
Veteran Wall Street enforcers are landing new roles in virtual currencies - chollida1
https://www.bloomberg.com/news/articles/2018-02-27/crypto-s-hottest-hires-aren-t-millennials-they-re-banking-cops
======
DINKDINK
>The drumbeat of hires crescendoed in November when Ripple, [...] added Ben
Lawsky to its board. He earned a tough reputation as New York’s top financial
watchdog by pushing banks to scrutinize client transactions for illicit
dealings. >[...]Lawsky’s jump to Ripple was particularly notable because he
helped pioneer regulation of cryptocurrencies. He introduced the BitLicense, a
requirement for digital currency companies that wanted to operate in New York.

What a bunch of white washing. Imagine a parallel universe were the DMCA and
the Online Copyright Infringement Liability Limitation Act made online service
providers responsible for the content that their user's posted and being
called a "pioneer".

Lawsky rose the specter of unsubstantiated "terrorism" fears to create
onerous, outdated, maladapted Bitcoin regulations. Shortly after that he quit
his job as a regulator and then setup a firm to collect fees for helping
"guide" firms through the regulations he just created. Corruption / rent
seeking / anti-competative behavior. Bank lawyers even told Lawsky to shut
bitcoin down[1]

[1][https://twitter.com/MarcHochstein/status/922611866848804864](https://twitter.com/MarcHochstein/status/922611866848804864)

~~~
bmelton
Agreed. There's a movie called "Banking on Bitcoin" currently on Netflix that
I recently watched, and while it's got plenty of libertarian rhetoric, it
showcases well the transition of "Bitcoin's going to fund terrorism" to "Hey,
y'know those regulations I wrote to prevent Bitcoin terrorism? I'm the only
one that knows them, so hire me for cryptocurrency regulatory guidance".

~~~
victor22
Can you believe Ripple actually hired Benjamin Lawsky?
[https://ripple.com/insights/ripple-welcomes-new-board-
member...](https://ripple.com/insights/ripple-welcomes-new-board-member-
benjamin-lawsky/)

------
chollida1
Makes sense.

I've stated this a few times, but one of Microsoft's biggest misteps in the
90's, and there weren't that many, was its absolute lack of any political
lobbying.

There are alot of very politically connected people who pointed out that if
Microsoft had of "played the game" that the chances of their anti trust trial
actually happening would have been alot less.

Google and Facebook learned this lesson well and now spend on lobbying at a
rate that would make wall street blush and is on par with the heaviest
lobbyist out there. it wouldn't be too much of a stretch to say that the new
tech elite are the real Washington insiders.

Just look at what Uber and AirBnb spend on lobbing.

Given this, it makes sense that if you were in a new industry with the rules
being created all around you, you'd want to control the narrative as much as
possible.

I'd argue that Silicon Valley now dominates even wall street in terms of
buying political influence in the US nowadays.

To bring an example back to my Canadian roots, The Toronto Maple Leafs hired
the man who wrote the NHL's Collective Bargining Agreement with the players to
better have an advantage when writing player contracts.

~~~
danharaj
Silicon Valley's political influence might be a large splash but finance is
the pond itself.

~~~
yellowstuff
The Wall Street bailout probably saved the financial system, ultimately made
the government money, but was incredibly unpopular. The bailout of GM lost
money, helped some politically connected groups, and was mostly popular and
uncontroversial. Jobs are political capital, and neither finance nor tech have
that many, so they make it up with cash.

~~~
bduerst
But the lack of any major financial reform has left commercial banks open to
continue making risky investments. As well as a lack of regulation on subprime
lending, leading us to a now-growing subprime auto loan bubble.

The bailouts treated the symptom, not the cause.

~~~
yellowstuff
I don't have a ton of first hand knowledge on the risk appetite of banks or
the effect of banking regulation. But I assert that Matt Levine is very
knowledgeable about these things and he disagrees with you. His points are
that multiple 10 figure fines, higher capital requirements, and a general
culture shift have actually made banks less profitable and less risky, as was
intended. EG:

[https://www.bloomberg.com/view/articles/2015-02-20/capital-r...](https://www.bloomberg.com/view/articles/2015-02-20/capital-
rules-aren-t-the-only-reason-banking-is-boring)

[https://www.bloomberg.com/view/articles/2016-09-07/boring-
ba...](https://www.bloomberg.com/view/articles/2016-09-07/boring-banks-and-
silly-cds)

[https://www.bloomberg.com/view/articles/2017-11-16/deregulat...](https://www.bloomberg.com/view/articles/2017-11-16/deregulation-
and-proxy-recounts)

[https://www.bloomberg.com/view/articles/2017-11-20/utilities...](https://www.bloomberg.com/view/articles/2017-11-20/utilities-
analysts-and-fines)

~~~
rrcaptain
Until you start throwing executives in prison, nothing will change long term.
10 figure fines are nothing compared to how much many Americans lost in the
housing market crash. Consider how many people got foreclosed upon improperly.
The loss of quality of life (and actual life) due to Wall Street greed is
unmeasurable, but surely more than 10 figures.

~~~
yellowstuff
This is definitely the conventional wisdom I see here and on Reddit, but I
disagree.

Banking has changed, perhaps permanently. It is less profitable and by many
measures less risky than before.

And I disagree with throwing people in prison for losing money and hurting the
economy. I want people to go to prison because they have committed crimes. The
government could certainly have been more aggressive about charging
individuals, but if you look at the cases they actually brought they were
against low level people and they had a lot of trouble showing any of them
actually broke laws. Most of the actually harmful decisions by high level
bankers were not clearly illegal.

~~~
rrcaptain
>Banking has changed, perhaps permanently. It is less profitable and by many
measures less risky than before.

Banking has "changed" many times before. But these incidents keep happening.
The dot-com bubble, the Great Depression, and currently the student loan
crisis, municipal debt crisis and subprime auto loans.

------
DeeperSea
Centralized solutions are currently much faster, but they may not be in the
future. Also, other coins (that offer spare computing power) or commercial
enterprises could act as a power nodes (sub-centralized solutions) in a
decentralized network, to speed it up for a fee when needed. Decentralized
peer2peer content delivery is currently owned by centralized players, like
Akamai. I see no reason why it could not work when it is owned by its users.
[https://cryptonewstrends.com/](https://cryptonewstrends.com/)

Because the software has to operate in a trustless environment, a lot of
attention has to be spend in making these systems more secure. Security
through obfuscation is not a fall-back anymore. If we had known that LastFM
stored password hashes as unsalted MD5, would we have trusted it with our
accounts? We will have fuzzing tools and static program analysis to help
automate checking the security of a contract.

Forks can be dealt with in a decentralized manner: voting power being assigned
by a provable amount of tokens you own. You can run an entire election in this
manner, cryptographically voiding any "vote rigging" argument.

You may have so much freedom as to shoot yourself in the foot. Therefore,
Cryptocurrency banks may provide support for payment solutions, insurance,
lending, for people who don't want to store all their money under their
flammable mattress.

------
0xCMP
I remember reading in a Michael Lewis book (Big Short maybe?) that Wall Street
hires from the SEC and Rating Agencies in-order to know the in's and out's
better as well as get better treatment.

Hence the implication in the book that those who stay behind at the SEC and
Rating Agencies are not wanted by the banks.

Seems like they're copying from those who came before them.

~~~
maxxxxx
That means working at the SEC is an auditioning process for big money bank
jobs. Talk about conflict of interest.

~~~
marnett
This is statement is unfortunately true for every regulatory agency in the
U.S. government.

\- CFPB -> all consumer corporations

\- FCC -> tech

\- FTC -> corporations spanning many industries

\- SEC -> finance

\- FDA -> big-pharma

\- USDA -> big-agra

...on and on and on...

~~~
forapurpose
> \- CFPB -> all consumer corporations

CFPB is very new; is there really evidence of revolving door hiring going on
there?

~~~
adrianratnapala
It isn't (always) about some sinister revolving door. It's just that the
people who enforce regulations and the people who manage compliance at
regulated entities are experts in the same field even when they are not the
same people.

Both sides can be doing their jobs entirely honestly, but still they will co-
evolve in ways that make the system convenient for existing players.

------
habosa
Kind of funny that this "kill the banks, bring down the system" technology is
being infiltrated by Wall Street lifers.

Reminds me of this quote from a recent Matt Levine article:

> [Andy] Noto is leaving Twitter to become CEO of Social Finance, the online
> lender whose mission just a couple of years ago was to "kill banks." Now it
> will be run by a former Goldman Sachs Group Inc. banker. The banks do not
> want to be killed, and they play a long game.

------
CryptoPunk
This is what fuels the revolving door. Regulations create a class of workers
with previous experience in the regulatory and political system, that fetch an
access premium.

Another example of this is members of Congress who become lobbyists seeing an
average increase of 1,500% in their salary upon the career change.

~~~
rayiner
Consider a different example: someone participates in adding threading to the
C++ standard. They then get hired at a development tools company to help
implement the standard. Anything unseemly there?

Your characterization rests on the premise that the regulations are _a priori_
negative. If you start from the premise that the regulations are good things,
then there isn’t necessarily anything wrong or inconsistent about someone
saying “I’m going to help create these rules which I think will be good for
the industry” and “now I’m going to help companies implement and follow these
rules.”

I’m pretty skeptical of regulation myself so I can see where you’re coming
from. I personally think we should let crypto currencies be complete anarchy
as an experiment. But crypto currencies are a good illustration of how
regulation and regulators arise naturally. Big bad government doesn’t come in
and start regulating things people never complained about. First people lose a
lot of money. Second, the industry welcomes some level of regulation, in order
to reestablish trust with consumers that might otherwise be scared off. Third,
regulation gets implemented on the premise that its good for both consumers
and for the industry, because it allows the industry to overcome trust
barriers.

~~~
CryptoPunk
>>Consider a different example: someone participates in adding threading to
the C++ standard. They then get hired at a development tools company to help
implement the standard. Anything unseemly there?

Code is objective and apolitical. Regulatory enforcement is a people business,
and having the right people on your team can affect how regulatory agencies
treat you, irrespective of your actual conduct vis-à-vis the regulations.

An open standard can also be studied by anyone. The secret rules and customs
of regulatory agencies are only privy to those who worked in the agencies.

>>Second, the industry welcomes some level of regulation, in order to
reestablish trust with consumers that might otherwise be scared off. Third,
regulation gets implemented on the premise that its good for both consumers
and for the industry, because it allows the industry to overcome trust
barriers.

I suspect that is not the main reason industry players support regulations. I
think it's far more likely that their support is motivated by a desire to
create regulatory moats to competition.

An example of this would be the "Money Services Round Table":

[http://www.aarongreenspan.com/writing/20110510/in-fifty-
days...](http://www.aarongreenspan.com/writing/20110510/in-fifty-days-
payments-innovation-will-stop-in-silicon-valley/)

There is empirical evidence that regulations exacerbate income inequality:

[https://www.mercatus.org/system/files/McLaughlin-
Regulation-...](https://www.mercatus.org/system/files/McLaughlin-Regulation-
Income-Inequality.pdf)

This supports the 'lobbying for regulations as an anticompetitive measure'
thesis.

~~~
rayiner
> Code is objective and apolitical.

Hardly. Code can be intensely political (competing standards championed by
competing companies, etc.).

> An open standard can also be studied by anyone. The secret rules and customs
> of regulatory agencies are only privy to those who worked in the agencies.

Regulatory agencies are for the most part incredibly transparent
organizations. Nobody has any insight into what happens when a Google
executive talks to an Apple executive about a web standard. But when an
industry executive meets with a federal agency commissioner to discuss a new
rule, a detailed notice and summary of the _ex parte_ contact will be
published. Agencies conduct their business in intensely public notice-and-
comment procedures.

> I suspect that is not the main reason industry players support regulations.
> I think it's far more likely that their support is motivated by a desire to
> create regulatory moats to competition.

And your speculation is based on?

> This supports the 'lobbying for regulations as an anticompetitive measure'
> thesis.

A lot of regulation is _bad_. _E.g._ zoning regulations. But for the most part
they're bad because regulators and constituents have bad ideas, not because
there are shadowy cabals at work.

~~~
CryptoPunk
>>Hardly. Code can be intensely political (competing standards championed by
competing companies, etc.).

The decision to make a particular segment of code the standard can be
political, but the effective utilization of that code within a project once it
has become the standard, has no political element to it.

>>Regulatory agencies are for the most part incredibly transparent
organizations.

That is not the impression I get from the many complaints I've seen from those
trying to navigate the regulatory framework. Of course I haven't done a
comprehensive/rigorous study of this topic so my impression may not be an
accurate representation of reality.

I also find it hard to believe that a legalistic (as opposed to programmatic)
domain like regulatory enforcement does not have a significant human element
that cannot be fully articulated in formal notices and procedures.

>>And your speculation is based on?

On the fact that there is a very large rent-seeking opportunity in enacting
regulatory barriers to entry, as demonstrated by the impact regulations have
on income inequality (which is a consequence of economic rent accruing to
those at the top of the industry ladder).

------
JustAnotherPat
>Days before Omega One announced his hire, Chilton said he wished he had
invested in Bitcoin and its major rivals years earlier -- back when he was
warning people as a CFTC commissioner to be careful while calling for more
regulation. Generally, the wild price fluctuations are “mellowing out,” he
told CNBC on Jan. 11.

Hilarious. Just for note, bitcoin (not even going to mention alts) was
swinging 10% a day around January 11th and dropped to half its price in less
than a month.

I guess once you're on the bankroll of some of these places, you give up on
trying to sound credible.

------
wpasc
Meet the new boss, same as the old boss.

------
glup
Given that this is a thread on regulation of cryptocurrencies, can someone
explain to me what is good (for countries, societies, the global economy, etc.
and not individuals) about cryptocurrencies? I get that blockchains are useful
for recordkeeping. But then I don't see what the appeal is of having a
profusion of them co-exsiting as currencies. Am I missing something?

Related question, can I think of the cryptocurrency market as analogous to the
FOREX market, but that these currencies don't have attached countries?

~~~
elmar
Imagine that you want to hire a woman that is a blog writer on a radical
Musulin country (where woman don't have the right to property) how you are
going to pay for the services.

Imagine that you want to hire a remote software developer from North Korea.

Imagine that you want to send a donation to Wikileaks or similar organization
that is banned from using the financial system.

Imagine you are a Syrian war refugee that wants to cross borders without the
fear of your wealth being confiscated.

Imagine that you belong to a small ethnic minority and the government is
confiscating your assets.

Imagine that you live in rural Kenya and the nearest bank branch is 50km away.

~~~
m00n
And how does your Kenyan/North Korean/Syrian person buy gasoline/rice/paper
with this asset?

Meanwhile, drug cartels, first world millenials and financial investors are in
possession of ~100% of this technology. They are shaping it to further their
gains, scamming the naive, and undercutting legitimate sanctions and laws.

~~~
elmar
> And how does your Kenyan/North Korean/Syrian person buy gasoline/rice/paper
> with this asset?

Ideally, the seller would accept the cryptocurrency directly, that is what is
happening on Venezuela that the country currency is completely worthless.
Another not ideal option is to have local gateways that convert to local
currency.

> Meanwhile, drug cartels, They are still using dollars maybe Monero, but if
> the technology is good enough that the goverments can get informations on
> the transactions or censor it, offcourse bad actors will use it, technology
> is not inherently good or bad is what people do with it. Personaly I am
> worried with the 3 Billion that don't have financial services not a small
> minority bad actors that already does their business using Fiat currencies.

> first world millenials and financial investors are in possession of ~100% of
> this technology. They are shaping it to further their gains, scamming the
> naive, and undercutting legitimate sanctions and laws.

That is a really problem and personally I think that the solution will be the
creation of new blockchain protocols that have the genesis on developing
countries.

------
melq
Is anyone else bothered by the way media refers to these companies as
'cryptos'?

------
brwsr
Always funny to see people in finance call crypto currencies "virtual
currencies". Do they mean fiat currency is not virtual? Does it represent a
real value or so? IMHO it's even worse, they keep increasing the maximum
supply, devalue the worthless paper even more. But at least they have a chic
word for it: Quantitive easing.

~~~
isolli
Central banks increase the supply to keep inflation stable (at a first
approximation). Monetary intervention (in the form of quantitative easing) was
required to keep the economy from crashing once fiscal policy couldn't. If you
think it devalued the dollar you're utterly wrong.

------
pkamb
What a strange website experience.

The original headline, both on the article and HN, was "Crypto’s Hottest Hires
Aren’t Millennials. They’re Banking Cops".

I have no idea what the term "Banking Cops" means. I press `CMD-F` to find
"cop" on the page. The first result is the instance in the headline.

I press enter to find the next occurrence of "cop", the one in the story that
will surely explain the title, and I'm immediately shown an all-black website
with the headlines of the day:

[https://i.imgur.com/ttNHeDM.jpg](https://i.imgur.com/ttNHeDM.jpg)

This is seemingly an entirely different website from the article I was just
reading. The URL has changed from the HN-linked story URL to instead now read
`[https://www.bloomberg.com/crypto`](https://www.bloomberg.com/crypto`).

I still have no idea what a Banking Cop is, or why they are interested in
Crypto.

~~~
miobrien
IMO "banking cops" is just clickbait. Ah, the vicissitudes of prose:
journalists trying to coin a phrase. But it's just confusing, as you point
out.

They're just talking about regulators and compliance officers. The former work
at the SEC/FINRA, and the latter work in-house for banks, broker-dealers, and
investment firms.

------
tw1010
Could anyone explain to me a scenario where bitcoin and/or blockchain does
_not_ make a huge impact on the world within 5-10 years? There seems to be so
much excitement and real action moving in its direction that I have a hard
time imagining how exactly this would all just go nowhere.

~~~
atomical
I can think of a few reasons why most blockchain technology won't take off.

1) Centralized solutions are cheaper. Consider Amazon vs. Filecoin. Amazon can
buy hard drives in bulk and receive large discounts. They can pass those
savings onto their customers. The Filecoin users providing storage to
customers will have to 1) convince customers that their technology is safe 2)
offer cheaper service. There isn't a trust issue with Amazon. So why would
customers move to Filecoin?

2) Centralized solutions are much faster. Yes, there is a bunch of work being
done now to allow for smaller transactions (lightning networks, plasma).
There's no proof this is going to work. High level scaling solutions remain
academic.

3) Development takes longer because the software has to operate in a trustless
environment. Every update, no matter how minor, requires an independent
security audit. There are quite a few examples of why security audits are not
optional.

4) Because money is involved forks can be contentious. The default is to do
nothing. A centralized solution with a board of directors and CEO can outpace
a blockchain community in development speed and time to market.

5) If the private keys are lost or stolen the consumer is screwed. That makes
blockchain technology incredibly risky. It's still safer to pay friends with
Chase QuickPay. Banks also have insurance. How can a blockchain be insured?

EDIT: Thought of one more.

6) Smart contracts are too rigid to replace the legal system. One option is to
use an oracle as a source of information. However, using oracles to pull data
from outside the blockchain means most of the logic is centralized.

~~~
0800
Why blockchain technology may take off:

1) Centralized solutions are costly to freedom of choice and privacy. Consider
a solution where Dropbox, Google Drive, Facebook photos, S3, and YouTube is
run through Filecoin. No more "You haven't used DropBox in a year, so we are
closing your account". No more "This video has been demonetized for all
advertisers in our network.". No more "we ran these nets over all your photos
and use the information gathered to make a better advertisement profile for
you". This is what happens when users make and own software: Limewire,
Bittorent, Popcorn Time, DC++, Napster, Kazaa. Though most of these are now
depricated/forced shut down, it was not for having a better alternative
available.

2) Centralized solutions are currently much faster, but they may not be in the
future. Also, other coins (that offer spare computing power) or commercial
enterprises could act as a power nodes (sub-centralized solutions) in a
decentralized network, to speed it up for a fee when needed. Decentralized
peer2peer content delivery is currently owned by centralized players, like
Akamai. I see no reason why it could not work when it is owned by its users.

3) Because the software has to operate in a trustless environment, a lot of
attention has to be spend in making these systems more secure. Security
through obfuscation is not a fall-back anymore. If we had known that LastFM
stored password hashes as unsalted MD5, would we have trusted it with our
accounts? We will have fuzzing tools and static program analysis to help
automate checking the security of a contract.

4) Forks can be dealt with in a decentralized manner: voting power being
assigned by a provable amount of tokens you own. You can run an entire
election in this manner, cryptographically voiding any "vote rigging"
argument.

5) You may have so much freedom as to shoot yourself in the foot. Therefore,
Cryptocurrency banks may provide support for payment solutions, insurance,
lending, for people who don't want to store all their money under their
flammable mattress.

6) Smart contracts will fully replace the paper notarial system. Criminals
will be booked into networked systems where their identity is biometrically
verifiable for the duration of their "stay". Trading and lending circle
contracts will be heavily vetted and proven standard smart contracts one can
select from a library.

~~~
atomical
1) > "You haven't used DropBox in a year, so we are closing your account".

The cost of storing data long-term is non-zero. How would Filecoin offer free
storage?

> No more "This video has been demonetized for all advertisers in our
> network."

YouTube creators want community guidelines. They don't always like the way
that they are interpreted and enforced. I'm sure a small minority wants to
build something where they can upload absolutely anything without being
censored. For those folks there is Gab.ai. It will never become mainstream
though and the advertisers with big budgets will opt out.

> Limewire, Bittorent, Popcorn Time, DC++, Napster, Kazaa

Users chose Netflix and other centralized streaming services because of their
ease of use. Also, copyright enforcement may have played a small role. Some
users were claiming that they weren't using the above software to download
pirated content. That was a bunch of bullshit.

2)

> Decentralized peer2peer content delivery is currently owned by centralized
> players, like Akamai. I see no reason why it could not work when it is owned
> by its users.

There's no reason why it couldn't work, but there's also no business need
driving it.

3)

Once an account is compromised in a trustless environment there is no way for
the owner to take ownership of that account again. Also, in a trustless
environment it's always possible for A) a smart contract to be hacked and B) a
bug in the virtual machine to be exploited. Both centralized and decentralized
face security issues.

4)

They will still be contentious though. Look at Bitcoin. Imagine the last
election but applied to software. It's not going to end pretty and unlike a
normal company people in the community may not "move on."

5)

There may be services in the future, but that would be anathema to the
movement. The cryptocurrency apologists want each individual to manage their
private keys. They would argue that 1) if you don't have control of your
private keys you do not have control of your cryptocurrency 2) it's
centralization.

6)

This didn't address my criticism. There is no proof that anything like this is
even remotely possible.

~~~
glitch003
>The cryptocurrency apologists want each individual to manage their private
keys.

Actually, a hybrid solution is possible using multisig and secret sharing
algorithms. Many crypto enthusiasts are aware of how the "real world" works.
People need to be able to recover access to their accounts if they lose their
keys. It's not all black and white like you make it out to be.

For example, I implemented a solution for a mobile app that stores a users
private key in their phone's keychain. It also splits the key into two parts,
and emails the user 1 part, and stores the other part on a centralized server.
If a user loses their key, they can get the first recovery part from their
email, and by verifying their identity via 2 factor, the centralized server
provides them with the second recovery part.

~~~
atomical
Parity's multisig was hacked. It's a risk.

------
vthallam
I mean it's hot and a growing field with exchanges skimming off money 24*7 in
billions, so no wonder the ex-govt talent would be willing to work.

Crypto Exchanges and companies are making some real money, so the goal now is
to make it more legitimate and prepare to lobby the regulators and government.

