14 ms·

Quick question: What's preventing Coinbase from shutting down operations tomorrow and walking away with everyone's money, as MtGox walked away with mine? Or, w

Quick question: What's preventing Coinbase from shutting down operations tomorrow and walking away with everyone's money, as MtGox walked away with mine? Or, what if the founders orchestrated some sort of disaster wherein all of the coins are claimed to be lost, but in reality they're simply transferred to the founders? I know they wouldn't actually do that. My question is, what's stopping them? Why wouldn't someone try to do that, other than their morals?

deleted 13y ago
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- thinkcomp 13y ago
  Actually, no. PayPal is licensed and bonded in 47+ states. Coinbase is licensed in 0. I don't think it's the best regulatory framework, but it's all we've got.
  - deleted 13y ago
    [deleted]
    - thinkcomp 13y ago
      You're right, the surety bond system is fundamentally flawed. But it's $9 million more in security (in California, since different states have different bond requirements) than Coinbase has. I've advocated for an FDIC-like system for money transmitters, run by CFPB or some other entity, for three years. Congress is hard to reach these days. http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf http://www.thinkcomputer.com/corporate/whitepapers/heldhosta... http://www.thinkcomputer.com/20140214.cfpbcomment.pdf http://www.thinkcomputer.com/20140214.cfpbcomment.pdf
    - deleted 13y ago
      [deleted]
thinkcomp 13y ago
Nothing. And good luck finding their worldwide "cold storage" locations. They're apparently not in the United States, and not required to disclose them to any regulator.
devindotcom 13y ago
The promise of future profits amounting to more than what they would walk away with today, gained in a somewhat more respectable fashion. If they become the leading wallet in the world, they're sitting on a goose laying golden eggs. Doesn't make sense to slaughter it today for dinner. These guys are known — like the guys at Mt Gox. They're not anonymous, and they would run a real risk of bodily harm by such a public crime.
- sillysaurus3 13y ago
  The promise of future profits amounting to more than what they would walk away with today That's exactly the same argument I used to justify why MtGox wouldn't shut down, almost word for word. It's the same argument I used to convince myself why they wouldn't shut down. They still shut down. They're not anonymous, and they would run a real risk of bodily harm by such a public crime. So we're relying on mob justice? Also, Mr. Karpeles hasn't been harmed and probably won't be.
  - Mtinie 13y ago
    Or, it could be that Mr. Karpeles hasn't been harmed for a common sense reason; right now, he's the only one who seems to know what's going on inside of Mt.Gox, and what the actual status of the missing BTC is. If he comes out and announces that all of the customers' coins are irretrievably gone, then all bets are off. (No, I don't want to see harm come to him, and I don't mean that comment above as a threat. What I do know is that there's a very strong chance that at last some of the BTC he lost/stole/squandered/etc. was owned by people who don't settle things with a lawsuit and a lawyer. Maybe it is unlikely, but it's something that I would be concerned of, if I was in his shoes right now)
  - devindotcom 13y ago
    The jury's out on whether MtGox took the money and ran or lost the money and hid, right? I'm not saying we should rely on mob justice. I'm saying that the risk of reprisal is a perfectly understandable reason not to commit certain crimes. These guys are public figures and would be easy targets for people who want to harrass or harm them, unlike for example a mask-wearing bank robber whom nobody can identify and who stole only the bank's money.
diego 13y ago
Nothing, so most people should use Coinbase the same way they use a grocery store: buy what they need and take it somewhere else. Unfortunately most people do not know enough to do that. I wrote a blog post about it if you're interested. http://diegobasch.com/do-you-know-enough-to-securely-own-bitcoins http://diegobasch.com/do-you-know-enough-to-securely-own-bit...
- gnaritas 13y ago
  > Nothing False. Theft is against the law. Bitcoins don't magically avoid being subject to existing law. The owners are known and subject to US jurisdiction, you have legal recourse through the courts should they try and steal your funds.
  - baddox 13y ago
    Lots of people in this thread seem to think that there is either no incentive for Coinbase to conduct their business legitimately, or that the law is the only incentive. That ignores the much more obvious and presumably stronger incentive: they should be able to make a lot more money as a legitimate business than if they just ran away with one lump sum.
    - diego 13y ago
      That relies on the assumption that they will not suffer a tremendous loss due to a rogue employee, a software bug or a malicious hack. If they found themselves in a situation in which they are certain to go out of business as soon as people find out that they are in trouble, that motivation would cease to exist. It would come down to ethics, reputation, pressure from investors, etc.
      - torbjorn 13y ago
        Sure, Bad Things™ could happen at Coinbase like they did at Gox. However, I think it is reasonable to trust Coinbase more than Mt. Gox. If you looking to Mt. Gox's history there are many signals that suggest general mismanagement and dysfunction. This is in no way rigorous but consider User Interface design as a rule of thumb. Gox had an ugly unintuitive site. Coinbase on the other hand has a polished UI. This attention to detail suggests that the people who operate Coinbase are very different from those who operated Gox.
mbesto 13y ago
Simple - because YC, a16z, USV, SV Angel, etc all have skin in the game.[0] There are some serious people with some serious money who have reputations to uphold. AFAIK Mt. Gox had none of that. [0]http://www.crunchbase.com/company/coinbase http://www.crunchbase.com/company/coinbase
granfalloon 13y ago
Because they would go to jail for a very long time?
- baddox 13y ago
  Because they run what I suspect to be a fairly lucrative business which, if operated competently, should make them a lot more money in the long run than if they just stole everyone's bitcoins?
panarky 13y ago
The fact that the identities of Coinbase people are known, and apparently you can hire a hitman with Bitcoin. If you have any Bitcoin left. Seriously, though, Coinbase and other online wallets and exchanges need to get with the program and prove they're not running a fractional reserve. Radical transparency is a big part of the answer, and it's much more feasible with Bitcoin's public blockchain than with the dinosaur monetary system.
dangero 13y ago
Third option would also be actual negligence which is an interesting case because people are used to dealing with banks and do not realize that they will not get their money back. Im not suggesting FDIC style protection for Bitcoin exchanges is a good idea, but that is just what people are conditioned to expect and I think that is why so many people leave their money in exchanges like Coinbase or MtGox.
baddox 13y ago
I'm not sure what your point is. My best guess is that you're implying that the only reason people don't do things that are illegal is the fact that they are illegal. If I'm wrong, please correct me, and disregard the next paragraph. I see two problems with this point. Firstly, while I'm not entirely sure how the legal system in the US works, but I suspect it would be illegal for Coinbase to shut down and run away with everyone's Bitcoins. I doubt that USD is the only asset that is legally protected from theft/fraud. Secondly, I suspect that Coinbase has a huge incentive to not do this even if it were legal to do so. Namely, they should be able to make a lot more money by conducting their business legitimately and continually than if they ran off with one lump sum.
- jmulho 13y ago
  > they should be able to make a lot more money by conducting their business legitimately and continually... You're not the first person to make this point. It is not necessarily true. What if the amount they could run off with is huge and their margins are tiny, or they are losing money?
corford 13y ago
Why put yourself in a position where you need to worry about that happening? Keep the bulk of your BTC in a private wallet under your exclusive control and only use the intermediary provided wallet when you need to make a trade through their platform/exchange. You're still exposed while a trade is being executed but your maximum exposure is never more than the amount you are trading at that time. You wouldn't deposit your life's savings with a new, unknown bank based out of a tiny island state with lax/non-existent regulation. Don't do the same with your BTC.
ojr 13y ago
enough with this fear, uncertainty and doubt, Mt Gox should not be placed in the same sentence as Coinbase, Coinbase is a lot more transparent...
smtddr 13y ago
Here are my reasons: - They are in SF so I can walk/bike/bus to their office; for whatever good that does me. Didn't do that one dude any good going to MtGox's Japan office. =/ - They are YC backed, so that means pg knows about 'em. That adds a "gold star" in my book in that they must have passed some kind of filter to get into YC; that they're not just plain scammers, unprofessional or woefully uneducated about security on the interwebz. - I feel very confident about this video: http://techcrunch.com/2013/12/17/foundation-brian-armstrong-on-coinbase-and-bitcoin-security/ http://techcrunch.com/2013/12/17/foundation-brian-armstrong-... All that said, you still shouldn't leave a huge amount of coins on an address that you don't exclusively hold the private key to. 1 or 2 bitcoins, meh. Day-trading with 50 BTC? Risky, but okay I guess. Those crazy amounts I saw on that gox-horror Reddit thread, like 100+? Some people in the THOUSANDS?!!! That was a bad decision. That needs to be some place else. Coinbase.com may have the most honest people in the world, but I also believe hackers are extremely talented people and hundreds of bitcoin is adequate motivation for a certain subset of hackers to pour all their energy into breaking coinbase. I'd love for Coinbase.com to talk about all the strange hack attempts they must see against their service every... minute. I day trade on btc-e.com with 1k USD and my rule is to never have more that 2k on there. If I reach 2K, I buy 1k's worth of bitcoin --> send to coinbase.com --> cash out. Repeat again with the 1k remaining. I could try and turn 2k into 4k, but that's a risk I'm not willing to take. I'm happy with my 1k units of profit.
mcherm 13y ago
Other than their morals? Well, I suppose there are legal implications: that's known as "theft". Also there are the morals of every other employee... I believe Coinbase is set up with standard controls so no one person can steal funds without it being obvious to (and preferably requiring the cooperation of) other employees. I would ask a similar question: What's preventing Nationwide Insurance, Chase Bank, and e-Trade from shutting down operations tomorrow and walking away with everyone's money? The biggest difference between these institutions and MtGox is that these institutions all have regulators who have the power to (in extremis) take over the operations of the institution if it begins to show the same kinds of trouble that MtGox showed for quite some time before its collapse. Coinbase is not currently subject to any such regulation.

deleted 13y ago

[deleted]

thinkcomp 13y ago
Actually, no. PayPal is licensed and bonded in 47+ states. Coinbase is licensed in 0. I don't think it's the best regulatory framework, but it's all we've got.
- deleted 13y ago
  [deleted]
  - thinkcomp 13y ago
    You're right, the surety bond system is fundamentally flawed. But it's $9 million more in security (in California, since different states have different bond requirements) than Coinbase has. I've advocated for an FDIC-like system for money transmitters, run by CFPB or some other entity, for three years. Congress is hard to reach these days. http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf http://www.thinkcomputer.com/corporate/whitepapers/heldhosta... http://www.thinkcomputer.com/20140214.cfpbcomment.pdf http://www.thinkcomputer.com/20140214.cfpbcomment.pdf
  - deleted 13y ago
    [deleted]

thinkcomp 13y ago

Nothing. And good luck finding their worldwide "cold storage" locations. They're apparently not in the United States, and not required to disclose them to any regulator.

devindotcom 13y ago

The promise of future profits amounting to more than what they would walk away with today, gained in a somewhat more respectable fashion. If they become the leading wallet in the world, they're sitting on a goose laying golden eggs. Doesn't make sense to slaughter it today for dinner. These guys are known — like the guys at Mt Gox. They're not anonymous, and they would run a real risk of bodily harm by such a public crime.

sillysaurus3 13y ago
The promise of future profits amounting to more than what they would walk away with today That's exactly the same argument I used to justify why MtGox wouldn't shut down, almost word for word. It's the same argument I used to convince myself why they wouldn't shut down. They still shut down. They're not anonymous, and they would run a real risk of bodily harm by such a public crime. So we're relying on mob justice? Also, Mr. Karpeles hasn't been harmed and probably won't be.
- Mtinie 13y ago
  Or, it could be that Mr. Karpeles hasn't been harmed for a common sense reason; right now, he's the only one who seems to know what's going on inside of Mt.Gox, and what the actual status of the missing BTC is. If he comes out and announces that all of the customers' coins are irretrievably gone, then all bets are off. (No, I don't want to see harm come to him, and I don't mean that comment above as a threat. What I do know is that there's a very strong chance that at last some of the BTC he lost/stole/squandered/etc. was owned by people who don't settle things with a lawsuit and a lawyer. Maybe it is unlikely, but it's something that I would be concerned of, if I was in his shoes right now)
- devindotcom 13y ago
  The jury's out on whether MtGox took the money and ran or lost the money and hid, right? I'm not saying we should rely on mob justice. I'm saying that the risk of reprisal is a perfectly understandable reason not to commit certain crimes. These guys are public figures and would be easy targets for people who want to harrass or harm them, unlike for example a mask-wearing bank robber whom nobody can identify and who stole only the bank's money.

diego 13y ago

Nothing, so most people should use Coinbase the same way they use a grocery store: buy what they need and take it somewhere else. Unfortunately most people do not know enough to do that. I wrote a blog post about it if you're interested. http://diegobasch.com/do-you-know-enough-to-securely-own-bitcoins http://diegobasch.com/do-you-know-enough-to-securely-own-bit...

gnaritas 13y ago
> Nothing False. Theft is against the law. Bitcoins don't magically avoid being subject to existing law. The owners are known and subject to US jurisdiction, you have legal recourse through the courts should they try and steal your funds.
- baddox 13y ago
  Lots of people in this thread seem to think that there is either no incentive for Coinbase to conduct their business legitimately, or that the law is the only incentive. That ignores the much more obvious and presumably stronger incentive: they should be able to make a lot more money as a legitimate business than if they just ran away with one lump sum.
  - diego 13y ago
    That relies on the assumption that they will not suffer a tremendous loss due to a rogue employee, a software bug or a malicious hack. If they found themselves in a situation in which they are certain to go out of business as soon as people find out that they are in trouble, that motivation would cease to exist. It would come down to ethics, reputation, pressure from investors, etc.
    - torbjorn 13y ago
      Sure, Bad Things™ could happen at Coinbase like they did at Gox. However, I think it is reasonable to trust Coinbase more than Mt. Gox. If you looking to Mt. Gox's history there are many signals that suggest general mismanagement and dysfunction. This is in no way rigorous but consider User Interface design as a rule of thumb. Gox had an ugly unintuitive site. Coinbase on the other hand has a polished UI. This attention to detail suggests that the people who operate Coinbase are very different from those who operated Gox.

mbesto 13y ago

Simple - because YC, a16z, USV, SV Angel, etc all have skin in the game.[0] There are some serious people with some serious money who have reputations to uphold. AFAIK Mt. Gox had none of that. [0]http://www.crunchbase.com/company/coinbase http://www.crunchbase.com/company/coinbase

granfalloon 13y ago

Because they would go to jail for a very long time?

baddox 13y ago
Because they run what I suspect to be a fairly lucrative business which, if operated competently, should make them a lot more money in the long run than if they just stole everyone's bitcoins?

panarky 13y ago

The fact that the identities of Coinbase people are known, and apparently you can hire a hitman with Bitcoin. If you have any Bitcoin left. Seriously, though, Coinbase and other online wallets and exchanges need to get with the program and prove they're not running a fractional reserve. Radical transparency is a big part of the answer, and it's much more feasible with Bitcoin's public blockchain than with the dinosaur monetary system.

dangero 13y ago

Third option would also be actual negligence which is an interesting case because people are used to dealing with banks and do not realize that they will not get their money back. Im not suggesting FDIC style protection for Bitcoin exchanges is a good idea, but that is just what people are conditioned to expect and I think that is why so many people leave their money in exchanges like Coinbase or MtGox.

baddox 13y ago

I'm not sure what your point is. My best guess is that you're implying that the only reason people don't do things that are illegal is the fact that they are illegal. If I'm wrong, please correct me, and disregard the next paragraph. I see two problems with this point. Firstly, while I'm not entirely sure how the legal system in the US works, but I suspect it would be illegal for Coinbase to shut down and run away with everyone's Bitcoins. I doubt that USD is the only asset that is legally protected from theft/fraud. Secondly, I suspect that Coinbase has a huge incentive to not do this even if it were legal to do so. Namely, they should be able to make a lot more money by conducting their business legitimately and continually than if they ran off with one lump sum.

jmulho 13y ago
> they should be able to make a lot more money by conducting their business legitimately and continually... You're not the first person to make this point. It is not necessarily true. What if the amount they could run off with is huge and their margins are tiny, or they are losing money?

corford 13y ago

Why put yourself in a position where you need to worry about that happening? Keep the bulk of your BTC in a private wallet under your exclusive control and only use the intermediary provided wallet when you need to make a trade through their platform/exchange. You're still exposed while a trade is being executed but your maximum exposure is never more than the amount you are trading at that time. You wouldn't deposit your life's savings with a new, unknown bank based out of a tiny island state with lax/non-existent regulation. Don't do the same with your BTC.

ojr 13y ago

enough with this fear, uncertainty and doubt, Mt Gox should not be placed in the same sentence as Coinbase, Coinbase is a lot more transparent...

smtddr 13y ago

Here are my reasons: - They are in SF so I can walk/bike/bus to their office; for whatever good that does me. Didn't do that one dude any good going to MtGox's Japan office. =/ - They are YC backed, so that means pg knows about 'em. That adds a "gold star" in my book in that they must have passed some kind of filter to get into YC; that they're not just plain scammers, unprofessional or woefully uneducated about security on the interwebz. - I feel very confident about this video: http://techcrunch.com/2013/12/17/foundation-brian-armstrong-on-coinbase-and-bitcoin-security/ http://techcrunch.com/2013/12/17/foundation-brian-armstrong-... All that said, you still shouldn't leave a huge amount of coins on an address that you don't exclusively hold the private key to. 1 or 2 bitcoins, meh. Day-trading with 50 BTC? Risky, but okay I guess. Those crazy amounts I saw on that gox-horror Reddit thread, like 100+? Some people in the THOUSANDS?!!! That was a bad decision. That needs to be some place else. Coinbase.com may have the most honest people in the world, but I also believe hackers are extremely talented people and hundreds of bitcoin is adequate motivation for a certain subset of hackers to pour all their energy into breaking coinbase. I'd love for Coinbase.com to talk about all the strange hack attempts they must see against their service every... minute. I day trade on btc-e.com with 1k USD and my rule is to never have more that 2k on there. If I reach 2K, I buy 1k's worth of bitcoin --> send to coinbase.com --> cash out. Repeat again with the 1k remaining. I could try and turn 2k into 4k, but that's a risk I'm not willing to take. I'm happy with my 1k units of profit.

mcherm 13y ago

Other than their morals? Well, I suppose there are legal implications: that's known as "theft". Also there are the morals of every other employee... I believe Coinbase is set up with standard controls so no one person can steal funds without it being obvious to (and preferably requiring the cooperation of) other employees. I would ask a similar question: What's preventing Nationwide Insurance, Chase Bank, and e-Trade from shutting down operations tomorrow and walking away with everyone's money? The biggest difference between these institutions and MtGox is that these institutions all have regulators who have the power to (in extremis) take over the operations of the institution if it begins to show the same kinds of trouble that MtGox showed for quite some time before its collapse. Coinbase is not currently subject to any such regulation.