Buying and selling cryptocurrency (e.g., Bitcoin, Ethereum, Ripple, etc.) doesn’t seem to be hard to do. There are plenty of websites that allow for it. Kraken seems to be the one, at the moment, with the best history (as best my Googling tells me).
However, it seems like the Internet is littered with failed cryptocurrency trading websites, so I don’t want to be dependent on the continued existence of Kraken or whichever service I use.
I expect that there are specific hashes or UIDs that I can keep track of to know which coins are mine and so, even if the trade website goes bust, I can still get my coins back at some other point.
Does Kraken (or any other site) provide this information (the UIDs of the coins I’ve purchased)? Are there any sites that allow one to register the identifiers for my coins, for selling? Or, at that point, do you need to get some command-line tools to start working with things manually?
The abstract idea of a “crypto currency” is that transactions are digital, but cryptographic methods are used to ensure that only valid transactions are accepted, so, for example, you can only spend your own coins and not anybody else’s, you cannot spend the same coin twice or spend an invalid coin, and so on.
Similarly, you should not be able to cancel a valid transaction after the fact. Suppose you sell some coins- I am going to picture them as bills with serial numbers- via an online service. Even if you keep track of every serial number, you have still sent the actual bills to the website. If they go out of business, or cheat you, or get robbed, by design you cannot roll things back.
In summary, I do not see how you can avoid trusting the website, unless there is some sort of escrow involved.
I was talking about the website going out of business, not about them ripping me off. Whether they go out of business or not, I would expect that I maintain ownership of the coins. I want to be able to find them again.
At any instant in time, either you or the website has exclusive control over the coins. Therefore, I imagine it is exactly like trading foreign currency through a bank: if there is regulation, and insurance, and the bank goes out of business, then you can get your coins back from the liquidator. If not, all bets are off.
Taking Bitcoin as an example, if you back up your secret key file then you can use it later to prove that you indeed sent such-and-such an amount to the website. But if they are out of business then you must rely on the liquidator to pay your claim; you cannot do it single-handed any more than you could pull cash out of the vaults of a bank that has gone under.
The whole point about currency is that you don’t maintain ownership of it. If I give you a $100 bill by way of loan, or deposit, or whatever, I don’t have a right to the return of that $100 bill. I have a claim against you for $100, which is a whole different thing.
Obviously, if you aren’t worth $100, there’s no point in suing you to enforce my claim, which gives me a problem. In that situation, I may cast around for an argument that I can look through you, as it were, and sue somebody else who got $100 from you, arguing that in the circumstances it would be unjust that he should be allowed to retain $100 at, in effect, my expense. Even then, though, I’m not pursuing my $100 bill; he may never have received my $100 bill.
OK. I’m no expert, but as I understand it cryptocurrency is supposed to work like currency, so you would expect these features to be replicated. Once you hand your bitcoins to somebody, they are no longer your bitcoins. What you have is a right of action against somebody, which he can satisfy with any bitcoins, not necessarily the ones you gave him, or for that matter which he can satisfy with the value of the bitcoins in legal tender currency.
ETA: a legitimate website will have its own records, so it should not be necessary to prove to the regulatory authorities which coins in the “vault” are yours; they should already have that information.
Oh okay. From them being mined and people talking about the fungibility of certain coins, I thought they were uniquely identified rather than being a straight account balance.
I guess that makes it easier! (Though, more annoying if the site does go bust! Hopefully, it won’t!)
A legitimate bitcoin exchange will give you sufficient information that you could spend that sum of bitcoins at any other exchange, or with anyone else who accepts bitcoins. The continued participation or even existence of the exchange you bought it from is irrelevant.
Now, there may well be some digital currencies which do depend on the active participation of the issuing entity. In fact, I can think of a number of them: The in-game currencies of a wide variety of computer games. If you invest in these, you’re taking a gamble that the game servers will remain running.
At the base level, you have a file on your computer that’s a cryptographic key that tells other bitcoin people “I control the wallet with this UID”, and you can use your wallet to hold bitcoins and transfer them to other people. If you buy bitcoins with real cash and transfer them from an exchange to your wallet, then you have them no matter what happens to the exchange, like if you traded US dollars for pounds and put the pounds in a physical wallet.
Some exchanges will offer to hold bitcoins for you, which can make it easier to do some transactions and can save hassle, but if you do this then they have their hands on whatever coins you give them and if they decide to scam you or go out of business without paying you, you’re SOL. In this case, it’s like using a bank in the US before the FDIC was passed, if the bank holding your money goes out of business you probably just lose it all. Generally sites like this are unregulated and go out of business once regulators start looking at them hard, so I wouldn’t recommend leaving any more real money or cryptocurrency in them than you have to.
When Mt Gox went bust, a lot of people lost bitcoins that were stored on Mt Gox wallets. I was one, though I only had about 60 bucks worth of bitcoin there at the time.
I buy bitcoins on Coinbase now (for several years now), but I regularly transfer them from the Coinbase wallet to my offline wallet. I have a Trezor - google it if you’re interested, it’s pretty great. The coins are entirely offline, the PIN is next to impossible to keylog or brute force, and there are ways of recovering the coins even if you lose the device.
I’ve just today gone forward with the advise of my son in law and stuck my toes into the waters at Coinbase with $100 worth of Bitcoin and the purchase of a Ledger Nano S hardware wallet.
This is just a novelty for me that may or may not lead to a total loss of $250 but I was smitten by the concept and felt compelled to watch as my funds “do their thing”.
Now for the DFQ… If by some chance a Bitcoin goes to a value of $10,000 in the next few minutes, I think I’d cash out my profit and purchase a certificate of deposit at my brick and mortar bank. Make sense?
No. If you leave your coins on an exchange and the exchange closes, goodbye coins. It’s up to you to transfer them to your own wallet. While you use an exchange’s wallet the coins are for all intents and purposes, theirs. Bear in mind crypto is a largely unregulated sphere at this time.
Sorry this was the quote I meant to respond to above.
The response to the quote I previously quoted is that some coins are truly fungible, most are not. Coins are what get tracked effectively, and associated with a wallet. The balance you see is derived only from the contents of a wallet. Blockchain transactions basically ask “does the sending wallet actually have these coins?” if the network confirms yes, now the same coins belong to the receiving wallet. There is no subtraction of one account balance and increment of another.
(so again, this response goes with the first quote, the first quote’s response matches the above)