It's worth pointing out that this fiasco has nothing to do with cryptocurrencies. In the absence of regulations and legal enforcement, the exact same thing can happen with any bank or brokerage account. "We went bankrupt due to subprime bets, so we're taking all of our customers' savings to bail ourselves out. Fight club, lol".
Given that this was a legally registered business, I hope this scumbag faces criminal prosecution and imprisonment. It's time we started locking up white-collar-thieves the same way we lock up burglars.
I grew up in an upper middle class area and a lot of my friends were a sort of radical libertarian. The most interesting thing about cryptocurrencies for me was them slowly realizing why a basic level of financial regulation is important.
It's been interesting to watch currency libertarians rediscover from first principles the reason so many of the financial systems of the world work the way they do.
I find myself sometimes wishing they'd discover it by doing their research instead of orechestrating a sequence of events that lead to a catastrophic value crash, but (a) as long as it's not my money being burned, I don't generally deeply criticize how people spend their time and resources and (b) I bet it's a lot more fun to be in the middle of a scandal than to read dry economics history. ;)
Equally, the technical architecture of this bot - they have all the private keys and thus custody of the funds - isn't necessary at all. The author could have used payment channels instead, and never had custody of a non-trivial amount of user funds.
You can't do that with the conventional financial system.
In a conventional financial system, people literally hand over their cash to a bank, with the expectation that they the bank won't take that money and run off into the sunset. The only thing that safeguards this expectation is legal enforcement. The same legal enforcement could also be applied to any cryptocurrency-based "bank" or store.
Ie, When it comes to fraud like this, if you're looking for someone to blame, blame the lack of regulations and legal enforcement. Not the concept or technical architecture of cryptocurrencies.
Well, I think my point there is that cryptocurrencies provide two avenues for imposing regulation: legal and technical regulation.
My payment channel suggestion is an example of the latter. And of course, you can use both: competent fintech "blockchain" use-cases are all examples of adding technical regulation to a field that's already legally regulated.
The only technically-significant aspect of cryptocurrencies in relation to this story is that by the nature of the Bitcoin and Bitcoin-derivative architectures, a massive fraud on the system can't be softened or ameliorated by a central bank printing money to make victims whole, since cryptos are "gold-standard"-style fixed-quantity currencies.
Practically speaking, that makes something equivalent to FDIC insurance more expensive to implement; in theory, several brokers could join some kind of insurance group where they pay into a common pool of unused BTC to pay out in the event of fraud. I'm unaware of such an experiment being tried.
History has shown that it's possible to wreck a fiat-currency-backed economy so badly that the nation-state's ability to print money can't be used to fix the problem, but in practice it seems in general difficult to do (whereas there have been multiple Bitcoin crashes and frauds where it'd have been nice to have a "Just issue those people BTC to cover their losses" solution, but that's not technically feasible).
Thing is, no bank or brokerage account exists in the absence of regulation or enforcement. So it really is peculiar to cryptocurrencies, even if it is not a logically necessary feature of that system.
The currency is supposed to be secure from snooping which precludes strong oversight. But at the same time, the asset manager is able to just loot all his depositors at will with no repercussions.
It has everything to do with cryptocurrencies. The whole point of which is to avoid and theoretically not need regulations. Spoilers, that theory is overly optimistic.
> same thing can happen with any bank or brokerage account
Not really, no. There's extensive regulatory systems in place to limit this and it only happens in dire circumstances (accounts over €100k in Cyprus, for example)
Given that this was a legally registered business, I hope this scumbag faces criminal prosecution and imprisonment. It's time we started locking up white-collar-thieves the same way we lock up burglars.