But as right now Bitcoin Cash is worth $634 and regular Bitcoin $2727 per coin according to coinmarketcap.com. That's 23% the customers are loosing out on instantly.
And the defense that the users should be responsible to withdraw your coins if you want to keep it on both forks is disingenuous. There are withdrawal limits and requests for raising the limit goes unanswered for months due to high demand. Those users have literally no course of action. Also Coinbase issued their stance on Bitcoin Cash 10 days before the fork, this doesn't leave much leeway for customers on vacation for example.
That's not even remotely true. Right now there are zero exchanges that support depositing BCH. The only BCH that are trading are the ones that were created by the exchanges.
So unless you're arguing that Coinbase should be liable for not creating an exchange for BCH then the argument that anyone has lost out on money has zero merit. Even if Coinbase had already given everyone BCH, no one would have been able to sell on any exchange.
> So unless you're arguing that Coinbase should be liable for not creating an exchange for BCH then the argument that anyone has lost out on money has zero merit.
That's only with the assumption that no exchanges will ever allow BCH deposits, that you cannot sell them OTC nor buy things with it.
Again, where do they draw the line?
Coinbase is more similar to a bank than it is to a wallet.
Let's say that JimBob came along offering a lollipop to everyone for every $1000 they could prove they held in a US bank on a particular day. (The BCH network is offering credits to everyone on the BTC network in proportion to how much BTC they can prove they had on a particular day.)
You, as a customer, tell your bank, "yes, confirm to JimBob that I had $30,000 in my account on that day!" (You provide notarized authorization, etc.) The bank says no. Would that fly? Maybe.
Instead, they call up JimBob and say, "Look, we have $3 million in our bank vault. Give us our 3,000 lollipops."
Would that fly? I don't think so. (Though Coinbase hasn't done that last part ... yet.)
This process puts a fair amount of burden on the "bank", because they need to deal with JimBob's byzantine lollipop claims process _directly_ with their own cash, rather than issuing a standard affidavit that'll work equally well for MarySue's pop-tart claims process. Or, in more technical terms, _every time_ anyone comes up with a new coin, coinbase would have to dust off the cold vault, generate the proofs of ownership, reassign them to the new owners, then move the bitcoin over into newly generated cold addresses to restore the security posture of the cold vault coins.
Moreover, creating new types of altcoins is a process that can be easily automated, and at little cost to whoever is instigating this creation process. Of course, most of these coins won't ever gain any popularity or value - but then what's the threshold? At what level of popularity does a broker need to do anything? What happens if a coin is totally unpopular initially but gains popularity later - do brokers need to backfill? What if the key material has been rotated away and destroyed in the meantime?
For that matter, how do we measure popularity? Volume? It's easy to spam volume if you control the first exchange for your altcoin. Market cap? It's easy to fake market cap and unrealized gains when nobody can transfer coins yet. Hashrate? Who knows when that'll settle down. In any case, it's not the sort of thing that can really be objectively determined too quickly after a split.
These don't become an issue with normal securities because, in normal stock market securities there is only one authorized issuer who is able to issue splits, and this issuer incurs real, significant administrative costs for doing so. They also must involve credentialed third parties, and all participants face regulatory scrutiny, fines, or even jail time if they deliberately set out to abuse the system.
Compare to the creation of an altcoin, where the costs of creating a new altcoin are tiny, but the costs of dealing with the fallout by brokers can be quite large. And, of course, there is effectively zero regulation that would give penalties to deliberate abusers. There's therefore a large cost and risk imbalance between altcoin creators and brokers who have to deal with the new altcoins. This sort of cost/risk imbalance results in, effectively, a sort of denial of service threat against bitcoin brokers if it's allowed to stand.
For this reason, the precedent set by this split is going to be of great importance in the future of bitcoin and altcoin brokers - if brokers must deal with splits, it will mean that they will need to segregate coins and keep them online ("hot") at all times in order to be able to deal with any split immediately and/or retroactively. This in turn will hurt the security posture of these currencies substantially. The risk of screwing a split up will also hang over any service that holds *-coins on behalf of their customers or other third parties.
This will also impact the legal feasibility of off-chain transaction aggregation schemes (e.g. lightning) not feasible, as there's no guarantee that the next harebrained altcoin split will be able to deal with redeeming the complex transaction scripts involved with e.g. an unsettled lightning channel - and if it doesn't, who is liable?
So, in short, _requiring_ brokerages to deal with altcoin splits and redemptions opens up a huge legal can of worms that is probably best left closed, for the viability of the overall altcoin landscape. Yes, it sucks that coinbase didn't do something for this particularly public split, but if they did they'd have to be processing splits every other day, or perhaps even more frequently.
Disclaimer: I have no position, long or short, in bitcoin or any other similar "altcoin" assets, nor do I have any plans to open such a position in the forseeable future. However, I do find it fascinating to watch this legal/economic experiment evolve from a safe distance.
You have to draw the line somewhere, and, as a practical concern, determining that a fork meets this line retroactively adds a great deal of complexity and risk to the process. Further, as we've seen here, even a short delay in executing the split raises a great deal of ire and threats of lawsuits.
So, as I see it, the only consistent positions to take would be to either:
1. Not require split tracking at all. People who want to enjoy the benefits of such a split can simply move their bitcoins to a wallet under their direct control, or to an exchange who has agreed to track the split. [what happened here - a market-driven solution, essentially]
2. To legally mandate split tracking if proponents of the split agree to make a market - that is, agree to buy at a particular price for a particular period of time - thus ensuring that the coins have value [unlikely to ever come into play due to the enormous cost of such a venture]
3. To legally mandate split tracking for absolutely every altcoin, no matter how awkward or technically difficult it may be to do so.
Keep in mind that implementing 3 means the exchange might need to run software created by the altcoin's promoters - because keeping up with your own software for every altcoin would take too much development resources - and would be exposed to the exchange's private keys in order to perform hot wallet transactions that the altcoin's network will accept. Thus, if exchanges are forced to run software from any random Joe's fork, this would present a real security risk that backdoored software might be slipped in - this means that they would be forced to switch to split wallets by customer so a single customer using JoeCoin won't compromise funds held by other customers, but having this split out makes maintaining cold wallets impractical.
No, read my comment again, carefully. If they are providing IOUs for BTC, that means there is no private key associated with the debt. If say for instance they owe a user 10 BTC, they could give them any 10 BTC. if a new chain pops up, it doesn't matter, because the contract is explicitly an IOU for 10 BTC, not BCH or BCC.
the problem arises when the exchange implies they are holding "your coins" for you like a safe deposit box, which means there's a private key associated with the coins, and thus that key would work with any chain splits, including BCH/BCC.
just curious, do you understand how blockchains work? i.e. private keys and the transaction protocol? if you weren't familiar with it, then that would explain why you are having a hard time understanding my comment.
Of course, saying that coinbase balances are IOUs for bitcoins is basically what happened here, and apparently people aren't happy about it. While you could change the marketing material, I don't think it would do much to change the outrage in this case; I very much doubt people will pay attention to such a nuance when they apparently couldn't be bothered to temporarily withdraw their coins.
That's a very good point. It would avoid any legal ambiguity and save face with the more technical minded though.
Your bank happens to have an access control policy where they hold the safety deposit box key for you and you have to pick it up from them each time (after authenticating).
You ask the bank for your key so can go to the JimBob version and get your copied stuff. They refuse because of a security policy about taking keys offsite.
You offer to close the box account and take your (original) stuff out so that there will be no security compromise. They refuse because that would compromise the box and cost them a usable one.
You offer to pay for the cost of replacing the box with an uncompromised one. They still refuse.
That is the position that Coinbase is in. (Users haven't offered to pay for the replacement of the private keys that coinbase uses, but this is a trivial cost, and establishes the barrier that prevents coinbase from facing unbounded costs to deal with every fork.)
EDIT: And for an analogy that favors "Coinbase doesn't owe you anything": Assume we're under a gold standard. Assume that some goldsmiths just give you regular dollar bills as your warehouse receipt "since they're redeemable with the government banks anyway". Most people don't care much about the difference, but each goldsmith keeps a list of the serial numbers they gave out so they don't have to honor arbitrary demands.
Then (of course) the government goes off the gold standard. But some goldsmiths are like, "no, that's BS, we will still honor your claims, just bring us a dollar bill that's on our serial number list". So there's a mad dash to get dollar bills that were used as goldsmith receipts, and some people ask for their deposits back from their bank, but the bank (like Coinbase) insists that they only have to give you banknotes of their choice, not the original ones you deposited, which was all they ever promised.
(Modified scenario: you kept the dollar bills from the goldsmith in a safety deposit box, and the bank replaces them with new dollars and never redeems them for gold.)
[1] You can further assume that the copy is some debased, lower value version of arbitrary percentage and it doesn't affect the analogy.
What other cryptocurrencies have been forked of another coin gaining such a large value, placing the exchanges in the same spot?
I can think of only one: Ethereum and Ethereum Classic. The same thing happened there. Coinbase was forced to allow the customers to withdraw their Ethereum Classic coins.
> Again, where do they draw the line?
If a forking chain survives and gains a significant share they should allow withdrawal of their coins. Not keep them, as they are doing now.
It is easily too soon to say whether it will survive. You may have read or done technical analysis that came back supporting the conclusion that it will survive, but if Coinbase is taking the position that it won't survive, IMHO it is much too soon to say whether or not the same thing is happening here.
As a matter of fact, this can't be the same thing...
Ethereum Classic was the original chain. Ethereum(') is what the developers answered with, after the famed failure of the DAO, before 28 days had passed and the damage would become irreversible.
If anything, your comparison is reversed, but in my opinion it is nowhere near close to the same thing. Eth Classic tokens are called classic because it was the original chain (with the bug in it, "just like we agreed to," if I understood the story fully.)
I agree. That's why Coinbase should have said that they will wait and see if the fork will survive or not. If Bitcoin Cash continues to have a non trivial value and the fork survives Coinbase will either have to give in and give the customers their Bitcoin Cash or they will get sued and loose.
> Ethereum Classic was the original chain. Ethereum(') is what the developers answered with, after the famed failure of the DAO, before 28 days had passed and the damage would become irreversible.
It doesn't really matter which chain was the original. After the fork Ethereum(') became Ethereum and only after the fact did the Ethereum Classic movement begin (as you say).
> If anything, your comparison is reversed
Majority hash power and the market decides the "real" coin. Ethereum and Bitcoin are the real chains and Ethereum Classic and Bitcoin Cash are the spinoffs/altcoins.
The fact is Coinbase weren't going to credit the customers their Ethereum Classic, but had to give in. I see history repeating itself.
I welcome the diversity, and a chain that has lower difficulty will be most welcome for miners as well. Hearing about some of the issues with withdrawal limits, I will not be surprised if there is a lawsuit against CoinBase. I'm personally just glad to see that, on the Bitcoin price graph, this whole event has so far been a complete non-event. (Even though I sold mine before the Hard Fork. I'm betting on ETH.)
Note that the difficulty will be reduced, to about 20%, after the next 6 blocks. So the transaction delays should resolve themselves during the next 12-24 hours or so.
Thousands of other BTC was rewarded to protocol hackers who exploited the empty block rewards and submitted useless "Proof of Work" to the network. Mining pools have also reaped plenty of bitcoins on the "original blockchain" by manipulating their stance as overseers of a vast swath of the mining activity in the network where they could simply prioritize their transactions and rewards over the slaves in their mining pool.
This is not even mentioning the inherent slowness and susceptibility to ASIC attacks, and overall antiquated design of both BTC and BCC network designs.
As I explained, the reason Bitcoin Cash situation is different is because the blockchain / private keys are shared. It's not the case with the altcoins. That's why Coinbase is in the wrong.
Plus it would cost them very little to fix the situation, compared to how much of the users' money they are holding.
From the point of view of Bitcoin, Bitcoin didn’t split; someone made a copy, so the initial balances are inherited from the Bitcoin blockchain.
No, that is not what's happening here: Bitcoin is a consensus network where consensus is achieved essentially by mining sequence of blocks, which requires a huge amount of computational power. Each block have a relation with the previous block. Sometimes two or more blocks are mined almost at the same time (creating a fork), miners then choose one and keep mining as fast as they can. At some point one fork will be longer than the other/s, which is when consensus happen: miners abandon the shortest forks and keep mining on the largest one.
I had a company I have shares in that split in two and they gave me a choice, either convert my shares to the new company or keep them in the existing company. I didn't automatically get shares in the new company and if I opted too I would have lost the shares in the original company.
Was this a publicly traded company?
Edit: usually (always?) the exchange is preceded by a partial IPO (or a stake in a quoted company exists for some reason) and they are distributing the remaining shares.
The article states,
> An activist group, which claims Coinbase's decision is akin to a brokerage withholding new shares from its investors, ...
which is not at all what it's like. Coinbase isn't the only source to buy/sell BCC. I think it's ridiculous that a company could be sued because they don't offer a new service.
As it happens, it's slightly more complicated than what you make it out to be. It's not a question of them simply not offering to support the new service. You see, when you hold your bitcoins inside Coinbase they have a private address of your wallet which they don't disclose to you. You can of course withdraw the bitcoins at any time (we'll get back to this later) and transfer them into a wallet of your choice. Now when the fork happens you, as the owner of the private key to your wallet now own the same amount of bitcoins on both blockchains. Both, as it appears have market value. However, because coinbase is the sole entity possessing private keys in this case and because they have announced that they won't support BCC they are effectively pocketing the entire market value of the BCC bitcoins that their customers have entrusted them with, which is likely to be in millions of dollars. When they announced that they wouldn't support BCC a lot of people rushed to withdraw their money from Coinbase into other wallets. However, a lot of people were unable to do so due to a variety of reasons and Coinbase is notorious for having atrocious customer service in matters like this. Hence the outrage.
BTW, Coinbase and other similar companies claim to be a full reserve bank, but unless there's an audit, there is no way to tell from external observation that they aren't playing a Mt. Gox game of being a fractional reserve bank without bothering to tell their customers.
So how does this relate to BCC/BCH? Since each Bitcoin customer doesn't have their BTC in a separate wallet, in order for Coinbase to support BCH, or any other random fork of Bitcoin that might take place in the future, they would have to track when your BTC was credited to your account, and then create a separate BCH account to track the BCH. Then if you ask to withdraw your BCH in USD, just as you are entitled to do with BTC held in a Coinbase account, Coinbase would have to find an exchange that supports BCH, and sell some number of BCH on your behalf.
Coinbase has elected not to do this, and gave all of their customers ample notice that if they wanted to participate in the BCH experiment, they would have to ask Coinbase to transfer their BTC into their own private wallet. (I'm not a lawyer, but I'm sure the fact that they did give notice is going to be something that will be mentioned as part of their defense if and when a lawsuit is actually filed.) When I withdrew all of my BTC from Coinbase last week, the transaction which Coinbase executed to transfer "my" BTC into my own wallet had "change" that went back to a Coinbase private key. That's another clear indication that "my" BTC were not held in a separate wallet, but rather commingled with other Coinbase customers' accounts.
The issue is that Coinbase is _withholding_ the BCC from its customers. Technically, Coinbase has been awarded the BCC for all of the wallets they are in control of, but are refusing to distribute it.
It really is akin to a brokerage refusing to award shares to customers due to a company split/stock split.
Edit: A fiduciary would (AIUI) not be allowed to keep shares from a spinoff, which this seems like. But I'm no expert.
[1] https://gemini24.zendesk.com/hc/en-us/articles/204734485-Is-...
I don't think they could have been any clearer.
As a customer, the first notification of this was sent to me was around ten day before the fork, I don't think that would be considered as 'well in advance'.
Unless they aren't holding as much BTC as their customers think they are. In which case, it gets complicated.
That's not what this is about. They want to withdraw their BCC which duplicated from their BTC.
> I think it's ridiculous that a company could be sued because they don't offer a new service.
I think it's ridiculous if a company, very similar to a bank, couldn't be sued when they effectively haircut their customers of 20% profit of their coins.
My understanding is that Bitcoin Cash recognises the old Bitcoin blockchain as their own up to the point of the fork. So as of Aug 1st all Bitcoin balances are Bitcoin Cash balances as well. Or is that not how it works?
What users could have done was withdraw their Coinbase balance into their own wallet, then they'd have coins on both forks. This had to be done before the fork happened, though. Now that it has, anyone whose coins were in Coinbase at the time of the fork is at the mercy of Coinbase.
Coinbase doesn't have to support trading BCC, they can simply provide a withdrawal function so people can claim their BCC and move on with their lives. Their decision to ignore it entirely is going to get them sued and it's going to cost them.
Would Coinbase normally be held accountable for a significant move in Bitcoin against you while you're on vacation?
Coinbase isn't a company to secure your Bitcoins against the value of the dollar, it's a company that stores Bitcoins and facilitates transactions.
This is not about a do over, it's about the ultimatum being reasonable. If an exchange declared that you had 10 days to withdraw funds issued by, say, dividends, or you'd simply lose those funds with no consideration or equitable exchange, it would be sued (and successfully so).
Coinbase did not (and does not) need to allow trading in order to disburse the forked currency to existing customers.
It's an opportunity cost: if I missed out on some big trades while the price was high due to their decision to withhold the keys, I'm rightfully annoyed by it.
Of course leaving legality out of it, it'd also just be a smart thing to do because it makes their customers happy and maintains goodwill. Coinbase is fairly respected in the crypto space and making their customers happy during a turbulent period can only be good for them in the long run.
They will capitulate eventually. Same thing happened with ETH/ETC.
Coinbase is a company that handles people's Bitcoin (and a couple other currencies). Coinbase never made any promises to support other currencies that copy Bitcoin's balances or are otherwise awarded to Bitcoin users. Bitcoin Cash isn't mentioned or promised in any of Coinbase's advertising materials. Handling of Bitcoin Cash is a service that Coinbase has never claimed to offer.
I get what you're saying but it doesn't really matter. If they don't want to lose a lot of customers (and revenue) they'll offer a withdrawal option.
You don't just get to take customer assets because you sent out an email and gave them 10 days. This is why we have the concept of consideration in the first place.
Options are derivatives, so they're different from cryptocurrencies, which are themselves analogous to equities. An option inherently has a date of expiration, whereas a cryptocurrency (even a fork) does not intrinsically have such a thing, and with an option you do not own the underlying unless you choose to exercise.
Even if BCH had only been worth $0.10 people would still want to claim their free money.
If their accounting is competent they can anyway trivially award the correct amount of BCH at any later date (because they'd be able to determine exactly how many BTC each customer had at any given moment).
That's not nice for customers that want to trade now, but people are hardly forever screwed if BCH becomes the new thing.
Okay, fine. They "gave customers a 10 day ultimatum, at which time they said they would forfeit the Bitcoin Cash because it's unsupported."
You can't do that. It doesn't matter if it's technically complicated to implement a disbursement system, it doesn't matter if anyone can decide to fork a cryptocurrency. A customer's asset cannot be denied to them (potentially, and as originally stated, into perpetuity) with 10 days notice. This is not how any exchange operates, and the fact that Coinbase is attempting to do it is beyond the pale.
Coinbase certainly has conversion limits, but anyone that wanted their Bitcoin into Dollars knew about this limit far before the warning of Coinbase only supporting one side of the split, and converting into Dollars means you don't want to risk the split and you should have been diversifying far before Coinbases announcement.
"Sending to another wallet" IS a withdrawal.
I transferred things from a private wallet INTO coinbase quite literally on 21:00 on 7/31 because there was absolutely zero indication from them that this was a bad idea - just that they didn't support some new alt coin.
You know what would have been responsible would be to own up and explain it:
"After the fork private wallet holders will have both currencies so you should remove your coins from coinbase before the fork, then put them back in"
Is that bad for business? Yep; too fucking bad. Coinbase holds the forked coins right now - all of them - privately. They just aren't giving them to customers. They're just another crooked exchange.
> If you wish to have access to UAHF coins or you wish to have immediate access to your bitcoin, you should send your bitcoin from Coinbase to your external address by July 31.
I received this from then on the 19th, and again twice more before the fork.
The connection between UAHF and bitcoins is not established nor is the entitlement of getting UAHF coins via a bitcoin private wallet.
Given that explanation, I don't know what they are, how to get them, where they come from, how it applies to me or why I should care. It sounds profoundly irrelevant.
Besides, those forked coins still exist, and I know who has them. It's not that they aren't supporting it, they decided to keep them for themselves. All that obtuse language is just legal CYA.
They just did a hustle. A wall-street white-collar style one, but a hustle nonetheless. I'm not getting them no matter what happens because they're probably already sold.
it's a common refrain that you don't actually own your coins if you are not the sole holder of the private keys, and this is one example as to why.
Stellar Lumens had an airdrop
Byteball had an airdrop
and there are many more, let alone bitcoin forks. These are all very valuable for holders, and people that own their private key.
There are several problems for exchanges, and it doesn't make sense for them to bake that kind of functionality in until a legal framework forces them too. In which case, yes the customer SHOULD sue, thats the only way to progress this. But the old adage is that if you don't control your private keys you don't have any control. And unless the exchanges start providing access to these airdrops as if they are dividends for holding, then it will be a very complex issue for them.
By doing that, uncertainty is eliminated, people can keep their coins on Coinbase knowing if they're worth anything serious, then they'll be fine. Zero downside.