We’re going up a ladder together today. Perhaps one of the most important stairs you will climb: the ladder of financial sovereignty. Until last year when I started learning about Bitcoin, I didn’t know such a ladder actually existed and I guess you didn’t either. What this ladder symbolizes is one of the most important human freedoms available to us in the twenty-first century.
This peace is more needed in war-torn regions of the world such as Syria or Afghanistan. [Hat tip to Alex Gladstein for his amazing articles that highlight the financial repression found in some of these regions.] This peace is needed in regions of the world where the nation’s currency is rapidly losing value and where financial repression is spiraling out of control. This peace is required by those who do not trust their government to act in their best interest. This ladder is for people who do not trust central bankers to act in their best interests. This ladder is intended for people who are ready to accept 100% responsibility for their finances. For these reasons, this usually ends up being a relatively small number of people expressed as a percentage of the population. This ladder is available to all of them, but few will choose to climb all the way to the top.
Before we start climbing this ladder, I want to share with you my thoughts on why climbing this ladder is so important. The reason why climbing this ladder is so important today is the rampant theft by stealth that occurs in every currency on the planet. If there is a government imposed currency anywhere in the world that retains its value through time, I am not familiar with it. The most vulnerable, the poor and the elderly, are hardest hit by central banks and governments everywhere. It should make us all sick. This may seem harsh to some, but if you do your homework you will learn that it is true.
For the first time in the history of money, there is a way for the average person to conserve their wealth undeniably as long as it is in your possession. You can create your own “decentralized bank”. You can save your wealth in a way that cannot be confiscated. You can save your wealth in a form where there are no middlemen or rent seekers. You can save your fortune in a form that gives you a level of equity that has hitherto been impossible to imagine, let alone achieve.
Now that we have eliminated these issues, here are the steps we must take to achieve financial freedom. You are not required to take these steps in sequence, but in most cases this is the best way forward.
The first step
Gain awareness of Bitcoin. This awareness could be based on your in-laws telling you to buy it or reading an article about it. To truly understand Bitcoin, it requires you to go beyond awareness. Getting to know Bitcoin is not easy, but it is worth it. For the wise few who make it an object of study, they will be rewarded. As New York Digital Investment Group (NYDIG) CEO Ross Stevens said, “Learning bitcoin is like learning a foreign language.” You can buy bitcoin in very small increments in a matter of minutes. This does not mean that you speak the language of Bitcoin yet, or that you think of Bitcoin; This will take hundreds or thousands of hours. It’s a big commitment with an equally great reward.
The second step
Buy bitcoin on a central exchange. It is not required that you buy bitcoin on a central exchange but the simple fact is that most people will start there. If you are experienced enough to buy bitcoin without using a central exchange, congratulations! You can skip this step. There are some who trade silver or gold for bitcoin directly without a central broker or exchange taking their stake. There are many central exchanges for buying bitcoin such as Swan Bitcoin, BlockFi, Coinbase, Kraken, Binance and many more. They all have varying levels of ease of use and I wouldn’t suggest one over the other. The key to remember with all of them is that you don’t own bitcoin yet; You have an IOU bond for bitcoin from the exchange.
Not your keys, not your coins.”
Note: There are also bitcoin derivatives you can buy like Grayscale Bitcoin Trust (GBTC), Osprey Bitcoin Trust (OBTC), ProShares Bitcoin Strategy ETF (BITO, Futures ETF) but these are not really the same because you can never take possession of the private keys your. There are four Canadian Bitcoin ETFs directly linked to the Bitcoin spot price as well if you live in Canada or have the ability to purchase these Canadian ETFs in your country. The stock symbols for these are BTCC, EBIT, BTCX, and BTCQ. There are also publicly traded Bitcoin mining companies like Hut8 Mining, Riot Blockchain, Marathon Digital Holdings, and many others.
Derivatives may make sense if you have an IRA or other retirement account that doesn’t allow you to buy bitcoin directly. I’m sure it will become popular with sovereign wealth funds and pension funds who are prohibited from owning bitcoin directly for a myriad of reasons. If you purchase these derivatives, you will not have the option of owning the private keys. Many fundamentalist bitcoin proponents will yell, yell and warn you away from these derivatives, but for those unfamiliar with the technology, this may be as far as climbing the ladder. We hope you are well informed enough to take the next step on the path to financial sovereignty. I don’t recommend any of these options just trying to give you an idea of the best known options for this step on the ladder.
One last option for those who want to keep their private keys in an Individual Retirement Account (IRA) is a company called IRA Financial. The reason I put it in step two and not the next is that although you may keep the private keys in collaborative custody, you are often limited in how quickly you can access your bitcoin. Keeping bitcoin in an IRA doesn’t give you the same freedom as the third or fourth steps because the company will likely keep your private keys in co-op, which means you’ll be fined by the Internal Revenue Service for early withdrawals that occurred before your 59-year-old year, and IRS rules also require you to start withdrawing your bitcoin no later than age 70 1/2. The IRS rule will result in the forced liquidation of your bitcoin when you don’t want it to.
The third step
Get your private keys. This is really the step where you begin to understand that Bitcoin is a new form of equity that did not exist before and is enabled by software and cryptography. Bitcoin is a zero to one invention which means there is likely no other asset or property like it.
Private keys are really just a long string of numbers and letters that allow you to transfer your ownership and make transactions or spend your bitcoins. It’s best to approach this step on the ladder of financial freedom carefully so you don’t lose your private keys or get scammed in too many ways to cover them. There have been volumes written on this subject and I encourage you to do your homework in this field. Andreas Antonopolous has several YouTube presentations on private keys and custody, and BTC Sessions has some great how-to videos on YouTube explaining how to use your personal sovereign wallet(s).
There are several ways to own your private keys. One is on a USB-like device called a hardware wallet. There are dozens of options that can make it confusing to choose the one that best suits your situation. Well-known hardware wallet brands include Ledger, Trezor, BitBox 2, and Opendime. These are quite safe but also leave you vulnerable to a single point of failure if you lose the device, or the device is damaged or stolen. Everything but Opendime requires you to back up the device by typing the initial words; This has its own learning curve and a list of issues for how to secure raw words in case the device is lost. For example, I suggest you write the initial words and store them in a tamper-proof bag that you put in a safe or secure deposit box.
The other type of wallet is called a “hot wallet” and it’s usually something you download to your smartphone or desktop/laptop. These hot wallets are completely secure but vulnerable to hackers who can access your phone or laptop. They are also prone to getting lost if your phone is stolen or destroyed. The way I was explained is showing hardware wallet as equal to your savings account and hot wallet as your checking account. You will put most of your bitcoins into your hardware wallet for long-term storage while a hot wallet will contain much less bitcoins and can be accessed for everyday purchases.
The fourth step
Hold your fortune in co-op. Collaborative custody (also known as multisig) is considered by many to be the gold standard for holding bitcoins. What it means is that it takes two or more devices to spend your bitcoins. Two of three or three of five are the most common multisig setups, but there are corporate and institutional situations where the co-op can include five or more co-signers needed to move/spend coins. With the introduction and release of Taproot, the capabilities of this have become easier, more private, and more secure.
There are ‘do it yourself’ ways to create a co-op nursery (a caravan is one example), but for most of you reading this article (myself included) that is beyond our skill set. Engineers and tech-savvy people usually make multisig themselves. For the rest of us, it’s worth hiring a company to walk you through this. The two most popular multi-custodial or cooperative custody services are Casa and Unchained Capital. Both services have different products to choose from at different price points depending on how much bitcoin you are trying to secure. The advantage of keeping your private keys in collaborative custody is that it removes the single point of failure from having a single device. This is considered by many as the safest and most secure way to store your bitcoins.
There are other steps on the ladder of financial freedom that I will list but will save for someone else who is more qualified to explain them:
Run your own node. Two companies that create devices with plug-and-play solutions that allow you to run your own node are Umbrel and Start9.
Open your Lightning Network channels.
Mining your bitcoin.
Use bitcoin as your account unit. This “final” step is only possible when you start thinking about bitcoin. Like when you learn a second language and become very comfortable with the language you dream about in that second language. You can start using bitcoin as a unit of account as early as step two, but most won’t. We need time to learn the language of Bitcoin.
Most people probably won’t skip the second step on the ladder, but it’s always helpful to have a scorecard. What I have noticed about Bitcoiners is that they are generous in taking the time to teach others about this new monetary technology for the 21st century. Most of them are well aware of the steps on this ladder of financial freedom. I urge you to go up the ladder and keep going up as if your financial supremacy depended on it…because it is.
This is a guest post by Mark Maria. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.