HODL: Modus Operandi

The infinite game, the HODL game, of utilizing assets to protect and grow your purchasing power over time is quotidian and a time honored practice of the financially savvy. Sure the assets have changed; from family heirlooms and rye stones to investment funds and cryptocurrencies. The way to train and become proficient at developing the skills to reach your own version of success remains the same. Develop your deductive reasoning and strategy skills, learn from yours and others’ mistakes, and implement proven technology and protocols to interact with and safeguard your assets.

Much of wealth growth and preservation is about the infrastructure you put in place to protect your purchasing power against powers of the state: taxes and inflation. Remember, it’s not what you make, it’s what you keep. It’s not how much purchasing power you have today but rather, how much purchasing power you have at your disposal when you need it. Often we see outrage at billionaires not paying “their fair share” of taxes. They do this by not having an income. No income, no taxes. Often, a billionaire has risen to that level by creating something other people find value in through a company or other legal structure. Instead of the company paying them a salary, or guaranteed payments, they will borrow against their ownership of the company by collateralizing a loan with the stock/shares they control. More often than not, they did not help to create the rules of our tax structure, they merely learned the rules and structured their finances in an efficient way that applies to their personal situation. It is your responsibility to apply your local tax code to the situations present in your everyday life. The digital transformation of assets does not change this at all. Setting up the optimal infrastructure for your finances should be treated similarly to Monopoly: there are many ways to earn/lose money and grow your purchasing power, while being cognizant of how not to get wiped out entirely or land yourself in jail.

Play Board Games

It is very difficult to win a board game without learning how to be crowned the victor. Games like Candy Land are very straightforward with a lot of luck at the heart of victory. The color of your piece is the only real decision you make, and it has no influence over the outcome, sans superstition. Yes, avoid the licorice and find the shortcuts but that is not up to you; it’s rather the luck of the cards you draw. This makes Candy Land ideal for teaching young children about winning and losing, not to determine or develop their deductive reasoning and strategy skills.?

The Settlers of Catan, on the other hand, has some luck with the roll of the dice but is very much focused on your ability to adapt to your individual circumstances for that particular instance of the game. You win the game by being the first to gain ten victory points. Collecting these comes in many ways; building settlements/cities and acquiring (and maintaining) special achievements like having the longest road or largest army. Your access to resources (grain, wood, brick, wool, and ore) will determine the path of least resistance to victory. While building your settlements and roads, keeping an eye on other players is essential for a successful triumph. Play more games like Catan and Monopoly to develop the skills needed for a financially prosperous life.?

*Pro tip: Many board games are available in digital versions for smartphones and tablets. Although this may affect the overall luster of playing the original with a million little pieces, it sure speeds up the overall game process, allowing you to get repetitions in a more time efficient way. Just as I taught my four year old, practice make you better at everything.

Billionaires get it. They find lessons in losses, and more importantly, learn the rules of the games they play. Embrace loss and failure, find lessons to take away, and never repeat your mistakes. There needs to be a next time after failure or you’re out of the game. If not, you will be added to a lengthy historical list of quitters, wash ups, and has-beens complaining about how life isn’t fair.

As we progress towards a more digitally centric means of operation, many overarching concepts will remain, like protecting your value from state forces such as taxes and inflation. The major shifts in practice will depend on the end users, you and I, to implement the protocols that protect our assets in the digital realm from the only true threat that exists… ourselves.

Save Yourself From Yourself

Cyber security must become a priority in our daily lives. Yet, today, it is truly understood by few and implemented to a degree of “secure” by a de minimus swath of society. More often than not, we are inviting bad actors through our digital front doors with a welcome note that states “please, come and go as you wish and carry out anything you find of interest.” This includes bank/investment account access, physical location of valuables and loved ones, and the rest of our most sensitive information, both business-related and personal. We have become a society that trusts any and every institution to safeguard these assets, despite a history of their inability to properly do so.?

Today and every day that follows, you are the biggest threat to your digital life and assets. When most of us hear about a “hack,” we assume it was done by some savvy computer engineer/coder who must speak multiple computer languages and knows the ins and outs of your operating system. They were able to punch keys on their QWERTY in the proper sequence to sidestep all of your computer’s built in security features. This is a figment and just not the case. The lion share of hacks are done through a method called social hacking. This is the process of learning about the target, you, in order to gain access to your computer or accounts from information you have given them. They use social media, blog posts, and cold calls to answer your “security questions” that Web2 sites have become so fond of. Have you ever posted about your dog on social media? Did you say her/his name? “What is your first pet’s name?” is a common security question. Where you went to school: this answer often lives on LinkedIn so you can connect with those long-lost loved ones, but at what cost? Fishing emails, ever heard of it? “Hi, I’m prince Ali Ababwa from Agrabah with a magical genie that has granted me three wishes. I would be willing to gift you a wish if you help me with (xyz)…” This is not just for your bank account access. More often than not, your email account holds the access to all of your other accounts if you have not implemented two-factor authentication. Never done this? Stop reading this rambling and go implement it now across all of your digital accounts, starting with your email. While you are at it, change your passwords and stop using one or some iteration of one across said accounts.?

Becoming more prevalent today, people will reach out to you with a personal phone call. They may even spoof their caller ID to show up as a number your phone recognizes so you think it’s your mom calling you. On this phone call, spoofed number or not, the only goal for the caller is to get you to answer some common security questions or divulge the information they are missing to access whatever account of yours that is their target. This could be a call from your credit card company, your bank, the IRS, or even your mom’s fake captors requesting funds to let her go. That last one is scary and happened to a good friend of mine, a story for another time. This is not a sophisticated process, and anyone with $2 and an internet connection can perform this task, aka all of you reading this, and all of your friends you have yet to tell about Foolish Finance (your favorite financial news letter).

Epochs of the Internet as Seen Through Familiar Tech

For those of you fellow 20th century folk, I want you to remember the early days of the compact disc. You would stroll into SamGoody or your local music shop and flip through dozens of genres and hundreds of thin plastic boxes, sometimes for hours, in search of that one album that would fill a void of your current emotional state. “Jock Jams” to get pumped up for a workout or competition. “Now” for that mix of today’s top songs to bring your event’s atmosphere to the perfect level of cutting edge tunes with a hint emotion. Or that one album that could get you through the worst of break ups, it’s Britney B*@ch. In these days, you spent your hard earned dollars on a small metal disk and would walk out of the store with recorded information that could lead you to personal salvation.

The original CD allowed you to own and read information put out there by the few (relatively) that could produce it, with a litany of tech-forward devices built to read the recorded information. This is akin to Web1… readable information. Web1 refers to the earliest stages of open, global communication. From the creation and first use of wireless, connecting the remote islands of Hawaii to UCLA, through the dot-com boom/bust at the turn of the century. A patron of the internet could navigate to a website or blog and read information from the tech-savvy people putting it out there for anyone to find. The store front (Sam Goody) became accessible to anyone who knew where to look for it. They could stroll in and consume the data available.

It was only years later and the adoption of the personal computer in every home that lead to a newly unlocked ability to craft your own personal mix, unlocking the freedom to tap into your deepest emotions for whatever the situation would call for. No longer at the behest of the radio DJs and your ability of timing…Talk about about freedom!

“I was addicted to the radio. Make my request, and wait for it. Holding my finger on the pause button, like ‘now go’. I guess that was the original download.” ~ Lyrics: “Don’t Forget” by Atmosphere

Right at this time came an interesting and widely misunderstood idea of digital ownership. You now have songs in your possession on your personal computer, either through ripping a CD that was purchased, acquiring songs through Apple Music, or downloading from the likes of P2P sharing sites (thank you Seth Green, “the real Napster”). This is Web2, where you have a stack of writable CDs waiting to be filled with your information. Today’s internet does exactly this. Web2 refers to an internet full of personal blogs, newsletters, and social media. Ok, it offers vastly more opportunities, but the key take away here is that if you sign up for an account by providing some sensitive information, the digital lords of Facebook, Twitter, Google, Microsoft, and Apple will anoint your digital persona and bestow a parcel upon you to rule over and cultivate as you see fit. You could now not only read the information being put out there, but also create and add your own information for the world to see. If the digital lords do not like what they see, they have the power to take back all they have provided you. Much less freedom than the readable/writable stack of CDs.?

Web3 will grant you the ability to read, write, and own information (aka data) taking the cybersecurity malfeasance away from companies that are personally unaffected when your information gets stolen and grant true freedom and sovereignty from major platforms. It places the keys to your digital castle back in your pocket, where they belong. No longer will you be required to give everyone and their grandmother your email, phone number, address, social security number, next of kin, etc. just to be able to operate on their created form of digital land.?

Digital Property Ownership

Back to the CD analogy and Web2 with readable and writable implementations… Did you truly own this digital music that you could now manipulate and call upon at a moment’s notice? Was this truly your property that you would then be able to bring to future platforms and new listening technologies?

This far into the 21st century we have been given the answer of… No, it’s not yours, but we will grant you access to it, for the time being. Whether legally purchased or not, we are at the behest of today's platforms. Don’t believe me? Try to transfer that movie or song purchased through Apple or Amazon out of their ecosystem of apps. If you cannot take your property and transport it physically/digitally to wherever you see the best fit for the moment, given it is something easily moveable, do you actually own said property?

We are on the cusp of Web3 adoption, the evolution of global communication. Today, the internet has followed in the footsteps of the CD. Web3 is being built as you read this, through the backend technologies known as blockchain, cryptocurrency, and NFTs. You, as a consumer of the world, will eventually come to know this as the metaverse, the front end interaction layer of these Web3 technologies. But just as our internet today may be called a mix of Google, Facebook, and Twitter (“X”), these are merely front end applications built upon a physical and digital infrastructure that makes it all possible with no need from the daily users (you and me) to interact with or even understand. It’s easy and that’s how we like it.

Holding Digital Property (data) Requires Digital Wallets

With time and practice, you will find the processes and protocols that work best for you. A mix and match of different kinds of digital wallets and custodians that will make your future finances easy to operate, safe and secure for generations to come. Below is some cursory information to get started. Keep in mind that we are in a nascent stage of Web3 technologies with future options, novel implementations, and ease of use to come.

No matter the kind of wallet, there are two aspects that transcend all options; a public key and a private key. Think of the public key as your home address and your private key as the key to your front door. You will distribute your home’s address (public key) so friends, family, and Amazon can send you mail and packages. This information does not pose a risk when distributed to the public. On the other hand, your front door key (private key) is something you keep secure and private. If someone else gets hold of your front door key, they can unlock your door and take whats inside. If your private key gets out, your bitcoin and digital assets are no longer secure.

Hot Wallets: This is the least secure kind of wallet you will use because the private keys are stored on an internet-connected (aka “hot”) device. This means that if you fall victim to any kind of cyber security threat, the assets in this wallet are most at risk. A caveat, they are very seamless and easy to use for quotidian tasks. Therefore, only hold the value and items you will need in the near future in this kind of wallet, limiting what is available when you get hacked, or more likely, make a mistake divulging information you shouldn’t have.

Cold Wallets (aka Hardware Wallets): This requires physical interaction on a physical device in the real-world to process transactions. These are often air-gapped, i.e. never connected to the internet, and can be found in many forms with different features. I find that the simpler the device, the better. This is where you will keep your savings or high value digital assets. In order to process a transaction in a cold wallet, you will initiate said transaction on a website, transfer the transactional information to your physical device where you will confirm its legitimacy through a series of button taps. Air gapped versions will often use a mix of QR codes and SD cards to transfer your approval of the transaction back to your internet connected device.

Because this type of wallet requires your interaction in the real-world, a bad actor can’t simply hack your computer/accounts and take all of the value stored on these wallets. The bad actor would now need to know where you live and have access to your cold wallet device, know the passcode to unlock said device, and also have access to your online accounts. At this point, they are most likely going to move on to another target that is less savvy than you. The less savvy are now 99% of the people you know or have ever met in your life (because you haven’t told them about Foolish Finance yet).?

Warm Wallets: These types of wallets are a mix of hot and cold wallets. Get it? Warm wallet. This is a hot wallet, internet connected, that has the authority to represent but not transact with your cold wallet assets. If a bad actor hacks this account, they can walk a mile in your shoes but cannot walk home and keep your shoes as their own. I find these becoming more useful as metaverse applications catch on. Some may have token gated access where you need to hold a specific digital asset, say a Bored Ape Yacht Club NFT (BAYC), in order to access part of or the entirety of the application. The “warm” aspect of this wallet allows you to transact easily on your computer or device without risking a high value asset like a BAYC NFT (worth north of $60k as of this writing, at minimum). I have used this in the past to gain access to their annual real-world event called Ape Fest. Eminem and Snoop Dog performed their new single at the ’22 event. It was awesome. I brought my mother.

The Vault

When storing high-value assets long term, you often don’t need every day access to them. Some may store gold and valuables in a bank vault. The bank is not open 24/7 and thus you will not have access to your assets at all times. This trade off is a welcomed one for the security features that come with using a bank’s vault. This lack of access is another feature as it would be very difficult for a bad actor to force you into your bank’s vault without raising suspicion. Taking this idea of limited access and transferring it to digital assets is a great way to save yourself from yourself with the bulk of the value you are looking to maintain control of into the future. Here are a couple ways to implement a digital vault…

Paper Wallets: This form of cold storage is exactly as it sounds, a piece(s) of paper(s) with the pertinent information for you as the owner to manage the holdings. This does come with fire risk and the need to properly secure the piece of paper through years to come. If someone finds this piece of paper, they now have your private keys. Until you plug those private keys into another kind of wallet, it is one way only and can only accept assets.

Multi-signature (multi-sig) Wallets: These are among the safest of solutions for transacting with digital assets. They can implement a mix of the aforementioned style of wallets (hot & cold), or for maximum security just utilize cold wallets, requiring multiple participants to be involved and sign for transactions for anything to happen in this vault. Think of a movie that requires a nuclear launch. There is an arduous process in order to launch the nukes, and rightfully so. Often there are a series of codes, held behind glass that needs to be broken (obviously), that are then input into the device to activate the computer that controls the launch sequence. Two men, who look like they would win the average fight, often have control of two different keys. (Cue dramatic music) The keys finally reveal themselves dangling by the neck of the burly men, slowly retrieved, and inserted into the launch mechanism. (Dramatic pause). The two men glance at each other and then at their boss, as if to ask “are we actually doing this?” The nod from the head honcho confirms, it’s go time. Both keys are then turned, one frame after the other, initiating the final countdown to the launch. I have yet to find the application that will cue dramatic music in moments of vault access, but multiple wallets are required, often in the hands of different people or entities in separate locations, to initiate any transaction in this kind of vault.

Conclusion

The internet as we know it today is not the end all be all of global communication. The incoming upgrade to Web3 will bring with it many opportunities to take a greater level of control over your personal data to safeguard it as you see fit. Bitcoin introduced the idea of digital scarcity, and with it, not only the ability to read and write data, but to own data as well. With this new ability, large portions of society will need to learn about and implement a greater level of cyber security protocols and are finally incentivized to follow through. Even though we have all been through the company meetings and seminars discussing the idea, they don’t go much beyond avoiding unfamiliar links, suspicious emails, and not sharing your password or personal devices with others. When you become your own bank and hold the private keys to your digital assets, there is no safety net of FDIC/SIPC insurance. There is no reset. I implore you to learn all that can about cyber security protocols that you can easily implement into your daily routine. Keep it simple enough for you to perform regularly and don’t share your protocol with anyone, but remember to think of your next of kin. Your assets will eventually need to be passed to the next generation. And if you are not around to walk them through your protocols… Maybe they should be reading this as well.

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