Given the recent lack of confidence around bank deposits, interest in safeguarding one’s own budget has been at its highest: we have witnessed banks that have existed for decades and centuries. While depositors have so far been kept “whole” through the use of financial intervention, the hidden thought in everyone’s brain is whether their cash and the balance they see in their bank accounts are really theirs.
The Great Depression of the 1930s was correlated with a series of regional bank failures. More than 9,000 banks (representing about 30% of all U. S. banks) failed between 1930 and 1933.
They were eliminated through a series of banking panic, although some of these disorder have also been attributed to the continuous weakness in the agricultural sector of the 1920s. There is still an active debate about whether the reasons underlying the great depression caused disorder of the bank or not, or if the bank disorder in itself, which would be a slight recession in a depression.
This birthed the Federal Deposit Insurance Corporation which was meant to prevent a similar episode of bank runs and the panic that ensued by providing insurance fro the federal government for deposits within the U.S. banking system. This was the federal agency that insured (in excess of its posted limits) the deposits within Silicon Valley Bank — a modern echo of those volatile times.
So what are the principles of self -preservation of Bitcoin and how can they be properly implemented to deal with the bank volatility of this era?
We are already used to the concept of online passwords. To access your deposits, most people will now interact with an online banking portal that will demonstrate the amount of deposits you have at a specific bank. But what do you access when you look?
If we are talking about a portfolio that follows the Bitcoin self -care rules, then you are talking about a price repository that you can send to all unstriction addresses. Once you have caught the key, you will have full access to the active assets it contains, which exist in its entirety.
Your bank deposits are an abstraction with limits imposed on them – and for a clever explanation as to why – to cover precisely the threat of a bank run and a bank run. The amount deposited can only be obtained fractionally – this doesn’t matter to most people on a day-to-day basis, but is incredibly vital in the event of a bank run.
As a result of the fractional banking system, banks are allowed to leverage the deposits they have (which are essentially liabilities for the bank’s balance sheet) in order to gross as much return back as possible on deposit amounts. That means that they wouldn’t have the cash on hand to fulfill a large majority of deposits if they all came due at once — the exact definition of a bank run.
As a result, your budget is subject to controls on how you can use them. As a retail visitor at ATMs, you can only withdraw a limited amount of money at a time. If you plan to send the quote electronically, there is also a limit. The bank may freeze your quote if you offer something they don’t like. They may refuse to do business with you for a variety of reasons.
Bitcoin flips that paradigm. Instead of having to deal with a cumbersome intermediary, you can have full control and access over your own assets.
Or to summarize very much in Bitcoin-Speak: your keys, your Bitcoin.
Even if the recent Silicon Valley Bank crisis partially financed through a prolonged FDIC insurance guarantee, we surely cannot count on this in the future. Former FDIC Commissioner Shelia Bair argues that the genuine challenge lies in the option of bank panics, related to the desire to sell securities at a loss in a higher interest rate environment. This is a threat category that applies to all banks, and not just banks with a specific threat point focused on a certain sector or banks with an uninsured deposit hotspot.
As the SVB case shows, you cannot audit your bank for internal practices and the global has become a more volatile place, where default hypotheses would possibly be the norm. The policies of low interest of the last decade already seem to be a relic. The underlying triggers, such as the sudden production of OPEC +production, is reduced in the horizon: creates inflationary pressures that can also force central banks to continue assembling the rates. Banks such as SVB, who did not have a risk chief, and who did not take into account cases that can also become more and more volatile will not be as reliable as they were in a macroambient of immutable and favorable macro.
While there were banks that managed interest rate risk well (keeping away from buying certain securities while interest rates were low, foregoing instant profits in order not to have to mark down potential losses), many did not — and throughout the coming months, and perhaps even years, this may fully roll out before our eyes.
While the Federal Reserve and the FDIC have intervened decisively, together with Silicon Valley Bank, and to cover the gigantic amount of unseged deposits that had technically exceeded the insurance limit of $ 250,000, there is no guarantee that the Federal Reserve and the treasure can do it or keep it in the future.
For other countries with decreasing financial sovereigns, promises matched in deposits weaken the internal currency and imply a point of loss for the citizens of that country. For example, the agreement between Credit Suisse and UBS caused a fall of the Swiss Franco. To what extent is an unlimited government guaranteed? It is possible that the guarantee is broken, and even if not, this would imply a position for each user who owns this currency.
Rather than relying on the promise that is your bank deposit and government guarantees that they will bend the rules to make you whole, it is more appealing to have your assets available to you at all times, under your own control, in an asset that is priced by market mechanisms rather than politically-driven artificial scarcity (or plenty).
Self-custody isn’t a solution to all problems. It may not even be the solution to your particular problem. With the great power of custody, comes a great responsibility. This includes choosing the best custody option for yourself, knowing that access to a key that can send funds out can allow for actors to compromise your funds — elevating the level and knowledge of digital security you need versus the convenient option of parking that risk (and control) with someone else.
Some other people keep their bitcoins in exchanges and others also retain their cryptocurrencies, with the appeal of betting them by keeping them captivated and greedy. However, as evidenced by FTX and Celsius falls, when you leave your bitcoin in return, you depend on the same fiduciary logic as with bank deposits: it can be a risky bet.
This is where the total diversity of self-custody responses comes in. Most other people don’t buy giant sums of cash in “hot wallets” that are connected to the web and can move the budget quickly. However, you can have an escrow solution like Wasabi Wallet or something if you need a pretty quick way to send a quote on-chain. A popular solution is to split the budget of hot wallets for spending and bloodless wallets for savings.
For hot wallets, lightning network wallets are liked because they have decreasing transaction fees and are better suited for micro-transactions that provide life: The 2023 answer to can you buy coffee with bitcoin is a yes.
Here is a list of sample Lightning Network wallets:
There’s also the option of having your bitcoin stored in a hardware wallet (seen as cold), typically one that isn’t Internet-connected and requires physical input.
Some other people will also do what is called a paper wallet. This means that they literally put their personal paper key. Finally, many other people can opt for a more controlled service that includes two key combinations (including hardware wallets) for bloodless storage. One of the most productive known in this regard is home.
Bitcoin’s self-custody principles give you control over your budget, not in a summarized form as an online bank balance, but in a real, tangible sense so that you can send your wallet amount anywhere you need without restrictions and without need. for any warranty. But it also comes with some responsibilities: Ownership of your assets means making sure that the way you buy the keys, stricter than the bank password for your deposits, can be done securely and efficiently.