ONLINE WALLETS, theft may be a good thing

[coined]

it's better this mybitcoin thing happened now rather than later, I didn't really know how popular online wallets were to be honest, Finding out it could be as much as 100k btc gone was a surprise to me.

But the upside to this is, of all the ideas sprouting up around bitcoin this online wallet crap needed a reality checking kick to the balls most of all, because it would have kept growing, imagine in the future an online wallet company got so big and trusted that it had a substantial percent of all coins in existence(yes people WOULD do that, deepbit..) then *poof* its gone! theft/government or fricken tsunami, cause doesn't matter, your coins are gone because you all gave up control and created this centralised point of failure for yourselves, a company being trustworthy isn't even the point as things can be lost due to a variety of problems however well intentioned. it's an unnecessary risk

it's a costly lesson for those who just lost coins but a good lesson none the less.

since I started mining last year I have always secured and encrypted my own wallets (+backups), and try to minimise the amount my coins are exposed you can't stop it 100% or you couldn't spend them, just like cash you need to hand over the bills at one point, the few times I had to sell some coins (a small amount on britcoin) it went well, but I was still a little nervous during the process, and I was in an out quickly, no holding funds or coins online for more time than needed,  because the truth is, if something goes wrong and I lose my coins it's my own fault for trusting them with them. because that's the point of bitcoin, people taking control of there own money,

With that mentality(which a quite a few us us have) the idea of permanently using one of these online wallet things always sounded insane, bitcoin's main features are being decentralised and having direct control of your money(we all know that) so the question is, if enough people use things like an online wallet and make a certain company big and "trusted" and create a potential centralised point of failure whilst simultaneously giving up the control of there coins, why are they using bitcoins at all?, why not banks or paypal or credit and debit cards? just trust them with your money, they're even regulated..

It's people not securing there own coins that has created most of the bad press, making things seem much worse then they are, causing public loss of confidence, Some casual news headline(inaccurate) readers still think bitcoin itself was hacked and is now worthless because people can make their own "counterfeit" coins,(yes I read that on another non bitcoin forum) bitcoin is working perfectly, the protocol is fine and running exactly as intended, these online wallets and insecure websites you just hand your wallets and coins over to and then they get "lost" is a separate issue.

Imagine a real wallet full of cash criticised the same way as bitcoin, "So i gave him my wallet, bulging out the sides with cash it was, and then, you're not going to believe this, HE RAN OFF WITH IT!, so insecure! these wallets will never catch on, definitely not secure enough to put cash in AVOID!" just ignore the actions of the wallet's owner and blame the wallet. that's the news cycle were in, they ruin it for the rest of us. sorry turned into a rant there  

[GideonGono]

I agree 100%. Luckily I withdrew all my coins from mybitcoin a few weeks ago when their down time was getting very annoying and I sensed something wrong.

People ultiately need to take full responsibility for their own money. That's just the price of freedom.

[steelhouse]

I can add bitcoin is slow money, a confirmed transaction can take an hour.   I think the bitcoin should be converted to USD to be used in fast money situations.   Raising the debt ceiling only steals grandmas $100,000 nestegg and about $10,000 a year.  On a daily basis it is less than 1%.  Most of the money supply might be bitcoin, but the fast money your pocket change can be used with the us dollar.

[Slab Squathrust]

Yeah, I really don't understand this.  Lets say I have a $100 bill, and I can keep it in one of two places.  The first is my own wallet, which I am responsible for its safety and security, or if I don't trust myself, I could store it with the anonymous guy on the internet.  He has a fancy suit and looks professional, so it must be a legitimate deal....

How is it better to trust someone you've never met with your money than yourself no matter how computer illiterate you are?  Your money is only as safe as he is, and apparently that was not very secure.

[BioMike]

Well, with all the ranting on last few days. I also kept thinking on the current situation and your post gives a good start. Here is how I see it.

People immediately said that online wallets are evil and should not be trusted. I agree to some extend with that. I used MyBitcoin mainly as a payment processor and needed to keep a small amount on there for my service to work. I can implement a whole payment processor service myself, but it is a hell of a lot of work to do it properly. That is why I used MyBitcoin. As far as I know they were also the only ones that offered such service, so I had to put some trust in them for my service to work. Therefore I think we should have MORE payment processors that offer the same service, but where people can split the risk depending on how much they trust the person running the service. Using an online wallet to store more bitcoins then needed is foolish (I agree with that), but not many people are familiar with encryption (how many joe and jane sixpacks make unencrypted backups at al?). And I think this is something that needs to be tackled. Even a few months ago people were claiming that in a few years nobody would be running the bitcoin client, but use online wallets/banks.

But going back to trust, trust needs to be build up and kept. There are quite a few services that have internal wallets/accounting. And when something bad happens (see the Polish exchange) the service provider should give the trust that their customers keep their stored value. Services should have an additional fair fraction of their stored value in a safe spot, so they can take their loss, but keep the service running.
In case of the Polish exchange, lets say they lost the 17000 BTC, if they had a safety depot of 6000 BTC they could still operate and generate new profit to counteract their losses. To sum it up, if you set up a service to make a quick profit, also take responsibility for it when you make a mistake and don't put it on your customers shoulders.

Online wallets are not bad per se. Most people trust PayPal (I don't, but that's a different discussion), while they aren't even a bank (The MyBitcoin ToS could as well be PayPals ToS).

[flug]

I agree that trusting any of the current sites with significant amounts of bitcoins isn't the brightest idea, and I never would, but I don't trust myself securing what bitcoins I have on my own PC either. So I'm currently in a no win situation. Are you saying bitcoins should be restricted to those who are competent at security? Honestly, bitcoins will never gain traction with the wider population until we have online bitcoin storage with proper security and insurance.

[BioMike]

insurance.

I think we need some discussion about this. Can we come up with some (paid) insurance that pays out when wallets are lost or people are scammed, but not promote scamming of the insurance (proof that someone lost his wallet).

[coined]

(proof that someone lost his wallet) good luck with that 

I have no backups.. honest, the only copy was stolen can i have my insurance cash now? 

[the founder]

what happened with mybitcoin is a disaster for everyone. 

By default people are now not trusting ANY other online bitcoin service.    You wanna know why bitcoins are nearly in single digits in terms of bitcoin to USD?

It's because you can't do anything with them...   you're scared to send them to an exchange (Mt,Gox) , your scared to host them on your own machine (or watch 25,000 BTC vanish from your desktop) , your scared to send them to an ewallet (mybitcoin), your scared to buy anything with them because "the merchant may run and I can't charge back" ... go on tell me how this is good for the community and the overall mission of bitcoins?

A certain bit of fear may allow for developers to secure their stuff better,  but this... this isn't just fear.. this is such a powerful threat that this itself  has the potential to make this bitcoin experiment fail.

[btcbaby]

what happened with mybitcoin is a disaster for everyone. 

By default people are now not trusting ANY other online bitcoin service.    You wanna know why bitcoins are nearly in single digits in terms of bitcoin to USD?

It's because you can't do anything with them...   you're scared to send them to an exchange (Mt,Gox) , your scared to host them on your own machine (or watch 25,000 BTC vanish from your desktop) , your scared to send them to an ewallet (mybitcoin), your scared to buy anything with them because "the merchant may run and I can't charge back" ... go on tell me how this is good for the community and the overall mission of bitcoins?

A certain bit of fear may allow for developers to secure their stuff better,  but this... this isn't just fear.. this is such a powerful threat that this itself  has the potential to make this bitcoin experiment fail.

When the time comes I will call on you to make good on your statements.  Yes, we need reliable services and interoperability between said services will be critical.

-btcbaby

[BioMike]

Scammers and untrustful services disappear after some time. Trustful ones will stay. After time there will be many more trustful services and merchants then untrustful ones. Bitcoin is still in its infant stage, give it time to build a trustful economy. Also, these failures are good examples for people to learn from.

[Newton]

I had another idea for an online wallet method to try to circumvent the massive theft issues- https://bitcointalk.org/index.php?topic=33854.0

Its not perfect, but I think with some community work we can keep the public faith in an online service that works.

[flug]

Scammers and untrustful services disappear after some time. Trustful ones will stay. After time there will be many more trustful services and merchants then untrustful ones. Bitcoin is still in its infant stage, give it time to build a trustful economy. Also, these failures are good examples for people to learn from.

Yes, we are on a steep learning curve, and things will improve. But it's not just trustworthiness. It's the reassurance of the competence of the service, and whether you'll lose everything if the service gets hacked.

Maybe we need to develop strategies too, like spreading our bitcoins among all of the online bitcoin storage services (exchanges, wallets, etc) hoping that only a small percent get hacked, effectively creating our own insurance at a cost.

[Trader Steve]

it's better this mybitcoin thing happened now rather than later, I didn't really know how popular online wallets were to be honest, Finding out it could be as much as 100k btc gone was a surprise to me.

But the upside to this is, of all the ideas sprouting up around bitcoin this online wallet crap needed a reality checking kick to the balls most of all, because it would have kept growing, imagine in the future an online wallet company got so big and trusted that it had a substantial percent of all coins in existence(yes people WOULD do that, deepbit..) then *poof* its gone! theft/government or fricken tsunami, cause doesn't matter, your coins are gone because you all gave up control and created this centralised point of failure for yourselves, a company being trustworthy isn't even the point as things can be lost due to a variety of problems however well intentioned. it's an unnecessary risk

it's a costly lesson for those who just lost coins but a good lesson none the less.

since I started mining last year I have always secured and encrypted my own wallets (+backups), and try to minimise the amount my coins are exposed you can't stop it 100% or you couldn't spend them, just like cash you need to hand over the bills at one point, the few times I had to sell some coins (a small amount on britcoin) it went well, but I was still a little nervous during the process, and I was in an out quickly, no holding funds or coins online for more time than needed,  because the truth is, if something goes wrong and I lose my coins it's my own fault for trusting them with them. because that's the point of bitcoin, people taking control of there own money,

With that mentality(which a quite a few us us have) the idea of permanently using one of these online wallet things always sounded insane, bitcoin's main features are being decentralised and having direct control of your money(we all know that) so the question is, if enough people use things like an online wallet and make a certain company big and "trusted" and create a potential centralised point of failure whilst simultaneously giving up the control of there coins, why are they using bitcoins at all?, why not banks or paypal or credit and debit cards? just trust them with your money, they're even regulated..

It's people not securing there own coins that has created most of the bad press, making things seem much worse then they are, causing public loss of confidence, Some casual news headline(inaccurate) readers still think bitcoin itself was hacked and is now worthless because people can make their own "counterfeit" coins,(yes I read that on another non bitcoin forum) bitcoin is working perfectly, the protocol is fine and running exactly as intended, these online wallets and insecure websites you just hand your wallets and coins over to and then they get "lost" is a separate issue.

Imagine a real wallet full of cash criticised the same way as bitcoin, "So i gave him my wallet, bulging out the sides with cash it was, and then, you're not going to believe this, HE RAN OFF WITH IT!, so insecure! these wallets will never catch on, definitely not secure enough to put cash in AVOID!" just ignore the actions of the wallet's owner and blame the wallet. that's the news cycle were in, they ruin it for the rest of us. sorry turned into a rant there  

+1

[BioMike]

Maybe we need to develop strategies too, like spreading our bitcoins among all of the online bitcoin storage services (exchanges, wallets, etc) hoping that only a small percent get hacked, effectively creating our own insurance at a cost.

*Warning* Don't send now all your bitcoins to MtGox because of what I'm about to say below. *Warning*

That was my earlier point with MORE payment providers and E-wallet services instead of less. MtGox seems to have a good safety strategy and they put a lot of effort in it (they won't give up easily, if you see what they've gone through last few months).

[ctoon6]

what was ctoon6 advocating since he joined the forum, nobody listened, and now your all screwed...
no wait, fucked, isnt nice you learn now before this shit happens full scale in a real economy.

[Explodicle]

Thanks for posting this, I think you're 100% right. I have used the internet since the early 90's and this is the first time I've been scammed. I have to admit, I just didn't think it would happen to me. Compared to how much I eventually WOULD have lost without this eye-opener, maybe I'm better off. Either way, I'll be less careless now.

[guywhogotgoxed]

Imagine a real wallet full of cash criticised the same way as bitcoin, "So i gave him my wallet, bulging out the sides with cash it was, and then, you're not going to believe this, HE RAN OFF WITH IT!, so insecure! these wallets will never catch on, definitely not secure enough to put cash in AVOID!" just ignore the actions of the wallet's owner and blame the wallet. that's the news cycle were in, they ruin it for the rest of us. sorry turned into a rant there  

Great post. Seems like you read my mind.                                                    

[Mike Moceri]

I have to say that I agree that people should be more careful with their bitcoins, but let's not lose sight of who the victims are here. Theft is theft, and fraudulent businesses like MyBitcoin.com only harm the long-term prospects of bitcoin as a viable alternative currency. It's time that people wake up and start filing lawsuits.

[ctoon6]

I have to say that I agree that people should be more careful with their bitcoins, but let's not lose sight of who the victims are here. Theft is theft, and fraudulent businesses like MyBitcoin.com only harm the long-term prospects of bitcoin as a viable alternative currency. It's time that people wake up and start filing lawsuits.

you cant sue for bitcoins, you can only sue for pixel money or federal reserve notes. and the court will not easily settle on an exchange rate and will probably look down on it as it is a virtual good and not a "tangible" good like federal reserve notes.