Hey Mom, I lost my bitcoin!
Stories of boat accidents and how to keep your bitcoin safe.
It was a sunny morning in May during a trip to the lake with friends. The fishing rods were already in the boat ready to be used, when, at some point, perhaps because of the driver’s inexperience, or the beers already being drunk, we bump into something and start taking on water. Time to save ourselves and try to swim to the shore. It is not far, although this lake is really deep, so we better be careful.
Once we are safe, we start assessing the damage: the boat is gone, all the fishing gear, the precious beers, and … the ledger! Oh no, it was in my travel backpack, I always carry it with me to prevent malicious people from breaking into my house and stealing it. Watching the boat sink, I knew all my cryptocurrencies were sinking with it. There is no backup. I trusted no one, and I didn’t want to leave it with anyone, least of all on the internet.
If you know a little about how cryptocurrency wallets work, you will know that, once you lose your private key, your bitcoins are lost forever — no one can ever get them back. The whole mantra of “be your own bank” is exactly that: we are now the ones who have to guard our funds, and the responsibility is ours.
Ok, this was a joke.
But where did the boat accident story come from and why is it so famous in the bitcoin community?
Initially, it was a joke related to the world of guns, which are legal in the U.S., but they must be declared, and if you don’t declare them or do it late, you will face penalties.
The joke comes from an actual real event. Due to low water levels, a citizen found a bag in a California lake containing a pistol and an ATF badge. He turned it into local authorities, and the ATF told the media that one of their agents (whose name was not released, *eyeroll*) had accidentally dropped the bag into the lake during a boating trip in the 1990s. The ATF refused to answer questions such as whether he reported the loss to local law enforcement, or if he was disciplined for his negligence. Note that, under current law, to lose a firearm and not report it would be a criminal offense.
So it’s both a real thing and a sarcastic commentary on the ineptitude of government. They’re basically saying that, “I lost my guns in a boating accident” is somehow a good enough explanation for the government when someone asks where THEIR guns are. Well, it should be good enough for citizens too.
What does this have to do with my bitcoins?
This story, the “meme” of the boat accident, was immediately adopted by the bitcoin community because of the many similarities. Lately, in particular, there has been great pressure from regulators about having to declare your private wallets and holdings.
In some countries like Italy, they want to know what your crypto wallets are, even though they say you won’t pay taxes up to a certain limit. But, at the same time, they want to know the addresses of your wallets so they can monitor them.
This is why many people started joking that they had lost all their cryptocurrencies in a boating accident. As long as they are in a private wallet and not on an exchange, these cryptocurrencies can be lost at any time. How could any government ever tax something that has been lost forever?
Private wallet vs Exchange
Holding your cryptocurrencies on an exchange is a bit like leaving money in a bank, leaving the custody of your assets to a third party entity so that we don’t have to worry about keeping them safe ourselves, in exchange for a little risk. In fact, the bank can fail, just as a cryptocurrency exchange can, as has happened in the past for both of them, and, in that case, we would face the total or partial loss of what we had deposited with them.
On the contrary, keeping our cryptocurrencies in a private wallet, whether a hardware device or software, leaves it up to us to safely guard the access to that wallet.
But how exactly does a cryptocurrency wallet work?
To sign a bitcoin transaction (in other words, to spend the bitcoin in your possession), you need the private key associated with that address. If you lose that, there will be no way to ever move those bitcoins again. They are gone forever. It is not like losing your wallet on the street. If it is found, someone can go have a nice dinner with our money or give it back to us.
Most wallets use a list of 12 or 24 words from which they generate all the private keys for the various wallets contained within them, in which case keeping this list of words is more than enough to access our cryptocurrencies, even in the event of a boating accident where we lose our hardware wallet.
Obviously, if some malicious person managed to steal this list of words, they could at any point steal all our cryptocurrencies. The hardware wallet can be protected by a pin or password, and it can have self-destruct features, but it is really the list of those words that needs to be kept safe.
Freedom of Choice
As Saifedean expressed in his book “The Fiat Standard,” many bitcoiners would like to live in a world where everyone could be their own bank, but most people don’t want that any more than they want to be their own butcher, their own car maker or their own baker.
This sentence easily explains the freedom that bitcoin offers us: we can be our own bank if we want, or we can continue to entrust our assets to a service that holds them for us, with all the risks involved — risks yes but also benefits for some people, since it may be riskier for them to keep their cryptocurrencies safe themselves.
Of course, by relying on a custodial service like an exchange, the excuse of a boating accident can no longer be used and all our bitcoins can be seized at any moment, effectively losing one of the biggest advantages of this new technology:
An uncontrollable form of money that cannot be traced, cannot be seized, and can be transferred instantly and securely from one part of the world to the other.
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