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> 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

by 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.
      - mullingitover 6y ago
        Having some form of insurance would be great for bitcoin holders, and for bitcoin in general. You're right that having a bitcoin wallet is like having a pile of cash: it's an all-around terrible financial plan. I can't think of any advantages to it unless you're operating a criminal enterprise.
        GoblinSlayer 6y ago
        The advantage is the same as with any wallet: it stores money that you can use.
tidepod12 6y ago
Yea, because no Bitcoin exchange or online wallet service has ever gone bankrupt, been hacked, and/or had employees disappear with everyone's money, leaving all of their customers high and dry. Nope, that's never happened...
- colejohnson66 6y ago
  The idea only works if you keep your private keys. If you use an online Bitcoin “bank”, then you do have to worry about them disappearing. cough Mt Gox cough
  - tidepod12 6y ago
    You can avoid having to deal with a fiat bank going insolvent by personally managing your money as cash stored under your mattress, too. But there are plenty of reasons you wouldn't want to do that.
    - sitevas35 6y ago
      Well that's a hell of an analogy. It's like I would receive one coin for each BTC and now had to somehow hide them in a closet lol. The real beauty about crypto currencies is that I can hide ANY amount, no matter how much with a single passphrase that I remember in my head or store somewhere in an encrypted form, or on hardware wallets. Whatever you prefer. But ultimately, you own the keys to the kingdom.
  - eli 6y ago
    Sure also works if you keep all your cash in a mattress.
    - colejohnson66 6y ago
      Yes. I’m not saying it’s a solution. Just saying that there is a way to avoid the exchanges/“banks” going bankrupt. Reading it over, it does feel like a “technically correct” answer and not a good one.
rsj_hn 6y ago
> Banks go insolvent if they lend too much money out, Banks don't go insolvent because they lend "too much" money out. They go insolvent because the collateral on those loans is less valuable than they estimated. E.g. the assets are lower than the liabilities. That is the only possible way that any business can go insolvent. So when you take a loan on a house, the house is the asset the money lent is the liability. Housing prices drop enough, people walk away from the loan, the bank goes insolvent. That is true if it has a big balance sheet or a small balance sheet as these numbers just scale out. > and then all customers demand their money back at once. That is applicable to the era portrayed in the Mary Poppins movie, but not in a modern banking system. Even in the early twentieth century "bank runs" was something people would talk about when what was really going on was asset deterioration and breakdowns in the capital market. But Hollywood preferred the more intuitive story and also the story in which the survival of the bank was in the hands of common people's choices rather than in the hands of the capital markets, where it truly lives. Thus you get It's a wonderful life where a stirring speech to not withdraw money can actually effect the P&L margin of a bank rather than the less exciting story of whether the bank's cost of funding exceeds its cost of borrowing. Today banks borrow at a low rate and lend at a higher rate. This includes borrowing whatever cash they need to meet outflows. In fact some banks don't even accept deposits at all, they just borrow from capital markets and don't even deal with depositors. Most big banks are depository institutions and tap both depositors and short term funding markets. All that matters is that the interest received from inflows is less than the interest paid on borrowing to satisfy outflows. It is all about making money on that spread. When banks can no longer make money on the spread, they go insolvent even if no one makes a withdrawal. If banks are making money on the spread, then withdrawals are not a concern to the bank.
- darig 6y ago
  If the collateral on the loans is less valuable than they estimated, then they lent too much money out. Duh?
- CaptainZapp 6y ago
  > That is applicable to the era portrayed in the Mary Poppins movie, but not in a modern banking system. Even in the early twentieth century "bank runs" was something people would talk about when what was really going on was asset deterioration and breakdowns in the capital market. Not quite. Yes, bank runs nowadays are very rare, but they can still happen, as exemplified by Northern Rock in 2007[1] "On 14 September 2007, the bank sought and received a liquidity support facility from the Bank of England, to replace funds it was unable to raise from the money market. Reporting of this complex scenario led to panic among individual depositors, who feared that their savings might not be available should Northern Rock go into receivership. The result was a bank run – the UK's first in 150 years – where depositors lined up outside the bank to withdraw all of their savings as quickly as possible, particularly since many others were doing the same." [1] https://en.wikipedia.org/wiki/Northern_Rock#2007_crisis_and_initial_responses https://en.wikipedia.org/wiki/Northern_Rock#2007_crisis_and_...
deleted 6y ago
[deleted]

by toomim 6y ago

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.
    - mullingitover 6y ago
      Having some form of insurance would be great for bitcoin holders, and for bitcoin in general. You're right that having a bitcoin wallet is like having a pile of cash: it's an all-around terrible financial plan. I can't think of any advantages to it unless you're operating a criminal enterprise.
      - GoblinSlayer 6y ago
        The advantage is the same as with any wallet: it stores money that you can use.

tidepod12 6y ago

Yea, because no Bitcoin exchange or online wallet service has ever gone bankrupt, been hacked, and/or had employees disappear with everyone's money, leaving all of their customers high and dry. Nope, that's never happened...

colejohnson66 6y ago
The idea only works if you keep your private keys. If you use an online Bitcoin “bank”, then you do have to worry about them disappearing. cough Mt Gox cough
- tidepod12 6y ago
  You can avoid having to deal with a fiat bank going insolvent by personally managing your money as cash stored under your mattress, too. But there are plenty of reasons you wouldn't want to do that.
  - sitevas35 6y ago
    Well that's a hell of an analogy. It's like I would receive one coin for each BTC and now had to somehow hide them in a closet lol. The real beauty about crypto currencies is that I can hide ANY amount, no matter how much with a single passphrase that I remember in my head or store somewhere in an encrypted form, or on hardware wallets. Whatever you prefer. But ultimately, you own the keys to the kingdom.
- eli 6y ago
  Sure also works if you keep all your cash in a mattress.
  - colejohnson66 6y ago
    Yes. I’m not saying it’s a solution. Just saying that there is a way to avoid the exchanges/“banks” going bankrupt. Reading it over, it does feel like a “technically correct” answer and not a good one.

rsj_hn 6y ago

> Banks go insolvent if they lend too much money out, Banks don't go insolvent because they lend "too much" money out. They go insolvent because the collateral on those loans is less valuable than they estimated. E.g. the assets are lower than the liabilities. That is the only possible way that any business can go insolvent. So when you take a loan on a house, the house is the asset the money lent is the liability. Housing prices drop enough, people walk away from the loan, the bank goes insolvent. That is true if it has a big balance sheet or a small balance sheet as these numbers just scale out. > and then all customers demand their money back at once. That is applicable to the era portrayed in the Mary Poppins movie, but not in a modern banking system. Even in the early twentieth century "bank runs" was something people would talk about when what was really going on was asset deterioration and breakdowns in the capital market. But Hollywood preferred the more intuitive story and also the story in which the survival of the bank was in the hands of common people's choices rather than in the hands of the capital markets, where it truly lives. Thus you get It's a wonderful life where a stirring speech to not withdraw money can actually effect the P&L margin of a bank rather than the less exciting story of whether the bank's cost of funding exceeds its cost of borrowing. Today banks borrow at a low rate and lend at a higher rate. This includes borrowing whatever cash they need to meet outflows. In fact some banks don't even accept deposits at all, they just borrow from capital markets and don't even deal with depositors. Most big banks are depository institutions and tap both depositors and short term funding markets. All that matters is that the interest received from inflows is less than the interest paid on borrowing to satisfy outflows. It is all about making money on that spread. When banks can no longer make money on the spread, they go insolvent even if no one makes a withdrawal. If banks are making money on the spread, then withdrawals are not a concern to the bank.

darig 6y ago
If the collateral on the loans is less valuable than they estimated, then they lent too much money out. Duh?
CaptainZapp 6y ago
> That is applicable to the era portrayed in the Mary Poppins movie, but not in a modern banking system. Even in the early twentieth century "bank runs" was something people would talk about when what was really going on was asset deterioration and breakdowns in the capital market. Not quite. Yes, bank runs nowadays are very rare, but they can still happen, as exemplified by Northern Rock in 2007[1] "On 14 September 2007, the bank sought and received a liquidity support facility from the Bank of England, to replace funds it was unable to raise from the money market. Reporting of this complex scenario led to panic among individual depositors, who feared that their savings might not be available should Northern Rock go into receivership. The result was a bank run – the UK's first in 150 years – where depositors lined up outside the bank to withdraw all of their savings as quickly as possible, particularly since many others were doing the same." [1] https://en.wikipedia.org/wiki/Northern_Rock#2007_crisis_and_initial_responses https://en.wikipedia.org/wiki/Northern_Rock#2007_crisis_and_...

deleted 6y ago

[deleted]