Bitcoin - Part 2

[ponderingturtle]

http://mobile.nytimes.com/2015/02/15/world/bank-hackers-steal-millions-via-malware.html?referrer=

Around 100 banks were hacked. 1 billion stolen in all. Given how long they sat and monitored everything they probably have quite a bit of personal info too.

I look forward to numerous pages of posts about this and how banks are unsecure and risky.

Banks get robbed all the time, that is why I let Tony keep all my money, no body is going to rob Tony.

 

[remirol]

I will give you the answer you are looking for. The protections offered by bitcoin exchanges is minimal or non-existent. Even if they are not hacked by thieves, there is always the risk that they may prove incompetent or dishonest and lose your money anyway. You would not leave money with a bitcoin exchange for any longer than the minimum amount of time necessary to make an exchange and, even then, expect lengthy delays in getting your money out.

Sufficiently accurate.

What The_Animus is pointing out is that banks are not much better.

Utterly incorrect. In order:

1) Banks (the institutions themselves) are dishonest/fraudulent at a rate far lower than Bitcoin exchanges have proven to be. There is a centralized certification authority for banking institutions; there is no such thing for exchanges.
2) Dishonest bank employees are routinely fired and their thefts recovered. The ones that make the headlines are the exception, not the rule.
3) FDIC insurance ensures that a certain minimum of your money is not lost; this minimum is sufficiently high that only a tiny fraction of a tiny fraction of people will ever need to know the exact amount; last I checked that was $100k and that's precisely why I don't know what it is now.
4) It's far, far simpler to get your money out of a bank than it ever will be to get your money out of one of these exchanges.

The Animus attempts to beat a false-equivalence dead horse by suggesting that just because the government insures your deposits against loss or theft, the money's still been taken from somewhere, and thus it's an equally bad thing. This, of course, is patently false -- the government (FDIC) is far more capable of absorbing such losses without any noticeable impact, while an average person who loses $10,000 that he expected to be there will have a huge problem shrugging it off.

In order to gain any semblance of public confidence, they need massive regulation and government backed deposit insurance.

Ignoring the unsupported assertions for the moment: in case you haven't noticed, Bitcoin doesn't currently even have a remote semblance of public confidence. Just sayin'.

However, both those assertions are utterly incorrect. Banks were popular well before there was significant regulation and deposit insurance.

Of course, what you both have ignored is that banks are necessary only when you deal with fiat currency.

You appear to have neglected history during school. Leaving aside the proto-banking stuff from very-ancient-history, banks were in heavy use long before fiat currency was even a figment of someone's imagination.

FTFL: "By the end of the 16th century and during the 17th, the traditional banking functions of accepting deposits, moneylending, money changing, and transferring funds were combined with the issuance of bank debt that served as a substitute for gold and silver coins. ... Modern banking practice, including fractional reserve banking and the issue of banknotes emerged in the 17th century. "

It is not feasible to carry large sums of cash around with you (especially for long distance transactions) since they are susceptible to loss or theft. You also run the risk that authorities might demand that you prove that you came by the cash legally or forfeit it. (At least with banks, you have a documented record of how you came by your money).

All this supports the contention that banks are necessary.

With bitcoin none of that applies.

Really? You had better tell the Silk Road guy that; his Bitcoins got seized and auctioned because he couldn't prove that he came by the cash legally. Bitcoins are less susceptible to highwayman-theft, but significantly more susceptible to loss due to the extra effort required to store (and encrypt) the wallet key.

Even if an authority could trace a wallet to you

*cough* Silk Road

you have a ready made record of all the transactions made by that wallet.

Which is all worthless if an authority can't trace a wallet to you (and thus can't prove independently that your transactions are legal) and you've been sending Bitcoins to and from others without any third-party involvement.

 

[Almo]

I do appreciate you making it obvious you're not worth future responses though.

<some reasonable stuff about banks>

Yup.

 

[psionl0]

Utterly incorrect.

Your recital of the history of banking doesn't prove that they are benign institutions that work fine without regulation.

Of course you missed out the last couple of hundred years: the frequent bank runs and failures of the 19th century and the great depression of the 1930s the aftermath of which was the Glass-Steagall Act of 1933 which limited commercial bank securities activities and affiliations within commercial banks and securities firms.

Of course, what you both have ignored is that banks are necessary only when you deal with fiat currency.

All this supports the contention that banks are necessary.

 

[remirol]

Your recital of the history of banking doesn't prove that they are benign institutions that work fine without regulation.

Can you please quote where someone has claimed that "banks are benign institutions that work fine without regulation"? Be sure you include a link to the post; we wouldn't want to catch you moving the goalposts to the far end of the field (again).

Also, if you had quoted honestly you'd have included this, which _immediately followed_ the part you're responding to:

1) Banks (the institutions themselves) are dishonest/fraudulent at a rate far lower than Bitcoin exchanges have proven to be. There is a centralized certification authority for banking institutions; there is no such thing for exchanges.
2) Dishonest bank employees are routinely fired and their thefts recovered. The ones that make the headlines are the exception, not the rule.
3) FDIC insurance ensures that a certain minimum of your money is not lost; this minimum is sufficiently high that only a tiny fraction of a tiny fraction of people will ever need to know the exact amount; last I checked that was $100k and that's precisely why I don't know what it is now.
4) It's far, far simpler to get your money out of a bank than it ever will be to get your money out of one of these exchanges.

The Animus attempts to beat a false-equivalence dead horse by suggesting that just because the government insures your deposits against loss or theft, the money's still been taken from somewhere, and thus it's an equally bad thing. This, of course, is patently false -- the government (FDIC) is far more capable of absorbing such losses without any noticeable impact, while an average person who loses $10,000 that he expected to be there will have a huge problem shrugging it off.

...which addressed your original assertion that "banks aren't much better [than Bitcoin]" directly.

Of course you missed out the last couple of hundred years: the frequent bank runs and failures of the 19th century and the great depression of the 1930s the aftermath of which was the Glass-Steagall Act of 1933 which limited commercial bank securities activities and affiliations within commercial banks and securities firms.

Yes, which indicates that regulation and oversight is a positive thing for banks in general -- two things that Bitcoin doesn't have. But even ignoring that, you're comparing a single century against over 4,000 years (at a minimum) of banking institutions having both existed and been popular:

In Babylonia of 2000, people depositing gold were required to pay amounts as much as one sixtieth of the total deposited.[40] Both the palaces and temple are known to have provided lending and issuing from the wealth they held—the palaces to a lesser extent. Such loans typically involved issuing seed-grain, with re-payment from the harvest. These basic social agreements were documented in clay tablets, [41] with an agreement on interest accrual.[42] The habit of depositing and storing of wealth in temples continued at least until 209 B.C., as evidenced by Antioch having ransacked or pillaged the temple of Aine in Ecbatana (Media) of gold and silver.[43][44][45][46][47]

Not modern fractional reserve, to be sure -- but also very clear indicators that banks are, in fact, necessary no matter what form of currency you're dealing with.

 

[psionl0]

...which addressed your original assertion that "banks aren't much better [than Bitcoin exchanges ]" directly.

ftfy. "...we wouldn't want to catch you moving the goalposts to the far end of the field (again)."

 

[remirol]

ftfy. "...we wouldn't want to catch you moving the goalposts to the far end of the field (again)."

Dishonest quote-mining on your part does not a fallacy make. I am quite confident that readers had no trouble identifying to what I was referring, considering that was immediately following my reiteration of this bit (which you carefully didn't quote, because it would have put the lie to your incorrect accusation):

1) Banks (the institutions themselves) are dishonest/fraudulent at a rate far lower than Bitcoin exchanges have proven to be. There is a centralized certification authority for banking institutions; there is no such thing for exchanges.
2) Dishonest bank employees are routinely fired and their thefts recovered. The ones that make the headlines are the exception, not the rule.
3) FDIC insurance ensures that a certain minimum of your money is not lost; this minimum is sufficiently high that only a tiny fraction of a tiny fraction of people will ever need to know the exact amount; last I checked that was $100k and that's precisely why I don't know what it is now.
4) It's far, far simpler to get your money out of a bank than it ever will be to get your money out of one of these exchanges.

The Animus attempts to beat a false-equivalence dead horse by suggesting that just because the government insures your deposits against loss or theft, the money's still been taken from somewhere, and thus it's an equally bad thing. This, of course, is patently false -- the government (FDIC) is far more capable of absorbing such losses without any noticeable impact, while an average person who loses $10,000 that he expected to be there will have a huge problem shrugging it off.

1, 4; QED. HTH; HAND!

 

[The_Animus]

And you didn't answer my question, which was, what protections are offered to holders of Bitcoin when an exchange is hacked by thieves? If there were an FBIC insuring exchanges against loss, you might have some argument, but since (as we both know) stolen Bitcoins are most likely gone forever your attempt at a rebuttal fails.

The Animus attempts to beat a false-equivalence dead horse by suggesting that just because the government insures your deposits against loss or theft, the money's still been taken from somewhere, and thus it's an equally bad thing. This, of course, is patently false -- the government (FDIC) is far more capable of absorbing such losses without any noticeable impact, while an average person who loses $10,000 that he expected to be there will have a huge problem shrugging it off.

Ignoring the unsupported assertions for the moment: in case you haven't noticed, Bitcoin doesn't currently even have a remote semblance of public confidence. Just sayin'.

I really don't understand either of you. Do you recall that article about bitcoin's price fall relative to world currencies? Neither Psion or I were arguing that the numbers were wrong or that bitcoin didn't drop more than any currency. That was obvious but it wasn't the argument we were making. Nonetheless you two repeatedly brought it back up as if it were our argument. After about the fourth time of this I just stopped bothering to respond for a while because

Now you guys are at it again with FDIC. No one is arguing that US currency isn't backed by insurance. No one is arguing that having that insurance isn't a good thing. Yes it is better in almost every way to have a large pool of people take the hit vs it all being on a single or small group of people. That's the whole purpose of insurance. I'm not sure how you missed it but I'll quote myself again...

FDIC is just insurance that could be applied to dollars or bitcoins or gold or candy and says nothing about whether a system which uses dollars, or bitcoins, or gold, or candy is better on its own merits.

You guys seem keen on misrepresenting or flat out ignoring the arguments we make in favor of your chosen talking point even when that point isn't being contested by anyone. It's just bizarre and quite annoying.

 

[psionl0]

<yadda yadda>

Why do you keep repeating that part of the post of yours as if it were something clever?

It is merely extolling the virtues of government regulated banks backed by insurance. And this to rebut the claim that "....they need massive regulation and government backed deposit insurance"?

Not even a non-sequitur.

 

[jhunter1163]

Why do you keep repeating that part of the post of yours as if it were something clever?

It is merely extolling the virtues of government regulated banks backed by insurance. And this to rebut the claim that "....they need massive regulation and government backed deposit insurance"?

Not even a non-sequitur.

You're implying that less regulation = better? How'd that work out for the financial system in 2008?

But to return to the topic at hand, the legal protections offered to BTC holders are nil, even in the event of non-criminal losses. If your BTC are stolen in a hack, or if your dog eats your flash drive, or if you spill an espresso on your laptop, you're screwed.

If your bank fails, you're protected by the FDIC. If it's hacked, there are legal protections in place to ensure that you are made whole. If your dog eats your flash drive or you spill espresso on your laptop, you might be inconvenienced for a bit but your money is still there and still safe.

 

[remirol]

Now you guys are at it again with FDIC. No one is arguing that US currency isn't backed by insurance. No one is arguing that having that insurance isn't a good thing.

Well, psion appears to be arguing that needing it isn't, but I think it's a nonstarter because...

Yes it is better in almost every way to have a large pool of people take the hit vs it all being on a single or small group of people. That's the whole purpose of insurance. I'm not sure how you missed it but I'll quote myself again...
...
FDIC is just insurance that could be applied to dollars or bitcoins or gold or candy and says nothing about whether a system which uses dollars, or bitcoins, or gold, or candy is better on its own merits.

You have some apples and oranges here, but the point you're missing is that it isn't anything about what FDIC "could" be, or what an equivalent "could" be for gold, bitcoins, or candy. It's that FDIC exists right now, today, and there is nothing equivalent for gold, bitcoins, or candy, full stop. Sure, someone could set up an FDIC-equivalent for gold vaults, or bitcoin exchanges, or building-size candy jars... but nobody has. And I'll make a quick prediction for you -- there won't be such an equivalent for gold, bitcoins, or candy (i'm discarding the candy part after this) anytime in the next twenty years, and that too is part of the point.

You guys seem keen on misrepresenting or flat out ignoring the arguments we make in favor of your chosen talking point even when that point isn't being contested by anyone. It's just bizarre and quite annoying.

Alternately, you just keep missing the point and making arguments which are refuted by that point, so we keep repeating it. I mean, there's nothing else we can do. The answer doesn't change just because it zoomed your forehead a few times.

Why do you keep repeating that part of the post of yours as if it were something clever?

Because you keep dishonestly quote-mining around it and then trying to argue something which was countered by that very part of the post. It's even got numbers for your convenience!

It is merely extolling the virtues of government regulated banks backed by insurance. And this to rebut the claim that "....they need massive regulation and government backed deposit insurance"?

Well, there's your problem -- you're ALSO missing the point. It rebuts your claim that banks aren't much better than Bitcoin exchanges, precisely _because_ banks are heavily regulated and have government-backed deposit insurance. Which you know perfectly well because that was your complaint in the _last_ post, but everyone on this forum already knows that you don't read the words that are actually on the screen when you respond so that's nothing unusual, really.

Not even a non-sequitur.

Correct; i was both on-topic and on point.

 

[psionl0]

You're implying that less regulation = better?

Has it ever occurred to you that saying "need massive regulation and government backed deposit insurance" is the exact opposite of saying "less regulation = better"?

It would be better if you didn't need the regulation but that is not the case with the banking system (and also the reason why bitcoin exchanges are not satisfactory).

If your BTC are stolen in a hack, or if your dog eats your flash drive, or if you spill an espresso on your laptop, you're screwed.

Yes, the onus is on the bitcoin holder to store his data safely - just like with any data.

 

[The_Animus]

You have some apples and oranges here, but the point you're missing is that it isn't anything about what FDIC "could" be, or what an equivalent "could" be for gold, bitcoins, or candy. It's that FDIC exists right now, today, and there is nothing equivalent for gold, bitcoins, or candy, full stop. Sure, someone could set up an FDIC-equivalent for gold vaults, or bitcoin exchanges, or building-size candy jars... but nobody has. And I'll make a quick prediction for you -- there won't be such an equivalent for gold, bitcoins, or candy (i'm discarding the candy part after this) anytime in the next twenty years, and that too is part of the point.

Once again you are arguing something which is obvious and which no one is contesting. I'm glad you admit that the benefits FDIC insurance provide could be applied to any of those other things and at that point the advantage it currently gives dollars over bitcoin would disappear. FDIC is a current advantage, not an absolute advantage.

Alternately, you just keep missing the point and making arguments which are refuted by that point, so we keep repeating it. I mean, there's nothing else we can do. The answer doesn't change just because it zoomed your forehead a few times.

I posted the article and I made an argument. Don't think I can miss the point of my own argument. And I'm not contesting what you've said about FDIC but I have pointed out multiple times why that doesn't address my argument.

 

[psionl0]

It rebuts your claim that banks aren't much better than Bitcoin exchanges, precisely _because_ banks are heavily regulated and have government-backed deposit insurance.

How does having government regulation and insurance rebut the claim that you need it?

 

[Tippit]

How long after the formation of banking entities did it take before an insurance program like FDIC was instituted?

If money stolen from a bank doesn't directly affect your bank balance is it really stolen and gone?

Who actually loses that money and is any of that loss passed on to others in any way?

FDIC is funded by insurance premiums charged to the banks, and the banks typically can pass that on to the consumer in the form of higher bank fees, higher interest charged on loans, or less interest paid on deposits.

So money stolen from banks is paid for by the banks, and customers of the banks. If there were ever a series of bank failures that overwhelmed FDIC's ability to pay claims, It is backed by the "full faith and credit" of the US, which means depositors will be paid back by some combination of new funny money, or money directly out of the US Treasury. This would effectively socialize all bank losses.

As a side note, I'm pretty sure the FDIC "invests" those premiums in US government debt, so if and when there is a bond market crash it would probably affect FDIC's ability to pay claims.

Finally, FDIC is just insurance that could be applied to dollars or bitcoins or gold or candy and says nothing about whether a system which uses dollars, or bitcoins, or gold, or candy is better on its own merits.

This is true, though I wouldn't expect any of the trolls to acknowledge this point.

 

[remirol]

It rebuts your claim that banks aren't much better than Bitcoin exchanges, precisely _because_ banks are heavily regulated and have government-backed deposit insurance.

How does having government regulation and insurance rebut the claim that you need it?

I suggest you read what you just responded to again, and then reread your response. Continue doing this for awhile, and eventually you'll begin to understand why we just copy and paste answers to you.

 

[remirol]

Once again you are arguing something which is obvious and which no one is contesting. I'm glad you admit that the benefits FDIC insurance provide could be applied to any of those other things and at that point the advantage it currently gives dollars over bitcoin would disappear. FDIC is a current advantage, not an absolute advantage.

Everything you said here is accurate by a literal reading, and yet you have again missed the point. At least you're reading what's actually said, though.

I posted the article and I made an argument.

Really? What argument was that, exactly? ...Because I saw a bunch of JAQing off and avoiding taking a clear position. Feel free to seize the opportunity to take one now, though.

Don't think I can miss the point of my own argument. And I'm not contesting what you've said about FDIC but I have pointed out multiple times why that doesn't address my argument.

Not your point, but my point. And it does indeed refute your argument, because there are a number of reasons to believe that there will never be such a thing as the FDIC for Bitcoin. This means that the existence of the FDIC is, for all practical purposes, an absolute advantage of the dollar and its banks over Bitcoin and its exchanges. There's a significant gap between 'possible' and 'probable', and trying to handwave that gap away isn't going to cut the mustard here.

If you're trying a thought experiment, then feel free to speculate as to how an institution such as the FDIC could come into existence in Bitcoin-land. Who would sponsor it? Where would the money come from? Who would audit it and, in the event of fraud attempts from the particpants, who would enforce its rules?

So money stolen from banks is paid for by the banks, and customers of the banks. If there were ever a series of bank failures that overwhelmed FDIC's ability to pay claims, It is backed by the "full faith and credit" of the US, which means depositors will be paid back by some combination of new funny money, or money directly out of the US Treasury. This would effectively socialize all bank losses.

Again from a practical perspective; if the FDIC ever reaches a situation where it is unable to pay claims (ie., that "full faith and credit" is suddenly worth bupkis) we'll have much more important things to worry about than where our dollars went. Finding the local warlord and getting on his good side would be near the top.

 

[psionl0]

I suggest you read what you just responded to again, and then reread your response. Continue doing this for awhile, and eventually you'll begin to understand why we just copy and paste answers to you.

That non answer proves that you have no explanation.

 

[ponderingturtle]

Has it ever occurred to you that saying "need massive regulation and government backed deposit insurance" is the exact opposite of saying "less regulation = better"?

You are certainly presenting it as a if it was negative, not a benefit.

It would be better if you didn't need the regulation but that is not the case with the banking system (and also the reason why bitcoin exchanges are not satisfactory).


Yes, the onus is on the bitcoin holder to store his data safely - just like with any data.

Just like at the start of the great depression it was on the depositor to make sure his bank was solvent.

 

[ponderingturtle]

Once again you are arguing something which is obvious and which no one is contesting. I'm glad you admit that the benefits FDIC insurance provide could be applied to any of those other things and at that point the advantage it currently gives dollars over bitcoin would disappear. FDIC is a current advantage, not an absolute advantage.

Well other investments have had their risk sold of as a comodity, this was what sunk AIG after all, insuring mortgage backed securities and all.