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Bitcoin holders are of course having a field day with this, especially after Yellen's comments. However, this is a false equivalency. For regular retail banking

Bitcoin holders are of course having a field day with this, especially after Yellen's comments. However, this is a false equivalency. For regular retail banking customers your deposits have FDIC protection, not a thing you can get with BTC. You can use Coinbase, which does offer insurance, but then you're back under a centralized system with the same single point of failure issues.

capableweb 6y ago
Indeed, FDIC is not something that you need in the case of BTC as it's fluid and is not locked to one "bank" / "exchange" / new future entities. It's interoperable between many systems today too.
- xirbeosbwo1234 6y ago
  That is good news for the users of Mt.Gox, Bitcoin7, Bitcoinica, Bitfloor, Vircurex, Inputs.io, Picostocks, Flexcoin, Poloniex, MintPal, Cryptsy, Bitstamp, BTER, KipCoin, Bitfinex, Gatecoin, Bitcurex, Yapizon, LocalBitcoins, Coincheck, BitGrail, Coinrail, Bithumb, Bancor, Zaif, MapleChange, Cryptopia, Coinbene, Bitrue, BITPoint, Upbit, Eterbase, KuCoin, Livecoin, and the DAO. Their money can never be lost because it is secured by logic itself. EDIT: It appears I forgot to list a few dozen exchange hacks.
- Robotbeat 6y ago
  It is if you use an online wallet.
  - capableweb 6y ago
    If you use an exchange/"bank" like Coinbase, then yeah. What do you mean with online wallet? It's either only you have the keys, or you don't/someone else also does.
    - Robotbeat 6y ago
      If I have a soft wallet and I have automatic updates enabled on my OS, do only I have the keys or do Microsoft/Apple/Google/Samsung/Canonical have them as well? EDIT: For clarity, I was referring to an actual online wallet, a wallet on a website, but it’s not too different to ask the same question about a software wallet on a computer-connected device that does automatic OS or wallet software updates.
      - miguelmota 6y ago
        Only you have the keys, otherwise it'd be like saying if you purchased and downloaded a movie, then Microsoft/Apple/Google/Samsung/Canonical have ownership of them as well.
        Robotbeat 6y ago
        If you’re not using a cold wallet and doing the transaction signing completely offline, then you’re trusting Microsoft/etc not to steal your keys. It’s not just you who could have access to the keys if your keys are stored on an Internet-connected device somewhere that can have its software updated.
        ClumsyPilot 6y ago
        Well in use Intel CPU their management engine could steal your keys from RAM as you are making a transaction. So unless you build your own computer you are trusting someome somewhere
        Robotbeat 6y ago
        What good will the management engine stealing my keys be to Intel or anyone if I never even put the computer I’m using to sign transactions or generate the public key online? The signed transaction can be transferred manually in hexadecimal to an internet-connected computer which broadcasts the transaction (but never sees the private key ever). Secondly, you can use computer hardware from before even the invention of Bitcoin, and then code the software on that hardware, developing the libraries yourself. Third, you can use computers simple enough that it’s not feasible to hide any management engine trickery in it. Fourth, yes, you CAN actually build your own computer, which I’m trying to do. :) But to further your point, I still haven’t proven to myself the argument that the elliptic curve used by Bitcoin hasn’t been intentionally compromised like the NIST curves were. I take the word of the Internet for granted there... But I suppose I could prove that myself.
- tw04 6y ago
  If you think the people that exchange BTC wouldn't lockdown immediately in the event of a run on BTC, I think you're being naive.
  - Geee 6y ago
    Most bitcoin is not held on exchanges or in custody. "run on BTC" is not possible, because people already own their bitcoin. Also, exchange reserves aren't fractional, so there's no reason they would lockdown withdrawals. You can track the bitcoin reserves on exchanges here: https://cryptoquant.com/overview/full/247?window=day https://cryptoquant.com/overview/full/247?window=day
  - geomark 6y ago
    What does a "run on BTC" mean?
A4ET8a8uTh0 6y ago
Yes and no. You have a point about certain level of protection for customer, but it does not address ineffciency ( which is the accusation Yellen placed against crypto ). In other words, it is not false equivalency at all. When looking at the features that are compared, the analogy is more than apt.
thebean11 6y ago
> with the same single point of failure issues Well, with different issues. FDIC insurance is probably better than whatever Coinbase has. You are also open to technical f-ups on Coinbase's end, which can move the price down if they are bad enough. On the other hand, Coinbase cannot print BTC. This characteristic is what draws a lot of people to Bitcoin, beyond just "nobody can take my keys". Agree it's a false equivalency, disagree that holding BTC in Coinbase defeats the purpose.
howmayiannoyyou 6y ago
As someone who sends wires frequently for work... way to complicated and unnecessarily so as compared to moving cryptocurrency. I would MUCH rather enter an address and memo field (Eg. XLM-Stellar) to move USD -> EUR then go through the IBAN/SWIFT, etc. headache; let alone the fees.
- Robotbeat 6y ago
  I’m skeptical of Bitcoin as-is for any purpose (except Venezuelan digital gold) and cryptocurrencies generally as a “store of value”, but I can see the value cryptocurrencies could provide by offering some method of getting around the unnecessarily bad transaction systems we have in place today at least in the US.
  - cft 6y ago
    The Venezuelan digital gold may come here sooner than many think.
  - lxgr 6y ago
    You don‘t need cryptocurrencies for that. Many people in this thread have already mentioned SEPA – bulk retail payments have been a solved problem in Europe for years, and instant settlement is currently being rolled out.
    - Robotbeat 6y ago
      You’re absolutely right. It’s ridiculous we haven’t solved this already. The value of cryptocurrency is inversely proportional to how functional the regular digital banking system is.
    - omilu 6y ago
      Crypto advantage is no need to rely on or trust a 3rd party.
      - deleted 6y ago
        [deleted]
BelenusMordred 6y ago
FDIC protection being invoked will still have anyone holding US dollars to rush for the doors trying to put it into anything else. There's absolutely no guarantee of protecting the value of assets, simply the number of them.
- Robotbeat 6y ago
  What would happen if suddenly (on news from some exploit or a scheduled banning by the vast majority of governments) everyone tried to pull their Bitcoin and put it into anything else? The blockchain can only do 7 transactions per second regardless of demand.
  - tobylane 6y ago
    The mempool queue would increase, iiuc. https://bitcoinqueue.com/#1,24h https://bitcoinqueue.com/#1,24h
    - quesera 6y ago
      That's correct, if the "into anything else" transaction required a cross through (any) blockchain. And the clearing feerate, which correlates to mempool queue depth, incoming transaction velocity, and cohort feerates, would increase dramatically. But if there was a run to convert BTC to USD, the exchanges would not be able to cover the USD required. They'd limit or suspend withdrawals immediately. At some point someone would have to start buying with fresh USD for the exchanges to be able to pay out the sellers. With big enough news, there could be tens of thousands of dollars gap between bid and ask, which would take a long time to ease.
    - Robotbeat 6y ago
      Yup, and the transaction fee would be bid up by people desperate to make transactions. To say nothing of the bottom falling out of the value of Bitcoin ...
  - krupan 6y ago
    This is different that everyone withdrawing dollars from a bank. The equivalent would be exchanging dollars for something not dollars. FDIC doesn't help there.
babyshake 6y ago
You could actually have something similar with blockchains. It depends on the specifics, but you would essentially have FDIC-style insurance on one blockchain in the event it goes down, and this would need to be facilitated on a different (and more stable) blockchain. For example, when Ethereum does a major upgrade I could imagine some people wanting this kind of insurance it case it goes down.
rtrdea 6y ago
What does insurance have to do with sending money?
- ceejayoz 6y ago
  Insurance potentially protects people from fuckups with the sending of the money, like "we sent $900M to the wrong person and they won't give it back". If the bank collapses, the individuals holding accounts at the bank are covered (to a point) by the FDIC.
  - A4ET8a8uTh0 6y ago
    Funny you should mention that. If the money is sent, and there is a clear record of it having been sent ( especially via wire ), I am not sure how easy would it be to claim it under FDIC umbrella if the bank collapsed. FDIC is for the money in the account.. although I am sure that is a fascinating question for a lawyer. edit: The reason wire fraud is so popular is basically, because once the money leaves the account, the recipient has to agree to return it. You can imagine fraudster likely will not.
    - kenniskrag 6y ago
      That breaks a law "unjustified enrichment" in some country and a court can enforce the return.
    - sjg007 6y ago
      FDIC insures the individual deposit accounts up to some maximum per account type. Say Citibank only had 900M and they fat fingered their own 900M as principal payment on some loan they are administering, then it could lead to a collapse of Citibank. In the most recent case the judge let it stand so Citibank has to absorb it and now becomes the de facto lender to Revlon now I guess. I imagine there must be some contract stipulations to Revlon / Citi or Revlon needs to negotiate. If there aren't, then Revlon got a sweet deal but I imagine all new loan related documents got updated to reverse this kind of thing in the future. If Revlon acts like they got 900M in free money well then the company will go out of business because no bank will work with them again. I imagine they will get a nice interest rate though since they have leverage now. For the average person, I wonder if this means that if your mortgage servicer or your say student loan servicer does the same thing and inadvertantly pays off your loans that they then can't come back at you.
jMyles 6y ago
> For regular retail banking customers your deposits have FDIC protection, not a thing you can get with BTC. I'm not sure how to even understand this comparison. FDIC protection ensures that if your bank fails, your money isn't lost; you can move it to another bank. This vulnerability doesn't exist with Bitcoin, so there's no need to protect against it (though obviously it has other risks that are mitigated by the presence of a bank in the first place, like loss of access due to poor secret handling).
- lallysingh 6y ago
  I think a good-till-cancelled limit sell order on an exchange can do a lot of that too...
toomim 6y ago
> For regular retail banking customers your deposits have FDIC protection, not a thing you can get with BTC. If you use Bitcoin, then you remove the bank, and you don't need FDIC. FDIC is there to protect bank customers from a bank going insolvent. Banks go insolvent if they lend too much money out, and then all customers demand their money back at once. Your Bitcoin wallet doesn't lend your money out. It can't go insolvent. You don't need FDIC for it.
- UShouldBWorking 6y ago
  Exactly! Op seems to be saying the FDIC protects users from loss of funds. Not the case, FDIC protects users from Banks, something Bitcoin (Cash) does far better.
- dpedu 6y ago
  Ridiculous. Here's a clear example of why lacking this is Bad For Bitcoin: https://www.google.com/search?q=hacked+site%3Ahttp%3A%2F%2Freddit.com%2Fr%2Fbitcoin https://www.google.com/search?q=hacked+site%3Ahttp%3A%2F%2Fr...
  - imgabe 6y ago
    The FDIC doesn't protect you from your bank account getting hacked.
    - mullingitover 6y ago
      It doesn't need to, ACH is reversible for up to 60 days.
      - imgabe 6y ago
        Parent is saying that the lack of FDIC protection is bad for Bitcoin because your wallet can get hacked. I'm just pointing out that the FDIC has nothing to do with preventing anyone from getting hacked. Adding FDIC protection to Bitcoin would not change anything about whether or not your wallet could get hacked. Bitcoin is more like having a pile of cash. The FDIC doesn't protect you against a pile of cash in your house getting stolen. Keeping a large amount of cash has advantages and disadvantages and risks. If you aren't willing to understand and mitigate those risks, then don't do it.
tern 6y ago
As the DeFi ecosystem develops over the next 10 years and likely governments get involved, something like FDIC insurance will emerge in those systems—probably both centralized and algorithmic versions. Rudimentary versions of many financial instruments already exist, including insurance. Bitcoin will become a piece of a much bigger puzzle.

capableweb 6y ago

Indeed, FDIC is not something that you need in the case of BTC as it's fluid and is not locked to one "bank" / "exchange" / new future entities. It's interoperable between many systems today too.

xirbeosbwo1234 6y ago
That is good news for the users of Mt.Gox, Bitcoin7, Bitcoinica, Bitfloor, Vircurex, Inputs.io, Picostocks, Flexcoin, Poloniex, MintPal, Cryptsy, Bitstamp, BTER, KipCoin, Bitfinex, Gatecoin, Bitcurex, Yapizon, LocalBitcoins, Coincheck, BitGrail, Coinrail, Bithumb, Bancor, Zaif, MapleChange, Cryptopia, Coinbene, Bitrue, BITPoint, Upbit, Eterbase, KuCoin, Livecoin, and the DAO. Their money can never be lost because it is secured by logic itself. EDIT: It appears I forgot to list a few dozen exchange hacks.
Robotbeat 6y ago
It is if you use an online wallet.
- capableweb 6y ago
  If you use an exchange/"bank" like Coinbase, then yeah. What do you mean with online wallet? It's either only you have the keys, or you don't/someone else also does.
  - Robotbeat 6y ago
    If I have a soft wallet and I have automatic updates enabled on my OS, do only I have the keys or do Microsoft/Apple/Google/Samsung/Canonical have them as well? EDIT: For clarity, I was referring to an actual online wallet, a wallet on a website, but it’s not too different to ask the same question about a software wallet on a computer-connected device that does automatic OS or wallet software updates.
    - miguelmota 6y ago
      Only you have the keys, otherwise it'd be like saying if you purchased and downloaded a movie, then Microsoft/Apple/Google/Samsung/Canonical have ownership of them as well.
      - Robotbeat 6y ago
        If you’re not using a cold wallet and doing the transaction signing completely offline, then you’re trusting Microsoft/etc not to steal your keys. It’s not just you who could have access to the keys if your keys are stored on an Internet-connected device somewhere that can have its software updated.
        ClumsyPilot 6y ago
        Well in use Intel CPU their management engine could steal your keys from RAM as you are making a transaction. So unless you build your own computer you are trusting someome somewhere
        Robotbeat 6y ago
        What good will the management engine stealing my keys be to Intel or anyone if I never even put the computer I’m using to sign transactions or generate the public key online? The signed transaction can be transferred manually in hexadecimal to an internet-connected computer which broadcasts the transaction (but never sees the private key ever). Secondly, you can use computer hardware from before even the invention of Bitcoin, and then code the software on that hardware, developing the libraries yourself. Third, you can use computers simple enough that it’s not feasible to hide any management engine trickery in it. Fourth, yes, you CAN actually build your own computer, which I’m trying to do. :) But to further your point, I still haven’t proven to myself the argument that the elliptic curve used by Bitcoin hasn’t been intentionally compromised like the NIST curves were. I take the word of the Internet for granted there... But I suppose I could prove that myself.
tw04 6y ago
If you think the people that exchange BTC wouldn't lockdown immediately in the event of a run on BTC, I think you're being naive.
- Geee 6y ago
  Most bitcoin is not held on exchanges or in custody. "run on BTC" is not possible, because people already own their bitcoin. Also, exchange reserves aren't fractional, so there's no reason they would lockdown withdrawals. You can track the bitcoin reserves on exchanges here: https://cryptoquant.com/overview/full/247?window=day https://cryptoquant.com/overview/full/247?window=day
- geomark 6y ago
  What does a "run on BTC" mean?

A4ET8a8uTh0 6y ago

Yes and no. You have a point about certain level of protection for customer, but it does not address ineffciency ( which is the accusation Yellen placed against crypto ). In other words, it is not false equivalency at all. When looking at the features that are compared, the analogy is more than apt.

thebean11 6y ago

> with the same single point of failure issues Well, with different issues. FDIC insurance is probably better than whatever Coinbase has. You are also open to technical f-ups on Coinbase's end, which can move the price down if they are bad enough. On the other hand, Coinbase cannot print BTC. This characteristic is what draws a lot of people to Bitcoin, beyond just "nobody can take my keys". Agree it's a false equivalency, disagree that holding BTC in Coinbase defeats the purpose.

howmayiannoyyou 6y ago

As someone who sends wires frequently for work... way to complicated and unnecessarily so as compared to moving cryptocurrency. I would MUCH rather enter an address and memo field (Eg. XLM-Stellar) to move USD -> EUR then go through the IBAN/SWIFT, etc. headache; let alone the fees.

Robotbeat 6y ago
I’m skeptical of Bitcoin as-is for any purpose (except Venezuelan digital gold) and cryptocurrencies generally as a “store of value”, but I can see the value cryptocurrencies could provide by offering some method of getting around the unnecessarily bad transaction systems we have in place today at least in the US.
- cft 6y ago
  The Venezuelan digital gold may come here sooner than many think.
- lxgr 6y ago
  You don‘t need cryptocurrencies for that. Many people in this thread have already mentioned SEPA – bulk retail payments have been a solved problem in Europe for years, and instant settlement is currently being rolled out.
  - Robotbeat 6y ago
    You’re absolutely right. It’s ridiculous we haven’t solved this already. The value of cryptocurrency is inversely proportional to how functional the regular digital banking system is.
  - omilu 6y ago
    Crypto advantage is no need to rely on or trust a 3rd party.
    - deleted 6y ago
      [deleted]

BelenusMordred 6y ago

FDIC protection being invoked will still have anyone holding US dollars to rush for the doors trying to put it into anything else. There's absolutely no guarantee of protecting the value of assets, simply the number of them.

Robotbeat 6y ago
What would happen if suddenly (on news from some exploit or a scheduled banning by the vast majority of governments) everyone tried to pull their Bitcoin and put it into anything else? The blockchain can only do 7 transactions per second regardless of demand.
- tobylane 6y ago
  The mempool queue would increase, iiuc. https://bitcoinqueue.com/#1,24h https://bitcoinqueue.com/#1,24h
  - quesera 6y ago
    That's correct, if the "into anything else" transaction required a cross through (any) blockchain. And the clearing feerate, which correlates to mempool queue depth, incoming transaction velocity, and cohort feerates, would increase dramatically. But if there was a run to convert BTC to USD, the exchanges would not be able to cover the USD required. They'd limit or suspend withdrawals immediately. At some point someone would have to start buying with fresh USD for the exchanges to be able to pay out the sellers. With big enough news, there could be tens of thousands of dollars gap between bid and ask, which would take a long time to ease.
  - Robotbeat 6y ago
    Yup, and the transaction fee would be bid up by people desperate to make transactions. To say nothing of the bottom falling out of the value of Bitcoin ...
- krupan 6y ago
  This is different that everyone withdrawing dollars from a bank. The equivalent would be exchanging dollars for something not dollars. FDIC doesn't help there.

babyshake 6y ago

You could actually have something similar with blockchains. It depends on the specifics, but you would essentially have FDIC-style insurance on one blockchain in the event it goes down, and this would need to be facilitated on a different (and more stable) blockchain. For example, when Ethereum does a major upgrade I could imagine some people wanting this kind of insurance it case it goes down.

rtrdea 6y ago

What does insurance have to do with sending money?

ceejayoz 6y ago
Insurance potentially protects people from fuckups with the sending of the money, like "we sent $900M to the wrong person and they won't give it back". If the bank collapses, the individuals holding accounts at the bank are covered (to a point) by the FDIC.
- A4ET8a8uTh0 6y ago
  Funny you should mention that. If the money is sent, and there is a clear record of it having been sent ( especially via wire ), I am not sure how easy would it be to claim it under FDIC umbrella if the bank collapsed. FDIC is for the money in the account.. although I am sure that is a fascinating question for a lawyer. edit: The reason wire fraud is so popular is basically, because once the money leaves the account, the recipient has to agree to return it. You can imagine fraudster likely will not.
  - kenniskrag 6y ago
    That breaks a law "unjustified enrichment" in some country and a court can enforce the return.
  - sjg007 6y ago
    FDIC insures the individual deposit accounts up to some maximum per account type. Say Citibank only had 900M and they fat fingered their own 900M as principal payment on some loan they are administering, then it could lead to a collapse of Citibank. In the most recent case the judge let it stand so Citibank has to absorb it and now becomes the de facto lender to Revlon now I guess. I imagine there must be some contract stipulations to Revlon / Citi or Revlon needs to negotiate. If there aren't, then Revlon got a sweet deal but I imagine all new loan related documents got updated to reverse this kind of thing in the future. If Revlon acts like they got 900M in free money well then the company will go out of business because no bank will work with them again. I imagine they will get a nice interest rate though since they have leverage now. For the average person, I wonder if this means that if your mortgage servicer or your say student loan servicer does the same thing and inadvertantly pays off your loans that they then can't come back at you.

jMyles 6y ago

> For regular retail banking customers your deposits have FDIC protection, not a thing you can get with BTC. I'm not sure how to even understand this comparison. FDIC protection ensures that if your bank fails, your money isn't lost; you can move it to another bank. This vulnerability doesn't exist with Bitcoin, so there's no need to protect against it (though obviously it has other risks that are mitigated by the presence of a bank in the first place, like loss of access due to poor secret handling).

lallysingh 6y ago
I think a good-till-cancelled limit sell order on an exchange can do a lot of that too...

toomim 6y ago

> For regular retail banking customers your deposits have FDIC protection, not a thing you can get with BTC. If you use Bitcoin, then you remove the bank, and you don't need FDIC. FDIC is there to protect bank customers from a bank going insolvent. Banks go insolvent if they lend too much money out, and then all customers demand their money back at once. Your Bitcoin wallet doesn't lend your money out. It can't go insolvent. You don't need FDIC for it.

UShouldBWorking 6y ago
Exactly! Op seems to be saying the FDIC protects users from loss of funds. Not the case, FDIC protects users from Banks, something Bitcoin (Cash) does far better.
dpedu 6y ago
Ridiculous. Here's a clear example of why lacking this is Bad For Bitcoin: https://www.google.com/search?q=hacked+site%3Ahttp%3A%2F%2Freddit.com%2Fr%2Fbitcoin https://www.google.com/search?q=hacked+site%3Ahttp%3A%2F%2Fr...
- imgabe 6y ago
  The FDIC doesn't protect you from your bank account getting hacked.
  - mullingitover 6y ago
    It doesn't need to, ACH is reversible for up to 60 days.
    - imgabe 6y ago
      Parent is saying that the lack of FDIC protection is bad for Bitcoin because your wallet can get hacked. I'm just pointing out that the FDIC has nothing to do with preventing anyone from getting hacked. Adding FDIC protection to Bitcoin would not change anything about whether or not your wallet could get hacked. Bitcoin is more like having a pile of cash. The FDIC doesn't protect you against a pile of cash in your house getting stolen. Keeping a large amount of cash has advantages and disadvantages and risks. If you aren't willing to understand and mitigate those risks, then don't do it.

tern 6y ago

As the DeFi ecosystem develops over the next 10 years and likely governments get involved, something like FDIC insurance will emerge in those systems—probably both centralized and algorithmic versions. Rudimentary versions of many financial instruments already exist, including insurance. Bitcoin will become a piece of a much bigger puzzle.