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Comment by lrm242 | Hacker News Reader

This is how any reasonable institution not 100% focused on cryptocurrencies will gain cryptocurrency exposure. The big reason is they are backed by CME clearing and settlement. It helps to significantly reduce the counter-party risk associated with other venues.

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Note that storing bitcoin properly comes with no counterparty risk whatsoever. That's like 50% of the entire point of bitcoin!

You are correct, but I feel compelled to point out that the average person should be hesitant to hold bitcoin personally.

Crypto is hard to get write, and people suck at key management.

If you're going to store your own bitcoin, please do several 'test runs' depositing tiny amounts and practicing retrieving it. Understand potential attack vectors. Too many stories of "I forgot the pin i used to encrypt my private key" or "I saved my private key in gmail and lost all my bitcoin when my email got hacked" or "I used a malicious wallet software and it stole all my coins".

Instead you have lost password risk.

And hacking risk. And insiders stealing them and claiming they've been hacked risk. And similar.

Well, the fact that the majority of the mining pool runs out of China certainly represents a counterparty risk. I'm not sure why folks regularly ignore the 51% issue.

While there is certainly some amount of quantifiable risk given how centralized mining is in China, each individual mining actor is still incentivised not to participate in a 51% double spend attack as the value of bitcoin would rapidly fall towards zero if a double spend attack ever did occur, making their ASIC investments unprofitable in a hurry.

I don't know. It's like nukes. They say, no one would use them, because that would let the cat out of the box. But... on the other hand, what would happen if someone used only a single nuke? Could we get to the circumstance that Bitcoin was "too large to fail" and a someone could get away with a double spend?

I would like to know the same, but I do have a theory. What will they do? If they start making invalid decisions, the rest of the network will fork. It won't be pretty, but btc will survive... Or is there a better explanation of risks involved?

51% means you can double spend. it doesn't necessarily mean you can steal money

The counterparty risk is not in the storage, but in the exchange. You always expose yourself to counterparty risk when you exchange currencies (even crypto ones).

No counterparty risk on decentralised exchanges

Decentralised exchanges just have terrible spreads and front-running instead.

Also, I don't think a decentralised exchange works for USD. Any token backed by USD has counterparty risk.

Spreads on EtherDelta (which is widely used) are good, but it's only for ERC20 tokens. The UX is awful and it can be slow because of Etherium scaling issues.

You're right about any token pegged to fiat (like USDT) having counterparty risk. The company offering it, the bank they keep their funds in, and the country's legislation. I wonder if something decentralised will emerge that will effectively minimise those risks.

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