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so what do you have in your bitcoin wallet it's not bitcoin you have keys that control coin that live on the blockchain so um what does it mean to own bitcoin well basically it means that my wallet or my wallets have keys that can spend that bitcoin i'm kevin latinity and this is building blocks the show where we cut through the and break down what matters in fintech today we add to the chain with another guest this series is brought to you by bank banq payments and banking made easy you can download it to the glass rectangle that lives in your pocket from the app store or google play store it's also brought to you by prime trust financial infrastructure powering the future of fintech learn more at primetrust.com welcome to our second episode of blockchain basics this is kevin lucinity and i'm joined today by michael product at casa last episode we talked to jan pritzker about what is bitcoin and we learned about what it is why it's important today we'll talk about what is a wallet how do we actually hold bitcoin michael welcome hey great to be here kevin so i think we might as well jump right in because these micro series are a little bit short what is a wallet what are public and private keys what does all this lingo mean yeah totally so a wallet in cryptocurrency is you know uh it is something that you use to hold and secure your your coins right i mean a wallet that you use in real life is used to hold uh physical goods and a cryptocurrency wallet or bitcoin wallet holds on to your bitcoin um so what are public and private keys um we can go down like a pretty deep rabbit hole here that'll that'll dodge um but the history of um let's say like public key cryptography is fascinating and anyone who wants to dig in um there's a book it's literally just called crypto that i recommend to people interested in knowing some of the pre-history of yeah the cypherpunks bitcoin the whole space in general but check out the description below and our social feeds for a link to that book awesome yeah so public and private keys um it's a crude analogy but the best way to think of them are sort of like an email address and password except if you get locked out of your gmail you're gonna be able to recover that password if you lose your private key you're never gonna be able to find that so you can think of a bitcoin address sort of like an email address it's essentially a public key and the private key is the password that you use to access what's in that uh you know what's in there right so if you think of you know if i'm sending email so behind sending bitcoin to kevin um i'm gonna send it his essentially his bitcoin address which is his public key um and only he with the private key is gonna be able to access it so again we won't go into this too much but the tl dr is your bitcoin wallet is really what you use to create and manage different public and private keys so beneath the level of the interface which looks very very much like paypal or a banking app what you have are a bunch of different public and private keys public keys are used to create addresses that people can send funds to and private keys are what you use to send uh funds out so that's pretty much it a wallet when you think of it it's again it's kind of like a keychain you could even think of it sort of like a password manager that makes sense so the public key to my wallet is basically my address right it's where people send to it's where people see me sending from and then the private key like you mentioned is that password so when i go to create a transaction i need to sign it with my password that way people know that it's actually me doing this and it's not unauthorized now seed phrases are always kind of fun because they sometimes confuse people and sometimes don't um how does a seed phrase back up the private key or the password yeah so your seed phrase and this is a seed phrase or a pneumonic phrase it's a you know can be 12 to 24 words um it basically is your private key um and so why do c phrases exist well because people wanted to back up and store their private keys in case something happened to their wallet right and you could just write down your private key yourself but it's going to be really really long and it's going to be really error prone so what a seed phrase is is basically a special encoding that everyone agrees to that will translate certain strings of long numbers into specific words um so that's really what a seed phrase is you can think of it as your private it's basically your private key that we all agree like okay this is a convention that we're going to translate your private key into a human readable form the benefits of this are one it's easier to back up it's easier to remember um and it's just less error-prone you can imagine if you're writing down you know hundreds of characters and they're zeros they're gonna be errors keys are gonna get lost you're gonna have a bad time right so instead of remembering three g h six nine yadda yadda i could remember 20 minutes later red car lake basically use 12 or 24 words and as long as i remember those words then i can recover that key yeah and ideally you want to not remember them ideally you want to have them committed to some kind of media um and you want them to not be online but yeah um it can you know i've i have some friends who um have pretty impressive memories and they'll come up with these games for rendering their seed phrases and i just say do not do that do not do that um so yeah as long as we want to remember we wonder why people say bitcoin isn't user friendly here are all these games to remember these 24 words thankfully we're uh we're way past the age of that which i think we'll get to in a few minutes of different ways that you can actually secure and hold these things but if a bitcoin wallet is basically an address and a password and really this doesn't apply to just bitcoin you know really a wallet for lots of tokens is the public private key but what does that actually mean to own bitcoin then because i can't print out my bitcoin i can't you know put it in my safe what is what is bitcoin ownership yeah that's great so one of the things that we try to chisel into people's brands at casa is you don't actually own coins you own keys right so what do you have in your bitcoin wallet it's not bitcoin you have keys that control coin that live on the blockchain so um what does it mean to own bitcoin well basically it means that my wallet or my wallets um have keys that can spend that bitcoin basically um that's kind of all it is and so what it really comes down to with owning bitcoin is who has the keys that control that bitcoin and i can either we'll get into this in a little bit more i imagine i can either hold on to those keys myself i can hold on to the minute partnership with other people or i can delegate that to a third party to hold on to them but what does it ultimately mean to have bitcoin it's not like someone's got bitcoin in a jar or bitcoin in their database somewhere um basically they've got keys that are held totally outside of the bitcoin blockchain that have a claim on those coins i think there's an important distinction and parallel to draw to kind of the banking system and i'm going to do it at a very high level and very basically you i think of that kind of like money that's sitting in my bank account right it's not physical it's this virtual dollar that is in my checking account balance and i can access it using a debit card an atm or i can access it using venmo paypal kind of these other applications but what's interesting about bitcoin and other blockchain based assets is that there is no trusted third party so to speak so when i have money sitting in a bank account i can access that using my online banking password but i'm not the only one who can access that right that relies on the bank it requires on them being up in business they can also opine on whether a transaction should happen or not bitcoin is much the same way where i can access it with this private key like and i can access my online banking with a password with the important difference that there is no other party it's just me and the bitcoin if i can access the bitcoin i can send it there is no bank to block transactions or to also get in there i think that's kind of an important nuance for for people new to the space that's totally right um but like you know spider-man's uncle said with great power comes great responsibility and because there is no um you know central party uh administering the system because it's very much like a headless decentralized uh sort of rhizomatic system right bitcoin um you know no one can block me but also if someone um were to get access to my private bitcoin keys i have no recourse they could spend my bitcoin so it is a double-edged sword and that's something i know we see again again in cryptocurrency we'll probably talk about a little bit more but you're absolutely right i mean that's the magic is because there's no central party that's gating your access to the system no one can block you from spending your funds no one's standing between you and your funds let's get into the different types of wallets maybe but let's do it after one more point that i kind of want to make let's explain hot versus cold because those are interesting terms right and if i'm interested in bitcoin i kind of get i get what it is now i want to kind of have some but what if what if my bitcoin gets hacked right that's kind of the next natural question is this thing's online what if it gets hacked like a facebook account or an email or something like that what are what's the main distinction between hot and cold let's introduce that vocabulary totally um so super simple um hot hot wallet is basically any wallet any bitcoin key manager any bitcoin wallet you have that is connected to the internet cold is anyone that is offline not connected to the internet so um that's pretty much it i mean any software wallet that you're gonna have typically on your phone but sometimes on your pc or your mac um that's a hot wallet if you've got um a cold wallet that's basically going to be you know your private key or your seed phrase on a piece of paper um not connected to the internet and there's a trade-off there it's a lot more convenient to use a hot wallet um but like you were mentioning kev like there are more threats there there are you know there are key loggers there are uh all sorts of malware there's a lot of stuff there are a lot of hazards to having any device that's connected to the internet so if you've got a lot of significant funds a lot of times people keep those on cold wallets i think what we've used pretty well in the past and liking it again to a bank because that's what people are very familiar with if you walk into a bank branch you kind of you know you've got the cash that's in the teller window that's kind of easy to you know easier to rob easy to take they transact out of and then you have the cache that's sitting back in the vault right and that vault might be time locked it's only accessible at certain times of the day etc etc that's kind of what we like in hot and cold too where if you're actually using bitcoin in your everyday life you need some amount of it that's transactional but a teller would never keep you know hundreds of millions of dollars in the till right there in front of the customers right you're kind of using what you want to transact with and that's less secure but it's easy to get access to and then the majority of of the the wealth or the bulk of the assets are stored back in the vault where hey it's a lot harder to get into but i don't need to get into it every day right ideally if i'm holding on to a lot of bitcoin if i want to hold it for two three years it doesn't have to be at my fingertips spendable in three seconds right focus on the security if i want to live off of bitcoin then i probably need some amount of my bitcoin that's easily accessible for buying a cup of coffee or whatever it also does yeah but don't don't spend your bitcoin on coffee or michael i was i was thinking to myself the other day what would make life better and you know what i settled on if every cup of coffee i bought was a taxable event think about how much better my life would be that's what we're working towards man one thing i want to add to what you're saying that i think is is interesting is um okay you're talking about how banks manage things but there is kind of a saying in bitcoin right as bitcoin lets you be your own bank so what's cool with bitcoin is you actually and other cryptocurrencies as well right but is you have the option to um you know you could like the same way that we basically you can apply that same metaphor that uh you know the makers use to your personal life right i can have some funds that are in deep deep cold storage that are impossible to access or in a super secure multi-signature wallet uh like what we build at casa or you can have some that are just you know ready for uh taxable coffee events right um and so what's really interesting about again cryptocurrency brought this into being is you can really choose to secure wealth at with uh you know types of options that just weren't uh available before like sure in my bank account i have a checkings account and a savings account but they don't have a fundamentally different security model the same way hot and cold storage do that's really cool exactly if i were to hand somebody a hundred thousand dollars in cash right are you gonna take that hundred thousand dollars of cash and put it in your wallet in hundreds or are you going to take some of that money put it in the bank put it in a save things like that i think you know similar concepts coffee exactly it's very expensive cup of coffee um but kind of getting into that there's at least a few different ways to hold bitcoin and you're the expert here not me but i think of custodians i think software wallets i think of actual physical kind of hardware wallets like ledger devices tresors things like that yeah um maybe let's just kind of prop them up and knock them down one by one pros and cons the different things what they are maybe starting with uh custodians because that's obviously relevant to what i do on an everyday basis yeah totally um so you know we've got um so custodians um you could say custodians are like third parties um but basically you have a there's a question with storing bitcoin which is am i gonna custody it myself i call that self-custody um am i gonna or am i going to like delegate that to another party right and so custodians particularly qualified custodians are a party that you say look i don't want to manage my own private keys i want to delegate this to someone else who does this for a living right and it's a great option for a number of different people like i have you know certain family members who will reach out um wanting to you know get set up with a really hardcore cold storage setup i said look that's great but why don't we you know stick with um something a little bit simpler to get started right there are also tons of different businesses that for regulatory reasons need to use qualified custodians um so custodian is basically someone who is going to be you're basically delegating your bitcoin key management too for different reasons and there can be all sorts of benefits to that but so i'd say you know that's how we think of custodians and i don't know kevin i mean this is your bread and butter man i mean how do you think of it so really you know a custodian is someone like a prime trust it's a trust company it's a bank it's something like that i think you have to make the fundamental decision and thankfully this is not an irreversible decision you can always change your mind of do i trust myself enough to hold my keys or do i want someone else to hold the keys for me and i think what we typically see in people who are new to the space is they like to start with a custodian right i have my cash at a bank i want somebody else to manage my keys if earlier when we were chatting about public private keys if that stuff didn't really make sense the good news is it doesn't have to make sense for you to get into bitcoin you can buy bitcoin you can custody it at a custodian like prime trust you can buy it you know in paypal in cash app and something like that where they're holding it for you um and you can get into bitcoin without needing to understand those intricacies and worry about the security as much now there's kind of another class of people that use custodians and those are like people who want to hold it in an ira people who want to use registered investment advisors right there's a bunch of rules about how people who invest money on behalf of other people hold those assets and they use qualified custodians because banks and trust companies are audited there's a regulatory framework to make sure that the companies aren't doing anything nefarious things like that um but then as people accumulate more and more bitcoin i think the self-sovereignty that the bug kind of bites you right and it starts to become really interesting that hey i don't actually need these third parties if i trust myself enough if i'm kind of savvy enough to hold on to my own keys then i can become my own bank which is what you were talking about and that's where products like casa come in in a really interesting way totally yeah so and and yeah so you're you're totally right there is a real jump that i think most bitcoiners go through and i think we're seeing that more and more with this bull run where you get your first bitcoin maybe you've got it on you know coinbase or or you know another service and at a certain point you realize well hold on like a big attribute of this system is that i can self-custody this asset myself i can manage the young keys right and there's really like a holy moment where you move the mother lode your funds you know off whatever a service that you bought it on into a wall that you control and it's you get kind of a rush doing it and part of it's like you know it's like holy i could i could mess this up right but then part of it is also like whoa there's no one standing between me and um you know my wealth right and a lot what's exciting about it also is like everyone's familiar with bitcoin or other cryptocurrencies uh you know it's a financial asset but it's also a computing platform it's a computing network and when you get to directly engage with that it's just a very very different feeling so yeah i mean quickly you have two different types of custom you have two different types of custody you know there's uh delegated custody or their self-custody and then within self-custody there are different options right one is software wallets so this is you know a wallet that you'd have on your phone that holds your own keys for you um the other is hardware wallets these are treasures ledgers cold card foundation has a new device coming out that looks really interesting um but basically these are devices that hold your private keys offline um but they still have like a digital interface so hardware wallets are meant to be kind of like the best of both worlds between okay i've got um a physical device that has a digital interface it's not a paper wallet with a really long impossible this is you know it's a really rough interface um paper wallet again is basically just your private key you know written out um it's or printed out more frequently um so a hardware wallet um you get the best of both worlds your keys are offline but it's just easier to interact with um your balance um and so then the final category is again what cost is focused on which is multi-signature wallets these are a little bit more complicated um normally there's a one-to-one relationship between let's just say like you know the bitcoin in your wallet and the private key a multi-signature wallet basically means um you need signatures from multiple different keys typically held in different wallets to move funds so you can use this with one person or let's say i've got my multi-signature wallet and i have keys held on you know my phone and then a treasure and a ledger held at different locations that means if someone comes and tries to get my bitcoin um they're not gonna be able to move those funds unless they have two of those three signatures um so there's just an order of magnitude increase in security likewise you know kevin you me and someone else could have um three keys in a multi-signature wallet and um what that would mean is um unless the majority of us agree that we wanted to move funds somewhere else um since we wouldn't have the requisite threshold of keys we wouldn't be able to do that so there's some really really interesting options baked in there but that's really the the gamut so it's custodial software hardware paper cold multi-sig um and i expect probably in the future we'll see some you know some other kind of interesting developments here as well i mean multi-signature wasn't something that was in the consumer market until a couple years ago so right i think we'll see all kinds of cool stuff i like the physical analogy to keys because you might be wondering kind of why are there all these different ways to hold bitcoin and the short answer is the way that you hold 100 with a bitcoin it's very different from the way that you want to hold 100 million dollars for the bitcoin right and i think keys is actually the perfect nomenclature for this because if you think about a house right multi-sig is basically like saying hey i can lock the door knob and i can have a deadbolt right so if i unlock the doorknob with the deadbolt still locked doesn't matter right i have to pick both locks so to speak and the way that i would use a you know screen door on a porch that probably doesn't have 12 different dead deadbolts right it's my porch great you know pretty easy to get in but the way that i want to kind of hold the front door of the house with the deadbolt and the way i want to hold jewelry is you know in a safe in the house so to speak so as you get more and more value you can actually put up more and more barriers um and that's what's interesting about holding it at you know in multisig versus not holding it in an offline wallet versus holding it the mobile app i think there's there's tons of good places to go and you know we'll link to some casa is obviously a great you guys have a mobile app as well um but i think you want to be careful and you want to do a little bit of research right you don't just want to go and grab the first bitcoin wallet that you find in the app store because like we were talking about earlier that private key is basically your ownership so if you download a random app and that app happens to be nefarious and now that app shares that private key the bitcoin really doesn't actually belong to you the bitcoin belongs to whoever knows that private key so if you're using some sort of a wallet app or something like that that you know doesn't have great integrity now if they're recording that private key and sending it back to the app developers or something like that now all of a sudden they can spend your bitcoin right they can take those assets with the custodian they're regulated their banks not to say the bank's never do anything wrong they certainly do wells fargo in 2019 2020 probably 2018 17 16 15 is great examples of banks doing nefarious things yeah but at least there's a regulatory layer there um when you go and do yourself custody the one thing that i would caution is that you want to do a little bit of research you want to make sure that you're using something like a casa or you want to make sure that you're using even bitco has some you know good options where you kind of have your keys you want to make sure that what you're doing is using a reputable firm not just hey this random website redirected me to this wallet app and that's where i'm going to hold all my bitcoin because that's that's an easy way to get scammed yeah 100 um you know there are a couple things i would add on to that one is um you know you can lose your uh real world money too right you can lose your paypal balance you can lose your venmo balance um the difference with bitcoin is because it is it's a pseudonymous currency and because you can't unwind or reverse transactions um if your bitcoin's stolen it's pretty much gone um there's a really high payoff for and there's really high incentive for people to go after you know folks with crypto wallets right so that's why anyone who's been in the industry for a while um just the amount of scams are are non-stop right there's just a lot of junk out there that you want to be careful for or that you want to be careful about the other thing i'd add um with folks doing the self-custody route the thing that i've seen again and again and again um that people tend to overestimate or underestimate is accident you know i mean that's why we built so many safeguards into what we're doing at casa but in general yeah there are these you know theoretical vectors where you know and uh you know dr evil could kind of come after you to get your bitcoin or whatever um that stuff is real and we do think about that but more often than not it's people set up something that's so complicated they get in over their heads um and you know they shoot themselves in the foot and uh it's just something to be cautious of is um you know take baby steps and the last thing i'd say is you know you want to think about protecting your bitcoin as if it's at least 10x valuable you know and you want to think about if you're texting i'll say this again if you're protecting you know 100 of bitcoin protect it like it's at least like 10 000 because if you look at how bitcoin's prices performed over the past 10 years if its performance over the next decade is anything like what it was in the preceding decade um you know that's not going to be kind of speculative advice and something you really want to think about a lot of the accidents that i've seen personally and that we've helped some people recover from tend to be with folks who they're like well it's just a thousand bucks a bitcoin right okay maybe it's just a thousand bucks a bitcoin but that was in 2011 and now you have more money than you ever imagined right and now this is um your main source of wealth right and so maybe you know people just need to have that frame of reference a little bit different bitcoin's a very different asset from other ones um but the price performance you know it's a big part of a big part of that let's hit that for a couple minutes before we wrap because i think you know kind of january 2021 we had this i think it was new york times article kind of go viral it was like 20 of all bitcoin ever have been lost or something like that and i don't remember the exact statistics but um i think it kind of went viral right everybody at least in in my circles was talking about a lot of people who were interested in bitcoin um were almost paralyzed by fear right of almost 20 of all bitcoin's been lost you know what happened um how do i prevent that from happening to myself um and i think an important thing to understand is that a lot of those bitcoin were quote unquote lost when bitcoin was basically worthless and that goes to your point yeah right so that i hold a bunch of bitcoin and it's worth 35 cents how much do i really care about that not much am i gonna write that password down so to speak maybe not it's 35 cents now fast forward eight years that's worth five million dollars theoretically i lost five million dollars but in reality it was 35 cents right it's like letting change slip in between the couch cushions um but if you take the approach that bitcoin's growing in value now you can protect it more appropriately and i think the other thing that's important is not just the value increase over time but also the sophistication or the availability of solutions over time so now i can buy bitcoin in cash app for example and cash app will hold it for me right i can use swann who jan pritzker was on the previous episode of this of this series yeah and if i if i buy bitcoin and swan they've got a fantastic on-ramp easy to buy they'll hold it in custody at prime trust for me so i don't have to worry about those private keys and then if i do want to get into self-sovereignty down the road maybe as i accumulate more or as i become more educated about the space then there exist products like casas where i can put my bitcoin in casa i retain the keys but i get access to some you know casa recommended recovery methods and there's multisig and there's you know basically you guys have ways of making that a lot easier for me yeah exactly i mean our product is basically you know self-sovereignty without the edge right um so one of the things that's good about multisig or multi-signature wallets is um i can lose one of my keys and still either easily recover all my wealth right so we have two or three or three or five if you lose one of those keys as long as you still got the other ones um you can help recover all your wealth um and we've started to see and i hope to see more other folks kind of taking this nod where it's not either or it's not either um you know delegating full control of someone else or it's totally impossible to do self-sovereignty there's always going to be a place for custodians but it's definitely our mission to make self you know self-sovereignty less daunting but yeah you're right i mean i think if i remember right that new york times article and yeah i i know it like like i was saying earlier like my parents high school friends people are coming out of the woodwork oh my god it seems to you know nate popper like really you know timed that article right i feel like he might have had it in the hopper for you know when uh the price was pumping um but yeah i mean the issue there is um yeah i mean the the way a lot of hardware wallets work is you know to access your um private keys you have you know you have to enter a pin and as a deterrent for thieves you can't enter the pin in unlimited amount of time if you enter it over a certain number of times the device is gonna wipe right and he didn't have his seed phrase backed up as i understand it and you know that's how he ended up in this pickle um one thing i'll just tag also is that i believe the harder wallet he's using isn't even sold anymore right there's another thing people need to think about is also just like holding onto your bitcoin like yeah you can go custody self-custody it's not one and done is it an evolving landscape and like even the best companies you know making hardware wallets now may not be here in five years right which is why shared standards are so important so that means like you can import basically your seed phrase from an old wallet maybe if that you know is discontinued at some point to a new one um because nothing's permanent i don't know i mean that's something i've learned i've been in the ecosystem a half decade now things really change so it's not um you can't get your bitcoin secure and just forget about it right um if you're working with a good custodian maybe it's a little bit different but like you really need to stay on top of this it's an ever evolving landscape so yeah like the you know thankfully um i think with bitcoin's price performance now not too many people are gonna hit the snooze button um way i think this gent did but yeah it's something to be be careful about um but there are a lot of great options out there to not get locked out of your coins um one is to just you know keep a backup for seed phrase if you're going that route another is to use multi-sig like what we do casa another um you know if it's the right choice for you you can go ahead and uh delegate authority to uh um you know uh custodians such as you know kevin steen i think i'll do my best to summarize kind of in 30 seconds the conversation that we've been having basically i think if you're new to the space you can think of a wallet as a combination username and password username being the public key which is kind of the address that you use to transact and the password being the private key which is kind of how you prove and how you sign transactions that hey i have access to this and if you're looking to get into bitcoin for the first time i would suggest go to something like swan they've got a great way to get in to buy bitcoin um they'll hold it at a custodian like prime trust that way you don't have to worry about it too much um or you know get it on cash app or something like that where again they're holding and managing those passwords for you and as you get a little bit um gain more comfort in what you're doing read more about it things of that nature then you know i would strongly consider you know looking at self-sovereignty um if you aren't the most technologically inclined person then i don't think there's anything wrong with just holding it indefinitely at a custodian but if you want to get some of the value of the bitcoin space um you've got a few options you've got kind of hardware wallets they look like flash drives they'll hold that password for you pretty securely and then you've got a bunch of software options and then you have you know more sophisticated options like the stuff that casa is doing so you know i would say start at swan sort of start a cash app and then as you gain more comfort you know go take a look at casa and look at migrating it off there and if you don't like it you can always move it back to a custodian um if you do like it you can always move more over right it's not a it's not a one-and-done you can even balance some back and forth do half and half until you get more comfort in the space right it's it's really up to you but please don't go download a random wallet app that's you know if i give 20 bucks to a guy and he's going to be right back with those concert tickets and he never comes back i don't get those twenty dollars back right you're not gonna be able to get that coffee exactly please please use use reputable sources like casa or swan or cash app or coinbase or paypal or you know something that you've heard of don't use some random google search yeah no it's totally right i mean do your research um i would particularly with hardware wallets um if you're not using one of a very short list of hardware wallets um you're gonna have a bad time you know based on my experience yeah and my golf sovereignty is never a bad idea no it's not those who um have seen a few more episodes and know my my bitcoin story will understand why but michael thank you for joining us on building blocks we appreciate your time today yeah likewise kevin it's great talking thanks for tuning in to another episode of building blocks if you enjoyed the show like comment subscribe give us five stars wherever the trendy place is to consume content i lost track a long time ago thanks for tuning in you