You may have heard the saying ‘Not your keys, not your coins.’ The meaning of this saying is the reason bitcoin is worth as much as it is, and the reason it will be worth more in the future.
What are bitcoin keys? They are secret numbers that prove you own your bitcoin. You can’t spend your bitcoin without these keys. They are usually represented as a set of 12 or 24 words called seed words.
If you buy bitcoin on an exchange like Coinbase, Binance, Kraken, or any of the others, you don’t actually own the bitcoin. It stays in the exchange’s possession and they promise that it’s yours—but they have the keys. Now, you might say that this is just like the rest of our money which we keep in a bank, so what’s the big deal? There’s laws and contracts, and the exchange has an obligation to hand over your bitcoin when you ask for it.
Currently, Robinhood and Paypal do not let you ever take possession of your bitcoin. It has to stay with them until you sell it to them.
Leaving your bitcoin in an account at an exchange is very similar to keeping your savings in an account at a bank. Most of the arguments you find online about why you should hold your own bitcoin keys bring up the specter of the exchange getting hacked or stealing your bitcoin or defaulting. While these things do happen (and probably more frequently than you’d guess), that’s not the real reason ‘Not your keys, not your coins’ is important.
To really understand why ‘Not your keys, not your coins,’ we need to think about why anyone would want to have bitcoin in the first place. After all, bitcoin is just a bunch of rules about how to change numbers around. It’s all made up. It really is pretend money.
There are two reasons that people want this pretend money: first, you can take your bitcoin anywhere you want to go; and, second, you can spend your bitcoin anyway you like.
Bring all your money wherever you go
If you needed to leave one country and go to another, bringing your bitcoin assets with you is as easy as remembering your seed words. There is no other asset that can be moved so discreetly and so easily. If you live in a safe place with a stable government, this may not seem relevant to you. But bitcoin is accessible to everyone on the planet, and there are billions of people who do not have the luxury of such safety. These people are the true base layer of users for bitcoin, and the reason it will always have value.
Wherever you have access to the internet and your keys, you are able to control your bitcoin. The bitcoin itself exists on the blockchain, and the only way to erase it or seize it is to destroy every copy of the blockchain.
The bitcoin blockchain is a record of every transaction of every piece of bitcoin. When you send bitcoin to someone else, or receive it—these transactions become a part of the blockchain. The amount of bitcoin controlled by your private keys is part of this blockchain.
There thousands of people all over the world—in different climates, in different countries, in different cultures—who use computers to keep up-to-date copies of the blockchain, and who check (with actual math!) that all the transactions included in each new block follow the rules of bitcoin. All of these computers (called nodes) agree every 10 minutes about which keys control which pieces of bitcoin.
The fact that there are so many nodes is what makes bitcoin decentralized, and it makes the blockchain very durable. The fact that your keys control the bitcoin you own (and how much) exists on many different computers in many different places, and this guarantees your ability to access your bitcoin wherever you are.
So whether you are in Cambodia, Luxembourg, Kenya, or anywhere else, the amount of bitcoin you have is whatever is controlled by your keys. And as long as you have these keys (and no one else does) you are the only person who can decide to spend your bitcoin.
No one can stop you from spending your money
Think about the experience of using a debit card. You have money in your accounts, but you have to rely on a payment processor or a bank to authorize the transaction. Surely, you’ve seen the display on the credit card machine say APPROVED. Perhaps you’ve recently had your card rejected.
Because we don’t keep our own money, we have to wait for the approval of the places we trust to keep it. Of course, you can use cash, but most people find it a pain in the ass to carry around a pile of cash and coins, and good luck trying to buy something on the Internet with cash.
Payment processors have become so ubiquitous, it’s become a rare thing to make a transaction that is not mediated by a third party. But imagine what you would do if your bank no longer wanted to offer you service?
Once again, this may not seem terribly likely if you live in a place with lots of banking options and reasonably fair laws, but if your options are limited—perhaps because you live in a country with state-owned banks, or perhaps because you live in a rural area with few options—you ability to access your money may be severely curtailed.
This is the second reason bitcoin is useful. When you hold your own keys, bitcoin is permissionless. It doesn’t matter the time of day, the day of the week, whether it’s a holiday or not; it doesn’t matter which time zone you are in, or which time zone the person you are sending to is in; it doesn’t matter what country you are in, or what wallet app the receiving person uses.
There is no difference between a bitcoin transaction where you send bitcoin from one wallet on your phone to another wallet on your phone, and a transaction where you send bitcoin to someone in Nigeria while you are in Canada. Both transactions take the same amount of time and cost the same amount of fees. More importantly, no government or business can stop the transaction.
If you have the keys that control your bitcoin, and someone else is willing to receive bitcoin, no one can stop you from making that transaction. No one can stop you from spending it or receiving it. No matter where you go. No matter who you are. No matter who you want to send it to. This is the most important aspect of bitcoin.
When you combine the permissionless nature of bitcoin with the fact that it is digital and as easy to send and receive as an email, you have something that is very useful, indeed. These useful features ensure that bitcoin is here to stay. Even if you don’t feel the need for such usefulness, take the time to hold your own keys. Your keys are your coins.