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Bitcoin law in El Salvador means custodians are the future. Isn't that fantastic?

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Written by   292
5 months ago

Currently, Bitcoin is legal tender in El Salvador, and the Chivo bank account/wallet is already up and running. It is a custodian, which means that users won't have control over their private keys, which will mean that the government can seize, stop or deny service to any Salvadorians that the government decides not to serve. People can choose what wallet to use. Still, they are obligated by the law to accept payment if they are merchants. They only can be denied service under particular circumstances, pretty much Bitcoin is the law, and it is compulsory.

But if you risk your holdings by depositing into a custodian, wouldn't it make sense to use custodians for centralized finance instead of just a wallet-like service? What I am saying is that if you're going to use custodians anyway wouldn't make sense to use custodians to use other tools available rather than just sending and receiving.

If you want to open and have enough liquidity in your channel, you need at least 0.003BTC because many node operators now require that users open up channels with at least that much. You will put around $200 to send and receive funds, and in the meantime, you could lose your funds if you go offline for too long. If you put that same amount into a Lightning Network custodian, you are still only utilizing send and receive. Still, the private sector has developed better custodian services than just a glorified wallet sends and receive feature.

It is ironic and moronic at the same time, not your keys, not your crypto. Still, a reality custodian service is an official way for a government to accept Bitcoin as legal tender, and every country worldwide should also adopt such a strategy. Celsius has already filed for bankruptcy; at least in the private sector, you get the dilution someone will fight for your money. What happens when your government loses the money you had with them?

If you have at least $200.00, you could have a bank account that is a custodian, just like many other Lightning Network wallets like Wallet of Satoshi, BlueWallet, Strike, and Chivo. It will not only let you send and receive but will offer much more functionality than just a custodian wallet. A regular bank account without an extra functionally called bankruptcy where you, the investor, are left high and dry as Celsius did and that WoS and Chivo could do next.

You can have better financial tools with Decentralized Finance than any other custodian, and it is superior because you will always be in control of your seed phrase. It is the point of Bitcoin in the first place. It is why you have private keys so that you don't have to rely on third parties, and yet the adoption of Bitcoin in El Salvador is being done with custodians.

You could borrow against your holdings and borrow some dollars or stablecoins to buy even more Bitcoins. Sure it is risky because if the price of the asset you own falls in value, your loan could get liquidated, and you could lose your initial investment capital. That is the cost of speculation, yet the cost of using custodians is never explained. The risk of a custodian being a government will be much higher than just a private custodian.

If you say that using custodian services is the same as using the real Bitcoin, wouldn't you be better off just using the best custodian there is? Wouldn't you be better off just with a custodian that offers you the ability to earn interest, borrow against your cryptos, and use your account as a wallet? I speak of a regular bank without the added risk of your custodian going bankrupt because at least bank accounts are insured by fiat currency. The government can always print more to cover your bank's bad decisions.

Suppose custodians are the future, and we are going to pretend that using custodians is the same as using tangible assets. Wouldn't it be better to choose the best custodian instead of a government sponsor service?

If you are Salvadorian and you are okay with using custodians, and if you are a Bitcoin holder, you should move your funds to the best custodian and start using centralized finances and tools instead of pretending that a custodian is a wallet. And yes, I hold my Bitcoin Cash with Nexo and Celsius, but at least I am extracting utility out of my holdings; Chivo wallet gives you nothing and saves your money hostage to whatever conditions the government may set.

I will leave the best part at last, if your government sponsor custodian goes under and loses your money. Do you think the government will let you protest on the streets that they lost your money? If nothing more, a Chivo Salvadorian bank account could end up with a lot of protest and a government cracking down on citizens who are not happy the government is losing them money.

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Written by   292
5 months ago
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