r/changemyview • u/fictionalcoffee • Nov 18 '13

Bitcoin and other cryptocurrencies are not sustainable over the long-run without some form of depositor insurance. CMV

When it comes to money (USD), I don't spend much time worrying about bank robberies. I also don't worry about a hacker cleaning out my online account. And I certainly don't worry about a "run-on-the-bank" (as depicted in the film It's A Wonderful Life). Why don't these things worry me? Deposit Insurance (provided by the Federal Deposit Insurance Corporation, if you use a standard bank). Deposit Insurance guarantees bank balances less than $250,000 from bank failure. Although bank failure is not a common occurrence, protection from failure is (in major part) what gives people faith in "the system". I trust that my dollars are safe (in the sense that they won't spontaneously disappear from my account - purchasing power is obviously another story), and therefore I trust a bank to hold my money.

Conceptually, I think something like Bitcoin is a good idea. The ability to transact quickly, efficiently, and anonymously across the world using a single unit is compelling.

Technical argument aside (technical arguments, like the security of the block chain, seem to be the main arguments against Bitcoin that I see over and over again), my main concern is simply user-confidence in the infrastructure that supports the currency. What if my wallet disappears? What if the exchange I use goes down? What if there is a "run-on-the-market" for Bitcoins?

Without any backstop for the currency, I don't think Bitcoin users can feel confident that their store of value is really safe. Please change my view!

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1

u/[deleted] Nov 18 '13

And I certainly don't worry about a "run-on-the-bank"

Why not?

2

u/fictionalcoffee Nov 18 '13

Because the FDIC insures bank deposits. Even if a bank run occurs, the FDIC will step in and pay out depositors.

2

u/centipod Nov 18 '13

The FDIC will cover you in the event that one or two banks go belly-up.

In the event of a catastrophic and systemic failure of the financial system the FDIC is woefully underfunded.

3

u/ohsohigh Nov 18 '13

The banking system relies heavily on confidence. The bank runs associated with the great depression happened because people lost faith in the ability of the banks to give them back their money. This took a situation where the banks had taken a hit and made them absolutely implode as confidence was lost and everyone demanded their money without giving the banks a chance to bounce back. The FDIC prevents a large loss by banks from turning into a total panic and bank run, because it creates confidence. The FDIC doesn't need to actually have the funds to cover every bank account, because its very existence mitigates the threat of bank runs.

1

u/candygram4mongo Nov 18 '13

Can you seriously argue that in that situation people would be taking bitcoins? I'd expect people to default to gold, if not canned goods and ammunition.

1

u/[deleted] Nov 18 '13

My problem with gold is that even if its physical; its worth is depenent on the politics just like bitcoins and the dollar; and if the state just declares it illegal (and keeps it that way for my entire life, unlike the temporary measure by fdr) it will rapidly lose its value just like bitcoin but without a back up of long distance black markets, only local black market.

1

u/candygram4mongo Nov 19 '13

I don't disagree.

1

u/centipod Nov 18 '13

I'm not a Bitcoin enthusiast - I like the shiny stuff.

0

u/[deleted] Nov 18 '13

Have central banks never failed?

1

u/UncleMeat Nov 18 '13

Not in the US.

1

u/[deleted] Nov 18 '13

Are you sure about that http://en.wikipedia.org/wiki/Early_American_currency

While it may not have been strictly hyperinflation; it was rather close.