Don’t Be Like Peter

5 min readJan 20, 2020

2020–01–20 (Updated Below)

“ With freedom comes responsibility”

Veteran Bitcoin users are accustomed to the freedoms and responsibilities that come with self-custody of valuable financial assets. Years of mistakes, trial-and-error, and socialization have given rise to a culture hardened to the burdens of direct, personal financial ownership. But many forget that to the uninitiated, these things don’t come easy.

Peter Schiff’s loss of a fraction of a Bitcoin has resulted in an avalanche of derision on Twitter. The tone of the discussion is unfortunate, however, because there are lessons to be learned in his mistakes. They can be used as a teaching moment so others who are equally unversed in the culture of self-custody do not suffer the same fate.

No one should lose their crypto because of a simple lack of information. This article lays out some basic, well-known concepts for new users to consider to avoid what happened to Peter Schiff. It is written with Bitcoin as the example, because that is what Schiff lost, but the concepts apply equally to other crypto projects like Ravencoin.

1. Bitcoin is not stored in your wallet

This is the simplest concept, but it is the hardest one for new users to wrap their minds around. That is why I put it first. You don’t “hold” or “store” Bitcoin in your wallet. Every participant in the Bitcoin network has an identical copy of your Bitcoin. They just can’t use it, because it is locked with a key that only you can provide.

This key is called a “private key.” You use it to unlock your Bitcoin so you can send it (“spend” it) to someone else at their Bitcoin address. The thing on your phone or computer that you call your “wallet” is just software that lets you tell the world “I have the key to the lock, send my Bitcoin somewhere else.”

2. Anyone who has your private keys owns your Bitcoin

You wouldn’t give the keys to your house to just anyone. Why? Because they can use the keys to ransack your house. The same holds true for your Bitcoin private keys. Anyone who has access to your private keys has full access to your Bitcoin, with the same ability to spend it that you have. Keep the keys safe. This means never type a private key into a website and never give it to someone trying to help you in a chat room.

3. “Not your keys, not your Bitcoin”

This is a corrolary to no. 2. If you do not have access to your private keys, then you do not own your Bitcoin. When you use any exchange or wallet that does not give you the ability to view your private keys or “seed words” (discussed below), then that exchange/wallet controls your Bitcoin. You have a right to ask them for it, but they own it. If they get hacked or go under, your Bitcoin can be lost. Search the internet for Mt. Gox to learn more about the implications of this.

4. Don’t use a 3d party wallet that doesn’t have seed words

There is a set of published standards out there that many of the best wallets use called BIP32/39/44. One of the most succinct articles explaining those standards in an easily-understood way is Ravencoin Seeds of Freedom by Tron Black. In short, BIP32/39/44 together allow you to use a set of 12 or more words to generate, and therefore recover, all of your private keys in a standard way, no matter what wallet you use.

Why is this important? For a couple of reasons.

First, you could lose your phone or your wallet app could get corrupted. This is apparently what happened to Peter Schiff. If he had his 12 words, he could restore his wallet simply by importing the words.

Second, the wallet you use today may not be there tomorrow. If the wallet complies with these known standards, you can use your words to recreate your wallet on another platform.

Third, no matter what happens, the standard words can be used with available open-source tools (like this for RVN and this for many other coins) to generate and view your private keys directly yourself — offline — in case of emergency.

That brings me to my next point…

5. Write down your seed words and store them safely

It is easy to get complacent with small amounts of crypto, but if you store any Bitcoin on a wallet that you care about losing, make sure you write down your seed words and store them safely. The more funds you have stored, the more precautions you may want to take with the words (storing them on metal, split mnemonics, further encryption methods, and generating them offline or on a hardware wallet), but the bare minimum is to write them down and keep them safe.

Peter Schiff made this mistake. His phone controlled his keys and secured them behind a password. This is good. But he failed to write down his 12 words. Because of this, when the app on his phone got corrupted, he lost his Bitcoin.

If Schiff had known (and followed) widespread guidance to WRITE DOWN his seed words, he would have had the ability to recover his Bitcoin in a few minutes.

6. If you can’t generate your private keys so that you can see them with your own eyes, you don’t have your private keys

It means nothing to say “not your keys, not your Bitcoin” if you store your private keys in a way that you can’t personally generate them from a set of seed words. To practice, use this tool. Type in these 12 practice seed words: then mystery tomorrow earn sea flock hammer film distance cruel poverty mean. Select your coin of choice and scroll down to “derived addresses.” You will see a list of private keys on the right.

If you selected RVN as your coin of choice, the first private key will be this:

Kx6kNcNCgRUFiW4Wu78zofYMyT6AB5bWt5wuoCCfuWjUf1Pwaq4r

Repeat the process to recover your change addresses by typing “1” where it says internal/external. For RVN, the first private key will be this:

L1wskTrdasQ2bU2A3zPz77xfCe7GXancrYf7zoyL2eujKQUksSQN

Congratulations. You now know how to derive a list of private keys for yourself. In an emergency, you could use these keys to import your crypto into a full node. You should never actually need to do this (and should never do it online), but it is good to know that you can if you had to.

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I hope these tips help. If one person out there learns something from them and doesn’t make Peter Schiff’s mistake, this article will have been worth it.

Don’t be like Peter. Stay safe.

Sincerely,

Doug Pepe

Mango Farm Assets