Blockchain News Report:
Ethereum co-founder Vitalik Buterin publicly criticized MicroStrategy co-founder Michael Saylor’s recent remarks on self-custody of Bitcoin. In a recent interview, Saylor was asked whether handing over custody of Bitcoin to large banks and third-party entities would bring centralization risks and potentially lead to government confiscation of individuals’ cryptocurrency assets. The MicroStrategy co-founder responded by stating that the risk of confiscation increases when Bitcoin is held by “paranoid crypto-anarchists” who do not recognize government regulation. Buterin disagreed with this response in a subsequent tweet. “I’m happy to say that I think Saylor’s comments are crazy,” he wrote, adding that Saylor “seems to explicitly advocate for regulatory capture to protect cryptocurrency.” The Ethereum co-founder also added that this approach goes against the core principles of cryptocurrency.
What is self-custody?
Self-custody is the process of maintaining control over one’s own private keys, which means that no external party can access your cryptocurrency wallet. Because this method involves a certain degree of inconvenience and risk – keys can be lost or stolen with no recourse – some users turn to third-party custody. This involves an independent custodian controlling the private keys to the user’s cryptocurrency wallet.
The risks associated with third-party custody can generally be summarized as “not your keys, not your coins,” meaning that the third party has complete control over the assets and theoretically can freeze or misappropriate them, potentially under pressure from authorities.
Debate on self-custody rights
Buterin was responding to a tweet from Jameson Lopp, co-founder of crypto self-custody platform Casa HODL, sharing his views on self-custody. Lopp emphasized that self-custody is not only crucial for individual Bitcoin holders but also for the overall health of the network. He said, “Self-custody is crucial for the continued strengthening and improvement of the entire network.” Lopp explained how concentrating cryptocurrencies in a few wallets increases systemic risks of loss and confiscation, and deprives users of the ability to run nodes or vote on forks. He also claimed that this would dampen development incentives, as “institutions don’t care about more advanced cryptographic functionality” and “permissionless innovation gets deprioritized because we can only extend through trusted third parties.”
While Saylor appears to disagree, the movement towards cryptocurrency self-custody seems to be gaining momentum since the collapse of the FTX cryptocurrency exchange in 2022. As early as May, Oklahoma became the first state in the United States to pass a law protecting Bitcoin self-custody rights.
As the chairman of MicroStrategy, Saylor has been committed to an aggressive strategy of acquiring Bitcoin for the company’s treasury. The company currently holds over 1% of the mined Bitcoin, worth approximately $16 billion. Earlier this month, Saylor outlined MicroStrategy’s transformation from a software company into what he calls a “Bitcoin bank” by issuing Bitcoin-backed securities, with a valuation that could reach trillions of dollars.