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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

#411

Post by bubbleRefuge »

caylus wrote: post #207
tablespoon wrote: post #195

Earlier quoted context omitted.

> 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'…

While I agree making a bad loan is the most likely reason for a bank to lose deposits, I wouldn't go so far as to call it "the" reason. Robbery, embezzlement, or natural disaster [1] can also result in loss of funds that would be covered by FDIC, and those risks exist for cryptocurrency too, albeit in somewhat different forms. [1]: see this paper, which found that "disaster damages play a significant role in bank fai…

bad loans have nothing to do with loosing deposits at banks. see post below.

Re: Coinbase warns that bankruptcy could wipe out user funds

#413

Post by prepend »

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.…

Coinbase could purchase and maintain insurance against such an act. That’s what E*Trade/etc do to protect against the same risk should they go into bankruptcy.

Re: Coinbase warns that bankruptcy could wipe out user funds

#414

Post by prepend »

olalonde wrote: post #404
svnt wrote: post #351

Earlier quoted context omitted.

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.

Seems like a more robust solution would be to just fix the bad bankruptcy laws instead of "regulating" every possible variant of "company has custody of X which is actually owned by customer Y". There ought to be a simple way to declare: "this is not company property and is off limits to company creditors in the event of a liquidation".

These aren’t bad bankruptcy laws. They are actually good and protect things that are most important- bondholders and higher priority creditors.

I don’t think letting companies set their own creditor priorities would really be feasible if we want to have predictable securities markets.

I assume that if we let companies protect certain assets from creditors during bankruptcy they would set aside massive bonuses and all sorts of other shenanigans.

Re: Coinbase warns that bankruptcy could wipe out user funds

#415

Post by prepend »

rmbyrro wrote: post #169
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 main issue is not lack of insurance. Stocks aren't insured, for example. Crypto being a novel space where no one truly understand its risks and that is (sadly, still) welcoming to scammers is the real issue, in my opinion.

Stocks are insured by SPIC. I’m not sure it’s possible to find a US brokerage in business that doesn’t insure stocks against this kind of loss in bankruptcy.

Re: Coinbase warns that bankruptcy could wipe out user funds

#416

Post by prepend »

MaxfordAndSons wrote: post #355
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?

Yes, thank you. What’s odd is I thought I typed that but autocorrect changed it and that’s a bit concerning since it changed it to a pretty not cool term.

Re: Coinbase warns that bankruptcy could wipe out user funds

#417

Post by usrn »

alex_suzuki wrote: post #338
usrn wrote: post #18

I've been messing with crypto long enough to know how this goes and my coins are already in a local wallet. Coinbase had a good run but don't be stupid. Crypto exchanges aren't insured like consumer checking accounts are in the US and when they're gone they're gone. Geth isn't hard to set up for most of us, it took me about 20 minutes to have it up and running after not using a local wallet for nearly a decade. Remem…

Why on earth would the typical customer that is scared by this announcement choose to run a node instead of just withdrawing to Metamask or a hardware wallet?

Metamask looks like a smartphone app. I don't have a smartphone and keeping crypto on one seems like a bad idea.

Re: Coinbase warns that bankruptcy could wipe out user funds

#418

Post by azinman2 »

sschueller wrote: post #408
azinman2 wrote: post #389

Earlier quoted context omitted.

So if I wanted to move stuff to my own wallet, what’s the best way to do that these days? Anything that can support more than just Bitcoin? I assume I’d just stick any private keys in a password manager vault that I already trust, and/or Yubikey. I’m not sure I trust the dedicated hardware wallets as that seems more prone to failure than a pure software approach.

Most hardware wallets use the same standard to generate your keys (BIP39, BIP32 and BIP44 I think) from a long recovery phrase of words. So you could for example restore your wallet in a wallet software if your hw wallets dies. As long as you have all the words and the correct order you should be able to restore your funds somewhere else.

But at that point I effectively don’t need the hardware as I’ve stored these words elsewhere.

Re: Coinbase warns that bankruptcy could wipe out user funds

#419

Post by rmbyrro »

prepend wrote: post #415
rmbyrro wrote: post #169

Earlier quoted context omitted.

I think main issue is not lack of insurance. Stocks aren't insured, for example. Crypto being a novel space where no one truly understand its risks and that is (sadly, still) welcoming to scammers is the real issue, in my opinion.

Stocks are insured by SPIC. I’m not sure it’s possible to find a US brokerage in business that doesn’t insure stocks against this kind of loss in bankruptcy.

I'm no specialist in the topic, but AFAIK you're insured for monetary funds held in a brokerage account.

Stocks themselves don't need insurance from the brokerage, as they're in custody somewhere else. Depends on the country, I presume.

What I meant is there's no insurance against the company you own going bankrupt. If you buy Tesla and it goes south, nobody will rescue your funds.

Re: Coinbase warns that bankruptcy could wipe out user funds

#420

Post by [deleted] »

mattwilsonn888 wrote: post #254
mkr-hn wrote: post #119

As someone without 250k in the bank (or generally), FDIC insurance is quite reassuring. Banks pay into it like any other insurance, so it would take a huge money-doesn't-matter-anymore shock to overwhelm it. 2008 was pretty close! Crypto wouldn't do any good for me since the utility bills for all the internet infrastructure are paid for with real money (in the "most people exchange it for goods and services" sense).…

> You could execute a 51% attack on a solar-powered NetBSD toaster. I don't think you understand the basics of Bitcoin.

[deleted]
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