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Putting $400M of Bitcoin on your company balance sheet
Also posted on my blog as usual. Read it there if you can, there are footnotes and inlined plots. A couple of months ago, MicroStrategy (MSTR) had a spare $400M of cash which it decided to shift to Bitcoin (BTC). Today we'll discuss in excrutiating detail why this is not a good idea. When a company has a pile of spare money it doesn't know what to do with, it'll normally do buybacks or start paying dividends. That gives the money back to the shareholders, and from an economic perspective the money can get better invested in other more promising companies. If you have a huge pile of of cash, you probably should be doing other things than leave it in a bank account to gather dust. However, this statement from MicroStrategy CEO Michael Saylor exists to make it clear he's buying into BTC for all the wrong reasons:
“This is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a bitcoin standard.”
Let's unpack it and jump into the economics Bitcoin:
Is Bitcoin money?
No. Or rather BTC doesn't act as money and there's no serious future path for BTC to become a form of money. Let's go back to basics. There are 3 main economic problems money solves: 1. Medium of Exchange. Before money we had to barter, which led to the double coincidence of wants problem. When everyone accepts the same money you can buy something from someone even if they don't like the stuff you own. As a medium of exchange, BTC is not good. There are significant transaction fees and transaction waiting times built-in to BTC and these worsen the more popular BTC get. You can test BTC's usefulness as a medium of exchange for yourself right now: try to order a pizza or to buy a random item with BTC. How many additional hurdles do you have to go through? How many fewer options do you have than if you used a regular currency? How much overhead (time, fees) is there? 2. Unit of Account. A unit of account is what you compare the value of objects against. We denominate BTC in terms of how many USD they're worth, so BTC is a unit of account presently. We can say it's because of lack of adoption, but really it's also because the market value of BTC is so volatile. If I buy a $1000 table today or in 2017, it's roughly a $1000 table. We can't say that a 0.4BTC table was a 0.4BTC table in 2017. We'll expand on this in the next point: 3. Store of Value. When you create economic value, you don't want to be forced to use up the value you created right away. For instance, if I fix your washing machine and you pay me in avocados, I'd be annoyed. I'd have to consume my payment before it becomes brown, squishy and disgusting. Avocado fruit is not good money because avocadoes loses value very fast. On the other hand, well-run currencies like the USD, GBP, CAD, EUR, etc. all lose their value at a low and most importantly fairly predictible rate. Let's look at the chart of the USD against BTC While the dollar loses value at a predictible rate, BTC is all over the place, which is bad. One important use money is to write loan contracts. Loans are great. They let people spend now against their future potential earnings, so they can buy houses or start businesses without first saving up for a decade. Loans are good for the economy. If you want to sign something that says "I owe you this much for that much time" then you need to be able to roughly predict the value of the debt in at the point in time where it's due. Otherwise you'll have a hard time pricing the risk of the loan effectively. This means that you need to charge higher interests. The risk of making a loan in BTC needs to be priced into the interest of a BTC-denominated loan, which means much higher interest rates. High interests on loans are bad, because buying houses and starting businesses are good things.
BTC has a fixed supply, so these problems are built in
Some people think that going back to a standard where our money was denominated by a stock of gold (the Gold Standard) would solve economic problems. This is nonsense. Having control over supply of your currency is a good thing, as long as it's well run. See here Remember that what is desirable is low variance in the value, not the value itself. When there are wild fluctuations in value, it's hard for money to do its job well. Since the 1970s, the USD has been a fiat money with no intrinsic value. This means we control the supply of money. Let's look at a classic poorly drawn econ101 graph The market price for USD is where supply meets demand. The problem with a currency based on an item whose supply is fixed is that the price will necessarily fluctuate in response to changes in demand. Imagine, if you will, that a pandemic strikes and that the demand for currency takes a sharp drop. The US imports less, people don't buy anything anymore, etc. If you can't print money, you get deflation, which is worsens everything. On the other hand, if you can make the money printers go brrrr you can stabilize the price Having your currency be based on a fixed supply isn't just bad because in/deflation is hard to control. It's also a national security risk... The story of the guy who crashed gold prices in North Africa In the 1200s, Mansa Munsa, the emperor of the Mali, was rich and a devout Muslim and wanted everyone to know it. So he embarked on a pilgrimage to make it rain all the way to Mecca. He in fact made it rain so hard he increased the overall supply of gold and unintentionally crashed gold prices in Cairo by 20%, wreaking an economic havoc in North Africa that lasted a decade. This story is fun, the larger point that having your inflation be at the mercy of foreign nations is an undesirable attribute in any currency. The US likes to call some countries currency manipulators, but this problem would be serious under a gold standard.
Currencies are based on trust
Since the USD is based on nothing except the US government's word, how can we trust USD not to be mismanaged? The answer is that you can probably trust the fed until political stooges get put in place. Currently, the US's central bank managing the USD, the Federal Reserve (the Fed for friends & family), has administrative authority. The fed can say "no" to dumb requests from the president. People who have no idea what the fed does like to chant "audit the fed", but the fed is already one of the best audited US federal entities. The transcripts of all their meetings are out in the open. As is their balance sheet, what they plan to do and why. If the US should audit anything it's the Department of Defense which operates without any accounting at all. It's easy to see when a central bank will go rogue: it's when political yes-men are elected to the board. For example, before printing themselves into hyperinflation, the Venezuelan president appointed a sociologist who publicly stated “Inflation does not exist in real life” and instead is a made up capitalist lie. Note what happened mere months after his gaining control over the Venezuelan currency This is a key policy. One paper I really like, Sargent (1984) "The end of 4 big inflations" states:
The essential measures that ended hyperinflation in each of Germany,Austria, Hungary, and Poland were, first, the creation of an independentcentral bank that was legally committed to refuse the government'sdemand or additional unsecured credit and, second, a simultaneousalteration in the fiscal policy regime.
In english: *hyperinflation stops when the central bank can say "no" to the government." The US Fed, like other well good central banks, is run by a bunch of nerds. When it prints money, even as aggressively as it has it does so for good reasons. You can see why they started printing on March 15th as the COVID lockdowns started:
The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.
In english: We're going to keep printing and lowering rates until jobs are back and inflation is under control. If we print until the sun is blotted out, we'll print in the shade.
BTC is not gold
Gold is a good asset for doomsday-preppers. If society crashes, gold will still have value. How do we know that? Gold has held value throughout multiple historic catastrophes over thousands of years. It had value before and after the Bronze Age Collapse, the Fall of the Western Roman Empire and Gengis Khan being Gengis Khan. Even if you erased humanity and started over, the new humans would still find gold to be economically valuable. When Europeans d̶i̶s̶c̶o̶v̶e̶r̶e̶d̶ c̶o̶n̶q̶u̶e̶r̶e̶d̶ g̶e̶n̶o̶c̶i̶d̶e̶d̶ went to America, they found gold to be an important item over there too. This is about equivalent to finding humans on Alpha-Centauri and learning that they think gold is a good store of value as well. Some people are puzzled at this: we don't even use gold for much! But it has great properties: First, gold is hard to fake and impossible to manufacture. This makes it good to ascertain payment. Second, gold doesnt react to oxygen, so it doesn't rust or tarnish. So it keeps value over time unlike most other materials. Last, gold is pretty. This might sound frivolous, and you may not like it, but jewelry has actual value to humans. It's no coincidence if you look at a list of the wealthiest families, a large number of them trade in luxury goods. To paraphrase Veblen humans have a profound desire to signal social status, for the same reason peacocks have unwieldy tails. Gold is a great way to achieve that. On the other hand, BTC lacks all these attributes. Its value is largely based on common perception of value. There are a few fundamental drivers of demand:
Means of Exchange: if people seriously start using BTC to buy pizzas, then this creates a real demand for the currency to accomplish the short-term exchanges. As we saw previously, I'm not personally sold on this one and it's currently a negligible fraction of overall demand.
Criminal uses: Probably the largest inbuilt advantage of BTC is that it's anonymous, and so a great way to launder money. Hacker gangs use BTC to demand ransom on cryptolocker type attacks because it's a shared way for an honest company to pay and for the criminals to receive money without going to jail.
Apart from these, it's hard to argue that BTC will retain value throughout some sort of economic catastrophe.
BTC is really risky
One last statement from Michael Saylor I take offense to is this:
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” MicroStrategy CEO said in an interview
"BTC is less risky than holding cash or gold long term" is nonsense. We saw before that BTC is more volatile on face value, and that as long as the Fed isn't run by spider monkeys stacked in a trench coat, the inflation is likely to be within reasonable bounds. But on top of this, BTC has Abrupt downside risks that normal currencies don't. Let's imagine a few:
A critical software vulnerability is found in the BTC codebase, leading to a possible exploitation.
Xi Jinping decides he's had enough of rich people in China hiding their assets from him and bans BTC.
Some form of bank run takes hold for whatever reason. Because BTC wallets are uninsured, unlike regular banks, this compounds into a Black Tuesday style crash.
Blockchain solutions are fundamentally inefficient
Blockchain was a genius idea. I still marvel at the initial white paper which is a great mix of economics and computer science. That said, blockchain solutions make large tradeoffs in design because they assume almost no trust between parties. This leads to intentionally wasteful designs on a massive scale. The main problem is that all transactions have to be validated by expensive computational operations and double checked by multiple parties. This means waste:
BTC was estimated to use as much electricity as Belgium in 2019. It's hard to trace where the BTC mining comes from, but we can assume it has a huge carbon footprint.
A single transactions is necessarily expensive. A single transaction takes as much electricity as 800,000 VISA transactions, or watching 50,000 hours of youtube videos.
There is a large necessary tax on the transaction, since those checking the transaction extract a few BTC from it to be incentivized to do the work of checking it.
Many design problems can be mitigated by various improvements over BTC, but it remains that a simple database always works better than a blockchain if you can trust the parties to the transaction.
Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses. Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes. First, some background. Here is a summary of how custodians make us more secure: Previously, we might give Alice our crypto assets to hold. There were risks:
Alice might take the assets and disappear.
Alice might spend the assets and pretend that she still has them (fractional model).
Alice might store the assets insecurely and they'll get stolen.
Alice might give the assets to someone else by mistake or by force.
Alice might lose access to the assets.
But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:
Alice can't take the assets and disappear (unless she asks Bob or never gives them to Bob).
Alice can't spend the assets and pretend that she still has them. (Unless she didn't give them to Bob or asks him for them.)
Alice can't store the assets insecurely so they get stolen. (After all - she doesn't have any control over the withdrawal process from any of Bob's systems, right?)
Alice can't give the assets to someone else by mistake or by force. (Bob will stop her, right Bob?)
Alice can't lose access to the funds. (She'll always be present, sane, and remember all secrets, right?)
See - all problems are solved! All we have to worry about now is:
Bob might take the assets and disappear.
Bob might spend the assets and pretend that he still has them (fractional model).
Bob might store the assets insecurely and they'll get stolen.
Bob might give the assets to someone else by mistake or by force.
Bob might lose access to the assets.
It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are! "On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid". "Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since." "As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!" "Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?" "Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party." "Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!" "What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven." "Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!" "We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies. And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often". How many holes have to exist for your funds to get stolen? Just one. Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so? If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security. The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle. And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet? Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTradeNewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds. So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:
ANY CERTAINTY BALANCES WEREN'T EXCLUDED. Quadriga's largest account was $70m. 80% of funds are in 20% of accounts (Pareto principle). All it takes is excluding a few really large accounts - and nobody's the wiser. A fractional platform can easily pass any audit this way.
ANY VISIBILITY WHATSOEVER INTO THE CUSTODIANS. BitBuy put out their report before moving all the funds to their custodian and ShakePay apparently can't even tell us who the custodian is. That's pretty important considering that basically all of the funds are now stored there.
ANY IDEA ABOUT THE OTHER EXCHANGES. In order for this to be effective, it has to be the norm. It needs to be "unusual" not to know. If obscurity is the norm, then it's super easy for people like Gerald Cotten and Dave Smilie to blend right in.
It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:
First report within 1 month of launching, another within 3 months, and further reports at minimum every 6 months thereafter.
No auditor can be repeated within a 12 month period.
All reports must be public, identifying the auditor and the full methodology used.
All auditors must be independent of the firm being audited with no conflict of interest.
Reports must include the percentage of each asset backed, and how it's backed.
The auditor publishes a hash list, which lists a hash of each customer's information and balances that were included. Hash is one-way encryption so privacy is fully preserved. Every customer can use this to have 100% confidence they were included.
If we want more extensive requirements on audits, these should scale upward based on the total assets at risk on the platform, and whether the platform has loaned their assets out.
There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever. Transparency does not prove crypto assets are safe. CoinTradeNewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see. It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation. A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7. History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance. Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.) Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive. Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today. Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well. Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do. Facts/background/sources (skip if you like):
The inspiration for the paragraph about splitting wallets was an actual quote from a Canadian company providing custodial services in response to the OSC consultation paper: "We believe that it will be in the in best interests of investors to prohibit pooled crypto assets or ‘floats’. Most Platforms pool assets, citing reasons of practicality and expense. The recent hack of the world’s largest Platform – Binance – demonstrates the vulnerability of participants’ assets when such concessions are made. In this instance, the Platform’s entire hot wallet of Bitcoins, worth over $40 million, was stolen, facilitated in part by the pooling of client crypto assets." "the maintenance of participants (and Platform) crypto assets across multiple wallets distributes the related risk and responsibility of security - reducing the amount of insurance coverage required and making insurance coverage more readily obtainable". For the record, their reply also said nothing whatsoever about multi-sig or offline storage.
In addition to the fact that the $40m hack represented only one "hot wallet" of Binance, and they actually had the vast majority of assets in other wallets (including mostly cold wallets), multiple real cases have clearly demonstrated that risk is still present with multiple wallets. Bitfinex, VinDAX, Bithumb, Altsbit, BitPoint, Cryptopia, and just recently KuCoin all had multiple wallets breached all at the same time, and may represent a significantly larger impact on customers than the Binance breach which was fully covered by Binance. To represent that simply having multiple separate wallets under the same security scheme is a comprehensive way to reduce risk is just not true.
Private insurance has historically never covered a single loss in the cryptocurrency space (at least, not one that I was able to find), and there are notable cases where massive losses were not covered by insurance. Bitpay in 2015 and Yapizon in 2017 both had insurance policies that didn't pay out during the breach, even after a lengthly court process. The same insurance that ShakePay is presently using (and announced to much fanfare) was describe by their CEO himself as covering “physical theft of the media where the private keys are held,” which is something that has never historically happened. As was said with regard to the same policy in 2018 - “I don’t find it surprising that Lloyd’s is in this space,” said Johnson, adding that to his mind the challenge for everybody is figuring out how to structure these policies so that they are actually protective. “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
The most profitable policy for a private insurance company is one with the most expensive premiums that they never have to pay a claim on. They have no inherent incentive to take care of people who lost funds. It's "cheaper" to take the reputational hit and fight the claim in court. The more money at stake, the more the insurance provider is incentivized to avoid payout. They're not going to insure the assets unless they have reasonable certainty to make a profit by doing so, and they're not going to pay out a massive sum unless it's legally forced. Private insurance is always structured to be maximally profitable to the insurance provider.
The circumvention of multi-sig was a key factor in the massive Bitfinex hack of over $60m of bitcoin, which today still sits being slowly used and is worth over $3b. While Bitfinex used a qualified custodian Bitgo, which was and still is active and one of the industry leaders of custodians, and they set up 2 of 3 multi-sig wallets, the entire system was routed through Bitfinex, such that Bitfinex customers could initiate the withdrawals in a "hot" fashion. This feature was also a hit with the hacker. The multi-sig was fully circumvented.
Bitpay in 2015 was another example of a breach that stole 5,000 bitcoins. This happened not through the exploit of any system in Bitpay, but because the CEO of a company they worked with got their computer hacked and the hackers were able to request multiple bitcoin purchases, which Bitpay honoured because they came from the customer's computer legitimately. Impersonation is a very common tactic used by fraudsters, and methods get more extreme all the time.
A notable case in Canada was the Canadian Bitcoins exploit. Funds were stored on a server in a Rogers Data Center, and the attendee was successfully convinced to reboot the server "in safe mode" with a simple phone call, thus bypassing the extensive security and enabling the theft.
The very nature of custodians circumvents multi-sig. This is because custodians are not just having to secure the assets against some sort of physical breach but against any form of social engineering, modification of orders, fraudulent withdrawal attempts, etc... If the security practices of signatories in a multi-sig arrangement are such that the breach risk of one signatory is 1 in 100, the requirement of 3 independent signatures makes the risk of theft 1 in 1,000,000. Since hackers tend to exploit the weakest link, a comparable custodian has to make the entry and exit points of their platform 10,000 times more secure than one of those signatories to provide equivalent protection. And if the signatories beef up their security by only 10x, the risk is now 1 in 1,000,000,000. The custodian has to be 1,000,000 times more secure. The larger and more complex a system is, the more potential vulnerabilities exist in it, and the fewer people can understand how the system works when performing upgrades. Even if a system is completely secure today, one has to also consider how that system might evolve over time or work with different members.
By contrast, offline multi-signature solutions have an extremely solid record, and in the entire history of cryptocurrency exchange incidents which I've studied (listed here), there has only been one incident (796 exchange in 2015) involving an offline multi-signature wallet. It happened because the customer's bitcoin address was modified by hackers, and the amount that was stolen ($230k) was immediately covered by the exchange operators. Basically, the platform operators were tricked into sending a legitimate withdrawal request to the wrong address because hackers exploited their platform to change that address. Such an issue would not be prevented in any way by the use of a custodian, as that custodian has no oversight whatsoever to the exchange platform. It's practical for all exchange operators to test large withdrawal transactions as a general policy, regardless of what model is used, and general best practice is to diagnose and fix such an exploit as soon as it occurs.
False promises on the backing of funds played a huge role in the downfall of Quadriga, and it's been exposed over and over again (MyCoin, PlusToken, Bitsane, Bitmarket, EZBTC, IDAX). Even today, customers have extremely limited certainty on whether their funds in exchanges are actually being backed or how they're being backed. While this issue is not unique to cryptocurrency exchanges, the complexity of the technology and the lack of any regulation or standards makes problems more widespread, and there is no "central bank" to come to the rescue as in the 2008 financial crisis or during the great depression when "9,000 banks failed".
In addition to fraudulent operations, the industry is full of cases where operators have suffered breaches and not reported them. Most recently, Einstein was the largest case in Canada, where ongoing breaches and fraud were perpetrated against the platform for multiple years and nobody found out until the platform collapsed completely. While fraud and breaches suck to deal with, they suck even more when not dealt with. Lack of visibility played a role in the largest downfalls of Mt. Gox, Cryptsy, and Bitgrail. In some cases, platforms are alleged to have suffered a hack and keep operating without admitting it at all, such as CoinBene.
It surprises some to learn that a cryptographic solution has already existed since 2013, and gained widespread support in 2014 after Mt. Gox. Proof of Reserves is a full cryptographic proof that allows any customer using an exchange to have complete certainty that their crypto-assets are fully backed by the platform in real-time. This is accomplished by proving that assets exist on the blockchain, are spendable, and fully cover customer deposits. It does not prove safety of assets or backing of fiat assets.
If we didn't care about privacy at all, a platform could publish their wallet addresses, sign a partial transaction, and put the full list of customer information and balances out publicly. Customers can each check that they are on the list, that the balances are accurate, that the total adds up, and that it's backed and spendable on the blockchain. Platforms who exclude any customer take a risk because that customer can easily check and see they were excluded. So together with all customers checking, this forms a full proof of backing of all crypto assets.
However, obviously customers care about their private information being published. Therefore, a hash of the information can be provided instead. Hash is one-way encryption. The hash allows the customer to validate inclusion (by hashing their own known information), while anyone looking at the list of hashes cannot determine the private information of any other user. All other parts of the scheme remain fully intact. A model like this is in use on the exchange CoinFloor in the UK.
A Merkle tree can provide even greater privacy. Instead of a list of balances, the balances are arranged into a binary tree. A customer starts from their node, and works their way to the top of the tree. For example, they know they have 5 BTC, they plus 1 other customer hold 7 BTC, they plus 2-3 other customers hold 17 BTC, etc... until they reach the root where all the BTC are represented. Thus, there is no way to find the balances of other individual customers aside from one unidentified customer in this case.
Proposals such as this had the backing of leaders in the community including Nic Carter, Greg Maxwell, and Zak Wilcox. Substantial and significant effort started back in 2013, with massive popularity in 2014. But what became of that effort? Very little. Exchange operators continue to refuse to give visibility. Despite the fact this information can often be obtained through trivial blockchain analysis, no Canadian platform has ever provided any wallet addresses publicly. As described by the CEO of Newton "For us to implement some kind of realtime Proof of Reserves solution, which I'm not opposed to, it would have to ... Preserve our users' privacy, as well as our own. Some kind of zero-knowledge proof". Kraken describes here in more detail why they haven't implemented such a scheme. According to professor Eli Ben-Sasson, when he spoke with exchanges, none were interested in implementing Proof of Reserves.
And yet, Kraken's places their reasoning on a page called "Proof of Reserves". More recently, both BitBuy and ShakePay have released reports titled "Proof of Reserves and Security Audit". Both reports contain disclaimers against being audits. Both reports trust the customer list provided by the platform, leaving the open possibility that multiple large accounts could have been excluded from the process. Proof of Reserves is a blockchain validation where customers see the wallets on the blockchain. The report from Kraken is 5 years old, but they leave it described as though it was just done a few weeks ago. And look at what they expect customers to do for validation. When firms represent something being "Proof of Reserve" when it's not, this is like a farmer growing fruit with pesticides and selling it in a farmers market as organic produce - except that these are people's hard-earned life savings at risk here. Platforms are misrepresenting the level of visibility in place and deceiving the public by their misuse of this term. They haven't proven anything.
Fraud isn't a problem that is unique to cryptocurrency. Fraud happens all the time. Enron, WorldCom, Nortel, Bear Stearns, Wells Fargo, Moser Baer, Wirecard, Bre-X, and Nicola are just some of the cases where frauds became large enough to become a big deal (and there are so many countless others). These all happened on 100% reversible assets despite regulations being in place. In many of these cases, the problems happened due to the over-complexity of the financial instruments. For example, Enron had "complex financial statements [which] were confusing to shareholders and analysts", creating "off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them". In cryptocurrency, we are often combining complex financial products with complex technologies and verification processes. We are naïve if we think problems like this won't happen. It is awkward and uncomfortable for many people to admit that they don't know how something works. If we want "money of the people" to work, the solutions have to be simple enough that "the people" can understand them, not so confusing that financial professionals and technology experts struggle to use or understand them.
For those who question the extent to which an organization can fool their way into a security consultancy role, HB Gary should be a great example to look at. Prior to trying to out anonymous, HB Gary was being actively hired by multiple US government agencies and others in the private sector (with glowing testimonials). The published articles and hosted professional security conferences. One should also look at this list of data breaches from the past 2 years. Many of them are large corporations, government entities, and technology companies. These are the ones we know about. Undoubtedly, there are many more that we do not know about. If HB Gary hadn't been "outted" by anonymous, would we have known they were insecure? If the same breach had happened outside of the public spotlight, would it even have been reported? Or would HB Gary have just deleted the Twitter posts, brought their site back up, done a couple patches, and kept on operating as though nothing had happened?
In the case of Quadriga, the facts are clear. Despite past experience with platforms such as MapleChange in Canada and others around the world, no guidance or even the most basic of a framework was put in place by regulators. By not clarifying any sort of legal framework, regulators enabled a situation where a platform could be run by former criminal Mike Dhanini/Omar Patryn, and where funds could be held fully unchecked by one person. At the same time, the lack of regulation deterred legitimate entities from running competing platforms and Quadriga was granted a money services business license for multiple years of operation, which gave the firm the appearance of legitimacy. Regulators did little to protect Canadians despite Quadriga failing to file taxes from 2016 onward. The entire administrative team had resigned and this was public knowledge. Many people had suspicions of what was going on, including Ryan Mueller, who forwarded complaints to the authorities. These were ignored, giving Gerald Cotten the opportunity to escape without justice.
There are multiple issues with the SOC II model including the prohibitive cost (you have to find a third party accounting firm and the prices are not even listed publicly on any sites), the requirement of operating for a year (impossible for new platforms), and lack of any public visibility (SOC II are private reports that aren't shared outside the people in suits).
Securities frameworks are expensive. Sarbanes-Oxley is estimated to cost $5.1 million USD/yr for the average Fortune 500 company in the United States. Since "Fortune 500" represents the top 500 companies, that means well over $2.55 billion USD (~$3.4 billion CAD) is going to people in suits. Isn't the problem of trust and verification the exact problem that the blockchain is supposed to solve?
To use Quadriga as justification for why custodians or SOC II or other advanced schemes are needed for platforms is rather silly, when any framework or visibility at all, or even the most basic of storage policies, would have prevented the whole thing. It's just an embarrassment.
We are now seeing regulators take strong action. CoinSquare in Canada with multi-million dollar fines. BitMex from the US, criminal charges and arrests. OkEx, with full disregard of withdrawals and no communication. Who's next?
We have a unique window today where we can solve these problems, and not permanently destroy innovation with unreasonable expectations, but we need to act quickly. This is a unique historic time that will never come again.
How To End The Cryptocurrency Exchange "Wild West" Without Crippling Innovation
In case you haven't noticed the consultation paper, staff notice, and report on Quadriga, regulators are now clamping down on Canadian cryptocurrency exchanges. The OSC and other regulatory bodies are still interested in industry feedback. They have not put forward any official regulation yet. Below are some ideas/insights and a proposed framework.
Typical securities frameworks will cost Canadians millions of dollars (ie Sarbanes-Oxley estimated at $5m USD/yr per firm). Implementation costs of this proposal are significantly cheaper.
Canadians can maintain a diverse set of exchanges, multiple viable business models are still fully supported, and innovation is encouraged while keeping Canadians safe.
Many of you have limited time to read the full proposal, so here are the highlights:
Effective standards to prevent both internal and external theft. Exchange operators are trained and certified, and have a legal responsibility to users.
Regular Transparent Audits
Provides visibility to Canadians that their funds are fully backed on the exchange, while protecting privacy and sensitive platform information.
Establishment of basic insurance standards/strategy, to expand over time. Removing risk to exchange users of any hot wallet theft.
Background and Justifications
Cold Storage Custody/Management After reviewing close to 100 cases, all thefts tend to break down into more or less the same set of problems: • Funds stored online or in a smart contract, • Access controlled by one person or one system, • 51% attacks (rare), • Funds sent to the wrong address (also rare), or • Some combination of the above. For the first two cases, practical solutions exist and are widely implemented on exchanges already. Offline multi-signature solutions are already industry standard. No cases studied found an external theft or exit scam involving an offline multi-signature wallet implementation. Security can be further improved through minimum numbers of signatories, background checks, providing autonomy and legal protections to each signatory, establishing best practices, and a training/certification program. The last two transaction risks occur more rarely, and have never resulted in a loss affecting the actual users of the exchange. In all cases to date where operators made the mistake, they've been fully covered by the exchange platforms. • 51% attacks generally only occur on blockchains with less security. The most prominent cases have been Bitcoin Gold and Ethereum Classic. The simple solution is to enforce deposit limits and block delays such that a 51% attack is not cost-effective. • The risk of transactions to incorrect addresses can be eliminated by a simple test transaction policy on large transactions. By sending a small amount of funds prior to any large withdrawals/transfers as a standard practice, the accuracy of the wallet address can be validated. The proposal covers all loss cases and goes beyond, while avoiding significant additional costs, risks, and limitations which may be associated with other frameworks like SOC II. On The Subject of Third Party Custodians Many Canadian platforms are currently experimenting with third party custody. From the standpoint of the exchange operator, they can liberate themselves from some responsibility of custody, passing that off to someone else. For regulators, it puts crypto in similar categorization to oil, gold, and other commodities, with some common standards. Platform users would likely feel greater confidence if the custodian was a brand they recognized. If the custodian was knowledgeable and had a decent team that employed multi-sig, they could keep assets safe from internal theft. With the right protections in place, this could be a great solution for many exchanges, particularly those that lack the relevant experience or human resources for their own custody systems. However, this system is vulnerable to anyone able to impersonate the exchange operators. You may have a situation where different employees who don't know each other that well are interacting between different companies (both the custodian and all their customers which presumably isn't just one exchange). A case study of what can go wrong in this type of environment might be Bitpay, where the CEO was tricked out of 5000 bitcoins over 3 separate payments by a series of emails sent legitimately from a breached computer of another company CEO. It's also still vulnerable to the platform being compromised, as in the really large $70M Bitfinex hack, where the third party Bitgo held one key in a multi-sig wallet. The hacker simply authorized the withdrawal using the same credentials as Bitfinex (requesting Bitgo to sign multiple withdrawal transactions). This succeeded even with the use of multi-sig and two heavily security-focused companies, due to the lack of human oversight (basically, hot wallet). Of course, you can learn from these cases and improve the security, but so can hackers improve their deception and at the end of the day, both of these would have been stopped by the much simpler solution of a qualified team who knew each other and employed multi-sig with properly protected keys. It's pretty hard to beat a human being who knows the business and the typical customer behaviour (or even knows their customers personally) at spotting fraud, and the proposed multi-sig means any hacker has to get through the scrutiny of 3 (or more) separate people, all of whom would have proper training including historical case studies. There are strong arguments both for and against using use of third party custodians. The proposal sets mandatory minimum custody standards would apply regardless if the cold wallet signatories are exchange operators, independent custodians, or a mix of both. On The Subject Of Insurance ShakePay has taken the first steps into this new realm (congratulations). There is no question that crypto users could be better protected by the right insurance policies, and it certainly feels better to transact with insured platforms. The steps required to obtain insurance generally place attention in valuable security areas, and in this case included a review from CipherTrace. One of the key solutions in traditional finance comes from insurance from entities such as the CDIC. However, historically, there wasn't found any actual insurance payout to any cryptocurrency exchange, and there are notable cases where insurance has not paid. With Bitpay, for example, the insurance agent refused because the issue happened to the third party CEO's computer instead of anything to do with Bitpay itself. With the Youbit exchange in South Korea, their insurance claim was denied, and the exchange ultimately ended up instead going bankrupt with all user's funds lost. To quote Matt Johnson in the original Lloyd's article: “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.” ShakePay's insurance was only reported to cover their cold storage, and “physical theft of the media where the private keys are held”. Physical theft has never, in the history of cryptocurrency exchange cases reviewed, been reported as the cause of loss. From the limited information of the article, ShakePay made it clear their funds are in the hands of a single US custodian, and at least part of their security strategy is to "decline to confirm the custodian’s name on the record". While this prevents scrutiny of the custodian, it's pretty silly to speculate that a reasonably competent hacking group couldn't determine who the custodian is. A far more common infiltration strategy historically would be social engineering, which has succeeded repeatedly. A hacker could trick their way into ShakePay's systems and request a fraudulent withdrawal, impersonate ShakePay and request the custodian to move funds, or socially engineer their way into the custodian to initiate the withdrawal of multiple accounts (a payout much larger than ShakePay) exploiting the standard procedures (for example, fraudulently initiating or override the wallet addresses of a real transfer). In each case, nothing was physically stolen and the loss is therefore not covered by insurance. In order for any insurance to be effective, clear policies have to be established about what needs to be covered. Anything short of that gives Canadians false confidence that they are protected when they aren't in any meaningful way. At this time, the third party insurance market does not appear to provide adequate options or coverage, and effort is necessary to standardize custody standards, which is a likely first step in ultimately setting up an insurance framework. A better solution compared to third party insurance providers might be for Canadian exchange operators to create their own collective insurance fund, or a specific federal organization similar to the CDIC. Such an organization would have a greater interest or obligation in paying out actual cases, and that would be it's purpose rather than maximizing it's own profit. This would be similar to the SAFU which Binance has launched, except it would cover multiple exchanges. There is little question whether the SAFU would pay out given a breach of Binance, and a similar argument could be made for a insurance fund managed by a collective of exchange operators or a government organization. While a third party insurance provider has the strong market incentive to provide the absolute minimum coverage and no market incentive to payout, an entity managed by exchange operators would have incentive to protect the reputation of exchange operators/the industry, and the government should have the interest of protecting Canadians. On The Subject of Fractional Reserve There is a long history of fractional reserve failures, from the first banks in ancient times, through the great depression (where hundreds of fractional reserve banks failed), right through to the 2008 banking collapse referenced in the first bitcoin block. The fractional reserve system allows banks to multiply the money supply far beyond the actual cash (or other assets) in existence, backed only by a system of debt obligations of others. Safely supporting a fractional reserve system is a topic of far greater complexity than can be addressed by a simple policy, and when it comes to cryptocurrency, there is presently no entity reasonably able to bail anyone out in the event of failure. Therefore, this framework is addressed around entities that aim to maintain 100% backing of funds. There may be some firms that desire but have failed to maintain 100% backing. In this case, there are multiple solutions, including outside investment, merging with other exchanges, or enforcing a gradual restoration plan. All of these solutions are typically far better than shutting down the exchange, and there are multiple cases where they've been used successfully in the past. Proof of Reserves/Transparency/Accountability Canadians need to have visibility into the backing on an ongoing basis. The best solution for crypto-assets is a Proof of Reserve. Such ideas go back all the way to 2013, before even Mt. Gox. However, no Canadian exchange has yet implemented such a system, and only a few international exchanges (CoinFloor in the UK being an example) have. Many firms like Kraken, BitBuy, and now ShakePay use the Proof of Reserve term to refer to lesser proofs which do not actually cryptographically prove the full backing of all user assets on the blockchain. In order for a Proof of Reserve to be effective, it must actually be a complete proof, and it needs to be understood by the public that is expected to use it. Many firms have expressed reservations about the level of transparency required in a complete Proof of Reserve (for example Kraken here). While a complete Proof of Reserves should be encouraged, and there are some solutions in the works (ie TxQuick), this is unlikely to be suitable universally for all exchange operators and users. Given the limitations, and that firms also manage fiat assets, a more traditional audit process makes more sense. Some Canadian exchanges (CoinSquare, CoinBerry) have already subjected themselves to annual audits. However, these results are not presently shared publicly, and there is no guarantee over the process including all user assets or the integrity and independence of the auditor. The auditor has been typically not known, and in some cases, the identity of the auditor is protected by a NDA. Only in one case (BitBuy) was an actual report generated and publicly shared. There has been no attempt made to validate that user accounts provided during these audits have been complete or accurate. A fraudulent fractional exchange, or one which had suffered a breach they were unwilling to publicly accept (see CoinBene), could easily maintain a second set of books for auditors or simply exclude key accounts to pass an individual audit. The proposed solution would see a reporting standard which includes at a minimum - percentage of backing for each asset relative to account balances and the nature of how those assets are stored, with ownership proven by the auditor. The auditor would also publicly provide a "hash list", which they independently generate from the accounts provided by the exchange. Every exchange user can then check their information against this public "hash list". A hash is a one-way form of encryption, which fully protects the private information, yet allows anyone who knows that information already to validate that it was included. Less experienced users can take advantage of public tools to calculate the hash from their information (provided by the exchange), and thus have certainty that the auditor received their full balance information. Easy instructions can be provided. Auditors should be impartial, their identities and process public, and they should be rotated so that the same auditor is never used twice in a row. Balancing the cost of auditing against the needs for regular updates, a 6 month cycle likely makes the most sense. Hot Wallet Management The best solution for hot wallets is not to use them. CoinBerry reportedly uses multi-sig on all withdrawals, and Bitmex is an international example known for their structure devoid of hot wallets. However, many platforms and customers desire fast withdrawal processes, and human validation has a cost of time and delay in this process. A model of self-insurance or separate funds for hot wallets may be used in these cases. Under this model, a platform still has 100% of their client balance in cold storage and holds additional funds in hot wallets for quick withdrawal. Thus, the risk of those hot wallets is 100% on exchange operators and not affecting the exchange users. Since most platforms typically only have 1%-5% in hot wallets at any given time, it shouldn't be unreasonable to build/maintain these additional reserves over time using exchange fees or additional investment. Larger withdrawals would still be handled at regular intervals from the cold storage. Hot wallet risks have historically posed a large risk and there is no established standard to guarantee secure hot wallets. When the government of South Korea dispatched security inspections to multiple exchanges, the results were still that 3 of them got hacked after the inspections. If standards develop such that an organization in the market is willing to insure the hot wallets, this could provide an acceptable alternative. Another option may be for multiple exchange operators to pool funds aside for a hot wallet insurance fund. Comprehensive coverage standards must be established and maintained for all hot wallet balances to make sure Canadians are adequately protected.
Current Draft Proposal
(1) Proper multi-signature cold wallet storage. (a) Each private key is the personal and legal responsibility of one person - the “signatory”. Signatories have special rights and responsibilities to protect user assets. Signatories are trained and certified through a course covering (1) past hacking and fraud cases, (2) proper and secure key generation, and (3) proper safekeeping of private keys. All private keys must be generated and stored 100% offline by the signatory. If even one private keys is ever breached or suspected to be breached, the wallet must be regenerated and all funds relocated to a new wallet. (b) All signatories must be separate background-checked individuals free of past criminal conviction. Canadians should have a right to know who holds their funds. All signing of transactions must take place with all signatories on Canadian soil or on the soil of a country with a solid legal system which agrees to uphold and support these rules (from an established white-list of countries which expands over time). (c) 3-5 independent signatures are required for any withdrawal. There must be 1-3 spare signatories, and a maximum of 7 total signatories. The following are all valid combinations: 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7. (d) A security audit should be conducted to validate the cold wallet is set up correctly and provide any additional pertinent information. The primary purpose is to ensure that all signatories are acting independently and using best practices for private key storage. A report summarizing all steps taken and who did the audit will be made public. Canadians must be able to validate the right measures are in place to protect their funds. (e) There is a simple approval process if signatories wish to visit any country outside Canada, with a potential whitelist of exempt countries. At most 2 signatories can be outside of aligned jurisdiction at any given time. All exchanges would be required to keep a compliant cold wallet for Canadian funds and have a Canadian office if they wish to serve Canadian customers. (2) Regular and transparent solvency audits. (a) An audit must be conducted at founding, after 3 months of operation, and at least once every 6 months to compare customer balances against all stored cryptocurrency and fiat balances. The auditor must be known, independent, and never the same twice in a row. (b) An audit report will be published featuring the steps conducted in a readable format. This should be made available to all Canadians on the exchange website and on a government website. The report must include what percentage of each customer asset is backed on the exchange, and how those funds are stored. (c) The auditor will independently produce a hash of each customer's identifying information and balance as they perform the audit. This will be made publicly available on the exchange and government website, along with simplified instructions that each customer can use to verify that their balance was included in the audit process. (d) The audit needs to include a proof of ownership for any cryptocurrency wallets included. A satoshi test (spending a small amount) or partially signed transaction both qualify. (e) Any platform without 100% reserves should be assessed on a regular basis by a government or industry watchdog. This entity should work to prevent any further drop, support any private investor to come in, or facilitate a merger so that 100% backing can be obtained as soon as possible. (3) Protections for hot wallets and transactions. (a) A standardized list of approved coins and procedures will be established to constitute valid cold storage wallets. Where a multi-sig process is not natively available, efforts will be undertaken to establish a suitable and stable smart contract standard. This list will be expanded and improved over time. Coins and procedures not on the list are considered hot wallets. (b) Hot wallets can be backed by additional funds in cold storage or an acceptable third-party insurance provider with a comprehensive coverage policy. (c) Exchanges are required to cover the full balance of all user funds as denominated in the same currency, or double the balance as denominated in bitcoin or CAD using an established trading rate. If the balance is ever insufficient due to market movements, the firm must rectify this within 24 hours by moving assets to cold storage or increasing insurance coverage. (d) Any large transactions (above a set threshold) from cold storage to any new wallet addresses (not previously transacted with) must be tested with a smaller transaction first. Deposits of cryptocurrency must be limited to prevent economic 51% attacks. Any issues are to be covered by the exchange. (e) Exchange platforms must provide suitable authentication for users, including making available approved forms of two-factor authentication. SMS-based authentication is not to be supported. Withdrawals must be blocked for 48 hours in the event of any account password change. Disputes on the negligence of exchanges should be governed by case law.
Continued review of existing OSC feedback is still underway. More feedback and opinions on the framework and ideas as presented here are extremely valuable. The above is a draft and not finalized. The process of further developing and bringing a suitable framework to protect Canadians will require the support of exchange operators, legal experts, and many others in the community. The costs of not doing such are tremendous. A large and convoluted framework, one based on flawed ideas or implementation, or one which fails to properly safeguard Canadians is not just extremely expensive and risky for all Canadians, severely limiting to the credibility and reputation of the industry, but an existential risk to many exchanges. The responsibility falls to all of us to provide our insight and make our opinions heard on this critical matter. Please take the time to give your thoughts.
Removed comments/submissions for /u/OverLeveraged14
Hi OverLeveraged14, you're not shadowbanned, but 97 of your most recent 105 comments/submissions were removed (either automatically or by human moderators).
ft8ds4z in CryptoCurrency on 07 Jun 20 (1pts):
bitcoin relies 100% on confirmation bias. everyone yells ''its amazing'' because they're financially biased, but they dont actually believe it. they just hope someone will pump their bags. to me the...
frm76ad in Crypto_com on 24 May 20 (1pts):
simply put, they dont support canadian banking and canadian dollars. at least yet. might change when they add debit card for canada since i would assume that will be denominated in CAD but i could...
i cant wait for 1000sat/byte as a standard when btc hits 100k$! its gon be great! i really dont care if 90% of my paycheck vanishes in a transaction fee cause ill hodl till i die! i already threw...
frjwzk9 in CryptoCurrency on 23 May 20 (1pts):
well, at least he's not shilling a scam this time i guess?
frjvori in CryptoCurrency on 23 May 20 (1pts):
people didnt expect that kind of bull run in 2016, at least no that i remember. there was some hype early on in 2017, specially because of ETH, i still cant tel wheter or not btc rode on eth's...
frjt8r7 in CryptoCurrency on 23 May 20 (1pts):
eth by far. bitcoin is racing towards a dead end and everyone knows it but choose to ignore it and scream moon all day long. its sad but true bitcoin cant sustain anymore growth and there's no plan...
frjr53k in technology on 23 May 20 (1pts):
how about let it fucking sink so it can be bought for a penny on the dollar? only thing this system is doing is promoting irresponsible business management because ''why take precautions or innovate...
frjq6q8 in technology on 23 May 20 (1pts):
the best way to make you gmail inbox safer is to use protonmail instead haha.
frjg2ez in CryptoCurrency on 23 May 20 (1pts):
i can attest to this. i did a piece that shows how 4mb block would HELP bitcoin adoption AND decentralization and was banned for promoting BCH, which i havent talked about once in all of my...
frjfwao in CryptoCurrency on 23 May 20 (1pts):
no, its means goldman needs a conference call to tel investors not to buy bitcoin.
frjfehq in CryptoCurrency on 23 May 20 (1pts):
proof of funds is the scummiest bullshit ever created. allows institutions to literally steal money from legitimate users who cant provide a proof. its easy for freshly earned money now that we know...
frjbtml in CryptoCurrency on 23 May 20 (1pts):
it doesnt really matter how much the fed prints, because it wont leave the fed without someone taking the loans, and nobody wants a loan right now. theses funds mainly exist in order to prevent the...
frgj543 in politics on 22 May 20 (1pts):
why? its not like he has issues routing a billion dollars of public funds over to Ukraine.
frggmty in CryptoCurrency on 22 May 20 (1pts):
''in a nutshell'' dont hang out in bitcoin or btc, bitcoin has gestapo mods and btc is salt all day long.
frfp692 in WhitePeopleTwitter on 22 May 20 (1pts):
just go gamble 100x till you make it, ez.
frfoe8c in LifeProTips on 22 May 20 (1pts):
Discord my friend, Discord.
free9l1 in CryptoCurrency on 22 May 20 (1pts):
fredual in CryptoCurrency on 22 May 20 (1pts):
dw bout it, everyone pays to learn in this space. some later than others. better take your loses early on rather than get your illusion of success shattered down the road.
frdpvm8 in CryptoCurrency on 21 May 20 (1pts):
all you had to do is claim you hex, for free. if you dont pay for something, how are you getting scammed? you have no clue who gave him that eth, for what purpose, and if they're okay with him...
frdo9tl in CryptoCurrency on 21 May 20 (1pts):
lets be honest, sending them to an exchange that has ''Fren with justin sun'' written all over it was not exactly his most genius moment.
frde4ag in CryptoCurrency on 21 May 20 (1pts):
folding is great but it honestly pisses me off at the same time. there is so much spare computing power owned by american companies and almost all of it is never put to use for folding, it should be...
frddkuy in CryptoCurrency on 21 May 20 (1pts):
''investing'' in crypto is honestly the wrong way to think about it. gambling is a much better term. at best you're all in on btc and you're hedging against fiat inflation, at worst you buy any...
frdcffn in CryptoCurrency on 21 May 20 (1pts):
that explains why you know nothing about it.
frdaz60 in CryptoCurrency on 21 May 20 (1pts):
doubtful. negative interest rates in a deflationary environment wont be a big deal. yall really seem to misunderstand how good the USD is at fucking you over. keep believing hyperinflation is gonna...
frdantd in CryptoCurrency on 21 May 20 (1pts):
you havent seen nothing yet my man. 2017 had fees up to 100$. its gonna happen again.
frcveyn in CryptoCurrency on 21 May 20 (1pts):
considering he thinks bitmex sells trader's fund on spot after they place a trade, its fair to say this guy doesnt know anything about anything.
frcn75e in CryptoCurrency on 21 May 20 (1pts):
this is the dumbest article ever made on crypto.
frcmmkz in CryptoCurrency on 21 May 20 (1pts):
you're an idiot.
frcgfqm in CryptoCurrency on 21 May 20 (1pts):
while i agree that bitcoin sucks as it is and needs a block size increase (4mb would be perfect for now and wouldnt change a damn thing about decentralization) bsv is garbage and bch too.
frcg7pc in CryptoCurrency on 21 May 20 (1pts):
those 3 pools are also made of thousands of individuals. its not the pools' hashrate. if they start messing with the network, that hashrate will leave fast as fuck.
frc3yb5 in CryptoCurrency on 21 May 20 (1pts):
yet only 5mil in liquidity. useless network.
frbyhp0 in CryptoCurrency on 21 May 20 (1pts):
btc blocks should be 4mb-8mb right now to keep in line with technological advancement since the 1mb block limit was implemented. prove me wrong. ill debate anyone. and before you ask, im a btc...
frbxj5j in CryptoCurrency on 21 May 20 (1pts):
opening the pandora's box for market manipulation is a bad thing for wallstreet. these's patterns are not exclusive to crypto, at all, and ''trapping'' and stop hunts has been done for decades. this...
fr8anz5 in CryptoCurrency on 20 May 20 (1pts):
honestly wouldnt be surprised. btc isnt going anywhere without scaling and ln is a cluster fuck for adoption.
fr64v2n in Bitcoin on 19 May 20 (1pts):
fr64mko in Bitcoin on 19 May 20 (1pts):
this is software or 3rd parties trapping people into having to use those fees.
fr649wf in CryptoCurrency on 19 May 20 (1pts):
that company is a fucking leech regardless how you look at it. trying to make itself relevant by attacking others. they arent doing anyone but themselves a favor. you can hate on XRP just as much as...
fr62m0n in Bitcoin on 19 May 20 (1pts):
this is absolute garbage propaganda to assume that nodes would drop out rather than upgrade. im so fucking tired of people pretending like buying a 400$ computer to run a node is a problem but...
fr61jya in Bitcoin on 19 May 20 (1pts):
supply is 18million, not 900/day. there's plenty to buy from. also if you are talking about paul tudor jones, he didnt buy a single bitcoin and said so himself that he would only be playing futures...
fr60yqv in Bitcoin on 19 May 20 (1pts):
store of value is NOT a use case, and bitcoin is NOT widely adopted.
fr5yqcw in Bitcoin on 19 May 20 (1pts):
" not really looking for financial advice " maybe you should.
This is one of the oldest, most well known GPT (Get-Paid-To) sites. They have plenty to offer, so you shouldn't get too bored. You can earn bonus points for meeting your daily goals, and you can earn up to 300 points ($3) for meeting your goal each day. They have one of the largest selections of rewards available, so you should easily find something you like. — Payment Proof. / Is it available in my country? *The site is International, but most earning opportunities are for US, UK, CA and AU.
↪ Get a 300SB ($3) bonus if you sign up through this link and earn 300SB in your first 30 days. Points are awarded the next day after reaching 300SB. ↪ Use signup code REDDIT for a free 70SB bonus for new users. Click “I have a sign up code (optional)” which is underneath the “Confirm Password” Box. ↪ Age minimum: 13 ↪ Offers: Mobile and Desktop Videos, Surveys, Polls, Offer Walls, Tasks, Special offers, Coupons, Games, Search bar, Limited Time Codes, Download offers, Cash Back from Shopping, Swago (like Bingo) and more. ↪ Payout: [Minimum: $3] Amazon, PayPal, Prepaid VISA, Wal-Mart, PSN, Xbox, Sweepstakes, Charity and many more. TIPS: • Earn up to 300 SB ($3) for meeting your goals for 7, 14, 21 and 30 days in a row. • Once a month you can redeem a $25 gift card for 12% off. • Make up to 10 Swagbucks easily each day by playing games in the Play category. • Click And Earn List to Earn 38 Points Daily Here • Check out /swagbucks and the discord after signing up for up to date info about the best paying offers.
GAIN [US, GB, IE, SE, DE, CA, NL, NO, AU, BE, ES, FR, DK, IT, RU, SG and MY]
Gain is a high paying GPT site that allows you to complete offers, watch videos, complete surveys and more to earn coins. Gain operates in many countries. New users can start out with 100 coins by using this link. — Payment Proof.
↪ Withdrawal options include BTC, ETH, LTC, BCH, CSGOSHOP, Coinbase. Gift cards (through Tango/Rewardlink) also available in certain countries only. ↪ Free daily bonus coins from 10-100 depending on your user level, claim them every 24h on the Gain offerwall ↪ Age minimum: 13+ ↪ No screwy point to dollar conversion ratios. 1,000 coins = $1. ↪ Active, friendly and easily accessible support ↪ Earn extra coins for being one of the top 3 earners each day and each month ↪ Bet your Daily Bonus or your earnings (play responsibly) on roulette by clicking Win TIPS: • Referral Incentive: New users get 100 coins ($0.10). Referring users get 5% of the referred users earnings. • Click on the PayPal Guide link after signing up to learn how to easily convert your earnings from Crypto>PayPal with CoinBase. • 5% Earning Bonus: Sign up to the site with your Steam account and add gain.gg to the end of your steam username to earn a 5% bonus on your earnings. • Offers over 4000 coins are automatically held, message Support Chat (click Support on the top right of the chat box) to have the coins released for you.
GG2U is a GPT (Get-Paid-To) site. The website is a bit outdated looking, and it can feel clunky at times, but don't let that fool you. It has some of the highest paying rates, and has a few unique offer walls and plenty of survey routers that you rarely see on other sites. The customer support is great as well. The owner responds pretty quickly and is always willing to help out. This site is focused on gamers and has some gaming tasks, but there are plenty of things to do for non-gamers as well. — Payment Proof. *The site is International, but most earning opportunities are for US, UK, CA and AU.
↪ Age minimum: 13 ↪ Offers: Surveys, Offer Walls, Tasks, Videos, Gaming Tasks, and Promotional Link Shortener. ↪ Get paid for listening to the radio (US, CA, UK) ↪ Payout: [Minimum: $7] PayPal, BTC to Coinbase, Amazon, Best Buy, GameStop, Google Play, iTunes, Nintendo eShop, Playstation GC, Steam, Target, Walmart, Xbox GC ↪ Referral Incentive: The referring user earns 5% for life. TIPS: • For every 5 cash out requests, you get a Golden Token which will give you $1-7. This results in an average 7.8% higher payments if cashing out at the minimum each time. • If you contact support, you can request to have your payouts issued at the minimum cashout amount rather than for your full balance. This will let you make the most out of the Golden Tickets.
PrizeRebel is a GPT (Get-Paid-To) site. They have many offer walls and survey providers available. You can earn bonus points for meeting your daily goals, and they have bi-monthly contests that reward the top earners. They also have a Level program that allows you to earn a bigger percentage from your referrals, prize discounts, special bonuses, and automatic prize processing. Level up by earning more points. — Payment Proof. *The site is International, but most earning opportunities are for US, UK, CA and AU.
↪ Age minimum: 16 ↪ Offers: Surveys, Offer Walls, Tasks, Videos, Coupons, and Earning Contests. ↪ Payout: [Minimum: $2] Amazon, PayPal, VISA, Wal-Mart, Best Buy, Raffles and many more. ↪ Referral Incentive: 15-30% of what your referrals earn for life. TIPS: • Meet your daily goal each day to earn bonus points.
Fetch is an app available for both Android and iOS where users earn money for scanning receipts and for purchasing specific products or brands. You get points for every receipt from a grocery retailer, supermarket, club wholesaler, home improvement/hardware store, pet store or convenience stores, regardless of what you buy. You can get additional points for purchasing specific products or specific brands. Receipts cannot be more than 2 weeks old. It can also be set it up to passively collect e-receipts. — Payment Proof.
↪ Age minimum: Age of majority in your jurisdiction (Usually this is 18). ↪ Offers: Cash back for scanning receipts and buying specific products or brands. ↪ Payout: [Minimum $3] Amazon, Target, Best Buy, Xbox, Applebee's and many more. ↪ Referral Incentive: Both the referrer and the referred user get $2-5 when they scan their first receipt. The exact amount varies depending on the current promotion. This is close to or above the minimum cash out amount. TIPS: • Make sure to check for rebates on any items you regularly stock up on. • You don’t need to add rebates before purchasing items.
Ibotta is an app available for both Android and iOS that gives cash back for shopping at Ibotta's retail and then scanning your receipts to prove what purchases were made. They currently support around 160 stores. Most offers are for newer brands, but they often have well-known names such as Glade or Kraft. They also regularly have cash back deals for "any item" or "any brand". You can also get cash back for shopping on sites such as Amazon and various services such as meal delivery. — Payment Proof.
↪ Age minimum: 18 ↪ Offers: Cash back. ↪ Payout: [Minimum $20] Paypal, Venmo, Amazon, BestBuy, Starbucks and many more. ↪ Referral: Referred users get a $20 Welcome Bonus after redeeming their first brand name receipt. Referring users get $5 for each referred user who receives their welcome bonus. They also often run bonuses for referring a certain number of users during the month. TIPS:: • Always check for the "Any Item" rebate before scanning a receipt. • Check your account for bonuses. They often have bonuses for redeeming certain groups of rebates or for redeeming a certain number of rebates within a time limit. • You can link your Facebook account in order to participate in teamwork bonuses with friends.
GamerMine is a GPT site founded in January of 2017 that values the experience of their users. With over $115,000 USD paid out to their users over 25,000 withdrawals, they've earned the trust of many members of the beermoney community.
↪ YourSurveys Direct Integration - Complete the highest paying surveys on the market, directly sourced from YourSurveys and tailored to your profiling info. ↪ Steam Reward - Get paid by wearing our brand/gaming with it on Steam. ↪ Daily Bonus - Claim a bonus everyday that scales with your level. More earnings, higher daily free. Top members are earning up to $1.00 USD per day! ↪ Age minimum: 13 ↪ Inventory/Item System - Earn boosters that can be used whenever you want to increase your earnings on an offer. TIPS: • Leaderboard - Daily/monthly that auto-rewards the highest earners in the period.
Mturk is a platform that allows clients to post a large number of jobs. It is a bit more professional than the typical /beermoney site. You work for "requesters" and they can approve or reject your submitted tasks, also known as HITs. You can earn a lot more money on this site than other typical /beermoney sites, but you need to pay attention to which jobs you accept. Not all HITs pay well. They do require some sensitive information from you for tax purposes. Not everyone gets approved to work here, and some people will be approved months or years after being rejected. — Payment Proof. *This site is international, but most of the tasks are only available for the USA. International users can only redeem Amazon.com balance.
↪ Age minimum: 18 ↪ Offers: A large number of tasks including Surveys, Transcription, Translation, Website Testing, Data Entry and much more. ↪ Payout: [Minimum $0.01] Amazon.com Balance and Amazon Payments Balance. Amazon Payments Balance can be transferred to a bank account. Note: All Amazon Balance is for the USA Amazon.com website regardless of your country. ↪ Referral Incentive: None TIPS: • Only do HITs that pay at least 10¢/minute. This gives you a rate of $6/hour. Mturk crowd forum and /hitsworthturkingfor are good places to check for higher paying HITs. • It is better to return a HIT than to submit to if you are unsure whether the requester will approve it. Returning a HIT will not negatively affect you, but a rejection will. • Scripts are allowed and encouraged. Checked /mturk for more tips and suggestions.
UserTesting is a usability testing site. You get paid to record your screen and speak aloud while performing a number of specified tasks. These tasks are generally related to testing a website or an app, but some tests may have you complete a survey, play a game, test new software, etc. At the start you may receive $3 sample tests, but after a while you will see $10 unmoderated tests. Moderated tests start at $30 per test, and usually require you to have a webcam. Payment arrives via PayPal exactly 7 days after your test is completed. — Payment Proof. *The site is International, but most earning opportunities are for US, UK, CA and AU.
↪ Age minimum: 18 ↪ Offers: Usability testing ↪ Payout: [Minimum: None] PayPal ↪ Referral Incentive: None. TIPS: • Completing the unpaid surveys at the top may qualify you for additional tests. • Make sure to follow instructions carefully, keep talking, and be professional. Keeping a high quality rating is essential if you want to receive plenty of tests.
GetUpside is an app available on both Android and iOS that gives you cash back on gas, groceries and restaurants. You can get up to $0.25 per gallon of gas (or up to $0.50 per gallon twice per day), 15% on groceries, and 35% at restaurants. Some gas stations offer cash back on convenience store purchases, car washes, inspections, oil changes, etc. GetUpside also gives you a map of all the participating gas stations in your area, and you can get additional points for confirming or fixing the prices.
↪ Age Minimum: 13 ↪ Offers: Cashback on gas, groceries and restaurants. ↪ Payout: PayPal ($1 fee if under $15), Check ($1 fee if under $50), Amazon, Home Depot, Target, and many more. [GC Minimum: $10] ↪ Referral Incentive: The referred user gets $0.15-$0.20 off per gallon of gas on their first purchase. The referring user gets $0.01-$0.02 per gallon from direct referrals, and $0.005-$0.01 per gallon for indirect referrals for life. Amount varies per person. As of 05/18/20 (not sure how long it will last) new users who sign up with the link above get a $7-$14(varies per person) bonus if they buy at least $10 worth of gas. TIPS: • You must make your purchase with a debit or credit card. Cash, prepaid cards, gift cards, and EBT are not eligible forms of payment. • You only have 4 hours to make your gas or restaurant purchase after claiming the offer. Grocery offers have 24 hours. All receipts must be scanned within 24 hours from when you claim the offer.
Cash Back From Shopping Online
These sites give cash back on your online purchases. Online purchases require you to click their affiliate link prior to shopping. Ebates US has in-store offers as well. In-store purchases require you to link a debit/credit card and to active the offer prior to shopping. Most of these sites are International, but your shopping opportunities may be limited, and you will only get paid in the associated currency. — Ebates Payment Proof.
TIPS: • Make sure to click on the "Shop Now" or “Get Cashback” button before adding items to your cart. Otherwise, your shopping trip may not count. • You can only use one shopping portal per shopping trip. Attempting to use more than one may cause problems crediting your account. • Disable any ad blockers while shopping. • For US Users: Sometimes you can earn more cash back on Ebates or TopCashBack than the other for a particular store. Check both sites if you want to get the most cash back for each purchase. • For TopCashBack UK Users: New users are automatically enrolled into the Plus membership. Downgrade to the Classic membership to avoid being charged £5/year.
Master Card, PayPal, BACS, Gift Cards, British Airways
Amazon Pay, NEFT, Paytm
PayPal, Amazon, UnionPay
New User Bonus
Some information is missing due to translation difficulties and signup problems. Please let us know if you know any of this missing information.
Sites to Avoid: Definitely DO NOT post these.
✖ Earnsanity — Shady owner, sketchy site. Held giveaway and then refunded the prizes after it was over. History of scamming many others. AVOID AT ALL COSTS UNLESS YOU WANT TO BE SCAMMED. ✖ Paidverts — Shady owner, sketchy site. Keeps doing debt swaps (cash to BAP). Do not post. ✖ Neobux — It isn’t really a scam, but they operate as a pyramid scheme. There’s money to be made online, but it’s definitely not there. ✖ MarketGlory — It does pay out, but the pay is absolutely ridiculous. The only way to make a decent amount of money is to have a lot of referrals, and referral whoring on this subreddit WILL result in a permanent ban. ✖ MindSumo — Not actually a /beermoney site. It’s only spam in this sub. ✖ G2A — Scam/sells stolen keys. ✖ Robinhood — This is spammed on our sub constantly. ✖ Quickthoughts — Many reports of people being banned when trying to withdraw as of 10/2018. Do your due diligence before possibly wasting your time on this app. ✖ Sites with $100+ minimum — These sites usually offer higher than normal payments for simple tasks, with a high minimum to cash out. They are always scams. ✖ Generic news sites that pay you ridiculous amounts to read an article (two euros??) — Common sense should take care of this, but in case it doesn’t, it’s always a scam. The site is usually hosted somewhere in Eastern Europe, and you will never get paid. ✖ Free bitcoin sites/"faucets" (THIS INCLUDES QOINPRO) — This is not referring to those video-viewing/task sites (although they’re still paying fragments of a penny). I’m talking about sites that give you 0.000001BTC to fill a captcha (freebitco.in, dailybitcoins). Admittedly many beermoney sites pay low, but don’t even bother with these. Also: Bitcoin mining is NO LONGER PROFITABLE. If you're really so keen on getting bitcoins, doing so through an exchange is your best option. Here are a few more scam sites and sketchy sites.
Please note that presence on this post does not imply that /beermoney or its moderators endorse the site or their views, actions, or policies. This list simply contains sites that are used by a large number of our users or are frequently mentioned on our subreddit. We frequently monitor data from all the sites on this list from various sources to ensure that users are able and interested in utilizing them and if they do, that they also are getting paid promptly and fairly for all work they do. We make adjustments to this list and the order of sites accordingly based on all the data we receive.
Please make sure you follow the Rules of our subreddit and if you ever have any questions about anything beermoney related, please take a look at our extensive FAQ which should answer almost any question you might have.
This is a compilation of everything suspicious I found with Quadriga. Please let me know if there’s anything incorrect or missing Early History (2013-2017)
QuadrigaCX started in 2013 and made history by being the first crypto exchange to register with FINTRAC and accept gold bullion deposits. By 2015, Quadriga became Canada’s largest crypto exchange. So far, so good.
In March 2015, Quadriga attempted to go public and a month later, announced its intention to install Bitcoin ATMs across Canada. Both these plans were eventually aborted.
Even though Quadriga never listed, it started selling its shares over-the-counter. In Sep 2015, Quadriga stopped publishing audits. In March 2016, Quadriga was banned from selling shares after the BCSC issued a cease trade order (CTO) for not submitting an audit.
Around the same time, 3 of Quadriga’s 5 directors (Anthony Milewski, Lovie Horner, Bill Filtness) and CFO (Natasha Tsai) all resigned. Sometime in 2016, Director and Co-founder Michael Patryn resigned. This left Gerald Cotten ("Gerry") as the only remaining director.
Evidence shows that Michael Patryn has used several aliases (including Omar Dhanani) and is a convicted identity thief
Quadriga has changed its business address several times. It started as a Vancouver-based exchange, with its addresses changing from Commercial Dr, Nelson St, and Homer St. Eventually, the address moved to Toronto. None of these were physical office addresses, but instead a mail forwarding address.
The Terms of Service on Quadriga’s website have always suspiciously stated that:
All account fundings are considered to be purchases of QuadrigaCX Bucks. These are units that are used for the purposes of purchasing Bitcoin or other cryptocurrencies. QuadrigaCX Bucks are NOT Canadian Dollars. Any notation of $, CAD, or USD refers to an equivalent unit in QuadrigaCX Bucks, which exist for the sole purpose of buying and selling Bitcoin and other cryptocurrencies. QuadrigaCX is NOT a financial institution, bank, credit union, trust, or deposit business. We DO NOT take Deposits. We exist solely for the purposes of buying and selling cryptocurrencies.
Banking troubles throughout 2018
In late Dec 2017, Jose Reyes (CEO of Billerfy and Costodian Inc, Quadriga’s payment processor) moved over a million dollars from Quadriga’s account and into his own personal CIBC account
Shortly after, CIBC froze these funds and tried reaching out to Gerry, who refused to speak with them
All throughout 2018, Quadriga’s fiat withdrawal times took 2-3 months to complete. Quadriga kept citing the CIBC freeze as the reason. What’s very suspicious is how Quadriga constantly lied to customers with promises such as “the withdrawal backlog will be cleared in 1 week” or “your funds have been processed” when in fact they were months away from doing so.
Period leading up to Gerry’s death
On Nov 27, Gerry filed his will just 12 days before his death. He left a plane, two houses, and $100,000 for the care of his two Chihuahuas.
Gerry had a plan for all his personal affairs in the event of his death but he had no contingency plan for $180M CAD of crypto in cold storage that only he had the private keys to?
India is a suspicious place to travel, considering Gerry had a medical condition and considering how easy it is to get a death certificate there
After a severe bear market, most crypto businesses have been struggling and laying off staff. It’s odd that Gerry, who has no history of philanthropy, chooses to donate money. Especially when his exchange is having so many banking troubles.
The organization that built the orphanage states on their website that they take care of all construction. There was zero need for Gerry to go to India
A reddit post shows that the orphanage exists, although it’s a mystery where the image came from
Bitcoin fell 50% in Nov – the worst monthly decline in 7 years. Gerry’s death occurred shortly after
Gerry’s death and announcement
On Dec 9, Gerry died in India “due to complications of Crohn’s disease.” However, there is a low probability that Crohn’s disease is fatal, especially at the young age of 30
Just a couple days later, a reddit post indicated someone bought 300 BTC on Quadriga at a 25% premium and moved the funds out of the exchange
It took Quadriga over a month to announce Gerry’s death on Jan 14th.
Over the following 2 weeks, Quadriga continued to assure customers that “our hot wallets are being filled and withdrawals are going slower but will complete.”
On Jan 28th, Quadriga takes down their website. Initially they said “an upgrade is being performed,” then the message changed to “site maintenance” before being changed to “Quadriga has filed for creditor protection” on Jan 31st.
In the media, Gerry stated several times that Quadriga uses multi-sig cold storage. This is where 2/3 or 3/5 people can be used to authorize a transaction. Clearly no multisig was used if only Gerry had the private keys.
Formal Active Investigations
A preliminary court hearing was held on Feb 5, 2019 where the Canadian Apex Court appointed Ernst and Young (EY) as Monitor to further investigate into the matter. EY has stated that its an extraordinary challenge to decipher Quadriga's finances, as the company has no accounting records (and did not systematically track incoming and outgoing payments) nor a bank account in its name.
The Better Business Bureau (BBB), which gives Quadriga an F-rating, launched an investigation in Dec 2018
Quadriga has substantial personal information on its customers, including SIN, driver's license, and banking details. Given Quadriga's murky history, customers may have their identity at risk and should setup up credit report and identity theft alerts with either Equifax or TransUnion.
Atomic Wallet - The Best Universal Litecoin Wallet!
Atomic Wallet - The Best Universal Litecoin Wallet! Hello, valuable crypto money followers. In this article, I would like to talk to you about the Atomic Wallet project. Just as we all know that the cryptocurrency industry have gotten to a level where it can’t be stopped any-longer, we should also remember that this technology is still being faced with the challenge of fiat to crypto exchange because several individuals that are interested in purchasing and investing in cryptocurrencies do not have a good platform to easily convert their local currencies to bitcoin or other crypto assets. Atomic wallet team have recognised this cogent issue and as such, they have come up with the great solution of integrating Simplex which is the largest licensed card processing company in the European Union. Atomic wallet as we all know is a multi-feature wallet which affords its users the ability to store and manage 300+ cryptocurrencies, exchange their cryptocurrencies assets easily into other cryptocurrencies, monitor the current price of the supported cryptocurrencies among other features. What Does the Project Promise? Indeed the task is focused; to deal with our crypto cash resources dependably and to work through a progressively secure framework. So how is this going to be? A standout amongst the most critical issues that separates the Atomic Wallet venture from different activities is; rather than crypto trades on this stage, rather than keeping all crypto keys on the stock trades, they keep this data on clients’ gadgets. The clarification is that; We are never again ready to take our private keys and we are exceptionally protected. This is a great improvement …
What are the exceptional features of this wallet
· Ability to control your private keys by yourself only · Private and anonymous transactions which prevents you from being hacked · Easy to use built in cryptocurrency exchange · Excellent user interface · Always active customer support · Reliable security measures which ensures the safety of users’ funds · Very cheap and affordable transaction fees
What is Litecoin wallet?
You need to use a program to manage your Litecoins, it will keep your private keys and provide additional functions such as sending, receiving, exchanging, and more. With these programs, you’re able to manage and control your funds.
Signs of a good Litecoin Wallet
1. Security. Wallet security means the way your Litecoins and other cryptos are protected from frauds and hacking, how you manage private keys and what security technologies a particular wallet supports. 2. Accessibility. This feature implies simplicity in use and the ability to withdraw your funds from the wallet. A friendly user interface is a vital point for new users. When choosing a litecoin wallet, pay attention to its interface and the amounts you are able to operate with. 3. Functionality. If you want to choose a good LTC wallet, check it for additional services support, such as an ability to exchange cryptocurrency or buy crypto with a bank-card/paypal, etc.) In some wallets, like Atomic or Exodus, it’s possible to exchange Litecoin right in the application without visiting third party websites. Cryptocurrency will be transferred directly on your address after the exchange. How does the framework work? A standout amongst the most loved pieces of the stage is; individuals can make their very own requests for the trade between digital currencies, and they can be incorporated into the change orders made by others, this is extremely extraordinary … To clarify this with a precedent; Let’s say I have a tad of Litecoin. I would prefer not to transform this Litecoini into dollars or Btc. So I need to get Lost with Ltc straightforwardly. You can change over Ltc to Iost by means of Exchange over the stage. You can even enter the sum physically in the event that you need. Right now you endorse the Exchange procedure, the Atomic Wallet begins the procedure to compute the most fitting commission and exchange the token at the greatest rate with the base expense. In this manner, as in the Ethereum framework, the cost of Gas isn’t given to the reasons, for example, the low token isn’t sent tokenize. The Atomic Wallet application has been deliberately arranged to be utilized on each stage to contact all crowds. These stages; MacOS, Windows, Ubuntu, Debian and Fedora. 4. Customer Support. This is a vitally important to receive a fast reply on users concerns and help with troubleshooting. Good customer care is a sign of a good product. How fast will the support team help you, if you have any troubles? Crypto market is too volatile to wait days/weeks till someone will the issue. It is a good practice to reply within 24 hours. How to setup Litecoin Wallet Manage your Litecoin wisely! Learn how to setup Atomic Wallet to send, receive, exchange and buy LTC. Buy Litecoin in a secure way Install Atomic Wallet Download the app. Atomic is a free and secure place to manage Bitcoin, Ethereum, XRP and more than 300+ assets. Verify your Identity Verification is required to prevent identity theft or fraud. Photo ID is required to make sure it's really you. Get Litecoin Start with $50 and up to $20,000 daily. Receive crypto on your wallet. Credit/Debit cards accepted. Get Wallet Buy Litecoin with Credit Card There are many ways to buy Litecoin (exchanges, hot wallets), but one of the most secure way to buy LTC is to use Atomic Wallet. With Atomic, you can easily purchase LTC, BTC, ETH, XRP, BCH and hold 300+ coins and tokens in one place where only you control your funds. Hold them and manage with comfortable interface. You can buy Litecoin with VISA/MasterCard right in the interface of Atomic Walletand convert your USD or EUR to LTC. Even if you have a JPY, CAD or any other currency card, those currencies are automatically converted to either EUR or USD, depending on your choice. It’s quite easy to use and doesn’t require specific tech skills.
Rates and Security
The fees are fixed at 7%. Each operation is fully conducted by Simplex, an EU licensed card processing company. You choose an amount and currency to buy and verify your ID. Then your bank holds funds until Simplex approves the request and makes an exchange. As a rule, you receive crypto in 24 hours. As a result, the creation of an appropriate application will undoubtedly increase the use of the Atom Wallet for some customers. According to the designers, more than 100,000 people have downloaded the Atom Wallet since the effort was disbanded. Most people use the wallet routinely. This is an approved sign of trust in the wallet! I'm sure that the full delivery of compact apps on Android and iOS will be another upgrade to attract new customers. This review is the author's personal opinion, based on information from public sources and is certainly not a trade or investment advice.
Buying Ether in Canada, my experience with different exchanges
Hello, I'm writing about my experiences buying ethereum in Canada, essentially converting CAD to ETH. The goal is to help beginners that are interested in getting started but don't know where to actually buy ether. There's a lot of info out there but most of it seems to be centered around USD, which doesn't always translate for CAD and our banking system. I'm by no means an expert but I figured someone might find this information helpful. I've verified and used the following sites, so I'll be writing about them:
If you just want the gist of it, a super-quick summary of what I found:
Coinbase: great if you just want to try things out. Fast to get ether, fast to verify, high fees.
QuadrigaCX: great if you're looking to get more seriously into cryptocurrency. Most deposit options, lower fees.
Kraken: great if you have a ton of money you want to transfer into cryptocurrency or if you want to play around with trading. Low fees, slow CAD deposit because wire transfer.
Coinsquare: Fees aren't bad, low volume though.
With every one of these sites, there's usually some form of verification. This involves taking a picture of some piece of government ID (usually passport or drivers license), as well as some sort of proof of address such as a utlity bill. Some sites require you to take a selfie with some of that documentation or holding a handwritten sign. It seemed sketchy to me at first, but every place does it. Coinbase This was the first place I tried. Their only payment methods I could find are Visa and MasterCard, of which they charge a 3.75% convenience. With reward cards you might get 1%-2% back, but this is a fairly high fee. The bright side is it's just about instantaneous. One thing I noticed is that their sell price is about ~$5 higher than a few exchanges. For example, as I write this, it's $119.23 on coinbase. On kraken it's 113.99 for a market order. There is a weekly $200 limit on the amount to buy. A 30 day countdown started after I spent $500 to increase the limit. I can't find what the new limit amount will be once that countdown reaches 0 though. So far, I've been with them for over a month and I've bought $600 worth of ether. The first time I bought it only took a minute to get sent to my private address. The second time it took ~40 minutes for it to actually get sent to my private ether address, but this was due to some issues they were having, probably just a fluke. I've bought two more times since then and both times it was instant. To summarize Pros:
Fast to verify, took a couple minutes, seemed to be completely automated
Almost instantly sent funds via Visa/Mastercard
Instantly got the ether I bought
Probably the easiest to use
Generally $5 over Kraken prices
High fees at 3.75%. Might be able to brought lower with a good rewards card
Low $200 weekly limit
QuadrigaCX Hoping to get lower fees, this was the second place I tried. They accept a lot more payments with a variety of fees, I'll list them out:
Electronic Funds Transfer
Min $250, Max $10,000
5 Business Days
Min $500, Max $5,000
Next Business Day
2% + $5
Min $50, Max $2,000
Instant (but may be held 24 hours by security)
1.5% (min. $5)
Min $100,000, Max $500,000
2-4 Business Days
Min $500, Max $500,000
Electronic Funds Transfer replaced their "direct bank transfer" option, and while I think it's great since I think every bank supports it, it unfortunately has a rather high fee at 5%. I don't really see why you would use this though, if you can use Interac Online, it's faster. If you need the higher daily limit, a bank wire would be cheaper too. Interac e-Transfer I'd go with this if your bank doesn't support Interac Online and if you don't mind the 2% fee. If you're doing a large amount, the Bank Wire would be a better choice, depending on how much your bank charges you. Interac Online seems like the best choice for less than $2000. Unfortunately even though my bank card says "Interac" on it, and the bank is listed as supported, I can't use it for Interac Online because the card is both a debit and visa card. I've read that RBC and BMO are the only banks that support this, so it may be worth signing up with them. Bank Wire ended up being what I used (EDIT: back then the minimum for a wire transfer was $500). I wanted to deposit a larger sum, so just paying my bank for the cost of the transfer ended up being worthwhile (about 0.5% fee). The downside is I had to go in person to a branch to send a wire transfer and it's only really worthwhile for larger transfers. Crypto Capital seems like a 3rd party that you can wire to and then transfer that to QuadrigaCX. I don't see the appeal in using this to fund an account since you can just wire to QuadrigaCX directly. I sent the wire transfer a few days ago, and it seems like it will take 3-5 business days for it to complete. I'll update this post if the money somehow just disappears. Wire transfer came through today, no problems :) Once you do get CAD on QuadrigaCX, the fees to buy Ether are 0.5%. Combined with my wire transfer cost, I expect to only have paid a total of 1% in fees. To summarize Pros:
Fast to verify, I was able to verify the same day I made my account
Lots of variety in funding choices
Lower fees compared to coinbase
High daily fund limits
Not as many deposit options if they don't support your bank
0.5% per completed trade is a little high compared to other exchanges
Some transfer options have higher fees than coinbase for low amounts
Some transfer options can take up to 5 days
Kraken The latest site I've tried, they have multiple tiers of verification. You can't deposit CAD until you reach tier 3 verification, which can take up to 48 hours. Tier 1 and tier 2 were verified within the hour but tier 3 was still not verified 3 days later. When I submitted a support ticket, they were very quick to respond the next day and told me I needed to submit a Confirmation ID. Their site listed the Confirmation ID for a few countries and some criteria but it didn't seem like Canada applied to any of the criteria. Regardless, I submitted the Confirmation ID and was verified with tier 3 that same day. The only way to deposit CAD with Kraken is through wire transfer and it seems like there's some unlisted fees based on what their banks charge them to receive a wire transfer (as well as any intermediary bank). I have not done this so I cannot tell what the costs would be. Once you do have CAD on their exchange, their fees are better than QuadrigaCX with a MakeTaker rate at 0.16%/0.26%. I have sent ether to Kraken just for playing around with trading and I've had no problems. To summarize Pros:
Low trading fees
Potentially lower CAD->ETH fee than QuadrigaCX, depending on if there are wire transfer hidden costs. Lower trading fee helps
High fund limits
Only one way to deposit CAD and it's slow
Unclear what the wire transfer costs are
Little confusing verification process for tier3
Min $100, Max $2,000
Instant (withheld for 3 days)
Min $100, Max $3,000
1-3 days (withheld 0-7 days)
Min $20, Max $500
Min $1000, Max $9,000
0-2 days (withheld 0-5 days)
Min $100, Max $1,000
0-2 days (withheld 0-5 days)
Min $10,000, Max $300,000
0-1 day (withheld 0-2 days)
They have this concept of withholding funds, where you basically have to keep the money on the account. You can trade with it as much as you want, but you won't be able to withdraw until after the withholding time. Pros:
Lowish trading fees
Some options are fast to fund
Reasonable fund limits
The direct way to go from CAD->ETH has higher trading fees. Have to go CAD->BTC and then BTC->ETH.
Horrible interface. Until they fix their site, some stuff is broken (unless it works in other browsers?), or if you know how to edit html. Wow! They really fixed their site and it looks great now! Only thing that bothers me is in the advanced section, it lists the CAD/BTC price in terms of bitcoin. So instead of saying $3400/bitcoin, it says 0.00029378BTC
Fairly high withdraw fees (unfortunately I can't find them listed on their site, and I can't find it listed anywhere, but some people have reported it being far too high)
Alternatives There are of course other sites to get ether, and there's always the option of getting bitcoin and exchanging it through an exchange like Kraken or Poloniex for ether. There are bitcoin ATMs scattered around as well, but I can't comment on any fees involved or how close they match exchange prices. Other sites I checked out:
Local Bitcoins - It looks like I'd have to find another user to trade with and prices seem far higher than the exchanges.
Poloniex - Doesn't look like you can deposit CAD.
Gemini - Don't see a way to deposit CAD. Also sent verification 2 days ago and have not been verified.
Bitfinex - Can't wire transfer USD out at this moment and I don't see a way to deposit CAD.
Coinswitch - Can't deposit CAD.
GDAX - Can't deposit CAD.
CEX.IO - Price quotes are signficantly higher than other exchanges, and it looks like it only does USD. Right now, their site says you can buy 1 ETH as $289.25 USD, compare that to GDAX which has them trading at $259.98 USD. You can sell on it too, but again, the price isn't favorable, sell on it for $250 USD vs selling on GDAX for $260 USD.
QuickBT - Only small amounts of ETH, and fees seem to range between 5-9% depending on how much you buy. Only supports interac online and flexepin.
Alt Coins The main sites for getting CAD into the cryptocurrency space like QuadrigaCX, Coinbase, Kraken, and Coinsquare don't have a lot of altcoins. Fortunately once you have ether you can send it to another exchange and trade that for altcoins. These are my favourite ones:
Bittrex - You can't buy ETH with CAD directly, but it has a lot of other cryptocurrencies. I used this until Binance came out. They closed accounts for people unverified or from some countries, so I'd be wary about using it.
Binance - You also can't buy ETH with CAD directly on this one, but it's my favourite for getting into other cryptocurrency coins. Fees are also lower than bittrex if you hold their BNB coin and they add new coins much faster. Referral | Non-Referral
Kucoin - Registration on Binance/Bittrex has been up and down lately and I've had success using this exchange. They seem to add coins even faster than Binance, but the site is a little bit slower and less polished. Still functional and good to pickup a few alts that you can't get elsewhere. Referral | Non-referral
Funnily enough, this whole experience has made me appreciate the flexibility cryptocurrency like ether has and served as a reminder to how slow and cumbersome transactions become once the banking system is involved. EDIT: received wire transfer through QuadrigaCX, made account with coinsquare. EDIT2: added coinsquare section EDIT3: updated QuadrigaCX and coinsquare section, updated alternatives list EDIT4: Added e-transfer for QuadrigaCX! EDIT5: Cleaned up alt coins section.
How To Invest in Cryptocurrencies: The Ultimate Beginners Guide
All statements are based on the author’s experiences. I take pride in informing the public and helping as many as I can through sharing my experiences with my readers. That said, no one except you can take responsibility for your Cryptocurrency Investing decisions, so do think it through before investing. If you would like to learn more about the techlogogy behind cryptocurrencies, please check out our blockchain courses on crypto. When I first started taking an interest in cryptocurrency I thought I was so lost in this huge sea of unknowns. Where do I start? What are the useful keywords to look up and keep in mind? What are the available helpful resources? This cryptocurrency investing guide is written so that in just 20 minutes, you would have a sense of what to expect of your upcoming crypto journey, and how to best go about starting it. Enjoy it, it might just be the most exhilarating ride of your life. Rise of the Cryptocurrencies As the tech literacy of the population increases, acceptance of crypto as a legitimate store of value follows, and it boomed. Titles along the lines of ‘Bitcoin price hits new all-time high’ and ‘Ethereum price surges’ are starting to perforate the general public’s news feed. What we know for sure is that people who were once skeptical of Bitcoin and the technology behind it are slowly understanding and getting increasingly involved with crypto. As at the time of writing, the market cap of the entire crypto space is at 30.9 billion USD. It was 20 billion just four months ago. What would it be four months from now? Current Makeup of the Cryptocurrency Space You would have heard of Bitcoin and the ‘altcoins.’ How this naming convention started was because back in the days of 2011, forks of Bitcoin appeared in the markets. The forks, or clones, each aspire to serve a niche area, aiming to be ‘better’ than Bitcoin. Since then countless new crypto has emerged, eroding away Bitcoin’s crypto market cap dominance. These altcoins are gaining market share at an alarming speed. Ten times or more growth has been observed in a time span as short as six weeks (see PIVX, an altcoin). Cryptocurrency, Stocks, and Fiat The currencies we know are referred to as ‘fiat’ by the cryptocurrency community. Although having ‘currency’ in its name, cryptocurrencies share more similarities with stocks than currencies. When you purchase some cryptocurrency, you are in fact buying some tech stock, a part of the blockchain and a piece of the network. Cryptocurrency Exchanges The most common place where people buy and trade cryptocurrency is on the exchanges. Exchanges are places where you may buy and sell your crypto, using fiat. There are multiple measures to judge the reliability and quality of an exchange, such as liquidity, spread, fees, purchase and withdrawal limits, trading volume, security, insurance, user-friendliness. Out of all these, I find Coinbase as the best exchange hands down. It has a beginner-friendly user interface, and an unbeatable 100% crypto insurance. After setting up an intermediary bank account and verifying your details with Coinbase, you are only five simple steps away from a Bitcoin purchase:
Access the ‘Buy/Sell Bitcoin’ tab
Select the payment method using the drop-down menu
Enter the desired amount
Click ‘Buy Bitcoin Instantly.’
View your credited Bitcoins on your dashboard
When you get acquainted with buying crypto and start to itch for some crypto trading (e.g. BTC/ETH), simply perform an instant transfer from Coinbase to GDAX free of charge and start trading. Think of Coinbase as the place to conveniently buy and store your crypto and GDAX as your margin trading platform. Transfers between the two are instant and free. As you slowly get familiar with other currencies, you might want to have the option of investing in them. Bittrex and Polo are two exchanges that offer a wide selection range. When signing up on these exchanges for the first time, do make it a point to verify your account with the required documents early, as you do not want to be caught in the middle of some tedious and slow admin work when the trading opportunity comes. Verification on these exchanges may take days, and purchase/withdraw limits may only increase gradually as you trade. An additional point to note: if you are using a currency other than USD, do check out the exchange’s ease of funding and withdrawal. You do not want your exchange to come into fiat withdrawal problems like Bitfinex did recently. Cryptocurrency Wallets Exchanges have inbuilt online wallets to keep the cryptocurrency you purchased. However, for those who heard of the Mt. Gox hack, you might feel uneasy to put on an exchange. If you do not wish to keep your crypto holdings on the exchange, you have the option to either use a paper wallet service like myetherwallet.com or spend 99 USD on a hardware wallet like KeepKey. Both serve the purpose of removing platform risk, at the cost of taking up the responsibility of keeping your cryptocurrency safe. To transfer your crypto from exchanges to your hardware wallet for long term storage, simply follow these steps, using Coinbase and KeepKey as an example:
Plug in your KeepKey USB cable
Open your KeepKey Client (on Google Chrome under Apps)
Find your wallet address on the KeepKey Client UI
Access Coinbase ‘Send/Request’ tab and input your KeepKey wallet address
Confirm amount and click ‘Send Funds’
Take note to first send a tiny amount (e.g. 0.0001 BTC) for testing before sending the bulk, lest an error occurred and the transfer amount is lost. A small network transfer fee might be charged. Personally, I own a hardware wallet, as I love the feeling of a having around a tangible reminder of my crypto holdings. Also, the hardware wallet’s user interface makes it easy to keep multiple coins, which is especially handy when you participate in ICOs (Initial Coin Offering) in the future.
Cryptocurrency as a Percentage of Your Investment Portfolio
This part will be wildly subjective. Crypto has the potential to realize many ‘rags to riches’ stories, but its volatility makes it unpredictable. As a precaution, the money you put in crypto should be money that you are fine with losing. I cannot emphasize the importance of this as we often underestimate how the volatility affects our emotional capacities. The upside is huge, but it comes with lots of risks and, if I may put it, emotional torment. A conservative portfolio I would suggest is as follows: < 30 years old (max) 30% Crypto, 50% Traditional Investments 30 – 40 years old (max) 20% Crypto, 60% Traditional Investments > 40 years old (max) 10% Crypto, 70% Traditional Investments This is not meant to be age discriminatory but considers the fact that one takes up more financial responsibilities (mortgage, family) as he grows older. Within the designated crypto share of your portfolio, you may diversify your coins based on your risk appetite.
Show Me the Money! Cryptocurrency Investing
Now, this is where it gets exciting. How do we pick the winner? How do we avoid picking the loser? Note that crypto is now in a huge bull market and anything could rise over time. Also, do not dismiss the possibility that we may be in a bubble like the-dot-com boom back in 2000. Still, ask yourself these questions before you decide to invest in a coin:
Are my investments safe with the dev team? The first rule of investing should always be the preservation of capital. Can you trust the dev team with your money? Are you about to leave your money with founders who have been involved in previous scams? If you see these telling signs, back off immediately. The coin’s price might grow for all you care, but it is just not worth it to put your capital at such risk.
Does my coin of interest have a long-term plan? If you cannot understand their yellow paper, at least read their white paper. What are the team trying to achieve? Do they have the means, or have they already worked towards their goals? What are the timelines and milestones?
Does my coin of interest seem like a well-marketed plan with no backup? Lots of ICOs these days just have a pretty webpage, and then they’re shipped out to sell. Watch out for these: are they able to deliver?
How long should I stay in this? Do I have an exit plan? There will be coins where you do not want to hold forever, but wish to flip for some short-term gains. In this case, be sure to set a timeframe, or an exit price, to reduce to effect of emotions on your trades. Stick to your plan and watch your emotions.
Does it have a real-world use case? Some coins seem to keep increasing in value simply due to supply-demand factors. This trend might not be sustainable. For a coin to have long term supported value, it must have a real-world use case eventually. Look out for coins that look too much like a get-rich-quick scheme.
Short Term Trading with Margin Once you get familiarized with crypto, you may want to trade on your ‘stash’ in hopes of increasing it. For the experienced forex traders, this is nothing new. But for the new crypto investor, you may want to brief up on how to make a leveraged trade. Short-term trading takes advantages of incoming news to make a quick buck. If you foresee good news from an upcoming release of a coin, you may want to open a long and see how it goes. Remember, buy the rumor, sell the news; act fast and be daring if you wish to make a profit with short term trading. Mining For those who are more comfortable with a predictable form of reward, mining is the way. Mining involves setting up of a rig, consisting of GPUs or CPUs and an investment in the electricity. Mining is only possible on cryptocurrencies that follow the Proof of Work protocol. It takes some effort to setup and gets things running, but it is attractive as a long-term passive income as long as you frontload the work. Staking Staking is the Proof of Stake version of ‘mining.’ Think of this as making dividends on your stock. The reward rate and staking method differ greatly among Proof of Stake coins, but in general, it takes less effort as compared to mining. Arbitraging As you get a hand in multiple exchanges, you may wish to buy from one exchange and sell on another to make ‘arbitrage’ gains when you spot an arbitraging opportunity. Take note of two things if you wish to do so: remember to factor in fees, and remember that the price could change when you are transferring your coin between exchanges, especially during volatile times. USD tends to be liquid so this happens less for it, but for other currencies such as CAD (Canadian dollar) and SGD (Singapore dollar), there may exist more arbitraging opportunities to exploit. That’s about all I have, for now, invest smart and most importantly, don’t forget to have fun!
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