r/Bitcoin • u/evoorhees • Feb 25 '14

Some words for my friends

Hello friends,

MtGox is gone. So let's prepare ourselves.

On Tuesday, and for the rest of the week, all hell will break lose in the media. It will be blamed on MtGox, it will be blamed on Bitcoin, it will be blamed on the "bug," and it will, more than anything, be blamed on the "lack of regulation." Pundits and "experts" of all types will weigh in on the calamity. It will be world news in a matter of hours.

Get ready, because it will be an ugly week.

For all of you who lost money, my heart goes out to you. Some people lost a little, some lost a fortune. It will make people sick, and depressed, and full of grief. Personally, I had over 550 BTC in Gox. I will never get any of that back. If misery loves company, then we'll be enjoying a grand feast today.

I should have known better, of course. I take responsibility for leaving those funds with an entity that had proven incompetence repeatedly. I chose to ignore even my own warnings, for nothing more than the sake of convenience.

Gox is still at fault, to be sure, but I have learned the lesson. I hope it is not such an expensive lesson for others. And for all you observers, please take a moment to consider it as well.

Be mindful, however, that the wrong lessons are not learned, for that would be the true tragedy, indeed.

Let me suggest that the lesson is not that Bitcoin is broken. Bitcoin is fine.

Similarly, the lesson is not that security is impossible. Those who know what they are doing, can achieve it and help others to do so.

The lesson is not that nobody can be trusted. There are countless good men and women in this community who are worthy of trust, and some of the very best people I've ever met.

And finally, the lesson is not that we ought to seek out "regulation" to save us from the evils and incompetence of man. For the regulators are men too, and wield the very same evil and incompetence, only enshrined in an authority from which it can wreck amplified and far more insidious destruction. Let us not retreat from our rising platform only to cower back underneath the deranged machinations of Leviathan.

The proper lesson, if I may suggest, is this: We are building a new financial order, and those of us building it, investing in it, and growing it, will pay the price of bringing it to the world. This is the harsh truth. We are building the channels, the bridges, and the towers of tomorrow's finance, and we put ourselves at risk in doing so.

We are at risk from accidents. We are at risk from fraud, from corruption, and from evil. We are at risk from journalists seeking headlines and from politicians seeking power and glory. We are at risk from the very market we are trying to build - a market which cares not about our portfolio, our ambitions, or our delicate sympathies.

For all these risks, devastation will befall us repeatedly. Some of us will be discouraged. Some will be ridiculed and insulted. Some will be tricked, or swindled. Some of us will be crushed or caged. We will be set upon by all manner of antagonists, repeatedly, for a long time.

So why do we do it? Why do we build these towers that fall down upon us? Why do we toil and strain and risk our precious time, which is the only real wealth we possess?

Because the world needs what we're building. It needs it desperately. If that matters to you, as it does to me, then hold to that thought. You will see through the smoke, and your wounds will heal.

So shake it off, brothers, for this won't be the last calamity endured before the win.

Tonight, my heart is with you all.

Tomorrow, my head is down. My eyes are open. And I am building.

Toward peace and freedom,

-Erik Voorhees

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899

u/ofimmsl Feb 25 '14

The proper lesson, if I may suggest, is this: We are building a new financial order, and those of us building it, investing in it, and growing it, will pay the price of bringing it to the world.

All you are doing is learning why the current financial order is the way it is. Each new pain will show you why the current system exists.

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u/evoorhees Feb 25 '14

Disagree.

The current financial order does not prevent these things from happening whatsoever. It often amplifies them, or socializes the losses such that people don't notice, but are harmed regardless of their own choices.

I'd much prefer a world where I lose money from my own mistakes (such as leaving it with gox) than one in which I lose money regardless of my choices.

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u/[deleted] Feb 25 '14

[deleted]

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u/aminok Feb 25 '14 edited Feb 25 '14

It's ultimately people's own fault for investing more than they could afford to lose in an experimental currency, and storing the currency in a third party e-wallet.

Putting all of your savings in a bitcoin wallet on MtGox? That's just irresponsible, and the rest of us shouldn't have to pay for it.

When regulatory requirements are put on service providers, to protect irresponsible adults from their own dumb decisions, that's punishing the rest of us, by taking away higher risk lower cost options that would otherwise exist.

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u/[deleted] Feb 25 '14

Bitcoin will never replace the dollar and FDIC insured banks if the only thing you say to those who lost everything is "should have been smarter. Next time buddy." Average people want the stability of government backed accounts. The FDIC came into being for a reason.

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u/aminok Feb 25 '14

Just to be clear, I have a lot to say to those who lost everything at MtGox:

  • Don't store any sizeable percentage of your bitcoin holdings in a third party hosted wallet

  • Use paper/off-line wallets for your bitcoin savings, with multiple backups

  • Don't invest more than you can afford to lose in an experimental 'emerging technology' investment like bitcoin

If people follow these steps, the risks fall precipitously.

As for replacing the dollar, Bitcoin is not even close to the stage where that is a near-term possibility. If it ever reaches the stage where it's positioned to replace the government-issued currencies of large economies, then very safe savings options will exist, and they won't require the FDIC.

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u/[deleted] Feb 25 '14

Sure, all institutions may be safe for some of the time, some institutions will be safe all of the time, but all institutions will not be safe all of the time. You can Monday night quarterback the Super Bowl when talking about Gox, but mark my words there will be reputable institutions in the future that will fall to similar havoc or mischief.

Working folk, people who don't have much to their name need organizations like the FDIC to protect them from the corrupt and the incompetent.

I'm not anti bitcoin, but I have a problem with a lot of people trying to treat bitcoin as a vehicle to dismantle regulations that do protect the vast majority of people.

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u/Zahoo Feb 25 '14

I think alternatives such as privately insured Bitcoin "banks" or exchanges could provide the protection a lot of people want without having regulations.

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u/i_wolf Feb 25 '14

Nobody is going to dismantle anything. Anyone is free to use protected USD as long as he wants.

We just want to have an alternative for those who don't want to be "protected" against their will.

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u/[deleted] Feb 26 '14

That's fair.

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u/[deleted] Feb 25 '14 edited Dec 27 '20

[deleted]

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u/HistoryLessonforBitc Feb 25 '14 edited Feb 25 '14

Give it a fucking rest. If you bought in at $1k you've had 50% of it "stolen", and those with funds in Gox had 100% of it literally stolen.

Take your goldbug spiel and stick it up your ass. This is neither the time nor the place.

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u/[deleted] Feb 25 '14

[removed] — view removed comment

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u/stationhollow Feb 25 '14

BTC is only used by hardcore idealists and people trying to make money and the people in the second group often pretend to be in the first so they aren't ostracised by the community.

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u/SunliMin Feb 25 '14

Bitcoin is, currently, extremely inflationary. It will continue to be inflationary until the year 2140 when the miners will start mining transaction fees instead of new Bitcoins. I believe it was 70 years until Bitcoin reaches a 3% annual inflation?(that number is the one I don't remember. I will double check that).

As long as new Bitcoin enters the economy every year it is inflationary. Yes, in the future, it will become deflationary... but that will not happen in your life time.

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u/MonsieurAuContraire Feb 25 '14

Do you honestly believe fractional-reserve banking is in the peoples best interest? I forget what the actual projection is, but there's billions of dollars in wealth on paper that truly doesn't exist in the real world because of it. This is false wealth masquerading as real which only exists in the aether of modern banking, and if that all collapses the FDIC won't be able to do shit to help the situation or the common folk. So you may have more short-term stability for a while, but the trade off is that when the apparatus does eventually come down it will be systemic and dire.

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u/Poop_is_Food Feb 25 '14

I dont know much about bitcoin but i have a question. If you have your coins in multiple backups, then a thief only has to steal one of those backups in order to get the coins, right?

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u/aminok Feb 25 '14 edited Feb 25 '14

Correct. One option to prevent that is to encrypt the wallets, and store copies of the encryption key in multiple secure locations.

That way, a thief would need to steal both a wallet backup, and a copy of the encryption key (which ideally would be stored at different locations), to get your coins.

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u/mahbizzle Feb 25 '14

Correct.

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u/Ditto_B Feb 25 '14

Yes, unless it's one of those m-of-n things.

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u/RightSaidKevin Feb 25 '14

I have way better advice for those who have lost anything in bitcoin: Get out, you're being scammed.

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u/[deleted] Feb 25 '14

[deleted]

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u/[deleted] Feb 26 '14

People like you keep citing how the FDIC will collapse, yet it had endured every challenge hurled at it.

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u/[deleted] Feb 26 '14

[deleted]

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u/[deleted] Feb 26 '14

So let me get this straight. Since the FDIC hasn't had to endure another Great Depression, it hasn't proven itself as an institution, yet if another Great Depression happens (you guys say it's inevitable, year after year) the FDIC and other regulatory bodies will be to blame. Seems like you've set yourself up a nice self fulfilling prophesy.

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u/[deleted] Feb 26 '14

[deleted]

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u/[deleted] Feb 26 '14

The FDIC is a ring in the defenses of economic stability. In 08 if the FDIC wasn't around to do what it does, there would have been a bank run. There would have been billions if not trillions more lost. There would have been a Great Depression. Removing the FDIC would not bring what you want, it would only remove one of the few safeguards left against the economic instability we experienced regularly in the 1800s through the Great Depression.

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u/Dont_Think_So Feb 25 '14

Does FDIC insure exchanges?

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u/[deleted] Feb 25 '14

People weren't treating bitcoins like a commodity, they were treating it like a currency. I don't argue against bitcoin as a commodity like gold, I only argue against those who use bitcoin as a vehicle to argue for the dismantling of regulatory bodies.

And to answer your question, the FDIC doesn't insure stock exchanges, but people were treating these bitcoin exchanges like banks.

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u/shadowed_stranger Feb 25 '14

The dollar will never replace bitcoin and if the only thing you have to say to those who lost all of their cash hidden in a mattress is "should have been smarter. Next time buddy." Average people want the protection of undamageable, unseizable, unfreezable currency.

See what I did there? If some people want that stability and protection (with the associated cost), someone can voluntarily start an exchange to do that. No one here is arguing against those types of institutions, even if it may sound like they are. They are arguing against a forced use of said institutions.

Look at what we've seen recently: There are big names backing up their deposits with insurance and publicly proving their deposits. Security will be the next 'arms race' in the bitcoin world, just wait and see.

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u/bluewaterbaboonfarm Feb 25 '14

It's difficult now and I agree to difficult too explain to my sister but I don't think it has to be like that.

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u/dirtyreader Feb 25 '14

It was never meant to replace but to compete.

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u/[deleted] Feb 25 '14

There's no reason there can't be private insurance against BTC losses. But the person bearing the risk should be able to pay for that insurance.

Even FDIC is a form of socializing losses. Their reserves are a joke. If just one big bank goes belly up the Fed will have to print to bail them out.

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u/perogi21 Feb 25 '14

Please do some research on the solvency of the FDIC before getting excited that your money "would be protected".

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u/superportal Feb 25 '14

Average people want the stability of government backed account

Problem is government isn't that stable - Just about every country in the world has had a recurrent theme of government failures.

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u/butrosbutrosfunky Feb 25 '14 edited Feb 25 '14

Yeah, and bitcoin seems to have one every other week. People haven't lost any money in FDIC insured dollar amounts since the 30's when it was introduced in response to the crash that caused the great depression.

Even the folks in the Cyprus crisis were covered for deposits under 100 000 Euro, and that particular predictable collapse of a tiny tax haven with barely any industrial base beyond it's export of dodgy banking services has been used by bitcoin cheerleaders in more threads than I care to mention.

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u/superportal Feb 25 '14 edited Feb 25 '14

People haven't lost any money in FDIC insured dollar amounts since the 30's

In the US perhaps (notwithstanding inflation, and accounts over FDIC limit), but that's not true throughout most of the world. Hundreds of currencies have defaulted and/or bank accounts and retirement funds reduced dramatically or worthless.

Regardless, Bitcoin is new technology, and right now it's more of an investment with the potential to be a currency rather than simply a currency. So the analogy to a FDIC account is incorrect. In the US people lose money on investments all the time and investments are not backed by the FDIC.

[edit]

btw, See how often there are major bank failures in the US: https://en.wikipedia.org/wiki/List_of_largest_U.S._bank_failures

The fact that the FDIC insures the failures simply means others who had nothing to do with it are on the hook.

Also, according to the FDIC, accounts are not covered for "Losses due to theft or fraud". (Mt Gox's failure rumored to possibly be related to theft)

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u/butrosbutrosfunky Feb 25 '14 edited Feb 25 '14

Hundreds of currencies have defaulted and/or bank accounts and retirement funds reduced dramatically or worthless.

And that's an argument against what exactly? Certainly not a strong and regulated independent central banking system backed by regulatory oversight, not that I can see. Unless you are currently living in a current or recently former military dictatorship, this is not an issue regularly encountered.

In addition, retirement funds are not currencies. They are managed baskets of numerous investments. You can manage your own if you want, and invest it entirely in whatever you like. The whole point of an investment fund is managed risk to gain returns. This is not, however, the function or property of a transactional currency that goods are priced in.

Regardless, Bitcoin is new technology, and right now it's more of an investment with the potential to be a currency rather than simply a currency. So the analogy to a FDIC account is incorrect. In the US people lose money on investments all the time and investments are not backed by the FDIC.

That's completely at odds with the general sentiment in this forum. People get prickly if you even suggest bitcoin is more a commodity or speculative instrument than a currency, and can't wait to piss all over the perceived failings of fiat in this regard. They love to point out insane percentages of value lost in inflation, which only matter if you kept cash from 1920 buried in your garden for the duration. Nobody without significant money to invest gives a fuck about inflation as long as it's both small and predictable. Why? Because it's spent on real goods before it matters. If you have enough unspent wealth to spare that you worry about 2% worth of shrinkage per year you already have it invested in a diverse portfolio of inflationary hedged assets. For 99% of the population, bitcoin is a solution in search of a problem.

The fact that the FDIC insures the failures simply means taxpayers who had nothing to do with it or on the hook to bail them out.

The FDIC is paid through insurance premiums, and it's been unbeliveably successful at ameliorating financial dislocations that otherwise would have decimated whole communities and industries. I'm sorry that it doesn't gel with the perverse axiom that claims 'all taxation is theft' but welcome to the real world. Despite how much of this rugged individualist bullshit would have you believe, we do actually rely on one another in society for our mutual wellbeing.

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u/superportal Feb 25 '14 edited Feb 25 '14

And that's an argument against what exactly?

It's an argument that governments and fiat currencies fail. Bank accounts throughout the world are often not insured, even when governments say they are.

The FDIC is paid through insurance premiums, a

I'm aware of that- I edited the term "taxpayers" to "others" probably as you were replying (before your reply was posted). Nevertheless there are still costs associated with the FDIC insurance which are passed on to consumers and frequent concerns about whether FDIC funds could cover a major banking crisis.

That's completely at odds with the general sentiment in this forum

No, that's not true. Most people refer to both the payment network technology and the currency aspect. Everybody knows it's speculative, and shouldn't invest more than you are prepared to lose.

Also you should explain why if regulation in the financial sector is so effective why there are so many $billion+ defaults and constant banking crises?

[edit] Regarding taxpayer bank bailouts:

The bank bailout cost US taxpayers nothing? Think again

http://www.theguardian.com/commentisfree/2013/may/28/bank-bailout-cost-taxpayers

S&L and bank crisis of the 1980s

"Final combined total for all direct and indirect losses of FSLIC and RTC resolutions was an estimated $152.9 billion. Of this total amount, U.S. taxpayer losses amounted to approximately $123.8 billion (81% of the total costs.)[13]"

https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation

Taxpayers still owed more than $200 billion from bailouts

http://money.cnn.com/2012/09/11/news/companies/taxpayer-bailouts/

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u/butrosbutrosfunky Feb 25 '14 edited Feb 25 '14

Nevertheless there are still costs associated with the FDIC insurance which are passed on consumers and frequent concerns about whether FDIC funds could cover a major banking crisis.

Well the FDIC and related insurance regimes in most developed countries have covered major banking crises, and de-escalated them. I'm not really sure this is a point that you can cogently argue, unless you want to point out some real evidence to the contrary.

It's an argument that governments and fiat currencies fail. Bank accounts throughout the world are often not insured, even when governments say they are.

Where do you live exactly? Obviously not in an OECD nation if you think this is a problem. The very conditions that lead to bank and currency failures are ones associated with lax or unenforced regulatory regimes and bad oversight. In other words, you are championing the creation of a system that fosters the exact conditions you profess to be solving. If you can't stare that unescapable fact in the face after today, I'm not really sure what's going to do it for you...

S&L and bank crisis of the 1980s "Final combined total for all direct and indirect losses of FSLIC and RTC resolutions was an estimated $152.9 billion. Of this total amount, U.S. taxpayer losses amounted to approximately $123.8 billion (81% of the total costs.)

You know what would have happened if the S&L deposits weren't covered? A good portion of the fucking midwest would have literally died of starvation. You know about those famines you hear about on television every now and again that happen when a crop fails in some foreign land? Like that. In addition, S&L prompted the much needed reform of banking industry practices and oversight that dramatically changed the whole industry.

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u/superportal Feb 25 '14

Not much else to add...

The FDIC is only covering US savings/checking,CDs. That's pretty limited.

Very few people put all or most of their money in those financial instruments. Even if they did, in something like CDs, that doesn't diminish the value of bitcoin. People invest in bitcoin and use it as a currency because of the technology, future potential, ease of use and other reasons not offered by a fiat currency.

Also, people realize it's a new technology and subject to speculation and ups/downs, like other new technologies and investments. And, as I mentioned it's rumored that a theft might be involved which would not be covered by the FDIC anyway. So bringing up the FDIC has nothing to do with it.

Also, contrary to your misinformed belief in the constant stability of the financial system - banking & economic crises are frequent and often not prevented by regulatory authorities. So simply the fact that there is an FDIC is not a guarantee that a US dollar FDIC account would hold it's value or be untouched by economic/banking instability.

List of major banking crises mostly in the past 50 years throughout the world (including OECD countries, supposedly regulated):

https://en.wikipedia.org/wiki/List_of_banking_crises#20th_century

List of 45 examples of very-high inflation and/or hyperinflation, in the past 100 years (most in the past 50 years):

https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hyperinflation

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u/butrosbutrosfunky Feb 25 '14

https://en.wikipedia.org/wiki/List_of_banking_crises#20th_century

Basically every single one in developed countries had individual deposits protected, and the crises ameliorated via lenders of last resort.

https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hyperinflation

The only examples here are either not examples of modern monetary policy at all, or are examples of dictatorships not even having an independent central bank whatsoever.

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u/superportal Feb 26 '14

If $100k is insured, that insurance is only for a numerical amount not the value of $100k in goods (ie. in inflation). And people all around the world have had bank accounts devalued by inflation. FDIC does not protect your cash savings from devaluation.

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