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Comment by al2o3cr | Hacker News Reader

    “You couldn’t pay me to keep it with a bank.”

Because if there's one thing banks are known for, it's running off with client assets suddenly and without warning.

Oh wait, that's cryptocurrency startups...

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Two things they are known for;

Not allowing very large balances to be withdrawn at once.

Complying with asset freeze orders.

And you think this bank (re: the article) falls outside of those? You won't be able to get your btc out quickly in this one either. Same with online exchanges for that matter.

They also have much lower transaction fees.

Exchanging directly for cash at or above market rates is definitely practical with LocalBitcoins. There are a large number of brokers there that do it professionally and value their reputation on the platform much higher than they value the potential for ripping you off.

Of course, if you need to liquidate $1B in Bitcoin, that's going to take time, but you can still do it much faster than you could get it out of a Cypress bank in 2014.

AFAIK those who had more than €100k in deposits just plainly lost a portion of their money:

https://www.reuters.com/article/cyprus-bankofcyprus/cyprus-c...

What is this threat model where if a government tries to freeze your assets having BTC stops everything bad? If a government is trying to freeze your assets you have a lot of other problems that are bigger than simply not having access to your bank account.

Not allowing very large balances to be withdrawn at once.

Wait, are we talking about MtGoX? Or Coinbase? Or Bitfinex? Or any of the many smaller exchanges that did the same thing right before they collapsed?

I guess you weren't around in 2008.

Oh remember those securitized mortgages we sold you? Yeah, they're worthless now. By the way we bought insurance on them becoming worthless, because we were pretty sure this would happen when we sold them to you.

There's a difference between keeping cash in a bank which is FDIC insured and putting money in investments; particularly in the US where robbery was/is called investment strategy.

Coinbase is FDIC insured.

But do you know what that covers?

Coinbase supports wallets for USD...is it only USD wallets that are FDIC insured?

* Your USD wallet at Coinbase is FDIC insured.

Yikes, that is indeed a very important distinction that I missed.

https://support.coinbase.com/customer/portal/articles/166237...

Yes but it's important to note that the FDIC insurance is only for your USD-denominated balance.

Your BTC (or all crypto?) balance is insured by Lloyd's. I assume this is only insured against thefts/failures of Coinbase's, so if your balance were stolen by attackers who had your Coinbase credentials I suspect your balance would not be covered. But this might be similar to your liability from normal online banking fraud/theft?

The fact that Coinbase pays those private insurance premiums makes them the no-brainer suggestion to people who are considering holding some BTC.

FDIC insurance is low, what, 200K ?

Ya but you can have multiple accounts. I think that circumvents the limit. I think the limit was raised during the Bush administration, but not sure.

>The standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category.

https://www.fdic.gov/deposit/deposits/faq.html

FWIW, I think it should definitely be higher than $250K. Probably $10M or so.

In my country, the limit is per natural person, not per bank account. Legal persons don't get it (they get a different one though - because of this, there is a very important distinction between business and personal account).

The problem with raising the insurance is that banks pay for it, and the FDIC maintains a fund for paying out claims. If the amount at risk was higher, fees would have to be higher and the FDIC would have to keep an enormous amount of cash on hand. Hell, even at that level, the FDIC was badly stressed during the 2008 crisis. The point of the FDIC anyway is not to protect rich people from all losses, but to prevent runs on banks and promote stability in the system. Most depositors don't have that much money.

Yes, but since commercial banks and investment banks were allowed to merge after 70 or so years, banks certainly have a lot more income than they used to.

True, but still not really the FDIC's mission.

Nobody is going to keep a billion dollars in a savings account, which FDIC insurance would not even come close to covering anyway.

Can you just loan your money directly to the US Government?

In the UK the "National Savings & Investment" bank is actually outright owned and operated by the British government, specifically for this purpose. Instead of raising money commercially with a debt security, and then having banks buy that take savings from their customers to afford the securities and keep a cut as profit, the NS&I gets rid of the middle man and just borrows money directly from citizens at a decent interest rate with zero risk‡.

‡ Obviously the government itself might fail, but you're exposed to that risk anyway, so it didn't add any risk to involve NS&I here.

> Can you just loan your money directly to the US Government?

Well, you can buy, e.g., savings bonds directly, but only $25,000 worth per year.

But there are lots of types of US bonds and you can literally buy as much as you want (~$500b worth of them trade every day), it's the most liquid market in the world.

Oh, yeah, I forgot that individuals can buy Treasuries directly from the government, I was thinking they only could on the secondary market which would not have been responsive to the query.

> Nobody is going to keep a billion dollars in a savings account, which FDIC insurance would not even come close to covering anyway.

If you spread it around 4,000 banks (there are 5,593, so this technically possible), it would, since the limit is $250,000 per depositor per bank per ownership category (I'm assuming avoiding the overhead of manipulating ownership categories, which could shrink the number of banks needed further.)

Those were speculative investments, not bank accounts. Nobody lost money in an FDIC insured account.

The comparison is also dubious for another reason: everyone who did even the tiniest bit of diligence knew the mortgage and derivative markets were in a huge bubble. Phrases like “liar loan” were common, they had to invent new ways to rate derivatives which didn’t meet the traditional standards, etc. but so many people were banking on the greater fool theory lasting long enough for them to cash out before it popped. All the crash proved was that the traditional banking standards were there for a reason and the people who never abandoned them were fine.

This is relevant in the Bitcoin discussion because we see the same dynamic where people who pay attention to the fundamentals are saying it’s a bubble and the get rich quick crowd is saying that the rules are completely different now because magic.

It is relevant because the mantra of "traditional financial institutions have your best interests at heart, unlike those Bitcoin scammers" is demonstrably false.

That’s a rather blatant strawman: it’s literally a textbook example of the value of regulation and laws which make that happen, not the goodwill of bankers.

You mean the laws and regulations written by lobbyists paid by the bankers? Do you mean the regulators who leave their Federal jobs for multi-million dollar per year jobs at the banks they formerly regulated? Are those the ones you're talking about?

You seem to be implying that the regulations / laws and the banks are two separate entities. They're increasingly the same. Which means that yes, it is basically their goodwill we're dependent on, or more accurately how much they think they can get away with before there's literal blood in the streets.

And you think all the problems with banks would go away if they simply operated without any regulation at all?

When did I say that?

I think at the highest levels they already do operate without any regulation. When you get to write your own regulations and there's a revolving door between the regulatory agencies and the companies they're suppose to regulate, there is no meaningful regulation.

Bitcoin and other digital currencies are a threat to them because there is no central agency in charge of it that they can infiltrate and control the way the have with government-run currencies. At least, they haven't found a way to control and manipulate it, yet.

Instead you just get people losing their shirts to old-fashioned scams that were made illegal a century ago, with no recourse whatsoever.

People are always losing money to old-fashioned scams, regardless of currency. It's a lot easier to learn about and protect yourself from simple, hundred year old scams than the brand new, never before seen scams the financial industry comes up with.

wrt old-fashioned scams in my sibling's comment... they've been around much longer than they've been outlawed for. arguably, we would have better herd-immunity to them if we'd never outlawed them in the first case.

yes, there's no recourse to losing your BTC. it's a good thing you were only playing around, or you'd be really screwed.

if you mortgaged your house, well... that wasn't very smart was it. I'm sure you won't make that mistake again, and I think/hope we as a society/culture can work to help you recover from that.

whatever the case, if you lose your money/btc/shirt the banks won't be much help to you.

What in the world are you talking about? There are a number of avenues you have to reverse fraudulent transactions with banking products that aren't available with BTC.

oh, that explains why nigerian scams dont work.

Tell me the last time a major bank shut down and its proprietors ran off with all the deposits. Or what is the BTC equivalent to a chargeback if services aren't rendered? What protection does it offer if someone steals your information and makes fraudulent purchases with your money?

You're conflating properties of a payment processor like Visa, with properties of a currency. What's the equivalent of a charge back if I pay in cash for services that aren't rendered? It's called a "lawsuit", and there's no reason you couldn't use it if you paid with Bitcoin.

With Bitcoin, unlike cash, there is also a public record that you did in fact pay, so the defendant couldn't lie and say you never paid when they just hid the cash under their mattress.

Likewise, there's no reason a payment processor like Visa couldn't process payments in Bitcoin and provide fraud protection if that is something people want. Bitcoin isn't there yet, but neither was cash until about 50 years ago, out of thousands of years of usage.

That's true, but Bitcoin has been marketed as a replacement for both traditional currency and traditional payment processors, and certainly encourages people to keep way larger amounts in "cash" than they'd otherwise be comfortable with.

s/marketed/embraced

Marketed is really the more accurate term.

That may be an argument for stronger regulations, not no regulations. As the bitcoin world has repeatedly proven that abuse will happen without the same institutions — ever notice how the various scam/incompetent exchanges end up in the same courts for the same reasons? It’s just harder and less likely to be successful because they weren’t practicing any semblance of responsible practice before.

>the rules are completely different now because magic.

Currency that isnt controlled by any government is different. Previously that was limited to gold only. Gold was hard to move and expensive to keep safe. Bitcoin can be sent for free using exchanges or on a piece of paper or about 1000 other ways.

Easy to move gold is almost magic.

> Bitcoin can be sent for free using exchanges or on a piece of paper or about 1000 other ways.

What about the transaction fees? Someone has to pay for all of the mining hardware and electricity.

You dont need to use on-chain for bitcoin transactions.

So we’re back to using a federated model with most people using trusted third parties and hoping there are enough laws and regulatory oversight to prevent them from abusing that trust? This sounds oddly familiar…

For 2 dollar transactions at Taco Bell and giving petty money to friends?

But even if we are back to that model, it still uses ultra rare BTC where there are 21,000,000 BTC ever ever ever.

The US currency just keeps inflating.

> Nobody lost money in an FDIC insured account.

This is true for you & I. But the wealthy aren't concerned about the FDIC insurance as their balances are far in excess of what would be covered by it. They follow the health of a bank very closely as they stand to lose a great deal of money if it becomes insolvent.

Many people think what prompted the sale of Wachovia to first Citibank (briefly .. sort of) then Wells Fargo for $15.1 billion [0] in October of 2008 was the implosion of their MBS holdings in their Golden West Financial acquisition. If you recall, Golden West had the "Pick a Pay" program, where borrowers could decide how much their mortgage payment would be (potentially even less than the interest portion, where the remaining amount was lumped back in to the balance)

What really happened was the wealthy depositors in Wachovia got wind that the bank was in trouble and initiated massive withdrawals, causing a run on the bank. If the sale to WF hadn't happened that weekend and restored confidence in the bank, Wachovia would likely have not opened their doors on the following Tuesday. Source: coworkers who were there at the time.

[0] https://dealbook.nytimes.com/2008/10/03/wells-fargo-to-merge...

Well the entire point of crypto is not relying on centralised institutions.

Also, Bitcoin is not a startup.

At what point are the miners/network considered the centralized institution?

Are corporations considered “decentralized institutions” in the world of bitcoin enthusiasts? After all corporations are made up of decentralized shareholders that can vote for and change the directors.

If that doesn’t fit...what about a credit union? Like bitcoin there are no “owners/shareholders” of credit unions they are simply comprised of members.

> At what point are the miners/network considered the centralized institution?

Very much this; I'm fairly sure that if there is an organization that wants to direct / control btc, all they have to do is open up their (real money) wallet and get the majority mining capacity. If they first drop the value of BTC by selling or whatnot, miners / automatic miners will switch to more profitable currencies so the total hashes / second will lower, making a hostile takeover easier.

You make it sound so easy, just open up your wallet and get the majority mining capacity!

Tell me, how would someone with near-unlimited money go about doing that? Will they just conjure up the hardware needed to make 15 Trillion hashes per second?

In theory yes, but as the other answer states, you would raise an immense amount of money WITHOUT the public realising who would than just abandon whatever mining-based Crypto we're talking about

Not sure if representative for "bitcoin enthusiasts", but here is how I see it:

As the written word spread in Europe after BC, it layed an important cornerstone for democracy and changed the world for good. Noone would argue with that, right?

Ok, so let's look at Europe from 500BC-1300BC. Corrupt monks forging official documents, under some goverments up only about 60-80% of the were real. Monks were people of god, so noone really investigated. For a long time, the emperor would sign with a simple line, because he couldn't actually write. Wow, how is that more valuable than spoken word?! Where is your democracy? Women can't read, poor can't read. Knowledge is stored exclusively by the church. Turns out writing things down is actually a really backward philosophy! Or is it?

And that's where we're with Crypto right now, IMO. I'm not saying this is as revolutionary as writing, not even close. I'm not even saying it will turn into a good thing. BUT I really like the underlying idea, the concept, of it. Of course there are greedy shitheads, companys taking advantage, fraud and projects which are uterly useless. But yet I didn't came across an argument which convinced that the concept of non-centralizing via blockchain can't work.

So, to actually answer your question, I think we shouldn't mix up the discussion about the philosophy, potential and future of Blockchain with individual cases like "is this pump and dump worse than 2008 greed of banks" (which is also an important discussion, but a seperate one).

Does that make any sense?

Personally, I'd be fine with all that if not for the elephant in the room - the superlinearly growing, unbounded energy upkeep required to support cryptocurrencies. That one single reason alone outweights all the potential benefits you allude to.

This is only true for mining-heave cryptos and is already massively improved in newer projects, but yes, atm it's bad

Given that PoS is still not adopted in a meaningful way, I feel those differences are merely constant factors, they don't change the trend. But I might be wrong about that, I'm not up to date with bleeding-edge cryptocurrency developments.

My comment shouldn’t come off as all bad/anti-blockchain.

While modern view has corporation as these evil centralized entities...the first “stock corporations” were a welcome invention, allowing distribution of risk and a share in profits.

I personally love the idea of an immutable and distributed ledger. And while bitcoin may have been helpful as an example of a potential use for a blockchain, it has failed to fulfill the intended use of the creator (peer 2 peer digital currency). I think in a lot of ways because while blockchain itself may have some democratic characteristics, the example of bitcoin as a currency is anything but democratic. Bitcoin is something bought and sold, the inventor(s) have 1,000,000 and new comers will be hard pressed to have equal power.

Then again the way democracy is used as a term and romanticized is kind of a joke to me. From the fact the US is often called a democracy (it’s not it’s a constitutional republic), to the idea it took women about 2,500 years to get the right vote, to the realities of democracy only works until it doesn’t then might is right (see the democratically elected parties: taliban, hezbollah, hamas).

If you don't hold the keys, you don't own the money!

Sarcastic historical case study of opposite

Long argument about instrinsic value

Peaceful resolution where we agree not to kill each other if our portfolios fuck us over

> Because if there's one thing banks are known for, it's running off with client assets suddenly and without warning.

Capital controls are real

Forgot Cyprus? it was only 5 years ago.

EU has mandatory insurance for €100k in savings accounts. Of course, there're all kinds of scams running all the time disguised as "investment saving accounts"...

Lehman Brothers

Did not run out with client's money.

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