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And the general trend with Bitcoin "banks" is that at some point people lose a bunch of money and the website either shuts down or loses all trust. Your point?

by jff 14y ago

kragen 14y ago
I find your tone disappointingly arrogant, sarcastic, and dismissive, to a level which is not justified by your evident knowledge of the Bitcoin ecosystem. You may, if you choose, maintain Bitcoin in an account in a Bitcoin trading site, but you can also send it to a Bitcoin address whose private key seed you've memorized ("brainwallet"), maintained on an isolated machine, or printed out on a barcode kept in a safe. While I don't trade Bitcoin, my Bitcoin-enthusiast friends use these approaches. In short, Bitcoin trading sites do not provide the same service in the Bitcoin ecosystem that banks provide in the fiat-money ecosystem; they are more like Western Union or PayPal, as reflected in the FinCEN's new regulatory guidance this week. In the future, at least on Hacker News, please attempt to engage in rational discourse like a civilized human instead of a 4chan troll.
- ohashi 14y ago
  Bitcoin exchanges provide a very similar role that banks play. They are a place to store money securely* and make sure it's easily available and exchangeable. Just because you can stick money under a mattress (the equivalent to your memorizing a bar code) has nothing to do with the role of banks or marketplaces. Bitcoin is supposed to allow you to send money to anyone given the address. The system itself is more like Western Union or PayPal. How are you making the claim that the exchanges are replacing them? That would mean they do nothing on top of the basic idea of Bitcoin. *Banks and bitcoin marketplaces get robbed, there is an illusion of security to some degree, except banks get things like FDIC insurance.
  - derefr 14y ago
    > [Banks] are a place to store money securely* and make sure it's easily available and exchangeable. Not at all--what you're thinking of are "wallets." :) Banks are places we put money to prevent it from losing value. Money kept in a wallet (or under a mattress) steadily loses value because of inflation. A bank counteracts this by loaning out the money we give it (earning it money on interest), and then paying us another, smaller interest rate for our deposits in turn, which will offset inflation to whatever degree. Other entities also do this--mutual funds, for example--but banks do it while also making our money still somewhat convenient to re-liquidate and transfer; others may require, for example, 30 days' notice to facilitate withdrawal. One thing that's very interesting about Bitcoin is that, once it's all mined out, there won't be any inflation (or deflation) of its supply--the amount of Bitcoin out in the world will become effectively fixed. This means that, by and large, "banks" (in the "savings bank" sense; investment banks are a separate beast) are pretty irrelevant to a Bitcoin-based economy: there's no need to protect the value of your money; it's stable just sitting in a wallet. This property of Bitcoin might do strange things to the global economy if Bitcoin becomes more widely adopted. In effect, it would be a global version of what some Eurozone countries have experienced, where they have control over their fiscal policy (taxes and spending), but no control over their monetary policy (ability to print money.) It's common wisdom in Economics that at least a little bit of inflation is good--otherwise people tend to hoard money instead of investing it ventures that improve GDP. In a wholly-Bitcoin economy, there's no particular fear-based incentive to invest over just sitting on your money. (There's still a greed-based incentive to invest with banks for increased risk = increased reward in good economic times, but in times of economic volatility, the "flight to quality" toward stable Bitcoins would be absolute, moreso than treasury bills or gold have ever been.)
    - niggler 14y ago
      "A bank counteracts this by loaning out the money we give it (earning it money on interest), and then paying us another, smaller interest rate for our deposits in turn, which will offset inflation to whatever degree." That's only true if your money is an interest-bearing account. Most consumer accounts are not.
      - derefr 14y ago
        Chequing accounts (non-interest-bearing accounts, used primarily for their other conveniences) are an instance of a bank providing a (traditionally) not-bank service. Basically, chequing accounts (and all their features: cheques, wire transfers, EFTs, cross-bank ATM withdrawal, etc.) are forms of remittance: a service where a group of people get together and agree to maintain an 'eventually-consistent' balance-sheet between them. Alice goes to one member branch of the remittance group and gives them $N (plus a transfer fee $F) to send to Bob, who may be anywhere else. Bob goes to a different member branch and gets his $N. $N is transferred from the pool to the branch Bob went to to cover their loss, and then $F is split between the group. Remittance has never really been a function you would expect a "bank" to provide until quite modern times; banks tended to be single-branch, holding the deposits of the people who put them in that bank. You could get someone else's deposits from a bank if they had them turned into a bank note and gave that note to you, but to withdraw it, you'd have to go to that bank. (Greenbacks--federal bank-notes--were a clear innovation from this system. Imagine, a system so bad for holding and transferring value that "cash" is an improvement!) When a bank temporarily ran out money to cover its outstanding liabilities (withdrawals), it didn't ask to be paid from some pool--it just took out a loan with a neighboring bank. (This still happens, and it's the basis of one of the very important numbers in Macroeconomics: LIBOR--the London Inter-Bank Exchange Rate, which measures the average interest banks will ask for when giving out those bank-to-bank loans, and which is built into the base of pretty much any other loan interest rate you might look at.) Eventually, though, wire transfers plugged banks directly into one-another's balance sheets in a way they weren't before, and banks could suddenly outcompete all the traditional remittance providers because, unlike the remittance providers, they already had pretty much the whole population of each city/town they served as members. It's like Google suddenly realizing they could do ads when they already had so many eyeballs specifically looking for things to purchase online: it went from "fun idea" to "main money-maker" in the span of a few years. But that still doesn't mean that that's what it means to be a bank, or that Bitcoin "banks" make any sense. Bitcoin remittance providers, sure--but nobody ever figured it was a good idea to keep their savings with a remittance provider ;)
- bdcravens 14y ago
  I didn't read the comment as a troll or any of what you said about the tone. It seemed to me to be an accurate account of what has happened before: Bitcoin bank/exchange gets hacked or has other issues, and people lose confidence. This is empirical. To deny what 30 seconds of Googling and a review on BitcoinCharts.com confirms speaks to your "evident knowledge of the Bitcoin ecosystem". You are right that you can store Bitcoins anywhere, and aren't restricted to banks/exchanges. However, this protects only the coins themselves, not the value. As things stand today, Bitcoins are only as valuable as you can trade them for fiat currency, or for products/services that continue to accept fiat currency. Where and how you store them has no impact on what the market is bearing as value for Bitcoins, and faith in the banks/exchanges plays a huge role (though there are other factors as well) in the market value.
  - kragen 14y ago
    How do you interpret "Your point?"?

And the general trend with Bitcoin "banks" is that at some point people lose a bunch of money and the website either shuts down or loses all trust. Your point?

by jff 14y ago

And the general trend with Bitcoin "banks" is that at some point people lose a bunch of money and the website either shuts down or loses all trust. Your point?

kragen 14y ago

I find your tone disappointingly arrogant, sarcastic, and dismissive, to a level which is not justified by your evident knowledge of the Bitcoin ecosystem. You may, if you choose, maintain Bitcoin in an account in a Bitcoin trading site, but you can also send it to a Bitcoin address whose private key seed you've memorized ("brainwallet"), maintained on an isolated machine, or printed out on a barcode kept in a safe. While I don't trade Bitcoin, my Bitcoin-enthusiast friends use these approaches. In short, Bitcoin trading sites do not provide the same service in the Bitcoin ecosystem that banks provide in the fiat-money ecosystem; they are more like Western Union or PayPal, as reflected in the FinCEN's new regulatory guidance this week. In the future, at least on Hacker News, please attempt to engage in rational discourse like a civilized human instead of a 4chan troll.

ohashi 14y ago
Bitcoin exchanges provide a very similar role that banks play. They are a place to store money securely* and make sure it's easily available and exchangeable. Just because you can stick money under a mattress (the equivalent to your memorizing a bar code) has nothing to do with the role of banks or marketplaces. Bitcoin is supposed to allow you to send money to anyone given the address. The system itself is more like Western Union or PayPal. How are you making the claim that the exchanges are replacing them? That would mean they do nothing on top of the basic idea of Bitcoin. *Banks and bitcoin marketplaces get robbed, there is an illusion of security to some degree, except banks get things like FDIC insurance.
- derefr 14y ago
  > [Banks] are a place to store money securely* and make sure it's easily available and exchangeable. Not at all--what you're thinking of are "wallets." :) Banks are places we put money to prevent it from losing value. Money kept in a wallet (or under a mattress) steadily loses value because of inflation. A bank counteracts this by loaning out the money we give it (earning it money on interest), and then paying us another, smaller interest rate for our deposits in turn, which will offset inflation to whatever degree. Other entities also do this--mutual funds, for example--but banks do it while also making our money still somewhat convenient to re-liquidate and transfer; others may require, for example, 30 days' notice to facilitate withdrawal. One thing that's very interesting about Bitcoin is that, once it's all mined out, there won't be any inflation (or deflation) of its supply--the amount of Bitcoin out in the world will become effectively fixed. This means that, by and large, "banks" (in the "savings bank" sense; investment banks are a separate beast) are pretty irrelevant to a Bitcoin-based economy: there's no need to protect the value of your money; it's stable just sitting in a wallet. This property of Bitcoin might do strange things to the global economy if Bitcoin becomes more widely adopted. In effect, it would be a global version of what some Eurozone countries have experienced, where they have control over their fiscal policy (taxes and spending), but no control over their monetary policy (ability to print money.) It's common wisdom in Economics that at least a little bit of inflation is good--otherwise people tend to hoard money instead of investing it ventures that improve GDP. In a wholly-Bitcoin economy, there's no particular fear-based incentive to invest over just sitting on your money. (There's still a greed-based incentive to invest with banks for increased risk = increased reward in good economic times, but in times of economic volatility, the "flight to quality" toward stable Bitcoins would be absolute, moreso than treasury bills or gold have ever been.)
  - niggler 14y ago
    "A bank counteracts this by loaning out the money we give it (earning it money on interest), and then paying us another, smaller interest rate for our deposits in turn, which will offset inflation to whatever degree." That's only true if your money is an interest-bearing account. Most consumer accounts are not.
    - derefr 14y ago
      Chequing accounts (non-interest-bearing accounts, used primarily for their other conveniences) are an instance of a bank providing a (traditionally) not-bank service. Basically, chequing accounts (and all their features: cheques, wire transfers, EFTs, cross-bank ATM withdrawal, etc.) are forms of remittance: a service where a group of people get together and agree to maintain an 'eventually-consistent' balance-sheet between them. Alice goes to one member branch of the remittance group and gives them $N (plus a transfer fee $F) to send to Bob, who may be anywhere else. Bob goes to a different member branch and gets his $N. $N is transferred from the pool to the branch Bob went to to cover their loss, and then $F is split between the group. Remittance has never really been a function you would expect a "bank" to provide until quite modern times; banks tended to be single-branch, holding the deposits of the people who put them in that bank. You could get someone else's deposits from a bank if they had them turned into a bank note and gave that note to you, but to withdraw it, you'd have to go to that bank. (Greenbacks--federal bank-notes--were a clear innovation from this system. Imagine, a system so bad for holding and transferring value that "cash" is an improvement!) When a bank temporarily ran out money to cover its outstanding liabilities (withdrawals), it didn't ask to be paid from some pool--it just took out a loan with a neighboring bank. (This still happens, and it's the basis of one of the very important numbers in Macroeconomics: LIBOR--the London Inter-Bank Exchange Rate, which measures the average interest banks will ask for when giving out those bank-to-bank loans, and which is built into the base of pretty much any other loan interest rate you might look at.) Eventually, though, wire transfers plugged banks directly into one-another's balance sheets in a way they weren't before, and banks could suddenly outcompete all the traditional remittance providers because, unlike the remittance providers, they already had pretty much the whole population of each city/town they served as members. It's like Google suddenly realizing they could do ads when they already had so many eyeballs specifically looking for things to purchase online: it went from "fun idea" to "main money-maker" in the span of a few years. But that still doesn't mean that that's what it means to be a bank, or that Bitcoin "banks" make any sense. Bitcoin remittance providers, sure--but nobody ever figured it was a good idea to keep their savings with a remittance provider ;)
bdcravens 14y ago
I didn't read the comment as a troll or any of what you said about the tone. It seemed to me to be an accurate account of what has happened before: Bitcoin bank/exchange gets hacked or has other issues, and people lose confidence. This is empirical. To deny what 30 seconds of Googling and a review on BitcoinCharts.com confirms speaks to your "evident knowledge of the Bitcoin ecosystem". You are right that you can store Bitcoins anywhere, and aren't restricted to banks/exchanges. However, this protects only the coins themselves, not the value. As things stand today, Bitcoins are only as valuable as you can trade them for fiat currency, or for products/services that continue to accept fiat currency. Where and how you store them has no impact on what the market is bearing as value for Bitcoins, and faith in the banks/exchanges plays a huge role (though there are other factors as well) in the market value.
- kragen 14y ago
  How do you interpret "Your point?"?