Hacker News Reader

Isn't that mostly the situation we're in with the places that are getting hacked?

BitcoinBank holds your bitcoin. Keeping the bitcoin safe is their responsibility. They get hacked and someone takes the bitcoin from them. They're liable to compensate you for the loss, but they don't have the money to compensate you with - someone stole it all.

Is the difference that a bank like Bank of America would have non-bitcoin assets to compensate you with? That is to say, the hypothetical BitcoinBank gets $65M of bitcoin stolen and that's 100% of their assets so you're out of luck. BitcoinBank owes you money, but doesn't have any. However, if Bank of America had $65M stolen, you could expect them to have other assets to cover that loss and make you whole.

I think the issue is that would cost a lot of money. Would you be willing to pay 2% of your bitcoin per year for this insurance?

I think one of the reasons that our current financial system works well against fraud is the ability to undo many transactions and detect fraud in addition to swallowing losses. If you try to spend $10M, that's likely to cause fraud alerts. If you're shipping goods to someone else and they're expensive, you'll again get fraud alerts. If you're transferring money between banks, it can have certain fraud-protection oversight and has a certain ability to be undone. A lot of this comes from lack of anonymity and limitations. A $5 transaction isn't suspicious and doesn't carry the same risk as a $5M transaction. Most bank to bank transfer systems have daily and monthly limits on them. The banks know who owns the accounts and can confirm if it's the same person. Banks generally have some latitude to undo transactions. Banks can see where you purchase things and determine whether it's suspicious. Banks have centralized places where they determine whether to permit a transaction.

> However, if Bank of America had $65M stolen, you could expect them to have other assets to cover that loss and make you whole.

That's exactly my point. Asking some cryptocurrency startup to look after your bitcoin, if they get hacked, they'll probably go out of business and you will lose everything. A major bank, with billions (or even trillions) of dollars of non-cryptocurrency assets, they will survive the theft of a few million (or billion) dollars worth of bitcoin, and have plenty left to compensate you with.

> I think the issue is that would cost a lot of money. Would you be willing to pay 2% of your bitcoin per year for this insurance?

Some people will probably say yes. If you expect bitcoin to go up by substantially more than 2% pa, 2% might be a reasonable amount to pay to reduce the risk of holding it yourself.

> Banks generally have some latitude to undo transactions.

I don't expect banks would apply the same rules to cryptocurrencies given the inability to reverse. For example, if you make a typo in the target account for a bank transfer, with normal currency the bank will probably just reverse it for you if you call them, with bitcoin you've lost your money. The threshold for compensation would be much higher. But still, if the bank loses your bitcoin due to their own negligence (as opposed to your own negligence), they'd be liable for that.

Can banks reasonably do this with current money laundering rules?

Is the margin of 2% sufficient to cover costs + risk?

Incidentally - when a bank account gets hack the bank compensates a single person worth of $. However every bitcoin system seems to revolve around keeping all of their eggs in a single basket for some reason. Surely the complexity cost is worth the additional security?

If the bank is holding your Bitcoin, what is the point of using Bitcoin at all? It is just an extremely inefficient centralized currency at that point.

As an investment. If a person believes Bitcoin is going to continue to go up in value, they might want to buy a lot of Bitcoin, but have someone else manage the safekeeping of that Bitcoin they bought.

I'm one of many people kicking myself that I didn't buy Bitcoin years ago when I first heard about it. And now I'm wondering if I should buy some now, because there is a decent chance it will continue to go up (in the long run). But if I could pay a modest fee for someone I trust (like a very big bank) to look after those Bitcoins for me, I might consider it.

Sure, but to say that is to say that bitcoin's "unique investment opportunity" is akin to that of pieces of irreplaceable artistic value ... or tulips of irreplaceable biological heritage.

Once people believed bitcoin could be a currency, a medium of exchange that could be used for the ordinary transactions people used ordinary cash for. Now, it's an "investment vehicle" hurdling down the road that gold, natural gas futures and similar things went gone after 2008 when the Fed began QE in earnest.

And sure, "it's different thing time."

> I'm one of many people kicking myself that I didn't buy Bitcoin years ago when I first heard about it. And now I'm wondering if I should buy some now, because there is a decent chance it will continue to go up (in the long run). But if I could pay a modest fee for someone I trust (like a very big bank) to look after those Bitcoins for me, I might consider it.

I'm one of those who looks at the 2013 spike and 2014 crash, and wonders what's different this time around.

Well probably nothing, but the gambler in me goes, but wouldn't it have been nice to get out on top. The trick of course being knowing when the top is

You’re describing cryptocurrency ETFs like http://www.nasdaq.com/symbol/gbtc/stock-chart

Can't you use futures for that? No risks of hacks.

I would like to see banks operate Bitcoin accounts.

This is completely antithetical to bitcoin. Upon reading that sentence, I thought surely this is a joke.

Not only is a bank account for bitcoins completely antithetical to the very notion of bitcoin, but it eliminates any need for bitcoin's central innovation, a distributed, unified verification system in the form of a 'blockchain,' generated by a clever utilization of P and NP.

Money is fungible, it doesn't really matter if I have dollars, or pesos, or yen in my bank account. The only reason you want a bank account for bitcoin is because you want a bank account with magic internet money that magically, irrationally increases in value until it doesn't. And you don't want the headache of worrying about all the potential missteps when messing about with your magic internet money.

You are describing coinbase.