It is more than a month since President Xi Jinping renewed his endorsement of blockchain technology which sent the price of bitcoin skyrocketing, gaining as much as 42% in just a few hours and catapulting many Chinese Blockchain A-share firms to max out their intraday gain 10% limit. In the ensuing days, amidst the buying frenzy of blockchain-related stocks, President Xi, however, reiterated his stance against cryptocurrencies, to the point of calling them as unregistered security, financial fraud, and illegal Ponzi. While his pronouncement did not affect the price of bitcoin it rejuvenated efforts to stomp out cryptocurrency trading in China.
Renewed Crackdown on Trading Activities
In light of the Chinese President’s proclamations, there has been a renewed effort to crack down on digital currency trading with immediate results. Two large cryptocurrency players, Binance and Tron, saw their social media platform suspended. Both companies are now appealing to Weibo to retore and reactivate its account. In addition to this, Chinese news media are reporting 173 virtual-currency trading and token issuing platforms have exited or forced to shut down in China including one of the IOST major node partner BISS Exchange whose Beijing office was shut down by the Chinese authorities.
There is no information on how many traders were affected by the recent crackdown or how much digital currencies were sequestered from the purported illegal trading activities. We have seen this narrative before, Centralized Exchanges closing their doors with user funds trapped inside their platform, users powerless to claimed their own digital assets. This situation stems from the fact that they have relinquished custody of their digital assets when they deposited them into the centralized exchange.
This quandary could have been averted if the traders of the said exchanges have access to their private keys. Having access to their private keys would have enabled them to recover their digital assets. Fortunately for BISS exchanges users, despite the closure of its Beijing offices, the BISS website is still up and running but withdrawals have been suspended. The importance of having access to your private keys could never be more evident than at the time like this. This strengthens the message of the old slogan, “not your keys, not your crypto” ever more so today.
Not your keys, not your crypto
What does “not your keys, not your crypto” slogan really mean? If you have been in the crypto space long enough, you would have caught on its meaning in its undertones. However for those who are just beginning to discover the wonders of cryptocurrencies one might need additional help understanding it. Perhaps paraphrasing the slogan can help decipher its meaning. The slogan actually means If you don’t own the private keys of the wallet address where your cryptocurrencies are located then, in essence, you don’t own the crypto stored in that wallet.
By definition, ownership means the act, state or right of possessing something, therefore once you store your digital assets to a wallet address that you don’t have in your possession its private keys, then you have yielded the ownership of those assets. While it seems to be an exaggeration of the situation, if we think of it carefully, it makes a lot of sense. Take for example when you deposit money in a bank. You will need to ask permission from the bank to withdraw your own money. This act alone makes it seem that you don’t own the money since you have to ask permission from them.
Denial of access
This is even more apparent when banks deny you access to your own money for various reasons. This could stem from regulatory compliance, false-positive alerts, random checks, system maintenance, security breaches or whatever reason they could muster to deny you access to your own money. All these under the pretense that they are protecting your money. This begs us the questions from who are they protecting it from? All seems to point to they are protecting it from the very same people who entrusted them their money in the first place. Funny isn’t it.
However, you won’t be laughing when you realize the real reason behind all the efforts of banks to inconvenience their customers when they withdraw their own money. It has something to do with fractional reserves banking system which is better explained at another time. The point is we cannot claim true ownership of our money if we cannot easily access them without restrictions, limitations and whenever we want. This is tantamount of having the keys to the bank vaults where they are being kept. Of course, this will not never happen because the money that is stored in the bank vaults also includes other assets that are not ours.
This still holds true when dealing with cryptocurrencies. In the crypto space, we can liken the banks as the creators of the crypto wallet addresses where we deposit out cryptocurrencies. The bank vaults are the crypto wallet addresses and the keys to the bank vault are the private keys. Like in the real world scenario it is much easier to deposit digital assets than to withdraw them. Similarly, the creators of these crypto-wallet addresses can restrict users who have entrusted to them their digital assets for storage.
IOST Hypothetical Situation (Producer Voting)
For clarity let us discuss a hypothetical situation wherein an IOST Token holder wants to participate in Producer voting. This is a self-governance mechanism in the IOST ecosystem where IOST token holders are given the chance to vote for Node partners who will help in maintaining the IOST network. Top elected candidates will also participate in community governance as well as a chance to determine the future development direction of the IOST ecosystem. Participants in the voting process are rewarded proportionately on the number of votes they cast, 1 IOST = 1 Vote.
There are many ways to go about it but we can basically break it down into two ways. First, we can cast the vote through a digital asset custodian that generates our private keys for us, such as Centralized Exchanges and wallet custodian services or second, we can vote using our own private keys via the many voting instruments from various non-custodial service providers such as wallets and block explorer. For beginners especially those who are not familiar with creating their own wallet address the first option seems to be the most logical choice for the following reasons.
Voting through Custodial Service Providers (BISS Exchange)
Free and easy Wallet Creation
First, Centralized exchanges (CEX) like BISS offer a quick, easy and free way of creating IOST wallet addresses. Users will just need to register and verify their email address to be able to create a crypto wallet. In some cases, users will be required to undergo KYC procedures to gain access to all available services in the site such as higher trader limits, staking services and options to buy cryptocurrencies using fiat. New users will typically agree to this since they would probably need to have full access to the services provided by the CEX.
No Private Key Hassles
Second, creating your own wallet address might be a trivial task for a seasoned crypto-enthusiast but might be a difficult and confusing ordeal for new users. Oftentimes they forget to secure their private keys which is impossible to recover once they are lost. The burden of having to secure them weighs on them making the prospect of having someone create a wallet for you without going through the hassle of securing private keys becomes an even more attractive proposition. New users typically chose convenience over security.
CEX False Sense of Security
Third, the misconception that digital assets are more secure when they are stored in wallets held by Centralized Exchanges (CEX). Centralized Exchanges, in reality, gives a false sense of security for crypto holders. The security of the funds depends entirely on the security of the blockchain itself which can only be accessed with their private keys. Platform wallet addresses like Ethereum, EOS, TRON, and IOST CEX usually hold them in a single common wallet demarcated with Tags which has a single Private key.
Cost of Using Centralized Exchange or Custodial Service Provider
However, whatever convenience and perceived security users of these exchanges receive comes at great cost. CEX users will always have the risk of losing access to their cryptocurrencies for the simple fact that their digital assets are stored in wallet addresses they do not fully control. Centralized Exchanges take on the role of a trusted Bank that acts as the custodian of your assets. Like banks, they can impose restrictions on user access on digital assets they hold. Even to assets that were only entrusted unto them.
Sometimes Centralized Exchanges become agents of censorship and state control when they willingly or unwillingly lockdown accounts of their users. Instead of espousing freedom of money they evolved into the very same institutions that cryptocurrencies sought to disrupt. Nonetheless, despite these weaknesses, they serve an important part in the wider cryptocurrency ecosystem where the intersection of the regulators, traditional fintech and blockchain-based entities is bound to happen.
Voting Non-Custodial Service Providers
Creating your own wallet address/account for voting presents a better option. First, you and you alone know your private keys. This means only you have the capacity to access, restore, recover and import the wallet address that contains your digital assets. This gives you unmatched security and mobility since no one can restrict the movement of your digital assets. Unlike assets that are deposited in Centralized exchanges where users will have to ask permission from CEX operators to withdraw them.
Second, your assets are not lumped together with the digital assets of other users. This means there is less risk of creating a large concentration of cryptocurrencies that are just waiting to be exploited by hackers. The wallet address of Centralized Exchanges create honeypots that are highly sought-after by hackers who are always looking for a big payout. By keeping your assets in your own personally held wallet, the chances of hackers detecting them are slim. Best of all you can always create a new one just in case the previous address has been compromised.
Lastly, creating wallets address/accounts are not as difficult as one might believe. In the context of IOST, it is just a matter of downloading a wallet application called PureWallet and following the instructions on how to create an IOST wallet address/account. IOST wallets/accounts creation typically require 10 IOST, but this has been subsidized by PureWallet’s developers and supporters. After the wallet has been created the user can back up or export their wallet’s Private Keys (PK). Having the back up of their PK will enable them to import their wallet/account to any IOST non-custodial wallets supported.
With their private keys on-hand, users will be able to access their wallet address/accounts in the various supported wallets and use them to participate in voting activities. Wallet addresses can be imported to mobile wallets like PureWallet and Tokenpocket app. They can also be imported to the Chrome extension wallet iWallet. Both mobile wallets have built-in voting tools while iWallet can be used together with IOST block explorer IOSTABC to vote for node candidates.
The latest crackdown of crypto exchanges in China have demonstrated the importance of storing your cryptocurrencies in wallets addresses that you truly own. This means addresses that you own their private keys. By doing so you are able to leverage the fullest benefits of cryptocurrencies and its underlying technology that is meant to be unstoppable, censorship-resistant and free from any form of external interference. Hence, ownership of private keys represents true ownership of cryptocurrencies, the reverse is also true “not your keys, not your crypto.”