
Bitcoin Is More Expensive to Keep Safe Than Gold - vinnyglennon
https://www.fool.sg/2017/11/22/bitcoin-is-15-times-more-expensive-to-keep-safe-than-gold/
======
CydeWeys
This whole article is simplistic and inaccurate. They're making a straight-
across comparison between two ETFs, one of which has high management fees and
another of which has low management fees. The former happens to be a Bitcoin
fund and the latter happens to be a gold fund.

Management fees vary _widely_ across funds. They have everything to do with
how money-grubbing the funds in question are and little to do with how
expensive the assets actually are to secure. For example, you can pay >2%
management fees on a really predatory S&P 500 index fund, the kind that John
Hancock would sell you. Or you can pay .02% management fees on a top-level
Vanguard fund tracking the same.

The only reason that the management fees on the Bitcoin funds is because they
_can_ be high since there's little competition so far, unlike with, say, S&P
500 index funds. It's not intrinsically expensive to store Bitcoin; far from
it. It's far cheaper to store than gold, for all the obvious reasons that you
don't have physical goods to secure.

~~~
DennisP
That's pretty much the article's conclusion:

"If gold can be stored in Fort Knox-like bunkers for just 0.08% per year,
there is little reason it should cost 15 times more for bitcoin to be stored
in similarly safe solutions. For now, though, it’s easy money for the
custodians"

~~~
EugeneAZ
BitCoin should be abandoned for other reasons:
[https://quant.stackexchange.com/questions/37036/why-do-
ameri...](https://quant.stackexchange.com/questions/37036/why-do-american-
government-not-create-a-crypto-dollar)

~~~
pmarreck
First of all, it’s spelled “Bitcoin.”

Second of all, there are many many cryptocurrencies at this point and they are
all thriving/competing with one another across various measures. Since fiat is
incapable of competing with anything except on relative value, fiat is doomed
to fail.

~~~
bonestamp2
@ben_w

You think bitcoin will be gone in 15 years? It's already been around for ~10
years and it's just starting to reach mass awareness. If it survived ~10 years
in relative obscurity, please explain how it's going to be be gone in 15 years
now that it's well known?

~~~
Scea91
If your logic was sound, it would basically mean, by argument of induction,
that anything that exists for some time will exist forever.

~~~
bonestamp2
I'm not suggesting it will last forever, I'm just saying it has already
survived far longer than most people realize and therefore it's more resilient
than people probably realize.

That said, I think saying that bitcoin will be gone in 15 years is a bit like
those people who thought the internet was just a fad. People who "get it"
understand its usefulness and as long as there are enough of those people then
it will remain.

~~~
Scea91
It depends... I have no doubts that cryptocurrency will be around in 15 years.
But Bitcoin? I am not so sure.

------
21
Hardly surprising.

It's hard to steal a truck of gold, especially considering the mens with guns
which are typically around. It's hard to mess up physical security of a truck
(not even to mention a vault), and even if you lose it, the thief still has a
big and heavy problem on his hands. Real world police is good at these things.
And unlike bitcoin, gold can't just teleport to Russia (using a generic non-
cooperative country here)

Stealing bitcoin requires just one tiny mistake in a miriad of places
(starting with random number generation, ...), and then you are done with no
other recourse.

~~~
DennisP
Coinbase uses redundant hardware wallets in geographically-distributed safe
deposit boxes for their cold storage. It's very unlikely that they'll have a
major theft from that, and their hot wallet funds are insured.

Personally I think hardware wallet random numbers are safe but anyone
technical who's worried about that could generate their own from von Neumann
coin flips, and turn that into a 24-word seed for setting up a hardware
wallet.

[https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_...](https://en.wikipedia.org/wiki/Fair_coin#Fair_results_from_a_biased_coin)

I wouldn't say this is more difficult than securing a large amount of gold. If
someone gets into your safe deposit they can just take your gold. With a
hardware wallet you get three guesses of a 4 to 8 digit PIN and then it wipes
itself. And you can't store gold redundantly to protect from loss.

~~~
vasco
> With a hardware wallet you get three guesses of a 4 to 8 digit PIN and then
> it wipes itself

> wipes itself

Now that seems like a really shitty security feature. Whoever finds it can
just wipe out your funds?

~~~
josephg
Its a great feature. I have a ledger nano S. It looks like a big USB key, so
it would be really easy to lose. Or it could break or malfunction or get
stolen or something. I don't want to risk a significant chunk of my assets on
the off chance that happens, so I store the recovery keys in a safe place as a
backup.

Now, given that I have recovery keys stored in a safe place anyway, the ledger
itself is somewhat disposable. Its still a great way to actually access my
money, but if something happens to it I can just get a new ledger. So, yes, I
want it to wipe itself if the wrong PIN is entered a few times. That feature
means if I lose the ledger I can relax knowing my money is still safe even if
somebody finds it.

------
DonHopkins
Do many people collect bitcoins with interesting histories for their
numismatic value, the same way they collect real coins? Is there a market for
specific bitcoins that are worth more than their face value because they're
somehow special? If a celebrity buys something from you in bitcoin, can you
turn around and auction off that bitcoin to their fans?

[https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-
wort...](https://news.bitcoin.com/bitcoin-nostalgia-can-bitcoins-worth-
others/)

Too bad J. S. G. Boggs recently passed away -- I wonder what kind of abstract
performance art he could have done with bitcoin.

[https://en.wikipedia.org/wiki/J._S._G._Boggs](https://en.wikipedia.org/wiki/J._S._G._Boggs)

[https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-
dea...](https://www.nytimes.com/2017/01/27/arts/design/jsg-boggs-dead.html)

"They don’t understand the difference between art and crime." -J. S. G. Boggs

Speaking to ARTnews after Mr. Boggs’s death, Mr. Weschler said, "He was just
short of being a con man, but no more than anyone in the art world, or for
that matter in the world of finance — which, of course, was his whole point."

~~~
JumpCrisscross
Now that you mention it, I'm blown away that coins with "auspicious" numbers
don't sell for a ridiculous premium in China, India and other cultures that
believe in that garbage [1]. Might be a good business...

[1]
[https://en.wikipedia.org/wiki/Numerology](https://en.wikipedia.org/wiki/Numerology)

~~~
umanwizard
“Bitcoin” is a unit, not an object. Bitcoins don’t have numbers any more than
miles or kilograms or degrees Celsius do.

~~~
JumpCrisscross
> _“Bitcoin” is a unit, not an object_

It's both. Bitcoin and U.S. dollars are units. Bitcoins and dollar bills are
countable.

> _Bitcoins don’t have numbers any more than miles or kilograms or degrees
> Celsius do_

Here [1] is a coin. Here [2] is another.

[1]
[https://blockchain.info/address/1EHNa6Q4Jz2uvNExL497mE43ikXh...](https://blockchain.info/address/1EHNa6Q4Jz2uvNExL497mE43ikXhwF6kZm)

[2]
[https://blockchain.info/address/1JMcEcKXQ7xA7JLAMPsBmHz68bzu...](https://blockchain.info/address/1JMcEcKXQ7xA7JLAMPsBmHz68bzugYtdrv)

~~~
umanwizard
Those are not “coins”, they are addresses, which anyone can generate for free.
Coins (strictly speaking, “amounts of bitcoin”) can be sent to and from them,
but those coins don’t have an identity. Transactions and addresses have
numbers; “bitcoins” don’t.

------
Lerc
That's a bit weird.

Can't you just print a paper wallet. Put that in a safety deposit box. Once
locked up nice and tight, transfer bitcoin to it.

~~~
charlesdm
A pension fund, which is run by a board of directors and manages $400bn, is
not going to print a paper wallet to hold $2bn worth of Bitcoin.

They have more important things to worry about, like investing their $400bn
and achieving a decent return on their entire holdings.

Second to that (or maybe even more importantly), it's ass covering. Imagine
the headlines: "CALPERS INVESTS $2BN IN BITCOIN AND ETHEREUM, AND LOSES ACCESS
KEYS". If you're managing a fund, you just don't risk that.

These custodian fees (which will come down eventually) are a cost of doing
business to access the asset class. I would assume those entire crypto
holdings also to be insured as part of said fee, in the event something does
go wrong.

~~~
knocte
This is why multi-sig exists. Put the funds in a 6-of-10 account, done. You
would need a 60% attack (60% of the executives to collude/conspire, or 60%
being hacked/kidnapped) to be robbed.

~~~
charlesdm
Yes, if you're a $10m hedge fund or a small family office. But not if you need
to manage $400bn; then you (really) want a custodian.

These people allocate and mostly invest in funds with exposure to certain
asset classes (private equity, VC, hedge funds, equity and bond funds, etc).

~~~
knocte
> you (really) want a custodian

Are you really referring to a single (non-plural) custodian...?

~~~
wmf
A custodian company, not a person.

~~~
knocte
Ah, sure, and that custodian company will most likely hold the bitcoins in a
multisig account.

Now you have to pay a company for this service and also have counter-party
risk. Great.

Maybe the risk and cost is not worth it and setting up a multi-sig inhouse is
worth it?

~~~
asadlionpk
Looks like most don't think this way. They think that they don't have the
'expertise' in-house for maintaining multisig account. So they will just have
to hire an 'expert' custodian to reduce risk.

~~~
knocte
And this is why most funds that hold bitcoin will fail, at some point.

Bitcoin is a paradigm shift. Its more important value proposition is the lack
of counterparty risk (which other people refer to as "self financial
sovereignity"). If you're hiring a custodian to hold the bitcoins for you,
you're doing it wrong.

> They think that they don't have the 'expertise'

If bitcoin is seen as requiring some special knowledge to hold it safely, it's
simply a UX problem that will be solved when wallet software/hardware matures.

~~~
Fredej
I disagree. As a private person I would feel a lot more secure if I could pay
someone to safely hold my cryptocurrency for me.

I trust my bank a lot more than I trust myself to keep things safe.

This seems to be a controversial opinion in the crypto-space :)

~~~
knocte
People like you, in the long term, will learn that the risk associated using
an identity-based custodian based services (be it for fiat or for crypto) is
never worth it. Why? In the crypto case, because counterparty risk is higher
in this space (companies get hacked more often than banks being robbed). In
the fiat case, because of the diminishing rate of value of your holdings due
to inflation.

~~~
Fredej
I would love to have a way for my bank to hold my crypto for me, with the same
amount of insurances and security audits as they have for other assets.

The "be your own bank" idea which crypto offers was one of the reasons it has
taken me a while to get into it. That was something that I really didn't want.

I trust my bank living up to the task of keeping it safe and reimbursing me if
they don't. I don't care about the individual coins but I do care about the
value they represent and I trust that even if a bank loses a number of coins
that it will not affect me. Just like if a bank vault was broken into it would
not come out of my account.

~~~
knocte
> I trust my bank living up to the task of keeping it safe...

Your trust will have a cost. That's what I meant. You will pay with risk or
value.

------
cup-of-tea
Not surprising, actually. Gold is very easy to keep locked away because it's a
physical object. But that also means it's very difficult to move around. As
with all things, there are tradeoffs and one must decide what is best for
each. Even if the "15x" figure is true, there might still be a use case for
Bitcoin.

~~~
jstanley
Why can't you lock away your bitcoin keys with the same degree of care you use
to lock away your gold, but at a fraction of the size?

~~~
21
Because locking is just half of the problem.

A thief in a gold vault still has to carry the gold out, and that is
difficult.

A thief in a vault with a bitcoin wallet just needs to write the private
keys/seeds on a piece of paper (yes, I know about secret sharing schemes)

So bitcoin is much more vulnerable to a single person who fucks up or is
malicious.

~~~
spiorf
2 of 3 multisig. Now the thief has to compromise two sites, at the same time.

Or password protect the seed.

Or both.

~~~
TheCoelacanth
Still easier than carting away thousands of pounds of gold without getting
caught.

------
mmatoscom
why this? because a trezor is more expensive than a safe you would keep inside
your wall? how about travelling with the gold? how about moving a lot of gold
lets say like a truck as the example already mentioned? I usually travel and
take my trezor along when needed... and its still in the same safe behind the
wall as I would keep a gold bar or something valuable.

------
JumpCrisscross
Kolmogorov complexity "is the length of the shortest computer program...that
produces [an] object as output" [1]. Being financial inclined, I often wonder
about its analogy in economics. Usually I measure weight or energy. The least
massive, or smallest amount of energy needed, to make one dollar of value.

More interesting is the shortest program that reproducibly produces one dollar
of value. By this measure, Bitcoin is one of the "denser" pieces of fungible
information humans have invented.

"Heavy" networked bits must defend against everyone, everywhere, all the time.
This enables lots of new turf. It also increases security risk.

[1]
[https://en.wikipedia.org/wiki/Kolmogorov_complexity](https://en.wikipedia.org/wiki/Kolmogorov_complexity)

~~~
canoebuilder
> _deterministically (and reproducibly) produces one U.S. dollar of value._

Can that really be said of anything, with the nature of markets, and supply
and demand?

If I invest in solar panels, or oil wells, then the expected value per unit
sold of the product I produce will be dependent on a massive number of
predictable and unpredictable inter-playing forces in a global complex system.

While I can make forecasts of an average expected unit price by studying
historical prices, factors affecting them, probabilities of various events,
etc. there is also the case that my very selling of the product has an effect
on the price I can expect.

As a supplier at a certain scale I can expect revenues to follow a downward
curve, with each unit supplied a certain amount of demand is satisfied and
thus lowering the overall market price and my expected revenue.

It's not exactly a one-way curve, at higher supplies and lower prices, new
avenues of demand can be opened and prices can follow a curve upward.

I like the idea and thinking you've proposed here, but it seems like the
complexity of markets is more complicated than Kolmogorov complexity.

It seems the like what produces value in terms of the most optimal ratio
between input and output is always in flux. And when a maxima of optimal value
is found all the mechanisms of market forces work against it being
deterministic and precisely reproducible.

I think to deduce a measure like you proposed in an economic context you would
have to have a product that is absolutely finite in potential supply and all
potential uses for the product strictly defined, enumerable, and un-
extendable. And therefore lowering JumpCrisscross complexity would simply be a
matter of optimizing production costs.

But I'm not sure any such scenario exists, it would require a deterministic
understanding of the universe and it's constituent parts that we don't have
and it would have to preclude the ingenuity and creativity that seem to be key
human qualities that drive the flux and change we see in the world.

~~~
ouid
Kolmogorov complexity is useful to talk about because Kolmogorov complexity is
easy to bound. It is always less than or equal to the length of the string.

Economics is really a study of organisms. Biologists often make the mistake of
trying to define adaptiveness, but there probably is no such thing. In a
universe of rock and scissors, it's clear which organism is best, but when
paper comes along, suddenly they're equal.

Attempts at formalism come with the caveat that equilibrium strategies,
(strategies such that, if all organisms use them, no organism can improve)
generally require the zero cost generation of random numbers.

What does this mean for our function which assigns economic value to programs?
Non-trivial (not zero everywhere) solutions are not guaranteed to exist, and
indeed the case for their existence doesn't look hopeful.

------
IkmoIkmo
Should say: paying a few first-entrant pioneers management fees so you can
easily buy and hold exposure to bitcoin via a regulated publicly traded fund
like BIT, is more expensive than doing the same with more established gold
funds on more established exchanges, and even more expensive by using a retail
solution for individuals.

Just keeping bitcoins safe is no more expensive than gold. I've literally
thrown some dice to generate a private key, sent coins to it, and all you need
to do is make sure nobody else sees the key. Costs nothing. I won't go into
details there, there's a million options, and they're not much different from
say putting gold in a secure vault.

------
nostromo
It's a lot cheaper to transmit though!

~~~
basicplus2
I so had my hopes up when i found a Matter Transfer Utility...

[http://www.juris.com/help/Content/Juris-
core/Utilities/matte...](http://www.juris.com/help/Content/Juris-
core/Utilities/matter-transfer-utility-hdi.htm)

------
StanislavPetrov
This article is about ETFs, not bitcoins or gold. If you own an ETF, you don't
own gold or bitcoin, you own shared in an ETF, which is not even remotely the
same. If you do actually own bitcoins or gold, and you entrust it to someone
else, you have nobody to blame but yourself when they lose it. If you value
something, hold onto it yourself and be careful with it.

------
hn_throwaway_99
Or you could, you know, write your private key on a piece of paper (or a
couple) and store it in a safe.

------
microcolonel
Corollary: If you store Bitcoin like gold, it is less expensive to keep safe
than gold.

------
rebuilder
This argument seems to assume you pay someone to keep your Bitcoins safe for
you.

Let's be very clear: If you are not able to safekeep your Bitcoins yourself,
you should not have any more than you are willing to lose. That's the state of
the field at the moment. The whole point is cutting out the middlemen, and if
you can't do that, you're not equipped to be in Bitcoin. Learn or stay away.

------
zubairq
I agree that Bitcoin will be more expensive to keep than Gold because there
are so many more ways that it can be stolen. I wrote about this in 2015 here:
[https://blog.safello.com/index.php/2015/07/29/bitcoin-
enterp...](https://blog.safello.com/index.php/2015/07/29/bitcoin-
enterprise-2/)

------
k3a
Try to steal my Trezor HW wallet. It is protected by a proper pin and
passphrase and there are multiple accounts on it. So even if you force me to
unlock it, I won't show them all. So I am actually more worried about my
physical gold than Bitcoin.

------
animex
Most of the cost is probably insurance.

~~~
patio11
You functionally can't buy insurance on meaningful amounts of Bitcoin. You can
convince an insurance company to write you a standard cyberinsurance policy,
but the limits on them are far less than the amount of Bitcoin people want to
store, and when you have a more bespoke conversation with an underwriter they
will say "No no no HELL no."

It is not hard to understand why insurers don't want to write these policies.
Bitcoin exchanges die catastrophically in over 20% of exchange-years.

~~~
DennisP
Coinbase has insurance on their hot wallet funds.

~~~
EliAndrewC
Last time I checked, their hot wallet had less than 5% of the bitcoins on
their books. A catastrophic data break would leave most of their customers
without either their bitcoins or any way to be made whole from the loss.

~~~
DennisP
Right but it's only the hot wallet that has any significant risk. The cold
wallets aren't online at all, they're on hardware wallets in geographically
distributed safe deposit boxes. Even if someone broke into one and managed to
crack the hardware, that'd be just a small portion of their funds.

------
austenallred
What a silly thing to say. Put it on a USB drive and put that in a safety
deposit box. Done.

~~~
zipwitch
What's the half-life of unused flash memory?

~~~
austenallred
Ok, then if you need it for longer periods put it on a piece of paper. Or
memorize your private key.

------
dr_win
2-of-3 fragmented backup of the private key using cryptosteel costs ~$300.

------
pkzip
I would argue that they store the coins in the custody vault as close to the
exchange point as possible so the fast transfers are frictionless...and that
would cost a premium.

------
kloncks
Isn’t Xapo free?

I think custodianship hasn’t been solved for other currencies but it has for
Bitcoin. Coinbase and GBTC are just over charging because they can.

------
thisisit
It is expensive because..of the risks premium associated with the storing a
highly volatile asset.

If I had given 1 oz of gold for storage on Jan 2, 2017 the price was 1150 USD.
If something had gone wrong in Sep, when the peak price was reached the payout
would be 1350 USD, a 17% premium on the storage price.

In comparison, I gave 1 BTC for storage on Jan 2, 2017 at 1025 USD. If
something were to go wrong today the payout needs to be 8217 USD, a 700%
premium.

------
mclightning
Who is coming up with all these anti-btc articles lately, regarding power,
safety etc...

------
known
Sounds like
[https://en.wikipedia.org/wiki/Pump_and_dump](https://en.wikipedia.org/wiki/Pump_and_dump)

------
yopro1
You can print a multi sig paper wallet and store it in a safe(s).

It just goes to show people will pay anything.

------
nextstep
No, it’s not. You can just print a paper wallet (or even just write your
private key on a piece of paper) and stick that in a vault. The author is
conflating mining and transmission with storage.

~~~
joshuamorton
I think you should read the article. He's not.

------
grsblk
Indeed, for the fools that store their bitcoins in a wallet on services like
Coinbase. You only need to save your private key in a save place to have the
storage for free.

