Hacker News Reader

Comment by blfr | Hacker News Reader

are you sure you want to trust a single person with your entire fortune?

What "entire fortune"? Who keeps their "entire fortune" with an exchange anyway? Or a significant chunk of it in cash for that matter?

They provide completely reasonable assurances for what they're doing.

View on HN

These people: https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_...

Specifically this person: https://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_...

I am the biggest loser at 4700+ BTC. Screenshot from a few days ago for the purposes of record keeping. http://imgur.com/IDbM0BP

This behavior isn't uncommon. Check out the rest of the thread. Everyone is expressing their faith in Coinbase's competence, so if that's your position, trusting your fortune to them wouldn't seem unreasonable. It's how I lost money on Mt. Gox.

Wanna see a scary survey? https://www.reddit.com/r/Bitcoin/comments/2bjefu/results_of_...

https://docs.google.com/forms/d/1FTW8ec0KAzmK8DVYEhFIRVbmYTH...

Check out this chart: http://i.imgur.com/qHYLeXz.png

A whopping third of people surveyed had more than 20-30% of their net worth in bitcoin. I wonder how many of those people are storing it themselves vs storing them with Coinbase or some other exchange?

You can hurt yourself with a powertool, even a kitchen knife or a kettle. Do more damage than you ever could with bitcoin. That doesn't mean the manufacturer should buy you healthcare insurance.

Storing 4700BTC with an exchange is far, far beyond intended use. My position is that you shouldn't be doing it.

I understand the pro-consumer position. Yes, maybe the exchange should push you into cashing out. But this is starting to turn into padding every room.

We allow people to speculate on forex. We allow them to play carpenter. I don't see why this shouldn't extend to bitcoin.

My intent wasn't to argue that Coinbase should be illegal. That would be silly. My goal was to show that regardless of how we feel consumers should act, those links show how they do act.

Consumers take risks far beyond what's reasonable. It's up to Coinbase to protect them, and for them to inform consumers if they can't. But Coinbase is doing just the opposite: they're advertising that they're insured while handwaving the fact that they only insure 2% of their coins. And so on.

I guess the question is, why are they making such a big deal about their insurance, if it's both unnecessary and not useful? It sounds like they're trying to run the exchange as you say (with the vast majority of assets not insured) but trying to convince people that it's a safe place to store any amount ("we are insured").

The insurance covers the riskiest part of their operation: hot wallets. And it's meant to convince people that it's a safe place to exchange money. Seems rather straight-forward to me.

The whole point of a hot wallet is that it doesn't matter if it disappears. The only point of insuring it is to give a false sense of safety.

How can it not matter if 3% of assets under your management disappear?

If it matters, then you're keeping too much in your hot wallet. The definition of "hot wallet" is "we keep a small enough assets here to cover day-to-day operations, but not so much that we're in trouble if they disappear." There's no other reason to have a hot wallet.

Insuring their hot wallet might let Coinbase increase its size, but it offers no extra protection for consumers. None whatsoever.

You're crazy. How easily you can lose the funds in a hot wallet is not part of the definition.

Also, I feel safer using a business that can't lose 3% of its assets in seconds, no matter if it would be stable either way. I'm surprised that you don't. (And yes, safety is the same thing as protection.)

I agree that this definition of a hot wallet is wacky. The definition of a hot wallet is easy: it's a wallet that's online and can be accessed by automated systems without human intervention. How you use it is entirely up to you, and nothing says you can't put 100% of your assets in a hot wallet, it's just a really bad idea.

However, I still think it's really odd to only insure the hot wallet and to call so much attention to the fact that it's insured. Imagine if your bank called attention to the fact that they were insured with large, high-rated insurers for any conceivable loss... and then they mention at the end that the insurance only covers what's in the tellers' drawers, not what's in the vault. Personally I'd run far, far away if I saw something like that.

The analogy is tricky, because in many banks the vault is effectively the hot wallet. Most of the money is in the form of debts or loans, and the vault only holds enough cash for normal withdrawals.

It's bad that they have no insurance on the cold storage, but that's something you can't really get anywhere as far as I know. I take it more as a risk of bitcoin in general.

I imagine most of these people saw a medium sized investment increase in value significantly, which made it a larger part of their net worth as opposed to putting 25% of their net worth into bitcoin.

Reply on news.ycombinator.com