I want to ask you an honest question. How safe is your crypto? Having complete sole custody or ownership of your digital assets is the backbone that crypto was built on. The Bitcoin whitepaper was released shortly after the financial collapse in 2008 as a digital alternative to the insanity the dollar was experiencing. The past decade has taught us that crypto has the potential to be a long-term hedge against inflation. But the problem is, many people new to crypto have yet to understand why having a cold storage wallet that’s not connected to any internet servers is so important.
Let me make this perfectly clear. Especially if you plan to HODL for a long period of time, you need to protect your crypto! I don’t even mean that from the hackers out there trying to get you to click on a link and enter your seed phrase. I mean from the exchanges you keep your crypto on. At the blink of an eye, they can freeze your account, stop you from withdrawing, stop you from swapping, stop you from doing anything!
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So just because you might think you own your own crypto, if you keep it on an exchange, you might not always have as much control over the situation as you think you do. I’ve said it before. And I’ll say it again. Not your keys, not your crypto. In light of the recent fallout with Celsius becoming insolvent, and maybe becoming the 2022 Mt. Gox, you have to know who might try to rip you off at a moment’s notice. At the end of the day, Coinbase, Binance, Kraken, all the exchanges, they’re middlemen. They’re what is between the average retail investor and a big bag of crypto. The exchanges, well, it’s their house. You have to play by their rules. These rules mean that if some sort of black swan event happens, like a massive market depression, a war, an act of God, or something that disrupts telecommunications, they are not responsible for anything that happens to your crypto. In the terms and conditions of every single exchange, there’s a clause called force majeure. Since this clause is basically identical across all exchanges, I’ll read you one from Coinbase.
Section 9.6 of their user agreement, “We shall not be liable for delays, failure in performance or interruption of service which result directly or indirectly from any cause or condition beyond our reasonable control, including but not limited to, significant market volatility, act of God, act of civil or military authorities, act of terrorists, civil disturbance, war, strike or other labor dispute, fire, interruption in telecommunications or Internet services or network provider services, failure of equipment and/or software, pandemic, other catastrophe or any other occurrence which is beyond our reasonable control and shall not affect the validity and enforceability of any remaining provisions.” Phew! In other words, this means that if anything out of their direct control happens that prevents them from providing their service, they are not responsible, and you can’t do anything about it. “But why can’t I do anything about it, Ben?”
Well, because when you sign a user agreement, part of that agreement is an arbitration agreement, which basically means that by signing up, you’re in a binding contract that waives your right to a trial by jury. If you decide to pursue an arbitration, there is still a hearing, except it’s less formal, and the fees are likely to be higher than they would in court. Instead of a judge, you get an arbitrator, who hears each side’s arguments and makes a decision. They can make that final decision that day or up to 30 days later. In a sense, that process deters people from pursuing legal action. It’s another way the exchanges insulate themselves if they were to make a mistake because arbitration cases are private and confidential unless both parties agree to make them public. I don’t feel like a popular exchange wants to broadcast their mistakes if any happen to anybody else. You have to understand that using exchanges and keeping your crypto in their possession is that it’s a one-way street, and the house always wins.
Throughout the fine print of every exchange’s terms and services conditions, there are several breaches or violations they can impose on you for a reason or even for no reason at all. They’re similar language across all platforms, but it’s worth taking a look at. Although these can be a bit lengthy, it’s important to really pay attention to the details. Your hard-earned crypto is on the line. This is from Kraken’s terms and conditions Section 5.1. “We may, at any time and in our sole discretion, refuse any trade, purchase, sale, or transfer of an Asset submitted via the Services, impose limits on the trade, purchase, sale, or transfer amount permitted via the Services or impose any other conditions or restrictions upon your use of the Services for depositing Assets to and withdrawing Assets from your Kraken Account or for buying, selling, or trading Assets without prior notice.” The wording here is very important. “Without prior notice” How fair is that? Just like that, if they want to, at their discretion, they can shut you down. With no explanation whatsoever. Section 19 of Kraken’s terms and conditions titled [Discontinuance of Services] reads, “We may, in our sole discretion and without liability to you, with or without prior notice and at any time, modify or discontinue, temporarily or permanently, any portion of our Services.” Really feels like they have our best interest at heart, right? Crazy! You think that’s unfair?
Well, take a look at Section 6.9 from Coinbase’s user agreement. Section 6.9, “Coinbase may suspend, restrict, or terminate your access to any or all of the Coinbase Services, and/or deactivate or cancel your Coinbase Account(s), with immediate effect for any reason at its sole discretion and is under no obligation to disclose the details of its decision to take such action with you. You agree that Coinbase is under no obligation to disclose the details of its risk management and security procedures to you.” This here is exactly what happened to our friend of the channel Crypto Face. Ask Face about how fun it is to be locked out of his Coinbase indefinitely. He even filed all the paperwork they asked for, and he still didn’t receive a reasonable answer from them.
You don’t know what could go wrong. A great example to point to on this topic happened back in February 2022 when a group of Canadian truckers were protesting vaccine mandates raised over a million dollars in Bitcoin for their Freedom Convoy. They started the crowdfund on GoFundMe and GiveSendGo, but once they were banned from using those platforms, they switched to a Bitcoin crowdfund service called Tally. Once the protest switched over to Bitcoin, Justin Trudeau, Canada’s Prime Minister, enacted the Emergencies Act aiming to freeze the truckers’ bank accounts as well as the accounts of those who donated to them. Now, this action from Trudeau to freeze the off-ramps started a much larger conversation about crypto unregulated exchanges versus decentralized exchanges. CEO of Kraken Jesse Powell came right out and tweeted, “We will be forced to comply. If you’re worried about it, don’t keep your funds with any centralized/regulated custodian. We cannot protect you. Get your coins/cash out and only trade P2P.”
Long story short, if you’re set up on a KYC exchange, you’re not completely in control. The truckers must have known their way around DeFi and P2P because in the end, the Canadian government only seized 6 out of 21 of the Bitcoin donated to them. Since Coinbase is the most popular exchange among new users in crypto, it’s important to point out under what circumstances they actually prevent access to your funds. This is directly from the help.coinbase section of their website. “In extremely rare circumstances, and only where required by law, Coinbase may block or “freeze” customer funds on our platform. We will take this action only when: 1. We are required to comply with an order from a court or other authority that has jurisdiction over Coinbase which compels us to restrict access to funds. 2. We are required by law to freeze or block assets in compliance with a sanctions program, including, but not limited to sanctions programs administered by the U.S. Office of Foreign Assets Control (OFAC). Note that some Coinbase products (such as the multisig vault and paper wallet) do not allow Coinbase to control digital currency private keys, and therefore Coinbase cannot prevent access to digital currency stored with these products.”
So right there in plain font, they are forced to comply with government court orders or sanctions. But Coinbase cannot seize your crypto on the government’s behalf if you use a cold storage wallet. The bottom line here is this. You have to take responsibility over your own crypto. It’s important to take that next step to protect yourself. If you control the custody of your crypto, if you own your keys and keep your hard-earned crypto on a cold storage wallet, they cannot touch you. Here’s a pro tip. Be sure to keep your seed phrase safe in a fireproof container.
Always physically write down your seed phrase. Never keep it on your phone or any other electronic device since that defeats the purpose of keeping it isolated from servers on a cold wallet. In closing, it’s important to point out that a common denominator in all of these terms and conditions, user agreements, is what they can do to you if you break the rules, what they can do to you if you don’t comply with X, Y, or Z, and they don’t even have to tell you why they freeze you.
One thing I noticed is that all of these “agreements,” there is not a single sentence on how they will pay you back if they go and solve it. There is language that it’s not their problem if an act of God shuts down their telecommunications, but there’s not a word on what’s going to happen if they make a mistake. Look at what happened to Celsius and the thousands and thousands of people that were left high and dry on their crypto. There wasn’t a single word about how they’ll pay back customers in their terms of agreement. It doesn’t sound like much of an agreement to me at all. Like I said, this is a one-way street, and the house always wins.
This article is a transcription of a video made by BitBoy Crypto
Original video: https://youtu.be/OKbbxA-xl-o