10 ms·

Revisiting the Risks of Bitcoin Currency Exchange Closure [pdf]

34 points by gwern 9y ago

Animats 9y ago
"The overall failure rate of Bitcoin exchanges is 48%, and the median lifetime of exchanges is 451 days."
- jstanley 9y ago
  By similar reasoning, only about 93% of humans who ever lived went on to die.
  - gwern 9y ago
    The median isn't affected by the right-censored datapoints (ie you only need to observe half of humans to find the median life expectancy, by definition), which is why it's used so much in survival analysis. Failure seems to mean 'closed' but there's no reason to expect such a short lifetime of exchanges that they would all close already (an exchange can be immortal) and even if you think that, the exact number of 48% is useful as it gives you an idea of how informative the dataset is due to right-censoring (the closer to 100%, the closer to a complete dataset in which all deaths have been observed).
mikro2nd 9y ago
As the crypto-asset world keeps warning newcomers: Don't keep assets in exchange-hosted wallets for longer term holding. Move them to a wallet under your own control. And back it up really, really well.
- empath75 9y ago
  Yeah I definitely want to invest my life savings in something I need to keep on a USB key.
  - lyk 9y ago
    I don't get the point of this comment. Are you criticizing the current state of cryptocurrencies, or are you implying that investing your life savings in an exchange is somehow safer than keeping it on a USB key?
    - empath75 9y ago
      I’m saying that there’s no safe and convenient place to keep your bitcoins.
      - barkingcat 9y ago
        Of course there is - archival quality printout of a paper (on archival acidfree paper) wallet stored in a bank safe. That's safe. Convenience depends on how often you need it (and so there's not one standard of convenience you can quantify without being the actual person who's using it.)
        tobltobs 9y ago
        The recommended place to store bitcoins, the currency which promises freedom from the corrupt banking system, are banks? > That's safe. It is quite safe, but still not as safe (World Trade Center, Hurricane Katrina, ...) as your money in an account with insurance. And much more inconvenient.
        freejulian 9y ago
        Safe deposit boxes held in a vault is one of the banking services I'm OK with.
        jstanley 9y ago
        You can split a bitcoin key up using Shamir's Secret Sharing Scheme (or just multisig) and store the key geographically-distributed such that if any one location is destroyed you don't lose the money, and if any one location is stolen the thief doesn't get the money. You can also replace "one" with an arbitrarily-large number, depending on how many locations you want to store the money in.
gaetanrickter 9y ago
¯\_(ツ)_/¯ it's the wild west. Do you think I want to trust my money on Wall Street instead?
- bryananderson 9y ago
  You’d be wise to. First-world stock exchanges are not in the habit of disappearing, and volatility is significantly lower (yeah, yeah, the past week, I know, but I’m assuming we’re talking about a long time horizon like retirement).
  - gaetanrickter 9y ago
    There are more crooks on wall Street (including the Banks) than in crypto. Edit: Source: The 2008/09 financial crisis. You really don't need a specific source here as it's clear to everyone that Banks have done great dishonest disservices to their customers. Wells Fargo's latest news is case and point.
    - bjl 9y ago
      Source? Because on the face of it that's laughably untrue.
    - pjc50 9y ago
      The one thing they don't do is actually collapse and leave the customer out of pocket.
    - GhostVII 9y ago
      Regardless, who cares how many 'crooks' there are on Wall Street. If you want to get rich slow, you throw your money in a stable investment in stocks, the 401k has made lots of millionaires.
    - ceejayoz 9y ago
      > There are more crooks on wall Street (including the Banks) than in crypto. This is a fun statement, because it's vague enough to be defended with "oh, but I meant <foo>". Yeah, Wells Fargo got caught making accounts people didn't know about. There are cases like Enron. Financial crises, overdraft fees inflated by ordering transactions maliciously, etc. In the grand scheme of things, though, Wall Street tends to work, and fairly well, and when it has an issue it winds up recovering eventually so you're fine if you're well diversified and don't need to retire next week. The various stocks in the DJIA and the NASDAQ are making real products, have real value, and will mostly still be here in a few years. You can't say the same for the ICO world.
neuro_imager 9y ago
Is there a way for moderators on HN to limit the amount of emotional rhetoric on cryptocurrency discussions? It would be great if comments here could be limited to substantiated technical and market analysis. Comments on ideology (again if substantiated) would be useful too but right now these discussions just degenerate into shouting matches with very low signal:noise.
naveen99 9y ago
Kind of a solved problem with high leverage. Keep 10% of your trading stack on the exchange, trade with 10x leverage. If mt gox and cryptsy allowed high leverage, it wouldn't have been as big of a disaster when they closed.
lawlessone 9y ago
"Bitcoin has enjoyed wider adoption than any previous cryptocurrency;" Was there anything before bitcoin that could have been defined as such?
yashksagar 9y ago
Don't worry keep HODLing! https://www.youtube.com/watch?v=rg2oukQZ6dg https://www.youtube.com/watch?v=rg2oukQZ6dg

34 points by gwern 9y ago

Animats 9y ago

"The overall failure rate of Bitcoin exchanges is 48%, and the median lifetime of exchanges is 451 days."

jstanley 9y ago
By similar reasoning, only about 93% of humans who ever lived went on to die.
- gwern 9y ago
  The median isn't affected by the right-censored datapoints (ie you only need to observe half of humans to find the median life expectancy, by definition), which is why it's used so much in survival analysis. Failure seems to mean 'closed' but there's no reason to expect such a short lifetime of exchanges that they would all close already (an exchange can be immortal) and even if you think that, the exact number of 48% is useful as it gives you an idea of how informative the dataset is due to right-censoring (the closer to 100%, the closer to a complete dataset in which all deaths have been observed).

mikro2nd 9y ago

As the crypto-asset world keeps warning newcomers: Don't keep assets in exchange-hosted wallets for longer term holding. Move them to a wallet under your own control. And back it up really, really well.

empath75 9y ago
Yeah I definitely want to invest my life savings in something I need to keep on a USB key.
- lyk 9y ago
  I don't get the point of this comment. Are you criticizing the current state of cryptocurrencies, or are you implying that investing your life savings in an exchange is somehow safer than keeping it on a USB key?
  - empath75 9y ago
    I’m saying that there’s no safe and convenient place to keep your bitcoins.
    - barkingcat 9y ago
      Of course there is - archival quality printout of a paper (on archival acidfree paper) wallet stored in a bank safe. That's safe. Convenience depends on how often you need it (and so there's not one standard of convenience you can quantify without being the actual person who's using it.)
      - tobltobs 9y ago
        The recommended place to store bitcoins, the currency which promises freedom from the corrupt banking system, are banks? > That's safe. It is quite safe, but still not as safe (World Trade Center, Hurricane Katrina, ...) as your money in an account with insurance. And much more inconvenient.
        freejulian 9y ago
        Safe deposit boxes held in a vault is one of the banking services I'm OK with.
        jstanley 9y ago
        You can split a bitcoin key up using Shamir's Secret Sharing Scheme (or just multisig) and store the key geographically-distributed such that if any one location is destroyed you don't lose the money, and if any one location is stolen the thief doesn't get the money. You can also replace "one" with an arbitrarily-large number, depending on how many locations you want to store the money in.

gaetanrickter 9y ago

¯\_(ツ)_/¯ it's the wild west. Do you think I want to trust my money on Wall Street instead?

bryananderson 9y ago
You’d be wise to. First-world stock exchanges are not in the habit of disappearing, and volatility is significantly lower (yeah, yeah, the past week, I know, but I’m assuming we’re talking about a long time horizon like retirement).
- gaetanrickter 9y ago
  There are more crooks on wall Street (including the Banks) than in crypto. Edit: Source: The 2008/09 financial crisis. You really don't need a specific source here as it's clear to everyone that Banks have done great dishonest disservices to their customers. Wells Fargo's latest news is case and point.
  - bjl 9y ago
    Source? Because on the face of it that's laughably untrue.
  - pjc50 9y ago
    The one thing they don't do is actually collapse and leave the customer out of pocket.
  - GhostVII 9y ago
    Regardless, who cares how many 'crooks' there are on Wall Street. If you want to get rich slow, you throw your money in a stable investment in stocks, the 401k has made lots of millionaires.
  - ceejayoz 9y ago
    > There are more crooks on wall Street (including the Banks) than in crypto. This is a fun statement, because it's vague enough to be defended with "oh, but I meant <foo>". Yeah, Wells Fargo got caught making accounts people didn't know about. There are cases like Enron. Financial crises, overdraft fees inflated by ordering transactions maliciously, etc. In the grand scheme of things, though, Wall Street tends to work, and fairly well, and when it has an issue it winds up recovering eventually so you're fine if you're well diversified and don't need to retire next week. The various stocks in the DJIA and the NASDAQ are making real products, have real value, and will mostly still be here in a few years. You can't say the same for the ICO world.

neuro_imager 9y ago

Is there a way for moderators on HN to limit the amount of emotional rhetoric on cryptocurrency discussions? It would be great if comments here could be limited to substantiated technical and market analysis. Comments on ideology (again if substantiated) would be useful too but right now these discussions just degenerate into shouting matches with very low signal:noise.

naveen99 9y ago

Kind of a solved problem with high leverage. Keep 10% of your trading stack on the exchange, trade with 10x leverage. If mt gox and cryptsy allowed high leverage, it wouldn't have been as big of a disaster when they closed.

lawlessone 9y ago

"Bitcoin has enjoyed wider adoption than any previous cryptocurrency;" Was there anything before bitcoin that could have been defined as such?

yashksagar 9y ago

Don't worry keep HODLing! https://www.youtube.com/watch?v=rg2oukQZ6dg https://www.youtube.com/watch?v=rg2oukQZ6dg