5 ms·

1. Start centralized bitcoin depository. 2. Fail to provide any loss protection. 3. "get hacked" 4. Profit.

• pixie_ 14y ago
  this is the tried and true model.
• DrJokepu 14y ago
  While I'm not a big fan of BitCoin, I don't think this is a very good argument. You could use the same argument for banks and "get robbed". Why doesn't this happen to banks?
  • brian_cloutier 14y ago
    FDIC Insurance, lots of regulation, and criminal liability.
    • deleted 14y ago
      [deleted]
  • fromhet 14y ago
    The difference between the bitcoin banks/cloud wallets has been that the bitcoin counterparts seldom have any law or big organization to back them but only a few hackers with a bitcoind and a web servers. Some, like the old mybitcoin.com, have been hacked mysteriously with little data released, but only millions of $ worth of bitcoins gone forevermore.
  • base698 14y ago
    He's echoing the many, many scandals of centralized bitcoin banks that had the same thing happen over the past year. It's like the wild west out there. https://en.bitcoin.it/wiki/MyBitcoin https://en.bitcoin.it/wiki/MyBitcoin
  • noduerme 14y ago
    If Joe Blow rents a $20/mo. VPN and opens up the "First Federated Bank of Joblovia", chances are he isn't going to be able to take a whole lot of wire transfers to his Bank of America account before the feds move in and shut him down. In fact this is basically what happened to some of the earliest Bitcoin exchanges who were less sophisticated with how they moved currency in and out; guys like Jered from Tradehill used their personal bank accounts to take money from people, and gave them Bitcoins online. The cashflow problems and subsequent collapse stemmed more from the constant shutdown of bank accounts than from the "misunderstanding" with Dwolla as to the nature of Dwolla's chargeback policy. I think. In any case, Bitcoin offers the ability to do exactly this: Open a completely unregulated financial institution with no accountability. Looking at this site, the first question in my head was "Where are your coins stored?" Second was, "What are the limits, and how, exactly, do you guarantee funds will transmit since every country in the world has different limits, regulations and KYC disclosures required to make that possible?" The answer for Bitcoin businesses thus far has mostly been "don't worry about it". In Bitcoin that's slang for "I'm using my bank account, my buddy's bank account, my girlfriend's bank account...and I swear you'll get your money on time until you don't, and I'm gone, and you're fucked." This looks to be yet another one. No news here.
  • Estragon 14y ago
    noduerme, it appears you have been hell banned.
  • cbsmith 14y ago
    I going to pretend you are actually serious about this. Let's make a strawman that actually makes it easier to suggest that this is "the same as banks". Let's pretend for a minute that we're dealing with a non-FDIC insured bank (like some of the original online banks), with none of the regulatory controls that obviously provide a lot of protections. Let's pretend for a minute that the bank stupidly keeps all of its holdings as cash that are held on site at the bank. It doesn't use notes or other securities for transactions, only cash. Let's pretend that the bank also self-insures those holdings (which basically means no insurance). Okay, so I compromise the bank's security, take every bit of cash. I disappear to some island in the Pacific with every last cent. How badly is the bank screwed? How badly are the customers of the bank screwed? Actually, not that badly. I only wiped out the bank's reserves. That means both the bank and its customers have a short term liquidity problem, but not necessarily a significant asset problem. A regulated bank would have 10% of all deposits in its reserves. Unregulated banks often have far less, but let's pretend it is 10%. The bank loses 10% of its value. If it can stay solvent, then nobody loses any money, but it might take a few days before people can make withdrawals (which could cause a bank run, but that's a whole different problem). If the bank can't stay solvent, it goes bankrupt, and depositors become creditors. It'll take a while to resolve the legal process, so liquidity is killed, but when it all ends, depositors are going to get back something close to 90% of their money back. The key thing is that the bank lends out most of the money it takes in. Even if you rob the bank of all its cash, the bulk of the "assets" of the bank are all the IOU's from lendees, which is value that is really hard to "steal", because lendees tend to only pay their lender, and then tend to do so in installments over a great deal of time. THIS IS WRONG: Hacking Coinbase would be more akin to hacking say Visa, and redirecting all payments to you instead of the intended merchant.... if Visa's transactions were all cash based, instead of credit based... and Visa was unregulated... and even then it is kind of different because Visa is a middle man between two banks... UPDATED: Okay, I just read they are actually storing the bitcoins in the cloud, rather than just exchange the coins between the two parties.... So actually, it's not like hacking Visa, unless Visa didn't reconcile their transactions with its customers for extended periods of time and held all of the float as cash.
    • DrJokepu 14y ago
      So what you're saying is that banks are more stable because only a small portion of their assets are kept as reserve? In that case, what's stopping bitcoin "depositories" such as this converting the bulk of their assets to something else as well?
  • wmf 14y ago
    Since many people use Bitcoin specifically because it is unregulated, they won't complain to the government when their Bitcoins are stolen. What trotsky is really saying is that a Bitcoin company can just embezzle its customers' money and blame it on hackers. It's hard to know whether this has ever happened, but there have been some fairly sketchy incidents.
  • stevedekorte 14y ago
    The truth is that all your money has already been stolen from the banks but we pretend it's still there via devaluing savings via money printing in an attempt to maintain the illusion each time the banking debt pyramid is about to collapse.
• dexen 14y ago
  Please explain the use of "scare quotes" -- do you emphasize ease of the hack, or do you imply inside job rather than acutal hacking?
  • trotsky 14y ago
    At some point gross negligence becomes indistinguishable from malicious behavior.
  • mdonahoe 14y ago
    Inside job. Hence the "profit" in step 4.
  • cmelbye 14y ago
    Obviously he means inside job, as the next point is "Profit". Was that not blatantly obvious?
  • danbloom 14y ago
    google "scare quotes'' + ''dan bloom" to see inside skinny on the meaning and origins of the scare quotes term, first coined in 1934.... ! but why is SCARE part of the term? if know, email me at danbloom AT gmail
• xtracto 14y ago
  That pretty much sums up the demise of Bitcoin, pretty much every bitcoin "exchange" seems to be created by high school kids doing their first steps in PHP and Javascript. Wake me up when a real bank (or a renowned exchange like Ameritrade, Intrade etc) starts trading Bitcoins. That and for me the main blocker of Bitcoin is how to exchange my currency (MXN or EUR) into Bitcoins.
  • kolinko 14y ago
    Just because it's hard to exchange EUR into Bitcoins doesn't mean that it always will be. See how it's with dollars.