In Bitcoin Debate, Larry Summers Sides with the History of Change

http://blogs.wsj.com/moneybeat/2014/04/30/in-bitcoin-debate-larry-summers-sides-with-the-history-of-change/

by dfuego • 12 years ago

33 9 12 years ago

blogs.wsj.com

Mr. Summers also notes that the existing system requires “enormous investment” in mitigating credit-card fraud

Or, worded differently, the existing system protects consumers victimized by fraud, whereas Bitcoin doesn't (and won't ever be able to reverse a fraudulent transaction).

Fraud protection is a good thing. We should be trying to figure out how to get it into Bitcoin. YC should fund a company that aims to protect consumers from the risks of Bitcoin. Something like "trust us with your coins, and if we lose them, then this insurance company is guaranteed to pay you market rate for your losses."

I've been mulling over whether it'd be possible for Coinbase to get the equivalent of FDIC insurance. That would turn them from being "it's insane for anyone to trust you" into "you just became an awesome bank."

I can't think of any choice for exchanges or webwallets: either get insurance or erode consumer faith in bitcoin. And since it's so hard to get insurance, it's likely that the first one who does will have a huge advantage over everyone else.

I have no idea whether it's possible in practice to insure bitcoins on a large scale. I'm only saying that it's absolutely needed, because it's absolutely necessary for consumers to be able to trust some third-party service with their coins the way they trust a bank with their dollars. Either that, or make it trivial for people to manage their own coins as trivially as Coinbase does, which seems implausible.

When I point out that credit cards are superior to bitcoin from a consumer perspective, people sometimes counter with "you pay for that with 2% higher merchant fees, etc." But that's a small price to pay to guarantee you won't suddenly be unable to pay your phone bill next month due to theft. I've mentioned before, but someone once stole my credit card and got gas with it. I called up the credit card company and within 10 minutes the transaction was refunded and I was issued a new card. It would be amazing if that could be the case with bitcoin via some kind of insurance plan. I wonder if it's possible...

Rauchg• 12 years ago

Xapo's vault comes with insurance: https://xapo.com/#aboutVault

sillysaurus32• 12 years ago

I heard that too, but unfortunately it looks like Xapo seems to be misrepresenting themselves to consumers:

https://news.ycombinator.com/item?id=7510403

http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_doe...

The top comment from that Reddit thread shows a pretty compelling discrepancy that probably indicates there's no way Xapo is actually able to provide the guarantees it's claiming: http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_doe...

This is the sucky nature of Bitcoin circa 2014: before you trust anybody, research every single claim they make, else lose your coins if things go badly for them.

Someone who works for Xapo posted a less-than-compelling counter-reply: http://www.reddit.com/r/Bitcoin/comments/20dolm/psa_xapo_doe...

... and it strikes me as very foolish to trust that claim at face value:

The amount of reserves required to be fully-insured involves understanding specific methods of cold storage then applying actuarial methods for estimating losses, as well as other calculations.

That's the language of someone who can't outright say "we won't be able to survive catastrophic losses, and in that circumstance, you'll lose your money."

Something like an insurance guarantee needs to have a clear example of how payouts to consumers actually happen in the event of fraud. What can consumers expect? Will they pay market rate at the time of fraud, or will they pay current market rate? How long will it take to receive payment? Will they pay in dollars or coins? How can consumers really trust that you'll be able to cover the loss of n_users * price_per_coin?

smtddr• 12 years ago

Agreed. FDIC backed bitcoin(and some easy way to deal with the IRS taxes wrt bitcoin) would make things a lot smoother. But it's very hard for me to imagine a universe where anyone would dare to insure bitcoin; a property that you can't even prove was stolen or who it currently belongs to. The only way I can see that happening, is to take away the concept of the end user holding the private-keys. But I don't know what bitcoin is without that element to it. The way I understand bitcoin's goal is about giving control to the public and preventing "The Elite One Percent" from pulling stunts like this[1]. If all private keys are controlled by coinbase/btc-e/bitstamp/etc, then we're kinda back to banks. At that point what's the difference between the USD balance I see in my online bank account vs the BTC balance at Coinbase?

1. http://www.forbes.com/sites/andygreenberg/2010/12/07/visa-ma...

vojfox• 12 years ago

Hold your own keys yourself, possibly with the addition of multi-sig service(s) to make this safer and more convenient. That is undoubtedly the long-term vision of bitcoin, and it's quite different from banks/USD.

Ciotti• 12 years ago

The headline seems somewhat editorialized for what Summers is actually saying, even as he is quoted in the article.

“I’m not ready to stand with those who are sure they have seen the future here,” he concludes, “but it seems to me that it’s a serious mistake to write this off as either ill-conceived or illegitimate.”

ChrisGaudreau• 12 years ago

Seems like a typical weird Centrist argument. I don't think he really believes what he said; he's just trying to sound reasonable. He's basically saying "in 20 years, things will not be like they are today. Thus, when somebody tells you X will change the world, and you say otherwise, you are on the wrong side of history."

21echoes• 12 years ago

To Mr. Summers, the potential contained in bitcoin’s breakthrough technology, with its fast, low-cost system for confirming transactions

any article that touts Bitcoin as "low-cost" is a joke. paying 3-5% transaction fees[1] via inflation is not any better than the 2-4% that credit cards charge. And soon the bitcoin protocol won't have any coin left to mine, so this 3-5% will just be charged to consumers just like the existing networks, thanks to its baked-in gold-bug monetary policy. At least credit cards are instant, and the companies have good fraud monitoring...

not to mention the cost of the mining rigs, electricity they require, etc...

[1] http://blockchain.info/charts/cost-per-transaction-percent

rando289• 12 years ago

"thanks to its baked-in gold-bug monetary policy"

The biggest problem with bitcoin that no one wants to talk about, except to say "the means (ridiculous monetary policy) justify the ends of it becoming popular." I thoroughly do not believe it.

Economists have been studying monetary policy for a long time, and I'm no economist, but I know they are pretty convinced that having flexible monetary policy is a very good thing, and having inflation be not too high, and not too low is also very good and important. Bitcoin is overall deflationary, with no monetary policy flexibility. If it did grow enough to be a serious factor in the global economy, I'm convinced it would have a horrible impact.

The distributed network truly does have potential to overcome inefficiencies, but I hope to god there is a bitcoin 2.0 or perhaps several currencies which are more sensible.

They compare it to the internet. Using that analogy, we had ipv4 limits and domain name limits. We changed that. But bitcoin is built for people to be invested in it not changing and not improving in very important aspects. For the technology to have a big positive impact on society, we are going to have to move on and improve the gold-like policy set in stone on its very first day of existence.

In Bitcoin Debate, Larry Summers Sides with the History of Change

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