Bitcoin is an attempt to make digital stuff that behaves as much as possible like physical cash. In terms of the way it works, a bank account is very much not the correct analogy. Cash is.

Losing $60,000 in Bitcoin is like losing $60,000 in cash. It’s not exactly a surprise that it can happen, and it’s expected that there will be no real recourse.

I think the trouble is that people still aren’t really thinking of it properly. If this story happened with cash, the first question everybody would be asking would probably be, “Why did you have $60,000 in cash sitting around? What did you think was going to happen?”

Like cash, most people shouldn’t be holding large amounts of Bitcoin themselves. If they want large Bitcoin holdings for whatever reason, they should be held with a trustworthy entity that can properly secure them, like a bank. If they do insist on holding large amounts of Bitcoin directly, they need to understand that it’s like keeping a vault full of cash, and they need to work hard to keep it secure.

Correction: BTC is an attempt to make digital stuff that behaves as much as possible like physical gold.

Cash is a fiat currency and reproducible infinitely by the controlling government. The point of gold (as a money medium) is that it self-regulates the amount in circulation by being a tangible material in finite supply with cost associated in seeking more. This model has significant benefits and drawbacks (and, it's probably worth noting, its drawbacks are what led to the fiat model most countries use today).

I don’t think “cash” necessarily implies fiat. Bitcoin’s model of creating new currency is different from both fiat and gold, although it’s certainly a lot closer to gold.

Remember the last time 20 different entities forked gold, and battles erupted over which one was "the one true gold"?

Neither do I.

Then you're fighting two fronts.

Practical digital cash of the type you describe needs to have two properties in addition to preventing double spending-- a) quick transaction time (close to immediate) and b) extremely small fees. Otherwise having small amounts of the digital cash doesn't make any sense.

Worse, you've got prior art in Ecash that not only had those properties but also unlinkability. So it can be done, Bitcoin doesn't do it, and as a result the market for it is extremely small and out of touch with the hype around it.

> they should be held with a trustworthy entity that can properly secure them, like a bank

No such entity exists.

Perhaps, in which case the logical conclusion is that you should never hold a significant amount of Bitcoin in any way.

In terms of the way it works, cash is very much not the correct analogy, too.

Transaction wise, cash transactions happen both live and physically, meaning you have some means to make sure the counterparty honors their part of transaction. Electronic cash systems involve third party to coerce the counterparty or refund you. In Bitcoin world, apart from hopes and dreams and magical reputation, there is literally no way to stop the counterparty shoving you their Prodeum. Bitcoin removes the trusted third party of electronic cash, but fails to introduce physical measures of physical cash.

Bitcoin transactions are hardly even transactions, more like throwing money into numbered bin and hoping for the best. To be fair, the system has not gone down the drain once some form of market formed, so the hopes mostly did not backfire. The absence of full transactions in my opinion (I may be wrong, though) means Bitcoin IOUs cannot exist and with that whole financial products market, for better or worse.

Loss wise, cash is either in your posession or not and a lot of times can be recovered when lost. Stolen private keys can remain dormant for indefinite amount of time until they are actually used to move coins to a different address. With cash that one has in their immediate possession it would be immediately obvious if someone tries to take them away. If physical cash bills got sticky, you have taken an extra bill, dropped it on a counter and noticed your mistake, then you can still take back the extra bill. If you have transferred too much/many coins, then it's SFYL. Forgetting a wallet with physical cash somewhere can be SFYL, can still be recoverable if no one took possession of it. Losing access to private keys is permanent SFYL.

>cash transactions happen both live and physically, meaning you have some means to make sure the counterparty honors their part of transaction

I'm assuming you're referring to threat and/or use of violence, but that's not a viable option if the counterparty is prepared. Are you really willing to get into a fist/knife/gun fight if you're trying to sell a Xbox and the other side doesn't want to pay up?

Not necessarily violence, transaction happening in a public place with oversight poses risk of being exposed/caught, which could be enough to deter the counterparty from running away with goods or money, scammers tend to go for easier targets, but yes, physical measures including violence are an option with cash, while electronic one-sided irreversible pseudonymous transactions mostly eliminate those options.

The point is that the threat model of Bitcoin is quite different from that of cash.

That’s a property of how you use it. You can use cash in private, or even without being anywhere near the recipient (for example, by mailing it). You can carry out a Bitcoin transaction while next to the recipient in public if you want.

This is another example of how people don’t think of it properly. Sending Bitcoin to some stranger online is basically equivalent to mailing them cash (minus the chance of having the letter stolen). Most of us would understand that mailing cash to a stranger is probably a bad idea, but Bitcoin is used differently.

>Your comparing cash to something electronic. No matter how you spin it Bitcoin is not physical.

You say that like it's a bad thing. Bitcoin is something that has the advantage of physical cash (trust-less) and the advantage of electronic communications (you can't practically send cash to the other side of the world).

It also, of course, has the disadvantage of physical cash which is, once it's gone, it's gone. There is no way to reverse trust-less transactions now and there was none in the (pre-Bitcoin) past. Nothing has changed there and this is not what crypto solves. What crypto solves is trust-less transactions over the internet.

Doesn't it also have the disadvantage that, unlike physical cash, it can be stolen electronically? At least with cash someone has to mug me in person to take it, which reduces the attack surface quite a lot.

You could write down your seed on paper instead of storing it or the private key electronically.

You can have a bank working on top of a cryptocurrency network. It's the same except that everything is transparent + you don't need a bank if you don't want one.

Essentially all these services and exchange that offer bitcoin wallets are like banks. I think they have been the main way to get and hold bitcoin since the early days, I would guess normal standalone wallets are in the minority when it comes to the amount of users. For quantity stored maybe not so much.

You're conflating reduction of risk (system-wide) and offloading of risk.

In your bank example, the bank likely took the financial hit. With bitcoin as an underlying tech, there's some reduction of risk (with a whole bunch of asterisks).

Why would I care if the banks took a hit? If fraud was hurting their margins significantly we would see the government step in. The banks would also do more to prevent it. The US just switched over to chip cards.

Because you're paying for it with your money. They can afford to take a hit (and can afford the insurance for such losses) because of the fees they charge you directly, and the money they make utilizing your principle for other purposes while it's there.

Your bank takes the loss on those stolen funds.

Bitcoin is more akin to cash in hand than cash in a bank account, the title of the white paper is a 'A Peer-to-Peer Electronic Cash System'.

It behaves like cash.

There could be a crypto based bank account just like there are usd based bank accounts