
Coinbase Wants to Be Too Big to Fail - chuhnk
http://fortune.com/longform/coinbase-bitcoin-brian-armstrong/
======
komali2
>Armstrong belongs to a generation of evangelists who view digital currencies,
and the blockchain technology on which they’re based, as tools that will make
investing, borrowing, and saving money faster, cheaper, and more egalitarian.

My main question about cryptocurrencies has always been the "faster, cheaper"
thing. Last I heard it was pretty expensive to do a bitcoin transaction, and
slow. The quote thrown around:

>The networks that Visa and Mastercard use process, in aggregate, “more than
5,000 transactions per second with capacity to process volumes multiple times
that number. Bitcoin in contrast takes 10 minutes to clear and settle a single
transaction vs. Ethereum that takes 15 seconds.”

[https://www.marketwatch.com/story/why-bitcoin-wont-
displace-...](https://www.marketwatch.com/story/why-bitcoin-wont-displace-
visa-or-mastercard-soon-2017-12-15)

I wonder what someone as heavily invested as Armstrong would say to that?

~~~
sparkie
The problem with the comparison to Visa and Mastercard, is that settlement is
never really final with those services. A transaction can be reversed even 6
months down the line, as anyone who runs a business probably knows. The cost
of fraud-protection offered by these companies is the reason Bitcoin was
proposed as a cheaper alternative. By making transactions final, the cost of
fraud protection is put on the participants between each transaction, and not
on every network user as a whole.

Bitcoin can be expensive to transact small volumes when the network is busy.
This is due to a limitation in the amount of transaction data that can fit
into a block, and blocks are limited to 10 minutes on average. A transaction
fee however, is not measured as a percentage of the value being transferred,
but is measured in the bytes occupied in a block. Since the transaction amount
is just a 64-bit value, the transaction fees are the same whether you're
transferring $1 or $1M. In the latter case, it will be far cheaper than
existing payment processors and banking settlement systems.

This is why Bitcoin has emerged to become a settlement layer for larger value
transactions, because block space is valuable (it costs money to replicate and
store over hundreds of thousands of machines). People looking for a cheap
payment processor for smaller value transactions are looking at solutions
other than Bitcoin.

The trade-off is that to scale their own blockchains, they deprioritize
decentralization (fundamental to Bitcoin), or they print own currency
(undermining the idea of finite supply). Since anyone can do this, it becomes
difficult to tell which are scams. As more and more blockchains exist, the
value accrued in each blockchain will become less and less as it gets shared
between them. The logical conclusion is that the value of tokens in this
myriad of chains will converge to nothing.

On the other hand, if you could make a payment processor which does not
undermine Bitcoin's decentralization or limited supply, then perhaps this
would enable small, cheap transactions at a global scale. This is what the
Lightning Network, among other solutions, are aiming to provide.

~~~
landryraccoon
> A transaction can be reversed even 6 months down the line, as anyone who
> runs a business probably knows.

This is a feature, not a bug. I'd want to see evidence that the total cost of
fraud in crypto is less per user than the cost of fraud in traditional credit.
I would guess that the cost of fraud in traditional credit is actually far
lower because reversibility reduces the incentive to commit fraud. It's very
difficult to steal money from someone's account because they can dispute the
charge and get it back.

Compare that to the case where your crypto account is hacked. There is zero
recourse, the thief generally gets away with it scott free, so the incentives
to commit fraud are huge.

~~~
sparkie
It might be a feature if you're a consumer worried about having your card
stolen.

If you're a business, it's a bug. Ideally, you would prefer to not even accept
credit card payments and only accept cleared funds, but since you'll
potentially lose out on business by not accepting credit card payments, you
have to take the risk sometimes.

Reversibility does not reduce the incentive to commit fraud, it just enables
it. People can use stolen credit cards to purchase real goods, and the seller
usually ends up footing all of the cost.

Bitcoin puts business first. You don't need to depend on Visa doing their
(useless) fraud investigations anymore. You take payment, and you decide
whether or not to return it. Anyone who isn't willing to provide the money up
front can pay the additional escrow fee.

~~~
dan1234
As a consumer, why would I choose Bitcoin when it gives me less protection
than Visa/MC?

~~~
sparkie
Because it allows you to save money without it losing value in the long term.
That is, bad government policy cannot reduce the value of your Bitcoin by
printing more of it.

~~~
MereInterest
Again, that is a feature, not a bug. Inflationary currency means that you need
to invest money, not just sit on it. Deflationary currency means that an
investment must provide returns more than what would be gained by just sitting
on it.

~~~
corv
Ergo inflation tends to cause malinvestment as savers want to protect as much
value as possible, whereas deflation is more likely to incentivize productive
investments.

After all if deflationary currency is worth more tomorrow, one wants to make
sure an investment in the future is sustainable.

Notably one is especially interested to invest in a deflationary economy
because the gains are multiplicative.

~~~
badge
Bitcoin has a higher inflation rate than USD.

    
    
      Bitcoin inflation rate per annum: 3.87% 
      USD Current inflation rate for the United States is 2.7%.
    

Early in Bitcoin history, by design Bitcoin went though a period of
hyperinflation where Satoshi and a few users acquired most of the coins in
circulation.

Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in
circulation.

~~~
erfgh
Inflation is not calculated the way you think it is calculated.

~~~
badge
Point being the Bitcoin supply is increasing at a rate higher than fiat.

What is that called? It's not deflation.

------
drawkbox
Armstrong said the Bitcoin paper came out in 2010, it actually came out in
November 2008 and the first implementation of it was in January 2009 [1][2].

Bitcoin and cryptocurrencies correlated with the Great Recession so that added
fuel to the desire to have a safe currency if a national fiat failed suddenly.

> _The domain name "bitcoin.org" was registered on 18 August 2008. In November
> 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-
> to-Peer Electronic Cash System was posted to a cryptography mailing list.
> Nakamoto implemented the bitcoin software as open source code and released
> it in January 2009. The identity of Nakamoto remains unknown._

> _In January 2009, the bitcoin network was created when Nakamoto mined the
> first block of the chain, known as the genesis block. Embedded in the
> coinbase of this block was the following text:_

> > _The Times 03 /Jan/2009 Chancellor on brink of second bailout for banks._

[1]
[https://web.archive.org/web/20140320135003/https://bitcoin.o...](https://web.archive.org/web/20140320135003/https://bitcoin.org/bitcoin.pdf)

[2]
[https://en.wikipedia.org/wiki/Bitcoin](https://en.wikipedia.org/wiki/Bitcoin)

~~~
beaner
FTA:

> While surfing the web at his parents’ house on Christmas of 2009, he
> encountered a nine-page paper written by a pseudonymous author named Satoshi
> Nakamoto.

~~~
drawkbox
Yeah the article has it correct. In the video on the article he opens with
talking about the paper and said it came out in 2010. Maybe he first saw it
then.

Part of Bitcoin/crypto success was due to the sketchiness of the Great
Recession (Sept 15, 2008 the markets fell off a cliff and the paper came out
two months later in November 2008) and fears of being tied to into a fiat
nationalized currency.

I don't know if bitcoin/blockchain would have been as big a hit without
coupling with the Great Recession, that at least gave bitcoin massive fuel.
The Great Recession was 'good for bitcoin' as they say.

~~~
canoebuilder
_coupling with the Great Recession, that at least gave bitcoin massive fuel_

Whatever fuel that contributed, it probably pales in comparison to the fuel
contributed by Mark Karpeles' market manipulation at MtGox.

That's what really caught people's attention, and after that was when large
scale VC money started to flow in, because the market manipulation and
subsequent price spikes gave the impression that this was a growth market
worthy of deploying capital into.

After the collapse of MtGox, and what was going on behind the scenes became
apparent, you had lots of people with money invested under the false pretence
of great interest and demand for this new thing.

So they had to decide were they going to take the loss, or pickup the torch
from MtGox, and thus we got _blockchain fever_.

Whatever utility there is in blockchain crypto-currencies, the game to this
point has been _" Hey I'm gonna buy some of this stuff, then convince other
people to do the same, because it is magic internet money! (please don't be
too specific in your questions, or ask me to think if what I propose is
actually workable)"_

------
paulpauper
I have read nothing but bad things about coinbase: non-existent customer
service, poor security against hackers (esp. sms/phone hackers), no
reimbursement for hack victims, withholding of funds for arbitrary and
unfounded reasons, etc.

All exchanges have problems, but coverage of coinbase is so negative

~~~
mythrwy
My main complain with coinbase is long holds (like 2 weeks) on cryptocurrency
after they have taken the money from a bank account. That just seems shady.
Although to be fair they do credit the account with the coin at time of
purchase so it goes up and down with market. You just can't move it out.

Really like Square Cash App for purchasing BTC. Have it nearly instantly, easy
to move.

~~~
mastermojo
The only reason this exists is to prevent people with stolen bank credentials
from purchasing a bunch of bitcoins and then running off with them.

------
lf275
I'm currently looking for a lawyer to pursue a lawsuit against Coinbase. It's
been over a year, and I still haven't received my bitcoin cash, which was
previously in a multi-signature account at the time of the split. I had tried
to retrieve my bitcoin before the split, but it took several months because of
a delay on Coinbase's part. Coinbase has failed to act despite sending
multiple messages over the past year, and they have recently become completely
unresponsive.

If anybody is interested in joining the lawsuit, please message me to see if
we could join efforts.

~~~
dabockster
Did you remember to file the SAR paperwork? It's required by US law if you're
trying to withdraw more than $3K within 30 days.

~~~
lf275
Sorry, I'm not familiar with this paperwork. Could you point me in the right
direction?

Its been over a year since I first asked for my BCH (in fact, I asked to
receive my bitcoin from the multi-signature account months before that, but it
was delayed due to technical issues with Coinbase's system at the time).
Coinbase's agents initially told me that the engineers would eventually work
on the issue, and I took them at their word.

However, I've waited for more than a year (far beyond a reasonable timeline),
and they have gone radio silent since my message to them over 2 months ago.

I've only recently started looking into taking steps to find a lawyer and
actually bring Coinbase to court.

Edit: I will probably file a CFTC complaint in the coming days. Not sure how
helpful it will be though.

~~~
projohnson
There is a long list of people who have been scammed by coinbase and the many
other exchanges. I had about 12 btc in a bittrex (another "safe" us based
exchange) account that I signed up for with a pseudonym. Then one day around
the time btc was at $19k they decided to lock my account until I give them a
selfie showing my passport and other scans of id. They know this is impossible
and will not let me change my basic details (citing some sentence in their ToS
and how they are trying to protect me). I went the lawyer route but it turns
out there is nothing you can do legally if wording in the ToS says any
deposits belong to them, they are not responsible for anything, can't be sued
etc. Also no one really cares about bitcoin or other cryptocurrencies in the
legal sense. So good luck trying to get your bch. This turns out to be a
double edge sword because since then I have made use of some of the
exploitable bugs in several cryptocurrency wallets held on exchanges and have
transferred back the amount I lost plus much more. Didn't even bother to use a
proxy or anything because I know there is nothing that anyone can do about it,
go ahead and send the internet police to my house maybe that way I can finally
get in contact with them to investigate the btc that was stolen from me.

------
AndrewKemendo
Realistically, if any alternative currency starts giving a sovereign currency
any real competition inside a sovereign controlled market, it will get shut
down more or less immediately.

If X% of Americans or [insert nation] are doing their transactions with
bitcoin and the Treasury is losing a measurable percentage of income stream
it's game over. Best case, it gets nationalized and [new currency] will be
mandated to be pegged to the sovereign currency and taxed appropriately.

The existential political aspect is what these folks seem to not understand.

~~~
nradov
Bitcoin is a _commodity_ , not a currency. Bartering commodities is already a
taxable event and the IRS handles that just fine. There's nothing really new
here.

~~~
AndrewKemendo
While it's true that Federal courts have ruled that cryptocurrencies are
commodities, I'm addressing what the coinbase founder and team are stating as
their desired goal.

If you read the foundational paper from Satoshi, stateless decentralized
currency was always the end goal. Philosophical proponents, like the coinbase
founder, continue to state that it's still the goal which is what I'm
addressing.

~~~
nradov
The goals of the Coinbase founder and Satoshi are entirely irrelevant. Power
comes from the barrel of a gun.

~~~
rataata_jr
Called the government.

~~~
dang
Could you please stop posting unsubstantive comments to Hacker News? We ban
accounts that mostly do that.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

------
chris_wot
That's funny, I want Coinbase to fail to be too big. Subtle difference.

------
whoisjuan
There's nothing too big to fail. Especially something tethered to a space that
is so volatile and unpredictable. Remember WorldCom?

~~~
undersuit
Then that was not too big to fail.

~~~
seba_dos1
Big things usually are too big to fail until they fail.

~~~
undersuit
Then that big thing was not too big to fail.

~~~
seba_dos1
Nothing is, but you learn that only when it finally fails ;)

------
ohiovr
You can send money with no fees with zelle instantly and fdic insurance is
free. The dollar is going to outlive bitcoin as you have to pay utilities with
the dollar and without utilities bitcoin is useless! Bitcoin has become the
ultimate heist, just own the exchange and disappear! And con the public to
make customers whole? Sorry charlie dodd frank forbids that happening with
actual legitimate financial institutions. They will bail in instead! So
nothing at all changes! The bank robs you just like bitcoin exchanges do all
the time!

So then which would you rather have in a depression? The kind no one ever
thinks will show up on their watch?

------
kyleblarson
TBTF == too big to exist

~~~
MrMorden
But until the government starts breaking them up, "too big to fail" will be
the goal of every large financial firm.

------
teekert
Don't we all! We all want to grow for the love of capitalism! But when we
fail, we want socialism! Save me with public money!

I don't want to pay insurance! But I want to be saved when I have cancer!

Screw the social safety net, we are millionaires! Oh, the market crashes...
Can I get some of that tax-payers money please!

------
m-i-l
_" Right now, Coinbase's most promising project, say Johnson and others,
involves a new class of investments known as security tokens"_

I used to think security tokens were going to be one of the useful things to
come out of the crypto asset space, for the reasons in the article, e.g. it
does make a lot of sense being able to automate ownership and transactions and
so on so easily. But now I'm not sure - it puts the success of your
company/asset entirely in the hands of your chosen platform (which might crash
and burn) and the wider crypto asset market (which again may have an uncertain
future). It would be a bit like deciding to float your company on the
Venezuelan stock market and price your stock in Venezualan Bolivar - even if
you were one of the successful companies in the world your stock is probably
going to do pretty badly. I have a suspicion that its all part of the plan by
the small number of people who have accumulated almost all the wealth to draw
more people into the scheme to prop up the pyramid a bit longer.

