Online wallets are dangerous

I’m not questioning the value proposition of Coinbase, Kraken and alike. However, online wallets and online exchanges come with an unpleasant side effect: they manage your coins in your behalf, that means that they manage the private keys. Keep in mind that in blockchain-land no keys means no money. Few years ago the most important online exchange called MtGox collapsed and many Bitcoiners found themselves in the uncomfortable position of having no longer access to their funds. Moreover, such online services must comply with a lot of regulations like anti money laundering, know your customer and they always must obey to authority warrants. If required by police or tribunals they must lock your funds against your will. Coinbase has been recently required by the IRS to “monitor” and share information on their users.

Keep in mind that Bitcoin was born to keep the banks out of the equation and make digital payments and money management possible without the middleman. Using such online services is like going back to the jurassic  age of banks where you have no control over your wealth. Bitcoin is the only cash you can use for remote payments, would you give your cash to someone else? Kraken, Coinbase and the others have their business case, let’s use them to buy and sell Bitcoins and to store small amounts and only for a short time. For serious long term storage of our coins let’s use other means: Electrum and Bitcore are standalone wallets that you can install in your laptop keeping you private keys safe and encrypted in your disk. Another option is a paper wallet: a private key printed on paper and stored in your safe or under the mattress.