Elon Musk’s Harsh Take on Hosted Crypto Wallets – Here’s the Flip Side of the Coin
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Elon Musk is known for his provocative statements. Just read his Twitter for a bit and you’ll see it yourself. One day he is swearing in Russian, the next he is criticizing video games. Recently, after writing a number of tweets in support of Dogecoin, he decided to start a row with crypto companies. His main target was Freewallet, a cryptocurrency wallet based in Tallinn, Estonia.
The Freewallet team mentioned Musk in their tweet about the rise of the Dogecoin price. Musk responded harshly to it, saying that the Freewallet app sucks. In a follow-up tweet, he expanded on it, saying that you shouldn’t use crypto wallets that won’t give you your private keys. And here he struck a nerve. This statement of his raised a new wave of discussions about whether, in principle, cryptocurrency wallets that do not give access to private keys have the right to exist.
Freewallet is a hosted wallet, which means that it doesn’t give its users control over their private keys. Using such wallets, you basically trust the third party to control your funds. This is very similar to how banks workyou trust them with your funds and rely on their reputation, expecting to get your money back any time you want.
This approach is not appealing to many cryptocurrency purists. According to them, the very fact that a user does not have access to his private keys completely contradicts the whole idea of cryptocurrency as a decentralized and independent digital asset.
The debate over hosted wallets versus non-hosted wallets is several years old and the famous “not your keys, not your coins” rallying cry remains popular in 2021. At the same time, throughout the years, different options remain available on the market. Although a large number of wallet brands traditionally give their users access to private keys, the hosted wallet segment still occupies a significant market share and enjoys a certain popularity among part of the crypto community. Notable hosted wallet brands include Coinbase Wallet, the built-in wallets of such exchanges as Kraken and Poloniex, the above-mentioned Freewallet and others.
The hosted wallet approach has its pros and cons.
To illustrate this, let’s imagine that you buried your money in the ground in the forest and only you know where it is and how to dig it out. This analogy may seem a bit exaggerated, but obviously, I’m talking about owning your private keys.
It is safe enough in the sense that in the best scenario, no one except you can find the money. But unfavorable situations are also possiblefor example, you could forget where you buried the money and then you’d be unable to find it. Or someone else could have seen where you buried the money and then dig it up for themself.
Another possible option is to go to a bank and deposit your money there. This option may seem more reliable, but it also has its negative sides. The bank could go broke. Its owner could run away with all the money and then you would lose your funds. Basically, when choosing a bank, you have to rely on its reputation. You decide to entrust your funds to the bank if you think this option is more preferable to others. At the same time, you are aware of the risks and have to make a conscious decision, weighing all the pros and cons and bearing full responsibility.
Which option is better? It’s up for you to decide. One of the main advantages of the free market is the fact that it gives you the ability to choose between different options. If you are absolutely sure that you will not lose access to your private keys (forgetting your password, losing a piece of paper, etc.), then use the options that allow you to store your private keys with your own hands. If you are willing to rely on a third party and trust the reputation of the service you are using, then you can use a hosted wallet.
The example of money buried in the forest may seem funny, but it is not so far from reality. A recent study shows that 20% of the total Bitcoin supply has been lost forever because owners lost their private keys.
Ultimately, it is up to users to decide whether hosted wallets have the right to exist or not. And judging by the fact that such wallets are still used in 2021, the answer to this question is definitely “yes.”
It’s funny that Freewallet, which is still quite popular in 2021, has noted an increase in registrations after the statements of Elon Musk which illustrates the benefits of any publicity, including negative ones.
The power of words
The very fact that opinion leaders like Elon Musk can theoretically bring down an entire industry or market segment these days with a couple of sentences raises serious concerns.
Who will be next?
Of course, in no case should the freedom of speech of an opinion leader be limited. But the speed with which such criticism is spread today is somewhat reminiscent of a witch hunt.
It’s very easy to be harsh on Twitter. The platform itself encourages provocative and short statements. It is much more difficult to provide reasoned and balanced criticism, which is so needed these days by both users and companies.
Rachel Ocampos works in PGW’s Office of EOE and Affirmative Action. She got into crypto toward the end of 2017 after first hearing about Bitcoin. Since then she’s been holding and trading crypto and following the news. She likes writing and has worked as a journalist in the past.
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