Ok, so you might have come across terms such as proof of work and proof of stake. What the heck is proof of keys? Well unlike the other two, this one is not at all related to a blockchain protocol. Proof of keys in fact is more of a manifesto or better thought of as an emergent philosophy within the crypto community.
It is such an important movement for you to ignore. Proof of keys has come to reflect the very reason that Bitcoin was created. Taking full control over your financial standing and achieving sovereignty. Now, this might be a foreign concept for many who have been conditioned to trust third parties such as banks and government institutions to safe-guard their hard-earned money. In fact, this was never the case prior to the establishment of banking institutions. For centuries, people have stored their wealth in precious metals or through ownership of land and other properties. This meant that they had full control over how and where their fortune could be used or spent. You may have the same notion of being in full control of your savings in the bank today, but that is merely a representation of the actual truth.
Given enough reasons or any other instances, the third parties that you have entrusted could simply deny access to your account. What’s the probability of such an event taking place? Difficult to predict… but with recent events in Venezuala, Greece, Argentina, Hong-Kong…just to name a few, the risks of storing wealth with third party appears to be on the rise. Furthermore, sporadic liquidity issues in the banking sector around the world have resulted in a number of banks running-out of cash to serve their customers. Think about that for a second. You are a good law abiding citizen and tax-payer but all of a sudden you are denied access to your account or are limited in the amount of cash that you can withdraw daily. How would that feel?
In a similar vein, the proof of keys movement within the crypto-community urges everyone to have full control of their cryptocurrency wallet by controlling their own private keys. Pertinent to this movement is the idea that you should always be in control of actual Bitcoins or any other crypto rather than potentially owning fake representations. Most people today obtain their Bitcoin or other crypto through exchanges and do not control their private keys; instead relying on the exchanges to store their crypto for them.
There are two critical points of failure with such practice. One, if the exchange gets hacked then you are going to lose your digital assets. Second, the exchange may be selling you representations of the crypto like an IOU instead of the actual crypto itself. How do you verify this? Read on…
So, how can you achieve proof-of-keys?
First, you might want to look for wallet software that is independent and not tied to any crypto-currency exchange or custody account. These are usually referred to as non-custodial solutions. If you do have an account with a third party, it might be a good practice to send all the crypto from these custodial accounts to the non-custodial wallet under your control. A word of caution here. Unlike custodial services, if you lose your password or private keys…there is no way of getting your crypto back. So, make sure you have stored that password safely on paper and kept it away from prying eyes.
Second, it might be good idea to run your own full node of the blockchain that you are invested in. This is one way that you can verify that your transactions are actually reflected on the public ledger and that you own the actual crypto instead of just a number on the screen.
So, that’s it. Just 2 simple steps and you could comfortably satisfy “Not your keys, not your crypto” and the “Do not trust, verify!” mantras. Proof-of-keys if done well could be your path to achieving financial sovereignty and to be your own bank.