Private Key vs Exchange (Coinbase, Circle, etc)

[keepdoing]

My question is Exclusively about Security.  Just to preface, I will go ahead and list the things I am aware of to try and head off the usual non-topic issues bound to arise.

1) I realize that the Exchanges effectively track your money, and you make you more susceptible to have to pay taxes on any earnings, etc...  My response to this is... so do banks, but that is how the Big Picture works, and if Bitcoin is to ever become a global currency (which I think it will) then thats just the way it will work.  So this aspect is not an issue as it relates to this thread.

2) I realize that according to some theorists out there - there may be a way to "Double" your bitcoins onto both the Core & the XT Forks if there is a permanent divergence (through tainted coins etc).  Also - that if you have money in an exchange that chooses the XT Fork, you may be locked into an XT Chain since your Bitcoin will then be locked into that chain.  Again for the purposes of this discussion, let us assume we are content with those risks, have made our choice, and are betting on XT.

SO.... that leaves us with the basis of this question..... what are the pure and simple SECURITY issues that directly relate to keeping your money in an Exchange and using their wallets (i.e Coinbase, Circle, etc).  And by Security - I mean losing your bitcoins.

How much risk is there of a "Mt Gox" event?   What ways could I lose my money?  Or has the system evolved to the point that it is basically just as safe as a bank or Private Key, and if so, or not so.... How/Why?

[unamis76]

To start off my post, if you don't have the private key, the keys aren't yours.

That being said, the security issue lies in the fact that you don't truly know if an exchange has your coins offline. As we saw from the Mt Gox incident, coins were all online at some point, prone to be stolen by a hacker (which apparently did happen, at some time in Mt Gox's history), so there's your risk. As we know, someone with resources and time can do pretty much anything on the internet.

Even if your coins are offline, you have to trust someone from the exchange isn't simply going to run off with them.

I'd say the risk of a Mt Gox-like event isn't high, but it's not impossible and there doesn't need to be another Mt Gox-like fiasco for your coins to be stolen.

The system will never evolve in the direction of banks. The objective of the system is the exact opposite, and a bank is definitely not safe or "bulletproof".

I hope my post is clear and a valid answer to your question, at at least to part of your question.

[RustyNomad]

How much risk is there of a "Mt Gox" event?   What ways could I lose my money?  Or has the system evolved to the point that it is basically just as safe as a bank or Private Key, and if so, or not so.... How/Why?[/b]

I don't think anybody can answer that as we do not have insider knowledge of exactly how Coinbase etc.. handle their security. One can assume that they implement 'best practices' but there is no guarantee.

I think the best approach is to cover the downside at all times. Go through their terms and conditions and make sure you understand what will happen in each case i.e. a hack, insider fraud/theft etc. and see how you will or might be covered/compensated in each case. If you understand what your actual risk is in each scenario you can plan accordingly.

In regards to your comment ' just as safe as a bank'.... Banks even today still suffer major losses due to fraud so I will not call them 'safe'. Safe maybe in the fact that you are compensated in most cases for such losses but definitely not 'safe' as nothing bad ever happens.

I'm however of the opinion that you should not place your trust in any third party. No matter who they are and or how good they are you will always have the human factor. Added to that, many believe that larger organisations are safer than smaller ones which is not always the case so one should not feel 'safe' just because the third party is reputable. Anything can and will happen, eventually.

When it comes to money I trust no one.


 

[gentlemand]

Coinbase and Circle are insured for Bitcoin losses. However that's only due to a hack at their end. If someone compromises your access details then it's goodnight and you're on your own.

If you're confident enough in your own abilities I don't see any possible advantage in storing coins with a third party.

[BrianM]

To start off my post, if you don't have the private key, the keys aren't yours.

This is so fundament important in bitcoin.

You have to understand, you and you alone need to be in control of the private key in order to own bitcoin. Having coins on an exchange is not the same as holding bitcoin.

Basically the exhange gives you a "I owe you  note", that they "promise" to give back the bitcoins you have transfered to them. There are no gurantee for this. It is a fact that most exhanges runs with a negative ballance. If all user at once redeemed the "I owe you  note" (redraw bitcoins from the exhange), then will there not be enough coins for everyone. This was very much the case with mt.gox as well.

Bitcoin exhanges can bassically generate money out of the thin air, when some one transfer $100, then can they give you $100 worth of bitcoin, that someone else have transfered and keep the $100 dollars for them self. This goes very well as long as the economy is expanding and new users are joining. But as soon as the bitcoin economy goes back, then does people start "redrawing" and BAM, the exhange was suddently "hack" and all the coins are gone.

Just dont keep funds there... you will loose money.

[keepdoing]

The system will never evolve in the direction of banks. The objective of the system is the exact opposite, and a bank is definitely not safe or "bulletproof".

I'll comment on the above first, which I think is a blatantly false statement.  It already IS evolving in this direction.  Exchanges like Coinbase, Circle etc (and funded by companies like Goldman Sachs, JPMorgan and others) are absolutely the 1st wave of New Fiat Banks - just blockchain based ones.  And XT is absolutely a patch designed to ease that transition.  This really isn't something that is arguable... it just is.

Basically the exhange gives you a "I owe you  note", that they "promise" to give back the bitcoins you have transfered to them. There are no gurantee for this. It is a fact that most exhanges runs with a negative ballance. If all user at once redeemed the "I owe you  note" (redraw bitcoins from the exhange), then will there not be enough coins for everyone. This was very much the case with mt.gox as well.

Bitcoin exhanges can bassically generate money out of the thin air, when some one transfer $100, then can they give you $100 worth of bitcoin, that someone else have transfered and keep the $100 dollars for them self. This goes very well as long as the economy is expanding and new users are joining. But as soon as the bitcoin economy goes back, then does people start "redrawing" and BAM, the exhange was suddently "hack" and all the coins are gone.

I think on the above you are confusing what is known as a "Run On The Bank" with a "Run TO The Bank."  It is unquestionable that in the current Fiat Banking System, they are completely overleveraged and nobody has enough money to cover what would happen if everyone "Run on the Bank."  And yes, Bitcoin Exchanges (the future New Fiat Banks) are leveraged as well, but not so heavily.

Exchange Banks like Circle are much more prepared / technologically safe than Mt Gox - which was ahead of itself, and primed with corruption and stupidity and greed.  The new Exchanges are slick operations run by the same insiders that run the current Fiat Banks.

But there WILL indeed be a Run ON the Banks - the Fiat Banks.  The House of Cards and Illusion will indeed come crashing down.

But there will also be a Run TO the New Digital Fiat Banks, which will be positioned as the new "Gold Standard".  So from a personally selfish standpoint, I am not that worried I will lose my money in Circle or Coinbase based on a Run ON the Bank - because they will be the recipients of the opposite effect. 

And it won't matter as to whether the New System they control is any less safe, less susceptible to manipulation, etc etc.  Just matters whether or not they can sell it to the sheep in a sudden rush of panic.  What do you think?  Could they do it?

[gentlemand]

And XT is absolutely a patch designed to ease that transition.  This really isn't something that is arguable... it just is.

What is about XT that's particularly banksterish?

[OgNasty]

When you need your funds, it is nice to have access to them.  If you think you will be able to withdraw BTC from an exchange if/when the shit hits the fan, I would venture to guess you don't know much about history, nor do you read much in the way of current events.

I imagine the person who keeps their BTC on an exchange is probably the same guy who invests in precious metals ETFs.  I also imagine that will be the person who sheds the most tears if it comes to a point where those funds are actually needing to be accessed in an emergency.

[keepdoing]

And XT is absolutely a patch designed to ease that transition.  This really isn't something that is arguable... it just is.

What is about XT that's particularly banksterish?

More transaction capability.  Tracking.  In a nutshell that is it.

[keepdoing]

When you need your funds, it is nice to have access to them.  If you think you will be able to withdraw BTC from an exchange if/when the shit hits the fan, I would venture to guess you don't know much about history, nor do you read much in the way of current events.

I imagine the person who keeps their BTC on an exchange is probably the same guy who invests in precious metals ETFs.  I also imagine that will be the person who sheds the most tears if it comes to a point where those funds are actually needing to be accessed in an emergency.

Only an idiot would invest in ETF Gold, or let someone else store it.  Best to keep it handy.  But the reason is because that is the OLD/CURRENT system, and it is this old system that is overleveraged and about to crash.  I mean - it is almost blatant,a nd anyone who hasn't gottent he memo on the ETF Gold/Silver scam is well - going to have a bad day.

Bitcoin is the NEW system.  It is where everyone will run TO.  I will grant that some of the smaller Exchanges (less tied in to big patient money) may become risky through criminal or greed issues, possibly even security.  But I am betting that the Big Fiat Exchanges (Circle, Coinbase, ItBit etc) will be fine. 

But yes, some of my Bitcoins will likely be offline - just like I might want to keep my cash out of a bank.  And honestly, right now I think having cash in a bank account is a heck of a lot riskier than bitcoin in a Large Fiat Exchange.

But again, for some reason - another part of this original question was security of BOTH private key vs big exchanges.

It's just that I have a little tingling in the back of my neck about what they might pull to limit access of offline bitcoin into the system.  It could be nothing - but is there ANYTHING anyone can think of that could cause that to be a risk.  SPECIFICALLY to XT I am thinking.

[OBAViJEST]

Just printed out a new paper wallet....anything else and the btc is (literally) 'out of your hands'!

[Muhammed Zakir]

-snip-
Exchange Banks like Circle are much more prepared / technologically safe than Mt Gox - which was ahead of itself, and primed with corruption and stupidity and greed.  The new Exchanges are slick operations run by the same insiders that run the current Fiat Banks.
 -snip-

What if people behind Circle or Coinbase become greed? There is no way you can prevent that from happening! People used to say things like this before Mt. Gox stole their money.

[gentlemand]

What if people behind Circle or Coinbase become greed? There is no way you can prevent that from happening! People used to say things like this before Mt. Gox stole their money.

Any half sentient being who researched the history of Gox must surely have realised that it was a shit show before the end. No regulation, no communication, no investors, started off with one guy's paypal account, hacks, failures, USD being seized. People were a victim of 'too big to fail' thinking.

Many may not like the way CircleBase operates but there's no denying that they're professionals. The NYSE does not invest in a company that runs off with customer money.

[keepdoing]

-snip-
Exchange Banks like Circle are much more prepared / technologically safe than Mt Gox - which was ahead of itself, and primed with corruption and stupidity and greed.  The new Exchanges are slick operations run by the same insiders that run the current Fiat Banks.
 -snip-

What if people behind Circle or Coinbase become greed? There is no way you can prevent that from happening! People used to say things like this before Mt. Gox stole their money.

Let me be blunt.... The New People behind Circle/Coinbase are the Old People behind JPMorgan/Goldman etc.  I know how they steal things.  I know the rules behind it and and I well versed in using that to my strategic advantage.  But I am afraid they will learn new tricks with the advent of digital.

But they aren't strong arm robbers.  They don't just make your bitcoin "Go Away".  They schmooze it out of you with fancy cons.   The early days of Bitcoin / Mt Gox was like hte wild west.  Strong arm robbers just blatantly swiping your $#!T in an unregulated system.   This new breed of exchanges will steal from you in a regulated manner - exactly like the old system they ran.

[RGBKey]

Bitcoin was made so that you can for sure own your money. Its not held by someone else in an account, its yours. While those services are great, you shoudnlt store your money in there any more than you trust a stranger to pay you back.

[keepdoing]

Bitcoin was made so that you can for sure own your money. Its not held by someone else in an account, its yours. While those services are great, you shoudnlt store your money in there any more than you trust a stranger to pay you back.

Do you have a bank account?  If so, why are you storing your money in there and trusting that the money will be there when you write a check?   Because that is how several billion people a day on this planet currently operate - and yes S#!T gets wonky sometimes, and yes it is REALLY about to get wonky - but that is what the masses do.   And the Big Fiat Players (that now control the big Bitcoin Exchanges) like to screw people in an orderly manner, and they like doing it to Millions and Billions at a time because it is more fun and profitable to screw that many at a time.  But here's the rub - you never get to the Millions and Billions if you publicly and blatantly screw a few and everyone catches you.   THAT is why AT THIS PRESENT TIME they are on their best behavior - to lure in new customers (aka future food for the spider web).  I am not unkown in this world, and I can make big stinks when I choose.  I ran into issues with the Buy Procedure early on with Circle.  First words out of there mouth was, "We don't want to get a bad reputation."

MY QUESTION.... is about security Right Now in regards to losing my money via a technological avenue, or regulatory trick.  NOT with whether or not the evil old Fiat Misers that run the Exchanges might get impatient and try and screw up their nice pretty scam by rushing in and stealing my money.

But this has given me an idea for a new thread.  Thanks.