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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 ne

by 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
- thebokehwokeh2 9y ago
  Uh... you can subdivide a single unit into a million pieces, but if the equilibrium price based on demand and supply rises because of scarcity, each individual million satoshi piece will also rise in value. Hence its deflationary nature.
SilasX 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? By only promising depositors -- and only having insurance for the case that -- they will pay out some flat USD amount per bitcoin in the case of loss, so that anyone putting BTC in Coinbase wallets knows the possible downside. Same logic as with most insurance: they don't write policies that promise to get you that a good-enough copy of that neat classic showerhead fitting when your house burns down, only the money to buy a replacement, even if it falls short of the sentimental value.
dahdum 9y ago
"This whole system is just not ready for prime time." Mature markets have thin margins, which is why you see financial institutions salivating over crypto right now. All these risks have been known for years now.

by api 9y ago

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

thebokehwokeh2 9y ago
Uh... you can subdivide a single unit into a million pieces, but if the equilibrium price based on demand and supply rises because of scarcity, each individual million satoshi piece will also rise in value. Hence its deflationary nature.

SilasX 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? By only promising depositors -- and only having insurance for the case that -- they will pay out some flat USD amount per bitcoin in the case of loss, so that anyone putting BTC in Coinbase wallets knows the possible downside. Same logic as with most insurance: they don't write policies that promise to get you that a good-enough copy of that neat classic showerhead fitting when your house burns down, only the money to buy a replacement, even if it falls short of the sentimental value.

dahdum 9y ago

"This whole system is just not ready for prime time." Mature markets have thin margins, which is why you see financial institutions salivating over crypto right now. All these risks have been known for years now.