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Comment by charlesdm | Hacker News Reader

A pension fund, which is run by a board of directors and manages $400bn, is not going to print a paper wallet to hold $2bn worth of Bitcoin.

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.

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So it's not "more expensive to keep safe", it's "more expensive to use as a trading asset", which is completely different.

It's expensive if you lose it -- which is all that matters to these people.

This is why multi-sig exists. Put the funds in a 6-of-10 account, done. You would need a 60% attack (60% of the executives to collude/conspire, or 60% being hacked/kidnapped) to be robbed.

Yes, if you're a $10m hedge fund or a small family office. But not if you need to manage $400bn; then you (really) want a custodian.

These people allocate and mostly invest in funds with exposure to certain asset classes (private equity, VC, hedge funds, equity and bond funds, etc).

> you (really) want a custodian

Are you really referring to a single (non-plural) custodian...?

A custodian company, not a person.

Ah, sure, and that custodian company will most likely hold the bitcoins in a multisig account.

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?

Looks like most don't think this way. They think that they don't have the 'expertise' in-house for maintaining multisig account. So they will just have to hire an 'expert' custodian to reduce risk.

And this is why most funds that hold bitcoin will fail, at some point.

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 disagree. As a private person I would feel a lot more secure if I could pay someone to safely hold my cryptocurrency for me.

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 :)

People like you, in the long term, will learn that the risk associated using an identity-based custodian based services (be it for fiat or for crypto) is never worth it. Why? In the crypto case, because counterparty risk is higher in this space (companies get hacked more often than banks being robbed). In the fiat case, because of the diminishing rate of value of your holdings due to inflation.

I would love to have a way for my bank to hold my crypto for me, with the same amount of insurances and security audits as they have for other assets.

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.

> I trust my bank living up to the task of keeping it safe...

Your trust will have a cost. That's what I meant. You will pay with risk or value.

To be honest, bearer shares weren't exactly the best invention ever. They held considerable risks, and losing the shares meant losing your investment and/or company. Crypto ownership is very similar.

You should pay to five companies in different jurisdictions for a 3 of 5 multi-sig. As far as I know, nobody offers such service right now, but I think it will exist in the future.

> Yes, if you're a $10m hedge fund or a small family office. But not if you need to manage $400bn; then you (really) want a custodian.

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?

How many multisig wallets have had bugs?

None AFAIK? Maybe you're thinking of parity, which is ethereum not bitcoin.

Some Armory M of N wallets were unsafe. The flaw they had made the security equivalent to a 1 of N wallet.

https://btcarmory.com/fragmented-backup-vuln/

edit: the problem has been fixed since

That’s Shamir secret sharing, not multisig.

Thank you for pointing out the difference, I learned it today.

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.

I can think of two practical differences:

- 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.

Thank you DennisP.

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.

Wow, that's very informative. Thankyou. I had just written a comment talking about SSS, but I didn't realize that Bitcoin has multisig in the actual protocol. That is definitely a lot better.

...why though?

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.

I can't see "CALPERS INVESTS $2BN IN CRYPTO AND GETS SCAMMED" being any better, honestly. I'm sure you can insure crypto holdings, but considering the risks, the cost must be exorbitant.

Still, how is that more expensive than keeping physical gold?

Its 1.2% a year -- that's expensive. He states Gold ETFs pay approx. 0.08% per year to store bullion (no idea whether that's a correct number though).

But hey, it's better than paying a 2-20% fee to a hedge fund vehicle. Fees are already coming down!

Why not cast the hashes inside gold bars? Then just keep storing the gold. Btc storage for free.

Like this?

https://bitcointalk.org/index.php?topic=196320.0

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