Ohh a Matt Levine post, so I guess the top 10 comments will be people recommending that everyone subscribe to his daily news letter:)
On a serious note....
> Engineers at Sydney-based Metamako LP and Exablaze Pty. Ltd., and Chicago-based xCelor LLC are rolling out switches that take around four nanoseconds—four billionths of a second—for messages to transit from one side to the other, sending data from exchanges to electronic traders.
Wow, can anyone shed some light on how they time this? What sort of clock, I'm assuming its some fancy hardware that you use to benchmark at the 4 nano second level? Or do you just claim this and assume that no one can prove you wrong?
As to Bitfinex, on the weekend a few friends and I were batting around ideas on how to reliably trade bitcoins without having to worry about being robbed by the exchange^H^H^H^H^H err worrying about the exchange being hacked and passing their mistake onto you.
The top ideas we had were:
- only trade on US domiciled exchanges, the US government tends to poke their nose into everything and this is one case where you benefit.
- phone the exchange before you start trading. If you can't get someone on the phone, that's a very bad sign:)
- Similarly, if the C level executives of the exchange aren't well known and always around at the regular bitcoin industry conferences then that's a bad, though this fails the Mt Gox test.
- we tried to figure out if you could pull the coins out each night and put them back in each day, but even then, you'd run the risk of the hack happening while you had coins held by the exchange.
But we came to the conclusion that there just isn't any sane way to trade bitcoins currently where you can eliminate "exchange risk". If anyone does know of a way please let me know.
> But we came to the conclusion that there just isn't any sane way to trade bitcoins currently where you can eliminate "exchange risk". If anyone does know of a way please let me know.
There are decentralized exchanges that are becoming more popular (Bitsquare for one, check out http://www.bitsquare.io), but there's a chicken-and-egg problem for liquidity. Not a lot of people currently trade on the decentralized exchanges, so liquidity is thin (and until there's liquidity, larger traders will likely not trade there). However, there isn't any counterparty risk, other than if you buy BTC for USD, and the person on the other end charges back the bank transfer. When you trade crypto-to-crypto, the risk is minimal (barring a 51% attack reversing the history on the cryptocurrency you purchased).
Maybe if you're a day or mechanical trader. Although, I personally don't know if that's actually true. Have you tried it? Can you share any data or citations?
> Exchanges exist for trading quickly
Agreed
> they must be centralized due to this.
Have you encountered any definite proof of your conclusion?
Or swing trader or any kind of trader looking to time the market. Trading requires the ability to execute in near real-time. Block chain transactions and worse, fiat transfers between parties, takes far too long for trading to be effective.
> Have you encountered any definite proof of your conclusion?
They must be centralized to obtain the necessary speed because currently block chain transactions are too slow. Proof is unnecessary, logic is more than ample. One can't trade effectively if ones capital is hung up in "transit" between parties. Exchanges exist specifically to provide fast trading. There wouldn't be any exchanges if block chain transactions were fast enough.
Swing trading does not require the ability to place an order in near real time. You need to have done your DD and generally you just place your order the day before you expect your event.
We don't know that blockchain transactions are inherently slow and we haven't verified that no decentralized architectural/algorithmic/structural solutions exist to coordinating trades. In fact, I can think of one or two. So I'm asking you for data, not hypothesis. Do you have any info from your research about trade order execution times on p2p exchanges over time or userbase size? Or is it just your conclusion from anecdote?
That should show up on your 10GHz scope, although the probe setup is a little fiddly.
Or you could just ask your 10G network card to timestamp packets for you. Only valid for packets sent back to the same card, unless you go to heroic lengths to synchronise between systems.
(The exchange issue is called "counterparty risk", and it's the one area Bitcoin advocates tend to handwave away with reputation systems)
> Wow, can anyone shed some light on how they time this? What sort of clock, I'm assuming its some fancy hardware that you use to benchmark at the 4 nano second level? Or do you just claim this and assume that no one can prove you wrong?
There are some expensive hardware solutions to capture all network traffic and timestamp it at nanosecond level. E.g.,
Socialising the losses couldn't work with us customers. Since bitfinex' biggest market is in the US I don't see how this (bitfinex tokens) could fly without many lawsuits
Yep. If you're open for business to US citizens, or even really just moving USD around, you can't escape the USA's jurisdiction. And it appears Bitfinex compiled fully to AML/KYC laws for US customers dealing in USD, so everything's definitely documented.
"In prosecuting money laundering offenses, the US Department of Justice takes the position that jurisdiction exists over a financial transaction if the laundering is completed by a US citizen anywhere in the world, or by a foreign national or non-US corporation if the criminal conduct occurs in part in the United States—even if the foreign individual or company never themselves took an action in the United States, or intended for an act to occur there... US enforcement authorities increasingly operate on the assumption (unless convinced otherwise) that they have jurisdiction for such offenses whenever a suspect transaction is denominated in US dollars.
http://www.whitecase.com/publications/insight/how-us-laws-ca...
Wow, thats pretty staggering. I'm sure I read an article (maybe just a tweet) by Andreas Antonopoulos stating that by complying to KYC/AML that they left themselves more vulnerable to this hack.
The issue comes into play that Bitfinex owned the private keys of all wallets in their possession, and the winners of positions were shown an accounting ledger through Bitfinex as opposed to having possession of their own coins. Now I can not pretend I know what happened behind the scenes with the back and forth between Bitfinex and the CFTC, but I can say that based on all evidence, Bitfinex was unable to pay out all positions within the required 28 day period. Verbiage within the original CFTC complaint suggests that the primary cause of this was Bitfinex's accounting system that was at fault.
Bitfinex could have moved to a cold storage system to make the bulk of their bitcoins secure, but doing so would have required them to register as a futures merchant and submit to additional auditing (which makes perfect sense, you can't expect to dump people's money into a shared pool only you have the books for). They chose to remain unregistered and use their multi-sig hot wallet system because the on chain transaction is enough for "proof of delivery". I'm sure someone could argue that qualifies as "The CFTC forced them to act insecurely", but Bitfinex gets zero sympathy from me for doing shit they profited from at the expense of their customers, while taking money from customers to socialize the loss.
A big contributor to the GFC was pension funds ("dumb money") buying CDOs with rates that were way too low for the risks. Do I need to be worried about the same thing for cat bonds?
> It is easy to make fun -- and I do make fun -- of bitcoin/blockchain enthusiasts for naively re-creating everything that has existed for decades or centuries in the traditional financial system.
From a "blockchain enthusiast"'s perspective, this is exactly why Bitfinex and other centralized Bitcoin businesses are idiotic. If we're just implementing centralization on top of Bitcoin's decentralized structure, Bitcoin has literally no benefits over the traditional financial system. It's actually worse, because when a major traditional financial institution gets hacked, they reverse the charges instead of going bankrupt. Bankruptcies happen all the time in the Bitcoin world because creating a centralized Bitcoin puts a target on the business that grows as the business grows, and the damage when they get hit is irreversible.
The benefit of Bitcoin is decentralization, and businesses that don't understand this are always going to come across as naive. Sometimes so naive that they fail.
Playing devil's advocate, the thing that these exchanges can, and often do, try to hang their hat on is anonymity. While through hard work (and lots of money) it can be "had" on the mainstream markets, financial anonymity is not something that you average joe really has access to on the major markets.
That being said, is that added benefit worth the (much MUCH bigger) risk of your money going up in smoke? Personally, I don't think so.
Overall, I agree... The reinvention of the wheel for the sake of it is laughable.
You're right, they do try to hang their hat on anonymity, but when they do that, it's pretty much an outright lie. Centralized Bitcoin services are regulated and tied to other financial services. Coinbase knows exactly who I am. And while you can break the identity chain with tumblers etc., that requires going outside centralized Bitcoin services.
Bitcoin isn't trivially anonymous, and centralization almost universally comes with regulation that prevents it from being anonymous.
>The benefit of Bitcoin is decentralization, and businesses that don't understand this are always going to come across as naive
Businesses understand this really well and they are using this to their advantage, there's not much regulation around crypto-curruncies as of now, so these companies can operate in a legally gray area. It is the customers of these businesses who has no idea what is going on.
Many are happy to buy and sell the whole utopian view of how the block chain is going to liberate them all, how its going to end poverty and and kill all the evil bankers, but everyone saw what happened then the DAO got hacked, that whole utopian view of the irreversible something something was somehow now the responsibility of a central group.
If anyone wants to see examples of how most of these users have no idea of how to handle money, look at all the ponzi schemes that are build around crypto currencies. Its insane thinking how easily people give away their money for a piece of the moon.
> Businesses understand this really well and they are using this to their advantage, there's not much regulation around crypto-curruncies as of now, so these companies can operate in a legally gray area. It is the customers of these businesses who has no idea what is going on.
I specifically said, "businesses that don't understand this" to talk about the subset of businesses that don't understand decentraliztion. I didn't say that all businesses didn't understand decentralization.
There are many businesses that do understand decentralization, but centralized exchanges like Bitfinex definitely don't. If they did, they wouldn't be holding the money of thousands of users. Lack of regulation around cryptocurrencies is only one implication of decentralization, and for that matter, it's one that isn't permanent. Decentralization makes regulation hard to enforce for individuals, but large centralized businesses are going to have a hard time avoiding regulation in the long term.
> but large centralized businesses are going to have a hard time avoiding regulation in the long term.
I think the key phrase here is "in the long term". Who says Bitfinex is in it for the long term? They say it? Why do you trust them?
A typical business will try to make money off you any way they can, scamming you if they deem it is profitable. The more legally gray area the business is in, the more likely it is you'll get scammed.
I think 'oolongCat was trying to point out that a centralized Bitcoin business may very well understand decentralization perfectly; that doesn't mean they will care about it in any way.
> I think the key phrase here is "in the long term". Who says Bitfinex is in it for the long term? They say it? Why do you trust them?
Assuming they don't plan to die tomorrow, Bitfinex is on the hook for a lot of money to a lot of people right now, and they're likely going to be sued. If they were only in it for the short term, they weren't in it for short enough; they didn't get out in time. Where does Bitfinex benefit from this? If their intent was to scam their users, they've also scammed themselves through their own lack of understanding.
I get what you're saying, but it just doesn't work out, even as a short term scam, for reasons that are obvious to anyone who understands decentralization. Bitcoin centralization can be a way to execute a scam (see various darknet markets that have exited with all their users' escrow Bitcoins). But Bitfinex didn't use centralization to execute a scam. They just failed because they didn't understand how decentralization would affect their business.
> From a "blockchain enthusiast"'s perspective, this is exactly why Bitfinex and other centralized Bitcoin businesses are idiotic.
Speaking as a fellow "Bitcoin enthusiast" who's been involved in it for five years, exchanges are useful for selling Bitcoin. The key is to limit your exposure to hacks by leaving your money with them for as little time as possible. So my balances are always sitting at zero, right up until I want to sell some, at which point I deposit it, wait the six required confirmations (roughly an hour), immediately sell it, then immediately initiate a withdrawal. Even assuming a very pessimistic situation of the exchange I'm using suffering a full loss every year, that still puts my % loss from hacks at well under 1%. That's a risk worth taking considering how much more inconvenient all other ways of selling Bitcoin are.
its not, its a different best practice just like online banking has different best practices than using checks.
bitcoin is the slowest of all cryptocurrencies and many people use alternate cryptocurrencies (colloquially called altcoins) that transfer to exchanges faster than bitcoin (2-10 minutes compared to 10-60 minutes)
so storing more securely in your own altcoin's wallet and transferring is very fast.
most people aren't selling bitcoin for national currencies when they are using an exchange, they are trading between altcoins and other cryptoassets.
In the 5% of the time you actually need a national currency, you deal with those fiat exchanges on the far edge of the cryptocurrency economy, and deal with their slowness and questionable security for a brief amount of time.
Also, although less true now, exchanges can't be relied on to broadcast transactions to pay for things as well as a software wallet does. So when you aren't speculating and trying to buy something in a time sensitive way (such as using bitpay or shapeshift.io), using an exchange as a personal bank account for online shopping results in a horrible user experience.
> most people aren't selling bitcoin for national currencies when they are using an exchange, they are trading between altcoins and other cryptoassets.
I'd actually like to know if this is the case. It certainly isn't what I'm doing. I did hold some Litecoin/Peercoin for a while, and I still have Namecoin, but I have enough Namecoin that I'll probably never have to buy one again to keep my .bit domains, and I haven't held anything else except Bitcoin in over a year. So my typical use-case for an exchange is just to exchange national currency for cryptocurrency.
I suspect that I'm not the only one, but I don't have any evidence for that. If you have evidence that my use case is actually the 5% use case as you claim, I'd be interested to see it.
Well first, I will concede that although I used 'many people' earlier in the post, I did write 'most people' in that sentence, which was an accident. I'll stick with 'many people' to refrain from quantifying it.
Secondly, my extrapolation came from the daily volume of trade on the exchanges, from what I see on Coinmarket cap and other sources
As of time of writing, Ethereum/Bitcoin pair is 20% of bitcoin trade volume. Where Ethereum Classic/Bitcoin pair is another 6.5% of bitcoin trade volume.
Feel free to calculate all of the pairs to see which percent is national currency pairs. This is useful if I was here to defend the "most" assertation, but the point I intended to make stands. Altcoins are fast, more practical to move to exchanges, many people use them.
And finally, 'many people' aren't trading in and out of the currency pairs to acquire goods and services, just for speculation. As such I'll stick to my '5% of the time' statement about when people actually need national currency.
Whoa. The way you're using those stats doesn't make sense. Trade volume is heavily skewed toward the use cases of those who make trades often; i.e., day traders. A user who makes a $100 trade once a month comes out to affecting trade volume an average of $3ish per day. Meanwhile a user who makes $100 trades 10 times per day is going to affect trade volume by $1,000 per day. So trade volumes could easily overrepresent a day trader by 33,333%. In other words, a day trader could easily have 333 times as much effect on trade volume as a once-a-month investor.
So maybe people who make frequent trades are doing it between cryptocurrencies, which makes sense, because if you're day-trading cryptocurrencies it makes sense to trade for other cryptocurrencies, as that avoids regulation. But we don't have any data about what percentage of users are day-traders. If anything, the fact that Eth/BTC trades are only the percentages they are on that chart indicates that this isn't the case.
And incidentally, people who make frequent trades are the ones least likely to pull their money out of the exchange to somewhere safe, because it's going to be the biggest PITA for them, since they'd have to do it so often.
It's a bit annoying, but there are benefits to decentralization, too. If the banking system collapses, my Bitcoin are safe. If I get arrested, the government can't seize my assets. If I travel to another country, I don't have to pay any different fees to transfer my money there.
It's really not though? All I have to do is two things spaced roughly an hour apart (from the comfort of my own home). Buying a money order or mailing a check are more involved.
Look, I'm a big Bitcoin enthusiast, but Bitcoin isn't easier than traditional banking.
I sent ~8 checks at the beginning of the month without doing literally anything, because they were set up with automatic bill payment. When I get paid it goes directly into my account, again without me doing anything. Unless you're going to claim that Bitcoin is easier than literally not even thinking about getting paid or paying my bills, ease of use is not really a selling point for Bitcoin.
There are real reasons to use Bitcoin that aren't provided by traditional banking. We don't need to persuade people it's easier, especially since it's not easier.
I don't know who you think you're arguing against, but it isn't me. My point was that exchanges are useful for exchanging the cryptocurrencies that you already have for fiat currencies, and I presented a best practice that minimizes exposure to loss. That's all. I was pointing out that saying it's a pain in the ass is seriously overblown, because it's actually really simple, and a large number of common types of transactions that people never think about are actually more inconvenient.
Okay, that wasn't at all clear from what you said, because you used a very bad example (sending checks--this is much easier than sending Bitcoin these days). But if your point is that Bitcoin isn't difficult in some general sense, sure.
I keep my money as cash, in a vault that I had to design and build from scratch in my own home. It's probably not secure against robbery, but it's how I have to store my money to avoid the fact that all the banks are being robbed blind all the time. When I do actually have to transfer money to someone, I go to a bank where I keep a zero-balance account, make a deposit and physically stay there until it clears. Then I initiate the transfer, and as soon as that clears I immediately withdraw any leftover funds from the account and go back home to put it in my vault.
If someone had seriously proposed this as a way they use traditional cash + banks, you'd be laughing at them.
Many laughable things become fine with technology. Look at various encryption or network protocols. If someone had seriously proposed to Caesar that to keep their messages truly safe they needed to work out the math of a one time pad for every communication (or maybe more practically by modern standards, AES), they'd be executed. Rather than dismiss things on analogy, look at things as they actually are. The total amount of friction for the bitcoin equivalent is very little which makes it not a problem at all.
If I have to transfer my money into an exchange, wait for it to clear, and then immediately transfer it out into a wallet with a long random address with a random key that I then have to protect, that's not "very little friction" compared to traditional banking. There are many benefits to cryptocurrency, but ease of use is not one of them, and when you claim it is, you come across as out-of-touch with the average user.
The analogy fails because it's different in a substantial number of ways. That's the problem with arguments by analogy in general -- they're weak.
I'm not proposing an alternative to cash and banks here, I'm just pointing out that, if you have Bitcoin and want to sell it for fiat currency, using an exchange is definitely the easiest way to do so, and a best practice for doing so is to hold your cryptocurrencies yourself and only move them to the exchange when you're selling them, rather than holding them in the exchange.
EDIT: This is also why Ethereum's recent hard fork is such a ridiculous idea. Now Ethereum has all the downsides of centralization without many of the benefits.
> So when hackers stole about 36 percent of the bitcoins at Bitfinex, they didn't just steal 36 percent of each customer's bitcoins: They stole, basically, all of the bitcoins owned by 36 percent of the customers, and none of the bitcoins held by 64 percent of the customers. (Weighting customers by account size; you know what I mean.)
I think that all, or almost all, of Bitfinex's Bitcoins were stolen. Certainly more than 36%! The hackers generated all transactions and then simultaneously broadcast them. There's no reason they wouldn't or couldn't have gone after every last Bitcoin that was accessible to them. Bitfinex did not realize the attack was occurring in time and did not send out any counter-transactions to attempt to spend all of their coins first (realistically they had on the order of seconds to minutes for this). We know that Bitfinex wasn't using cold wallet storage like they should have, instead opting for some multi-sig scheme using BitGo that didn't actually work, so essentially all of their Bitcoins were available to be stolen, and were.
What's happening is that the 36% haircut is across all values in all accounts, including fiat currencies that were on deposit such as USD, as well as other cryptocurrencies that Bitfinex trades such as Ethereum. So Bitfinex lost all of their Bitcoin, which represented 36% of the total value on deposit with them, most of the rest of which was fiat currencies.
Just to fill in a couple gaps: The attack lasted approximately 3 hours, starting by draining the largest accounts and moving down from there over time. It's known not all of them were stolen. I've seen estimates (by outsiders) that approx. 60+% of bitcoins were stolen. It was certainly more than 36%.
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[ 3.7 ms ] story [ 59.6 ms ] threadOn a serious note....
> Engineers at Sydney-based Metamako LP and Exablaze Pty. Ltd., and Chicago-based xCelor LLC are rolling out switches that take around four nanoseconds—four billionths of a second—for messages to transit from one side to the other, sending data from exchanges to electronic traders.
Wow, can anyone shed some light on how they time this? What sort of clock, I'm assuming its some fancy hardware that you use to benchmark at the 4 nano second level? Or do you just claim this and assume that no one can prove you wrong?
As to Bitfinex, on the weekend a few friends and I were batting around ideas on how to reliably trade bitcoins without having to worry about being robbed by the exchange^H^H^H^H^H err worrying about the exchange being hacked and passing their mistake onto you.
The top ideas we had were:
- only trade on US domiciled exchanges, the US government tends to poke their nose into everything and this is one case where you benefit.
- phone the exchange before you start trading. If you can't get someone on the phone, that's a very bad sign:)
- Similarly, if the C level executives of the exchange aren't well known and always around at the regular bitcoin industry conferences then that's a bad, though this fails the Mt Gox test.
- we tried to figure out if you could pull the coins out each night and put them back in each day, but even then, you'd run the risk of the hack happening while you had coins held by the exchange.
But we came to the conclusion that there just isn't any sane way to trade bitcoins currently where you can eliminate "exchange risk". If anyone does know of a way please let me know.
There are decentralized exchanges that are becoming more popular (Bitsquare for one, check out http://www.bitsquare.io), but there's a chicken-and-egg problem for liquidity. Not a lot of people currently trade on the decentralized exchanges, so liquidity is thin (and until there's liquidity, larger traders will likely not trade there). However, there isn't any counterparty risk, other than if you buy BTC for USD, and the person on the other end charges back the bank transfer. When you trade crypto-to-crypto, the risk is minimal (barring a 51% attack reversing the history on the cryptocurrency you purchased).
(Sell BTC for real money, surely?)
So there isn't any counterparty risk apart from when it's most critical, actually cashing out?
Maybe if you're a day or mechanical trader. Although, I personally don't know if that's actually true. Have you tried it? Can you share any data or citations?
> Exchanges exist for trading quickly
Agreed
> they must be centralized due to this.
Have you encountered any definite proof of your conclusion?
Or swing trader or any kind of trader looking to time the market. Trading requires the ability to execute in near real-time. Block chain transactions and worse, fiat transfers between parties, takes far too long for trading to be effective.
> Have you encountered any definite proof of your conclusion?
They must be centralized to obtain the necessary speed because currently block chain transactions are too slow. Proof is unnecessary, logic is more than ample. One can't trade effectively if ones capital is hung up in "transit" between parties. Exchanges exist specifically to provide fast trading. There wouldn't be any exchanges if block chain transactions were fast enough.
We don't know that blockchain transactions are inherently slow and we haven't verified that no decentralized architectural/algorithmic/structural solutions exist to coordinating trades. In fact, I can think of one or two. So I'm asking you for data, not hypothesis. Do you have any info from your research about trade order execution times on p2p exchanges over time or userbase size? Or is it just your conclusion from anecdote?
That should show up on your 10GHz scope, although the probe setup is a little fiddly.
Or you could just ask your 10G network card to timestamp packets for you. Only valid for packets sent back to the same card, unless you go to heroic lengths to synchronise between systems.
(The exchange issue is called "counterparty risk", and it's the one area Bitcoin advocates tend to handwave away with reputation systems)
There are some expensive hardware solutions to capture all network traffic and timestamp it at nanosecond level. E.g.,
https://www.endace.com/endace-high-speed-network-recorders.h...
"In prosecuting money laundering offenses, the US Department of Justice takes the position that jurisdiction exists over a financial transaction if the laundering is completed by a US citizen anywhere in the world, or by a foreign national or non-US corporation if the criminal conduct occurs in part in the United States—even if the foreign individual or company never themselves took an action in the United States, or intended for an act to occur there... US enforcement authorities increasingly operate on the assumption (unless convinced otherwise) that they have jurisdiction for such offenses whenever a suspect transaction is denominated in US dollars. http://www.whitecase.com/publications/insight/how-us-laws-ca...
https://www.mayerbrown.com/files/Publication/577b946b-8ad0-4...
Still waiting for a proper post-mortem/post-hack. They must be gaining precious time and lawyering up before all the details are released and SHTF...
From a "blockchain enthusiast"'s perspective, this is exactly why Bitfinex and other centralized Bitcoin businesses are idiotic. If we're just implementing centralization on top of Bitcoin's decentralized structure, Bitcoin has literally no benefits over the traditional financial system. It's actually worse, because when a major traditional financial institution gets hacked, they reverse the charges instead of going bankrupt. Bankruptcies happen all the time in the Bitcoin world because creating a centralized Bitcoin puts a target on the business that grows as the business grows, and the damage when they get hit is irreversible.
The benefit of Bitcoin is decentralization, and businesses that don't understand this are always going to come across as naive. Sometimes so naive that they fail.
That being said, is that added benefit worth the (much MUCH bigger) risk of your money going up in smoke? Personally, I don't think so.
Overall, I agree... The reinvention of the wheel for the sake of it is laughable.
Bitcoin isn't trivially anonymous, and centralization almost universally comes with regulation that prevents it from being anonymous.
Businesses understand this really well and they are using this to their advantage, there's not much regulation around crypto-curruncies as of now, so these companies can operate in a legally gray area. It is the customers of these businesses who has no idea what is going on.
Many are happy to buy and sell the whole utopian view of how the block chain is going to liberate them all, how its going to end poverty and and kill all the evil bankers, but everyone saw what happened then the DAO got hacked, that whole utopian view of the irreversible something something was somehow now the responsibility of a central group.
If anyone wants to see examples of how most of these users have no idea of how to handle money, look at all the ponzi schemes that are build around crypto currencies. Its insane thinking how easily people give away their money for a piece of the moon.
I specifically said, "businesses that don't understand this" to talk about the subset of businesses that don't understand decentraliztion. I didn't say that all businesses didn't understand decentralization.
There are many businesses that do understand decentralization, but centralized exchanges like Bitfinex definitely don't. If they did, they wouldn't be holding the money of thousands of users. Lack of regulation around cryptocurrencies is only one implication of decentralization, and for that matter, it's one that isn't permanent. Decentralization makes regulation hard to enforce for individuals, but large centralized businesses are going to have a hard time avoiding regulation in the long term.
I think the key phrase here is "in the long term". Who says Bitfinex is in it for the long term? They say it? Why do you trust them?
A typical business will try to make money off you any way they can, scamming you if they deem it is profitable. The more legally gray area the business is in, the more likely it is you'll get scammed.
I think 'oolongCat was trying to point out that a centralized Bitcoin business may very well understand decentralization perfectly; that doesn't mean they will care about it in any way.
Assuming they don't plan to die tomorrow, Bitfinex is on the hook for a lot of money to a lot of people right now, and they're likely going to be sued. If they were only in it for the short term, they weren't in it for short enough; they didn't get out in time. Where does Bitfinex benefit from this? If their intent was to scam their users, they've also scammed themselves through their own lack of understanding.
I get what you're saying, but it just doesn't work out, even as a short term scam, for reasons that are obvious to anyone who understands decentralization. Bitcoin centralization can be a way to execute a scam (see various darknet markets that have exited with all their users' escrow Bitcoins). But Bitfinex didn't use centralization to execute a scam. They just failed because they didn't understand how decentralization would affect their business.
Speaking as a fellow "Bitcoin enthusiast" who's been involved in it for five years, exchanges are useful for selling Bitcoin. The key is to limit your exposure to hacks by leaving your money with them for as little time as possible. So my balances are always sitting at zero, right up until I want to sell some, at which point I deposit it, wait the six required confirmations (roughly an hour), immediately sell it, then immediately initiate a withdrawal. Even assuming a very pessimistic situation of the exchange I'm using suffering a full loss every year, that still puts my % loss from hacks at well under 1%. That's a risk worth taking considering how much more inconvenient all other ways of selling Bitcoin are.
bitcoin is the slowest of all cryptocurrencies and many people use alternate cryptocurrencies (colloquially called altcoins) that transfer to exchanges faster than bitcoin (2-10 minutes compared to 10-60 minutes)
so storing more securely in your own altcoin's wallet and transferring is very fast.
most people aren't selling bitcoin for national currencies when they are using an exchange, they are trading between altcoins and other cryptoassets.
In the 5% of the time you actually need a national currency, you deal with those fiat exchanges on the far edge of the cryptocurrency economy, and deal with their slowness and questionable security for a brief amount of time.
Also, although less true now, exchanges can't be relied on to broadcast transactions to pay for things as well as a software wallet does. So when you aren't speculating and trying to buy something in a time sensitive way (such as using bitpay or shapeshift.io), using an exchange as a personal bank account for online shopping results in a horrible user experience.
I'd actually like to know if this is the case. It certainly isn't what I'm doing. I did hold some Litecoin/Peercoin for a while, and I still have Namecoin, but I have enough Namecoin that I'll probably never have to buy one again to keep my .bit domains, and I haven't held anything else except Bitcoin in over a year. So my typical use-case for an exchange is just to exchange national currency for cryptocurrency.
I suspect that I'm not the only one, but I don't have any evidence for that. If you have evidence that my use case is actually the 5% use case as you claim, I'd be interested to see it.
Secondly, my extrapolation came from the daily volume of trade on the exchanges, from what I see on Coinmarket cap and other sources
http://coinmarketcap.com/currencies/bitcoin/#markets
As of time of writing, Ethereum/Bitcoin pair is 20% of bitcoin trade volume. Where Ethereum Classic/Bitcoin pair is another 6.5% of bitcoin trade volume.
Feel free to calculate all of the pairs to see which percent is national currency pairs. This is useful if I was here to defend the "most" assertation, but the point I intended to make stands. Altcoins are fast, more practical to move to exchanges, many people use them.
And finally, 'many people' aren't trading in and out of the currency pairs to acquire goods and services, just for speculation. As such I'll stick to my '5% of the time' statement about when people actually need national currency.
So maybe people who make frequent trades are doing it between cryptocurrencies, which makes sense, because if you're day-trading cryptocurrencies it makes sense to trade for other cryptocurrencies, as that avoids regulation. But we don't have any data about what percentage of users are day-traders. If anything, the fact that Eth/BTC trades are only the percentages they are on that chart indicates that this isn't the case.
And incidentally, people who make frequent trades are the ones least likely to pull their money out of the exchange to somewhere safe, because it's going to be the biggest PITA for them, since they'd have to do it so often.
Maybe decentralized exchanges like Bitsquare can alleviate them soon
I sent ~8 checks at the beginning of the month without doing literally anything, because they were set up with automatic bill payment. When I get paid it goes directly into my account, again without me doing anything. Unless you're going to claim that Bitcoin is easier than literally not even thinking about getting paid or paying my bills, ease of use is not really a selling point for Bitcoin.
There are real reasons to use Bitcoin that aren't provided by traditional banking. We don't need to persuade people it's easier, especially since it's not easier.
If someone had seriously proposed this as a way they use traditional cash + banks, you'd be laughing at them.
I'm not proposing an alternative to cash and banks here, I'm just pointing out that, if you have Bitcoin and want to sell it for fiat currency, using an exchange is definitely the easiest way to do so, and a best practice for doing so is to hold your cryptocurrencies yourself and only move them to the exchange when you're selling them, rather than holding them in the exchange.
> So when hackers stole about 36 percent of the bitcoins at Bitfinex, they didn't just steal 36 percent of each customer's bitcoins: They stole, basically, all of the bitcoins owned by 36 percent of the customers, and none of the bitcoins held by 64 percent of the customers. (Weighting customers by account size; you know what I mean.)
I think that all, or almost all, of Bitfinex's Bitcoins were stolen. Certainly more than 36%! The hackers generated all transactions and then simultaneously broadcast them. There's no reason they wouldn't or couldn't have gone after every last Bitcoin that was accessible to them. Bitfinex did not realize the attack was occurring in time and did not send out any counter-transactions to attempt to spend all of their coins first (realistically they had on the order of seconds to minutes for this). We know that Bitfinex wasn't using cold wallet storage like they should have, instead opting for some multi-sig scheme using BitGo that didn't actually work, so essentially all of their Bitcoins were available to be stolen, and were.
What's happening is that the 36% haircut is across all values in all accounts, including fiat currencies that were on deposit such as USD, as well as other cryptocurrencies that Bitfinex trades such as Ethereum. So Bitfinex lost all of their Bitcoin, which represented 36% of the total value on deposit with them, most of the rest of which was fiat currencies.
Edit: Sources:
https://www.reddit.com/r/Bitcoin/comments/4wizdn/txid_and_bi...
https://www.reddit.com/r/Bitcoin/comments/4wmpzt/bitfinex_as...