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Bitcoin Is More Expensive to Keep Safe Than Gold

210 points by vinnyglennon 9y ago

StanislavPetrov 9y ago
This article is about ETFs, not bitcoins or gold. If you own an ETF, you don't own gold or bitcoin, you own shared in an ETF, which is not even remotely the same. If you do actually own bitcoins or gold, and you entrust it to someone else, you have nobody to blame but yourself when they lose it. If you value something, hold onto it yourself and be careful with it.
hn_throwaway_99 9y ago
Or you could, you know, write your private key on a piece of paper (or a couple) and store it in a safe.
Lerc 9y ago
That's a bit weird. Can't you just print a paper wallet. Put that in a safety deposit box. Once locked up nice and tight, transfer bitcoin to it.
- charlesdm 9y ago
  A pension fund, which is run by a board of directors and manages $400bn, is not going to print a paper wallet to hold $2bn worth of Bitcoin. They have more important things to worry about, like investing their $400bn and achieving a decent return on their entire holdings. Second to that (or maybe even more importantly), it's ass covering. Imagine the headlines: "CALPERS INVESTS $2BN IN BITCOIN AND ETHEREUM, AND LOSES ACCESS KEYS". If you're managing a fund, you just don't risk that. These custodian fees (which will come down eventually) are a cost of doing business to access the asset class. I would assume those entire crypto holdings also to be insured as part of said fee, in the event something does go wrong.
  - pishpash 9y ago
    Still, how is that more expensive than keeping physical gold?
    - charlesdm 9y ago
      Its 1.2% a year -- that's expensive. He states Gold ETFs pay approx. 0.08% per year to store bullion (no idea whether that's a correct number though). But hey, it's better than paying a 2-20% fee to a hedge fund vehicle. Fees are already coming down!
    - alex_young 9y ago
      Why not cast the hashes inside gold bars? Then just keep storing the gold. Btc storage for free.
      - deleted 9y ago
        [deleted]
      - garmaine 9y ago
        Like this? https://bitcointalk.org/index.php?topic=196320.0 https://bitcointalk.org/index.php?topic=196320.0
  - knocte 9y ago
    This is why multi-sig exists. Put the funds in a 6-of-10 account, done. You would need a 60% attack (60% of the executives to collude/conspire, or 60% being hacked/kidnapped) to be robbed.
    - charlesdm 9y ago
      Yes, if you're a $10m hedge fund or a small family office. But not if you need to manage $400bn; then you (really) want a custodian. These people allocate and mostly invest in funds with exposure to certain asset classes (private equity, VC, hedge funds, equity and bond funds, etc).
      - knocte 9y ago
        > you (really) want a custodian Are you really referring to a single (non-plural) custodian...?
        wmf 9y ago
        A custodian company, not a person.
        knocte 9y ago
        Ah, sure, and that custodian company will most likely hold the bitcoins in a multisig account. Now you have to pay a company for this service and also have counter-party risk. Great. Maybe the risk and cost is not worth it and setting up a multi-sig inhouse is worth it?
        asadlionpk 9y ago
        Looks like most don't think this way. They think that they don't have the 'expertise' in-house for maintaining multisig account. So they will just have to hire an 'expert' custodian to reduce risk.
        9y ago
  - rakoo 9y ago
    So it's not "more expensive to keep safe", it's "more expensive to use as a trading asset", which is completely different.
    - charlesdm 9y ago
      It's expensive if you lose it -- which is all that matters to these people.
  - rebuilder 9y ago
    I can't see "CALPERS INVESTS $2BN IN CRYPTO AND GETS SCAMMED" being any better, honestly. I'm sure you can insure crypto holdings, but considering the risks, the cost must be exorbitant.
  - deleted 9y ago
    [deleted]
- synicalx 9y ago
  But then, at the very least, that's no less expensive than securing gold. You still have a physical object that you need to secure and protect.
  - __s 9y ago
    The physical object however takes up much less space & through a multisig address breaching one storage point is insufficient
    - synicalx 9y ago
      A bit less space, unless you're talking about storing hundreds of thousands or millions of dollars worth of gold. Not to mention for a common thief it's a little hard to turn gold into cash anonymously whereas that's very easy to do with BTC.
      - jstanley 9y ago
        It's not easy to do it with BTC. If you have contacts that can do it for BTC they can most likely do the same for gold.
  - canoebuilder 9y ago
    In most cases the unwieldiness of a ton of gold compared to X number of crypto-coins serves as a superior security mechanism for a 'store of value.' A ton of gold exists in a single time and space, meaning security measures are highly localized and conveyance to another location requires a non-trivial energy expenditure. The more or less "pure information" basis of crypto-currencies mean the security mechanisms surrounding them must be "global," they can be potentially accessed unauthorized by someone anywhere on the planet through means of social engineering, exploiting faulty code, or similar. And once accessed the "pure information" can vanish from the reach of the ostensible owner with just a few electrons cycling through a few circuits. In fact what percentage of the total supply of bitcoin were acquired in just such a manner?
- Lazare 9y ago
  Correct. You can also just shove the gold bars in a safety deposit box too, so from a certain point of view both are free (or $100/year for the safety deposit box, whatever). But if you have a significant amount of gold or bitcoin (ie, 7+ figures when expressed as USD), a safety deposit box is not going to cut it. You have way too much risk (thieves, fraud, losing the key, securing the key, insurance, liability, etc., etc., etc.) You want someone else to store your gold (or bitcoins). And people charge 15 times more to store Bitcoin than gold.
  - charlesdm 9y ago
    To be honest: it's much easier for someone to steal $100m in Bitcoin than it is to steal $100m in gold.
    - canoebuilder 9y ago
      That's a very good point, people like to paint the hyper-mobility of transference of crypto-currencies as superior to precious metals. But for most people seeking a "store of value" they are more interested in having that value sit somewhere safe and undisturbed. And from this point of view the propensity for a crypto-currency to suddenly vanish if every 'i' is not dotted and every 't' not carefully crossed, is rightly seen as a liability for the 'store of value' game. Also interesting to consider is the kind of security precaution spread that exists between between various value levels in precious metals, vs. crypto-currencies. For example, consider the difference in security mechanisms employed by someone storing a couple gold coins in a box in their house, vs. Fort Knox. Whereas your security precautions for storing $10, or $1,000,000 in crypto-currency are not a whole lot different.
    - Lazare 9y ago
      Quite right, which is the point of the linked article I think. Storing very valuable, very portable things is hard. And few are harder than bitcoin. Saying "just get a safety deposit box" isn't a great answer.
- givehimagun 9y ago
  Crazy idea - if you're paranoid enough, could you print your BTC on real metal that could last as long as our physical currency does? It loses its liquidity, but it gains permanence.
  - fragsworth 9y ago
    That doesn't make any sense. What are you trying to accomplish? I have a feeling you are misunderstanding how these things work.
    - rwmj 9y ago
      (Not the original poster) I suppose it's cold storage, but on something which is more permanent than paper. Of course it's a bit pointless since even the cheapest most acidic paper should last for 20 years or so which is long enough for storing bitcoins for the vast majority of funds.
  - garmaine 9y ago
    Google “crypto steel”
  - 21 9y ago
    And then you are vulnerable to a single guy with a phone camera. If I take a picture of your gold stash it doesn't become mine.
nostromo 9y ago
It's a lot cheaper to transmit though!
- basicplus2 9y ago
  I so had my hopes up when i found a Matter Transfer Utility... http://www.juris.com/help/Content/Juris-core/Utilities/matter-transfer-utility-hdi.htm http://www.juris.com/help/Content/Juris-core/Utilities/matte...
yopro1 9y ago
You can print a multi sig paper wallet and store it in a safe(s). It just goes to show people will pay anything.
nextstep 9y ago
No, it’s not. You can just print a paper wallet (or even just write your private key on a piece of paper) and stick that in a vault. The author is conflating mining and transmission with storage.
- joshuamorton 9y ago
  I think you should read the article. He's not.
21 9y ago
Hardly surprising. It's hard to steal a truck of gold, especially considering the mens with guns which are typically around. It's hard to mess up physical security of a truck (not even to mention a vault), and even if you lose it, the thief still has a big and heavy problem on his hands. Real world police is good at these things. And unlike bitcoin, gold can't just teleport to Russia (using a generic non-cooperative country here) Stealing bitcoin requires just one tiny mistake in a miriad of places (starting with random number generation, ...), and then you are done with no other recourse.
- justincormack 9y ago
  You don't have any trucks involved when you buy gold, just some entries in a ledger changed. Some gold funds buy futures not physical gold too.
  - EugeneAZ 9y ago
    People also buy shares which don't give them substantial dividends. Many wrong things are overvalued nowadays. See my comments.
    - sambe 9y ago
      Why would one care about whether a dividend is paid? Tax treatment?
- DennisP 9y ago
  Coinbase uses redundant hardware wallets in geographically-distributed safe deposit boxes for their cold storage. It's very unlikely that they'll have a major theft from that, and their hot wallet funds are insured. Personally I think hardware wallet random numbers are safe but anyone technical who's worried about that could generate their own from von Neumann coin flips, and turn that into a 24-word seed for setting up a hardware wallet. https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_biased_coin https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_... I wouldn't say this is more difficult than securing a large amount of gold. If someone gets into your safe deposit they can just take your gold. With a hardware wallet you get three guesses of a 4 to 8 digit PIN and then it wipes itself. And you can't store gold redundantly to protect from loss.
animex 9y ago
Most of the cost is probably insurance.
- patio11 9y ago
  You functionally can't buy insurance on meaningful amounts of Bitcoin. You can convince an insurance company to write you a standard cyberinsurance policy, but the limits on them are far less than the amount of Bitcoin people want to store, and when you have a more bespoke conversation with an underwriter they will say "No no no HELL no." It is not hard to understand why insurers don't want to write these policies. Bitcoin exchanges die catastrophically in over 20% of exchange-years.
  - DennisP 9y ago
    Coinbase has insurance on their hot wallet funds.
    - EliAndrewC 9y ago
      Last time I checked, their hot wallet had less than 5% of the bitcoins on their books. A catastrophic data break would leave most of their customers without either their bitcoins or any way to be made whole from the loss.
      - DennisP 9y ago
        Right but it's only the hot wallet that has any significant risk. The cold wallets aren't online at all, they're on hardware wallets in geographically distributed safe deposit boxes. Even if someone broke into one and managed to crack the hardware, that'd be just a small portion of their funds.
dr_win 9y ago
2-of-3 fragmented backup of the private key using cryptosteel costs ~$300.
- deleted 9y ago
  [deleted]
CydeWeys 9y ago
This whole article is simplistic and inaccurate. They're making a straight-across comparison between two ETFs, one of which has high management fees and another of which has low management fees. The former happens to be a Bitcoin fund and the latter happens to be a gold fund. Management fees vary widely across funds. They have everything to do with how money-grubbing the funds in question are and little to do with how expensive the assets actually are to secure. For example, you can pay >2% management fees on a really predatory S&P 500 index fund, the kind that John Hancock would sell you. Or you can pay .02% management fees on a top-level Vanguard fund tracking the same. The only reason that the management fees on the Bitcoin funds is because they can be high since there's little competition so far, unlike with, say, S&P 500 index funds. It's not intrinsically expensive to store Bitcoin; far from it. It's far cheaper to store than gold, for all the obvious reasons that you don't have physical goods to secure.
- joosters 9y ago
  It’s not a simple comparison between ETFs. The article specifically mentions Coinbase & their fees to store institutional customers’ bitcoins.
  - CydeWeys 9y ago
    OK, so it's a comparison between two ETFs and then also some overpriced service from Coinbase that has similar characteristics to a mutual fund. The point still stands that there is as of yet very little competition in this space. Expect costs to come way down still.
- DennisP 9y ago
  That's pretty much the article's conclusion: "If gold can be stored in Fort Knox-like bunkers for just 0.08% per year, there is little reason it should cost 15 times more for bitcoin to be stored in similarly safe solutions. For now, though, it’s easy money for the custodians"
  - EugeneAZ 9y ago
    BitCoin should be abandoned for other reasons: https://quant.stackexchange.com/questions/37036/why-do-american-government-not-create-a-crypto-dollar https://quant.stackexchange.com/questions/37036/why-do-ameri...
thisisit 9y ago
It is expensive because..of the risks premium associated with the storing a highly volatile asset. If I had given 1 oz of gold for storage on Jan 2, 2017 the price was 1150 USD. If something had gone wrong in Sep, when the peak price was reached the payout would be 1350 USD, a 17% premium on the storage price. In comparison, I gave 1 BTC for storage on Jan 2, 2017 at 1025 USD. If something were to go wrong today the payout needs to be 8217 USD, a 700% premium.
DonHopkins 9y ago
Do many people collect bitcoins with interesting histories for their numismatic value, the same way they collect real coins? Is there a market for specific bitcoins that are worth more than their face value because they're somehow special? If a celebrity buys something from you in bitcoin, can you turn around and auction off that bitcoin to their fans? https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-worth-others/ https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-wort... Too bad J. S. G. Boggs recently passed away -- I wonder what kind of abstract performance art he could have done with bitcoin. https://en.wikipedia.org/wiki/J._S._G._Boggs https://en.wikipedia.org/wiki/J._S._G._Boggs https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-dead.html https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-dea... "They don’t understand the difference between art and crime." -J. S. G. Boggs Speaking to ARTnews after Mr. Boggs’s death, Mr. Weschler said, "He was just short of being a con man, but no more than anyone in the art world, or for that matter in the world of finance — which, of course, was his whole point."
- JumpCrisscross 9y ago
  Now that you mention it, I'm blown away that coins with "auspicious" numbers don't sell for a ridiculous premium in China, India and other cultures that believe in that garbage [1]. Might be a good business... [1] https://en.wikipedia.org/wiki/Numerology https://en.wikipedia.org/wiki/Numerology
  - megaman22 9y ago
    Dumber things have made outrageous sums https://en.m.wikipedia.org/wiki/South_Sea_Company https://en.m.wikipedia.org/wiki/South_Sea_Company
    - DonHopkins 9y ago
      And the classic: http://www.milliondollarhomepage.com http://www.milliondollarhomepage.com https://en.wikipedia.org/wiki/The_Million_Dollar_Homepage https://en.wikipedia.org/wiki/The_Million_Dollar_Homepage If were able to get ahold of a whole collectable super-lucky celebrity bitcoin, then you could sell it off in pieces: http://www.hundredmillionsatoshihomepage.com http://www.hundredmillionsatoshihomepage.com
JumpCrisscross 9y ago
Kolmogorov complexity "is the length of the shortest computer program...that produces [an] object as output" [1]. Being financial inclined, I often wonder about its analogy in economics. Usually I measure weight or energy. The least massive, or smallest amount of energy needed, to make one dollar of value. More interesting is the shortest program that reproducibly produces one dollar of value. By this measure, Bitcoin is one of the "denser" pieces of fungible information humans have invented. "Heavy" networked bits must defend against everyone, everywhere, all the time. This enables lots of new turf. It also increases security risk. [1] https://en.wikipedia.org/wiki/Kolmogorov_complexity https://en.wikipedia.org/wiki/Kolmogorov_complexity
- canoebuilder 9y ago
  >deterministically (and reproducibly) produces one U.S. dollar of value. Can that really be said of anything, with the nature of markets, and supply and demand? If I invest in solar panels, or oil wells, then the expected value per unit sold of the product I produce will be dependent on a massive number of predictable and unpredictable inter-playing forces in a global complex system. While I can make forecasts of an average expected unit price by studying historical prices, factors affecting them, probabilities of various events, etc. there is also the case that my very selling of the product has an effect on the price I can expect. As a supplier at a certain scale I can expect revenues to follow a downward curve, with each unit supplied a certain amount of demand is satisfied and thus lowering the overall market price and my expected revenue. It's not exactly a one-way curve, at higher supplies and lower prices, new avenues of demand can be opened and prices can follow a curve upward. I like the idea and thinking you've proposed here, but it seems like the complexity of markets is more complicated than Kolmogorov complexity. It seems the like what produces value in terms of the most optimal ratio between input and output is always in flux. And when a maxima of optimal value is found all the mechanisms of market forces work against it being deterministic and precisely reproducible. I think to deduce a measure like you proposed in an economic context you would have to have a product that is absolutely finite in potential supply and all potential uses for the product strictly defined, enumerable, and un-extendable. And therefore lowering JumpCrisscross complexity would simply be a matter of optimizing production costs. But I'm not sure any such scenario exists, it would require a deterministic understanding of the universe and it's constituent parts that we don't have and it would have to preclude the ingenuity and creativity that seem to be key human qualities that drive the flux and change we see in the world.
grsblk 9y ago
Indeed, for the fools that store their bitcoins in a wallet on services like Coinbase. You only need to save your private key in a save place to have the storage for free.
kloncks 9y ago
Isn’t Xapo free? I think custodianship hasn’t been solved for other currencies but it has for Bitcoin. Coinbase and GBTC are just over charging because they can.
IkmoIkmo 9y ago
Should say: paying a few first-entrant pioneers management fees so you can easily buy and hold exposure to bitcoin via a regulated publicly traded fund like BIT, is more expensive than doing the same with more established gold funds on more established exchanges, and even more expensive by using a retail solution for individuals. Just keeping bitcoins safe is no more expensive than gold. I've literally thrown some dice to generate a private key, sent coins to it, and all you need to do is make sure nobody else sees the key. Costs nothing. I won't go into details there, there's a million options, and they're not much different from say putting gold in a secure vault.
austenallred 9y ago
What a silly thing to say. Put it on a USB drive and put that in a safety deposit box. Done.
- zipwitch 9y ago
  What's the half-life of unused flash memory?
  - austenallred 9y ago
    Ok, then if you need it for longer periods put it on a piece of paper. Or memorize your private key.
mmatoscom 9y ago
why this? because a trezor is more expensive than a safe you would keep inside your wall? how about travelling with the gold? how about moving a lot of gold lets say like a truck as the example already mentioned? I usually travel and take my trezor along when needed... and its still in the same safe behind the wall as I would keep a gold bar or something valuable.
pkzip 9y ago
I would argue that they store the coins in the custody vault as close to the exchange point as possible so the fast transfers are frictionless...and that would cost a premium.
cup-of-tea 9y ago
Not surprising, actually. Gold is very easy to keep locked away because it's a physical object. But that also means it's very difficult to move around. As with all things, there are tradeoffs and one must decide what is best for each. Even if the "15x" figure is true, there might still be a use case for Bitcoin.
- jstanley 9y ago
  Why can't you lock away your bitcoin keys with the same degree of care you use to lock away your gold, but at a fraction of the size?
  - DennisP 9y ago
    You can, and Coinbase and other competent exchanges do. You can also store the keys redundantly and apply cryptographic as well as physical protections.
  - 21 9y ago
    Because locking is just half of the problem. A thief in a gold vault still has to carry the gold out, and that is difficult. A thief in a vault with a bitcoin wallet just needs to write the private keys/seeds on a piece of paper (yes, I know about secret sharing schemes) So bitcoin is much more vulnerable to a single person who fucks up or is malicious.
    - spiorf 9y ago
      2 of 3 multisig. Now the thief has to compromise two sites, at the same time. Or password protect the seed. Or both.
      - TheCoelacanth 9y ago
        Still easier than carting away thousands of pounds of gold without getting caught.
  - cup-of-tea 9y ago
zubairq 9y ago
I agree that Bitcoin will be more expensive to keep than Gold because there are so many more ways that it can be stolen. I wrote about this in 2015 here: https://blog.safello.com/index.php/2015/07/29/bitcoin-enterprise-2/ https://blog.safello.com/index.php/2015/07/29/bitcoin-enterp...
microcolonel 9y ago
Corollary: If you store Bitcoin like gold, it is less expensive to keep safe than gold.
known 9y ago
Sounds like https://en.wikipedia.org/wiki/Pump_and_dump https://en.wikipedia.org/wiki/Pump_and_dump
rebuilder 9y ago
This argument seems to assume you pay someone to keep your Bitcoins safe for you. Let's be very clear: If you are not able to safekeep your Bitcoins yourself, you should not have any more than you are willing to lose. That's the state of the field at the moment. The whole point is cutting out the middlemen, and if you can't do that, you're not equipped to be in Bitcoin. Learn or stay away.
deleted 9y ago
[deleted]
mclightning 9y ago
Who is coming up with all these anti-btc articles lately, regarding power, safety etc...
k3a 9y ago
Try to steal my Trezor HW wallet. It is protected by a proper pin and passphrase and there are multiple accounts on it. So even if you force me to unlock it, I won't show them all. So I am actually more worried about my physical gold than Bitcoin.

210 points by vinnyglennon 9y ago

This article is about ETFs, not bitcoins or gold. If you own an ETF, you don't own gold or bitcoin, you own shared in an ETF, which is not even remotely the same. If you do actually own bitcoins or gold, and you entrust it to someone else, you have nobody to blame but yourself when they lose it. If you value something, hold onto it yourself and be careful with it.

hn_throwaway_99 9y ago

Or you could, you know, write your private key on a piece of paper (or a couple) and store it in a safe.

Lerc 9y ago

That's a bit weird. Can't you just print a paper wallet. Put that in a safety deposit box. Once locked up nice and tight, transfer bitcoin to it.

charlesdm 9y ago
A pension fund, which is run by a board of directors and manages $400bn, is not going to print a paper wallet to hold $2bn worth of Bitcoin. They have more important things to worry about, like investing their $400bn and achieving a decent return on their entire holdings. Second to that (or maybe even more importantly), it's ass covering. Imagine the headlines: "CALPERS INVESTS $2BN IN BITCOIN AND ETHEREUM, AND LOSES ACCESS KEYS". If you're managing a fund, you just don't risk that. These custodian fees (which will come down eventually) are a cost of doing business to access the asset class. I would assume those entire crypto holdings also to be insured as part of said fee, in the event something does go wrong.
- pishpash 9y ago
  Still, how is that more expensive than keeping physical gold?
  - charlesdm 9y ago
    Its 1.2% a year -- that's expensive. He states Gold ETFs pay approx. 0.08% per year to store bullion (no idea whether that's a correct number though). But hey, it's better than paying a 2-20% fee to a hedge fund vehicle. Fees are already coming down!
  - alex_young 9y ago
    Why not cast the hashes inside gold bars? Then just keep storing the gold. Btc storage for free.
    - deleted 9y ago
      [deleted]
    - garmaine 9y ago
      Like this? https://bitcointalk.org/index.php?topic=196320.0 https://bitcointalk.org/index.php?topic=196320.0
- knocte 9y ago
  This is why multi-sig exists. Put the funds in a 6-of-10 account, done. You would need a 60% attack (60% of the executives to collude/conspire, or 60% being hacked/kidnapped) to be robbed.
  - charlesdm 9y ago
    Yes, if you're a $10m hedge fund or a small family office. But not if you need to manage $400bn; then you (really) want a custodian. These people allocate and mostly invest in funds with exposure to certain asset classes (private equity, VC, hedge funds, equity and bond funds, etc).
    - knocte 9y ago
      > you (really) want a custodian Are you really referring to a single (non-plural) custodian...?
      - wmf 9y ago
        A custodian company, not a person.
        knocte 9y ago
        Ah, sure, and that custodian company will most likely hold the bitcoins in a multisig account. Now you have to pay a company for this service and also have counter-party risk. Great. Maybe the risk and cost is not worth it and setting up a multi-sig inhouse is worth it?
        asadlionpk 9y ago
        Looks like most don't think this way. They think that they don't have the 'expertise' in-house for maintaining multisig account. So they will just have to hire an 'expert' custodian to reduce risk.
        9y ago
- rakoo 9y ago
  So it's not "more expensive to keep safe", it's "more expensive to use as a trading asset", which is completely different.
  - charlesdm 9y ago
    It's expensive if you lose it -- which is all that matters to these people.
- rebuilder 9y ago
  I can't see "CALPERS INVESTS $2BN IN CRYPTO AND GETS SCAMMED" being any better, honestly. I'm sure you can insure crypto holdings, but considering the risks, the cost must be exorbitant.
- deleted 9y ago
  [deleted]
synicalx 9y ago
But then, at the very least, that's no less expensive than securing gold. You still have a physical object that you need to secure and protect.
- __s 9y ago
  The physical object however takes up much less space & through a multisig address breaching one storage point is insufficient
  - synicalx 9y ago
    A bit less space, unless you're talking about storing hundreds of thousands or millions of dollars worth of gold. Not to mention for a common thief it's a little hard to turn gold into cash anonymously whereas that's very easy to do with BTC.
    - jstanley 9y ago
      It's not easy to do it with BTC. If you have contacts that can do it for BTC they can most likely do the same for gold.
- canoebuilder 9y ago
  In most cases the unwieldiness of a ton of gold compared to X number of crypto-coins serves as a superior security mechanism for a 'store of value.' A ton of gold exists in a single time and space, meaning security measures are highly localized and conveyance to another location requires a non-trivial energy expenditure. The more or less "pure information" basis of crypto-currencies mean the security mechanisms surrounding them must be "global," they can be potentially accessed unauthorized by someone anywhere on the planet through means of social engineering, exploiting faulty code, or similar. And once accessed the "pure information" can vanish from the reach of the ostensible owner with just a few electrons cycling through a few circuits. In fact what percentage of the total supply of bitcoin were acquired in just such a manner?
Lazare 9y ago
Correct. You can also just shove the gold bars in a safety deposit box too, so from a certain point of view both are free (or $100/year for the safety deposit box, whatever). But if you have a significant amount of gold or bitcoin (ie, 7+ figures when expressed as USD), a safety deposit box is not going to cut it. You have way too much risk (thieves, fraud, losing the key, securing the key, insurance, liability, etc., etc., etc.) You want someone else to store your gold (or bitcoins). And people charge 15 times more to store Bitcoin than gold.
- charlesdm 9y ago
  To be honest: it's much easier for someone to steal $100m in Bitcoin than it is to steal $100m in gold.
  - canoebuilder 9y ago
    That's a very good point, people like to paint the hyper-mobility of transference of crypto-currencies as superior to precious metals. But for most people seeking a "store of value" they are more interested in having that value sit somewhere safe and undisturbed. And from this point of view the propensity for a crypto-currency to suddenly vanish if every 'i' is not dotted and every 't' not carefully crossed, is rightly seen as a liability for the 'store of value' game. Also interesting to consider is the kind of security precaution spread that exists between between various value levels in precious metals, vs. crypto-currencies. For example, consider the difference in security mechanisms employed by someone storing a couple gold coins in a box in their house, vs. Fort Knox. Whereas your security precautions for storing $10, or $1,000,000 in crypto-currency are not a whole lot different.
  - Lazare 9y ago
    Quite right, which is the point of the linked article I think. Storing very valuable, very portable things is hard. And few are harder than bitcoin. Saying "just get a safety deposit box" isn't a great answer.
givehimagun 9y ago
Crazy idea - if you're paranoid enough, could you print your BTC on real metal that could last as long as our physical currency does? It loses its liquidity, but it gains permanence.
- fragsworth 9y ago
  That doesn't make any sense. What are you trying to accomplish? I have a feeling you are misunderstanding how these things work.
  - rwmj 9y ago
    (Not the original poster) I suppose it's cold storage, but on something which is more permanent than paper. Of course it's a bit pointless since even the cheapest most acidic paper should last for 20 years or so which is long enough for storing bitcoins for the vast majority of funds.
- garmaine 9y ago
  Google “crypto steel”
- 21 9y ago
  And then you are vulnerable to a single guy with a phone camera. If I take a picture of your gold stash it doesn't become mine.

nostromo 9y ago

It's a lot cheaper to transmit though!

basicplus2 9y ago
I so had my hopes up when i found a Matter Transfer Utility... http://www.juris.com/help/Content/Juris-core/Utilities/matter-transfer-utility-hdi.htm http://www.juris.com/help/Content/Juris-core/Utilities/matte...

yopro1 9y ago

You can print a multi sig paper wallet and store it in a safe(s). It just goes to show people will pay anything.

nextstep 9y ago

No, it’s not. You can just print a paper wallet (or even just write your private key on a piece of paper) and stick that in a vault. The author is conflating mining and transmission with storage.

joshuamorton 9y ago
I think you should read the article. He's not.

21 9y ago

Hardly surprising. It's hard to steal a truck of gold, especially considering the mens with guns which are typically around. It's hard to mess up physical security of a truck (not even to mention a vault), and even if you lose it, the thief still has a big and heavy problem on his hands. Real world police is good at these things. And unlike bitcoin, gold can't just teleport to Russia (using a generic non-cooperative country here) Stealing bitcoin requires just one tiny mistake in a miriad of places (starting with random number generation, ...), and then you are done with no other recourse.

justincormack 9y ago
You don't have any trucks involved when you buy gold, just some entries in a ledger changed. Some gold funds buy futures not physical gold too.
- EugeneAZ 9y ago
  People also buy shares which don't give them substantial dividends. Many wrong things are overvalued nowadays. See my comments.
  - sambe 9y ago
    Why would one care about whether a dividend is paid? Tax treatment?
DennisP 9y ago
Coinbase uses redundant hardware wallets in geographically-distributed safe deposit boxes for their cold storage. It's very unlikely that they'll have a major theft from that, and their hot wallet funds are insured. Personally I think hardware wallet random numbers are safe but anyone technical who's worried about that could generate their own from von Neumann coin flips, and turn that into a 24-word seed for setting up a hardware wallet. https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_biased_coin https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_... I wouldn't say this is more difficult than securing a large amount of gold. If someone gets into your safe deposit they can just take your gold. With a hardware wallet you get three guesses of a 4 to 8 digit PIN and then it wipes itself. And you can't store gold redundantly to protect from loss.

animex 9y ago

Most of the cost is probably insurance.

patio11 9y ago
You functionally can't buy insurance on meaningful amounts of Bitcoin. You can convince an insurance company to write you a standard cyberinsurance policy, but the limits on them are far less than the amount of Bitcoin people want to store, and when you have a more bespoke conversation with an underwriter they will say "No no no HELL no." It is not hard to understand why insurers don't want to write these policies. Bitcoin exchanges die catastrophically in over 20% of exchange-years.
- DennisP 9y ago
  Coinbase has insurance on their hot wallet funds.
  - EliAndrewC 9y ago
    Last time I checked, their hot wallet had less than 5% of the bitcoins on their books. A catastrophic data break would leave most of their customers without either their bitcoins or any way to be made whole from the loss.
    - DennisP 9y ago
      Right but it's only the hot wallet that has any significant risk. The cold wallets aren't online at all, they're on hardware wallets in geographically distributed safe deposit boxes. Even if someone broke into one and managed to crack the hardware, that'd be just a small portion of their funds.

dr_win 9y ago

2-of-3 fragmented backup of the private key using cryptosteel costs ~$300.

deleted 9y ago
[deleted]

CydeWeys 9y ago

This whole article is simplistic and inaccurate. They're making a straight-across comparison between two ETFs, one of which has high management fees and another of which has low management fees. The former happens to be a Bitcoin fund and the latter happens to be a gold fund. Management fees vary widely across funds. They have everything to do with how money-grubbing the funds in question are and little to do with how expensive the assets actually are to secure. For example, you can pay >2% management fees on a really predatory S&P 500 index fund, the kind that John Hancock would sell you. Or you can pay .02% management fees on a top-level Vanguard fund tracking the same. The only reason that the management fees on the Bitcoin funds is because they can be high since there's little competition so far, unlike with, say, S&P 500 index funds. It's not intrinsically expensive to store Bitcoin; far from it. It's far cheaper to store than gold, for all the obvious reasons that you don't have physical goods to secure.

joosters 9y ago
It’s not a simple comparison between ETFs. The article specifically mentions Coinbase & their fees to store institutional customers’ bitcoins.
- CydeWeys 9y ago
  OK, so it's a comparison between two ETFs and then also some overpriced service from Coinbase that has similar characteristics to a mutual fund. The point still stands that there is as of yet very little competition in this space. Expect costs to come way down still.
DennisP 9y ago
That's pretty much the article's conclusion: "If gold can be stored in Fort Knox-like bunkers for just 0.08% per year, there is little reason it should cost 15 times more for bitcoin to be stored in similarly safe solutions. For now, though, it’s easy money for the custodians"
- EugeneAZ 9y ago
  BitCoin should be abandoned for other reasons: https://quant.stackexchange.com/questions/37036/why-do-american-government-not-create-a-crypto-dollar https://quant.stackexchange.com/questions/37036/why-do-ameri...

thisisit 9y ago

It is expensive because..of the risks premium associated with the storing a highly volatile asset. If I had given 1 oz of gold for storage on Jan 2, 2017 the price was 1150 USD. If something had gone wrong in Sep, when the peak price was reached the payout would be 1350 USD, a 17% premium on the storage price. In comparison, I gave 1 BTC for storage on Jan 2, 2017 at 1025 USD. If something were to go wrong today the payout needs to be 8217 USD, a 700% premium.

DonHopkins 9y ago

Do many people collect bitcoins with interesting histories for their numismatic value, the same way they collect real coins? Is there a market for specific bitcoins that are worth more than their face value because they're somehow special? If a celebrity buys something from you in bitcoin, can you turn around and auction off that bitcoin to their fans? https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-worth-others/ https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-wort... Too bad J. S. G. Boggs recently passed away -- I wonder what kind of abstract performance art he could have done with bitcoin. https://en.wikipedia.org/wiki/J._S._G._Boggs https://en.wikipedia.org/wiki/J._S._G._Boggs https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-dead.html https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-dea... "They don’t understand the difference between art and crime." -J. S. G. Boggs Speaking to ARTnews after Mr. Boggs’s death, Mr. Weschler said, "He was just short of being a con man, but no more than anyone in the art world, or for that matter in the world of finance — which, of course, was his whole point."

JumpCrisscross 9y ago
Now that you mention it, I'm blown away that coins with "auspicious" numbers don't sell for a ridiculous premium in China, India and other cultures that believe in that garbage [1]. Might be a good business... [1] https://en.wikipedia.org/wiki/Numerology https://en.wikipedia.org/wiki/Numerology
- megaman22 9y ago
  Dumber things have made outrageous sums https://en.m.wikipedia.org/wiki/South_Sea_Company https://en.m.wikipedia.org/wiki/South_Sea_Company
  - DonHopkins 9y ago
    And the classic: http://www.milliondollarhomepage.com http://www.milliondollarhomepage.com https://en.wikipedia.org/wiki/The_Million_Dollar_Homepage https://en.wikipedia.org/wiki/The_Million_Dollar_Homepage If were able to get ahold of a whole collectable super-lucky celebrity bitcoin, then you could sell it off in pieces: http://www.hundredmillionsatoshihomepage.com http://www.hundredmillionsatoshihomepage.com

JumpCrisscross 9y ago

Kolmogorov complexity "is the length of the shortest computer program...that produces [an] object as output" [1]. Being financial inclined, I often wonder about its analogy in economics. Usually I measure weight or energy. The least massive, or smallest amount of energy needed, to make one dollar of value. More interesting is the shortest program that reproducibly produces one dollar of value. By this measure, Bitcoin is one of the "denser" pieces of fungible information humans have invented. "Heavy" networked bits must defend against everyone, everywhere, all the time. This enables lots of new turf. It also increases security risk. [1] https://en.wikipedia.org/wiki/Kolmogorov_complexity https://en.wikipedia.org/wiki/Kolmogorov_complexity

canoebuilder 9y ago
>deterministically (and reproducibly) produces one U.S. dollar of value. Can that really be said of anything, with the nature of markets, and supply and demand? If I invest in solar panels, or oil wells, then the expected value per unit sold of the product I produce will be dependent on a massive number of predictable and unpredictable inter-playing forces in a global complex system. While I can make forecasts of an average expected unit price by studying historical prices, factors affecting them, probabilities of various events, etc. there is also the case that my very selling of the product has an effect on the price I can expect. As a supplier at a certain scale I can expect revenues to follow a downward curve, with each unit supplied a certain amount of demand is satisfied and thus lowering the overall market price and my expected revenue. It's not exactly a one-way curve, at higher supplies and lower prices, new avenues of demand can be opened and prices can follow a curve upward. I like the idea and thinking you've proposed here, but it seems like the complexity of markets is more complicated than Kolmogorov complexity. It seems the like what produces value in terms of the most optimal ratio between input and output is always in flux. And when a maxima of optimal value is found all the mechanisms of market forces work against it being deterministic and precisely reproducible. I think to deduce a measure like you proposed in an economic context you would have to have a product that is absolutely finite in potential supply and all potential uses for the product strictly defined, enumerable, and un-extendable. And therefore lowering JumpCrisscross complexity would simply be a matter of optimizing production costs. But I'm not sure any such scenario exists, it would require a deterministic understanding of the universe and it's constituent parts that we don't have and it would have to preclude the ingenuity and creativity that seem to be key human qualities that drive the flux and change we see in the world.

grsblk 9y ago

Indeed, for the fools that store their bitcoins in a wallet on services like Coinbase. You only need to save your private key in a save place to have the storage for free.

kloncks 9y ago

Isn’t Xapo free? I think custodianship hasn’t been solved for other currencies but it has for Bitcoin. Coinbase and GBTC are just over charging because they can.

IkmoIkmo 9y ago

Should say: paying a few first-entrant pioneers management fees so you can easily buy and hold exposure to bitcoin via a regulated publicly traded fund like BIT, is more expensive than doing the same with more established gold funds on more established exchanges, and even more expensive by using a retail solution for individuals. Just keeping bitcoins safe is no more expensive than gold. I've literally thrown some dice to generate a private key, sent coins to it, and all you need to do is make sure nobody else sees the key. Costs nothing. I won't go into details there, there's a million options, and they're not much different from say putting gold in a secure vault.

austenallred 9y ago

What a silly thing to say. Put it on a USB drive and put that in a safety deposit box. Done.

zipwitch 9y ago
What's the half-life of unused flash memory?
- austenallred 9y ago
  Ok, then if you need it for longer periods put it on a piece of paper. Or memorize your private key.

mmatoscom 9y ago

why this? because a trezor is more expensive than a safe you would keep inside your wall? how about travelling with the gold? how about moving a lot of gold lets say like a truck as the example already mentioned? I usually travel and take my trezor along when needed... and its still in the same safe behind the wall as I would keep a gold bar or something valuable.

pkzip 9y ago

I would argue that they store the coins in the custody vault as close to the exchange point as possible so the fast transfers are frictionless...and that would cost a premium.

cup-of-tea 9y ago

Not surprising, actually. Gold is very easy to keep locked away because it's a physical object. But that also means it's very difficult to move around. As with all things, there are tradeoffs and one must decide what is best for each. Even if the "15x" figure is true, there might still be a use case for Bitcoin.

jstanley 9y ago
Why can't you lock away your bitcoin keys with the same degree of care you use to lock away your gold, but at a fraction of the size?
- DennisP 9y ago
  You can, and Coinbase and other competent exchanges do. You can also store the keys redundantly and apply cryptographic as well as physical protections.
- 21 9y ago
  Because locking is just half of the problem. A thief in a gold vault still has to carry the gold out, and that is difficult. A thief in a vault with a bitcoin wallet just needs to write the private keys/seeds on a piece of paper (yes, I know about secret sharing schemes) So bitcoin is much more vulnerable to a single person who fucks up or is malicious.
  - spiorf 9y ago
    2 of 3 multisig. Now the thief has to compromise two sites, at the same time. Or password protect the seed. Or both.
    - TheCoelacanth 9y ago
      Still easier than carting away thousands of pounds of gold without getting caught.
- cup-of-tea 9y ago

zubairq 9y ago

I agree that Bitcoin will be more expensive to keep than Gold because there are so many more ways that it can be stolen. I wrote about this in 2015 here: https://blog.safello.com/index.php/2015/07/29/bitcoin-enterprise-2/ https://blog.safello.com/index.php/2015/07/29/bitcoin-enterp...

microcolonel 9y ago

Corollary: If you store Bitcoin like gold, it is less expensive to keep safe than gold.

known 9y ago

Sounds like https://en.wikipedia.org/wiki/Pump_and_dump https://en.wikipedia.org/wiki/Pump_and_dump

rebuilder 9y ago

This argument seems to assume you pay someone to keep your Bitcoins safe for you. Let's be very clear: If you are not able to safekeep your Bitcoins yourself, you should not have any more than you are willing to lose. That's the state of the field at the moment. The whole point is cutting out the middlemen, and if you can't do that, you're not equipped to be in Bitcoin. Learn or stay away.

deleted 9y ago

[deleted]

mclightning 9y ago

Who is coming up with all these anti-btc articles lately, regarding power, safety etc...

k3a 9y ago

Try to steal my Trezor HW wallet. It is protected by a proper pin and passphrase and there are multiple accounts on it. So even if you force me to unlock it, I won't show them all. So I am actually more worried about my physical gold than Bitcoin.