Quote:
Originally Posted by ShopCat
You are right, you can just look up your wallet on the btc explorer. I just checked and you are right they only settle on outgoing and incoming txs. So they are like paypal in the inter account reconciled balance sense.
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I'm pretty sure that's their business model - they perform the one withdrawal from your Bitcoin wallet, and then it goes into the Coinbase account (which is nothing more than digits in their computer system) and is reconciled from there. Then they charge fees on the inter-account transfers? As a risk factor, there is absolutely nothing preventing these coin trading platforms from just making up numbers and putting them into your account. I.E. they took the Bitcoin from you when you "added" amounts to your account. They can just run off with that Bitcoin to Bermuda if they wanted to.
The same risks exist with PayPal - it's not a bank and doesn't operate under any of the traditional banking rules. A "depositor" at PayPal would become a regular simple creditor if PayPal went bankrupt. This is what happened in the old days of banking - when miners (real miners like the ones in California in the 1800s) would deposit their gold at local banks. The banks would store the gold in their vaults and issue paper currency that would reflect that the miner had gold "on deposit" with the bank. The miner could then take that paper and use it in town to buy food, tools, equipment, etc, because the local supply store knew it could go to the bank with that bank's currency and collect the gold.
Well, what could go wrong with that? Lots, as history has told us. Reputable banks didn't have issues. But fly-by-night banks issued more "paper currency" than they had in the vault at the bank. Bank failures were somewhat common, and that is what was the impetus for the establishment of the Federal Reserve and the "nationalization" of the banking system. This was a good thing - it enabled people to have trust in the US currency instead of "Bob's Local Bank" notes. Yes, there are many additional problems with the Federal system, but insolvency (for now) is not really one of them.
My point is that PayPal and Coinbase, and the rest of the exchanges and "wallets" are like the wild west again, and there will be failures (as evidenced by Mt. Gox) in the future. Funny side note about Mt. Cox - it failed many years ago and is a Japanese company. Under Japanese law, the losses are capped at the current market value of the Bitcoin back in 2014 or so. So, people who lost their Bitcoin will possibly get reimbursed in the bankruptcy courts at the Bitcoin prices from then. Yet, in an interesting and frustrating quirk for account holders, the owners of Mt. Gox will have some Bitcoin returned directly to them - and it has appreciated tremendously since then. So, the account holders may be paid out at 2014 levels, and the owners may a big windfall (essentially after screwing up big time). Full story here, interesting reading:
https://www.reuters.com/investigates/special-report/bitcoin-gox/
Bottomline, as someone mentioned earlier on this thread - it seems best to keep your Bitcoin codes written down on a piece of paper and don't put it all at one exchange (only keep a partial amount on account at the exchange).
-Wayne
-Wayne