

In Bitcoin Debate, Larry Summers Sides with the History of Change - dfuego
http://blogs.wsj.com/moneybeat/2014/04/30/in-bitcoin-debate-larry-summers-sides-with-the-history-of-change/

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sillysaurus3
_Mr. Summers also notes that the existing system requires “enormous
investment” in mitigating credit-card fraud_

Or, worded differently, the existing system protects consumers victimized by
fraud, whereas Bitcoin doesn't (and won't ever be able to reverse a fraudulent
transaction).

Fraud protection is a good thing. We should be trying to figure out how to get
it into Bitcoin. YC should fund a company that aims to protect consumers from
the risks of Bitcoin. Something like "trust us with your coins, and if we lose
them, then this insurance company is guaranteed to pay you market rate for
your losses."

I've been mulling over whether it'd be possible for Coinbase to get the
equivalent of FDIC insurance. That would turn them from being "it's insane for
anyone to trust you" into "you just became an _awesome_ bank."

I can't think of any choice for exchanges or webwallets: either get insurance
or erode consumer faith in bitcoin. And since it's so hard to get insurance,
it's likely that the first one who does will have a huge advantage over
everyone else.

I have no idea whether it's possible in practice to insure bitcoins on a large
scale. I'm only saying that it's absolutely needed, because it's absolutely
necessary for consumers to be able to trust _some_ third-party service with
their coins the way they trust a bank with their dollars. Either that, or make
it trivial for people to manage their own coins as trivially as Coinbase does,
which seems implausible.

When I point out that credit cards are superior to bitcoin from a consumer
perspective, people sometimes counter with "you pay for that with 2% higher
merchant fees, etc." But that's a small price to pay to guarantee you won't
suddenly be unable to pay your phone bill next month due to theft. I've
mentioned before, but someone once stole my credit card and got gas with it. I
called up the credit card company and within 10 minutes the transaction was
refunded and I was issued a new card. It would be amazing if that could be the
case with bitcoin via some kind of insurance plan. I wonder if it's
possible...

~~~
Rauchg
Xapo's vault comes with insurance:
[https://xapo.com/#aboutVault](https://xapo.com/#aboutVault)

~~~
sillysaurus3
I heard that too, but unfortunately it looks like Xapo seems to be
misrepresenting themselves to consumers:

[https://news.ycombinator.com/item?id=7510403](https://news.ycombinator.com/item?id=7510403)

[http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_doe...](http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_does_not_have_the_insurance_they_claim/)

The top comment from that Reddit thread shows a pretty compelling discrepancy
that probably indicates there's no way Xapo is actually able to provide the
guarantees it's claiming:
[http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_doe...](http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_does_not_have_the_insurance_they_claim/cg2awjt)

This is the sucky nature of Bitcoin circa 2014: before you trust anybody,
research every single claim they make, else lose your coins if things go badly
for them.

Someone who works for Xapo posted a less-than-compelling counter-reply:
[http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_doe...](http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_does_not_have_the_insurance_they_claim/cg2dmmj)

... and it strikes me as very foolish to trust that claim at face value:

 _The amount of reserves required to be fully-insured involves understanding
specific methods of cold storage then applying actuarial methods for
estimating losses, as well as other calculations._

That's the language of someone who can't outright say "we won't be able to
survive catastrophic losses, and in that circumstance, you'll lose your
money."

Something like an insurance guarantee needs to have a clear example of how
payouts to consumers actually happen in the event of fraud. What can consumers
expect? Will they pay market rate at the time of fraud, or will they pay
current market rate? How long will it take to receive payment? Will they pay
in dollars or coins? How can consumers really trust that you'll be able to
cover the loss of n_users * price_per_coin?

------
Ciotti
The headline seems somewhat editorialized for what Summers is actually saying,
even as he is quoted in the article.

> “I’m not ready to stand with those who are sure they have seen the future
> here,” he concludes, “but it seems to me that it’s a serious mistake to
> write this off as either ill-conceived or illegitimate.”

------
21echoes
> To Mr. Summers, the potential contained in bitcoin’s breakthrough
> technology, with its fast, low-cost system for confirming transactions

any article that touts Bitcoin as "low-cost" is a joke. paying 3-5%
transaction fees[1] via inflation is not any better than the 2-4% that credit
cards charge. And soon the bitcoin protocol won't have any coin left to mine,
so this 3-5% will just be charged to consumers just like the existing
networks, thanks to its baked-in gold-bug monetary policy. At least credit
cards are instant, and the companies have good fraud monitoring...

not to mention the cost of the mining rigs, electricity they require, etc...

[1] [http://blockchain.info/charts/cost-per-transaction-
percent](http://blockchain.info/charts/cost-per-transaction-percent)

~~~
rando289
> "thanks to its baked-in gold-bug monetary policy"

The biggest problem with bitcoin that no one wants to talk about, except to
say "the means (ridiculous monetary policy) justify the ends of it becoming
popular." I thoroughly do not believe it.

Economists have been studying monetary policy for a long time, and I'm no
economist, but I know they are pretty convinced that having flexible monetary
policy is a very good thing, and having inflation be not too high, and not too
low is also very good and important. Bitcoin is overall deflationary, with no
monetary policy flexibility. If it did grow enough to be a serious factor in
the global economy, I'm convinced it would have a horrible impact.

The distributed network truly does have potential to overcome inefficiencies,
but I hope to god there is a bitcoin 2.0 or perhaps several currencies which
are more sensible.

They compare it to the internet. Using that analogy, we had ipv4 limits and
domain name limits. We changed that. But bitcoin is built for people to be
invested in it not changing and not improving in very important aspects. For
the technology to have a big positive impact on society, we are going to have
to move on and improve the gold-like policy set in stone on its very first day
of existence.

------
ChrisGaudreau
Seems like a typical weird Centrist argument. I don't think he really believes
what he said; he's just trying to sound reasonable. He's basically saying "in
20 years, things will not be like they are today. Thus, when somebody tells
you X will change the world, and you say otherwise, you are on the wrong side
of history."

