesis Block Day, the anniversary of the creation of bitcoin’s genesis block. With Genesis Block Day comes Proof of Keys, a Genesis Block Day celebration started in 2018 by Trace Mayer to remind Bitcoiners about the importance of self-custody. Every Genesis Block Day, Bitcoiners can participate in the Proof of Keys celebration by withdrawing any BTC that they currently hold with third-party custodians to their own wallet. Bitcoin was created to eliminate the need for trusted third party control of electronic money. All Bitcoiners should take full advantage of this amazing gift that Satoshi has given to the world!

Proof of Keys has two primary benefits. First, it reduces complacency among Bitcoiners by getting them in the habit of withdrawing to self-custody. Second, if enough people practice Proof of Keys, then we can reveal whether custodians actually have all of the BTC in custody that are supposed to match customer balances, or if they are secretly insolvent (as too many custodians have been in the past).

The strongest form of self-custody is when you use a wallet app that is backed by your own bitcoin full node. This type of wallet will verify that the BTC that you receive has actually been confirmed in a valid block on the canonical bitcoin blockchain. No trusted third party required! Examples of this type of wallet include Bitcoin Core and Electrum backed by an Electrum Personal Server.

A weaker form of self-custody is using a wallet that relies on a trusted third party to tell you whether or not the BTC that you receive has been confirmed. Examples of this type of wallet include desktop wallets like Electrum and Wasabi, or mobile wallets like Muun and Phoenix. There are many wallet options to choose from depending on how you intend to use your BTC and other preferences you have. Check out bitcoin.org and walletscrutiny.com for more information about picking a good wallet.

In addition to considering which wallet app you want to use, you should also consider how you are going to secure the keys to your wallet. Remember that your keys are used to authorize transfers of your BTC, so it’s important to keep your keys safe from hackers and anyone else who might mishandle them. A hardware wallet can be an easy and secure way to protect your keys. Ledger and Trezor are the most established and widely-supported options, though newer hardware wallets such as the Passport are also worth looking at.

The last big decision to make before you show your Proof of Keys is to decide how you are going to recover your BTC if anything happens to you or your wallet, for example if you get hit by a bus or you lose your wallet in some kind of accident (perhaps a boating accident). There are good options to consider here as well, including “collaborative custody” services such as Casa, Nunchuk, and Unchained, as well as steel backup tools (too many to name — see extensive reviews here). Again, what you choose largely depends on your own circumstances and preferences.

With all the options for a bitcoin self-custody setup, it can feel overwhelming to do Proof of Keys. So here is a quick step by step guide that explains a simple setup that should be secure and easy enough to follow for you to feel comfortable getting started. Taking some form of self-custody is the most important step, then you can optimize your setup from there as you acquire more knowledge, save up more BTC, have a change in life circumstances, or whatever the case may be. Feel free to send me a message if you have any questions about this.

How to do Proof of Keys

Step 1. Buy a hardware wallet. Any of the ones mentioned above will work well enough.

Step 2. Buy one of the steel backup tools with a good rating from the previously mentioned list.

Step 3. Set up the hardware wallet and back up your seed phrase (which is used to generate your keys) using the steel backup tool. Store the steel backup with your other valuables or important documents. Keep in mind that anyone who finds the backup will be able to access your wallet and transfer your BTC, so keep it away from prying eyes.

Step 4. Connect your hardware wallet to one of the wallet apps mentioned above and generate a new bitcoin address. You should be able to click “Confirm address” or something like that to verify the address on your hardware wallet screen, ensuring that the address really was generated by your hardware wallet.

Step 5. On the “Withdraw” section of your bitcoin custodian’s website, copy and paste the bitcoin address that you generated in Step 4 into the withdrawal address field. Click “Confirm” or whatever the button says to complete the withdrawal. After a few minutes (sometimes up to an hour or two later depending on network traffic and your custodian’s withdrawal processes) you should see the BTC appear in your wallet.

If you made it this far, congrats! You have demonstrated Proof of Keys and now have self-custody of your BTC.

Note: You could also follow the steps above, but skip buying a hardware wallet and steel backup, and use your wallet app to generate your keys on your computer and backup the seed phrase by writing it down on a piece of paper instead. Only do this for relatively small amounts of BTC and only if you are certain that your computer doesn’t have any viruses/malware on it.

Additional self-custody resources for further research:

https://btcguide.github.io

https://www.smartcustody.com

https://walletsrecovery.org

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