Bitcoin is being increasingly looked upon by financial institutions and more traditional organizations. We can clearly feel the change of mindset during the last year as some of the same organizations that were sulking Bitcoin and saying it was a scam are now embracing it.
The process of shifting from rejection to adoption has been going on since the inception of Bitcoin. People will often reject what they do not understand. The fact that Bitcoin has survived and thrived in that kind of environment is proof of its robustness and resilience. Although Bitcoiners themselves are now mostly used to it and tend to take it with humour and amusem*nt when a new old-timer in some legacy industry criticizes it.
Nonetheless, debates and criticism has shined light on Bitcoin and brought it to mainstream attention countless times, and we as Bitcoiners should be thankful for any headlines saying Bitcoin is a scam.
A Good Look for Bitcoin in Canada
This week however, we had what could qualify as a good news for the Canadian Bitcoin industry.
Wealthsimple announced a new financial product under its Crypto label that will let its users buy and sell Bitcoin and Ethereum simply and without any commissions or fees.
There are many other similar applications like Robinhood, eToro or CashApp that let you easily invest into the stock markets, other financial instruments, and Bitcoin in countries outside of Canada. A service like that was missing here in Canada as institutions are still reluctant and slow to offer Bitcoin services.
For those who do not know, Wealthsimple is a Canadian financial robo-advisor that lets Canadians easily invest and trade in a wide array of financial instruments. Although they were rejecting the idea of proposing Bitcoin to their clientele just 2 years ago, according to Jonathan Hamel, the sale and purchase of bitcoin will now be an integral part of their service offering. This shows how quickly they realized Bitcoin’s potential to bring additional revenue to their platform.
They probably got strongly inspired from similar services offered outside of Canada mentioned previously. CashApp has seen an incredible rise of its Bitcoin base revenue as it reached $306 million USD in the first quarter of 2020 alone. Even more surprisingly, it represents now more than 50% of their revenue, as their other fiat base sources of revenue brought in $222 million in Q1.
An application of this sort was definitely missing in the Canadian market. Wealthsimple has over $5 billion Canadian dollars under management and is owned indirectly at 83.2% by Power Corporation, a financial holding company that has more than $1trillion dollars under management.
This certainly opens the door for more financial institutions being open to the idea of Bitcoin and integrating it into their services.
Nonetheless, this institutional adoption has its downsides.
Don’t Buy Your Bitcoin on Wealthsimple
Depending on the level of familiarity you have with the Bitcoin ethos and its technology, you may find this article perplexing.
So for those who aren’t acquainted with all its concepts and were only interested in Bitcoin after seeing that Wealthsimple will offer it, let me briefly explain to you the most important concepts about Bitcoin.
Bitcoin the Coin vs Bitcoin the Protocol
When people refer to Bitcoin, they are often referring to its native coin. However, the coin itself lives on its corresponding decentralized network of full nodes (servers), which is also called Bitcoin.
This is a really important distinction to be made as the network itself is decentralized, but the native coin can be either held by a centralized entity functioning as a custodian or held sovereignly by one user.
Bitcoin is Digital Gold and Sovereign Money
Bitcoin is also often referred to as digital gold, as its protocol rules define that there will only be 21 millions units of Bitcoin in existence. The analogy goes deeper as the different ways to hold Bitcoin or Gold also have some similarities. For example, as a Gold investor, you can decide to either hold it through a bank or a financial product, or simply have your Gold in a vault at your house or another secure location that you control.
In both cases, you’re exposed to the possible fluctuations in price of Gold, but the burden of securing it falls either on you or the service provider that holds the Gold for you. Both ways have their set of trade-offs to take into consideration. Nonetheless, it is easy to infer that you're the only one that owns it's Gold if you’re the only one that has the access to it.
The same choice falls upon the Bitcoin investor. You can either decide to hold it through a custodian that will take care of holding it for you, or decide to secure it yourself.
The problem with custodians in the Bitcoin space is that they are tainted with a bad reputation as countless exchanges and platforms either got hacked or they shamelessly scammed their customers. Although, the risk of losing your Bitcoin yourself is also high, since the learning curve of Bitcoin curve operational security is really steep.
Everything can be summed up to the famous saying: “Not your keys, not your coins”. It is really important for someone to understand that concept before one chooses to hold their coins by oneself or through a custodian. An important difference to note between personally securing your bitcoins versus your gold is that the cost and resources required to do so are vastly inferior when it comes to Bitcoin. You don’t have to deal with the physicality that large sums of gold represents compared to the same amount held in Bitcoin.
If however, you decide to hold your Bitcoin by yourself, you are truly sovereign with your money. Nobody can stop you from selling it, transferring it or simply hold it forever. All of this can be easily achieved due to its digital nature and presence of strong liquidity. You also benefit from the fact that it is incredibly simple to verify the authenticity of your bitcoins.
You Don’t Own Bitcoin When You Invest in Wealthsimple.
Bitcoiners like me will read the fineprint of every Bitcoin product or service that comes out. Since we’re dealing with digital money it is crucial to understand how it is controlled.
In the FAQ, you can find the following question and related answer:
Q: “Can I transact with my coins or move them to a digital wallet?”
A: “Wealthsimple Crypto users can buy, sell, and hold coins within the app. Deposits and withdrawals can only be made in Canadian dollars.”
The simple answer is “No”. You cannot withdraw the Bitcoin you’re buying on the Wealthsimple app. This means that you are completely dependent on the company to secure your Bitcoin and you don’t have the power to verify diligently that you truly own them.
Wealthsimple is a centralized application that is entirely controlled by a single entity, therefore they can display on your account that you own some Bitcoin, but there is absolutely no way to verify if they actually acquired them for you.
Essentially, they are only offering Canadians the opportunity to speculate on Bitcoin’s price. An investor in that platform can by no means benefit from the tremendous powers that holding Bitcoins offers you, which are: detaining an incredibly scarce asset, having a censorship-resistant means of payment and holding money with a stable and predetermined monetary policy.
Obviously, Wealthsimple is a reputable company and employs Gemini as their custodians, so there are little risks in regards to the security of the bitcoin funds they hold for their clients.
However, I find it quite odd and backwards for Wealthsimple to not offer this singularly most crucial option for their users, as Bitcoin is supposed to represent a new democratized financial paradigm. Restricting that option shows a bad understanding of Bitcoin from Wealthsimple.
Cashapp does it, so why can’t they?
Disclaimer:
My name is Maciej Cepnik and I work as the marketing director of Veriphi. We offer Bitcoin security services for private investors and companies that wish to hold their coins by themselves. We’re also on the verge of launching a non-custodial Bitcoin brokerage service.
If you’re interested in either of these, you can contact me directly through my DMs, my email at maciej@veriphi.io or book a free consultation call with the following link: https://meetings.hubspot.com/maciej13. I'm looking forward to meet you!
If you're interested in learning more about Bitcoin check out Veriphi's Blog or our Youtube Channel.
