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Comment by matt_wulfeck | Hacker News Reader

This is the stuff that scares me about Bitcoin. People tout it as being safe from regulation, free, quasi-anonymous... But if you have your savings stolen you want it back.

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I think the exchanges as we know them today, they could change to where there's no 3rd party holding your coins. Maybe some kind of "escrow coin" runs on a "proof of trade" concept where the escrow coin miner gets a small percentage of the trade value when buy and sell orders match up, the fee would discourage fake trades and make the escrow coin worth mining. I had the idea a few nights ago. Would a "proof of trade" escrow coin work? Not sure. But I think it could work to where there's no tempting "cryptsy jar" to reach into.

it could work to where there's no tempting "cryptsy jar" to reach into

Something, perhaps your idea, needs to be done, before Bitcoin can have long-term success. Because you're exactly right. It's just too tempting. This isn't the first time something like this has happened. Not the second time. Not the third time!!!

It's actually possible to do this without even requiring a 3rd party for escrow. Two parties can perform a "cross-chain atomic swap", where special transactions are created that move both of the funds on both chains at once, requiring zero trust. This of course requires a custom client to create these special transactions.

I've been working on this exact thing for a while: https://github.com/mappum/mercury However, I'm still waiting for the altcoins to adopt BIP65, a Bitcoin patch that adds a new script opcode, which is necessary for cross-chain atomic swaps. Bitcoin recently adopted this change, so the altcoins should follow in the near future.

Nobody will ever recommend that you put your savings into the account on a bitcoin exchange. Use a wallet and addresses you control yourself for your savings.

Whenever bit coins are lost or stolen, there's always someone who pops up to say that the losers made a mistake and they really shouldn't have done what they did. Congratulations on being that someone!

The same could be said for any form of cash. Probably you wouldn't keep large amounts of money in any form where you don't trust it to remain safely.

Hence the modern banking system.

That's why "I've shoved my life savings in my mattress" isn't a very popular form of banking.

Depends on the country

... in the United States, where real banks are FDIC-insured.

If this crap had happened to an institution that was audited, protected, and enumerated in US dollars, this whole fiasco would be only a bad day for the Cryptsy owners, not the depositors also.

But you get what you get when you go with a non-fiat currency. It's interesting to me to watch people in the BTC space re-learn the lessons learned by financial systems since the dawn of currencies; at least they're learning them faster in the digital age.

I agree in principle, but in practice I would say it's a lot easier to hack my father's computer than to break into his house and steal his safe.

You can store bitcoins on paper. I've done it for years. With multisig, the paper can even be split between, say, your safe, your safe deposit box, and your wallet, with 2-of-3 required.

I like this idea. Do you have documentation for how to do it? I'm assuming it uses Shamir's secret.

Sure thing.

Using the bitcoin client directly: the addmultisigaddress command. https://en.bitcoin.it/wiki/Multisignature

Using bitaddress.org, an "Open Source JavaScript Client-Side Bitcoin Wallet Generator". Makes use of Shamir's. https://bitaddress.org (save the page locally and run it while disconnected)

Using Shamir's directly. Split one private key into multiple points. https://bitcointalk.org/index.php?topic=393159.0

There is one nice thing about bitcoin multisig as opposed to running ssss on a private key. With multisig, you can generate three keypairs on three computers, then combine their public keys into a (say) 2-of-3 multisig. I'm pretty sure that using ssss would require the full-authority key to exist on a single computer at creation time, and it would be split afterwards, which is less secure.

Shamir's secret isn't safe because it requires you to have both parts of the key and put them together on the same server. Standard bitcoin multisig does not use Shamir's secret, it does a pay to script hash transaction which is safer. You can try it out yourself here https://bitcore.io/api/lib/transaction

I keep saying similar things. Unfortunately, everyone is enamored with Bitcoin. But what they really want is a lower friction way of electronic money transfer. What they don't want is for their savings to be easily stolen.

"You know what's cooler than a million dollars? Virtual currency backed by nothing and nobody."

Here's Bitcoin explained using a Venn diagram. If you don't understand this diagram, you're the ideal Bitcoin user. http://www.thereformedbroker.com/2013/11/20/bitcoin-likely-u...

Considering that Bitcoin is comprised of people who are very good at math, people who are active investors, and people who are currency enthusiasts, shows that you have no idea what you're talking about.

Bitcoin people aren't investors, they're speculators. Big difference.

Bitcoin resembles tulipmania much more than investing. At least I can pay my taxes with the fiat currency that is the US dollar. The only thing I can do with Bitcoin is pass it on to a greater fool or to someone who will use it as an intermediate "currency" which he will immediately convert to something more tangible.

Bitcoin is very useful as a short term medium of exchange. It's not an investment and it's not a store of value.

... and with the current technological limitations in finalizing transactions, it's arguable how much utility it has as a short-term medium of exchange.

Most "short term" media I use, I don't expect transaction finalization in scales of hours.

Price fluctuations make bitcoin a non-starter as a savings account anyway.

It would be better to store savings in an interest bearing account with a bank or other investments, some of which might include bitcoin and some of it's possible successors.

For me at least, the compelling thing about cryptocurrencies is the possibility of cheap transactions, but bitcoin itself doesn't really seem to fit the bill as it stands, so it seems like a high risk investment.

A friend of mine once opined that inflation is functionally the government's ability to tax savings accounts---waking up one day and finding out your money is worth 10% less because of government policy is pretty equivalent to waking up one day and finding out the government just took 10% of your savings account.

But you demonstrably don't escape price fluctuation by moving to a non-fiat currency; you just move the causes around.

Banks in 1800's were also prone to robbery too.

Are you sure you want to compare cryptocurrency exchanges' safety to 19th century banks?

In the 21st century, customers of traditional banks usually don't lose any money when a bank is robbed.

Which is why our banks don't operate like they did in the 1800s. We've got better security, interbank electronic transfers, and a government backed insurance system which guarantees the safety of deposits up to a fairly large amount (in the US, at least).

If you're arguing that the state of Bitcoin is analogous to banks in the 1800s, that's fine as a perspective on the relative state of advance; to me, it's a wonderful way of saying I should keep my money as far away as I can from BTC.

It's an observation; Bitcoins are in its early stage of development akin to banks in the 1800's.

The next question is whether Bitcoin exchanges will follow the same path of increasing security that banks did, or whether there are structural differences that will cause Bitcoin companies to remain a "market for lemons".

Computer security is in its early stage of development, akin to bank security from the 1800's.

Computer security is actually fine; there's plenty of solutions in academia for lots of modern problems.

The issue is that the uptake of these solutions is slow, because of reasons like backward compatibility and poor software engineering and govt meddling.

The problem is that Bitcoin developers and exchange operators haven't bothered to learn from hundreds of years of banking history.

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