Bitcoin and being your own bank
Sunday 16 March 2014
With so much going on in the bitcoin world, it certainly is tough to know how to stay safe. People have looked at what happened at Mt. Gox, the exchange, which recently filed for bankruptcy and they see so many customers who have lost bitcoin that it is unsurprising that it might scare some away from using it.
You should understand that one of the benefits of bitcoin is that you can essentially become your own bank. You can keep your wallet on your computer and you do not need the bank for any reason. That said, there are some clear benefits to having money at a bank. For instance, if you have $1000 at Chase or Wells Fargo or any of the other big name US banks, and that bank, for whatever reason goes bankrupt, or is robbed, your money is safe. You are backed by the Federal Deposit Insurance Corporation (FDIC). Once a bank has established itself, it can be insured by the FDIC so that if something goes wrong, your money is insured (up to $250,000 per bank).
This insurance, however, comes at a cost. Ever had a negative balance fee? Ever had an overdraft fee? Bounced check fee? An international transfer fee? Here is a partial list of just some of the possible bank fees. (Gathered from the Wells Fargo Service List)
- ATM Transfer Fee (U.S. and International) $2 each
- ATM Transaction (U.S.) $2.50 each
- ATM Transaction (International) $5 each
- ATM Statement (Wells Fargo ATM) $1 each
- International Purchase Transaction Fee 3% of transaction amount
- Withdraw cash at a Non-Wells Fargo bank. US - $3 each teller transaction
- Foreign Draft $30 per Order
- Foreign Draft Stop Payment $75 each
- Deposit an international Item $1.50 each
- International Item Returned Unpaid $15 each
- Overdraft Protection $12.50 per transfer
- Cashed/Deposited Item Returned Unpaid $12 per item
- Safe Deposit Late Fee — 60 days $10
- Stop Payment $31 each
- Credit Inquiry Fee $10 each
- Wire Transfer — Incoming $15 each
- Wire Transfer — Outgoing $30 each
As you can see from this very partial list, bank fees can add up.
So, how about the fees involved with bitcoin? According to bitcoin.org, there is a fee (approx. 0.0001 btc to 0.0005 btc - currently less than 30 cents) to send a transaction. ANY transaction. That means to send $500,000 to another country, it would cost just a few cents today. That is the only fee with bitcoin. That fee is simply an incentive for bitcoin miners to include your transaction in the block they are currently working on. See the wiki HERE
As you can see, there are a great deal of positives and benefits from using bitcoin as long as you know how to remain safe. Keeping your password safe and secure is paramount, as I talk about here.
The trouble with Mt.Gox is that people started to treat the exchange a little like a bitcoin bank. Mt. Gox, which stands for “Magic The Gathering Online Exchange”, was a Magic trading card exchange. They then got involved with bitcoin and with the digital currency being so young, they were one of the first online exchanges. People could keep their bitcoins on the site and many sites allow you to do this such as coinbase.com and blockchain.info. The risk comes down tot he fact there is no regulatory body such as the FDIC. Nobody is insuring the value at these exchanges. Even if you had the best password humanely possible to your account at Mt. Gox, you would not have been protected from anyone at Mt. Gox stealing your bitcoin or, as happened, a site filing for bankruptcy.
As bitcoin matures and becomes better estabkished, there may well be an online bitcoin storage site that is insured, but currently, that is not the case. The best way to stay safe is to know who you are dealing with before ever leaving any amount of bitcoin at that site.
Personally I never kept bitcoins at Mt. Gox for the folloowing reasons:
1. A former playing card exchange
2. Located in Japan
3. Did not supply whois info as to who owned the website or exchange.
On the other hand, I do keep a small amount at CoinBase, which is located in my home country of the USA and is only 45 minutes north of me. They have a physical address and a telephone number. Would I ever keep a lot of my money there? Of course not… again, if they stole my bitcoin and just took left the country, I would have no way to recover those funds.
So, when you get started with bitcoin, focus on learning to be your own bank. You can manage your own money and make international transfers and have a savings account, a spending account, a child’s college tuition savings account and any number of accounts for free. No fee to check your balance, no need to wait until your bank opens, no overdraft charges or other fees that you may see at the big banks.
But to be safe with your bitcoin, you need to be very careful about who has access to your funds online. If you end up at a site that is for any reason asking you to send bitcoin there, or are supplying a wallet for others to send bitcoin to you, be aware.
Remember to do your research; the point of bitcoin was to create a payment system that did not need the outside fees and oversee from a third party. So, if it is a two-party cash system, it is the same as if you left your neighbor with $1000 cash. If he gets up and leaves in the middle of the night, you may be out your $1000.
As always: Be Aware, Be Accurate, Be Alert
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