Bitcoin Is More Expensive to Keep Safe Than Gold
fool.sg
fool.sg
Management fees vary widely across funds. They have everything to do with how money-grubbing the funds in question are and little to do with how expensive the assets actually are to secure. For example, you can pay >2% management fees on a really predatory S&P 500 index fund, the kind that John Hancock would sell you. Or you can pay .02% management fees on a top-level Vanguard fund tracking the same.
The only reason that the management fees on the Bitcoin funds is because they can be high since there's little competition so far, unlike with, say, S&P 500 index funds. It's not intrinsically expensive to store Bitcoin; far from it. It's far cheaper to store than gold, for all the obvious reasons that you don't have physical goods to secure.
"If gold can be stored in Fort Knox-like bunkers for just 0.08% per year, there is little reason it should cost 15 times more for bitcoin to be stored in similarly safe solutions. For now, though, it’s easy money for the custodians"
Second of all, there are many many cryptocurrencies at this point and they are all thriving/competing with one another across various measures. Since fiat is incapable of competing with anything except on relative value, fiat is doomed to fail.
Sure, fiat currencies can hyperinflate with less than 15 years’ notice, but 15 years from now I expect most fiat currencies will be similarly valued and most cryptocurrencies to be as gone and forgotten as a geocities homepage.
You think bitcoin will be gone in 15 years? It's already been around for ~10 years and it's just starting to reach mass awareness. If it survived ~10 years in relative obscurity, please explain how it's going to be be gone in 15 years now that it's well known?
That said, I think saying that bitcoin will be gone in 15 years is a bit like those people who thought the internet was just a fad. People who "get it" understand its usefulness and as long as there are enough of those people then it will remain.
So if bitcoin's competition is Gold (and not your local currency) it would need to get a lot easier for laymen to acquire and sell (I'm not just talking bay area engs, I mean like the Venezuelan farmers, which is why bitcoin enthusiasts trump up any and all reports of the like). The segwit x2 fork was at least an attempt at that, and coinbase has done good work reducing frictions. The 2nd and 3rd will take years but could happen.
I just feel like at this point all of bitcoins gains in the past year have been driven by wild speculators looking to make a quick buck, which tells me that when the recession hits they will dump their holding and btc will tank. This will make people less confident in btc as a store of value, and will consider it instead to be a wildly risky investment vehicle, which it is. At that point, it will default to its only proven use case thus far: anonymous worldwide financial transactions.
disclaimer: I have a smallish % of my portfolio in both gold and btc.
I don't think this is true at all? All I have to do to acquire Bitcoin is sign up for an account at an exchange, link my bank account, and then hit the buy button. It's exactly as easy to acquire as stocks.
Contrast with physical gold, which I wouldn't know where to acquire.
I don't know if it will be gone but something's got to give at this rate.
Being seen as a “low-risk-high-return investment” attracts developers, but only until it stops delivering that promise.
That said, my claim is that most will fail, not that all will fail. You may think that’s weasel words, but I will not accept a currency that even has a 10% chance of failing in 15 years (and if you think that’s harsh, imagine being a bank and taking a 10% risk of default on a relatively short 15 year mortgage), and judging by both http://deadcoins.com (looks like 600 entries, I stopped counting at 200) and the Wikipedia claim that there are over 1172 currencies, that risk is much, much higher than 10%.
Bitcoin is the google of cryptocurrencies... it's going to be the leader for a long time.
It might survive… but there’s no way I’d risk money I couldn’t afford to lose the way I would with any G20 economy’s fiat currency.
I see your list of cryptocoin failures and raise you a list of fiatcoin failures (granted, the latter list, which is much longer, was accumulated over a much larger timescale...)
The problem is real though. We must reckon with the possibility that all these anarcho-capitalist dreams will go to hell once the necessary minimum overhead of handling crypto turns it into an _even more centralized_ medium of exchange.
The competition is simply buying bitcoin, which isn't possible to do for the S&P 500 without investing a few million and constantly incurring fees to adjust to its shifting composition.
The safe store is the only reason to buy this bitcoin ETF. Contrary to common myths, no investors, institutional or not, are constrained by regulations not to buy bitcoin directly.
It's hard to steal a truck of gold, especially considering the mens with guns which are typically around. It's hard to mess up physical security of a truck (not even to mention a vault), and even if you lose it, the thief still has a big and heavy problem on his hands. Real world police is good at these things. And unlike bitcoin, gold can't just teleport to Russia (using a generic non-cooperative country here)
Stealing bitcoin requires just one tiny mistake in a miriad of places (starting with random number generation, ...), and then you are done with no other recourse.
Personally I think hardware wallet random numbers are safe but anyone technical who's worried about that could generate their own from von Neumann coin flips, and turn that into a 24-word seed for setting up a hardware wallet.
https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_...
I wouldn't say this is more difficult than securing a large amount of gold. If someone gets into your safe deposit they can just take your gold. With a hardware wallet you get three guesses of a 4 to 8 digit PIN and then it wipes itself. And you can't store gold redundantly to protect from loss.
> wipes itself
Now that seems like a really shitty security feature. Whoever finds it can just wipe out your funds?
That is good for someone who have several secure redundant copies.
Now, given that I have recovery keys stored in a safe place anyway, the ledger itself is somewhat disposable. Its still a great way to actually access my money, but if something happens to it I can just get a new ledger. So, yes, I want it to wipe itself if the wrong PIN is entered a few times. That feature means if I lose the ledger I can relax knowing my money is still safe even if somebody finds it.
Anywhere in the world your securing Bitcoin against a billion or more people, plus bots. A proven attack vector could wipe out thousands of people in afew minutes.
https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-wort...
Too bad J. S. G. Boggs recently passed away -- I wonder what kind of abstract performance art he could have done with bitcoin.
https://en.wikipedia.org/wiki/J._S._G._Boggs
https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-dea...
"They don’t understand the difference between art and crime." -J. S. G. Boggs
Speaking to ARTnews after Mr. Boggs’s death, Mr. Weschler said, "He was just short of being a con man, but no more than anyone in the art world, or for that matter in the world of finance — which, of course, was his whole point."
http://www.milliondollarhomepage.com
https://en.wikipedia.org/wiki/The_Million_Dollar_Homepage
If were able to get ahold of a whole collectable super-lucky celebrity bitcoin, then you could sell it off in pieces:
It's both. Bitcoin and U.S. dollars are units. Bitcoins and dollar bills are countable.
> Bitcoins don’t have numbers any more than miles or kilograms or degrees Celsius do
Here [1] is a coin. Here [2] is another.
[1] https://blockchain.info/address/1EHNa6Q4Jz2uvNExL497mE43ikXh...
[2] https://blockchain.info/address/1JMcEcKXQ7xA7JLAMPsBmHz68bzu...
Another thing I've seen is mined blocks of bitcoin being sold at a premium - the miner (or pool) will take your address and mine a block to it.
Is this purely for sentimental reasons (“freshly mined bitcoins”) or are there any practical uses for that? I can imagine coins with no history on the blockchain can be useful somehow.
I imagine that you would do this as a step in a money laundering scheme.
Can't you just print a paper wallet. Put that in a safety deposit box. Once locked up nice and tight, transfer bitcoin to it.
They have more important things to worry about, like investing their $400bn and achieving a decent return on their entire holdings.
Second to that (or maybe even more importantly), it's ass covering. Imagine the headlines: "CALPERS INVESTS $2BN IN BITCOIN AND ETHEREUM, AND LOSES ACCESS KEYS". If you're managing a fund, you just don't risk that.
These custodian fees (which will come down eventually) are a cost of doing business to access the asset class. I would assume those entire crypto holdings also to be insured as part of said fee, in the event something does go wrong.
But hey, it's better than paying a 2-20% fee to a hedge fund vehicle. Fees are already coming down!
These people allocate and mostly invest in funds with exposure to certain asset classes (private equity, VC, hedge funds, equity and bond funds, etc).
Are you really referring to a single (non-plural) custodian...?
Now you have to pay a company for this service and also have counter-party risk. Great.
Maybe the risk and cost is not worth it and setting up a multi-sig inhouse is worth it?
Bitcoin is a paradigm shift. Its more important value proposition is the lack of counterparty risk (which other people refer to as "self financial sovereignity"). If you're hiring a custodian to hold the bitcoins for you, you're doing it wrong.
> They think that they don't have the 'expertise'
If bitcoin is seen as requiring some special knowledge to hold it safely, it's simply a UX problem that will be solved when wallet software/hardware matures.
I trust my bank a lot more than I trust myself to keep things safe.
This seems to be a controversial opinion in the crypto-space :)
The "be your own bank" idea which crypto offers was one of the reasons it has taken me a while to get into it. That was something that I really didn't want.
I trust my bank living up to the task of keeping it safe and reimbursing me if they don't. I don't care about the individual coins but I do care about the value they represent and I trust that even if a bank loses a number of coins that it will not affect me. Just like if a bank vault was broken into it would not come out of my account.
Your trust will have a cost. That's what I meant. You will pay with risk or value.
Who, if they are competent, will happily print out a bunch of keys on paper and lock them in boxes, and charge you a 75 basis point asset under management fee for that service.
What has that really accomplished though?
https://btcarmory.com/fragmented-backup-vuln/
edit: the problem has been fixed since
See a good Reddit post about it: https://www.reddit.com/r/Bitcoin/comments/2uj2qe/difference_...
However, I still don't really get the usage difference between SSS and multisig. In a M of N situation, you give N secrets to N people, and M people together can spend the funds.
In my mind, Shamir secret sharing wallets (e.g. Armory) belong to the family of multisig wallets.
It would be nice if you could elaborate on that point.
- SSS can be bad if just your own client gets it wrong, multisig can be bad only if the blockchain itself is implemented incorrectly and somehow everybody who's been poking at its crypto for years with billions of dollars at stake has missed it.
- With SSS, once you reconstruct the key, there's one person holding that single key who will sign a transaction with it. You'd better trust that person. With multisig, each of the m keys can be controlled by a different person and they don't have to share. So (unbroken) SSS is fine for protecting your own key, but an organization that wants to distribute responsibility should use multisig.
So, slightly paraphrasing, IIUC : - multisig is more adapted for organizations, there is no need of trust between the key holders. And it's more secure, because it uses a more widely audited code than that of wallets.
- SSS seems more adapted for individuals. It has more flexibility and privacy in N and M, since no P2SH script identifier is sent to the blockchain. I guess transaction fees should also be lower.
Firstly it's not the executive's money to actually hold onto.
Secondly they have sooooooo many options where their own incompetence/mistakes will not be a factor in their money literally disappearing into nothingness. There's a reason why bank deposit insurance exists.
If you think you can hold onto the money cheaply, by all means start this business and get them as a client. But you'll probably want insurance, you'll likely need some security measures, etc etc. Things start costing money.
Not to mention the coordination costs for them of "yet another holder of assets". What if they want to sell a chunk of it? They need to get 60% of execs in a room every time?
These people hold money for a living. I understand that they might not be aware of the latest and greatest technical stuff... but this is their job and they've likely thought of a lot of details here.
There's also value in a human being the last step in the security mechanism. No matter what happens, a court order/explanation of force majeure/etc means that the money is never really truly lost.
A ton of gold exists in a single time and space, meaning security measures are highly localized and conveyance to another location requires a non-trivial energy expenditure.
The more or less "pure information" basis of crypto-currencies mean the security mechanisms surrounding them must be "global," they can be potentially accessed unauthorized by someone anywhere on the planet through means of social engineering, exploiting faulty code, or similar. And once accessed the "pure information" can vanish from the reach of the ostensible owner with just a few electrons cycling through a few circuits.
In fact what percentage of the total supply of bitcoin were acquired in just such a manner?
But if you have a significant amount of gold or bitcoin (ie, 7+ figures when expressed as USD), a safety deposit box is not going to cut it. You have way too much risk (thieves, fraud, losing the key, securing the key, insurance, liability, etc., etc., etc.) You want someone else to store your gold (or bitcoins).
And people charge 15 times more to store Bitcoin than gold.
And from this point of view the propensity for a crypto-currency to suddenly vanish if every 'i' is not dotted and every 't' not carefully crossed, is rightly seen as a liability for the 'store of value' game.
Also interesting to consider is the kind of security precaution spread that exists between between various value levels in precious metals, vs. crypto-currencies.
For example, consider the difference in security mechanisms employed by someone storing a couple gold coins in a box in their house, vs. Fort Knox.
Whereas your security precautions for storing $10, or $1,000,000 in crypto-currency are not a whole lot different.
Storing very valuable, very portable things is hard. And few are harder than bitcoin. Saying "just get a safety deposit box" isn't a great answer.
I have a feeling you are misunderstanding how these things work.
A thief in a gold vault still has to carry the gold out, and that is difficult.
A thief in a vault with a bitcoin wallet just needs to write the private keys/seeds on a piece of paper (yes, I know about secret sharing schemes)
So bitcoin is much more vulnerable to a single person who fucks up or is malicious.
Or password protect the seed.
Or both.
More interesting is the shortest program that reproducibly produces one dollar of value. By this measure, Bitcoin is one of the "denser" pieces of fungible information humans have invented.
"Heavy" networked bits must defend against everyone, everywhere, all the time. This enables lots of new turf. It also increases security risk.
Can that really be said of anything, with the nature of markets, and supply and demand?
If I invest in solar panels, or oil wells, then the expected value per unit sold of the product I produce will be dependent on a massive number of predictable and unpredictable inter-playing forces in a global complex system.
While I can make forecasts of an average expected unit price by studying historical prices, factors affecting them, probabilities of various events, etc. there is also the case that my very selling of the product has an effect on the price I can expect.
As a supplier at a certain scale I can expect revenues to follow a downward curve, with each unit supplied a certain amount of demand is satisfied and thus lowering the overall market price and my expected revenue.
It's not exactly a one-way curve, at higher supplies and lower prices, new avenues of demand can be opened and prices can follow a curve upward.
I like the idea and thinking you've proposed here, but it seems like the complexity of markets is more complicated than Kolmogorov complexity.
It seems the like what produces value in terms of the most optimal ratio between input and output is always in flux. And when a maxima of optimal value is found all the mechanisms of market forces work against it being deterministic and precisely reproducible.
I think to deduce a measure like you proposed in an economic context you would have to have a product that is absolutely finite in potential supply and all potential uses for the product strictly defined, enumerable, and un-extendable. And therefore lowering JumpCrisscross complexity would simply be a matter of optimizing production costs.
But I'm not sure any such scenario exists, it would require a deterministic understanding of the universe and it's constituent parts that we don't have and it would have to preclude the ingenuity and creativity that seem to be key human qualities that drive the flux and change we see in the world.
Economics is really a study of organisms. Biologists often make the mistake of trying to define adaptiveness, but there probably is no such thing. In a universe of rock and scissors, it's clear which organism is best, but when paper comes along, suddenly they're equal.
Attempts at formalism come with the caveat that equilibrium strategies, (strategies such that, if all organisms use them, no organism can improve) generally require the zero cost generation of random numbers.
What does this mean for our function which assigns economic value to programs? Non-trivial (not zero everywhere) solutions are not guaranteed to exist, and indeed the case for their existence doesn't look hopeful.
Just keeping bitcoins safe is no more expensive than gold. I've literally thrown some dice to generate a private key, sent coins to it, and all you need to do is make sure nobody else sees the key. Costs nothing. I won't go into details there, there's a million options, and they're not much different from say putting gold in a secure vault.
http://www.juris.com/help/Content/Juris-core/Utilities/matte...
Let's be very clear: If you are not able to safekeep your Bitcoins yourself, you should not have any more than you are willing to lose. That's the state of the field at the moment. The whole point is cutting out the middlemen, and if you can't do that, you're not equipped to be in Bitcoin. Learn or stay away.
It is not hard to understand why insurers don't want to write these policies. Bitcoin exchanges die catastrophically in over 20% of exchange-years.
I think custodianship hasn’t been solved for other currencies but it has for Bitcoin. Coinbase and GBTC are just over charging because they can.
If I had given 1 oz of gold for storage on Jan 2, 2017 the price was 1150 USD. If something had gone wrong in Sep, when the peak price was reached the payout would be 1350 USD, a 17% premium on the storage price.
In comparison, I gave 1 BTC for storage on Jan 2, 2017 at 1025 USD. If something were to go wrong today the payout needs to be 8217 USD, a 700% premium.
It just goes to show people will pay anything.