Big jump in Bitcoin...

Brendan Burgess said:
But Bitcoin owners have lost out a few times due to exchanges going bust or being defrauded. So there is a significant difference.
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It's an issue - no doubt. With the likes of Fidelity now doing custody, the hope would be that this can be improved on.

Brendan Burgess said:
Bitcoin hates regulation - but bank customers benefit from it when things go wrong.
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Bitcoin hates regulation when it remains decentralised. i.e. if you or I are moving it about - and take responsibility for custody, then any loss is through our own incompetence.
Decentralised exchanges - as they emerge - will also assist here.
 
tecate said:
With the likes of Fidelity now doing custody, the hope would be that this can be improved on.
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Fidelity will only provide custody services to the institutional players and will be charging for that service, so while likely very secure once there, you'll still face risk with multiple steps required to pass your holdings through the exchanges to to one of the participating institutions, who will in turn transfer to Fidelity. You will have to reverse those steps then if you want to spend your holdings.
 
Leo said:
Fidelity will only provide custody services to the institutional players and will be charging for that service, so while likely very secure once there, you'll still face risk with multiple steps required to pass your holdings through the exchanges to to one of the participating institutions, who will in turn transfer to Fidelity. You will have to reverse those steps then if you want to spend your holdings.
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Yup, I used Fidelity as an example. There are more established guys coming into the market who will do custody at a retail level also.
 
The point remains the same, there is no issue with the security of bitcoin, it is security issues with the exchanges. The point about bank customers not losing money is because there is an expectation that banks will cover losses.

Fraudsters exist in every aspect of business.
 
Yeah, these thefts aren't attacking a weakness in bitcoin itself, but the mechanisms for moving and storing them. These mechanisms are far less secure than the FIAT equivalents such as the SWIFT network. The procedures in place to detect and prevent fraud, but more importantly reverse such transactions are far more advanced in SWIFT. One key challenge with cryptos is that by design, they do not allow for the reversal of transactions, even where it is known such transactions are fraudulent. The ability to respond through legal means is also severely limited.
 
Leo said:
Yeah, these thefts aren't attacking a weakness in bitcoin itself, but the mechanisms for moving and storing them....
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Are the mechanisms not a feature rather than a flaw of Bitcoin. They are built into the fundamental design.

Relying on a third party to "hold" your Bitcoin is a compromise in itself - really the only secure way is to hold your own wallet. But that can have it's own risks.
 
EmmDee said:
Are the mechanisms not a feature rather than a flaw of Bitcoin. They are built into the fundamental design.
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In essence, a little bit of both. So yes, while they are a design feature, the drivers behind those features were to prevent tampering with the blockchain. In the majority of cases, that is a very good thing indeed, however, in the case of fraudulent transactions, if you're the one losing out, it's quite a bad thing. If you were aiming to transform the world of financial transactions, I don't think making it difficult to impossible to deal with fraud would be high up the must-have feature list.

EmmDee said:
Relying on a third party to "hold" your Bitcoin is a compromise in itself - really the only secure way is to hold your own wallet. But that can have it's own risks.
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Yes, of course the only way to really secure it is to hold it in an offline wallet and never expose that to an internet connection. But of course then you can never spend them! Accidentally dispose of, damage the wallet or lose the keys, they're likely gone forever. There are some moves towards creating key-recovery mechanisms, but those aren't without their own significant flaws. Remember, a few nation states are pushing for key recovery mechanisms for surveillance purposes, and crypto advocates tend to push in the opposite direction.
 
Duke of Marmalade said:
So you do see crypto achieving zero price in line with its value.
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Keep dreaming your Dukeness. Crypto is here to stay - it isn't going anywhere.
Leo said:
however, in the case of fraudulent transactions, if you're the one losing out, it's quite a bad thing. If you were aiming to transform the world of financial transactions, I don't think making it difficult to impossible to deal with fraud would be high up the must-have feature list.
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In no way is it a good thing for a decentralised crypto to move away from being immutable. If that is facilitated, then we can forget the whole idea (when it comes to a crypto like Bitcoin at least). People can custody their own crypto. It will take a completely different mindset as we've become conditioned to having wealth stored for us. Funds can be split between cold storage and hot wallets.

Where people see a need for custody, I expect security to become increasingly sophisticated and improved. Other than that, if you're talking about centralised exchanges, then they should be regulated like any other centralised entity. There's also no reason why consumer guarantees can't be built in (in the same way as bank guarantees). That's just for those that want someone else to custody their funds. People have the option to go either way.

Be aware also that in the U.S. alone, merchants are losing $190 billion in credit card fraud. Having 90% of the info needed to steal funds written on a credit card is far from a secure system.

Leo said:
Remember, a few nation states are pushing for key recovery mechanisms for surveillance purposes, and crypto advocates tend to push in the opposite direction.
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I bet they are...and there's no damn way they should get that in there. There will be much more pushback to come from governments on crypto over the next few years. Last week in the U.S. a democratic congressman sought to introduce a bill to ban cryptocurrency. His rationale is that it will undermine the U.S. dollar as the reserve currency. He's not wrong there but that genie is out of the bottle. They can stifle its development and slow it down but they won't be stopping it.
 
tecate said:
In no way is it a good thing for a decentralised crypto to move away from being immutable.
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Agreed, that would defeat a key purpose of Bitcoin. But to achieve that you need to accept that such a feature almost completely limits the ability to detect and respond to fraud.

tecate said:
Other than that, if you're talking about centralised exchanges, then they should be regulated like any other centralised entity. There's also no reason why consumer guarantees can't be built in (in the same way as bank guarantees). That's just for those that want someone else to custody their funds. People have the option to go either way.
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The challenge I see there is that to facilitate such guarantee schemes and regulatory oversight would mean giving governments agencies some degree of control where many crypto advocates very much want to keep them out of the picture completely.

tecate said:
Be aware also that in the U.S. alone, merchants are losing $190 billion in credit card fraud. Having 90% of the info needed to steal funds written on a credit card is far from a secure system.
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I don't think we should conflate fraud at POS with that within inter-agency systems like SWIFT I mentioned above. But at the consumer point, low level / small volume (less and 0.1%) fraud is an accepted price to be paid for the credit card model, ease of use, scale in the order of 10s of thousands that of Bitcoin, instant, almost universally accepted, low cost transactions, purchase insurance, etc. Even then, the protections offered by the providers mean the consumer very rarely loses out in any of these cases, even where they have been careless themselves. In many cases fraudulent transactions are reversed before the fraudsters can take money out of the system.
 
Leo said:
Agreed, that would defeat a key purpose of Bitcoin. But to achieve that you need to accept that such a feature almost completely limits the ability to detect and respond to fraud.
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For sure. It's a case of prevention being paramount rather than cure. If anyone gets their mits on crypto, more than likely they will have the where with all to spirit it away after that.

Leo said:
The challenge I see there is that to facilitate such guarantee schemes and regulatory oversight would mean giving governments agencies some degree of control where many crypto advocates very much want to keep them out of the picture completely.
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It depends what you mean by control. When it comes to centralised exchanges, that to me is little different than the conventional world of banks, etc. In that instance, I'm quite happy that they should be regulated to the same extent. I guess that could take many forms. Auditing and reporting to ensure that they have a certain standard of system in place to counter hacking and the same when it comes to liquidity, etc. If you mean control over the crypto's themselves, that can't happen. If it does, crypto is compromised and we might as well call it a day. Just like the point about immutability, key to decentralised crypto is the fact that governments can't tamper with it.

That said, there will be central bank digital currencies (CBDC's) in play pretty soon which will be centralised crypto's. They can play around with these to their hearts content but they're a completely different beast to decentralised crypto's.

Leo said:
I don't think we should conflate fraud at POS with that within inter-agency systems like SWIFT I mentioned above. But at the consumer point, low level / small volume (less and 0.1%) fraud is an accepted price to be paid for the credit card model, ease of use, scale in the order of 10s of thousands that of Bitcoin, instant, almost universally accepted, low cost transactions, purchase insurance, etc. Even then, the protections offered by the providers mean the consumer very rarely loses out in any of these cases, even where they have been careless themselves. In many cases fraudulent transactions are reversed before the fraudsters can take money out of the system.
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There's no doubt that there's a variance in how exchanges custody crypto. Some more responsibly than others. There's also no doubt that due to the nature of crypto, the results can be pretty severe. As an industry, they're going to have to work together to ensure a certain standard. The space is largely unregulated. There's been careless practice - although we're already seeing massive improvements over the space of 18 months in terms of the professionalism of the top exchanges.
Accepting all that to be the case, I just wanted to remind people that fraud does happen in systems we are all completely familiar with - in this example, credit card fraud. As a percentage of overall volume, credit card fraud runs at 0.07% - so it's not an insignificant amount.
 
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tecate said:
It depends what you mean by control. When it comes to centralised exchanges, that to me is little different than the conventional world of banks, etc. In that instance, I'm quite happy that they should be regulated to the same extent.
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And that's where I believe the challenge lays. In order to employ similar regulation, then governments are going to have to introduce legislation on what you can and cannot do with crypto, how transactions are managed and overseen. The level of governance and oversight required goes against what many crypto advocates really want.

tecate said:
Accepting all that to be the case, I just wanted to remind people that fraud does happen in systems we are all completely familiar with - in this example, credit card fraud. As a percentage of overall volume, credit card fraud runs at 7% - so it's not an insignificant amount.
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Where are you getting 7%? Industry monitors such as the Nilson Report have documented losses of 7 basis points in the past, but that's 0.07%. The 2018 report pointed to 0.01% losses in the US market. 7% would be more than $420B in the US market alone where the number is around $6.5B.

Edit: EmmDee, thinking the same here :)
 
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Leo said:
Where are you getting 7%? Industry monitors such as the Nilson Report have documented losses of 7 basis points in the past, but that's 0.007%. The 2018 report pointed to 0.01% losses in the US market. 7% would be more than $420B in the US market alone where the number is around $6.5M.

Edit: EmmDee, thinking the same here :)
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Leo not sure you have your decimal points in the right place here. I think 7 bps is .07% as per EmmDee. Credit Card fraud in UK in 2007 (Wiki) was £535m so I presume in US it is in the $billions.
 
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EmmDee said:
I think that's 7bp i.e. 0.07%
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Yup, you're quite right. Have edited my post to reflect that :)

Leo said:
And that's where I believe the challenge lays. In order to employ similar regulation, then governments are going to have to introduce legislation on what you can and cannot do with crypto, how transactions are managed and overseen. The level of governance and oversight required goes against what many crypto advocates really want.
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Do you mean what exchanges can and can't do with crypto? ...in terms of their systems? I've no problem with that. That would be between the exchanges and the relevant authorities. However, any demands to change a cryptocurrency itself - that would never end well - and defeats the purpose of going down this road ten years ago.
 
Duke of Marmalade said:
Leo not sure you have your decimal points in the right place here. I think 7 bps is .07% as per EmmDee. Credit Card fraud in UK in 2007 (Wiki) was £535m so I presume in US it is in the $billions.
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one of those days!! I can't highlight an error without making two of my own! :( Corrected...
 
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tecate said:
Do you mean what exchanges can and can't do with crypto? ...in terms of their systems? I've no problem with that. That would be between the exchanges and the relevant authorities. However, any demands to change a cryptocurrency itself - that would never end well - and defeats the purpose of going down this road ten years ago.
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Maybe I'm just cynical, but I think once governments start meddling with regulation in this area, they'll immediately go beyond just ensuring exchanges have appropriate security measures in place to protect against hacking or compromise of the exchange itself and like FIAT impose rules around who can transact with who, etc. that will go against the crypto ethos.
 
Leo said:
Maybe I'm just cynical, but I think once governments start meddling with regulation in this area, they'll immediately go beyond just ensuring exchanges have appropriate security measures in place to protect against hacking or compromise of the exchange itself and like FIAT impose rules around who can transact with who, etc. that will go against the crypto ethos.
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I have no issue (to a large extent) with regulation of centralised points such as exchanges. However, I'm not sure how they would stop transactions. They can force exchanges to lock up peoples funds - but I certainly won't be part of that nonsense. I had a bank account closed without notice last year - and they wouldn't even give me a reason why. I'm pretty sure of the reason (because I had the audacity to transfer in funds that came from a crypto exchange) - but wanted them to spell it out. Not a word from them - and it caused me no end of problems. If this is the banking model we have going on, I certainly want things in a way that they can't pull This post will be deleted if not edited to remove bad language with my own money.

It's that that people are trying to move away from and get back their financial sovereignty. If they take a hard line, then people will just use exchanges for the number of minutes they need to exchange and spirit funds away into a digital wallet.
 
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