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Coinbase warns that bankruptcy could wipe out user funds

fortune.com

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Re: Coinbase warns that bankruptcy could wipe out user funds

#351

Post by svnt »

olalonde wrote: post #324
prepend wrote: post #2

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are ris…

> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance. You are missing the point. We are shocked that even if Coinbase keeps users' deposits 100% safe, users could still lose their deposits if a judge decides so.…

Sorry to say it, but no, you.

You are missing the point. The regulations on banking created and enforce those legally binding separations in assets that you are shocked don’t exist.

Re: Coinbase warns that bankruptcy could wipe out user funds

#352

Post by ldoughty »

dboreham wrote: post #160
prepend wrote: post #2

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are ris…

> it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab. FDIC…

There's no FDIC or other protections in play here, except for the small amount of money a customer might have in "cash", held by Coinbase pending or resulting from a crypto transaction.

Once you buy a bitcoin, you have a digital good, not money/currency (as defined by most governments/courts -- which is the point that matters here)

If you buy a skin in Fortnite, and Fortnite goes under, you no longer have that skin, even it if was made by another player and put on a public marketplace offered by Fortnite. You can't get Forenite to return that skin to you, and you can't ask the author to send you a copy to save.

If Coinbase goes under, the crypto would likely be treated as digital goods by the court, not as "currency".. or perhaps that case would solidify crypto's definition as a security or currency... but I'd argue that it's unclear right now, and that creditors would want Coinbase to liquidate the digital assets to pay off employees, creditors first.

Re: Coinbase warns that bankruptcy could wipe out user funds

#353

Post by matheusmoreira »

its_ethan wrote: post #345
matheusmoreira wrote: post #322

Earlier quoted context omitted.

> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. The problem isn't crypto, it's these exchanges. Nearly everyone just leaves their coins in the exchanges. They're essentially banks but with none of the protections. They even offer cryptocurrency loans, savings accounts and everything. Cryptocurrencies were supposed to replace banks but they end…

I'm not sure who first said it, but crypto feels like a solution in search of a problem. Something akin to "when all you have is a hammer, everything looks like a nail" - forcing crypto/blockchains as solutions to problems that are either already solved, or could be solved in other more traditional ways, only acts as a disservice to wider adoption imo.

> crypto feels like a solution in search of a problem

Well, to me the problem is absolutely real. Decades ago, my country suffered from hyperinflation. We went through several inflationary currencies like it was nothing until some economist managed to dupe everyone into believing it was gonna be different this time. Not before desperate attempts to control inflation were implemented, though. In the 90s the president just froze everybody's bank accounts.

I simply don't trust governments. I want them to have zero authority and influence over my money. I don't care what it costs to achieve this, as long as governments are successfully exorcised from this economy it's worth it. The way I see it, pure blockchain solutions are the only way this could possibly work and even then only if sufficiently decentralized. Exchanges are the complete opposite of this vision, they're literally banks with all of the downsides and none of the upsides.

Re: Coinbase warns that bankruptcy could wipe out user funds

#354

Post by svnt »

phkahler wrote: post #153
prepend wrote: post #2

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are ris…

>> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. No it doesn't. Well if coinbase is lending crypto like a bank then sure. But if they are acting like a stock broker, they should be holding real assets on behalf of customers and those assets should go to the customers who actually own them. Longer term investors can actually (could? it's…

They are acting like what is best for them, which is neither. They are taking as much as they can because that is how finance works.

For being on HN this post is confusingly full of people who assume tech companies are run for the public benefit, or at least with some moral obligation of protecting your assets.

Re: Coinbase warns that bankruptcy could wipe out user funds

#355

Post by MaxfordAndSons »

prepend wrote: post #2

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are ris…

I think you mean SIPC?

Re: Coinbase warns that bankruptcy could wipe out user funds

#356

Post by Daishiman »

matheusmoreira wrote: post #322
prepend wrote: post #2

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are ris…

> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. The problem isn't crypto, it's these exchanges. Nearly everyone just leaves their coins in the exchanges. They're essentially banks but with none of the protections. They even offer cryptocurrency loans, savings accounts and everything. Cryptocurrencies were supposed to replace banks but they end…

> Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly.

The only way that statement could be true is if anyone every assumed it's feasible or desirable for everyone to have physical wallets and self-host everything

Re: Coinbase warns that bankruptcy could wipe out user funds

#357

Post by lamontcg »

Coinbase popping and everyone with their funds/crypto still there gets ruined is probably in my top 5 signs that the crypto apocalypse is nigh and the Ponzi ends.

I still expect that the current downturn reverses later this year, and Coinbase isn't popping yet they're just having to disclose that risk. But given a real melt down in the broader economy and something like commercial mortgage backed securities popping, I expect that Coinbase would melt down.

Even though I'm not as negative as everyone else over current conditions, it is probably time to seek shelter (or that if there is a bounce later this year it is probably a profit taking opportunity before the crash)

Re: Coinbase warns that bankruptcy could wipe out user funds

#358

Post by Animats »

Yes.

Do not keep funds in "hosted wallets" for more than a day or two.

Of course, Coinbase wants you to keep your money with them, so they can dip into your funds. Do they offer a service where funds in your Coinbase account sweep daily into a non-hosted wallet of your choice? No? How about that.

Re: Coinbase warns that bankruptcy could wipe out user funds

#360

Post by danans »

tablespoon wrote: post #195
prepend wrote: post #2

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are ris…

> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. Is Coinbase "loaning" out the Bitcoin users have deposited in it? The reason banks need the FDIC is that they loan your deposits out instead of throwing it in a vault and sitting on it, so if they go under they don'…

> Is Coinbase "loaning" out the Bitcoin users have deposited in it?

I don't understand how they would loan it out. What denomination/form will the loan be transferred in? Bitcoin? If so, how are they creating the Bitcoin to loan out?

They can't take it out of their depositors' wallets because by design that would result in a lower balance for the wallet on the blockchain.

They can't make a copy because Bitcoin prevents double transactions. Likewise, Bitcoin can't be "created" like banks create fiat currency on their balance sheets.

If they are loaning out fiat cash fractionally backed by depositors' Bitcoin, who are they borrowing that cash from, and how can they guarantee to their creditors that the Bitcoin backing the loan are available as collateral?

Would they take their users' wallets' private keys to pay in the event of a default?

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