[dragonwriter]

> Many times in the past bitcoin companies have been hacked, embezzled or otherwise lost user funds. There is no recourse.

Many times, other companies have had that happen, and there is all kinds of recourse. To the extent bitcoin companies are special, its because people participating in the bitcoin craze have been willing to entrust large amounts of value with companies that don't have the basic characteristics that would otherwise establish trustworthiness, or at least accountability.

[maaku]

What do you do when the money is gone? With other payment technology you can get court orders to freeze funds, or judgments against current holders.

Bitcoin, on the other hand, is irrevocable and pseudo-anonymous. In July 2011 the owner of MyBitcoin.com web wallet allegedly walked away with 50,000 btc of customer funds. We know where those funds are. You can see them on any block explorer. But it is not possible to freeze or confiscate those funds. And we don't know what real world person or people have access to the keys controlling those funds. So what are you going to do?

MtGox went under with 850,000 btc of customer funds. Its creditors are currently fighting over the 200,000 btc that was found to still be in possession by the company. The other 650,000 btc? Who knows.

It's just a simple fact of reality. If you don't have physical control over the keys for that bitcoin, it is not your bitcoin. Some of us have learned that lesson the hard way.

[jsprogrammer]

>But it is not possible to freeze or confiscate those funds.

That is just a limitation of the Bitcoin protocol. One could build a protocol where communities could agree to freeze (not accept) or greatly devalue those funds.

[maxerickson]

Miners could conspire to mostly freeze certain bitcoin.

It wouldn't even have to be done in a way that was visible on the bitcoin network, they would just have to agree to not include transactions from whatever addresses.

A strong majority could probably refuse to acknowledge blocks including the blocked addresses, which would be a real freeze (rather than the hassle freeze obtained by not including the address in blocks produced by the conspiracy).

[jsprogrammer]

You'd need >50% of the miners to do that. It is precisely what I mean by building a protocol.

Of course, without strong consensus (and a real algorithm/protocol) such attempts will likely just result in fractured blockchains (basically the state at the moment, with many competing implementations of the same basic idea).

[csomar]

Not really. you are talking about an attack.

You'll need 100%, because if a single miner decided to include the transaction, then it is in!

[maaku]

You need only a cabal of >50% of the miners to agree to not build on any block that includes such a transaction.

[jsprogrammer]

An attack and a new protocol are the same thing.

If a single miner includes the transaction, a majority can just bypass that sole miner.

You do need 100% of something, but that something is just >50% of the miners.

[bduerst]

Only if that miner is successful for a block. Until then the blocked transaction stays in limbo.

[maaku]

It is an explicit design choice of the bitcoin protocol (feature, not a bug) that doing so requires a cabal of the majority of the hash power. With properly distributed hash power like bitcoin had in its infancy, this would not have been possible.

[fixermark]

Given that BTC is a currency that is not backed by a national treasury (and is, in fact, technologically not backable by printing more money), such insurance would be a prohibitively expensive percentage of a company's BTC resources.

The same features of BTC that serve as its advantage and, arguably, goal make it more difficult to offer basic protections that other fiscal infrastructures have had for decades.

[aianus]

You can store $100m in bitcoin on a piece of paper in a vault. It reduces perfectly to the solved problem of securing $100m in $100 bills in a vault (which, yes, you can insure).

[fixermark]

While true, that does not offer the same protection as an FDIC-style insurance program (and restricts the storing entity's ability to compete and perform by preventing them from investing that $100m, so the market will tend ceteris parabus to punish companies that take such a step in good times with relatively-slower growth, acting as a disincentivizing counter-weight to offering insurance). In contrast, the FDIC has unlimited borrowing capacity with the US government; worst-case scenario, the Treasury can basically start printing money and the FDIC can hand it out to people with savings in failed banks.

Many see this capacity of the US Treasury to fabricate money from nowhere as the very sort of flaw that BTC's coin-generation process is intended to avoid, but that protection does not come without a price.

[xixi77]

Since this is about an amount of $100m, I'd say the above suggestion (theoretically) offers much more protection than FDIC, which only covers losses up to $250k iirc...

I suspect that at the moment it may be more difficult to find an insurer for a vault with that piece of paper, compared to a vault with $100m cash though :) but perhaps that'll change.

[dragonwriter]

> While true, that does not offer the same protection as an FDIC-style insurance program

Sure, but whether that difference from "the same protection" is more or less protection depends on the number of people that $100 million is held on behalf of.

[bduerst]

That's security, not insurance.

FDIC-style insurance is for when the security is breached, not if.