If you’ve made it this far, congratulations — we’re in the home stretch. By now I hope I’ve addressed most of your questions, and that your church is open to receiving and holding Bitcoin.
If so, that’s great — but stay cautious, because there are still some pitfalls to avoid. For example, many Bitcoiners believe you must self-custody, or hold your Bitcoin directly, and that even considering anything else is a betrayal of the original spirit of Bitcoin. After all, Bitcoin is meant to be permissionless, peer-to-peer money that enables anyone to be their own bank, regardless of race, creed, or nationality.
Not your keys, not your coins
This idea is summed up in the meme “not your keys, not your coins” — meaning that if you don’t hold the keys to your Bitcoin, your Bitcoin isn’t actually yours. And there is some truth to it.
Time and time again we’ve seen exchanges like Mt. Gox and FTX rehypothecate their customers’ Bitcoin, meaning they loan out or trade the Bitcoin even though they claim it’s held in reserve. Of course, when people find out, it results in a kind of bank run, where the last person out doesn’t get their Bitcoin back. And in the cases where the exchange is actually honest and does hold the Bitcoin, this leads to further centralization in a system that is designed to be secure through decentralization.
To be sure, self-custody does address many of these risks — but expecting your church to instantly get to self-custody may be too much to ask. The reality is that most people are used to holding their assets with banks, brokerages, and other financial institutions, and the prospect of holding and securing Bitcoin directly can be foreign and daunting, especially to a non-technical person. In the words of Matthew Kratter, don’t be a Bitcoin hipster — and for more context, check out Bitcoin University’s video, Bitcoin Hipsterism and Global Adoption.
Starting with ETFs
If your church is already accustomed to holding bonds or equities in a brokerage account, it might make more sense in the short term to start with one of the ETFs, or exchange-traded funds, that track Bitcoin — especially if your donors prefer to give these types of securities. Again, we aren’t promoting a specific Bitcoin ETF, or even the idea that your church should hold Bitcoin in an ETF indefinitely. But if it’s the difference between having some exposure to Bitcoin or no Bitcoin at all, this may be a great first step.
Getting skin in the game will also give your church an incentive to develop more conviction, and from there you can work on the next logical step: holding “real Bitcoin,” or at least a Bitcoin IOU on an exchange. Unlike the ETFs, when you hold Bitcoin on an exchange you always have the option to send that Bitcoin to a wallet under your control, assuming it hasn’t been rehypothecated. When you do this, your Bitcoin IOU becomes real Bitcoin — and by comparison, this is why the ETFs are sometimes referred to as “paper Bitcoin.”
In the future we may see the approval of “in-kind” redemptions for the ETFs, which could allow you to exchange ETF shares for real Bitcoin, but as of this recording that is not allowed. On the plus side, the ETFs are legally required to maintain real Bitcoin to back their shares. The downside right now is that most ETFs choose to custody their Bitcoin at the same exchange. Unfortunately, this further adds to the centralization of coins and increases the likelihood of a 6102 attack — where the government confiscates a large amount of Bitcoin from an easy target like the exchange the ETFs use as a custodian.
Holding on an exchange
Given these factors and the additional fee structure of the ETFs, holding Bitcoin on an exchange is probably a better medium-term solution for your church. And keep in mind: even if your church does intend to take self-custody from the start, it’s a good idea to have an account on an exchange — both for receiving and, later, for spending. For receiving, because this can add a layer of privacy and security on top of your self-custody setup; and for spending, because at some point your church will probably want to use its Bitcoin for projects that only accept fiat currency.
It should almost go without saying that you need to choose an exchange wisely in order to avoid the rehypothecation risk. Thankfully, there is a trend toward exchanges publishing proof of reserves, which is something made uniquely possible by Bitcoin’s public blockchain. That is, exchanges can publish specific addresses where they hold customer funds, and they can sign cryptographic messages that prove they have actual control of those addresses — something that is not possible with gold or even dollar reserves. For links to the latest exchanges we recommend, check out our recommended products and services. If you’re doing your own research, we recommend looking at Bitcoin-only exchanges that publish proof of reserves.
Self-custody: single-sig vs. multi-sig
Having said all of that, holding your Bitcoin in an ETF or on an exchange does expose your church to counterparty risk — meaning you have to trust that the custodian is actually holding real Bitcoin for you. As Bitcoin becomes more valuable and your church holds a higher percentage of its assets in Bitcoin, this risk can become unacceptable. To mitigate it, the end goal for most individuals and organizations can and should be self-custody, which again just means that you and/or other members of your organization are the only people who hold the keys to your Bitcoin.
When it comes to actually holding the keys, it’s important to understand that there are two types of wallets — single-sig and multi-sig, where “sig” stands for signature:
- Single-sig wallets involve securing one seed phrase, which is just an ordered list of 12 or 24 English words, and then using a hardware device with a Bitcoin node to communicate transactions with the Bitcoin network. These wallets are simple to create and maintain, but may be more vulnerable to loss or theft, so we really only recommend this setup for individuals with smaller amounts of Bitcoin. This may not be a great idea for organizations and ministries — because one ministry leader could unilaterally spend the Bitcoin, it may not be the best long-term solution for those adhering to common standards of financial stewardship and accountability.
- Multi-sig wallets are similar to single-sig in that you still need a Bitcoin node and hardware devices, but these involve securing multiple seed phrases and creating a link between the devices, which adds technical complexity during setup and while signing transactions. This can be a great solution for organizations with larger amounts of Bitcoin and multiple elders or board members who can each hold a key. But there are additional risks due to the technical complexity of the setup, so you must carefully consider whether this is the right time for your church to take this approach.
Collaborative custody
If you end up deciding against multi-sig, there are some companies that offer collaborative custody, which just means they help you set up and maintain a multi-sig wallet, and then optionally hold one or more of the keys for you — but typically not enough keys to fully sign a transaction. If your church has mostly non-technical members who are uncomfortable with the challenges of maintaining Bitcoin wallets and nodes, collaborative custody may be a good compromise over full self-custody. For recommendations on wallets, nodes, and collaborative custody options, check out our recommended products and services.
So to recap: use ETFs if you must, but otherwise use exchanges for holding relatively small balances and for receiving and spending, and use self-custody or collaborative custody for holding larger balances. Also be aware that the Bitcoin custody landscape improves all the time, so it’s important to regularly review your setup and make tweaks or changes as better options become available, as your knowledge and conviction increase, as your leadership changes, or as your assets under management go up. For example, the SEC recently repealed SAB 121, a regulation that effectively made it impractical for banks to hold Bitcoin. It’s likely that in the wake of this regulatory reform, banks will start to offer Bitcoin-denominated accounts and loans, and this might be a good option for your church as the industry matures.
Donating Bitcoin without holding it
One final note. If your church remains opposed to holding Bitcoin in any form, it’s still possible to donate Bitcoin in a tax-advantaged way using a donor-advised fund, or by going through another charity or denominational office such as the PCA Foundation. In either case, the idea is that the donor sends Bitcoin to the donor-advised fund or charity, and they handle converting the Bitcoin to dollars before sending it along to your church.
In this way, donors can give low-cost-basis Bitcoin and then “top up” their Bitcoin holdings with the dollars they would have given otherwise. This giving strategy effectively increases the donor’s cost basis over time, and the donor can still receive a write-off for the market value of their Bitcoin up front.
So in conclusion, we recognize that Bitcoin custody can be confusing and even daunting. But as a Presbyterian, I’ll leave you with a word of reminder from the Westminster Larger Catechism about how wisdom in these kinds of things is actually a way of loving God and our neighbor. Question 147 asks what duties are required in the Eighth Commandment — that is, “Thou shalt not steal.” The last part of the answer states that we should:
endeavor, by all just and lawful means, to procure, preserve, and further the wealth and outward estate of others, as well as our own.
Westminster Larger Catechism, Q. 147
In other words, the flip side of not stealing is to ensure that we don’t carelessly lose our wealth, or the wealth of others — which includes the wealth of our church. God wants what’s best for us and our world, and his commandments show us that. As his redeemed people, we should gratefully seek to honor him in everything, even in how we secure our wealth.
And if all of this seems overwhelming, that’s okay. If you want more details, or if you need help strategizing about the best custody path for your church, feel free to reach out and we’ll be happy to talk.