There is no way not to be the potential victim of this, because bank customers do not have enough information to determine whether a bank is sound or not. Worse, soundness is dependent on what everyone else is doing; a bank can be fine one day then destroyed due to a bank run. Risk is hard to deaggregate in the mortgage business because house prices all move together.
You're onto something with "profits of risky loans are privatised while the losses are socialised", but bitcoin really isn't a good solution to that.
any benefit is on average far, far outweighed by the costs
A cost-benefit analysis with no numbers! Convincing!
PR: With no evidence to support your claim that this is a nightmare, I believe you're overstating the situation. The current BPI/Winkdex/etc. values show there are plenty of people still quite confident in the Bitcoin system.
Risk management: Consider parent's option (a) again: there is no intrinsic reason Bitcoin-based services can't reduce their hot wallet size down to zero and send all settlement through a human review process. The "hot/cold wallet" design is a choice that many naive but greedy people are choosing in building their Bitcoin-based systems but it is not the only choice. In banks you usually only STP low-value, low-risk transactions; in the current breed of Bitcoin-based systems, it would appear that system designers are naivly STPing everything. There is no evidence I have seen to suggest that Bitcoin-based systems intrinsically cannot manage risk properly (this is obvious when you simply consider that the majority of coins have not been stolen).
Regulation: There is some kind of strange unstated assumption on HN that regulation magically makes banking safe all by itself, and until that regulation is in place Bitcoin-based systems cannot be safe or effectively risk managed. With the exception of insured deposits, which is a question of policy and time rather than strictly a matter of regulation, there is no reason that Bitcoin-based services can't proactively implement policies that the banking world is required to implement by law (AML/KYC rules, auditing, active risk monitoring, human review in settlement, etc.) Using a service that doesn't implement these policies is a risky choice (and yes, I believe many Bitcoin supporters will probably have to change their opinions about e.g. identity verification if they want to see Bitcoin survive and succeed).
Before anybody makes assumptions: I do not have an opinion about whether Bitcoin will succeed or not. I do think the underlying technology and possibilities are being unfairly stigmatised by critics' generalizations of the inadequacies in implementations of current Bitcoin-based systems.
bank customers do not have enough information to determine whether a bank is sound or not.
Bullshit. Customer reviews, third party audits, history and reputation, secondary signals (quality of website, customer support, advertising, quality of investors). The list goes on [1] Your only limit is your imagination and your confidence in the intelligence of your species my friend. You've been tricked by the miserable current state of banking (a product of socialist intervention) into thinking that this is the way banks are and must be. You'd see how quickly things will change when a) banks live and die by their reputation b) anyone can build a bank from anywhere to service the world (enabled by Bitcoin.)
bitcoin really isn't a good solution to that.
Why not? Bitcoin supersedes political violence. No government can order more of it to be created at gunpoint. Therefore there is no way to enact "backdoor" taxes (inflation) to support inherently-broken schemes such as socialised deposit insurance. The only way is frontdoor taxation, which people are far better at measuring and disliking. The success of Bitcoin would cut off the last life support tube for dysfunctional government
[1] Yes, I know you'll have point by point reasons why each one of those techniques is somehow uniquely impossible to work with the 100% success rate uniquely required by this and all other regulated industries (health, inter-city transport et al), which for some reason work just fine in the industries which escape regulation (online commerce for instance) which for some reason are much more forgiving.
let a bank manage and insure their wallet than manage it themselves. Too stressful otherwise.
This just goes to show where the hype and misunderstanding around this has led.
It is not too far off to say bitcoin's only reason for being, is to "hold them yourself," i.e. conduct all your financial dealings with zero third parties.
A bank holding your bitcoins is just nonsensical if you understand the relative merits of each system.
The merits of the banking system are a centralized efficiency in conducting "transactions at a distance," and economies of scale in preventing fraud, theft, and other losses,
Trying to inject bitcoin into the banking system is like trying to re-insert a vestigial organ into a species long after the organ has been pruned from the evolutionary tree.
Nobody seems to have much interest in bitcoin's purported raison d'etre, but are more interested in a perceived potential for appreciation. That much of past appreciation has been shown to be the result of various systemic manipulations, rather than genuine organic demand, seems not to register with most people, or is unknown.
That perceived potential for appreciation would seem to eventually rest on people having an interest in using bitcoin for the uses around which it was designed. Should that day come, a shift from the game of "musical chairs-hot potato-hype machine," to a system of digital cash, the system would require a major re-working to support the number of users one would think would be proportional to the current valuation.
But like you said most people aren't comfortable or willing to shoulder this sort of risk in their financial lives.
Another curiosity, or countervailing force to bitcoin's design goals is the ever growing 'blockchain' record that needs to be stored locally to partake in the bitcoin system in the spirit it was conceived.
The blockchain is growing at a fairly constant rate, has anyone ever plotted blockchain growth relative to projected future storage costs and bandwidth capabilities necessary to onboard new users?
So what is the point of bitcoin other than the original goal of "be your own bank"?
But not just your own bank, your own datacenter as well!
Not just a bank but an unregulated bank tied to all sorts of shady currencies like USDC, Doge etc which has regular outages. That's also ignoring the wild volatility in the value of bitcoin.
While I'm not a big fan of BitCoin, I don't think this is a very good argument. You could use the same argument for banks and "get robbed". Why doesn't this happen to banks?
I never understood that sentiment. What exactly is bad about banks? Banks are a trusted middle-man that controls, insures and manages my transactions, and in contrast to arcane technological blockchain solutions is actually a legally liable entity.
I also don't understand how banks cost me more money than bitcoin. A bank transaction costs me very little to no money, a crypto-currency transaction is extremely expensive.
I'm with you on all the stuff about why banks are awful. They are awful.
The problem is that it is an incredibly difficult leap to even imagine a potential universe where Bitcoin is better for the people currently victimized by banks. At present, it is massively, catastrophically worse for them. The volatility is only one of a numerous set of problems that apply there.
I'm still interested to see how it will get used to solve real problems, but the protocol itself is at best a single tool that can be used to construct a system that actually helps the poor and the underbanked.
I don't see how banks lending out my savings at fairly low risk in order to earn me a small sum of interest means my savings are being "manipulated".
Besides, if I really want to run the hell away from banks, I can always take all my savings out as cash and either bury it in my backyard that way, or buy its worth in some fixed commodity and bury it in my backyard that way.
Of course, that presumes I have a rather large backyard and a rather large time horizon for savings! When I don't, a bank is very useful, actually.
And of course, let's not forget that bitcoins can be lost forever if my dog eats a scrap of card on which I kept my wallet.
I think the banks are pretty focused on offering competitive products that are packaged together neatly to avoid putting too much of burden on consumers (what's the diff between choosing a bank or choosing a private transaction-insurance service?).
I'm paranoid of investment banks but I think plain old banks are benign. You put a certain amount of money in your account and they handle all this for you. There is usually no charge for checking. Credit cards don't charge interest unless you go into debt, etc.
I don't think lack of competition is so much an issue, it seems that the Bitcoin movement just has a fundamental distrust of govt/corporations. I think if Bitcoin money didn't magically appreciate in value so much it wouldn't be much cheaper than banking except for big international money transfers.
But the real question is why this particular banking service exists? If Bitcoin is the stable currency it was designed to be, then it would be nonsensical for a person already holding it to borrow 30% of its value in USD at 8% APR. The answer of course is that some people are so convinced that BTC will rise in value by more than 8% over the loan duration they're prepared to go into debt to keep large portions of their net worth in it, and some might even fancy buying more BTC with the cash they've borrowed, and maybe borrowing against that too. In this analogy BTC isn't the bank, it's the houses people were taking out the subprime mortgages on (minus the upside of avoiding rental payments)
The idea that the stability of banks is largely determined by their internet security is not something anyone who is familiar with bank operations believe. Breaches, fraud, inside jobs (and much more commonly) errors in SWIFT or other electronic communications are assumed to be happening by the banks.
Double entry accounting, auditing, charge backs and correction protocols are all normal, standard and expected in even the smallest credit unions and the amount of dollars spent on these things at the larger financial institutions is staggering. That is essentially the job of a bank. To back stop that we have insurance and regulatory bodies working to prevent and mitigate losses. Again, this is normal and expected.
The thing those of us who have worked in banks find so funny about Bitcoin isn't that it solves some issues that banks don't know about or does something clever. Its how unprofessional the whole thing is. It doesn't account for hardly any of the real world problems of the banking system.
> Which fiat bank will be the first Mt Gox?
Depends on what you mean? A bank that is brought down by theft by its employees? That was such a big problem in the early banking world that banks competed on the edifices and security theater to prove it didn't happen at their bank...150 years ago or more.
I don't think banks are at all uncomfortable about the decision of a few people to buy Bitcoins.
You could have bought the entire stock of BTC ever produced at the highest rate ever paid for a Bitcoin on an exchange, for less than 0.5% of the excess reserves held by banks in the US alone. That's the reserves the banks don't need to be legally compliant and solvent, and those reserves are themselves a tiny fraction of the banks' outstanding loans which is where they actually earn their money. So the banks don't exactly see BTC as a threat, especially since retail banking operations aren't exactly a major profit centre for them.
And, as someone has correctly pointed out, your hard-earned savings that you're risking went into the bank account of the person you bought Bitcoins from, therefore staying in the banking system anyway.
Bitcoin, on the other hand, lacks the solvency guarantees the banking system does: if people decide they want to leave en masse, the price crashes. Even if BTC owners will be able to "quickly transfer the money to alternative cryptocurrency", if their government (or the US government) decides to effectively ban Bitcoin transfers, it's certain they will end up able to purchase less than they were prior to the attack.
May I politely suggest you reconsider your decision to put half your savings into BTC before it's too late.
That's not what I said, is it? It would be great if you happen to have a bunch of Bitcoins. For everyone else it would be a nightmare because it would encourage disinvestment. Why take a risk when you can literally just sit on your money? Loans would also become pretty much unfeasible both for business purposes and for consumers (hope you can buy a house with cash).
I keep reading about how the banking of bitcoins is unstable. It's bad for the image of bitcoin because it seems like it can't be trusted, and lawsuits like these damage the credibility of the currency and the companies.
It isn't. Bitcoin isn't nearly big enough to cause systemic problems of banks, especially since most banks either don't have legal access to it, or because they don't see it as a valuable investment.
Please note that while Bitcoin is mostly built to counter central banking, it also heavily encroaches on the traditional yield generating business that banks serve to the people: storing wealth. With bitcoin, (excepting mining fees) you don't have to pay for storage or services. You don't run a counterparty risk, and you can keep a moderate level of privacy.
>To begin with, the "banking system" includes an enormous amount of services that Bitcoin doesn't provide (loans, mortgages, securities), and retail banks are part of that as well.
This may be a lack of imagination on your part....Many companies already offer loans/mortgages using Bitcoin as collateral (at much lower interest rates than traditional banks). Not having thousands of idle bank employees sitting around in brick and mortar banks makes the financial system a lot more efficient...
There is no way not to be the potential victim of this, because bank customers do not have enough information to determine whether a bank is sound or not. Worse, soundness is dependent on what everyone else is doing; a bank can be fine one day then destroyed due to a bank run. Risk is hard to deaggregate in the mortgage business because house prices all move together.
You're onto something with "profits of risky loans are privatised while the losses are socialised", but bitcoin really isn't a good solution to that.
any benefit is on average far, far outweighed by the costs
A cost-benefit analysis with no numbers! Convincing!
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