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Revisiting the Risks of Bitcoin Currency Exchange Closure [pdf] (utulsa.edu)
34 points by gwern on Feb 9, 2018 | hide | past | web | favorite | 40 comments



"The overall failure rate of Bitcoin exchanges is 48%, and the median lifetime of exchanges is 451 days."


By similar reasoning, only about 93% of humans who ever lived went on to die.


The median isn't affected by the right-censored datapoints (ie you only need to observe half of humans to find the median life expectancy, by definition), which is why it's used so much in survival analysis.

Failure seems to mean 'closed' but there's no reason to expect such a short lifetime of exchanges that they would all close already (an exchange can be immortal) and even if you think that, the exact number of 48% is useful as it gives you an idea of how informative the dataset is due to right-censoring (the closer to 100%, the closer to a complete dataset in which all deaths have been observed).


As the crypto-asset world keeps warning newcomers: Don't keep assets in exchange-hosted wallets for longer term holding. Move them to a wallet under your own control. And back it up really, really well.


Yeah I definitely want to invest my life savings in something I need to keep on a USB key.


This is the sort of flippant comment that has no place on HN.

Who told you to invest your entire life savings in crypto? That seems like a foolish strategy even to someone who is quite bullish on cryptocurrency in general (me).

As for "something you need to keep on a USB key", that's just silly. If you take responsibility for the security of your own funds it's really not difficult. Buy a hardware wallet and back up the keyphrase in a safety deposit box. There, you're done... now you'd have to both lose/break the wallet and have the bank's vault go up in smoke simultaneously to lose your funds.


You're describing a false dichotomy (and evidently an inaccurate description of how currency is stored).

There are good options to avoid leaving currency on exchanges.

Using a hardware wallet like Ledger or Trezor (which I assume is what you're referring to) is not like storing your currency on a USB.

The wallet facilitates access to your private key. If the wallet is damaged, access to your private key can be restored using a passphrase.


I don't get the point of this comment. Are you criticizing the current state of cryptocurrencies, or are you implying that investing your life savings in an exchange is somehow safer than keeping it on a USB key?


> is somehow safer than keeping it on a USB key

I'm not entirely convinced it isn't for some people. USBs can break, keys can be lost. Exchanges can be insured and put a lot more time and energy into keeping things secure.

There have definitely been a few tremendous failures, but there's an argument for keeping it in a trustworthy big exchange, if such a thing exists. Same reason banks hold money - you don't want your house burning down or burglary to pose a problem. If someone stumbles upon your recovery keys it's game over.


As someone who just had funds removed from their bank account via a skimmed debit card, I trust my bitcoin savings infinitely more than my dollar savings.

To protect myself from fire or flood, I have one of these: https://cryptosteel.com/ in a safe deposit box.

Hardware wallet sits in my desk and is protected by a pin.

Both the 24 security words and hardware wallet are protected by a password.

I can use a different password to access different wallets.

I can back up my account balance by simply saving a copy of the blockchain.

Banks suck. I can't wait for them to die.


If your debit card was in a safe deposit box, it would have been just as safe.

And yeah, cryptosteel. What's the difference between that and a post-it? It seems like pretty much a really small movable type. Their site reads like a Franklin Mint commercial.

If bitcoin becomes currency like you hope, you're going to run into the same problems, security versus convenience.


> If your debit card was in a safe deposit box, it would have been just as safe.

Um, no. When I spend bitcoin, I'm not exposing myself to the risk of someone having complete access to my account. When I use a debit card I am. Huge difference.

> What's the difference between that and a post-it?

Post it notes burn. Also, cryptosteel is only for the security words. It still won't give access to my wallet's private key.

> If bitcoin becomes currency like you hope, you're going to run into the same problems, security versus convenience

First, it already is a currency. Second, the security model of bitcoin is infinitely better than that of a bank.


So, it's not spent from your wallet?

So it's a post-it that won't burn.

And if it doesn't give access to your wallet, how does it protect your wallet? If it can be used to gain access to your wallet, then how is writing it down safe?


> So, it's not spent from your wallet?

Huh? I think this comment shows you don't know what a hardware wallet is. When I spend bitcoin, I spend it using my hardware wallet.

> If it can be used to gain access to your wallet, then how is writing it down safe?

You need a passphrase along with the security words to figure out the private key. Passphrase = something long that I can easily remember.


I’m saying that there’s no safe and convenient place to keep your bitcoins.


Of course there is - archival quality printout of a paper (on archival acidfree paper) wallet stored in a bank safe.

That's safe. Convenience depends on how often you need it (and so there's not one standard of convenience you can quantify without being the actual person who's using it.)


The recommended place to store bitcoins, the currency which promises freedom from the corrupt banking system, are banks?

> That's safe.

It is quite safe, but still not as safe (World Trade Center, Hurricane Katrina, ...) as your money in an account with insurance. And much more inconvenient.


You can split a bitcoin key up using Shamir's Secret Sharing Scheme (or just multisig) and store the key geographically-distributed such that if any one location is destroyed you don't lose the money, and if any one location is stolen the thief doesn't get the money.

You can also replace "one" with an arbitrarily-large number, depending on how many locations you want to store the money in.


Now compare this to online banking and seriously tell me that this is easier. Yes, you can set up a system that is very resistant to failure. But my grandma doesn't understand the difference between minimizing a window and deleting her facebook account. I'm not excited about explaining SSS to her.


> Now compare this to online banking and seriously tell me that this is easier.

It's not. But compared to storing large amounts of dollars, pounds, or euros, it is easier.

> Yes, you can set up a system that is very resistant to failure. But my grandma doesn't understand the difference between minimizing a window and deleting her facebook account. I'm not excited about explaining SSS to her.

Your grandma won't need to know about any of that, because she'll probably continue to trust an organisation to look after her money for her.

Just because cryptocurrencies make it feasible for people to not trust other entities with their money doesn't mean that everyone will.


Would you have opposed the development of mass-produced books on the basis that most people couldn't read and write?

You can read books yourself but it's so much easier to just listen to the vicar reading them out instead.

People learn things that are helpful to them.


Safe deposit boxes held in a vault is one of the banking services I'm OK with.


A hardware wallet is safer than your bank account.


I didn't realise hardware wallets were FDIC insured.


I thought we were talking about security, not insurance?


Insurance is a form of security.


1) I can take out an insurance policy for my bitcoin, just like you have at your bank

2) Your insurance only applies up to 250k. So keep 250k in your bank, and the rest in bitcoin since it's more secure.



Is there a way for moderators on HN to limit the amount of emotional rhetoric on cryptocurrency discussions?

It would be great if comments here could be limited to substantiated technical and market analysis. Comments on ideology (again if substantiated) would be useful too but right now these discussions just degenerate into shouting matches with very low signal:noise.



Kind of a solved problem with high leverage. Keep 10% of your trading stack on the exchange, trade with 10x leverage. If mt gox and cryptsy allowed high leverage, it wouldn't have been as big of a disaster when they closed.


"Bitcoin has enjoyed wider adoption than any previous cryptocurrency;"

Was there anything before bitcoin that could have been defined as such?


¯\_(ツ)_/¯ it's the wild west. Do you think I want to trust my money on Wall Street instead?


You’d be wise to. First-world stock exchanges are not in the habit of disappearing, and volatility is significantly lower (yeah, yeah, the past week, I know, but I’m assuming we’re talking about a long time horizon like retirement).


There are more crooks on wall Street (including the Banks) than in crypto.

Edit: Source: The 2008/09 financial crisis. You really don't need a specific source here as it's clear to everyone that Banks have done great dishonest disservices to their customers. Wells Fargo's latest news is case and point.


> There are more crooks on wall Street (including the Banks) than in crypto.

This is a fun statement, because it's vague enough to be defended with "oh, but I meant <foo>".

Yeah, Wells Fargo got caught making accounts people didn't know about. There are cases like Enron. Financial crises, overdraft fees inflated by ordering transactions maliciously, etc.

In the grand scheme of things, though, Wall Street tends to work, and fairly well, and when it has an issue it winds up recovering eventually so you're fine if you're well diversified and don't need to retire next week. The various stocks in the DJIA and the NASDAQ are making real products, have real value, and will mostly still be here in a few years.

You can't say the same for the ICO world.


TBH if you're going to manage your financial future based on trite, vacuous phrases then crack on. You clearly don't care very much about your money so it shouldn't matter much what you do with it.

The only caveat I'd make is that if you have dependents then this sort of fatuous ignorance is nigh on criminal. Otherwise, good luck and I hope you don't completely fuck up your life.


Regardless, who cares how many 'crooks' there are on Wall Street. If you want to get rich slow, you throw your money in a stable investment in stocks, the 401k has made lots of millionaires.


The one thing they don't do is actually collapse and leave the customer out of pocket.


Source? Because on the face of it that's laughably untrue.




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