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Comment by focom | Hacker News Reader

Mandatory: Not your key, not your coins

The joys of being your own bank, your own cybersecurity department, your own investment broker and several other professions. All for free now, instead of the filthy money salary. Truly revolutionary, few understand :)

True, but the market as a whole often responds to these situations.

By this logic you shouldn't put your money in a bank either.

(I'm not justifying Celsius, just saying there are plenty of 'bank' like places to store your crypto)

Well... ask a Great Depression survivor how they feel about banks. I have met many that won't put a dime in a bank.

Fifty years from now:

"Grandpa lived through the Great Crypto Frenzy. He lost all his savings in the Coinbase bankruptcy of 2023. Still doesn't trust digital money."

And the Depression was the driving force that brought about massive bank regulation (notable the 1933 Banking Act), including the FDIC which is what everyone is talking about here.

Those regulations simply don't exist (yet) for crypto. They may be coming, but as of right now if you hold crypto in an exchange, it can evaporate if the exchange goes belly up.

All of the existing regulation WILL NOT make a bit of difference if everybody wants their money out of the bank at the same time. If you have been watching the half dozen nations going through high/hyper inflation, withdrawal is the first service to be discontinued at signs of trouble.

No, but it guarantees we're insured up to $250,000. It won't disappear, we just won't be able to withdraw it immediately. That's admittedly not ideal, but it's better than losing it entirely. In the case of most/all crypto exchanges, no such protections exist. If they go under, you lose your holdings with no recourse for having them returned. This is all US-specific, of course.

FDIC insurance was added partway through the Great Depression. So yes, people lost money, but that’s because the current system didn’t exist.

Also, good luck finding someone who lived during the Great Depression and carried a bank balance at the time. They’d have to be 100+ years old!

I mean, people who had assets in banks to lose would probably be in their 20-30s at least during the 1930s. It’s hard to find many people that age now but I agree that in the 90s you could .

Ok, banks are not very good (emphasis on the word "very"). So then why does tokenbros want to replace them with a worse system?

Bank deposits are insured by law. In the US this is called FDIC and guarantees that your deposits up to $250k will be repaid whatever happens to the bank.

Which crypto exchanges can promise the same? None of them because they're not banks, even if they put up a fancy website that looks awfully bank-like to retail customers.

A crypto wallet isn't 'insured' either so this point doesn't matter.

It does. When coinbase goes bankrupt, they can liquidate all user assets. User assets at banks are insured up to 250k.

Why should I take the risk of a company going bankrupt and liquidating my funds when I can keep the money in my house (wallet)?

Because there's risk in keeping it yourself. Either you lose the keys or you get hacked and they're stolen. The insurance situation is the same either way.

It does matter: FDIC insurance protects you as a depositor specifically from counterparty risk, i.e., the risk that your bank may become insolvent and fail to honor your withdrawals. But in the crypto world, if you move your crypto off an exchange (your counterparty) and onto your private wallet, then you've eliminated your counterparty risk by eliminating your counterparty.

Obviously handling your own crypto custody in a private wallet means you're taking on a whole different set of risks. But the key feature of deposit insurance is that it mitigates a risk factor that's both 1) opaque to you, and 2) outside your ability to directly influence. And these are properties many crypto-aligned folks care about.

Diversify. Keep some on an exchange, keep some yourself. There is risk either way and neither are insured.

Sure, that seems like sensible advice for the median case. All I'm saying is that these risk baskets are qualitatively different, and therefore the correct allocation between custody strategies might be very different across different people and use cases.

The federal government guarantees the banks. No one is guaranteeing Celsius.

Fed gov doesn't guarantee your wallet if you lose it.

Crypto in Wallet is equivalent to physical cash. If you lose it (cash or wallet) no one will guarantee anything.

However, you can deposit cash in FDIC insured bank accounts. Question is what's the equivalent of a bank deposit in the crypto world?

The risk calculation is very different. Cryptocurrency is protected by passwords and keys and stuff so is secure from theft without needing a bank. But cash is not, so a bank does provide value - you're more likely to be robbed than the bank go under.

And of course, in most places, banks and other institutions are protected with rules about keeping a certain amount of cash on hand and some sort of insurance mandated by the government.

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