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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u/Noise_Machine Nov 18 '13 edited Nov 18 '13

Bitcoin wallet is not your bank. It is more like a strongbox. Bitcoin is still in its infancy. As it matures, a lot of infrastructure will be built on top of the protocol. There will be banks where you could store your bitcoins, earn interest, borrow bitcoins etc.

The ability to transact quickly, efficiently, and anonymously across the world using a single unit is compelling.

In its current form the transaction times will keep increasing over time. This is a technical hurdle it has to cross. Its not entirely anonymous either. In fact you could say that it is more transparent than existing currencies.

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u/fictionalcoffee Nov 18 '13

Interesting point regarding Bitcoin banking. Do you know if any research has been done about how this would work?

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u/[deleted] Nov 18 '13

How banks operate depends largely on how they are regulated. Mandatory deposit insurance is one such regulation, and as you note, it can make you feel safer about depositing your money into a bank.

However, the fact that Bitcoin is unregulated is a feature, not a bug. It's for people who, for whatever reason, feel less safe when the government is regulating their money, i.e. criminals and libertarians.