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With Mt.Gox probably going insolvent/broke in these days, how safe is my USD account balance with Bitstamp? Is Bitstamp as a company registered with some financial institutions? Are customers USD deposits insured? I only want to consider security from the financial point of view and not my account security (strong passwords, two-factor authentication etc. - is a personal responsibility IMHO).
I guess I would lose all my USD balance if the company goes broke?
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Bitstamp and any other exchange are companies and so can be insolvent. If you transfer $1000 to them in exchange for bitcoins. Until they send you the bitcoins they are in to debt to you for that amount. You could take them to court to recover that if they failed to provide the bitcoins or a refund. The court could issue an order allowing the companies assets to be seized so you cod get your $1000 back.
However if they become insolvent as appears to be the the case with Mt Gox then there's little chance of you being able to collect on the debt. As there will be no assests left for the court to seize.
Some regulated professions are required to use nominated accounts were money is held on behalf of a customer. In this case the money is still yours. This is something regulation of the BitCoin exchanges might require.
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A lot of this info is a bit outdated and as of now I still can't find anywhere that says Bitstamp is insured but Coinbase is FDIC insured for USD.
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Bitcoin is a very new technology and as of today there's no law regarding the insurance of your USD when you send them to an exchange. That means that if the company fails and goes bankrupt, or there's a technical issue and their databases get wiped out, there's nobody that can send you your money back.
As it happened to MtGox this could happen to any other exchange, Bitstamp included. As much as you trust them, technical issues could happen, regulations might pass that wouldn't allow you to withdrawal from these exchanges. Who knows what could happen.
Bitcoin relies on the concept of zero-trust, so the fact that we have to trust exchanges with our money is kind of against Bitcoin's principals.
Personally, when I want to buy/sell bitcoins, I transfer little amounts to these exchanges, and get them out as soon as I've bought/sold.
1Ok, but I am not talking about Bitcoin, I am talking about USD... Within usual business, if I send you $1000 as one business person to another, these $1000 are still mine until you provide me with goods or services... so if I send $1000 to Bitstamp and leave that as USD ballance, they should have liability towards myself, because I have not used any service from them yet. – Kozuch – 2014-02-25T10:02:35.280
If you invest $1000 in a startup and it fails, do you get your $1000 back? Bitcoin exchanges are sort of in a financial limbo and don't provide liability for the USD that you store on their system. They're not exactly like the usual service-provider type of business, since they're operating with bitcoins. – Luca Matteis – 2014-02-25T10:12:41.123
3I think you are not right here with the comparison with start-up. I am not investing in Bitstamp in any way with a deposit, I am just using their services (or actually not yet if I do not buy bitcoin but leave USD ballance), and that is a big difference. However, the end-effect might be the same (loosing your USD)... If you enter Bitcoin (buy it) then the story changes dramatically and you have no guarantees at all. What I want to say is that I think in case Bitsamp goes broke you could well legally require part of your USD if something is ever left over after the bankrupcy. – Kozuch – 2014-02-25T11:13:30.553
I don't see any evidence of that so I'd rather prepare for the worst case. That is why I deposit, sell, and get my money out of exchanges as quickly as possible. – Luca Matteis – 2014-02-25T11:18:37.863
2I sincerely doubt the correctness of this answer. When sending money to a business in order for them to manage it for you, the business gains a liability to you for that money. "[...] there's no law [...]" is definitely false, the remainder of the answer seems to contain sensible advice though. – Murch – 2014-02-25T13:34:47.550
@Murch "'[...] there's no law [...]' is definitely false" - references please? – Luca Matteis – 2014-02-25T15:22:20.810
2IANAL, but you are entering a contract with an exchange when creating a user account there. By accepting your fiat deposit the exchange gains a liabity to you. When they lose it, they are liable. Business-costumer relationships are well-legislated in the EU, claiming that there is no law applying to Bitcoin exchanges losing your fiat money is frankly ridiculous. – Murch – 2014-02-25T15:39:25.843
I am sorry, I think I just understood the point you were making. I now understand it to mean that "there is no law requiring Bitcoin exchanges to have insurance for the deposits they are managing". Before, I had thought you meant that one couldn't hold them liable for the loss, but you just meant that they would be unlikely to actually have hedged against such a loss. – I think that it also depends on whether a country has already decided what Bitcoin is. – Murch – 2014-02-25T16:03:09.523
My point is actually that there is no law for this sort of scenario. It's a financial limbo where money is treated similarly to how gambling sites treat it. If you push $1000 on a gambling site and you lose it after a single roll of dice, are they liable for your money lost? Now imagine the gambling site going bankrupt while you still have $1000 dollars in it. Who's going to prove you didn't burn it off playing dice? It's a financial limbo and there really isn't specific legislation that will give you your money back, and that's the point I was making. – Luca Matteis – 2014-02-25T16:17:22.803
1Unlike a gambling site, Bitstamp offers you an account history listing your actions on their page, which you could print as proof of the state of your account. – Murch – 2014-02-25T16:38:47.920
Can you elaborate on the last paragraph? If you have already given them access to your $1000, what difference does that make (since if they go broke, they would take your 1k and still not be able to return it)? – Pacerier – 2014-05-22T16:43:37.143
1Certainly in the UK with these special types of accounts the customer is the legal owner of the funds. Therefore they aren't an assets of the company, despite the fact the company has some control over the movement of the money. Solicitors for instance are required to use them when handling customers money in certain circumstances. If the solictior goes bankcrupt they can't take the use the money from these accounts. – Charlie M – 2014-05-22T20:28:28.403
I mean they had the access to it. So what happens if they already used it? – Pacerier – 2014-05-22T20:40:21.243