We’re all at different stages in our journey of learning about bitcoin and putting it into practice. Even for those of us who have been bitcoin HODLers for years, it’s a constant journey of learning and trial by fire with mistakes made along the way. But as at the time of writing in late July 2019, here is our rough delineation of the levels of Bitcoin HODLing. Don’t be ashamed if you are a newbie, but instead take it as a journey to improve your own knowledge and bitcoin security and privacy. We all started somewhere.
Level 0: Nocoiner (or Precoiner)
At this level, the nocoiner is woefully uninformed or misinformed. Years of government propaganda have left this person unable to understand Bitcoin as digital hard money. They have probably been scared into thinking some or all of the following:
- Bitcoin is a scam
- Bitcoin is the Myspace and there’ll be a new ‘Facebook’ still to come
- Bitcoin is tulips / ponzi scheme
- Bitcoin will bring about a deflationary dystopian society
- Bitcoin won’t work because it’s very unequal or the initial distribution was somehow unfair
- Bitcoin can’t scale
- Bitcoin lacks the appropriate governance structure
- The government will ban Bitcoin
- Bitcoin is boiling the oceans and burning massive amounts of energy
Level 1: Bought bitcoins and left them on the exchange
At this level, the person has realised they want some bitcoin, but they don’t understand the bearer asset nature of bitcoin. Meaning, the person who holds the keys, holds the coins.
As many a newbie has done before, they buy bitcoins and leave them on a bitcoin exchange or custodial wallet. They are leaving themselves open to getting rekt by an exchange hack (or worse, an exit scam) and losing their coins. Which if you think about it more deeply, they never held in the first place. Rule 1 of Bitcoin: Not your keys, not your coins.
Level 2: Pulled bitcoins out into a mobile wallet with no backup
Some retail newbies will instead buy bitcoins and keep them on a mobile wallet and lose the bitcoins because they were not careful to run the included mnemonic seed backup process that comes standard with practically every Bitcoin wallet.
Level 3: Hardware wallet with a backup seed
At this level, the bitcoiner has learnt to store their Bitcoin on a hardware wallet such as the Trezor, Ledger or Coldcard. If they are more advanced they will also apply a passphrase on to the hardware wallet at this point.
Still, they don’t know why running a node in bitcoin is important. Rule 2 of Bitcoin: Not your node, not your rules. They probably don’t understand why Bitcoin is dependent on enough people (roughly 85% of the network per Bitcoin Core developer Luke Dashjr) running a full node to verify incoming transactions, and to ensure that they are transacting on the correct blockchain.
Level 4: Learning how to run a node
At this level, the bitcoiner might just naively run a node, which is better than nothing, but they probably don’t understand what it is about running a node that helps protect Bitcoin’s nature and their chosen ruleset.
At this level the individual might not have set up the node to verify their own holdings but they may be running the node with a small spending amount.
Rather than running a full node merely to ‘support the network’, the more important function is to use your node to validate incoming transactions and to ensure that the transaction is being broadcast on to the correct Bitcoin blockchain i.e. not an unwanted forkcoin during the time of a contentious fork. In doing so you are helping defend your chosen rule set of Bitcoin e.g. no more than 21M coins, and other aspects of bitcoin’s transaction and block validation rules.
They may also not be aware of many privacy gotchas, such as using public electrum servers, not using VPNs/TOR – rather than using their own full node to check their balance or transactions. For more on this, listen to SLP58 with Chris Belcher, see his Bitcoin Privacy wiki, and see the FAQ for Hodl privacy by 6102bitcoin.
Level 5: Pairing a wallet back to your own bitcoin node, and looking into multi signature, while also considering backups and estate planning
At this level the individual is running software such as Electrum Personal Server or ElectrumX to query their own balance and validate transactions. This allows the individual to pair their mobile wallet or other computer devices back to their own full node for better privacy and full validation.
Another option is to use Bitcoin Core directly with a hardware wallet (currently this is only available with the Coldcard). If you’re in Australia, you can buy a Coldcard from our MoN store here.
At this point the individual may have also created a multi signature setup (e.g. 2 of 3, or 3 or 5 keys required to sign a transaction and spend bitcoins), increasing the security of their bitcoins and reducing the single point of failure risk. They may have considered the notion of multi-signature, using multiple devices from different manufacturers, stored across multiple locations. This helps keep the HODLer safe against the proverbial $5 wrench attack, as even if they were to be physically compromised, having the private keys distributed across multiple locations helps them – as the HODLer literally cannot spend with the keys from one location only. While not perfect, this provides additional security at the tradeoff of reduced ease of spending.
Another related concept is PSBT – Partially Signed Bitcoin Transactions, which can be used as part of a multi signature set up. See the relevant section in this article for a description.
They are also cognizant of maintaining backups and considering estate planning in the event of an accident or death to ensure that their family or heirs may receive the Bitcoins. Ideally, they have run test scenarios of their family being able to successfully recover the Bitcoins.
Level 6: Depending on the level of bitcoin holdings, glacier protocol and other similarly paranoid level storage solutions
As the saying goes, only the paranoid survive. Some people with a large bitcoin holding will go to the level of undertaking Glacier Protocol and other similar security setups. This will involve more advanced steps such as using non-bitcoin specific hardware, rolling dice for generating entropy, and seriously considering side channel attacks and so on. In all honesty, at the time of writing in July 2019, this level is beyond me, but for people with a sizeable bitcoin balance and high technical competence (or willingness to learn), it must be considered.
Further guides and resources to consider: