[2014-03-03] Bloomberg: Will Bitcoin's Libertarians Pay for Deposit Insurance?

[ducatitalia]

The layers are being developed...next up...insurance...
http://www.businessweek.com/articles/2014-03-03/will-bitcoins-libertarians-pay-for-private-deposit-insurance

[bitbouillion]

It's already there and cheap and called "bitcoin-qt".

[p2pbucks]

  Bloomberg is deeply brainwashed by mainstream media , these is no such stupid thing in bitcoin world

[rocks]

Thinking about a need for insurance means that people are not yet seeing the full potential of the protocol yet.

Insurance is only needed when you do not fully control a situation. This can include whether or not a fire will burn your house down or if a bank will go under and take your savings with them.

But with the bitcoin protocol you can fully control a situation. For example you can build an exchange where deposits are co-owned by the exchange and customer using n-of-m transactions. The customer only gives final release of the coins when they trade and otherwise if the exchange goes under they can pull their bitcoins out. If you are worried about losing private keys, you could similarly create a central clearing house that maintains a second set of keys under an n-of-m system, then if you lose your keys the cental clearing house can recover the coins for you (of course here you'd have to trust the legal infrastructure around that, I wouldn't but people are free to do so).

These situations are better described as services that you pay for, but are not insurance.

[odolvlobo]

Bloomberg is deeply brainwashed by mainstream media , these is no such stupid thing in bitcoin world

Apparently you didn't read the article.

[GVanelly]

Ryan Selkis? I've never heard about this journalist

[AnonyMint]

I predicted this with very detailed logic and analysis of the legal situation:

https://bitcointalk.org/index.php?topic=491181.msg5497952#msg5497952

[Grinder]

But with the bitcoin protocol you can fully control a situation.

You can never fully control a situation. What happens when someone who knows you have bitcoins enters your house and threatens to kill your wife and children if you don't transfer 1000 BTC immediately? Unless bitcoins disappears this is pretty much bound to happen. People will be killed or seriously injured, meaning those experiencing it will have good reason to believe them. If the money were in a bank it would take time to transfer, and ever afterwards you could go to the police and the transfer could be stopped or traced for a long time. With bitcoins all they have to do is wait about 10 minutes for a confirmation and they're safe.

The problem with insurance is that you have to trust the insurer. In this particular case, why would you trust a company that lies about being insured by Lloyds? Unfortunately their real trustworthiness would be the same if they didn't make that screw up, you just wouldn't know. Still, I think the average person would prefer to leave their coins with some form of bank to make a hostage situation or other forms of crime or personal mistake less likely.

[davidgdg]

I predicted this with very detailed logic and analysis of the legal situation:

https://bitcointalk.org/index.php?topic=491181.msg5497952#msg5497952

Detailed, logical and wrong.

[davidgdg]

The layers are being developed...next up...insurance...
http://www.businessweek.com/articles/2014-03-03/will-bitcoins-libertarians-pay-for-private-deposit-insurance

I think it is pretty unlikely that we will see consumer level insurance for bitcoin theft for a very long time.

Fundamentally, insurers need to know the risk they are taking. This is easy when it comes to things like property insurance because there is a huge amount of information available to insurers as to the probability of loss and the measures that can be taken to reduce the risk.

But the relevant information is simply not available when it comes to bitcoin.

 

[aigeezer]

Ryan Selkis? I've never heard about this journalist

He makes the rounds. http://texasbitcoinconference.com/speakers

He is usually portrayed as a BTC supporter.

His bio includes "Ryan is a former venture capital associate (Summit Partners) and investment banking analyst (JPMorgan)." Go figure.

He got his 15 minutes of fame (so far) breaking the Gox story in his blog.

http://finance.fortune.cnn.com/2014/02/26/bitcoin-blogger-mt-gox-leak/

[bitbouillion]

You can never fully control a situation. What happens when someone who knows you have bitcoins enters your house and threatens to kill your wife and children if you don't transfer 1000 BTC immediately? Unless bitcoins disappears this is pretty much bound to happen. People will be killed or seriously injured, meaning those experiencing it will have good reason to believe them. If the money were in a bank it would take time to transfer, and ever afterwards you could go to the police and the transfer could be stopped or traced for a long time. With bitcoins all they have to do is wait about 10 minutes for a confirmation and they're safe.

This can also happen, if a robber knows that you have cash/jewlery/gold .... in your house. Or he demands that you withdraw cash from your bank and they're safe.  Only a completely retarded robber would demand a bank transfer.

Even if a robber tries to get bitcoins transfered, you could also claim, you have the private key in a safe deposit box in a bank and gain some time.

Sure, the first bitcoin robbery at gunpoint might happen at some time in future, but I don't think this is a very efficient method for robbers. They would rather try to steal bitcoins from your computer or online-wallet or steal your smart phone with a wallet on it. Who has insurance against get a real wallet stolen or robbed?

Our own precaution is the best insurance.

[Topazan]

This can also happen, if a robber knows that you have cash/jewlery/gold .... in your house. Or he demands that you withdraw cash from your bank and they're safe.

...which is why we have insurance that covers these situations.

I don't understand the hostility towards this idea.  It really would have been nice if mtgox had been insured to cover their liabilities, as well as several other bitcoin deposit institutions, a lot of people would be better off.

It's great that we can keep private keys ourselves, but the existence of insurance for deposit institutions is not mutually exclusive with that.  We have to interact with exchanges and similar sites once in awhile, it would be nice if we had some protection for when they fail.

[bitbouillion]

I don't understand the hostility towards this idea.

I am not hostile, I think such an insurance is more or less useless if you take the right precautions. Sure, there are so many useless insurances on the market and people buy them.

Regarding exchanges, insurance works only if there is regulation, oversight, audits ... otherwise you can get robbed by an insurance company as well. It will make it more expensive since the exchange will charge the users over fees and requires central regulation. In general I think it's against the idea of a decentralized system ... or someone comes up with a decentralized insurance system.

[Topazan]

Maybe it's because I don't know much about how insurance works, but I don't see the problem.  As long as all parties consent, what's wrong with a private insurer providing some oversight as a condition of its policy?

[beckspace]

Methods of insurance have been used for at least 5,000 years.

How a Bitcoin Insurance Policy denominated in bitcoins, paid with bitcoins and compensated in bitcoins would work?

Maybe one insurance company is not enough to fully insure bitcoins, but several of them are.

Reinsurance:
http://www.investopedia.com/terms/r/reinsurance.asp

The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.

That comes with time (Law of Large Numbers), reputations and best practices.

Reinsurance is another layer built on top of the insurance protocol.

When Lloyds of London will get 20 people in a room for 2 weeks, just like Overstock did, slip pizzas under the door, and come out with an insurance policy, a contract?

[bitbouillion]

When Lloyds of London will get 20 people in a room for 2 weeks, just like Overstock did, slip pizzas under the door, and come out with an insurance policy, a contract?

They can't invest premiums into treasuries, because they have to hedge against the hefty devaluation of fiat against bitcoin. In case of an event they always have to have a substantial amount of bitcoins on hand, to compensate for a loss. Then, how will the bitcoins of the insurers and re-insurers be protected against hackers, thieves, fraud ....?  Such an insurance would just delegate the problem to another entity.

Insurance is very similar to gambling. With the high volatility of the fiat price it will be a very risky game and probably never be compatible with any financial regulation anyway.

Why not simply go to a bookmaker and make a bet on the next big bitcoin hack. Depending on the odds and the money you put in you can get some sort of "insurance" right away. 

[Bit_Happy]

Bloomberg = Barfberg
Mr Mayor Bloomberg might run for Pres as an "Independent"