If Banks started to accept bitcoins, would you trust them with yours?

[Fuzzy]

I know there are a thousand assumptions here, but let's imagine for a second that Bitcoin takes off and new BTC banks pop up, and old banks start to deal in bitcoins.

What would happen then? Would people trust them to hold bitcoins? Could they lend bitcoins out?

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[hazek]

It depends on whether or not they present themselves as trustworthy.. 

[Nancarrow]

I know there are a thousand assumptions here, but let's imagine for a second that Bitcoin takes off and new BTC banks pop up, and old banks start to deal in bitcoins.

What would happen then? Would people trust them to hold bitcoins? Could they lend bitcoins out?

I presume that they would only be able to 'lend bitcoins out' by transferring them with the standard bitcoin protocol. This might be a good thing for depositors as it would make the banks' investment decisions a little more transparent. Not much I suppose, if we can't ID the addresses they lend to. But at least we could be absolutely clear about how many bitcoins a bank held at any given time, vs how many they'd lent out.

[finway]

Everyone can be a bank.

[Topazan]

Well, I've already been considering renting a safety deposit box to store a paper wallet.

As to whether I'd open a bitcoin account, there wouldn't be much reason to.  I have a fiat bank account mainly because it keeps my money from being physically stolen, lets me withdraw cash at any ATM, and handles checking and bank transfers.  Bitcoins can't be physically stolen, transfer is built in, and there's no such thing as bitcoin cash.  The only advantage a bank account would have over keeping my coins myself is that the bank would pay interest.

So, it would really depend on whether or not the bank had high enough interest rates to make it worthwhile compared to other low-risk investment options.

[jim618]

If existing banks added bitcoin to their list of services, it would be like buggy whip manufacturers adding an engine. Result:



Not too good in the rain and the traction control is diabolical.

[Steve]

If my objective was to earn a rate of return on my bitcoins, I would rather buy shares in a loan portfolio than make a deposit into a fractionally backed account.  If the loan portfolio under performs, I'd rather have my shares go down in value than to lose everything to a bank run.  And an FDIC like insurance will be impossible with bitcoin (so bank runs would be a very real possibility).

If my objective is to secure bitcoins, I would consider using a service that assisted me in securing them and carried insurance against loss…but I wouldn't give them full control over the bitcoins…I would be looking for some kind of service that made use of multi-signature (or p2sh is some other manner) to secure the bitcoins to make it only possible to move the bitcoins with my consent or in the event of my death.  I would not simply give the bitcoins to some company to secure.

[realnowhereman]

If existing banks added bitcoin to their list of services, it would be like buggy whip manufacturers adding an engine. Result:

It's fashionable for us all to hate banks; and I'm certain that in reality the banking system is an enemy of bitcoin.

That being said; what you say above isn't true.  A bank with a bit of foresight could very easily adopt Bitcoin as a currency unit.  They have no trouble with every other currency; why would bitcoin be any different?

Admittedly, if they insisted on using their existing clearing and settlement mechanisms they would not be making full use of bitcoin; but on the other hand they are already set up to sell ISAs, mortgages, deposit insurance, etc, etc.

There is far more to finance than just deposit accounts, and as soon as the momentum is there it is inevitable that existing bankers will jump in.  The advantage we get from bitcoin is that it is easy to provide necessary banking services to ourselves -- therefore the banks will have to offer more than those necessities to get our business.

In other words: it's a guaranteed win for the consumer.

[wareen]

Yes, I would trust them with some of my Bitcoins but not for any kind of savings account!

There is really no need for relinquishing control over your Bitcoin's private keys just for some third party to keep them safe and accessible. There is already a bunch of software solutions for that and they will only get more secure and user-friendly over time.  No banks needed for that.

Banks however would still give out loans and I might be willing to trust the bank to do so with some of my money, acting as an intermediary to pool risk and capital and take care of the legal paperwork. This would however be an investment where I have to be prepared to lose money.

I agree with realnowhereman: banks will jump in eventually and in the end it will be a win for the customer. Banks might have to cut back a little, selling one or two of their prestigious buildings in top locations but that's an inevitable consequence of the monetary system getting more efficient.

[beckspace]

Yes, I'd thrust it. And I think there's a need for it.

Bitcoins can't be physically stolen

Yes, they can. See Rubber-Hose. http://en.wikipedia.org/wiki/Rubber-hose_cryptanalysis

If my objective is to secure bitcoins, I would consider using a service that assisted me in securing them and carried insurance against loss…but I wouldn't give them full control over the bitcoins…I would be looking for some kind of service that made use of multi-signature (or p2sh is some other manner) to secure the bitcoins to make it only possible to move the bitcoins with my consent or in the event of my death.  I would not simply give the bitcoins to some company to secure.

This ^

[RodeoX]

I might trust them somewhat, but do I need them? What would they do for me? Storage, on-line wallet?

[Topazan]

Bitcoins can't be physically stolen

Yes, they can. See Rubber-Hose. http://en.wikipedia.org/wiki/Rubber-hose_cryptanalysis

For one thing, that only works for brain wallets.  For another, you need to note the context I said that in.  I was comparing bank accounts to bitcoin wallets.  Bank accounts help protect your cash from being stolen from your home or person; bitcoins can't be stolen the same way cash can.  The equivalent of Rubber-Hose cryptanalysis would be a mugger forcing his victim to withdraw all their money from an ATM, which can indeed happen.

My point was that a bitcoin bank wouldn't provide anymore physical security than we already have.  Maybe under the right circumstances it could somehow provide more legal security, but that's speculative at the moment.  Regular bank accounts offer a variety of services, but most of them are unnecessary for bitcoin.  A bitcoin bank account would mainly be an investment.

[beckspace]

excuse me for sharing a personal history:

I was flash-kidnapped once. I stayed on the car with 2 burglars while another went through ATM machines to pick my money. I had to give them the PIN codes of my cards. I had a old card that I didn't have the PIN and it was tough to convince the thief that I really didn't have the PIN for that old card*. I stayed with them for 2-3 hours and they released me after spending roughly U$ 500,00 in fiat and U$ 1000,00 in credit card purchases (refunded later). I can't imagine how long I would stay with them if they were able to take all my money.

That's why I'm looking for a deterrence model to protect my BTC's. A model that keep the burglars away from even trying to assault me, and keeping my BTC's in a bank maybe is one of the possible solutions.

* I don't want to trying to convince someone with a gun again that I don't have access to my money (hidden-volume or brainwallet). Maybe it won't work all the times. I'm looking for deterrence. The thieves have to know beforehand that they can't get all of a person's money.

[Topazan]

excuse me for sharing a personal history:

I was flash-kidnapped once. I stayed on the car with 2 burglars while another went through ATM machines to pick my money. I had to give them the PIN codes of my cards. I had a old card that I didn't have the PIN and it was tough to convince the thief that I really didn't have the PIN for that old card*. I stayed with them for 2-3 hours and they released me after spending roughly U$ 500,00 in fiat and U$ 1000,00 in credit card purchases (refunded later). I can't imagine how long I would stay with them if they were able to take all my money.

That's why I'm looking for a deterrence model to protect my BTC's. A model that keep the burglars away from even trying to assault me, and keeping my BTC's in a bank maybe is one of the possible solutions.

* I don't want to trying to convince someone with a gun again that I don't have access to my money (hidden-volume or brainwallet). Maybe it won't work all the times. I'm looking for deterrence. The thieves have to know beforehand that they can't get all of a person's money.

That sounds like a terrible ordeal.  Sorry you had to go through that, and I'm glad you survived.

I'm having trouble understanding your solution.  How would the thieves know beforehand whether or not they can get all my money?  Furthermore, what protection would a bank provide to bitcoin account holders that they don't provide to fiat account holders?  Why couldn't they force me to withdraw all my bitcoins, same as if it were a regular account?

[DeathAndTaxes]

I'm having trouble understanding your solution.  How would the thieves know beforehand whether or not they can get all my money?  Furthermore, what protection would a bank provide to bitcoin account holders that they don't provide to fiat account holders?  Why couldn't they force me to withdraw all my bitcoins, same as if it were a regular account?

Because banks generally have policies in place that PREVENT rapid and immediate withdrawal of all funds into cash.  Trying withdrawing 6 figures from a bank account and ask for cash.   That is why there are limits on cash advances and ATM usage.

Sure someone who has $100 it doesn't really matter but do you honestly think Warren Buffet is going to keep $22 billion (in BTC equivelent) in an android phone wallet on his nightstand? (hypothetically imagine Bitcoin is the only global currency).  The fact that thieves can easily force him to unlock his wallet makes him a target.  Having the funds OUTSIDE of his control is actual an advantage. 

If he CAN'T unlock it then he is less of a target.  If theives KNOW he can't unlock it (because every billionaire they tried to rob so far also had funds outside their control) they may not even attempt to rob him.  So maybe he has $10,000 in his personal wallet and $21.999 billion in a bank (with controls which ensure the funds can't be moved with just access to a private key.

Alternatively the bank could act as a second key with protocols in place to ensure funds are protected.

So the bank may auto sign any tx up to $1000
The bank may require voice authorization for tx up to $10,000
The bank may require in person authorization for larger tx (possibly involving bio-metrics).

[Topazan]

I'm having trouble understanding your solution.  How would the thieves know beforehand whether or not they can get all my money?  Furthermore, what protection would a bank provide to bitcoin account holders that they don't provide to fiat account holders?  Why couldn't they force me to withdraw all my bitcoins, same as if it were a regular account?

Because banks generally have policies in place that PREVENT rapid and immediate withdrawal of all funds into cash.  Trying withdrawing 6 figures from a bank account and ask for cash.   That is why there are limits on cash advances and ATM usage.

Sure someone who has $100 it doesn't really matter but do you honestly think Warren Buffet is going to keep $22 billion (in BTC equivelent) in an android phone wallet on his nightstand? (hypothetically imagine Bitcoin is the only global currency).  The fact that thieves can easily force him to unlock his wallet makes him a target.  Having the funds OUTSIDE of his control is actual an advantage. 

If he CAN'T unlock it then he is less of a target.  If theives KNOW he can't unlock it (because every billionaire they tried to rob so far also had funds outside their control) they may not even attempt to rob him.  So maybe he has $10,000 in his personal wallet and $21.999 billion in a bank (with controls which ensure the funds can't be moved with just access to a private key.

Alternatively the bank could act as a second key with protocols in place to ensure funds are protected.

So the bank may auto sign any tx up to $1000
The bank may require voice authorization for tx up to $10,000
The bank may require in person authorization for larger tx (possibly involving bio-metrics).

Ok, thanks.  I understand it a little better now.  Those are some good points.

One thing that comes to mind is that as I understand it you can keep bitcoins out of your control by using a flash drive and/or paper wallet and keeping it somewhere safe, eg a bank safety deposit box.  A bank account might be more convenient though.

I can definitely see the value in requiring additional authorization before allowing large amounts of money to be moved out of the account.  That would limit the damage potential of keyloggers and such as well.

Ok, you guys have successfully convinced me.  A bitcoin bank could provide some good security measures.

[evoorhees]

Long term, I've always thought the average human will store his Bitcoins not on his computer but instead with a trusted ebank/ewallet. Securing coins requires technical know-how and resources, and thus it is more efficient to aggregate those costs into a specialist ebank.

The trick is that an established, trustworthy brand needs to take up the call and create such an ebank. If this bank insures itself, and perhaps pays interest on deposits, then it seems quite reasonable for people to hold coins there. Perhaps these ebanks will be Bank of America and Chase, or perhaps they'll be new brands, or both, but in any case capital tends to accumulate in pools (for good reason) and thus long term Bitcoin is probably no exception.

What IS an exception, however, is that we all have the option to hold the coins ourselves if we so choose. This puts immense competitive pressure on banks who wish to hold our funds for us, and returns the power of one's money to oneself. A formal bank account then becomes a convenient option or luxury, instead of a necessity.

[BradZimdack]

I was flash-kidnapped once. I stayed on the car with 2 burglars while another went through ATM machines to pick my money.

In Central America, that's called the Millionaire's Vacation.  If it's any consolation, that actually happens a lot (enough that there's a blithe term for it).

[DeathAndTaxes]

Long term, I've always thought the average human will store his Bitcoins not on his computer but instead with a trusted ebank/ewallet. Securing coins requires technical know-how and resources, and thus it is more efficient to aggregate those costs into a specialist ebank.

The trick is that an established, trustworthy brand needs to take up the call and create such an ebank. If this bank insures itself, and perhaps pays interest on deposits, then it seems quite reasonable for people to hold coins there. Perhaps these ebanks will be Bank of America and Chase, or perhaps they'll be new brands, or both, but in any case capital tends to accumulate in pools (for good reason) and thus long term Bitcoin is probably no exception.

What IS an exception, however, is that we all have the option to hold the coins ourselves if we so choose. This puts immense competitive pressure on banks who wish to hold our funds for us, and returns the power of one's money to oneself. A formal bank account then becomes a convenient option or luxury, instead of a necessity.

+1 on everything.  The bolded part (my emphasis) is the most powerful thing about Bitcoin.  No grandma is going to learn how mining works, and confirmations, and various strengths of ciphers and 50% brute force solution time against encrypted wallet.  Bitcoin is a "platform" that will (hopefully) give rise to a whole host of higher level solutions. Some may (at least initially) be very similar to existing banks and some will be completely new.  I would imagine if Bitcoin continues to expand in 20 years very few users will be running a "satoshi style" wallet and connecting directly to the blockchain.

[evoorhees]

I would imagine if Bitcoin continues to expand in 20 years very few users will be running a "satoshi style" wallet and connecting directly to the blockchain.

Agreed!  Though hopefully there will be more net users running the client than today, but it will be a small fraction of overall userbase. Personally, I'll always run the client forever on every computer I own.