Introduction
Keeping your private keys safe and secure is essential to ensure financial independence. Unfortunately, many cryptocurrency investors trust their money to be left solely on exchanges. But this practice is far from being safe because the exchanges have full control over the cryptocurrency deposits.
Since the early days of Bitcoin, billions were lost due to exchange hacks and scams. The hack of the Mt. Gox exchange in 2014 is one of the most famous and controversial cases, and it’s still under investigation.
But what does all that have to do with the Proof of Keys day?
What is Proof of Keys?
The idea of Proof of Keys was created by Trace Mayer, a cryptocurrency investor and podcaster. He created the concept as an annual celebration that aims to incentivize cryptocurrency investors to reclaim their monetary autonomy.
As previously discussed, many people leave their cryptocurrencies stored on exchanges. This is inherently dangerous because these exchanges have full control over the private keys of their deposit addresses.
In this context, the Proof of Keys day aims to prevent investors' dependence on exchanges to conveniently store their cryptocurrencies. The concept is often presented with a short, but effective sentence: not your keys; not your Bitcoin.
The first Proof of Keys day took place on January 3rd, 2019 - which was the 10th anniversary of the genesis block being mined on the Bitcoin network.
Put in another way, the Proof of Keys day celebrates financial sovereignty. Its goal is to encourage cryptocurrency investors to move their funds from exchanges to their personal wallets. By taking full control over one's own private keys, they're ensuring no one but themselves can access their funds.
There are numerous types of cryptocurrency wallets. But, hardware wallets are often the preferred choice as they're arguably the most secure way to store private keys.
Four important outcomes of the Proof of Keys day
The philosophy behind Proof of Keys day lines up perfectly with that of Bitcoin. By replacing third-party intermediaries with a trustless value-transfer system, individuals can cooperate securely and confidently with one another - without giving up their monetary autonomy.
So, what are some of the important outcomes of the Proof of Keys day?
Teach new investors how to move coins around
Cryptocurrency investors should be comfortable moving cryptocurrencies from one place to another. While this may sound simple to some, newcomers often find it hard to understand the many types of wallets and how they are used.
As such, the Proof of Keys day encourages investors to learn more about the different types of crypto wallets and to practice their use. It's also a reminder of how the transfer of value is performed on decentralized blockchain networks.
Remind investors who really owns their private keys
As stated, the main mission set out by Trace Mayer when starting the Proof of Keys day was to encourage every cryptocurrency investor to own their private keys. Leaving their cryptocurrencies on an exchange means that investors have zero control over their funds.
Even though it only happens once a year, the Proof of Keys day is an opportunity for every investor to take control of their funds. While the day is a good reminder of who owns what, it means very little if investors don't follow through with securing what's theirs.
Expose shady or dishonest exchanges
Financial institutions are known for practicing what is known as fractional reserve banking. In essence, it's a way for institutions to leverage their existing deposits by lending out more money than they actually have. Unfortunately, this is risky for depositors since a "bank run" could lead to an institution going bankrupt.
Within the cryptocurrency space, the Proof of Keys day may encourage thousands of investors to withdraw their funds from the exchanges. If a great percentage of investors decide to do that on the same day, it can eventually expose the exchanges that practice fractional reserve methods or that lie about their true reserves.
Fortunately, though, the transparency of Bitcoin and other blockchain networks makes it easier for exchanges to make their holdings publicly verifiable.
Celebrate the Bitcoin genesis block
Last but not least, the Proof of Keys day is a way to celebrate the first block to be mined on the Bitcoin network. Such a block is known as the genesis block. The genesis block contains the first Bitcoin transaction to take place, through which Satoshi Nakamoto sent 50 BTC to Hal Finney.
Another memorable transaction took place on May 22nd, 2010, when two pizzas were bought for 10,000 bitcoins. The episode is now known as the Bitcoin Pizza day.
How to take part in the Proof of Keys movement
It doesn’t matter if you are new to cryptocurrencies or a veteran. Participating in the Proof of Keys day is very easy. As mentioned, the idea is to declare financial autonomy by withdrawing all funds from exchanges (or other third party services).
First, you can take an inventory of all the funds you have stored on cryptocurrency exchanges. This will give you an idea of who really owns what when it comes to your bitcoins and altcoins.
Next, choose a cryptocurrency wallet that you are comfortable using. Along with usability, it’s also important to consider the level of security of each wallet type before making your choice. The last step involves sending your funds to your personal wallet so that you own and control your private keys.
Some people participate in the Proof of Keys movement once a year. They move their funds away from the exchange for one day (on January 3rd) to celebrate and affirm their financial sovereignty.
Such a practice is common among active traders, who need to hold funds on exchanges in order to trade. So after the celebration, they usually move funds back to exchanges. However, long term investors (HODLers) that don’t engage in short or mid-term trading are better off holding their funds on a personal wallet.
Closing thoughts
The Proof of Keys day is a simple but important movement that reminds cryptocurrency investors who really owns their private keys. Millions of crypto enthusiasts take part in the celebration, moving funds away from exchanges to their personal wallets.
As the blockchain industry grows, events like the Proof of Keys day will not only help educate the community about the importance of private key ownership but also about general security principles.