Aye, in theory, but in practice technology has to fit into social context and coinbase is the result you get.
If you don’t like the result, you need to redesign the technology so it works within the real world that exists. And it don’t.
If you don’t like the result, you need to redesign the technology so it works within the real world that exists. And it don’t.
Once you use Coinbase, you are out of the self-custodial crypto ecosystem and you pay a price for it. You give up all control over your assets. In return you gain convenience and the security of something backed by the US government.
For some people that tradeoff is worth it, for other it isn't. The point of crypto is that you have the option to not do that. Nobody ever forces you to use centralized exchanges.
What do you mean? If Coinbase goes bust or steals your assets you’re just an unsecured creditor.
It isn’t like a brokerage in regulated markets or a bank, which have specific rules protecting your money.
That's very different from managing your own keys. Nobody can take anything from you. But you also have zero legal protection against an attacker stealing your keys. In other words, you are in full control, for better or worse.
That seems hard to believe in light of Coinbase's own recent disclosure: https://www.barrons.com/articles/coinbase-customers-crypto-b...
Investment funds suffer from the same problem. And so do banks, for amounts exceeding the FDIC insurance.
This hand-waves away a century of banking and investment protections everyone with assets at Coinbase willingly waives. Your funds at Fidelity are insured up to $500k by the SIPC [1]. Every person at Chase is insured up to $250k by the U.S. government, which backs the FDIC with its full “faith and credit” [2], a number which happily doubles with your account at Bank of America. (People concerned about this sweep [3] their money across multiple banks.)
When Lehman went bankrupt, customers’ assets were ringfenced [4]. A private equity firm can’t buy a bank, lever it up and gamble away customers’ deposits and assets.
None of the above apply to Coinbase. Nor should they. Everyone in crypto opted out of that system.
[1] https://www.sipc.org/for-investors/what-sipc-protects
[2] https://www.fdic.gov/resources/
[3] https://en.m.wikipedia.org/wiki/Sweep_account
[4] https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0...
https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
You’re protected “against the risk of loss should any FDIC-insured bank(s) where [Coinbase] maintain custodial accounts fail[s]” [1]. If Coinbase maintains “accurate records,” which nobody is checking, and “on determinations of the FDIC as receiver at the time of a receivership of a bank holding a custodial account.”
If Coinbase itself fails, you’re just another unsecured creditor. Maybe a bankruptcy judge will find your deposits to be a § 507(a)(7) customer deposit, in which case $2,600 of it is a priority claim [2]. For the rest of it, you’re a general unsecured creditor. Behind every lender.
Note that the Coinbase FAQ we cite is worded in an intentionally misleading manner. That copy wouldn’t fly at a bank, or, at the very least, produce liability for it in a manner that would actually pay out.
[1] https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
[2] https://www.bdo.com/insights/industries/retail-consumer-prod...
> Fiat balances, such as U.S. dollars, British pounds, or euros, are held in your Coinbase e-money wallets as a balance in your Coinbase or Coinbase Pro account(s). For U.S. customers, Coinbase combines your balance with the balances of other customers and holds those funds in either: custodial accounts at U.S. banks and/or invests those funds in liquid U.S. Treasuries, or USD denominated money market funds in accordance with state money transmitter laws.
> Funds could be held in any one of these three manners so customers should not assume that funds are being held in one manner over the other.
So, if your funds were held in the custodial account (which you're explicitly told not to assume), and if Coinbase maintained "accurate records" (lolwut?), and if the bank where the custodial account is failed, then you're going to be made whole. Notably, Coinbase itself failing isn't part of that "if" chain.
"Cryptocurrency is not legal tender and is not backed by the government. Cryptocurrency, (including but not limited to tokens such as bitcoin, litecoin and ethereum, and stablecoins such as USDC), is not subject to Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation protections." [https://help.coinbase.com/en/coinbase/other-topics/legal-pol...]
So any Bitcoin etc... you hold in your wallet at Coinbase could just be sold off to pay for debt if a bankruptcy occurs (which doesn't happen if a FDIC bank goes bankrupt).
Running the banking system on permissioned blockchains, where it makes sense, is simpler than extending federal protection to what currently behaves like a gambling industry. Also, spending the tax dollars of the young, poor and/or financially-conservative to subsidise a demographically-constrained pursuing a high risk / high reward strategy is inefficient.
Taking those protections would mean a lot more regulation for the industry, regulation they’ve worked hard to avoid
To handwave away the FDIC insurance like that makes you sound like you think everyone under that threshold just doesn't matter.
I doubt I'll ever be able have over $250k in savings at any one time, so it wasn't something that seemed too much worth my time to learn more about.
I agree with your overall point, but these two things are not the same.
This is an incredibly misleading way to describe the difference between unsecured deposits in Coinbase and FDIC insured deposits. Because the U.S. Government is involved in both bankruptcy proceedings and FDIC liquidations, there's no difference in how likely it is a person will be made whole? No, that's not how it works.
> Of course they can still go bankrupt. But then, again, the U.S. courts would decide what happens to their assets and yours.
Right, but Coinbase has explicitly stated that in the case of bankruptcy, users with deposits are considered unsecured creditors. In the case of bankruptcy, your assets are now coinbase's assets, coinbase's other creditors can go after the assets you deposited and you are last in line to salvage whatever is left.
Coinbase wanted people to think it was as conventional and safe as any other federally-insured brokerage because that's the only way they were going to appeal to the average casual investor. But they aren't a brokerage, and you're fucked if they go bankrupt, which is the reason coinbase stock plunged in May when they updated the risk disclosure to their quaterly statement.
> You can trade crypto assets without ever using Coinbase or any other centralized exchange
Do tell, how do you expect the average person to convert fiat to cryptocoins?
Crypto can be exchanged locally and anonymously with your friends, too.
I'm genuinely curious how one could do this at scale. I'm not talking about buying $1,000 of BTC on a P2P marketplace so you can then use it to buy drugs somewhere. I'm talking about someone wanting to buy $1 Million worth of BTC, then exchange half of it for ETH, then convert all of the BTC and ETH for fiat. How would one do this quickly and cost effectively without the use of any sort of exchange?
Remove the fiat part from the equation, and the way to answer is easy, you can trade crypto-tokens in the many decentralized exchanges.
And if you just want to hold volatile currency, you can trade the BTC or ETH for some stable token (like DAI, synthetix USD if you don't want to rely on fintech-backed tokens. If you are fine with using tokens backed by more credible institutions, you can hold USDC or Gemini USD)
(It's amazing how inconsistent the skeptics are, when they are only trying to score some cheap points against what they don't like)
Most people looking to trade large quantities of crypto have most of their wealth in other assets and expect to be able to convert between them, with the dollar as the default go-between.
This is true of practically every traded asset, including FX. It’s not true of e.g. MGM tokens. But that disparity highlights the difference between crypto and other traded assets.
Also, the fact that people currently use USD as "the default go-between" does not mean that people have to keep using it. Crypto OTC desks already exist.
OTC desks are the correct answer, not “why would you want to” use a dollar. Yes, in a hypothetical world people wouldn’t use dollars as a go between, but instead use [insert theme of the decade]. In reality, we do and will for the foreseeable future.
Also, a crypto OTC desk that doesn’t ask for KYC is by almost every country’s law laundering money. So it doesn’t sidestep the core issue of this post.
If the idea is, like you said, just about being able to convert between different asset classes, we could have OTC desks that would be taking crypto and (after following proper KYC/AML regulations) giving you any of stock/bonds/real estate titles/commodities/etc, and vice-versa, without any need of USD as intermediary.
- Because every USD <-> local currency may have processing fees (credit cards on retail, withdrawal fees for large FX traders)
- Because some banks use the opportunity to slap tons of other fees
By holding crypto, one can legally avoid all of these costs.
It’s almost exactly the use case you want for an exchange (or really in fx a consumer liquidity platform as they aren’t really traditional exchanges).
Is that different in the crypto world? If so why? All of the costs (ie risk management) seem more expensive in crypto than fiat.
Irrespective, if I want to lock in trading gains I want FIAT. Because that's what I use to buy stuff. Sticking it in some proxy to FIAT is taking counterparty/credit/etc risk for no return.
For now, for lack of competitive alternatives.
I'm not even saying that you will be buying everything with crypto in the coming years. But I do see a future where it can be more secure and more practical to buy some things with crypto: digital goods, concert tickets, service subscriptions... put all of these things together and suddenly we will find ourselves with a crypto wallet making transactions worth a few hundred dollars every month.
(http://www.paulgraham.com/organic.html)
> you can't use this currency for day to day transactions
Not with this attitude, you can't. ;)
What currency is "this"? BTC, ETH, Doge, USDC, DAI?
> incredibly volatile
How volatile is USDC, DAI, GUSD?
> risky to hold significant amounts of it
It's also risky to walk around with significant amounts of cash in the wallet. It doesn't stop people from wanting to carry some money around. And more importantly, the alternative of "going cashless" is a whole other set of systemic risks.
> it might be useful!
The use cases exist already. Micropayments and streaming transfers (as an alternative for subscriptions) using stable currencies are already possible. If you don't care about it, it's a different story.
You could make that argument 10 years ago. It's been plenty long enough to find a use case that isn't breaking laws.
It's impressive... Like clockwork, there will always be one coming to throw the "only use-case is illegal stuff!" line. It's like people can't wait to throw their opinions about a topic while displaying their complete ignorance of it.
Tell me how you can do the use-case for Brave - ie, sharing revenue from the ads with millions of users from anywhere in the world - within the traditional payment networks.
You can't. There is no Paypal or any other financial institution interested in making monthly transactions that can go as low as a few dollar cents. And somehow Brave does it, legally, and it all works out.
Brave collects money from advertisers, Brave sends money to sites and users. Nothing in that requires any sort of blockchain. If the monthly amounts are so small as to make flat transaction costs significant, then the amounts are themselves insignificant. None of this requires a decentralized trustless ledger.
That is the hole in your argument. Imagine the amount of business opportunities if the total cost of a transaction was a fraction of a cent.
> None of this requires a decentralized trustless ledger.
That is an implementation detail. If you find any other method to securely send value across the world for fractions of a cent (even if with intermediaries), I'm all for it.
Anyway, I'd be eager to hear all the amazing achievements from Mr. ohgodplsno. You must be very fun at parties.
Once again, you said it yourself. His accomplishments are "he made money" and "he found ways to give money". Let's not mention the fact that YC has funded many extremely dubious companies and that _giving money isn't work_. Had PG not been here, someone else would have had that money, and would have given it to startups. He's a glorified (quite bad) essayist with money.
Anyway, I've heard lots of PG critics, and some of them I even say I'd admire because they actually did something of interest and according to their values. But you? You haven't shown anything of value that you can do. Let me repeat: I'd love to know more about your accomplishments.
But if anything, you just keep proving that you might just have a talent for egregiously mind numbing, self absorbed essays just like PG
YC is not a miracle product. The man had money and said "Hey I'm going to give it to higher risk companies to get some money back". It takes zero ability. Venture capital has existed for centuries. He's a glorified bank, except my bank doesn't put out pompous essays on their blog at least.
HN, aside from being a great purveyor of laughably inaccurate comments does not nearly have the global impact you think it has. It's the laughing stock of most of the tech internet. But at least sometimes the links posted are good.
They are both ways to dismiss an idea though.
The transition from paper fiat dollars to electronic (credit/debit cards and later NFC apps) for ordinary everyday payments which began in ernest ~1990* is still not complete (30+ years). This is despite the fact that it is only a different method of payment, not a change in monetary system like gold/silver -> fiat was.
Why would anyone expect a transition from fiat (paper and/or electronic) money to crypto to only take 10 years?
* one of the places I worked in high school in 1988 was People's Drug (CVS). While we did have the primitive early electronic swipe terminals for credit cards, they were only used by the cashier for pre-authorizations (replacing the earlier method of calling an 800 number). The pre-auth step could take several minutes. We then had to imprint the card on carbon paper vouchers with the mechanical "click-clack" machines and write down various information on the vouchers with ballpoint pens. Fortunately very few customers used credit cards due to this long tedious process. Payment by check wasn't much faster as we had to write down driver's license number and address on the check by hand.
In 1990 or so the first gas stations started to accept payments at the pump. Before that you had to walk inside and pay with paper money or the old slow mechanical credit card method or checks. For the first few years they only accepted debit cards at the pump, not credit. A few grocery stores started accepting debit cards around the same time as the gas stations.
The question is not whether cryptographically secured algorithmic money will be a part of future monetary systems but who will control the algorithm and/or how will different systems compete with each other.
1)centralized and has all these centralization risks (USDT had frozen 360M on ether alone),
2) crypto-overcallaterized that has less centralization risks but limits in stability.
3) or something else, that usually doesn’t work (terraUSD)
I keep 99% on my money in crypto (plus I recently got pretty much excluded from banking system) so i have my money where my mouth is: DAI. I don’t like everything about it, like lots of USDC is collateral, or ineffective liquidation system, and for that reason I’m participating in StableUnitDAO to build far-better alternative (feel free to join us, i bet all my lifesavings on this project) but for sake of this argument it’s not good fiat vs bad crypto stablecoins. For lots of people it’s strictly opposite.
4.5 years is not a lot of history. I wouldn't fit a basic credit model on that much data.
open disclosure, I know nothing of DAI (indeed little of crypto). But if I want a dollar-like asset, a risk free asset, then "limits in stability" is not compatible with that.
That the important thing is giving people an option, and not just some high-stakes casino.
And then:
> I bet all my lifesavings on this project.
You are not helping me, dude. You are not helping anyone...
> I recently got pretty much excluded from banking system
Does it have anything to do with xSigma, perhaps?
Beyond mining, how do I exchange $100 of USD for Crypto without going through a trusted party to ensure my $$ gets me BTC?
Do not wildly profitable to mine; but you can untraceably convert USD to crypto via mining.
Curious what it looks like to do this with large sums of cash.
I looked at your comment history and you vehemently argue against DeFi but your posts show that you have little understanding of any technology behind it.
Where you ARE right is that centralized exchanges/entities are needed as a fiat on-ramp and off-ramp. There is no way to get around interacting with centralized governments if you want to use government-issued fiat currency.
You don't. You don't need to interact with any websites to make transactions. It's on-chain. You can always run a (light, non-archival) node to ensure the transaction does exactly what you expect it to (before submitting it) do without ever going to a website.
You're right that if you trust absolutely nobody, not even chain explorers, you need to put in more work, do some digging and understand how the system works. You're exchanging usability for security/trust. The point is that you have the option to do that. If you are paranoid and don't trust centralized entities you don't have to. Decentralized exchanges can't cheat you, steal from you, freeze your coins, or go under. It's technically impossible because they don't have custody of your coins at all.
There is a lot of arbitragers on all chains equalizing prices between them all. What you've described with office space is known as MEV in the DeFi world.
All the exchanges are completely open source, you can learn how they work if you put the time into it. I recommend the Balancer whitepaper.
If you can figure out how they can go wrong feel free to explain. But it seems you don't actually understand them yet and are just making assumptions.
Your belief that we need centralized exchanges is just an opinion, and it's wrong, which you'll discover as you dive deeper into seeing how they work.
Crypto holdings in Coinbase are backed by the US government? By what mechanism?