Give Us Our Money Back: The Issue With Custodial Wallets and the Implications of Halting Withdrawals on Crypto's Reputation
Julian Liniger is the co-founder and CEO of Relai, a bitcoin-only exchange founded in Switzerland in 2020.
Having been involved in the crypto and bitcoin (BTC) space for more than five years, I’ve seen how the ups and downs of the market have become the norm.
But recently, things have been different.
Extreme market volatility, the collapse of some big-name coins, and even the implosion of some exchanges and services have emphasised how much more work we all need to do to rebuild trust in the space and attract investors to bitcoin. And I use the term bitcoin here, rather than the blanket term ‘crypto,’ because whilst bitcoin is a cryptocurrency, we should do our utmost to separate ourselves from the pack.
We’re at an inflection point, and the time is now to call bullshit on some of the behaviours, practices, and approaches currently found in the ‘crypto’ industry.
The projects doomed to fail…failed
I’m not going to try and say I saw all of this coming - I didn’t! But I can definitely say that the Luna / Terra episode had the writing on the wall - a ‘pegged’ coin that wasn’t actually pegged to anything? Come on.
But now’s not the time to say “I told you so.” Far from it. Instead, we need to look long and hard at the sprawling crypto landscape. We need to be honest with ourselves about what is going to work in the longer term, and what’s been created as a distracting 'get-rich-quick' scheme. We owe that to the investors who are new to the space (55% of bitcoin holders invested for the first time in the past year or so), investors whose life savings are in jeopardy, investors who don’t know where to turn for help, and investors who are being openly mocked for their misfortune.
Early uses of non-fungible tokens (NFTs), chiefly in the form of (no offence) clip art JPEGs, have created a bubble so ready to burst that it almost hurts.
Relai only deals in bitcoin because, as the first and dominant cryptocurrency, it is the most secure, trusted, and established coin. In our view, all others are startups, many of which are created without a long-term vision - it seems - only serve the interests of a small number of insiders for a short period of time.
We need to talk about custody
The latest market crash has laid bare the issue with nefarious coins and self-serving exchanges - the fact that some investors were impeded from withdrawing their positions as prices tumbled has hurt crypto’s already bruised reputation.
From an outsider's point of view, seeing the markets plummet knowing that millions of investors just had to sit there and ride it out is a terrible look. It’s also given some media a stick to beat the sector with, and who can blame them?
The message it sends is: “we’ll take your money when it suits us, but we won’t let you get it back if it doesn’t.”
This is obviously an absurd approach to building long-term trust in this space as a viable investment opportunity.
And it comes down to custodial versus non-custodial wallets. Users should have total control over their investments so Relai provides only non-custodial wallets. It’s not for us to decide, at any given moment, what our users can or can’t do with their bitcoin. It is their money after all.
That’s not to say that custodial wallets don’t have their place - for institutions that want to buy bitcoin or add it to their balance sheet, it makes sense to work with an insured, licensed custody provider. But that’s not what we’re talking about here. We’re talking about everyday individuals.
If we keep acting like gamblers, it will keep feeling like gambling
The whole recent episode is set against a backdrop of a ‘bro-ish’ bullishness that has dogged crypto culture from the outset but has taken a hit of steroids since last autumn.
We’ve got some of the best-known faces in the world, from Matt Damon in the US talking about how ‘fortune favours the brave’, to John Terry bringing on half the former England football team to promote his NFT. Again, come on.
If we continue to borrow from the gambling playbook, people will continue to treat crypto as a game. It is not.
But used safely and with the right measures in place, it - or at least bitcoin - can be a viable long-term investment. And that’s before the use case evolves even more.
The honest answer here is: who knows. But if we don’t get to grips with cowboy projects, shady exchanges, and an off-putting, gambling culture, you can bet more trouble is on the horizon.
The time is now for crypto to grow up. As the first on the scene, bitcoin will continue to set the agenda. Let’s do it.
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