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Author Topic: Bitcoin Bank pays interest ? O.o  (Read 9310 times)
Rassah
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June 28, 2011, 06:47:28 PM
 #41

If the "interest" is paid from mining, please don't call it "interest," as that has some very specific meanings. Also, if you're actually planning on paying people proceeds from mining that you yourself pay electricity for, you're basically running a money-losing service, not just a "free" service. May be a good idea to open up Excel, put your business degree to work, and run some NPV calculations...
P.S. I'm all for the idea of a bitcoin bank that lets me store some money in the cloud in an insured account. Just not sure how that can possibly be a profitable, or even a break-even, operation at this point.

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Rassah
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June 28, 2011, 06:49:33 PM
 #42

Also, I live, like, an hour away from you, so if I deposit and you steal my money, I can just come knock on your door Grin

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June 29, 2011, 06:06:23 PM
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June 29, 2011, 07:59:25 PM
 #44

I second Rassah's inquiries.
How is mining considered "interest"?
How is the amount of deposit benefit you in any way? (It doesn't really make sense since you also offer different interest rates based on the amount deposited)

The deposited amount should benefit you in some way to offer such interests.
Are you gonna trade with the deposited amounts? I mean, if you had a tested awesome autotrader I would understand your move since the more deposits you get the more gigazillion potential of profit for you from playing the market.

But if you are just gonna sit on the deposited accounts as a simple ewallet, then the "interests" doesn't make sense.
It seems to just fall into a simple lure for a huge scam OR a very badly planned business plan OR a very poor understanding of what banks (and the finance system as a whole) actually are.
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June 29, 2011, 08:02:38 PM
 #45


Hmm, needs some minor proofreading. I still wouldn't really call it interest, since that implies a return on the money deposited. Since the money will not be lent out or invested, and proceeds will come from mining, selling advertising space, running financial services like escrow and arbitration, or whatever else, the payments are actually closer to "proceeds from company revenues," aka Dividends.

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June 29, 2011, 08:39:54 PM
 #46

I've only been able to come up with one way to earn "interest" (technically dividends) on bitcoins that do not involve another currency. It comes in the form of an insurance agency combined with a bank.

Essentially, a bitcoin bank makes the following guarantee:
We will store your bitcoins securely and we will only release them given condition x and will charge a small fee.
The condition could be a pgp signed directive to release a certain amount of funds to a given address.
The bank will then become liable for any funds lost for which it cannot produce the signed directive.

Unfortunately bitcoins are essentially uninsurable. To solve this the bank is also its own insurance agency.
The bank locks away very high security keys under physical... as well as legal... safeguards.
It can then execute contracts with large (or many small) bitcoin holders who approve of the banks security and methods.
By signing the contract you agree to insure in proportion any losses incurred by the bank. A loss in this example is not when the user loses control of their pgp key. That would be on the user. Only when the bank is compromised would this go into effect.

Assuming no breach occurs the insurance depositors earn "interest" from the fees in proportion to their deposits.
If a breach occurs the bank then needs to go through the legal hoops to access the escrowed money.
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June 29, 2011, 08:45:54 PM
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Hmm, needs some minor proofreading. I still wouldn't really call it interest, since that implies a return on the money deposited. Since the money will not be lent out or invested, and proceeds will come from mining, selling advertising space, running financial services like escrow and arbitration, or whatever else, the payments are actually closer to "proceeds from company revenues," aka Dividends.

Still doesn't make sense.
If these are dividends I am papa smurf.
So what's gonna happen once the difficulty level becomes prohibitively expensive, or simply put, all the coins are mined? The dividends/interests will stop?
Are we going to be paid with the profits from the ads?

As it is now, it doesn't make sense. At all.
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June 29, 2011, 09:03:59 PM
 #48

Unfortunately bitcoins are essentially uninsurable.
Assuming no breach occurs the insurance depositors earn "interest" from the fees in proportion to their deposits.

Why are Bitcoins uninsurable? A bank can take out an insurance contract in USD in the amount larger than the current bank holdings to allow for BTC currency to increase in value, or eventually get a contract in BTC. The fees will be smaller than the total holdings, but hopefully the insurance company will have more stashed away than needed in case problems arise.

Also, the point of insurance is that the fees can't be paid back. They are only big enough to cover losses (most of the time ongoing losses) from some members. If they are large enough to pay you fees or money back (Whole Life insurance, among others offered around the world), they are essentially ripping you off and paying you back your own money they don't actually need to insure you.
(I sold insurance for a while, so I know all the BS behind it)

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June 29, 2011, 09:54:13 PM
 #49

Quote
Why are Bitcoins uninsurable? A bank can take out an insurance contract in USD in the amount larger than the current bank holdings to allow for BTC currency to increase in value, or eventually get a contract in BTC. The fees will be smaller than the total holdings, but hopefully the insurance company will have more stashed away than needed in case problems arise.

Also, the point of insurance is that the fees can't be paid back. They are only big enough to cover losses (most of the time ongoing losses) from some members. If they are large enough to pay you fees or money back (Whole Life insurance, among others offered around the world), they are essentially ripping you off and paying you back your own money they don't actually need to insure you.
(I sold insurance for a while, so I know all the BS behind it)

I specified in the the first sentence that you can't do it without involving another currency.
The government is the insurer of last resort when it comes to banks... for example the FDIC in the US.
I would never deposit money in a bank that guaranteed my funds on the condition I didn't mind being paid back in Rubles.
Since its impossible to have an insurer of last resort for bitcoin the bank would have to work in reverse.
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June 29, 2011, 10:01:06 PM
 #50

Unfortunately bitcoins are essentially uninsurable.
Assuming no breach occurs the insurance depositors earn "interest" from the fees in proportion to their deposits.

Why are Bitcoins uninsurable? A bank can take out an insurance contract in USD in the amount larger than the current bank holdings to allow for BTC currency to increase in value, or eventually get a contract in BTC. The fees will be smaller than the total holdings, but hopefully the insurance company will have more stashed away than needed in case problems arise.

Also, the point of insurance is that the fees can't be paid back. They are only big enough to cover losses (most of the time ongoing losses) from some members. If they are large enough to pay you fees or money back (Whole Life insurance, among others offered around the world), they are essentially ripping you off and paying you back your own money they don't actually need to insure you.
(I sold insurance for a while, so I know all the BS behind it)

IMO insurances are the biggest legal scams ever.
Essentially insurances insure you for something that is very unlikely to happen,
That, for starters, is quite illogical.

For exemple, if an actuary assesses that your risk is extremely very low, then why the hell do you need an insurance in the first place?
You could cover that risk by yourself.
You could actually deposit a portion of your income in a jar (or invest it) and have yourself insured for when "shit happens" and there would be plenty of money available when it happens, since the probability of happening is quite low. If you collect your own money for each time that shit doesn't happen and use it when "shit happens", you should amass a considerable amount of money in your little jar.
Because of this I still don't understand the compulsory nature of certain insurances.
If you have a freaking low risk, you should be exempted from having an insurance.

If this isn't enough: If you are insured and shit happens, be ready to be rejected because of a definition in cryptic minute clause in the corner of the backpage of the insurance policy that technically excludes you from certain conditions from collecting the insurance.
If that isn't conning I don't know what it is.

Anyhoo, a bank that insures their money from being stolen in the very high risk environment like the online medium would be a freaking suicide, unless... you have placed extremely safe measures and extremely reliable redundancy to make attacks and data loss extremely unlikely, otherwise offering insurances would be totally senseless and stupid, business-wise.
Obviously I imagine that the fees or the premium for such warranty would be quite expensive and the investment for such infrastructure and personnel would be quite considerable.

(Our primary concern isn't depression of the economy or bank runs, but penetration attacks and data loss. So talking about FDIC I think it's out of the question by now, what we really need is a Fidelity Insurance Protection or similar)
Rassah
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June 30, 2011, 06:33:30 PM
 #51

I specified in the the first sentence that you can't do it without involving another currency.
The government is the insurer of last resort when it comes to banks... for example the FDIC in the US.
I would never deposit money in a bank that guaranteed my funds on the condition I didn't mind being paid back in Rubles.
Since its impossible to have an insurer of last resort for bitcoin the bank would have to work in reverse.

Not true. You can have your USD denominated cashflow insured with USD by putting some of that USD into a pool. If your cashflow is interrupted, you take your share out of the pool that everyone has been putting into. That's how life insurance works.
With a Bitcoin bank, a bank can self-insure individual accounts by charging a small fee. If someone's account is lost, the bank can restore the money from the collected pool of fees. In the case of insuring an entire bank, there could be an insurance company that many banks pay a fee to (charged from individual account holders), and if the entire bank collapses, the insurance pool of money should have enough set aside to pay the people back. Best case scenario would be banks who insure a portion of their funds among many insurance companies, so if one insurance provider collapses, at least hopefully the remaining ones will restore some of the money.

IMO insurances are the biggest legal scams ever.
Essentially insurances insure you for something that is very unlikely to happen,
That, for starters, is quite illogical.

If something is very unlikely to happen, that is usually reflected in the price you pay. The chances of you getting killed or losing a limb in an accident are extremely tiny (compared to dying of health issues), and so AD&D (accidental dismemberment) insurance is only about $2 to $4 a month. The chances of you needing some sort of really expensive healthcare service when you are 80 is rather high, thus insurance is high.


For exemple, if an actuary assesses that your risk is extremely very low, then why the hell do you need an insurance in the first place?
You could cover that risk by yourself.
You could actually deposit a portion of your income in a jar (or invest it) and have yourself insured for when "shit happens" and there would be plenty of money available when it happens, since the probability of happening is quite low. If you collect your own money for each time that shit doesn't happen and use it when "shit happens", you should amass a considerable amount of money in your little jar.

You know how bitcoin hashing works. Accidents work the same way. Your chance of getting into a car accident that costs you $50,000 is extremely low, but it could happen today. Obviously the BEST method is to both pay for insurance and save up money. Specifically, when you buy insurance, yo pay for a certain amount of coverage, say $50,000. As you save up $10,000, lower your coverage to $40,000, and so on, until you are self insured.
In some cases, though, it is much better to buy insurance than to self-insure. For example, if I'm running a business that needs $100k in liability insurance, but likely will never use it, I would much rather pay a small monthly insurance payment and let the professionals work things out should anything happen, while using the $100k to actually do business and make money, than tying up the $100k in some untouchable bank account where it sits doing nothing, and then looking for lawyers and help on my own when something happens.

Because of this I still don't understand the compulsory nature of certain insurances.
If you have a freaking low risk, you should be exempted from having an insurance.

The compulsory part is because "freaking low risk" does not mean 0 risk. Low risk people still get into accidents, get infections, and even get cancer, yet because they thought they are low risk and didn't buy insurance, when they go to the hospital and get treated, everyone else who actually DID buy insurance ends up paying for them in higher insurance costs. Options are either force them to buy insurance too (and pay much lower premiums), or force hospitals not to treat them, and send them off to some island to die so the don't bother anyone here. The gov decided t go with option 1.

If this isn't enough: If you are insured and shit happens, be ready to be rejected because of a definition in cryptic minute clause in the corner of the backpage of the insurance policy that technically excludes you from certain conditions from collecting the insurance.
If that isn't conning I don't know what it is.

That's called "free market" and "read the damn contract" Cheesy

Anyhoo, a bank that insures their money from being stolen in the very high risk environment like the online medium would be a freaking suicide, unless... you have placed extremely safe measures and extremely reliable redundancy to make attacks and data loss extremely unlikely, otherwise offering insurances would be totally senseless and stupid, business-wise.
Obviously I imagine that the fees or the premium for such warranty would be quite expensive and the investment for such infrastructure and personnel would be quite considerable.

That's true. So, that just means that the bank will have to weigh it's expense options between setting up extremely good security, or pay extremely high insurance premiums. Likely, it'll do what everyone does, and balance the costs somewhere in the middle (though since securing digital things is much easier than physical things like in a bank, I suspect they will exhaust every digital security option before going on to buy insurance.)

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