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>1) No counterparty risk. Everyone can get hacked, but coinbase being hacked shouldn't every, under any circumstances result in me loosing any bitcoin they hold

>1) No counterparty risk. Everyone can get hacked, but coinbase being hacked shouldn't every, under any circumstances result in me loosing any bitcoin they hold on my behalf. Coinbase is insured by AON Insurance for their hot wallet balance. However, we won't know how Coinbase/AON will handle that until it happens. I believe any fiat balance is also insured by the FDIC, but I'm less sure about that. >2) The exchange can't go down, like at all. Yep. Crypto trades 24/7. It's really surprising they don't have regular planned downtime to address this.

vkou 9y ago
What if a Coinbase insider steals from the cold wallet? The NYSE is not vulnerable to this kind of attack. Anyone dealing with BTC is.
- FLUX-YOU 9y ago
  >What if a Coinbase insider steals from the cold wallet? That's the inherent risk with crypto. You have to resort to "leg-breaking" to get the thief to give up the coin. Otherwise you'd need undue influence on the development and forking of the blockchain to get them back (if I understand it right -- I may not). That's why many will say to not keep your coins on an exchange, because they are weaker businesses compared to existing financial institutions. That's not to say you can't secure your investments properly, but to many, it takes a lot of time and effort to get it right. It really is a "let the buyer beware" landscape.
api 9y ago
There's a deeper problem. Bitcoin is very deflationary and strictly limited in supply. What happens if Coinbase cannot obtain replacement bitcoins at a price near what the insurance pays out? They can refund in fiat of course, but that's the point. If fiat didn't exist then this would be a potentially insurmountable problem if the theft were large enough. Now what happens if the thief panics or screws up and deletes their keys. Those Bitcoins are now lost forever. The money supply just went down permanently. ... or ... a really smart thief with enough money behind them might not even need to steal any Bitcoins. They could just destroy cold wallet keys in a very stealthy way and profit from the appreciation of coins they hold elsewhere. This whole system is just not ready for prime time.
- FLUX-YOU 9y ago
  >What happens if Coinbase cannot obtain replacement bitcoins at a price near what the insurance pays out? People lose their bitcoins. It's as simple as that. That's a risk everyone should understand before buying. They might be compensated in some other way, like fiat, and then the insurance company either picks up the bill or goes under. Then it's just business as usual as far as bankruptcy goes. So yes, you have every reason to be wary of exchange solvency because of how new they are and how little support is provided to them by government and law enforcement compared to the banks. Every investor should understand that as critically as they understand how important their wallets are. >This whole system is just not ready for prime time. Yeah, it's one big experiment. I'm sure these problems were encountered before in economic history, but it seems like they are repeating a bunch of blunders within a short time frame, which to me, smells of manipulation (Satoshi probably didn't invent it to just manipulate people)
  - sudouser 9y ago
    > They might be compensated in some other way Like how Mt Gox returnedt peoples coins... /s
- graedus 9y ago
  > a really smart thief with enough money behind them might not even need to steal any Bitcoins. They could just destroy cold wallet keys in a very stealthy way and profit from the appreciation of coins they hold elsewhere. This is a cool idea but I'm not sure it works (or I don't understand it correctly). In order to reduce the supply enough to appreciably increase the value of the remaining coins, you'd need to freeze/destroy a lot of keys, or keys to wallets with large holdings. If the owners of those keys start reporting their losses and the news spreads, people could start to lose confidence in bitcoin itself and move to other assets, reducing demand.
- sudouser 9y ago
  > limited in supply Limited? Uh, where did you get that idea? You can split a coin into ONE MILLION satoshi pieces
notyourday 9y ago
> Coinbase is insured by AON Insurance for their hot wallet balance. Insurance policies for bitcoins are very new and very tricky. This is not an FDIC or SPIC insurance unless AON is insuring cash balances you should treat this insurance as you would treat mob protection - hopefuly you won't need it because if you do you are kind of screwed and probably won't be able to collect.

vkou 9y ago

What if a Coinbase insider steals from the cold wallet? The NYSE is not vulnerable to this kind of attack. Anyone dealing with BTC is.

FLUX-YOU 9y ago
>What if a Coinbase insider steals from the cold wallet? That's the inherent risk with crypto. You have to resort to "leg-breaking" to get the thief to give up the coin. Otherwise you'd need undue influence on the development and forking of the blockchain to get them back (if I understand it right -- I may not). That's why many will say to not keep your coins on an exchange, because they are weaker businesses compared to existing financial institutions. That's not to say you can't secure your investments properly, but to many, it takes a lot of time and effort to get it right. It really is a "let the buyer beware" landscape.

api 9y ago

There's a deeper problem. Bitcoin is very deflationary and strictly limited in supply. What happens if Coinbase cannot obtain replacement bitcoins at a price near what the insurance pays out? They can refund in fiat of course, but that's the point. If fiat didn't exist then this would be a potentially insurmountable problem if the theft were large enough. Now what happens if the thief panics or screws up and deletes their keys. Those Bitcoins are now lost forever. The money supply just went down permanently. ... or ... a really smart thief with enough money behind them might not even need to steal any Bitcoins. They could just destroy cold wallet keys in a very stealthy way and profit from the appreciation of coins they hold elsewhere. This whole system is just not ready for prime time.

FLUX-YOU 9y ago
>What happens if Coinbase cannot obtain replacement bitcoins at a price near what the insurance pays out? People lose their bitcoins. It's as simple as that. That's a risk everyone should understand before buying. They might be compensated in some other way, like fiat, and then the insurance company either picks up the bill or goes under. Then it's just business as usual as far as bankruptcy goes. So yes, you have every reason to be wary of exchange solvency because of how new they are and how little support is provided to them by government and law enforcement compared to the banks. Every investor should understand that as critically as they understand how important their wallets are. >This whole system is just not ready for prime time. Yeah, it's one big experiment. I'm sure these problems were encountered before in economic history, but it seems like they are repeating a bunch of blunders within a short time frame, which to me, smells of manipulation (Satoshi probably didn't invent it to just manipulate people)
- sudouser 9y ago
  > They might be compensated in some other way Like how Mt Gox returnedt peoples coins... /s
graedus 9y ago
> a really smart thief with enough money behind them might not even need to steal any Bitcoins. They could just destroy cold wallet keys in a very stealthy way and profit from the appreciation of coins they hold elsewhere. This is a cool idea but I'm not sure it works (or I don't understand it correctly). In order to reduce the supply enough to appreciably increase the value of the remaining coins, you'd need to freeze/destroy a lot of keys, or keys to wallets with large holdings. If the owners of those keys start reporting their losses and the news spreads, people could start to lose confidence in bitcoin itself and move to other assets, reducing demand.
sudouser 9y ago
> limited in supply Limited? Uh, where did you get that idea? You can split a coin into ONE MILLION satoshi pieces

notyourday 9y ago

> Coinbase is insured by AON Insurance for their hot wallet balance. Insurance policies for bitcoins are very new and very tricky. This is not an FDIC or SPIC insurance unless AON is insuring cash balances you should treat this insurance as you would treat mob protection - hopefuly you won't need it because if you do you are kind of screwed and probably won't be able to collect.