Personal Responsibility & the Blockchain

bitcoin key

Convenience is a desirable feature that users will pay almost any amount for. Humans have a psychological inclination towards taking the easy path which, in the worst of circumstances, opens us up to great personal risk. Bitcoin users are no exception to this rule. From the communities earliest beginnings, users have been shown repeatedly that it is dangerous to leave the protection of their coins to third parties.

When the price is volatile, it becomes convenient for many users is to keep their coins on an exchange, rather than in a personal wallet; sometimes for extended periods. Exchanges are not wallets though, and the temporary convenience of using them as such has left the community vulnerable to constant attacks.

Exchanges often keep their coins divided between hot wallets, and cold storage. Trades performed on such sites happen off chain, with transactional ownership only reverting to users once they move their coins back to a personal wallet, or withdraw their fiat to a bank account. Unless you own the private key, the coins do not belong to you.

The fear of losing value due to volatility is what drives such reckless user practices. Unfortunately, there are not a lot of other solutions that allow users to maintain liquidity, while also protecting their coins in the event of a hack.

Some platforms, such as the CounterParty DEX, allow users to trade directly from their personal wallet using an automated escrow system. This only works when trading between assets however, and does not allow for holding fiat currency.

In future, there are some ideas that major exchanges could explore. Users could be given a private wallet, either generated for them by the site, or input by the user themselves. Information regarding this wallet would not be stored by the exchange. Users could move their coins between the sites hot wallet, and their own cold storage, without having to travel offsite to do so.

A timer system could be optionally set by the user, which moves their coins to cold storage automatically, following a preset amount of inactivity. Trading would be resumed by simply moving funds back to the exchanges hot wallet, but would be protected from attacks in the interim.

Trading currency without the need to trust the second or third party is one of the prime features of the Blockchain. It has given its users a newfound control over their finances that has never before existed. It has also given us new responsibilities. Using Bitcoin requires personal accountability, and self reliance. Community members must resist the urge to give up ownership of their finances to third parties, which have repeatedly shown an inability to protect their users from theft.