Most of real world fraud is exactly this kind of stuff. Bitcoin solves a problem which is not actually a problem in real world. And leaves the problems which actually are problems unsolved.

Don't get me wrong. The proof of work ledger is a cool idea. However using it as a currency in this kind of implementation with complete disregard to anything else doesn't work in the long term.

>Bitcoin solves a problem which is not actually a problem in real world.

Well, it solves more than one problem, and a few of them are certainly real-world.

>However using it as a currency in this kind of implementation with complete disregard to anything else doesn't work in the long term.

Would you care to expand on what you mean by "complete disregard to anything else"? I mean, clearly this is hyperbole, but I'm curious what you are referencing specifically.

I simply meant that the bitcoin as a protocol and the standard client implementation right now pretty much ignores everything else. Some can be fixed on the client but it is not there yet. As an example the wallet is unencrypted by default.

In addition one of the biggest problems with bitcoin stems from the problem it solves. Transactions cannot be reversed, thus making thefts extremely lucrative.

Normal banks simply reverse transactions if they are fraudulent. As an example someone hacked Nordea (Bank operating in Nordic countries) last spring and got away with 600 000 euros. All of the transactions except one were reverted and the missing one was compensated by the bank.

> Normal banks simply reverse transactions if they are fraudulent.

That's not a feature.

Right, fraudsters should be allowed to keep their ill-gotten gains.

Rephrased: it is a feature, but it implies a tradeoff: people who are considered more important than you control your money. One which I don't consider worth it. I've never had a problem with stolen assets of any kind other than in the physical world, and I consider my physical assets that were stolen fair, I would not want a God government who can see every single thing that happens in any place and any time so they can recover my physical assets.

The decentralised check against double-spending is bitcoin's only solution. And it's quite a genius solution, in a way. Bitcoin is not the first cryptocurrency, but it's the first decentralised one.

Other than that, bitcoin behaves more like cash than like banks or credit cards. You can build banks and credit cards around bitcoin, and you should, but bitcoin itself is just like cash, and that's all it should be. It doesn't need to solve other problems that as you say have already been solved by systems like two-factor authentication and the like.

This particular attack is more like thieves walking into a bank and claiming to be a person and then being able to get cash from the bank's safe (an analogy that also fits nicely with the relatively small amount of money they were able to steal). It is not like being able to rack up fraudulent charges on a credit card.

I only have a vague memory/understanding the subject, but I believe the Bitcoin protocol supports the concept of multi-signature contracts. That could be used to create decentralized escrow/trading/exchanges, which means that you would never have to let a single entity control your private keys. (https://en.bitcoin.it/wiki/Contracts)

I don't think there is a working implementation of the multisig contracts in the wild yet, but the protocol does support a way to solve these problems.

That won't work for traders, transactions on the blockchain are too slow to do what exchanges really do. Traders would not use such an exchange, it'd be too slow.

> Most of real world fraud is exactly this kind of stuff.

So what? Banks have the same problem. If I call up my bank and ask them to do something, they'll ask for a bunch of random information I didn't know I'm supposed to keep secret.

> Bitcoin solves a problem which is not actually a problem in real world.

What? It solves the problem where some incompetent fucks are in charge of your money and screw you over, which is exactly what happened to this company (except they trusted them with hosting instead of money)

This has everything to do with Bitcoin. Yes, the attack vector is old and boring, but it's a proven one that has been used more or less the same way to hack multiple Bitcoin exchanges.

Bitcoin transactions are irreversible, so there is no way to get back stolen coins. And there is insufficient consensus to block them from being spent in future. These, combined with the magical pure-virtual, ethereal nature of Bitcoin, makes it an unprecedented target for thieves.

Maybe Bitcoin can yet be extricated from these issues, but the basic system Nakamoto gave us does not address the needs we so clearly have. Given the track record of so many exchanges and other services, we have a long, long way to go.

> Bitcoin transactions are irreversible

So are cash transactions.

People need to think of bitcoins more like cash than like credit cards.

Most people who read HN probably would never keep more than a thousand bucks or so in cash. Once you get a bunch of it, cash starts to feel "unsafe" and you deposit it at the bank, whereupon it becomes an obligation, a sort of "virtual currency" if you will. This "virtual currency" has various ways of being transmitted, and each way is at least somewhat reversible.

What about Bitcoin? If I have a bunch of it, can I convert it to an obligation with a reputable counterparty? One who will not store it in a form which makes it so easy to get away with, once stolen?

We can treat it like cash, but then we must wonder what we are doing piling up cash in our exchanges. Conventional exchanges do not work like this at all--there might be a good reason for that.

You bring up a good point, in how most dollars are "virtual". And indeed, we have seen the same kind of "virtual" bitcoins, where exchanges traded bitcoins that didn't exist in the blockchain (Mt Gox did this for a while).

Again, this sort of "virtual" currency (more technically, M2 currency), is something that you can build on top of bitcoin, and something I don't think that the bitcoin protocol itself needs to build, since we already have it.

http://en.wikipedia.org/wiki/M2_%28economics%29#Empirical_me...

You shouldn't keep any third-party balance of bitcoin. You can do any transaction you want from your own wallet, so there's no point putting them in a "bank." Currently, exchanges require keeping a balance, but that's not a safe thing to do. Hopefully someone will make an exchange that makes sense.

And people generally do not do business in cash. In fact, business done by giving someone a suitcase full of bank notes are usually of questionable nature.

In the first world, yes, but this is common in countries with a less developed financial system.

In China, for example, bank transfers aren't great and it's pretty common to buy things like cars with cash. It's especially crazy in China since the largest banknote there is 100RMB, roughly equivalent to 16USD, but cars cost about twice as much as they cost in the US, so it requires a lot of cash.

But if I get robbed, I can contact the police and there are consequences if the thieves are caught. If my car gets stolen I have insurance I can claim off. There's no such thing with Bitcoin.

Neither of those things are impossible to build around bitcoins. If you catch the thieves, you can probably get the bitcoins back. The currency used has nothing to do with whether it's possible to build insurance around it.

Why not? As far as I know, the law will treat your bitcoins like any other property you own. It's not legal to steal them just because they're "bitcoins", nor are they inherently uninsurable.

Now, whether that's an effective deterrent and whether there's a realistic chance of catching the thieves is a big question, but there's nothing inherently different. It's not that hard to rob your house of cash and not get caught either. The main reason it doesn't happen is because the criminals who are good enough to do it have bigger fish to fry. If they found out that you had $100,000 under your mattress then there would be trouble.

And I can become a prostitute.

If I get robbed/assaulted, I can contact my pimp and he can go with his gangsters and kill the offender.

> There's no such thing with Bitcoin.

This is a feature.

It's more like gold than like cash.

It's not even clear what you're complaining about here. Exchanges get hacked because they suck. Banks don't affect the customer as often because they are old and already have been hacked many times before, and have all kinds of insurance and hand wavy ways to avoid liability when they actually get hacked.

It's as if you are discontent that you are now liable for walking across the road safely after being driven around by a private taxi all your life (if the taxi crashed, the company would not lose any reputation, it would be the driver's fault, despite the low wages paid to the driver, pushed to the limit time pressures on the drivers, the recent line of flawed cars they ordered and decided to keep to expenses, and you would die, and it would just be like any other day).

Surely the fact that the attack was so inane does comment on bitcoin's security. OK, not the inherent security of the basic protocol, but the actual real-world security of real-world implementations.

You'd never store $100,000 actual dollars in a place where the employees let anyone walk in and take it if they just claim to be you. Bitcoins are equivalent to cash but they are not being stored anything like how cash is stored. It's a fundamentally difficult problem that bitcoin requires you to solve, so I think this really is highly related to bitcoin's security.

Although bitcoins are more like cash than like credit cards, their ethereal nature allows you to lock them up in ways that cash that cannot be: encrypt them (i.e. you encrypt the files that contain the private keys).

This is not a solution that bitcoin itself needs to build into the protocol. It's just something that we already have that should be used when using bitcoin. People are taking a while to get used to the idea of securing a decentralised currency.

Encrypted wallet are already supported in most bitcoin client implementations.

They could have kept the hot wallet req multisig to move coins, then backed it up somewhere else so even deletion wouldn't be a problem. It's all the low hanging fruit getting fleeced Bitcoin protocol offers plenty of safeguards if you use it

Do we really need comments telling people to read the article before commenting?

Or at least to read it carefully. I see the occasional commenting on HN that seems to neglect certain things mentioned in the article.