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They have their online coins insured, so if they lose them, they can reimburse you. That's a little irrelevant, because their hot storage wallet (their online

They have their online coins insured, so if they lose them, they can reimburse you. That's a little irrelevant, because their hot storage wallet (their online coins) should be a small subset of their total coins. The whole point of a hot storage wallet is that if you lose them, it doesn't matter. So insuring those is pointless except as a marketing stunt to confuse people, which is why saying "We're insured" is bad faith. This is a serious, professionally-run company backed by a lot of VCs we all recognize, plus banks and the NYSE. Indeed, and if Coinbase loses all the coins, none of those people will step in to replace them, because nobody is going to put up hundreds of mullions or a billion dollars just to reimburse customers. They have everything to gain by honesty and everything to lose by committing fraud, including prison (and that is the only reason they would become insolvent). I disagree that technical problems can't make them insolvent. All it would take is an unhappy accident in their cold storage procedures. But beyond tech problems, consider a thought experiment: If you're a gambling person, would you trade 20 years of your life in exchange for becoming a billionaire? Banks are nice because if someone takes money, the money can be retrieved. Not the case for bitcoin. Someone is in charge of the cold storage procedures, so that person is in control over all the coins. If they decide to take all of them, there's nothing anyone can do about it except throw them into prison. Obviously, bitcoin may be completely irrelevant by the time you're out of prison. In fact, emptying Coinbase's cold storage reserves might even cause that. But money does strange things to people, and this technology has changed the power dynamic. Some of those changes are good. But are you sure you want to trust a single person with your entire fortune? Worse, you're trusting multiple people where any single person can take your fortune. Even if they require several people to sign off, that's a very small number of people in complete control of your fate. It probably sounds like I'm anti-Coinbase. I'm not. I'm pro-consumer. As soon as Coinbase insures all of their coins or offers true protection to consumers (by default!) then I'll be their biggest fan, because they'll have become an awesome bank.

tlrobinson 12y ago
"But are you sure you want to trust a single person with your entire fortune? Worse, you're trusting multiple people where any single person can take your fortune." Coinbase is hopefully not entrusting individual employees with cold storage keys. Their security page suggests they're using Shamir's Secret Sharing or similar (https://www.coinbase.com/security https://www.coinbase.com/security), though multisig would be even better.
- jafaku 12y ago
  I can't believe they aren't using multi-signature internally. This is crazy.
- danielweber 12y ago
  Can they demonstrate the procedure works well enough that an insurance company would underwrite them for the full value of the cold wallet?
- tedunangst 12y ago
  What happens after an accident when they come up one secret short? The 98% are apparently not insured.
  - tlrobinson 12y ago
    Shamir's Secret Sharing and multisig Bitcoin transactions support arbitrary n-of-m pieces/keys, e.x. a 3-of-6 scheme would require 3 of the 6 pieces to reconstitute the key/sign a transaction, so any 3 pieces could be lost. 2-of-3 is common for end-user multisig. Generally you'd have 1 key physically backed up on paper in a secure place, 1 key on one of your devices (phone or computer), and 1 key either on another device (hardware wallet or phone) or controlled by a 3rd party that does risk analysis/fraud detection on your transactions.
javert 12y ago
> So insuring those is pointless except as a marketing stunt to confuse people, which is why saying "We're insured" is bad faith. I don't think it's in bad faith. Bitstamp just lost its hot wallet recently, and people were panicking, because they didn't know what the situation was. Now, with Coinbase, if that happens, we don't have to panic. It's hard to tell people something that is true and have it be "in bad faith." > I disagree that technical problems can't make them insolvent. I agree with you here, I just think the chance is so low that it's not worth mentioning. I don't have any insider info, but I seem to recall reading a post a long time ago where they explained having some kind of x-of-y system of paper wallets stored in bank safety deposit boxes all over the country with a lot of redundancy. If you are willing to assume they have even a minimal level of common sense and competency, they have an offline storage system that is very robust. > But beyond tech problems, consider a thought experiment: If you're a gambling person, would you trade 20 years of your life in exchange for becoming a billionaire? I think this is an interesting thought experiment. I don't completely disagree, but I am still willing to trust coinbase with my money.
- sillysaurus3 12y ago
  Well, Bitstamp was incompetent enough to keep $5M USD (almost 20k BTC) in their hot wallet. That's half their most recent funding round, so the panic is probably warranted. I think we're at an impasse because you believe in Coinbase's competency. That's commendable, but I saw firsthand how incompetent an exchange can be without anybody noticing. If I'd researched Mt. Gox, I would have found a history of tech problems not dissimilar to Coinbase's, so the goal with my original comment was to remind people that this situation is very similar to Mt. Gox. They're based in the US, they have good investors, but still fundamentally similar to Mt. Gox. Don't get me wrong, making an exchange is a hard problem, so it's pretty amazing that Coinbase has gotten this far with "only" four or five high-profile issues. Everyone loves a story of some small group of people surmounting a difficult problem. But when that problem puts people's livelihoods at risk, we need to make sure everybody is fully informed about the risks. I also want to thank you for the interesting conversation. Much appreciated!
  - adrianmacneil 12y ago
blfr 12y ago
are you sure you want to trust a single person with your entire fortune? What "entire fortune"? Who keeps their "entire fortune" with an exchange anyway? Or a significant chunk of it in cash for that matter? They provide completely reasonable assurances for what they're doing.
- sillysaurus3 12y ago
  These people: https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_story_thread_how_much_did_you_lose https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_... Specifically this person: https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_story_thread_how_much_did_you_lose/cfo4aax https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_... I am the biggest loser at 4700+ BTC. Screenshot from a few days ago for the purposes of record keeping. http://imgur.com/IDbM0BP http://imgur.com/IDbM0BP This behavior isn't uncommon. Check out the rest of the thread. Everyone is expressing their faith in Coinbase's competence, so if that's your position, trusting your fortune to them wouldn't seem unreasonable. It's how I lost money on Mt. Gox. Wanna see a scary survey? https://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_a_3000_person_bitcoin_survey/ https://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_... https://docs.google.com/forms/d/1FTW8ec0KAzmK8DVYEhFIRVbmYTHNxQzgiXHAh35p5IY/viewanalytics?usp=form_confirm https://docs.google.com/forms/d/1FTW8ec0KAzmK8DVYEhFIRVbmYTH... Check out this chart: http://i.imgur.com/qHYLeXz.png http://i.imgur.com/qHYLeXz.png A whopping third of people surveyed had more than 20-30% of their net worth in bitcoin. I wonder how many of those people are storing it themselves vs storing them with Coinbase or some other exchange?
  - blfr 12y ago
    You can hurt yourself with a powertool, even a kitchen knife or a kettle. Do more damage than you ever could with bitcoin. That doesn't mean the manufacturer should buy you healthcare insurance. Storing 4700BTC with an exchange is far, far beyond intended use. My position is that you shouldn't be doing it. I understand the pro-consumer position. Yes, maybe the exchange should push you into cashing out. But this is starting to turn into padding every room. We allow people to speculate on forex. We allow them to play carpenter. I don't see why this shouldn't extend to bitcoin.

tlrobinson 12y ago

"But are you sure you want to trust a single person with your entire fortune? Worse, you're trusting multiple people where any single person can take your fortune." Coinbase is hopefully not entrusting individual employees with cold storage keys. Their security page suggests they're using Shamir's Secret Sharing or similar (https://www.coinbase.com/security https://www.coinbase.com/security), though multisig would be even better.

jafaku 12y ago
I can't believe they aren't using multi-signature internally. This is crazy.
danielweber 12y ago
Can they demonstrate the procedure works well enough that an insurance company would underwrite them for the full value of the cold wallet?
tedunangst 12y ago
What happens after an accident when they come up one secret short? The 98% are apparently not insured.
- tlrobinson 12y ago
  Shamir's Secret Sharing and multisig Bitcoin transactions support arbitrary n-of-m pieces/keys, e.x. a 3-of-6 scheme would require 3 of the 6 pieces to reconstitute the key/sign a transaction, so any 3 pieces could be lost. 2-of-3 is common for end-user multisig. Generally you'd have 1 key physically backed up on paper in a secure place, 1 key on one of your devices (phone or computer), and 1 key either on another device (hardware wallet or phone) or controlled by a 3rd party that does risk analysis/fraud detection on your transactions.

javert 12y ago

> So insuring those is pointless except as a marketing stunt to confuse people, which is why saying "We're insured" is bad faith. I don't think it's in bad faith. Bitstamp just lost its hot wallet recently, and people were panicking, because they didn't know what the situation was. Now, with Coinbase, if that happens, we don't have to panic. It's hard to tell people something that is true and have it be "in bad faith." > I disagree that technical problems can't make them insolvent. I agree with you here, I just think the chance is so low that it's not worth mentioning. I don't have any insider info, but I seem to recall reading a post a long time ago where they explained having some kind of x-of-y system of paper wallets stored in bank safety deposit boxes all over the country with a lot of redundancy. If you are willing to assume they have even a minimal level of common sense and competency, they have an offline storage system that is very robust. > But beyond tech problems, consider a thought experiment: If you're a gambling person, would you trade 20 years of your life in exchange for becoming a billionaire? I think this is an interesting thought experiment. I don't completely disagree, but I am still willing to trust coinbase with my money.

sillysaurus3 12y ago
Well, Bitstamp was incompetent enough to keep $5M USD (almost 20k BTC) in their hot wallet. That's half their most recent funding round, so the panic is probably warranted. I think we're at an impasse because you believe in Coinbase's competency. That's commendable, but I saw firsthand how incompetent an exchange can be without anybody noticing. If I'd researched Mt. Gox, I would have found a history of tech problems not dissimilar to Coinbase's, so the goal with my original comment was to remind people that this situation is very similar to Mt. Gox. They're based in the US, they have good investors, but still fundamentally similar to Mt. Gox. Don't get me wrong, making an exchange is a hard problem, so it's pretty amazing that Coinbase has gotten this far with "only" four or five high-profile issues. Everyone loves a story of some small group of people surmounting a difficult problem. But when that problem puts people's livelihoods at risk, we need to make sure everybody is fully informed about the risks. I also want to thank you for the interesting conversation. Much appreciated!
- adrianmacneil 12y ago

blfr 12y ago

are you sure you want to trust a single person with your entire fortune? What "entire fortune"? Who keeps their "entire fortune" with an exchange anyway? Or a significant chunk of it in cash for that matter? They provide completely reasonable assurances for what they're doing.

sillysaurus3 12y ago
These people: https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_story_thread_how_much_did_you_lose https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_... Specifically this person: https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_story_thread_how_much_did_you_lose/cfo4aax https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_... I am the biggest loser at 4700+ BTC. Screenshot from a few days ago for the purposes of record keeping. http://imgur.com/IDbM0BP http://imgur.com/IDbM0BP This behavior isn't uncommon. Check out the rest of the thread. Everyone is expressing their faith in Coinbase's competence, so if that's your position, trusting your fortune to them wouldn't seem unreasonable. It's how I lost money on Mt. Gox. Wanna see a scary survey? https://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_a_3000_person_bitcoin_survey/ https://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_... https://docs.google.com/forms/d/1FTW8ec0KAzmK8DVYEhFIRVbmYTHNxQzgiXHAh35p5IY/viewanalytics?usp=form_confirm https://docs.google.com/forms/d/1FTW8ec0KAzmK8DVYEhFIRVbmYTH... Check out this chart: http://i.imgur.com/qHYLeXz.png http://i.imgur.com/qHYLeXz.png A whopping third of people surveyed had more than 20-30% of their net worth in bitcoin. I wonder how many of those people are storing it themselves vs storing them with Coinbase or some other exchange?
- blfr 12y ago
  You can hurt yourself with a powertool, even a kitchen knife or a kettle. Do more damage than you ever could with bitcoin. That doesn't mean the manufacturer should buy you healthcare insurance. Storing 4700BTC with an exchange is far, far beyond intended use. My position is that you shouldn't be doing it. I understand the pro-consumer position. Yes, maybe the exchange should push you into cashing out. But this is starting to turn into padding every room. We allow people to speculate on forex. We allow them to play carpenter. I don't see why this shouldn't extend to bitcoin.