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Isn't that mostly the situation we're in with the places that are getting hacked? BitcoinBank holds your bitcoin. Keeping the bitcoin safe is their responsibi
by mdasen 9y ago
Isn't that mostly the situation we're in with the places that are getting hacked?
BitcoinBank holds your bitcoin. Keeping the bitcoin safe is their responsibility. They get hacked and someone takes the bitcoin from them. They're liable to compensate you for the loss, but they don't have the money to compensate you with - someone stole it all.
Is the difference that a bank like Bank of America would have non-bitcoin assets to compensate you with? That is to say, the hypothetical BitcoinBank gets $65M of bitcoin stolen and that's 100% of their assets so you're out of luck. BitcoinBank owes you money, but doesn't have any. However, if Bank of America had $65M stolen, you could expect them to have other assets to cover that loss and make you whole.
I think the issue is that would cost a lot of money. Would you be willing to pay 2% of your bitcoin per year for this insurance?
I think one of the reasons that our current financial system works well against fraud is the ability to undo many transactions and detect fraud in addition to swallowing losses. If you try to spend $10M, that's likely to cause fraud alerts. If you're shipping goods to someone else and they're expensive, you'll again get fraud alerts. If you're transferring money between banks, it can have certain fraud-protection oversight and has a certain ability to be undone. A lot of this comes from lack of anonymity and limitations. A $5 transaction isn't suspicious and doesn't carry the same risk as a $5M transaction. Most bank to bank transfer systems have daily and monthly limits on them. The banks know who owns the accounts and can confirm if it's the same person. Banks generally have some latitude to undo transactions. Banks can see where you purchase things and determine whether it's suspicious. Banks have centralized places where they determine whether to permit a transaction.
- skissane 9y ago> However, if Bank of America had $65M stolen, you could expect them to have other assets to cover that loss and make you whole. That's exactly my point. Asking some cryptocurrency startup to look after your bitcoin, if they get hacked, they'll probably go out of business and you will lose everything. A major bank, with billions (or even trillions) of dollars of non-cryptocurrency assets, they will survive the theft of a few million (or billion) dollars worth of bitcoin, and have plenty left to compensate you with. > I think the issue is that would cost a lot of money. Would you be willing to pay 2% of your bitcoin per year for this insurance? Some people will probably say yes. If you expect bitcoin to go up by substantially more than 2% pa, 2% might be a reasonable amount to pay to reduce the risk of holding it yourself. > Banks generally have some latitude to undo transactions. I don't expect banks would apply the same rules to cryptocurrencies given the inability to reverse. For example, if you make a typo in the target account for a bank transfer, with normal currency the bank will probably just reverse it for you if you call them, with bitcoin you've lost your money. The threshold for compensation would be much higher. But still, if the bank loses your bitcoin due to their own negligence (as opposed to your own negligence), they'd be liable for that.
- Ntrails 9y agoCan banks reasonably do this with current money laundering rules? Is the margin of 2% sufficient to cover costs + risk? Incidentally - when a bank account gets hack the bank compensates a single person worth of $. However every bitcoin system seems to revolve around keeping all of their eggs in a single basket for some reason. Surely the complexity cost is worth the additional security?