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To the crypto-inclined people commenting on every thread about how failing centralized exchanges don't effect you and are actually good for Bitcoin, how are you

To the crypto-inclined people commenting on every thread about how failing centralized exchanges don't effect you and are actually good for Bitcoin, how are you planning to convert your hard earned crypto into US dollars that you can spend at a grocery store? If your answer is "P2P exchanges," how do you plan to secure your cold wallet against the infamous rubber hose cryptanalysis?

deleted 4y ago
[deleted]
throwup 4y ago
1. Some exchanges are irresponsible and fail. Some exchanges are not irresponsible and do not fail. If you do a minimum of due diligence, it's not hard to tell the responsible from the irresponsible. Do they regularly publish independently-verifiable audits? Or are they spending boatloads money on stadium sponsorships? 2. If you're using an exchange for exchanging currencies (as opposed to speculation) you can send your money there, exchange it, and immediately send it back out. You're only exposed for at most an hour or two. If you've chosen a well-reputed exchange that's been around for 10+ years, chances are effectively nil that it suddenly disappears during that small window with no warning signs beforehand.
- DebtDeflation 4y ago
  >Do they regularly publish independently-verifiable audits? Which exchange does this? I'm not talking about finding some mom and pop accounting shop to issue a 1 page report stating they checked on a certain date and the reserves were there, where the majority of the 1 page was a disclaimer stating that this wasn't technically an "audit" and should not be relied upon as such.
  - throwup 4y ago
    Kraken does at least. AIUI their auditor is given a snapshot of all account balances at a particular point in time, and builds a merkle tree. You can then reconstruct your expected merkle leaf and verify that your specific account was included in the tree. You can verify on the auditor's website, or you can do it by hand. Kraken's help page even has code snippets in Python/Go/etc to make it easy! More info: https://www.kraken.com/proof-of-reserves https://www.kraken.com/proof-of-reserves https://proof-of-reserves.trustexplorer.io/clients/kraken https://proof-of-reserves.trustexplorer.io/clients/kraken
    - DebtDeflation 4y ago
      No, they do not. They only verify BTC and ETH, no other holdings, and they don't audit liabilities at all, meaning that they could be using your BTC as collateral for loans. Also, the audit they did last December was the second in 8 years and AKAIK they haven't done another since. Kraken is in no way "audited".
      - throwup 4y ago
        Full of misinformation. > They only verify BTC and ETH Click the link and you see this isn't true: "ADA ADA.S BTC BTC.M DOT DOT.S DOT.P etc etc" > they don't audit liabilities at all All liabilities were verified by the auditors and included in the merkle tree, and as mentioned, all users can independently verify that their specific liabilities are present. What more would you expect? > the audit they did last December was the second in 8 years Their most recent audit was end of Q2 this year. They do audits semi-annually.
        karpierz 4y ago
        > All liabilities were verified by the auditors and included in the merkle tree, and as mentioned, all users can independently verify that their specific liabilities are present. What more would you expect? Where in the report do they verify off-chain liabilities?
        throwup 4y ago
        I'm still not quite sure you're after, but I guess it would be this quote on page 3: > 14) Compare the total liabilities from the Client Liability Report extracted from Kraken’s production database as observed within Procedure 5 to the total assets controlled by the Kraken custodied addresses (the “In-Kind Assets”) as of the specified date and time of the assessment time and calculate the collateralization ratio based on the In-Kind Asset-to-Client Liability mapping provided by Kraken Management
        4y ago
- andrewla 4y ago
  Here #2 is really the key, together with making sure that the exchange actually allows you to withdraw your money in a timely fashion (which not all of them do). Given that, even #1 is of marginal importance.
politician 4y ago
Monero has better security properties than the other coins, so one approach is the PayPal strategy: keep the bulk of your funds in Monero where the platform risk is minimal, and then trade into exchanges with smaller amounts that you’re willing to expose to custodian risk for short timeframe trades to fiat.
monero-xmr 4y ago
Not every exchange ran off with customer funds (i.e. Coinbase). And as others have commented, P2P is actually quite vibrant, it just doesn't get much attention. Check out: Bisq https://bisq.network/ https://bisq.network/ LocalMonero https://localmonero.co/?language=en https://localmonero.co/?language=en
mirzap 4y ago
Who says they want to spend US $? If bitcoin (or any other) decentralized currency succeeds and gets world-wide adoption you'll not have to convert it into anything else. You'll spend it as money. That's the ultimate goal of bitcoin. With massive adoption price movements will stabilize so price move of 1.5% will look like a huge deal then.
- boc 4y ago
  Because economic activity is fundamentally incompatible with a deflationary currency like Bitcoin? If I can passively generate wealth by doing nothing but waiting, so can everyone else. Only suckers would work. This is basic macroeconomics but for some reason crypto believers just choose to live in an alternative reality.
  - coffeebeqn 4y ago
    That’s assuming you have enough wealth to generate enough extra to live off of. That’s already what the rich/FIRE do
  - mirzap 4y ago
    I disagree. Wealth today is preserved thanks to "deflationary" instruments, whose value rises over time - like gold, silver or even stocks. Rich people take a loans of inflationary $$$ against their deflationary assets to generate economic activity. With that they not only preserve their fortune, but generate a lot more thanks to that economic activity they initiated. Bitcoin will allow that to everyone, not just the rich people. Also, it worked for thousands of years with gold. Whole civilisations have run on gold, for thousands of years. Every time in history when some innovation comes up people doing the old way were saying "that's not possible. it will never work. you don't understand the basics of X". History surely rimes.
    - lxgr 4y ago
      What incentivizes people to spend their Bitcoin today (whether as a business expense or for their cost of living) rather than holding on to them until tomorrow, getting richer passively? Would lending be allowed in your model? If so, what makes it different from the status quo (fractional reserve banking and ultimately debt becoming money itself)? If not, how do I start a business or purchase a home without the lump sump required to do so under my pillow? How do you adapt the monetary base to increased or decreased production capacity in a world based on the Bitcoin standard? Not every fundamentally broken economic model is an innovation, and just because everybody tells its proponents so does not make this idea some kind of underdog stroke of genius.
yieldcrv 4y ago
There are plenty of functioning places to exchange, other properly run centralized exchanges and OTC desks (like Genesis). You go there for the 5 minutes that you need them. Crypto in, dollars out. Dollars in, crypto out. Even exposure to improperly run crypto exchanges and OTC desk is so limited, when using them properly. I don't understand how this is still so foreign a decade plus later.
sschueller 4y ago
The idea is that you don't need to convert your crypto to fiat. The issue is the volatility and that needs to become stable enough against fiat for it to no longer matter for people to convert it.
matthewdgreen 4y ago
Ugh, please kill me for answering this question because I don't want to join the "everything is awesome" crowd. But from a technical perspective, you are describing two very different functions that are currently provided by "centralized exchanges", but don't need to be: 1. Interfacing with the traditional (fiat) banking system: today this can be done with regulated fiat-backed stablecoins like Paxos USD, Gemini USD or Circle's USDC. It's critical that these institutions be carefully regulated by government entities to ensure the deposits are protected, but this is feasible (Paxos and Gemini are regulated by NYDFS, Circle's regulation story is more complex but there is one.) This regulation is crucial to ensure that "the assets are in the bank", but you only need a few such issuers to be regulated. This is much more scalable than trusting every two-bit crypto exchange in the world. 2. Custody of signing keys: this can also be technically managed by centralized institutions. Anchorage Digital and Fireblocks are examples of this. These centralized solutions can't ever perfectly eliminate risk (they are centralized, after all), but they can make you much resistant to rubber hose attacks. The actual technology is based on hardware security modules and MPC, plus lots of excellent security engineering. In theory once you have reliable building blocks for these two components, the rest can be achieved using smart contracts without the need for further centralization or trust risk. (You will, of course, risk bugs in the smart contract. But this is a technical problem that we can potentially solve using technical means, not a fundamental problem of human trust.) In general the idea here is to optimize your "trusted human base" so that it is as small as possible (and have those parts carefully regulated), and then you can covert the rest into problems that have purely technical solutions. Obviously this story only works if you're doing fiat-crypto conversion and storage of assets. The minute you start lending assets to people then you're back to trusting human beings to actually pay you back, so you'd better make good judgements about their (possibly illiquid) collateral.
- jcpham2 4y ago
  For whatever it's worth I think you've done a great job answering the question in it's entirety. The moment lending/repayment and interest rates enter the equation with crypto currencies (whose value _completely_ floats) and deflates its issuance in a lot of scenarios - all bets are off as far as repayment goes. Their is no business plan to account for such swings. The thing we've been saying for ten years on IRC is Bitcoin loans are gifts, because that's what they are. I've had enough loans defaulted on to definitely tell you and agree with this premise: once lending enters the picture, your money is just another row in a database.

deleted 4y ago

[deleted]

throwup 4y ago

1. Some exchanges are irresponsible and fail. Some exchanges are not irresponsible and do not fail. If you do a minimum of due diligence, it's not hard to tell the responsible from the irresponsible. Do they regularly publish independently-verifiable audits? Or are they spending boatloads money on stadium sponsorships? 2. If you're using an exchange for exchanging currencies (as opposed to speculation) you can send your money there, exchange it, and immediately send it back out. You're only exposed for at most an hour or two. If you've chosen a well-reputed exchange that's been around for 10+ years, chances are effectively nil that it suddenly disappears during that small window with no warning signs beforehand.

DebtDeflation 4y ago
>Do they regularly publish independently-verifiable audits? Which exchange does this? I'm not talking about finding some mom and pop accounting shop to issue a 1 page report stating they checked on a certain date and the reserves were there, where the majority of the 1 page was a disclaimer stating that this wasn't technically an "audit" and should not be relied upon as such.
- throwup 4y ago
  Kraken does at least. AIUI their auditor is given a snapshot of all account balances at a particular point in time, and builds a merkle tree. You can then reconstruct your expected merkle leaf and verify that your specific account was included in the tree. You can verify on the auditor's website, or you can do it by hand. Kraken's help page even has code snippets in Python/Go/etc to make it easy! More info: https://www.kraken.com/proof-of-reserves https://www.kraken.com/proof-of-reserves https://proof-of-reserves.trustexplorer.io/clients/kraken https://proof-of-reserves.trustexplorer.io/clients/kraken
  - DebtDeflation 4y ago
    No, they do not. They only verify BTC and ETH, no other holdings, and they don't audit liabilities at all, meaning that they could be using your BTC as collateral for loans. Also, the audit they did last December was the second in 8 years and AKAIK they haven't done another since. Kraken is in no way "audited".
    - throwup 4y ago
      Full of misinformation. > They only verify BTC and ETH Click the link and you see this isn't true: "ADA ADA.S BTC BTC.M DOT DOT.S DOT.P etc etc" > they don't audit liabilities at all All liabilities were verified by the auditors and included in the merkle tree, and as mentioned, all users can independently verify that their specific liabilities are present. What more would you expect? > the audit they did last December was the second in 8 years Their most recent audit was end of Q2 this year. They do audits semi-annually.
      - karpierz 4y ago
        > All liabilities were verified by the auditors and included in the merkle tree, and as mentioned, all users can independently verify that their specific liabilities are present. What more would you expect? Where in the report do they verify off-chain liabilities?
        throwup 4y ago
        I'm still not quite sure you're after, but I guess it would be this quote on page 3: > 14) Compare the total liabilities from the Client Liability Report extracted from Kraken’s production database as observed within Procedure 5 to the total assets controlled by the Kraken custodied addresses (the “In-Kind Assets”) as of the specified date and time of the assessment time and calculate the collateralization ratio based on the In-Kind Asset-to-Client Liability mapping provided by Kraken Management
        4y ago
andrewla 4y ago
Here #2 is really the key, together with making sure that the exchange actually allows you to withdraw your money in a timely fashion (which not all of them do). Given that, even #1 is of marginal importance.

politician 4y ago

Monero has better security properties than the other coins, so one approach is the PayPal strategy: keep the bulk of your funds in Monero where the platform risk is minimal, and then trade into exchanges with smaller amounts that you’re willing to expose to custodian risk for short timeframe trades to fiat.

monero-xmr 4y ago

Not every exchange ran off with customer funds (i.e. Coinbase). And as others have commented, P2P is actually quite vibrant, it just doesn't get much attention. Check out: Bisq https://bisq.network/ https://bisq.network/ LocalMonero https://localmonero.co/?language=en https://localmonero.co/?language=en

mirzap 4y ago

Who says they want to spend US $? If bitcoin (or any other) decentralized currency succeeds and gets world-wide adoption you'll not have to convert it into anything else. You'll spend it as money. That's the ultimate goal of bitcoin. With massive adoption price movements will stabilize so price move of 1.5% will look like a huge deal then.

boc 4y ago
Because economic activity is fundamentally incompatible with a deflationary currency like Bitcoin? If I can passively generate wealth by doing nothing but waiting, so can everyone else. Only suckers would work. This is basic macroeconomics but for some reason crypto believers just choose to live in an alternative reality.
- coffeebeqn 4y ago
  That’s assuming you have enough wealth to generate enough extra to live off of. That’s already what the rich/FIRE do
- mirzap 4y ago
  I disagree. Wealth today is preserved thanks to "deflationary" instruments, whose value rises over time - like gold, silver or even stocks. Rich people take a loans of inflationary $$$ against their deflationary assets to generate economic activity. With that they not only preserve their fortune, but generate a lot more thanks to that economic activity they initiated. Bitcoin will allow that to everyone, not just the rich people. Also, it worked for thousands of years with gold. Whole civilisations have run on gold, for thousands of years. Every time in history when some innovation comes up people doing the old way were saying "that's not possible. it will never work. you don't understand the basics of X". History surely rimes.
  - lxgr 4y ago
    What incentivizes people to spend their Bitcoin today (whether as a business expense or for their cost of living) rather than holding on to them until tomorrow, getting richer passively? Would lending be allowed in your model? If so, what makes it different from the status quo (fractional reserve banking and ultimately debt becoming money itself)? If not, how do I start a business or purchase a home without the lump sump required to do so under my pillow? How do you adapt the monetary base to increased or decreased production capacity in a world based on the Bitcoin standard? Not every fundamentally broken economic model is an innovation, and just because everybody tells its proponents so does not make this idea some kind of underdog stroke of genius.

yieldcrv 4y ago

There are plenty of functioning places to exchange, other properly run centralized exchanges and OTC desks (like Genesis). You go there for the 5 minutes that you need them. Crypto in, dollars out. Dollars in, crypto out. Even exposure to improperly run crypto exchanges and OTC desk is so limited, when using them properly. I don't understand how this is still so foreign a decade plus later.

sschueller 4y ago

The idea is that you don't need to convert your crypto to fiat. The issue is the volatility and that needs to become stable enough against fiat for it to no longer matter for people to convert it.

matthewdgreen 4y ago

Ugh, please kill me for answering this question because I don't want to join the "everything is awesome" crowd. But from a technical perspective, you are describing two very different functions that are currently provided by "centralized exchanges", but don't need to be: 1. Interfacing with the traditional (fiat) banking system: today this can be done with regulated fiat-backed stablecoins like Paxos USD, Gemini USD or Circle's USDC. It's critical that these institutions be carefully regulated by government entities to ensure the deposits are protected, but this is feasible (Paxos and Gemini are regulated by NYDFS, Circle's regulation story is more complex but there is one.) This regulation is crucial to ensure that "the assets are in the bank", but you only need a few such issuers to be regulated. This is much more scalable than trusting every two-bit crypto exchange in the world. 2. Custody of signing keys: this can also be technically managed by centralized institutions. Anchorage Digital and Fireblocks are examples of this. These centralized solutions can't ever perfectly eliminate risk (they are centralized, after all), but they can make you much resistant to rubber hose attacks. The actual technology is based on hardware security modules and MPC, plus lots of excellent security engineering. In theory once you have reliable building blocks for these two components, the rest can be achieved using smart contracts without the need for further centralization or trust risk. (You will, of course, risk bugs in the smart contract. But this is a technical problem that we can potentially solve using technical means, not a fundamental problem of human trust.) In general the idea here is to optimize your "trusted human base" so that it is as small as possible (and have those parts carefully regulated), and then you can covert the rest into problems that have purely technical solutions. Obviously this story only works if you're doing fiat-crypto conversion and storage of assets. The minute you start lending assets to people then you're back to trusting human beings to actually pay you back, so you'd better make good judgements about their (possibly illiquid) collateral.

jcpham2 4y ago
For whatever it's worth I think you've done a great job answering the question in it's entirety. The moment lending/repayment and interest rates enter the equation with crypto currencies (whose value _completely_ floats) and deflates its issuance in a lot of scenarios - all bets are off as far as repayment goes. Their is no business plan to account for such swings. The thing we've been saying for ten years on IRC is Bitcoin loans are gifts, because that's what they are. I've had enough loans defaulted on to definitely tell you and agree with this premise: once lending enters the picture, your money is just another row in a database.