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And therein lies the problem with non-traceable, uninsured currency. One of the benefits of using a major bank (in the United States, for this example), is tha
by david_shaw 14y ago
And therein lies the problem with non-traceable, uninsured currency.
One of the benefits of using a major bank (in the United States, for this example), is that your money is federally insured. You'll always see little logos or blips of text advertising that the bank is a "member, FDIC."
People take this for granted -- after all, if your bank is robbed, why should it be your loss? It's a little harder when the currency is anonymous and completely uninsured.
Many bitcoin exchanges will do their best to dip into their profits to reimburse users after they were hacked. I know that several major exchanges have already dipped into their own coffers to reimburse their users. However, they need to pay for this completely out-of-pocket, and even then there's nothing that indicates that they have to do so.
I think that bitcoin is an interesting idea, and certainly has gained a lot of traction for more privacy-minded individuals. Those that want to active day-trade it, though, should stick to standard forex markets, in my opinion. In fact, there is nothing to guarantee that the organizers of an exchange won't simply steal your money and disappear -- there'd be no way to prove that it was them, short of seizing their machines and hoping an incriminating bitcoin wallet was sitting there.
- lhnn 14y agoIt seems there is a market for an insurer of Bitcoin exchanges. Carry out extensive physical, procedural and offensive reviews against a set of standards, in exchange for certifying the exchange as "not easy to break", and insure its accounts up to a certain % of reserves.
- blakdawg 14y agoThe problem is people don't want to pay a storage fee for leaving value on an exchange; they think they're getting ripped off because they're not earning interest like they would at a bank engaged in fractional reserve banking. Since the exchanges don't make money on deposits, it's tough for them to spend money to protect the deposits.
- javert 14y agoIt would be reasonable for individuals to purchase insurance against loss of bitcoins held by an exchange. The insurance would be much less expensive for exchanges who have agreed to an audit (and possibly other controls) by the insurance company. As a sidenote, the previous comment trumping up the FDIC is kind of misplaced. Government is needed for some things (like police), but not insurance.
- jethroalias97 14y agoWhat would be interesting is if there were real online bitcoin banks that leant or invested the bitcoins to both make a profit themselves and offer their customers some interest on their savings.
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- adgar 14y agoSince bitcoin is defined to deflate over time as use grows but eventually no more bitcoins are circulated, banks should be expected to charge for storage. You're paying for the privilege to hold onto the money, since the optimal strategy in a permanently deflating economy is to hold on to your money as long as possible.
- mdonahoe 14y agoOh it is traceable, just unstoppable and ungoverned. I assumed that "federally insured" was code for inflation, but the wikipedia article revealed that it is actually insurance: banks pay insurance fees to be in the FDIC.
- tsotha 14y agoYour sense of security is somewhat unfounded. In the US if someone breaks into your online bank account and steals all your money, legally you're on the hook for the loss unless you can prove the breach occurred on the bank's side.
- david_shaw 14y ago> if someone breaks into your online bank account and steals all > your money, legally you're on the hook unless you can prove the > breach occurred on the bank's side. Right, but that's not a valid comparison to what happened. If someone broke into your account, yes, you'd need to dispute the charges and prove that you did not drain the funds to your new Swiss bank account. In this case, though, it's not an account that was broken into, but the exchange itself. If someone robs your bank at gunpoint or hacks into its backend servers, either way, you're not liable for the loss -- they're insured. Individual security vs. organizational security are different in this respect. In fact, I'd argue that the individual security of bitcoin exchange accounts are even riskier than the exchange itself getting hacked: if your bitcoin wallet is compromised in any way, that money is gone forever. No one can do anything to get it back, and if the exchange wasn't compromised, they probably don't care about your terrible password (or malware-infested laptop, or compromised Internet connection, etc). If your bank account is hacked, and you report it, it's not your problem anymore.
- tjoff 14y agoHow is this a property of "non-traceable"/anonymity? If someone physically robs the bank and gets away with a large amount of cash that is arguably even more anonymous and non-traceable than bitcoins. The only problem ought to be that bitcoin exchanges are not being insured, by who or that the currency happened to be bitcoin doesn't matter (as long as the insurance covers it).