Part 2/12:
Szabo opens by emphasizing the significant increase in Bitcoin stored with custodians such as large exchanges and institutional providers. He notes that this trend is driven by regulatory frameworks requiring institutions to use custodians, as well as the appeal of professional multi-sig solutions. For instance, Coinbase reported holding over 2.5 million Bitcoin in custody, highlighting the vast sums aggregated in institutions.
However, Szabo warns that this concentration introduces systemic risks. If a major custodian suffers a failure — due to a bug, hacking, or regulatory intervention — the impact could be catastrophic, both for individual holders and the network’s trust in Bitcoin as a sovereign money.