How to Hide Your Money Under a Virtual Mattress…Revisited

About a year ago I wrote a blog post called “How to Hide Your Money Under a Virtual Mattress…and Earn a Nice Return”. The post was inspired by the alarming news that the Canadian government froze the bank accounts of truckers who chose to legally protest the vaccine mandate. The concern at the time was governments using their powers to freeze, confiscate, or otherwise interfere with your hard-earned assets that you thought were safe in the bank.

A year later we still need to think about hiding our assets. But now a new threat is on the radar screen. Now we have bank runs in the news. Due to rising interest rates depressing long-term debt instrument value, risk mismanagement, and other circumstances, multiple banks found themselves with assets that didn’t cover the value of funds on deposit. Once this deficit became public, depositors feared the worst and began to withdraw and transfer their funds. Several banks have been closed and taken over by regulators. Some are concerned that this could create a cascade of depositors withdrawing funds from other banks and driving more banks into insolvency.

As crazy as it sounds, hiding your money under a mattress is sounding more sensible every day. These bank runs remind us that the current banking system is potentially unstable. We may be only one big bank failure away from a panic that shakes the entire system. Not only that, but the concern about government restrictions on bank accounts hasn’t gone away. Nigeria, for example, is engaged in a full-court press to force their central bank digital currency on their people and is limiting cash ATM withdrawals to $45 per day.

As I pointed out previously, hiding money under a mattress has its own risks—fire, theft, and missed investment opportunity. But there are two good reasons to consider it:

• One—you don’t trust banks, investment advisors, or brokers with your money. You trust the self-custody of your assets, under a mattress, more than you trust third-party custodians. 

• Two—you want immediate access to your money. You don’t want to be denied access to your money if it gets tied up due to a political or economic situation…or a shortfall by your bank that has to be bailed out by the government. You don’t want to be waiting three days for a bank transfer. Or, you may need access to your money after hours or on weekends.

Fortunately, an alternative to a mattress deposit is available that has all of the key benefits with none of the usual risks. Bitcoin and its financial layers provide a viable alternative that overcomes the risks and keeps your assets out of the banking system—away from incompetent risk managers and away from overreaching government control—and completely within your own custody and control. Just as if it were physical cash under your mattress.

Bitcoin is a non-state digital monetary asset—the most proven, most secure, and most widely valued. You can store value in bitcoin in a way that only you control. You self-custody your bitcoin by storing a small amount of information—called a key—that allows you (and only you) to transact with your bitcoin. Bitcoin allows you to store value and transact in a completely separate, non-bank system. 

Some people will be so concerned about the banking system and its potential for abuse and collapse that they will want to put a large portion of their wealth into bitcoin. Bitcoin does not care how much you store. Bitcoin has no $250,000 deposit insurance limit. There is no need for deposit insurance because you maintain custody by holding your own key. As long as you protect your key, no one can take or freeze or squander your bitcoin in a bad investment. 

Others will find the bitcoin system too unfamiliar to devote a large percentage of their wealth to it. And it is generally best to start small and grow your investment as your understanding and confidence grow. For these people, bitcoin and its financial layers could be a hedge on their bank accounts, in the same way that many people hold 5% of their assets in gold as a hedge against a monetary or financial collapse. These people may choose to keep 95% of their funds in a bank account. If your bank doesn’t open tomorrow, having some assets in bitcoin will allow you to access some monetary assets in a separate system. You will have to decide for yourself what your risk tolerance is for both banks and bitcoin. The reality is that both systems have different kinds of risks.

Once you have evaluated your own approach to risk, you may want to go ahead and put some assets into bitcoin or one of its financial layers—you are ready to make a virtual mattress deposit. So let’s go through the steps to make that happen. Since a few things have evolved since last year, I will take you through some updated steps rather than referring you to the old blog post.

The first step in a virtual mattress deposit is to buy bitcoin. If you are willing to ride the bitcoin price roller coaster and you don’t need to access your bitcoin in the short term, this may be the only step you need to take. Bitcoin itself is a virtual mattress—problem solved. Details about how to buy bitcoin are given at the end of the article. 

Bitcoin has a track record of significant long-term gains. However, the price of bitcoin is extremely volatile—with multiple dips of 60%, 70%, and 80% in its price history. You may need your savings in the short term and not be able to ride out the bitcoin price roller coaster. Or, you may simply not have the stomach for financial roller coasters.

Fortunately, a much less volatile alternative is available now that shares many characteristics with bitcoin. The crypto world has developed a class of coins called stablecoins. Stablecoins are designed to track the value of a standard currency very closely but can be moved around in the crypto space. The most common stablecoins track the dollar. Tether, USDC, and DAI are among the most widely used dollar stablecoins. Holding these coins is similar to holding dollars. 

The bad news about these common stablecoins is that they themselves are products of the banking system. Tether and USDC hold assets in banks as collateral for the crypto dollars they issue. DAI holds USDC as part of its collateral. So all of these stablecoins are vulnerable to the same kinds of bank runs as the savings in your bank account. In fact, USDC temporarily lost its peg to the dollar when the news broke about these bank runs. Some of the collateral was held in one of the banks that failed. At one point it was trading as low as $0.90 even though it is intended to represent 1 USD.

The good news is that since I wrote the blog post last year we now have a stablecoin that is fully backed by bitcoin—and the collateral is not held in banks where it can be lent out, stolen, or lost. Instead, it is held in a bitcoin layer-2 sidechain that is open and auditable by anyone. You custody this stablecoin with your private key just as you would with bitcoin itself. This stablecoin is called the Sovryn Dollar (DLLR).

Once you have bitcoin, you can take this second step and swap your bitcoin for the same value in DLLR stablecoins.

Buying stablecoins with your bitcoin requires some effort and some education to become familiar with how it works. This is part of the process of taking charge of your own money and finances. The fruit of your efforts will be your money under a safer virtual mattress, where you can still put it to work while you protect your savings. 

The Bitcoin network itself only supports bitcoin. If you want stablecoins, you need to transfer your assets to a different network or blockchain. The Rootstock chain is a great choice because it is designed to be a layer on top of the Bitcoin network. It also allows you to pay transaction fees directly in bitcoin rather than requiring you to purchase a different asset just for fees. Since it is built on the Bitcoin network, Rootstock has many of the same attractive properties that the bitcoin network itself has.

A blockchain like Rootstock is analogous to the hardware of a computer. To use hardware, you also need software—an interface or protocol for making actual transactions. Sovryn is a protocol that runs on Rootstock. This protocol is a financial operating system that enables you to make financial transactions with bitcoin. 

Sovryn is a decentralized finance platform. This means it is a collection of financial computer programs called smart contracts that spell out exactly how your funds will be used and how various assets behave. Smart contracts allow for permissionless and trust-minimized use of funds that you own, control, and self-custody. You don’t have to trust a person or institution between you and your funds. You don’t need to identify yourself or ask permission. The code simply runs and allows you to do what you want with your assets.

To get bitcoin onto the Sovryn platform, you need to configure a web3 wallet to connect to the Sovryn dapp (web interface). This wallet will keep track of your assets and transactions on Rootstock. 

Once you’ve configured your wallet, you can deposit RBTC right from your Sovryn portfolio. This process converts bitcoin (BTC) into RBTC (Rootstock BTC), which is the equivalent asset but is usable on the Rootstock network.

Once you have RBTC on Sovryn, you can then convert it to Sovryn Dollars (DLLR). Holding DLLR, like other dollar-pegged stablecoins, is essentially the same as holding dollars. To obtain DLLR, simply swap RBTC for DLLR.

With DLLR, you now have a close equivalent of dollars hidden under a virtual mattress. The private key to your wallet is the only way to get access to the DLLR that you own. No one else can spend it, take it, or freeze it. But not only that—you can actually invest your stablecoin stash while it is under the mattress!

To invest your DLLR, you can lend your DLLR. Go to the lend page and deposit DLLR. At the time of writing, DLLR deposits are paying a modest 0.33% APY. The APY fluctuates based on the supply of DLLR deposits and the demand to borrow DLLR. Even though the rate is currently modest, it definitely beats your mattress APY! As the demand for this stablecoin grows, the interest rate is likely to grow as well.

Other, more speculative investments are also possible. You may want to check out the Zero stability pool. This investment requires more active involvement and comes with some market risk, so do your research before investing.

What if you need some of your virtual mattress money? Just reverse the process. Withdraw your DLLR from lending and buy RBTC. Convert your RBTC back to BTC. Then sell your BTC and transfer the funds to your bank account. If returning funds to your bank is not an option for you, other alternatives are available. You can buy debit cards or gift cards online using your BTC or sell your BTC to someone for cash in person. More and more businesses are also accepting BTC for payments.

Obviously, this process isn’t as easy as stuffing bills under your mattress. And it’s definitely not as easy as blindly trusting the stability of the banking system and leaving all your funds in your bank account. But you may sleep better—and not just because your mattress isn’t lumpy from all those bills and coins! And you will earn more from a virtual mattress. 

Links are provided throughout this article to assist you with each step. If you are not familiar with crypto or have never dealt with crypto wallets and transactions, you might have a local crypto friend who can walk you through the process. As always with any investment, do your own research. Holding and transacting crypto assets has its own set of risks that you should research and understand before investing.

If you have friends who are not familiar with the crypto space but may be considering the mattress option (or need to), please share this article and offer to walk them through the process.

There are many ways to buy bitcoin. They vary in terms of convenience, cost, volume limits, security, and availability by jurisdiction. Let’s look at several options.

• In many jurisdictions you can buy bitcoin directly on the Sovryn platform. Go to the portfolio page on the dapp and select Fund Wallet. You are currently limited to approximately 12,000 Euros. USD payments are limited to $1500.

• If you’re in the US, the most convenient and inexpensive way to buy bitcoin is through Strike. Strike uses the Bitcoin Lightning Network to move money–both bitcoin and dollars. It works similarly to Venmo. Download the Strike app on your phone, set up an account, and connect to your bank. You can immediately deposit money into your Strike account and use it to buy bitcoin. Strike allows you to buy bitcoin for free! To buy bitcoin, you must send it to a wallet you’ve set up. 

You can set up an Electrum wallet on your computer and then send the bitcoin using a QR code generated by the Electrum wallet. By default, Strike has very small limits on deposits, sending cash, and buying/selling bitcoin. You can request to increase the limits, and you’ll be asked to provide more information to have the request granted. After the limits are raised, you will be limited to $3000 in deposits per week. If you’re not in the US or you want to buy a large sum of bitcoin, you may want to consider a different option.

• Coinbase is a well established, user-friendly exchange. You can link your bank account and transfer funds directly. Coinbase charges transaction fees. Once you’ve purchased bitcoin on the exchange, you can transfer it off the exchange into Rootstock to use on Sovryn.

• You can also buy RBTC directly using Mt. Pelerin. Mt. Pelerin has several options for paying with cash through a bank or with a credit card. These options may vary by jurisdiction.

• If you don’t want to involve an exchange at all, you can make direct peer-to-peer purchases using a service such as Bisq. Here's a link on the best ways to get non-kyc BTC: https://kycnot.me/

Nothing on this page should be taken as investment advice. Inclusion of a third-party app or service does not constitute an endorsement of the app or service by Sovryn developers or anyone else in the Sovryn community, and is provided for informational purposes only. If you have any problems with the listed third-party apps or services, please contact the maintainer of that app or service for help. Sovryn does not have any control of your funds in any supported Web3 wallet - you are responsible for your own wallet security. Please do your own research and ensure you understand and accept the risks before trading or using any apps or services to store your funds.