5 ms·

In the hypothetical case that a Bitcoin ETF gets hacked and its wallet(s) emptied, what happens? Is it any different from, say, a gold ETF having its physical g

In the hypothetical case that a Bitcoin ETF gets hacked and its wallet(s) emptied, what happens? Is it any different from, say, a gold ETF having its physical gold stolen?

yieldcrv 3y ago
this has been a major part of the application revisions, you’ll have to read each ETF before you purchase, or, you know, contact a financial advisor before every trade lol
bnchrch 3y ago
You would hope they have good security practises + purchase insurance. But I have a feeling like it will take an incident like the one you describe to happen first before that becomes mandatory.
- xwolfi 3y ago
  When Cathie Wood was asked by Bloomberg, she called 21Shares staff who replied they have cold wallets. She didnt reply "oh ofc we're insured"... 21Shares staff didnt either... Expect a shitstorm in case of hack (or lost keys) with these clowns.
postcynical 3y ago
and what would happen during/after a fork?
- ur-whale 3y ago
  > and what would happen during a fork? Now, that is a very interesting question. If said ETF did their homework properly, their handling of a fork should be described in detail in their prospectus. Not that I would ever buy a BTC ETF since it precisely negates what I believe Bitcoin to be useful for, but if I had to, I'd pick the one that would convert the forked coins back to BTC immediately after the fork. If enough ETFs actually promise to apply this policy in their statutes, that would make it quite a hump to get over for a would-be forker, knowing the immediate price hit the forked coin would take because of the ETF immediately dumping it.
  - postcynical 3y ago
    > Not that I would ever buy a BTC ETF since it precisely negates what I believe Bitcoin to be useful for, but if I had to, I'd pick the one that would convert the forked coins back to BTC immediately after the fork. Would it actually be clear which fork is the winning one?
    - zubairq 3y ago
      Yes it would be clear. According to this site there have already been 105 forks of Bitcoin: https://forkdrop.io/how-many-bitcoin-forks-are-there https://forkdrop.io/how-many-bitcoin-forks-are-there
  - hn_throwaway_99 3y ago
    Wow, this actually is a critical point, and I'm surprised at what the outcome is. Essentially, it seems to me that these ETFs are saying they will abandon any rights to forked coins. That seems insane to me, though, so perhaps I'm misunderstanding? I mean, if there is a hard fork, some percentage of total value will go with one chain and some percentage to the other - that's basically exactly what happened with the Bitcoin Cash fork - so how can the ETFs just say they'll abandon coins in the forked chain. My understanding taken from: 1. https://www.nasdaq.com/articles/bitcoin-etf-hurdles%3A-cash-redemptions-hard-forks-authorized-participant-disclosure https://www.nasdaq.com/articles/bitcoin-etf-hurdles%3A-cash-... "In the event of a fork diverting from the main chain, trusts associated with the ETFs are expected to relinquish any entitlements." 2. Grayscale prospectus, https://www.sec.gov/Archives/edgar/data/1588489/000119312524003901/d144925ds3a.htm https://www.sec.gov/Archives/edgar/data/1588489/000119312524...: > Shareholders will not receive the benefits of any forks or airdrops. > The Bitcoin Network operates using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and miners of Bitcoin adopt the modification. When a modification is introduced and a substantial majority of users and miners’ consent to the modification, the change is implemented and the network remains uninterrupted. However, if less than a substantial majority of users and miners’ consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “hard fork” of the Bitcoin Network, with one group running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of Bitcoin running in parallel, yet lacking interchangeability. In addition to forks, a digital asset may become subject to a similar occurrence known as an “airdrop.” In an airdrop, the promotors of a new digital asset announce to holders of another digital asset that such holders will be entitled to claim a certain amount of the new digital asset for free, based on the fact that they hold such other digital asset. We refer to the right to receive any benefits arising from a fork, airdrop of similar event as an “Incidental Right” and any such virtual currency acquired through an Incidental Right as “IR Virtual Currency.” > With respect to any fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Virtual Currency associated with such event. As such, shareholders will not receive the benefits of any forks, and the Trust is not able to participate in any airdrop. > In the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to distribute the Incidental Rights or IR Virtual Currency in-kind to an agent of the shareholders for resale by such agent. However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NYSE Arca will seek or obtain this approval, if at all. > Even if such regulatory approval is sought and obtained, shareholders may not receive the benefits of any forks, the Trust may not choose, or be able, to participate in an airdrop, and the timing of receiving any benefits from a fork, airdrop or similar event is uncertain. Any inability to recognize the economic benefit of a hard fork or airdrop could adversely affect the value of the Shares.
- DANmode 3y ago
  You think the political willpower across all superpowers would be substantial enough to allow for "error correction" forking (nicest way to put this), to the benefit of individual superpowers who made an error like that? This seems unlikely.
  - deleted 3y ago
    [deleted]
- DANmode 3y ago
  Oh, I think I misunderstood your comment. Many TradFi custodians ignore/do not support (publicly) forks of client assets held, sometimes just until they reach some arbitrary level of social traction.
- ksjskskskkk 3y ago
  fidelity et all have all the dollars. if there's a fork, they will probably own 51pct alone. you will be asking about THEIR fork.
  - TapWaterBandit 3y ago
    Lol this comment is funny because you clearly don't understand how Bitcoin works but are convinced it will be a problem. Owning the most bitcoin (or even a majority of the bitcoin) doesn't mean you control the network......
    - ac29 3y ago
      The bitcoin network is ultimately controlled by the economic weight of its largest holders. If the big funds control enough bitcoin, they will have the power to pick which fork holds value. Miners and node operators can operate on whichever fork they want, but that doesnt mean Coinbase or Fidelity or whoever is going to recognize that fork.
      - TapWaterBandit 3y ago
        > Miners and node operators can operate on whichever fork they want, but that doesnt mean Coinbase or Fidelity or whoever is going to recognize that fork. Mate that isn't how it work. If Coinbase or Fidelity don't recognise the real blockchain then they no longer have real bitcoin, they have a forked coin (because they are not on the true bitcoin chain). The Bitcoin chain is determined by consensus of the majority of miners/nodes (not bitcoin holders!) and if they break from that they now have a substantially devalued asset (look up the price of BCH and BTG these days). You seem to be under a misapprehension that owning the most bitcoin gives an institution or individual power over the network. It does not. Bitcoin, by definition, cannot exist on two separate chains. If an institution attempted what you are saying all they will have done is reverse alchemy: turned gold (bitcoin) into lead (an unrecognised chain with no mining occurring, no recognition by nodes etc).
        TarasBob 3y ago
- chollida1 3y ago
  Well the canadian ones have lived through that. They just sold the coins on the inferior chain and gave a one time dividend.
wmf 3y ago
I will note that the ETFs are using Coinbase, Gemini, and Fidelity for custody. These companies have been providing Bitcoin custody for years without being hacked AFAIK.
- nullc 3y ago
  [flagged]
  - ksjskskskkk 3y ago
    not sure why this is being down voted. as someone who worked "internal recovery" at banks in the 90s, you'd be surprised how much stolen money is not reported anywhere if the law was iffy for freaking banks then, imagine how it is for btc
    - wmf 3y ago
      I wonder if there's a relevant difference between a fractional-reserve bank and a full-reserve custodian. I guess it doesn't matter as long as insurance pays out...
      - latchkey 3y ago
        > I guess it doesn't matter as long as insurance pays out... Pays out in what though?
- lxgr 3y ago
  Most notably, almost all of them seem to be using Coinbase. This makes them a probably unprecedented target for attacks of all kinds...
  - DennisP 3y ago
    Coinbase already held a huge amount of cryptocurrency, so that's nothing new.
  - 3y ago
miohtama 3y ago
The Trust holding the asset would have frauded its customers (shareholders) and could be sued. Ther Trust itself would be a target of cyber crime and could try to pursue the thieves through Computer Abuce Act(s) around the world. These two happen independently of each other.
- tgsovlerkhgsel 3y ago
  The trust would presumably have no meaningful assets so the "could be sued" would be rather theoretical, correct?

In the hypothetical case that a Bitcoin ETF gets hacked and its wallet(s) emptied, what happens? Is it any different from, say, a gold ETF having its physical gold stolen?

yieldcrv 3y ago

this has been a major part of the application revisions, you’ll have to read each ETF before you purchase, or, you know, contact a financial advisor before every trade lol

bnchrch 3y ago

You would hope they have good security practises + purchase insurance. But I have a feeling like it will take an incident like the one you describe to happen first before that becomes mandatory.

xwolfi 3y ago
When Cathie Wood was asked by Bloomberg, she called 21Shares staff who replied they have cold wallets. She didnt reply "oh ofc we're insured"... 21Shares staff didnt either... Expect a shitstorm in case of hack (or lost keys) with these clowns.

postcynical 3y ago

and what would happen during/after a fork?

ur-whale 3y ago
> and what would happen during a fork? Now, that is a very interesting question. If said ETF did their homework properly, their handling of a fork should be described in detail in their prospectus. Not that I would ever buy a BTC ETF since it precisely negates what I believe Bitcoin to be useful for, but if I had to, I'd pick the one that would convert the forked coins back to BTC immediately after the fork. If enough ETFs actually promise to apply this policy in their statutes, that would make it quite a hump to get over for a would-be forker, knowing the immediate price hit the forked coin would take because of the ETF immediately dumping it.
- postcynical 3y ago
  > Not that I would ever buy a BTC ETF since it precisely negates what I believe Bitcoin to be useful for, but if I had to, I'd pick the one that would convert the forked coins back to BTC immediately after the fork. Would it actually be clear which fork is the winning one?
  - zubairq 3y ago
    Yes it would be clear. According to this site there have already been 105 forks of Bitcoin: https://forkdrop.io/how-many-bitcoin-forks-are-there https://forkdrop.io/how-many-bitcoin-forks-are-there
- hn_throwaway_99 3y ago
  Wow, this actually is a critical point, and I'm surprised at what the outcome is. Essentially, it seems to me that these ETFs are saying they will abandon any rights to forked coins. That seems insane to me, though, so perhaps I'm misunderstanding? I mean, if there is a hard fork, some percentage of total value will go with one chain and some percentage to the other - that's basically exactly what happened with the Bitcoin Cash fork - so how can the ETFs just say they'll abandon coins in the forked chain. My understanding taken from: 1. https://www.nasdaq.com/articles/bitcoin-etf-hurdles%3A-cash-redemptions-hard-forks-authorized-participant-disclosure https://www.nasdaq.com/articles/bitcoin-etf-hurdles%3A-cash-... "In the event of a fork diverting from the main chain, trusts associated with the ETFs are expected to relinquish any entitlements." 2. Grayscale prospectus, https://www.sec.gov/Archives/edgar/data/1588489/000119312524003901/d144925ds3a.htm https://www.sec.gov/Archives/edgar/data/1588489/000119312524...: > Shareholders will not receive the benefits of any forks or airdrops. > The Bitcoin Network operates using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and miners of Bitcoin adopt the modification. When a modification is introduced and a substantial majority of users and miners’ consent to the modification, the change is implemented and the network remains uninterrupted. However, if less than a substantial majority of users and miners’ consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “hard fork” of the Bitcoin Network, with one group running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of Bitcoin running in parallel, yet lacking interchangeability. In addition to forks, a digital asset may become subject to a similar occurrence known as an “airdrop.” In an airdrop, the promotors of a new digital asset announce to holders of another digital asset that such holders will be entitled to claim a certain amount of the new digital asset for free, based on the fact that they hold such other digital asset. We refer to the right to receive any benefits arising from a fork, airdrop of similar event as an “Incidental Right” and any such virtual currency acquired through an Incidental Right as “IR Virtual Currency.” > With respect to any fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Virtual Currency associated with such event. As such, shareholders will not receive the benefits of any forks, and the Trust is not able to participate in any airdrop. > In the event the Sponsor seeks to change the Trust’s policy with respect to Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to distribute the Incidental Rights or IR Virtual Currency in-kind to an agent of the shareholders for resale by such agent. However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NYSE Arca will seek or obtain this approval, if at all. > Even if such regulatory approval is sought and obtained, shareholders may not receive the benefits of any forks, the Trust may not choose, or be able, to participate in an airdrop, and the timing of receiving any benefits from a fork, airdrop or similar event is uncertain. Any inability to recognize the economic benefit of a hard fork or airdrop could adversely affect the value of the Shares.
DANmode 3y ago
You think the political willpower across all superpowers would be substantial enough to allow for "error correction" forking (nicest way to put this), to the benefit of individual superpowers who made an error like that? This seems unlikely.
- deleted 3y ago
  [deleted]
DANmode 3y ago
Oh, I think I misunderstood your comment. Many TradFi custodians ignore/do not support (publicly) forks of client assets held, sometimes just until they reach some arbitrary level of social traction.
ksjskskskkk 3y ago
fidelity et all have all the dollars. if there's a fork, they will probably own 51pct alone. you will be asking about THEIR fork.
- TapWaterBandit 3y ago
  Lol this comment is funny because you clearly don't understand how Bitcoin works but are convinced it will be a problem. Owning the most bitcoin (or even a majority of the bitcoin) doesn't mean you control the network......
  - ac29 3y ago
    The bitcoin network is ultimately controlled by the economic weight of its largest holders. If the big funds control enough bitcoin, they will have the power to pick which fork holds value. Miners and node operators can operate on whichever fork they want, but that doesnt mean Coinbase or Fidelity or whoever is going to recognize that fork.
    - TapWaterBandit 3y ago
      > Miners and node operators can operate on whichever fork they want, but that doesnt mean Coinbase or Fidelity or whoever is going to recognize that fork. Mate that isn't how it work. If Coinbase or Fidelity don't recognise the real blockchain then they no longer have real bitcoin, they have a forked coin (because they are not on the true bitcoin chain). The Bitcoin chain is determined by consensus of the majority of miners/nodes (not bitcoin holders!) and if they break from that they now have a substantially devalued asset (look up the price of BCH and BTG these days). You seem to be under a misapprehension that owning the most bitcoin gives an institution or individual power over the network. It does not. Bitcoin, by definition, cannot exist on two separate chains. If an institution attempted what you are saying all they will have done is reverse alchemy: turned gold (bitcoin) into lead (an unrecognised chain with no mining occurring, no recognition by nodes etc).
      - TarasBob 3y ago
chollida1 3y ago
Well the canadian ones have lived through that. They just sold the coins on the inferior chain and gave a one time dividend.

wmf 3y ago

I will note that the ETFs are using Coinbase, Gemini, and Fidelity for custody. These companies have been providing Bitcoin custody for years without being hacked AFAIK.

nullc 3y ago
[flagged]
- ksjskskskkk 3y ago
  not sure why this is being down voted. as someone who worked "internal recovery" at banks in the 90s, you'd be surprised how much stolen money is not reported anywhere if the law was iffy for freaking banks then, imagine how it is for btc
  - wmf 3y ago
    I wonder if there's a relevant difference between a fractional-reserve bank and a full-reserve custodian. I guess it doesn't matter as long as insurance pays out...
    - latchkey 3y ago
      > I guess it doesn't matter as long as insurance pays out... Pays out in what though?
lxgr 3y ago
Most notably, almost all of them seem to be using Coinbase. This makes them a probably unprecedented target for attacks of all kinds...
- DennisP 3y ago
  Coinbase already held a huge amount of cryptocurrency, so that's nothing new.
- 3y ago

miohtama 3y ago

The Trust holding the asset would have frauded its customers (shareholders) and could be sued. Ther Trust itself would be a target of cyber crime and could try to pursue the thieves through Computer Abuce Act(s) around the world. These two happen independently of each other.

tgsovlerkhgsel 3y ago
The trust would presumably have no meaningful assets so the "could be sued" would be rather theoretical, correct?