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They would probably just use a highly reputable bitcoin bank. It could stay anonymous because there could be "cash for bitcoin" like sites around cities and a transfer could be made into the bitcoin bank without anyone ever knowing.

If you assume a world where everyone is using something like bitcoin these banks are extremely tempting hacker targets. If Bank of America gets hacked and someone discovers that a hacker/rouge employee/software bug/whatever transferred money from account A to account B they can reverse it.

One thing that hackers have taught me is that the only secure computer is one that's unplugged. The C compiler backdoor is a good place to start thinking about this: http://scienceblogs.com/goodmath/2007/04/strange_loops_denni...

What if you woke up one morning and on the news the president was telling the country that overnight all of the savings in Citibank had been transferred to an unknown individual/entity by a group of disgruntled employees… They're in jail now but we don't know who now has the 2 trillion dollars that was transferred. Keep using bitcoin.

Even if the wealth is gained legally, it leads to a system with no accountability. Everything is under the table.

What happened to geeks valuing transparency in government/corporate governance? I think geeks see this as freedom but it will do nothing more than might makes right. The system benefits geeks today and thugs with guns tomorrow. It's the perfect system for secretly applying your will onto the world without accountability. Who's good at that today? The mafia, gangs, corrupt politicians, dictators…

Gah, I have to collect my thoughts on this. I'm getting off into crazyville but I feel like this is where it leads.

I worry… I worry…

In reality these bitbanks would probably have time delayed "safes" that only unlock the actual bitcoins after a waiting period. Transferring money between the banks, and even to prepaid visas would probably be done with reversible bank credit from one account to another. So the rouge employee is a minor issue whose cost could be absorbed into the profits of the bank. True, this isn't "real" bitcoins, but the system's pillars would be built upon something stable and (sort of) anonymous.

As for the massive hack scenario, the same fears of large scale loss hold true if someone hacks Dropbox or Facebook/Gmail and everyones files or personal messages get leaked. I would rather lose $1000 or even $10k than have my Dropbox & Gmail hacked. Even in the extraordinarily unlikely case where cracker hackers get into the bitcoin equivalent of Citibank three thinks should happen: 1. Automated systems that detect higher than normal activity and begin immediate shutdown until the cause is resolved. 2. (Barring 1, somehow) Free market deposit insurance. 3. (Barring 2, somehow) A reversal of the block chain to some stable point.

Yes 3. would require a massive amount of consensus and the relative value of bitcoin would go down against USD, but I don't even think that is likely.

The mafia & gangs exist due to a lack of freedom and they have very little trouble moving money today. You can carry out millions of dollars fairly easily in jewelry already.

As for bribing politicians, that is an angle I haven't thought of before. I'll think about it, but I'll grant that it is a very valid concern, although synonymous with bribing politicians with expensive jewelry or art or transfer of anonymous investment corporations (Nevada iirc) or Bearer Share Corporations.

The biggest weakness of bitcoin in my opinion are some implementation details. For one, the way the difficulty rate for the miners is determined I can construct a scenario where a clandestine intelligence agency or a medium wealthy individual could take over the transaction history. By flooding a time window with gpus they could force the difficulty rate for the next time window way, way above the cost of electricity. Then they would have almost no competition in the next round because anyone with a utility bill would stop mining, so they would be left free to corrupt the block chain. The difficulty rate should have been a continuous function of the current hashing power.

Anyways, good debate. I have code to write, though. I hear you on a number of points (specifically the c compiler one, wow that is nuts), but they aren't enough to stop my libertarian nerd glee :)

Utility costs going above the block-finding reward doesn't just happen in the flooding scenario, it also happens naturally as we approach 21M. It's already (supposed to be) handled by transaction fees. I don't think you're ever going to see most of the network shut down mining.

"Utility costs going above the block-finding reward doesn't just happen in the flooding scenario"

Why not? If I throw in 4x the computational power for 2 weeks or less why wouldn't the next wave be that much harder?

I think you misunderstood me. I'll reword.

There is more than one scenario where the reward from finding a block is less than the utility cost.

This is in fact already guaranteed to happen as block-finding rewards decrease. It's nothing new to bitcoin, and is already expected to be dealt with.

I agree with your concerns although I think they are pretty analogous to people stealing gold out of banks. There's no recourse from that and if enough big gold reserves vanished I'm sure the gold market would be screwed up.

Of course those physical breakins are probly much much harder to pull off than hacking an electronic bank.

Have you thought about the phrase "... they can reverse it"? How is that implemented?

You would have a hard time finding anyone who uses off-the-shelf cryptography so carefully that long-term resident code on their box couldn't capture all the relevant keys. Your comment seems wishful.

People do the same segregation, between long-term non-transactional accounts and short term spending accounts, with their bank accounts. But businesses still need to keep non-connected isolated quarantined machines to access the bank.

The comment you're responding to didn't argue that wallets couldn't be encrypted. He argued that in the (not unlikely) event that a malware incident on your machine was able to compromise your wallet, you'd have no recourse. And: he's right. You wouldn't.

…in the (not unlikely) event that a malware incident on your machine…

I believe it's even worse than that. The normal instinct as shown by this response is to centralize security into a "super secure" bank. I think that's exactly the wrong thing to do. I would put some on a linux box in my closet, some on my mac, some on my flash drive, some on my windows PC. People would lose money all the time in a system like this but it would be better than having a big fat juicy target in one location.

I would be nervous living in a country where we're one data mishap away from not knowing who rightfully owns what, especially given our collective track record there. If people are serious about bitcoin, they need to get serious about adding identity into it.

Does anyone else see this as a regression? This is like the Wild West of economies, where you'd have to keep some Bitcoins locked in a safe in your study, some buried in a secret location under the porch you only know about, some under the mattress...

Doesn't anyone else feel like Bitcoin is (re)introducing a huge number of problems that were the primary drivers of creating banks in the first place?

Yes it is but I don't think Bitcoin was created out of dislike of all banks, probably just the Fed.

"Not a concern. Hackers encrypt their high balance wallet.dat then store it on dropbox/whatever."

Not a concern?

And if the trojan sniffed your keystrokes as you typed in your password and/or grabbed a copy of the key you used to encrypt your wallet?

Or what if it just put in a trojan copy of whatever app you used to encrypt your wallet, so that everything you did (from typing in the password, to feeding it a key) would be sent on to the thief?

Are you concerned about that?

How about browser plugins? "Monitor your balance right in your toolbar!"

funny you mention that - I just came across a chrome bitcoin extension about an hour ago: https://chrome.google.com/webstore/detail/hhbhfoohbnjkdcndbh... - but the publisher name (bitquux) does not fill me with confidence... use at your own risk!

They would probably just use a highly reputable bitcoin bank

Just because a company is "highly reputable" doesn't mean that they aren't technologically incompetant. Just look at the Sony PSN episode, or any data protection leak from any bank.