WARNING: If you store your bitcoin with other people, you now hold human promises instead of mathematical / game-theoretic promises. The following article is relevant:
articleJames_Sullivan_on_the_nature_of_banksedgecase5James Sullivan on the nature of banks
In some situations, it makes sense to rely on other people to store bitcoin for you. Examples:
- You send and receive bitcoin relatively frequently. You are willing to store bitcoin on a service and pay the service to construct transactions for you.
- You currently lack the expertise and equipment required to store it yourself.
- Your local environment is risky. You are unable to protect bitcoin from those around you who might try to take it.
- You need to make a risky journey, during which you may need some transactions to be made on your behalf. You are willing to leave bitcoin with someone that you have known for a long time, who will make transactions on your behalf, and whom you can trust to return the remaining bitcoin to you when you return.
The amount of bitcoin in the world is limited (~21 million coins, each of which contains 10^8 satoshi). If you lose any bitcoin, or someone steals it from you, no more will ever be created in order to make restitution to you.
Bitcoin transactions can not be altered once mined (this is one of the reasons that bitcoin retains its value). If you transfer it to another person who then breaks his/her word, and does not return it to you when you ask them for it, you will not be able to reverse this transfer.
Risks of storing bitcoin with other people:
- They may spend it. Some possible reasons: Need, greed, incompetence, blackmail, ransom, fear.
- They may lose it. Some possible reasons: Fire, earthquake, war, flood, robbery, theft, incompetence.
There are various online services whose business model is to store bitcoin for other people.
Risks of storing bitcoin with a service:
- Internal theft. Examples: An employee steals what he/she can and runs. A CEO steals everything and claims that the service was hacked.
- Environmental disaster. Examples: Fire, earthquake, war, flood.
- Robbery. Examples: A group of armed attackers storms the headquarters of the service. A government official demands a bribe in order to not apply heavy regulatory pressure on the service.
- Incompetence. Example: A software upgrade is badly planned and deletes private keys.
- Theft. Example: An adversary introduces malicious software or hardware into the service's equipment supply chain, allowing a virtual break-in.
If you do choose to store any bitcoin with someone else, it should be someone that you trust, ideally someone who is capable of using subterfuge to hide it and violence to defend it.
If you are thinking about storing bitcoin with a service, you should ask yourself the following questions:
- Who owns the company? What history is available about this person?
- Who operates the company? What history is available about this person?
- How long has this company been in business?
- How is the bitcoin stored? What percentage of it is usually stored offline?
- What fraction of my bitcoin am I willing to store with this service, or with any service?