Quick question: What's preventing Coinbase from shutting down operations tomorrow and walking away with everyone's money, as MtGox walked away with mine?
Or, what if the founders orchestrated some sort of disaster wherein all of the coins are claimed to be lost, but in reality they're simply transferred to the founders?
I know they wouldn't actually do that. My question is, what's stopping them? Why wouldn't someone try to do that, other than their morals?
Nothing, so most people should use Coinbase the same way they use a grocery store: buy what they need and take it somewhere else. Unfortunately most people do not know enough to do that. I wrote a blog post about it if you're interested.
The promise of future profits amounting to more than what they would walk away with today, gained in a somewhat more respectable fashion. If they become the leading wallet in the world, they're sitting on a goose laying golden eggs. Doesn't make sense to slaughter it today for dinner.
These guys are known — like the guys at Mt Gox. They're not anonymous, and they would run a real risk of bodily harm by such a public crime.
Why put yourself in a position where you need to worry about that happening?
Keep the bulk of your BTC in a private wallet under your exclusive control and only use the intermediary provided wallet when you need to make a trade through their platform/exchange. You're still exposed while a trade is being executed but your maximum exposure is never more than the amount you are trading at that time.
You wouldn't deposit your life's savings with a new, unknown bank based out of a tiny island state with lax/non-existent regulation. Don't do the same with your BTC.
I'm not sure what your point is. My best guess is that you're implying that the only reason people don't do things that are illegal is the fact that they are illegal. If I'm wrong, please correct me, and disregard the next paragraph.
I see two problems with this point. Firstly, while I'm not entirely sure how the legal system in the US works, but I suspect it would be illegal for Coinbase to shut down and run away with everyone's Bitcoins. I doubt that USD is the only asset that is legally protected from theft/fraud. Secondly, I suspect that Coinbase has a huge incentive to not do this even if it were legal to do so. Namely, they should be able to make a lot more money by conducting their business legitimately and continually than if they ran off with one lump sum.
Simple - because YC, a16z, USV, SV Angel, etc all have skin in the game.[0] There are some serious people with some serious money who have reputations to uphold. AFAIK Mt. Gox had none of that.
Well, I suppose there are legal implications: that's known as "theft". Also there are the morals of every other employee... I believe Coinbase is set up with standard controls so no one person can steal funds without it being obvious to (and preferably requiring the cooperation of) other employees.
I would ask a similar question: What's preventing Nationwide Insurance, Chase Bank, and e-Trade from shutting down operations tomorrow and walking away with everyone's money? The biggest difference between these institutions and MtGox is that these institutions all have regulators who have the power to (in extremis) take over the operations of the institution if it begins to show the same kinds of trouble that MtGox showed for quite some time before its collapse. Coinbase is not currently subject to any such regulation.
Third option would also be actual negligence which is an interesting case because people are used to dealing with banks and do not realize that they will not get their money back. Im not suggesting FDIC style protection for Bitcoin exchanges is a good idea, but that is just what people are conditioned to expect and I think that is why so many people leave their money in exchanges like Coinbase or MtGox.
Nothing. And good luck finding their worldwide "cold storage" locations. They're apparently not in the United States, and not required to disclose them to any regulator.
- They are in SF so I can walk/bike/bus to their office; for whatever good that does me. Didn't do that one dude any good going to MtGox's Japan office. =/
- They are YC backed, so that means pg knows about 'em. That adds a "gold star" in my book in that they must have passed some kind of filter to get into YC; that they're not just plain scammers, unprofessional or woefully uneducated about security on the interwebz.
All that said, you still shouldn't leave a huge amount of coins on an address that you don't exclusively hold the private key to. 1 or 2 bitcoins, meh. Day-trading with 50 BTC? Risky, but okay I guess. Those crazy amounts I saw on that gox-horror Reddit thread, like 100+? Some people in the THOUSANDS?!!! That was a bad decision. That needs to be some place else. Coinbase.com may have the most honest people in the world, but I also believe hackers are extremely talented people and hundreds of bitcoin is adequate motivation for a certain subset of hackers to pour all their energy into breaking coinbase. I'd love for Coinbase.com to talk about all the strange hack attempts they must see against their service every... minute.
I day trade on btc-e.com with 1k USD and my rule is to never have more that 2k on there. If I reach 2K, I buy 1k's worth of bitcoin --> send to coinbase.com --> cash out. Repeat again with the 1k remaining. I could try and turn 2k into 4k, but that's a risk I'm not willing to take. I'm happy with my 1k units of profit.
Considering any positive comment will be buried deep under in HN, I think it's important to celebrate this success. Price of Bitcoin is meaningless, all other metrics seem to point to higher and higher adoption of this new technology. Great news!
The main reason I chose to buy BTC through Coinbase is because they're funded by A16Z and USV. Very prominent and influential investors that would also come under scrutiny if anything nefarious happened internally.
I've often wondered the same. Section 1.1 of their user agreement:
"1.1 Coinbase helps you make payments to and accept payments from third parties. Coinbase also provides a bitcoin wallet service where you can store your bitcoin. Coinbase also allows users to buy and sell bitcoin. Coinbase is an independent contractor for all purposes. Coinbase does not have control of, or liability for, the products or services that are paid for with Coinbase services. We do not guarantee the identity of any user or other party or ensure that a buyer will complete a transaction. Coinbase is not a money transmitter. Coinbase assists its users in Bitcoin transactions."
You hook up a bank account, "transmit" funds from a bank, receive virtual currency (and in reverse) but they are an independent contractor, assisting with the process. Very interesting approach.
A simple person might say the service very much looks like a money transmission, money exchanging business. The fees for acting as a money transmitter without licenses is supposedly up to $1k/incident.
I have personally never understood the criticisms of new things of the form "<new thing> doesn't provide the service that we've had for years with <old thing>!" IT'S NEW AND DIFFERENT, GIVE IT A CHANCE.
> That's one million consumer accounts with no FDIC insurance, no surety bonds, and no other backstop in the event of a problem.
All of which were created voluntarily by customers, which indicates that there is demand in the market for different types of asset/currency, some of which might not have FDIC insurance or any of those things.
how are they able to guarantee an exchange rate? aren't they exposing themselves to the huge fluctuations in bitcoin price (though the price seems to have stabilized recently)? for instance, there were some days this month where the price fluctuated by more than 40%. somehow the price and volume must work out where this is a calculated risk to cultivate the broader bitcoin ecosystem. would love to see some numbers if anyone has any ...
I suspect they don't need to expose themselves because they are holding large amounts of both Bitcoins and cash, so they can simply sell them to people at whatever price they want to. It's not like they take your USD and then have to run out and buy Bitcoins to cover them. They do have to worry about the value of their Bitcoin and USD holdings becoming worthless, but that's something all Bitcoin and USD investors have to worry about.
If they are taking some risk, by making commitments that they don't have backed with currency, it's trivially easy to calculate their exposure and figure out how high their fees need to be to cover it. That's a problem actuaries solved decades ago. Currency exchange is not a new business.
I realize it's all startup-y to pat yourself on the back about growth, but aren't you painting a target on your back for those that want to perform the next heist?
Pretending they're tiny and poor isn't a long-term strategy for becoming a mainstream, trusted brand in e-commerce. Security is one front they need to win on, just like every other successful payment processing business; they can't hide and become big at the same time.
As I understand it if security is done correctly then "stealing bitcoins" amounts to breaking strong cryptography. At this point nothing indicates that the elliptic curves or the cryptographic hashes (SHA-256, RIPEMD-160) used in Bitcoin are at risk.
Under the assumption that the crypto used in Bitcoin is safe, there's, for example, nothing an attacker can do to spend the coins in offline wallets. Not even a 50%+1 attack that'd be sustained for days...
If anything, the recent fiasco with Gox (which is more than shaddy) gives me lots and lots of confidence in Coinbase to do "the right thing".
Now I'm not saying they'll never get pirated or anything like that. But Bitcoin implemented correctly seems to be very safe and there are many people out there who have bitcoins which are "sleeping" safely on offline wallets in deep cold storage.
Most people holding bitcoins and most companies like Coinbase only need a fraction of their bitcoins "online" to be able to operate. And even for those bitcoins I take it Coinbase is taking security very seriously.
[+] [-] sillysaurus3|12 years ago|reply
Or, what if the founders orchestrated some sort of disaster wherein all of the coins are claimed to be lost, but in reality they're simply transferred to the founders?
I know they wouldn't actually do that. My question is, what's stopping them? Why wouldn't someone try to do that, other than their morals?
[+] [-] diego|12 years ago|reply
http://diegobasch.com/do-you-know-enough-to-securely-own-bit...
[+] [-] devindotcom|12 years ago|reply
These guys are known — like the guys at Mt Gox. They're not anonymous, and they would run a real risk of bodily harm by such a public crime.
[+] [-] corford|12 years ago|reply
Keep the bulk of your BTC in a private wallet under your exclusive control and only use the intermediary provided wallet when you need to make a trade through their platform/exchange. You're still exposed while a trade is being executed but your maximum exposure is never more than the amount you are trading at that time.
You wouldn't deposit your life's savings with a new, unknown bank based out of a tiny island state with lax/non-existent regulation. Don't do the same with your BTC.
[+] [-] baddox|12 years ago|reply
I see two problems with this point. Firstly, while I'm not entirely sure how the legal system in the US works, but I suspect it would be illegal for Coinbase to shut down and run away with everyone's Bitcoins. I doubt that USD is the only asset that is legally protected from theft/fraud. Secondly, I suspect that Coinbase has a huge incentive to not do this even if it were legal to do so. Namely, they should be able to make a lot more money by conducting their business legitimately and continually than if they ran off with one lump sum.
[+] [-] mbesto|12 years ago|reply
[0]http://www.crunchbase.com/company/coinbase
[+] [-] mcherm|12 years ago|reply
Well, I suppose there are legal implications: that's known as "theft". Also there are the morals of every other employee... I believe Coinbase is set up with standard controls so no one person can steal funds without it being obvious to (and preferably requiring the cooperation of) other employees.
I would ask a similar question: What's preventing Nationwide Insurance, Chase Bank, and e-Trade from shutting down operations tomorrow and walking away with everyone's money? The biggest difference between these institutions and MtGox is that these institutions all have regulators who have the power to (in extremis) take over the operations of the institution if it begins to show the same kinds of trouble that MtGox showed for quite some time before its collapse. Coinbase is not currently subject to any such regulation.
[+] [-] panarky|12 years ago|reply
Seriously, though, Coinbase and other online wallets and exchanges need to get with the program and prove they're not running a fractional reserve.
Radical transparency is a big part of the answer, and it's much more feasible with Bitcoin's public blockchain than with the dinosaur monetary system.
[+] [-] dangero|12 years ago|reply
[+] [-] ojr|12 years ago|reply
[+] [-] granfalloon|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] thinkcomp|12 years ago|reply
[+] [-] smtddr|12 years ago|reply
- They are in SF so I can walk/bike/bus to their office; for whatever good that does me. Didn't do that one dude any good going to MtGox's Japan office. =/
- They are YC backed, so that means pg knows about 'em. That adds a "gold star" in my book in that they must have passed some kind of filter to get into YC; that they're not just plain scammers, unprofessional or woefully uneducated about security on the interwebz.
- I feel very confident about this video: http://techcrunch.com/2013/12/17/foundation-brian-armstrong-...
All that said, you still shouldn't leave a huge amount of coins on an address that you don't exclusively hold the private key to. 1 or 2 bitcoins, meh. Day-trading with 50 BTC? Risky, but okay I guess. Those crazy amounts I saw on that gox-horror Reddit thread, like 100+? Some people in the THOUSANDS?!!! That was a bad decision. That needs to be some place else. Coinbase.com may have the most honest people in the world, but I also believe hackers are extremely talented people and hundreds of bitcoin is adequate motivation for a certain subset of hackers to pour all their energy into breaking coinbase. I'd love for Coinbase.com to talk about all the strange hack attempts they must see against their service every... minute.
I day trade on btc-e.com with 1k USD and my rule is to never have more that 2k on there. If I reach 2K, I buy 1k's worth of bitcoin --> send to coinbase.com --> cash out. Repeat again with the 1k remaining. I could try and turn 2k into 4k, but that's a risk I'm not willing to take. I'm happy with my 1k units of profit.
[+] [-] singularityyy|12 years ago|reply
[+] [-] cassetti|12 years ago|reply
[+] [-] thinkcomp|12 years ago|reply
I'd love to see a Coinbase blog post about why Coinbase doesn't need to be licensed like every other MSB registered with FinCEN.
[+] [-] natrius|12 years ago|reply
[+] [-] lmg643|12 years ago|reply
"1.1 Coinbase helps you make payments to and accept payments from third parties. Coinbase also provides a bitcoin wallet service where you can store your bitcoin. Coinbase also allows users to buy and sell bitcoin. Coinbase is an independent contractor for all purposes. Coinbase does not have control of, or liability for, the products or services that are paid for with Coinbase services. We do not guarantee the identity of any user or other party or ensure that a buyer will complete a transaction. Coinbase is not a money transmitter. Coinbase assists its users in Bitcoin transactions."
https://coinbase.com/legal/user_agreement
You hook up a bank account, "transmit" funds from a bank, receive virtual currency (and in reverse) but they are an independent contractor, assisting with the process. Very interesting approach.
A simple person might say the service very much looks like a money transmission, money exchanging business. The fees for acting as a money transmitter without licenses is supposedly up to $1k/incident.
[+] [-] BlackDeath3|12 years ago|reply
[+] [-] lectrick|12 years ago|reply
http://www.businessinsider.com/as-bitcoin-grows-in-popularit...
I have personally never understood the criticisms of new things of the form "<new thing> doesn't provide the service that we've had for years with <old thing>!" IT'S NEW AND DIFFERENT, GIVE IT A CHANCE.
[+] [-] baddox|12 years ago|reply
All of which were created voluntarily by customers, which indicates that there is demand in the market for different types of asset/currency, some of which might not have FDIC insurance or any of those things.
[+] [-] unknown|12 years ago|reply
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[+] [-] mulligan|12 years ago|reply
[+] [-] panabee|12 years ago|reply
[+] [-] erikpukinskis|12 years ago|reply
If they are taking some risk, by making commitments that they don't have backed with currency, it's trivially easy to calculate their exposure and figure out how high their fees need to be to cover it. That's a problem actuaries solved decades ago. Currency exchange is not a new business.
[+] [-] wmf|12 years ago|reply
[+] [-] Istof|12 years ago|reply
[+] [-] joezydeco|12 years ago|reply
[+] [-] dangrossman|12 years ago|reply
[+] [-] ceejayoz|12 years ago|reply
[+] [-] singularityyy|12 years ago|reply
[+] [-] TacticalCoder|12 years ago|reply
Under the assumption that the crypto used in Bitcoin is safe, there's, for example, nothing an attacker can do to spend the coins in offline wallets. Not even a 50%+1 attack that'd be sustained for days...
If anything, the recent fiasco with Gox (which is more than shaddy) gives me lots and lots of confidence in Coinbase to do "the right thing".
Now I'm not saying they'll never get pirated or anything like that. But Bitcoin implemented correctly seems to be very safe and there are many people out there who have bitcoins which are "sleeping" safely on offline wallets in deep cold storage.
Most people holding bitcoins and most companies like Coinbase only need a fraction of their bitcoins "online" to be able to operate. And even for those bitcoins I take it Coinbase is taking security very seriously.
[+] [-] BlackDeath3|12 years ago|reply