Safeguarding Secrets

Summary

In this piece, I attempt to explain the some differences and risks between having total control of your assets and trusting them to the control of other businesses.

Cutting edge investor’s holdings of crypto currencies are more subject to loss than familiar investments because merely forgetting your secret recovery phrases and passwords can cause permanent loss.

Loosing Buried Gold and Crypto

Buried gold in your flower pots or back yard can be stolen by a thief with access and knowledge of the location.

Buried on the Internet in plain site is your crypto currency. Stealing these assets takes more that knowing the location (address), having access and a shovel. The thief must also know your secret keys to impersonate you.

You can take ownership and perhaps bury stock certificates instead of trusting it to a broker. But you’d have difficulty recovering your shares if the certificate in your possession is burned or lost. If stolen, the document would have your name on it. Proof of identity would be required to liquidate it.

Impersonating You

Impersonating becomes easier when it is all done digitally. The hard part for the thief is finding your (hopefully only) copy of a secret phrase that allows recovering an account.

Stealing your computer and knowing all your passwords might allow anyone to withdraw from your banks, brokerage accounts or crypto wallets. But knowing all of these passwords to open your computer and all of the necessary programs or websites would be very difficult if you do not supply sticky notes or a notebook will all passwords.

Lost but not forgotten

Loosing your computer or phone doesn’t loose your crypto assets. But you must have written records of the secrets needed to re-establish your accounts and wallets on a new computer.

A careful investor will write down the secret recovery phrases, passwords and pins associated with their accounts to prevent permanent loss of their assets.

But if those written copies come into the hands of thieves, they can recover your wallets and withdraw your assets as easily as you.

Identity Recoveries

Institution that temporarily have custody of your assets can reconnect you to your bank or brokerage stock and crypto accounts with proof of identity.

Crypto assets are linked to your identity Totally owned and controlled crypto, ie. not on-loan to a crypto exchange can never be recovered if you have lost the written secrets required to recover them.

Distribution on death

Another problem is if you die and want your heirs to have your crypto assets they have to have the secrets to recover your accounts hopefully written in sealed envelops in a safe deposit box they can only access upon you death. Some mig

Crypto Storage Access and Transfer

Crypto assets are stored on millions of networked computers on the Internet in block chains. The value of the block chains is their reliability. All these networked computers store the same info so the loss of parts of the network does not cause problems. They all synchronize to make sure there is no disagreement on account amounts.

Each crypto coin in each of your exchanges or wallets has a long complicated unique address used for withdrawal or deposit. You transfer your assets from your secret controlled wallets to exchanges, individuals, other wallets etc with the programs on you computer or phone.

Your programs know the long and complicated addresses like:

“0x040EE0C505BD7d01dF47582b4944bfDB7c6Fa040”

that need to be used in transfers and help you through the transfer process. Your friend will have to send you the long address he wants you to use for the transfer. One extra risk is that if you attempt to send to the wrong address it may be lost forever. Just like if you send a letter to a wrong address without a return address. So you must send bitcoin only to valid bitcoin addresses and “x tokens” to valid “x token” addresses.

Dollars to Crypto to Dollars

You can buy crypto and convert crypto back to fiat dollars on exchanges. Remember exchanges are like banks and brokerages. They have control of your assets and you trust that they are insured trustworthy and not on the verge of bankruptcy.

Where does the secret come from

You are given the recovery secrets generated by a program that cannot repeat your secret when creating a wallet.

Usually these keys are a nonsense random phrase of 12 to 24 words. The accompanying passwords, pins, etc can be reset or recovered by recovery of the account. You have the only copy so you can recover from the loss of your computer or phone.

They are nearly impossible to memorize. You have the only copy since they are not generated by or seen by any other human. You must write them down but safeguard them from other’s eyes. Anyone with the secret key to your accounts can withdraw your assets.

When storing assents in banks and brokerage accounts, loosing a safe deposit key, an account number or password is usually easily solved by the institution where you have the asset. But the institutions with FDIC insurance and return fund in case of robbery, fraud or going out of business.

Storing your crypto currency on crypto exchanges may be similar to banks and brokerage, but without FDIC you need to look an exchanges insurance. Also your ability ability to speak with a person to resolve issues may be less reliable due to the more automated nature of crypto exchanges. I have had email exchange support but have not talked to a person.

Unfinished

This has been sitting on my desk as a draft for a couple weeks. I was hoping to include illustrations to better explain, but it may never get posted if I wait for the motivation and skill to produce a few good diagrams. Instead I am including a few of the first paintings in my crypto named series of abstracts.

All of these included original artworks are available on risingrims.com or you can purchase on the blockchain to prove that you are the only owner of the original. I have to pay to print or to mint on the blockchain so they are printed or minted upon request.

Joel Bowers, RisingRims.com and a bunch of other social media sites as shown on the links page of my web site.