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Hey Robinhood, give us our crypto wallet keys already

HODL til your teeth rot.

robinhood logo on blurred background
Image: KnowTechie

TL;DR: It can’t and we’re fucked.

There is a saying among cryptocurrency traders; “not your keys, not your Bitcoin.” While my full understanding of crypto trading is limited, and my 0.002 Bitcoin is long gone at this point, I do know that the general structure is that when we engage in crypto purchasing and trading, that transaction and digital asset is tied to a wallet key that we are supposed to keep safe. So what happens when we are trading on a platform that doesn’t distribute wallet keys, that holds those for itself? Are we gonna get screwed?

The short answer is probably. The long answer is who the hell knows? We’re trusting an app to honor our wagers on crypto. Obviously, the app in question is Robinhood, but there are other apps popping up ((like Voyager and the bitqt) that enable crypto trading (Voyager is exclusive to this) without us actually owning the wallet key. So, therefore, we don’t own the crypto. We are simply playing a game. Without being cognizant of that, if we aren’t careful, we could be setting ourselves up for losses we can’t easily reconcile.

Last month, Robinhood proved its mettle when it halted trading on Gamestop and other stocks that had been pumped by Redditors, an attack on Wall Street and big money that showed some vulnerabilities in the system. The biggest takeaway here was that Robinhood could do whatever the fuck it wanted, supporting the clearinghouses and trading facilities behind it, rather than the users. Sure, dump your positions and get the fuck off Robinhood. Unless you hold crypto, in which case you are screwed. We don’t own that crypto and Robinhood might not honor our bets if it can’t afford to.

dogecoin crypto on robinhood
Image: KnowTechie

During the whole Gamestop fiasco, Robinhood had to run out and snag an additional billion dollars to remain viable. So what happens when its Bitcoin holders decide to cash out? What happens if Dogecoin actually magically hits one dollar and users start cashing out? Does Robinhood drop a giant fuck you to the users, halting all trades and escaping with your cash and its wallet keys on a giant yacht? While unlikely, there is an inherent risk in trading crypto on a platform that holds all the keys.

“Robinhood is a shell game of margin accounts,” entrepreneur, advisor, and angel investor Daniel Sax tells me. “You own crypto on their ledger. It’s an IOU. You don’t own the underlying asset. Most people are trading margin accounts so it’s house money. Play money. I’m not even sure the underlying asset is owned. It’s just play money. If you’re asking whether you should be using Robinhood to purchase anything, the answer is no.”

Chances are, the current engineering would render it impossible for Robinhood to distribute crypto keys to its users

Meaning, my header on this article is as much misleading as it is irrational and hopeful.

While we might assume we all hold individual accounts of crypto, the same assumption could be inverted to imagine that Robinhood simply holds one wallet key for each of the few crypto assets it allows to be traded on its platform, using our money to purchase more and updating the numbers on our screens to imply we own something that we do not. Such could be the case for any app that trades crypto without us needing a wallet key. We can’t even transfer this crypto away from Robinhood, likely for that reason (you can, however, transfer stock positions to a different platform).

We own nothing, we play with pretend numbers and eventually, we’ll turn to dust.

Even amateur traders get it. “Robinhood is using the crypto sphere to inflate the costs,” says my trading partner Ginger Jesus, “but they don’t give you the option to switch to a separate platform, so if Robinhood ever disappears all your perceived crypto disappears as well.”

If you want to trade and hold cryptocurrency as an asset, then buy a hardware wallet and keep your keys away from the grubby hands of trading apps. From there, if you want to do more than hodl, platforms like Coinbase and Gemini enable trading through your secure wallet. Purchasing and trading crypto without holding the wallet keys is just renting the experience. Money doesn’t exist. Nothing is real. It’s just numbers on a screen.

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