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Cold Wallets: Where do Bitcoins Live? Should I declare them at customs?



Hello, this is a Bitcoin wallet. This is also a Bitcoin wallet. And this too is a Bitcoin wallet. All these three are the same Bitcoin wallet. How is this possible? So I was in this book club this week and we were talking of course about Bitcoin. And the fact that it's is going up like crazy. It's now almost $25,000. And I remember the last time this happened, everybody went crazy and we saw those crazy news about people traveling and being in the airport and being checked by the customs. And they're asking on reddit and other forums, if they should declare the money that is in their Bitcoin wallets, those Bitcoin wallets, those or those? So I think it's time to start understanding much better where actually our Bitcoins live. And this is what we are going to explain. Those three are the same Bitcoin wallets because they were created, with a special process I describe in this video, "offline wallets for cryptocurrencies", If you want to watch it for more details.


This is a ledger nano, and it's an actual thing that can sign Bitcoin transactions with the help of this one, you can make secure transfers, way more secure than if you had a Bitcoin wallet on your computer. This is the recovery phrase of the key that exists inside this wallet. This means that if this one breaks or you lose it, or somehow it's destroyed, you can buy another one. You put that recovery phrase and you can do the same job like this one. And now this one, this is a steal, a wallet. And if you see it has the same recovery phrase, but written with little single digit letters. So this is unlikely to be destroyed in the case of a fire or a flood or something like that. Actually you can store these on a safe in the bank and that's a quite safe way to store Bitcoin.


The reason why this is important is because many, many people lose the money because they lose their wallets or they are destroyed, or they lose their recovery passwords. How does this wallet really work? A hardware wallet has some secret keys in it that can be recovered by the recovery phrase. When you want to transfer money from one account to another, the information of this transaction, the move of money is moved from your computer. in this ledger. The ledger then creates a signature. So you press the buttons and you say, I approve this transaction. And then the signature gets transferred back to the computer. This means that your keys never exit this wallet. It's just, the transaction data goes in and the signature goes out now through your computer, the transaction and the signature go to the Bitcoin network. And there they get validated. The Bitcoin network consists of thousands of independent computers that are run by individuals from all over the world.


This is the power of Bitcoin that it's so decentralized. So if I want, I can start another node, bring a computer and run my own node. Every node in the Bitcoin network will check your transaction and your signature. And will see if they agree. If they agree that you have the funds, if they agree that the signature is original. But again, in contrast, for example, with your bank where you're using a username and the password with this one, you never use a password. The password never goes through the network. All that goes to the network is signatures and transactions. This makes it way more safe, safe to the extent that we can have a publicly operated bank, like the Bitcoin network. Of course, many people try to break it every day, but they don't succeed because it's mathematically nearly impossible with the currently available technologies.


So where do your Bitcoins really live? The answer is on the network, so they don't live in here. This is the wallet. This actually holds the keys that allow you to create transactions, but no Bitcoin is stored in this. Another way to say the same in a more generic way is that the Bitcoin wallet allows us to prove our identity as Bitcoin owners to the network. This happens without relying on credentials. So it's way more secure. We can also use more secure schemes where multiple people can sign a transaction. This means that they all own that money. So this is the benefit of programmable money, in general. You can use the very flexible software infrastructure in order to make them behave as your wish. The fact that if somebody has those words can initialize one of such devices means that those words are very important.


You should keep them super secret. If somebody has those words, they can steal everything you have. So be very careful how you share those. You wouldn't like to send them through email or something like that. As some Reddit posts say. Never, just keep them offline somewhere, really physically secure. And if possible, avoid having them in a paper somewhere that your children might have access to. Right? But what happens if somebody steals this, or if you go through the customs and they ask you to deliver this because the find is suspicious or whatever. The answer is that you should be able to give that to them and not have to worry that you will lose access or control of these Bitcoins. And in order to do that, you have to keep multiple backups because you can have a single Bitcoin account. Having multiple such, hardware wallets controlling them.


If they are initialized by the same, seed phrase. So go on and make copies and copies and even more copies by seeing this wallet. It makes you wonder, does this have enough security to protect my Bitcoins? And you know, you see letters here, how many combinations are there? And the answer is exactly as many combinations as the Bitcoin security. So there are enough combinations in those words, to give you almost 128 bits of security, which is what Bitcoin provides anyway. So the security of this one is excellent. So every time the Bitcoin goes up, we hear all those claims about security and, lots of anxiety about that. And people are wondering how can I protect my Bitcoins and how a) I will not lose them. Nobody will steal, the funds from me and b) I will not lose them in the sense of losing my password and not having access to them anymore.


And I think this video provides both answers by following the practices I shown you, you can create as many replicas as you need of your wallet and make sure that you physically, you store it in a secure environment and then your Bitcoins are going to be safe. Also try to do a few small transactions every now and then to make sure that, you know, the process well enough, start with small funds and do it often. So if some software becomes out of date, you will figure it out. You will follow up with the community. You will be up to date, which is a thing that is good to do if you want to be extra safe. So I hope you find this useful. Thanks for watching. Thanks for sharing.


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