Slashdot Mirror
How the First Bitcoin Hedge Fund Approaches Security
An anonymous reader writes with a link to a story at Forbes about what's said to the first Bitcoin hedge fund; the article goes into some of the details of how the (literally) valuable data is kept. A selection: "The private key itself is AES-256 encrypted. After exporting Bitcoin private keys from wallet.dat file, data is stored in a TrueCrypt container on three separate flash drives. Using Shamir's Secret Sharing algorithm, the container password is then split into three parts utilizing a 2-of-3 secret sharing model. Incorporating physical security with electronic security, each flash drive from various manufacturers is duplicated several times and, together with a CD-ROM, those items are vaulted in a bank safety deposit box in three different legal jurisdictions. To leverage geographic distribution as well, each bank stores only part of a key, so if a single deposit box is compromised, no funds are lost."
So hundreds of thousand of dollars of peoples money (most of it virtual none the less) relying on some $50 flash drives.....No thanks. Ill pass.
A pizza is split in 3 parts, and kept in 3 different banks in 3 countries. Bank robbers never get a full pizza.
Because they are literally stupid.
Armory as a Bitcoin client would have been a better choice for this, since they could have used the same 2-of-3 method for storing the private keys, but then they'd have the ability to use watching-only copies of the wallet for accounting and auditing purposes.
Scanning down through the day I can't find another story more fitting of the site's slogan "News for nerds, stuff that matters." As a nerd, news that a crypto-anarchists P2P currency has reached the stage of hedge funds only 4 years after being launched and details of how the fund manager intends to secure the keys for customers is simply fascinating.
Such procedures only work for cold storage of Bitcoin: wallets where you have no access to them. Basically, the equivalent of a bank vault for gold: its there, its sitting, but you can't actually do anything with it. Worse, unlike a bank vault, you can't transfer the bitcoins while they are in this vault.
Therefore, the hedge fund's only strategy for these wallets is to buy BitCoins and sit on them. And do nothing. Which, if you believe in BitCoin, makes sense (the design is hyper-deflationary, so the only rational thing to do with BitCoins is to hold BitCoins), but thats hardly what you'd call a hedge-fund strategy.
So how can you call it a hedge fund when all it can do is buy & hold?
Test your net with Netalyzr
What you saying is correct, but I am missing a step here.
You hand over your bitcoins for the fund to invest. They split the bitcoins into 3 pieces. o.k. - but how is that investing? If they are just keeping the bitcoins secure that is not even banking.
A pizza is split in 3 parts, and kept in 3 different banks in 3 countries. Bank robbers never get a full pizza.
But if they stole any part of the pizza, could you eat the rest?
I wish people would stop saying that. Yes, they are fiat currencies, but that does not mean they aren't real money or that all fiat currencies are equally arbitrary in valuation.
The value of the USD is measured against other currencies and against the things which one would like to buy. In most cases it doesn't really matter to me what it's doing versus the RMB or the CAD as I don't convert my money to pay for things brought in from those countries, I pay a price denominated in USD. Now, in practice shifts in those currency exchange rates will affect how much I pay, but so do all sorts of things that could affect domestically created things as well.
Bottom line, the folks claiming that fiat currencies aren't real don't have any idea what they're talking about. Currency is just for convenience so that you don't have to buy an entire cow just because you want a T-bone, don't want to take delivery immediately or want to do a 3 or 4 way trade.