
Coinbase Insured - markmassie
http://blog.coinbase.com/post/95927658922/coinbase-insured
======
dsil
Unless I'm misunderstanding, they're really saying they're now insured for ~3%
of the BTC they hold. For security, they've always said they only store about
that much online, the rest is offline cold storage, but this post says:

"Coinbase is now insured against theft and hacking in an amount that exceeds
the average value of bitcoin it holds in online storage at any given time."

So you're still at the mercy of their offline storage security. Not saying
there is a better option for most people, but this wouldn't protect you
against a Gox-like breach.

~~~
NotAtWork
> The insurance covers losses due to breaches in physical or cyber security,
> accidental loss, and employee theft.

I'm not convinced that this even protects the online wallet against Mt Gox
style corporate malfeasance, where much of the damage was done as an
intentional corporate decision by the leadership. (I'm conjecturing that's
what happened at Mt Gox; regardless, this seems not to cover against them
trying something intentionally with their coins related to trading, and then
losing them all.)

Additionally, as you pointed out, this only covers a very small portion of
their holdings - a percentage smaller than the number of Mt Gox coins that
were "recovered" (about 25%).

Finally, Coinbase being insured against the value of the bitcoin loss doesn't
translate in to you being covered, as Coinbase may accrue other debts they
have to pay off before your holding in the event of a hack large enough to
cause a serious business disturbance, such as paying off creditors with higher
standing.

~~~
nostromo
That's key: Coinbase is insured.

With FDIC, the depositor is insured, not the bank. This is the bank being
insured, not the depositor.

~~~
ewoodrich
And in the case of FDIC, evidence of gross malfeasance on the part of the bank
would likely result in a seizure of the bank and its assets. The FDIC then
becomes the "receiver"[1], entrusted with ensuring as many of remaining funds
can be returned, and any covered and outstanding amount paid by the insurance.

[1]
[https://www.fdic.gov/about/strategic/strategic/receivership....](https://www.fdic.gov/about/strategic/strategic/receivership.html)

------
drcode
For people not experienced with bitcoin: For some types of bitcoin wallets the
user retains their own private key, whereas with other wallets they have to
trust a 3rd party (like coinbase) with their keys. This second type isn't
really a wallet any more, per se... it's more like a bank that you are
trusting with your money.

Of course, bitcoin startups really want to use the second model, where THEY
control the money, which gives them many more avenues for profit: As any
salesman knows, the closer you are to the money in a business, the more money
you're likely to make yourself.

This means bitcoin companies are bending over backwards to say "look how safe
your money is!" However, be aware if you ever buy bitcoins, it is much better
to store your own bitcoins or use a wallet that allows you to manage your own
private keys, or use a (now trendy) multisig wallet where the wallet company
can't move money without your permission.

If a bitcoin bank says "We insure our bitcoins" your best response is "No
thanks, I'd rather not have to trust you with my money in the first place."
The whole raison d'être of bitcoin is that such trust isn't necessary.

~~~
aaron-lebo
For the vast, vast majority of people, they will be much better off letting
someone else handle their wallet.

Even for those of us who are computer savvy, the lengths you have to go to in
order to make sure that your wallet is completely secure and redundant isn't
easy. I feel a lot more secure with the bank holding my money.

This is why the whole notion of Bitcoin's success is paradoxical. To really
succeed it probably has to be pushed by these third-parties, which is an
advantage over our current banking system because the core protocol will still
be neutral, but only to an extent: third parties will almost certainly build
features that lock people in on top of it. This is a far cry from the vision
some proponents have of a completely decentralized system.

~~~
Cyther606
This is nothing against Coinbase or other centralized wallet services for that
matter, but Coinbase is practically being forced to ask their users for a
blood sample during user verification these days.

This level of user verification, necessitated by KYC, AML policies and so on,
is extremely burdensome for end users.

In fact, I've heard Coinbase is now requiring their users to declare exactly
_where_ bitcoins are to be sent when a withdrawal request is made.
Furthermore, Coinbase is having to shut down customer accounts that are known
to be associated with online gambling.

Native wallets don't come with these "features". That's the benefit of being
in control of your own money.

~~~
aaron-lebo
You are right, but if Bitcoin ever goes mainstream that kind of regulation
that impacts both services and users is going to happen. It never was going to
overthrow the flank the financial system like some people hoped.

If Bitcoin ends up relegated to native wallets it probably will look like TOR
- something that tech savvy people can use for certain activities, but not
something that really caught on in widespread use.

Being able to be in control of your own money is great, if you can do it, but
I tend to think most people don't want or can't handle that level of
responsibility. Kind of at the heart of Bitcoin is a very libertarian
philosophy on life and government. Our political system shows us that the vast
majority of people aren't looking for that, and by extension, it probably
applies to financial matters as well.

------
thinkcomp
Regardless of whatever private insurance it has, Coinbase does not have a
money transmission license in California or a surety bond as required by
federal and state law.

They know they need one; they have applied in other states, such as Florida.
See
[https://archive.org/download/coinbasefloridamtl/20140415.coi...](https://archive.org/download/coinbasefloridamtl/20140415.coinbaseflorida.pdf).

Interestingly, Coinbase appears to offer false information to the State of
Florida in item 6(A)(2) of its application, which has since been withdrawn.
Coinbase did receive a subpoena in the NY DFS's investigation of various
Bitcoin companies in August, 2013. See
[http://www.reuters.com/article/2013/08/12/us-
digitalcurrency...](http://www.reuters.com/article/2013/08/12/us-
digitalcurrency-subpoena-bitcoin-idUSBRE97B03720130812).

~~~
aidenn0
I don't know how anyone who reads your experience with facecash could come to
any conclusion other than the only way to innovate in payments is to brazenly
break the law and never even try to deal with the California DFI.

~~~
thinkcomp
One difference between my experience with regulators and Coinbase's is about
$31.7 million in venture capital funding. Compliance is expensive, but they
can afford it.

~~~
wmf
I'm reminded of the old saying that rich people didn't get rich by being loose
with their money.

~~~
polarix
I would hardly consider negotiating with authorities "being loose with their
money"...

~~~
wmf
Then you just don't have enough "hustle" for this business.

------
NotAtWork
The bitcoin insurance policy I want from an exchange is where they insure me
against loss due to actions taken by the exchange and underwritten by a major
underwriter, and not the exchange itself. Only then would I really believe
that the exchange meant to protect my bitcoins fully, because they've
essentially put themselves on the hook for the damages (by having to bear the
cost of the insurance policy, recouped by some kind of holding fee or
transaction fee).

The exchange having insurance does relatively little to protect me against
loss, even if it's a smart business move on their part to limit their losses
to creditors in the event of a theft of inventory. That's only sane business,
and it's a little crazy how long it took that to become normal in bitcoin.

It seems (naively) reasonable that the exchange could float something like
10k-20k policies of some mixture of 0.1btc, 0.5btc, and 1btc protection,
depending on the level of activity in an account, and require that anyone
holding more bitcoin than that in their trading account take out a separate
policy for that amount or else acknowledge that they're only protected up to
1btc. (An additional corporate policy against theft of inventory seems
reasonable, and likely would lower the rate on these separate policies, since
the underwriter would know you could cover some degree of loss already,
through that policy.)

Edit:

Thinking about the numbers, it would only be ~$20 million of coverage to cover
50,000 customers (40,000 at 0.5btc and 10,000 at 1btc). This seems reasonable.

------
polarix
How are premiums calculated for this kind of insurance? Are there software
insurance tiers based on code & systems inspections?

------
jordanbrown
Off topic, but why does it still take 4 days to buy bitcoins from the site?

~~~
drcode
Same reason as always: The existing payment system used in the world has a
weird system of "chargebacks" which mean that it's hard to know that any
transaction is ever "final" and can be considered completed. This flaw in the
traditional payment infrastructure makes it hard for coinbase to hand you over
your coins even if they received a perfectly valid bank wire or credit card
payment.

~~~
ewoodrich
Whether it's a "flaw" is in the eye of the beholder.

I have confidence buying from questionable online merchants using a credit
card because I know I have a recourse if they are deceptive. I would say it's
more of an issue of incompatibility between the systems rather than a real
"flaw" in either.

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tszming
>> Our users, of course, won’t be charged for this insurance.

So, where the money came from?

~~~
prolixus
Insurance is a cost of doing business. Coinbase generates their revenue from
fees on the purchase and sale bitcoin, and from fees on merchant services.
That's where the money comes from.

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easyfree37
"Our users, of course, won’t be charged for this insurance." Of course. For
now.

