Part 3/12:
Szabo clarifies that Bitcoin was designed to mitigate two primary risks: inflation and systemic failure. Yet, when large amounts are held in custodians, the network becomes more vulnerable. He underscores that any systemic failure or mistake by a custodian could lead to a sudden drop in supply or the loss of billions in Bitcoin, potentially damaging trust.
He draws parallels with historical precedents like Mount Gox and the US gold confiscation order in the 1930s, illustrating how government actions can threaten custodial holdings. Moreover, he mentions the recent incidents of exchanges with weak security protocols leading to hacks and stolen funds, reinforcing that single points of failure threaten individual and network security.