Cryptocurrency Help Logo

Cryptocurrency help is reader-supported. When you buy through links on our site, we may earn an affiliate commision.

What Does it Mean to “Own” Bitcoin?

By Evan Jones04/19/2023

Share

One of the defining features of Bitcoin is its finite, known, maximum supply of 21 million BTC. There will never be more than 21 million BTC available. Not to mention the reality that about 4 million Bitcoins will likely never be accessed because they’re in wallets which people have lost their private keys/recovery phrases for. There’s a man in the UK who threw away a harddrive that he had mined 8,000 BTC on and he’s been trying to find it in the landfill for years now. It would be hard to say with any confidence that he owns those 8,000 BTC, seeing as he can’t find the harddrive and therefore doesn’t have any access to them. So, the supply is less than even expected.

Owning Bitcoin is then an interesting subject, as some people keep theirs on exchanges, while others just gain exposure through investment options such as ETFs. But what does it mean to own Bitcoin? Is it simply buying it? Holding it on a hardware wallet? In this guide we’ll discuss all of this and more. Let’s jump in.

Not Your Keys Not Your Crypto

When FTX exchange collapsed, users found out very quickly what the phrase “not your keys, not your crypto” meant. Any user that had held Bitcoin, or other crypto assets, on the exchange and were unable to withdraw them before withdrawals were halted, essentially never owned their assets. Sure, they held the assets on the exchange. They bought them with their own money. But, they never held the assets in their own custody, instead allowing the exchange to do so. 

While you can, and rightfully should, think that you did own your assets, the reality is that without withdrawing them to a wallet which you control, you can’t ever be sure that you actually have them. What is meant by that statement is somewhat complex. But, with both traditional and crypto investments, there is a large element of trust you’re placing in the exchange, especially if you’re leaving the assets in their custody. What you’re trusting is a few things. 

First, you’re trusting that they actually purchased the assets with your funds. It’s not like they can’t just take your money and then just add a balance to your account without having done anything. This is especially true of crypto when the platform doesn’t allow withdrawals. Are they actually buying Bitcoin on your behalf and updating a valid balance, or are they just taking your funds and adding an equivalent BTC value to your account without ever buying the BTC?

Secondly, you’re trusting that they’re managing the assets you’ve left in their custody responsibly. Even if they are actually doing their job as a service in buying and selling Bitcoin on your behalf, it doesn’t mean that much if they’re then selling Bitcoin to speculate on another asset. This is one of the things that occurred with FTX, they horribly mismanaged users’ assets.

Finally, you’re trusting that exchange has enough supply of the asset to cover withdrawals for all users. Again, with FTX, they didn’t. Even with the recent banking failures this was an issue. Depositors trusted the bank to hold their funds, but they loaned them out and didn’t have nearly enough cash on hand to cover the number of withdrawal requests that were made. This is ostensibly what happened with FTX as well.

Bitcoin Exposure

So, you may not own your Bitcoin if it’s held in someone else’s custody. You certainly don’t own any Bitcoin if you have exposure to it through something like an ETF or a synthetic version on a blockchain network. For the former, while an ETF does give you price exposure to Bitcoin, you don’t actually own any Bitcoin at all. You won’t be able to send your Bitcoin ETF to your own wallet, ever, meaning you don’t really own any Bitcoin, just exposure to its price. 

For the latter, we’re not referring to something like Wrapped BTC (WBTC) on Ethereum or Binance BTC on the Binance Smart Chain. These types of assets aren’t synthetic, rather, they’re assets that you can redeem for underlying BTC if and when you choose to do so. The BTC is just held in a smart contract until it’s redeemed. You again need to trust the smart contract/custodian of the BTC and their management of it, but with blockchain it’s easy to just monitor the smart contract address for any off movements. This generally isn’t possible with any traditional finance instrument.

Synthetic Bitcoin assets exist on platforms like Synthetix (SNX) and Indigo Protocol (INDY). These types of platforms allow you to mint a synthetic version of Bitcoin as long as you’re providing equivalent collateral. Like an ETF, this gives you exposure to Bitcoin’s price movements, but in the end, you don’t own any BTC, and you can’t redeem the synthetic asset for the real one. 

So, How Do You Own Bitcoin?

The easiest way to guarantee that you actually own Bitcoin is fairly simple. Buy some Bitcoin, it can be through an exchange, or wherever you choose, just be sure they allow Bitcoin withdrawals. Then, withdraw that purchased Bitcoin to an external wallet. This is a wallet which you’ve set up and have the private keys to. It can be a software wallet such as Exodus or Atomic wallet, or a hardware wallet such as a Ledger or Trezor. 

As long as you successfully withdraw the BTC you bought to this wallet and see the balance there, you own Bitcoin. It’s also something you can verify using a block explorer as well, but realistically, as long as the wallet balance is there, you own the Bitcoin.

Closing Thoughts: Ownership is the Point of Crypto

Owning Bitcoin seems like a fairly simple concept, but the reality is that it’s complicated. Without actually holding the Bitcoin in your own custody, you can’t really guarantee that you own anything.

While it can seem daunting to set up a crypto wallet, it has become a fairly straightforward process, and we have guides that can help you do so if you’re looking to.

Article tags

Beginner
bitcoin
Wallets
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

Further reading

What is a Bitcoin Private Key? image
What is a Bitcoin Private Key?01/06/2023
What’s the Difference Between Digital and Hardware Wallets? image
What’s the Difference Between Digital and Hardware Wallets?12/22/2022
How a Crypto Wallet Can Be Used as a Log-in Solution image
How a Crypto Wallet Can Be Used as a Log-in Solution03/13/2023
Do Individuals Still Mine Bitcoin? What Are the Alternatives? image
Do Individuals Still Mine Bitcoin? What Are the Alternatives?03/23/2023

Recent News

Sell in May and Go Away? Are Bitcoin and Crypto Due for a Pullback? image
Sell in May and Go Away? Are Bitcoin and Crypto Due for a Pullback?05/17/2024
Coinbase Crushes First Quarter. Are Exchanges on the Rebound? image
Coinbase Crushes First Quarter. Are Exchanges on the Rebound?05/13/2024
Venezuela to Accept Cryptocurrency for Oil image
Venezuela to Accept Cryptocurrency for Oil05/05/2024