Indeed, at the very least only a very small percentage of funds should be held in hot wallets.

I'd prefer to see exchanges treating security like Bitmex: Full cold storage requires that withdrawals are not be available on demand. Withdrawals should be queued and manually withdrawn from cold storage. It's inconvenient, but when you consider past hacks were all hot wallet compromises, it makes sense.

I'm not just worried about government surveillance or being branded a criminal, although those aspects do influence my choice to use mixers and other privacy-enhancing technology. Today, we're increasingly seeing unprecedented levels of third party tracking by everyday internet companies. Combined with insecure websites and protocols, we're constantly leaking personally identifying information that is stored in various databases (sometimes indefinitely).

Let's say you buy some coins on Coinbase, then withdraw to a wallet you control. If you're not careful to separate those coins from your identity (as well as your IP address) through mixing, your Bitcoin wallet can potentially be used as a treasure trove of data about your activities.

Maybe it has something to do with that, although I assume the trust's bitcoins would be held in cold storage, like most of Gemini's funds are, and I'm sure funds couldn't legally be commingled. As long as their registrations and disclosures are in line, I doubt there's much concern about manipulation by the trustee.

I think the biggest issue facing the Winklevoss twins is the same one facing VanEck -- manipulation of overseas spot markets.

It's a very important case, since the US has shut down numerous cryptocurrency services who were operating from overseas. BTC-e and 1Broker to name a couple. So you should be careful to not only prohibit US residents but also to actively stop them from joining your platform. Otherwise, the US considers you under their jurisdiction.

I'm pretty sure US law is the reason why Changelly and Binance do not enforce mandatory KYC, but enforce it based on certain "suspicious" account activity. They both serve US customers and that's what the Bank Secrecy Act mandates.

It's dangerous to ignore the laws where your customers reside. The EU has comprehensive money laundering regulations that apply to money services businesses too. If the OP is planning on serving EU customers while ignoring EU regulations, I'd recommend talking to a lawyer first.

It probably has more to do with where their customers reside than where the exchange operates from. For instance, any exchange that does business with US residents falls under FinCEN's jurisdiction. FinCEN published guidance in 2013 that applied its rules to Bitcoin services. A few highlights:


Money transmitters are required to file a Suspicious Activity Report (SAR) when they suspect "transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act." Filing an SAR requires all the typical KYC information. They also need to file a currency transaction report (CTR) for transactions involving more than $10,000.


Your biggest worry is the laws where your customers are. To be safe, you want to be legally covered where you reside, where you operate from, and where you do business.

It's obvious they're not chasing the institutional market with this animation. They're definitely targeting retail buyers with this rebrand -- millennials and younger, from the looks of it. I'm not crazy about the animation but I found their previous interface sort of cold and boring, so I don't mind the change.

That might be why they're pursuing SOC-2 auditing. The SOC-2 is a security review of a service's infrastructure, underlying databases and in this case, cryptocurrency storage system.

Why can't they establish their own trust? Why do they need a third party custody solution?


Probably so, but I think that's mainly because it's backed by Cboe and VanEck. The Winklevoss twins are little fish and the federal government doesn't owe them any favors.

Because we already know it's not true. Wall Street has been involved with Bitcoin for several years now. Fidelity themselves has been mining Bitcoin for nearly 4 years -- I guess they couldn't wait for custody services. If institutions really want exposure to this market, they're not dumb enough to wait until years go by and someone like Fidelity offers custody services. They're already here.


That's what I'm skeptical about. You make it sound like there's all this latent demand just waiting to enter the market. How do you know? Blackrock and Morgan Stanley have said exactly the opposite -- that their clients have shown little to no interest in Bitcoin investment. Increased market access doesn't equate to increased market demand.

Eventually, I think legacy services like this will be important, perhaps when the next bull market rears its head and demand starts picking up again. I just don't buy the story that all this latent Wall Street demand exists that's about to buy into the market because of Fidelity.

I know the EU was calling for talks with Iran, China and Russia about establishing an alternative to SWIFT. I can't imagine how a token backed by the Iranian state would help, though.


They probably don't think it's enforceable. They're just trying to deter people from selling their rial for bitcoins, euros, or anything else. Like you said, they're just planning to treat Bitcoin like other foreign currencies.

With Bakkt on the back burner for now, it looks like Fidelity will be the first legacy player offering Bitcoin custody services. To hear bulls tell it, institutions have been waiting for reputable institutional-grade custody before entering the market. I'm skeptical about that myself, but it looks like we'll find out soon.

While searching for more info on this, I noticed ErisX is positioning itself to compete in both the spot and futures markets too. It recently raised funding from Fidelity, Nasdaq Ventures, Monex (TradeStation), TD Ameritrade and others.

The dinosaurs are coming...

That's incredible if true. It would mean the hacker assumed that Cryptopia didn't keep proper offline back-ups. That would mean they only kept one set of private keys, with everything stored on online servers. In this day and age, that's difficult to believe.

Cryptocurrencies makes these situations really difficult. They can be sent globally without permission, so the stolen money is literally gone. It's impossible to recover if secured correctly by the hacker. Binance was able to freeze some of the funds, but it may also be a jurisdictional nightmare to recover them. The investigation spans multiple countries -- New Zealand, Malta (Binance), the countries where any other involved exchanges operate from, the country where the hacker's VPN servers were operated from, the hacker's country of residence, etc.

Plus, you could withdraw up to 5,000 NZD daily without verification on Cryptopia. Since their specialty was low-value coins, they probably have loads of unverified accounts. If Cryptopia can't return to operating normally, that further complicates returning funds to their rightful owners.

It's inevitable, really. Peter Todd has been saying for years that a predictably low but permanent inflation rate (like 1% per annum) would be a superior security model for Bitcoin. He might be right, and he's not the only one thinking that. There is no precedent for Bitcoin's hard cap on supply. It's an experiment and no one can say from experience how it'll work out.

Since there is a hard cap on supply, it's incredibly important that we retain a hard cap on block size to force fees higher. Without inflation, that's the only way to guarantee that miners have incentive to keep mining Bitcoin.

It's a large initial cost, but there are no ongoing processing fees like with conventional POS/credit card terminals -- 1.51% plus $0.10 per transaction paid to Visa, 2.9% plus $0.30 paid to Paypal, etc. BTCPay Server has no fees, so those costs can be avoided.

This only accounts for current transaction demand, which is relatively low. What if on-chain throughput grows 100 times higher than today? Or maybe 10,000 times higher? Micro transactions on Lightning are great, but the LN model can't escape on-chain fees entirely.

I do wonder if we're setting ourselves up for another painful scaling debate. A lot of people are waving away the issue by saying "fees are already low." Fees are just low right now. How about when average fees approach $1 again, and higher?

We know that now but a few years back, we had options and it was still the wild west. I left Bitstamp immediately when they started requiring KYC. I was still using BTC-e when they were taken down.

Ah, those were the days.


Tax avoidance is probably a big one with cryptocurrency investors. Another is the threat of identity theft. Every day, we hear about a new data breach where sensitive customer data is stolen by hackers, later to be sold on the darknet. I minimize the exchanges that I do business with for that reason.

It's definitely a good practice to bookmark authentic websites like exchanges or web wallets, but this won't save you in a DNS spoofing attack. Since sites like MyEtherWallet depend on the centralized Domain Name System, their registries can be hijacked and users served with a phishing site -- even on the official, correct domain. This happened to MEW not long ago.

The best solution is to avoid web wallets entirely.

Without renewed startup funding, several of the smaller altcoin exchanges will probably croak, if not more. There's dozens if not hundreds of crappy little exchanges like Liqui that emerged in 2017. Some will make an orderly exit and others will just exit scam.

They don't just need to survive the crash right now. They need to survive the mass disinterest phase that comes after. Good luck to 'em!

Low fees aren't characteristic of secure blockchains that have strong transaction demand. Low fees indicate either weak security -- because of lacking miner incentives -- or weak transaction demand.

Rational miner incentives are required to prevent dishonest mining, which can result in insecure transactions. We can either incentivize miners with transaction fees, or we can do so with inflation -- paid by users as a periodic dilution on their holdings.

Bitcoin's block rewards are a combination of both fees and inflation right now. The inflation rate is dropping over time, so we should actually expect fees to rise to replace the lost miner incentives. If not, we should expect a decline in security.

Bitcoin definitely has potential in this niche. I'm really surprised to hear there's any interest in Lightning from those in the marijuana industry, though. I've lived in or visited multiple medical/recreational marijuana states and been to lots of shops, dealt with brokers and sales reps. Never once have I seen anyone accepting Bitcoin.

Like I said, there's potential here, but not until there is significantly more adoption. The entire supply chain still runs on cash. Until businesses can pay their suppliers with BTC and consumers want to pay with BTC, it's just not feasible.