[sillysaurus3]

Heard that before. The question to answer is, "Why now?" What's different now? Nothing. Not yet. This will change someday, but I don't think that's today.

The day Bitcoin gets FDIC protections is the day it can go mainstream.

[joshuaxls]

The point of bitcoin is that you don't need FDIC protection. You need FDIC protection with a bank because the bank isn't required to hold enough reserve to cover its deposits. If there's a run on the bank, and everyone wants to pull their deposits out, and the bank is insolvent, then the government guarantees to protect consumers by printing more money (inflation) to fulfill the bank's reserve requirements.

With bitcoin, you either have it or you don't. You can run your own bank, as long as you know how to safely store a private key.

[JoeAltmaier]

I don't get it. A 'bitcoin bank' may have exactly the same liquidity issues, if they reinvest deposits like commercial banks do.

[joshuaxls]

Yes, you're right. The point is, with bitcoin, there's really no need for banks.

It's easier (and safer) for me to hold a million dollars in bitcoin than a million dollars in cash. If I had a million dollars in cash, I'd be constantly worried that someone will find it and steal it. Hence the need for a bank. I feel much more capable hiding a private key, which is just information, than I do hiding 10,000 pieces of paper, which is physical.

[JoeAltmaier]

Its not about need. Its about somebody paying you interest on your money. To the degree bitcoins don't pay interest, they are less valuable than hard currencies.

[joshuaxls]

No one opens a bank account for the interest paid. Most accounts barely pay a tenth of a percent annually, maybe a quarter percent from a credit union—meanwhile, inflation is 2% a year. You’re losing net worth by holding USD in a bank account.

[JoeAltmaier]

You're putting your money into the wrong bank.

[bduerst]

Sooo when Mt. Gox became insolvent the bitcoin holders there didn't need insurance?

[vertex-four]

The point is that bitcoin holders don't need MtGox to hold their money. They would've been safer by far storing it in a 2-of-3 wallet, with one key held by a third party which does passphrase authentication (or similar) before they'll sign a transaction, one held on your computer, and a third stored somewhere hidden as a backup in case one of the other keys cannot be accessed.

Two of these already exist: BitGo[0] and GreenAddress[1]. Try doing that with physical money, and you understand why we have banks. With Bitcoin, you can have any level of security you like, and somebody only has to implement it once.

[0] https://www.bitgo.com/ [1] https://greenaddress.it/en/

[bduerst]

That doesn't solve the problem mitigating risk from insolvency - it's just yet another complex layer of security.

[vertex-four]

> That doesn't solve the problem mitigating risk from insolvency

Does FDIC insurance? If the dollar's worth nothing tomorrow, where's the insurance for that?

Everyone in my country has insurance for becoming personally insolvent, it's called welfare. If you have enough bitcoins that losing them would be devastating, you can also get bespoke insurance on them, even if there's not a pre-existing insurance product.

[bduerst]

Yes, the FDIC does for when (not if) your funds are lost.

You've also confused deposit insurance with insurance for hypothetical government failure, and drawn a false equivocation with welfare, though my guess is you didn't have any other point so you went with the slippery slope.

[sillysaurus3]

Except you're susceptible to physical robbery unless you store your money in a bank with FDIC protection. This is one reason Satoshi chooses to remain anonymous.

[joshuaxls]

We're in agreement. Since USD is a physical store of value, it suffers from problems like robbery. Hence the need for banks.

With bitcoin, you don't need a bank. I have a 24-word passphrase in my head that can be converted to my private key—a "brainwallet". I know it, and my parents do. It's not written down or stored anywhere. It simply isn't physical.

With those 24 words, you can unlock all of the value I have stored in bitcoin.

It's utterly amazing.

[sillysaurus3]

You're okay with someone being able to hold a gun to your head and demand your 24-word passphrase? That's why you need a bank with FDIC protection, even with Bitcoin.

[joshuaxls]

You don’t understand what the FDIC is for. It’s not there to protect your deposits from being stolen by robbers. It exists to ensure consumers that banks are guaranteed to be solvent while they practice fractional reserve banking. See: http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corpo...

If someone holds a gun to my head, I would give them my passphrase. I’d also go into my bank and wire my money into their account. In both scenarios, my money is gone forever.

Maybe someday, someone will invent a store of value that is safe, even if someone is threatening to kill you.

[sillysaurus3]

The point of FDIC isn't to defend against robbers. It's to enable you to safely store money. You cannot do this with bitcoin. You can do this with USD.

Most people don't walk around with their life savings on them. That is exactly what you're doing by storing your life savings in your brainwallet. Hence, the need for banks.

Bitcoin mixers also make it an attractive avenue for robbers. No one can demand you wire them money without getting caught. But they can demand you give them your passphrase and then make your money disappear in an untraceable way.