The annual Proof of Keys bitcoin event is coming up again, which means it’s time to get your bitcoins off the exchanges. During the Proof of Keys celebration on January 3rd, the day of the genesis block , many people withdraw their bitcoins from exchanges to their wallets, as an expression of financial sovereignty and to put pressure on exchanges to prove that they have the client funds.

Bitcoin is about decentralization, financial sovereignty and managing your own money, among other things. It is therefore actually strange that many people keep their bitcoins on a centralized exchange or with another service provider.

Moreover, there are major risks involved. After all, the question is whether exchanges and service providers handle their customers’ funds responsibly. History shows that this is not always the case. And when you buy bitcoins on an exchange, how do you know that those bitcoins really exist? There are many well-meaning and honest exchanges and service providers out there, but there are perhaps just as many that are flawed. In some cases, service providers even turn out to be outright scammers.

The biggest risk, however, is that an exchange or service provider is hacked and loses customer funds. Bitcoins are digital, scarce, valuable and the transactions are irreversible. For a malicious hacker, it’s the ultimate prize. Exchanges and service providers are the main targets, because they hold the largest amounts of bitcoins. That is one of the pitfalls of centralization and one of the reasons why it is risky to keep bitcoins on an exchange for a long time.

Bitcoin’s eleven-year history is therefore peppered with all kinds of hacks on exchanges where customer funds have been stolen. Of course there is the now legendary hack on Mt.Gox, the largest bitcoin exchange at the time, where some 850,000 BTC in customer funds were initially captured. But also in more recent history there are numerous examples of hacks on exchanges. In many cases, victims can whistle for their bitcoins, or have to fight for years to get any refund.

In short: storing bitcoins on exchanges or with service providers is risky. You should therefore preferably store your bitcoins in your own personal wallet of which you own the private keys and do not store them with a service provider for longer than necessary. Not only does this avoid risks, but it is also the way Bitcoin is meant to be used.

After all, the properties that make Bitcoin interesting, such as decentrality, censorship resistance, peer-to-peer and scarcity, are completely negated when bitcoins are kept with a centralized party that can apply censorship, act as an intermediary and could even conjure up fictitious bitcoins. .

Proof of Keys

Proof of Keys, a pun on Proof-of-Work, is an annual event to educate newcoiners about these risks and to encourage people to join the simultaneous withdrawal of their bitcoins to their own wallet on January 3rd. A kind of organized bank run, but at bitcoin exchanges and service providers. The date of January 3 was chosen by initiator Trace Mayer because it is the day on which the first Bitcoin block was mined in 2009. So it is also a bit of a celebration of the birth of Bitcoin.

The simultaneous withdrawal also has the aim of putting pressure on exchanges and getting the truth out. If an exchange does not have sufficient funds to pay all users, this may manifest itself during the event. In addition, knowing that this event exists could be an extra incentive for exchanges to remain fair.

However, participating in the event on January 3 is not entirely without risk, because with sufficient participation it could just be that an exchange or service provider cannot pay out. Still, the thought is, it is better that such problems manifest themselves at the earliest possible stage. When the event took place for the first time last year, the problems were not too bad.

However, do you want to be on the safe side and would you rather not be at the back of the queue when many people claim their bitcoins at the same time on January 3? Then transfer your bitcoins to a wallet of which you own the private keys . That’s a good idea anyway.

Because only if you store bitcoins in a wallet of which only you own the private keys, you know that you really own them and that no one else can access them. As Bitcoin educator Andreas Antonopoulos regularly reminds us, “Your keys; your bitcoin. Not your keys; not your bitcoin.”

Also take a look at the Proof-of-Keys website, or start right away by choosing your own personal wallet that suits you. Do you want a solution that combines a high degree of security with ease of use? Then we recommend using a hardware wallet.