Forgive my ignorance but it seems that one major problem with crypto-exchanges is that they don't necessarily have any assets other than the crypto that has been deposited there, which means all overheads (which I am assuming for some of these guys is $Ms/year) can only come from trading crypto unless they are charging reasonable money for the privilege of using their exchanges.
In the FIAT world, banks make tonnes of money from things like loans and mortgages so they can handle some risk by holding onto cash.
If this is true, how does it get fixed? Is there any reason someone would take out a loan in crypto and pay interest on the repayments?
An exchange shouldn't count deposited crypto as their asset. It is an asset of their customer.
I do not think the actual problem here is crypto exchanges being unprofitable. Even if a crypto exchange goes under, it could (and frankly should) still be able to go under gracefully, e.g. letting all customers withdraw their assets for a month (and E-Mailing private keys as a last resort).
The issue here is crypto exchanges severely mismanaging the assets of their customers.
Banks need to be heavily regulated because they are investing the assets of their customers. An exchange should not be doing that, it should be holding customer assets and making them available on request.
You can say that, but when MtGox went bankrupt, and also lost 4 fifths of its stored crypto, the court just heaped together all assets into one big pile and all creditors into one big pile and let them fight it out.
So now there's a bunch of assholes including but not limited to Peter Vessenes, that are suing the bankrupt entity for billions (completely frivolous of course) and all the depositors have waited for 8 years now to get a fraction back that the vultures have been picking on.
It's completely unfair, but the courts simply don't distinguish between someone who partners with an exchange, and someone who deposits money at an exchange.
The exchanges work very hard to not distinguish between those legally, because if they admit it, they're admitting bank-like aspects and regulations kick in, which they're often trying to avoid.
MtGox was pretty much stripped bare long before it was finally closed down. In fact it was effectively insolvent before it was even bought out by the last owner and running in pure Ponzi mode while the guy tried to make creative "investments" to get the exchange solvent again. Even with the incredible bull market on Bitcoin he couldn't make it work.
So nobody should expect to get much of anything out of the remains of MtGox.
Despite these issues, and despite and the hack, creditors are still set to make at least a 4x return (in USD) based on appreciation of the bitcoin that wasn't stolen.
To do this legally, one can have a separate legal entity to hold on to third party assets. In the Netherlands this can be done using a foundation (stichting derdengelden).
Any transactions of third party assets go through this entity and don’t touch the company at all. And this entity doesn’t take on any risk, whatsoever.
Fees etc, of course, happen separately and are paid to the company.
So in closing: this has nothing to do with fairness and everything with the exchanges (whether purposefully or through negligence) not working this way.
Well, let's not forget that BTC has gone up from $300 to $15,000 in the meantime, meaning those fractions are still worth 50x what they were back in 2014. Although who knows what the value of BTC will be once the funds are released, which is itself an event that's likely to crash the market through oversupply.
> Well, let's not forget that BTC has gone up from $300 to $15,000
Depending on how one measures. Prior to Gox's implosion, BTC was $1,000, which is the price people were actually depositing at. Meanwhile, the fact that we're denominating in USD means that we have to account for inflation if we want to compare historical data, which means the current price is more like $13,000 in 2014. There's quite the difference between 13x and 50x.
I prefer to use the trustee's watermark which reflects the value of Bitcoin after the price manipulation of fake Bitcoin being sold by MtGox had been taken out of the market at $460. But your point is made even stronger if you consider that same money could have been safely invested with a steady interest of 2-4%. And that's if you disregard that the sort of risky investments that that sort of play money could have gone to, nearly all of those investments have been extremely lucrative the past 8 years.
And that's largely because of the lack of regulation that so many cryptocurrency fans tout.
If it's not legally regulated as a currency, or a security, or anything of the sort, then why would it be considered to belong to you, and not Mt Gox, once you've given it to them?
All you have is a digital account that's basically the legal equivalent of an IOU on a napkin.
> And that's largely because of the lack of regulation that so many cryptocurrency fans tout.
In next sentence they will tell you, that you shouldn't have kept the private keys at the exchange. Use your own wallet and keep your copy of the Blockchain.
Hardware wallets, which are recommended for holding significant amounts of cryptocurrency, are designed so that even if your normal computing devices get hacked or trojaned, the software running on them cannot steal the coins.
This is because the private keys are securely stored in the hardware wallet, which never reveals them to the outside world. The user has to physically confirm a transfer on the hardware wallet itself before funds can be spent (which is why they usually have either a small touchscreen or a non-touch screen plus physical buttons).
> And once the user has confirmed the transfer, the software could send the coins to a different address, right?
No, the destination address and amount to send need to be confirmed on the hardware wallet.
The hardware wallet cryptographically signs the entire transaction with the private key, so the software in the user's computer or mobile phone cannot change the transaction without the signature becoming invalid.
The software in the user's computer can't, but the software in the hardware wallet can. It's probably more secure than running the software on a conventional computer, this I can see.
The biggest problem probably isn't modifying the transaction, which is pretty easy to catch, but using predictable keys in the hardware or somehow leaking bits of the key in the transaction.
This way they could watch all the value stored in their wallets and steal whatever they wanted by making it look like you did it yourself when one had a large enough balance to be useful.
Most societies generally recognize that a person's ownership extends past the objects in his immediate use/possession. You don't give up ownership of your car, just because you parked it on the street unattended, just like I don't become the owner of it if I steal your keys.
The point is that the holder(s) of the cryptographic keys is the only one(s) that can effectively manage (and transfer) the coins on the blockchain.
When you transfer the coins to a crypto exchange, the exchange becomes the holder of the keys and therefore you run into the risk of the crypto exchange mismanaging the coins, getting hacked, losing them, etc.
This can't happen if you securely hold the keys yourself (with a proper hardware wallet, seed backups and a reasonable amount of OPSEC).
But even in the case the crypto exchange is holding your coins (or they get stolen), legally, the coins are still yours, of course (well, unless the crypto exchange goes through bankruptcy proceedings, I suppose).
But you run the risk of never getting them back even if they are legally yours.
Which is why it's better to hold them yourself if you can.
> Thanks for explaining something to me that I did not require explanation of
It didn't seem like you understood the value of the expression "not your keys, not your coins", because you argued for the legal position, which implied that the legal position was more significant and that holding the keys didn't have as much value (even though it's the only one that actually ensures that you don't lose the coins).
Another interpretation is that you understood "not your keys, not your coins" literally, because you said (paraphrasing) "no, in fact they are your coins, otherwise stealing them wouldn't be illegal". Which implies that you did not understand the meaning and utility of the expression.
So maybe I misinterpreted you, or maybe you didn't express yourself as well as you think you did.
I didn't argue for the legal position. I pointed out that "not your keys, not your wallet" is a trite statement that doesn't account for the reality we live in, in which property law is a thing. But very generous of you to explain it again and to do so so welcomely!!
> I pointed out that "not your keys, not your wallet" is a trite statement that doesn't account for the reality we live in, in which property law is a thing.
So again, you are still interpreting the expression literally?
It doesn't mean that they are not literally your coins if you don't have the keys! Do you understand this?
It means that you can lose the coins forever if you don't have them securely stored yourself.
It's not a literal statement, it's a concise expression that gets used repeatedly to get a very important point across unsuspecting (unexperienced, novice) crypto holders. So it's actually good that it's a trite statement, because it helps to decrease the probability of someone losing money, potentially ruining their lives unexpectedly.
So that the reality is not literally what the expression says is besides the point!
In fact, I've never heard of someone (besides you) that has interpreted this expression literally and actually thought that the expression means that you completely lose the ownership of the coins as soon as you transfer them into a crypto exchange.
But if you want, I'm sure you can propose a better phrasing that has the same viral effect while also being literally true.
> But very generous of you to explain it again and to do so so welcomely!!
>So again, you are still interpreting the expression literally?
People use it literally all the time. I don't buy that people mean it figuratively. Maybe you do. But this statement is banded out so often and with no regard to the situation except where the coins are gone, it reflects little insight into the situation besides what I have pointed out.
I am happy for you that you find such meaning in the statement. That you read that statement and it means, to you, so much more than what it says.
> It's not a literal statement, it's a concise expression that gets used repeatedly to get a very important point across unsuspecting (unexperienced, novice) crypto holders.
A group of people who just so happen to think that the crypto is somehow exempt from the law, which they reflect with statements like "not your keys, not your crypto" which is said with absolutely no reflection on how property law works. It's not as if this is even a new thing, intangible property has existed long before crypto. Yet in the crypto world, the statement which you find so meaningful goes so far!
> People use it literally all the time. I don't buy that people mean it figuratively. Maybe you do. But this statement is banded out so often and with no regard to the situation except where the coins are gone, it reflects little insight into the situation besides what I have pointed out.
Well, see, when you use more words to express yourself, it actually makes it possible to understand what your point was.
I was not aware that your perception existed. So thank you (genuinely) for explaining it.
I think that this could be better explained to new users, especially by crypto exchanges which are usually the onboarding vector for them.
I think one good way to solve this, is actually for crypto exchanges to require that a relatively strict test about some crypto, investment and trading basics should be passed when you first register for an account at a crypto exchange, before these new users would be able to start operating with crypto currencies or any such trading products.
I wish crypto exchanges did this out of their own initiative rather than the government requiring such regulations, but since this is clearly not happening so far, I'm not against some government regulation for exchanges in this direction (although I'm against requirements about minimum investment amounts, as that promotes inequality and unfairness).
> A group of people who just so happen to think that the crypto is somehow exempt from the law
I'm not aware that this is the case, but I'm willing to concede that there might still be some unwarranted beliefs in this general direction, given all the carelessness that's going on from companies and projects in this sector. I hope that these people are proven wrong and either responsibility improves substantially, or that at least justice gets served when bad things happen.
> which they reflect with statements like "not your keys, not your crypto" which is said with absolutely no reflection on how property law works. It's not as if this is even a new thing, intangible property has existed long before crypto. Yet in the crypto world, the statement which you find so meaningful goes so far!
As you're already aware, I never interpreted this statement literally and never thought other people did, so I don't know... maybe you're right that the expression is not clear enough. I think my suggestion above about the test requirement for onboarding new users would improve the status quo with regards to this issue that you are pointing out.
Let the record show that I have always supported (explicit) regulation of cryptocurrency. In addition I have always held the opinion that Ripple is a security, not a cryptocurrency, and that it should never have been tolerated by the SEC. The reality there is that no one is actually doing anything about anything unless there's a big scandal. Maybe FTX will change things.
Defi is not this.
In defi exchanges you place your coins into a smart contract or have them always on your account.
If anything a crypto exchange is a misnomer as it's not even needed. The only reason it exists is because smart contracts didn't exist when they first started.
>The only reason it exists is because smart contracts didn't exist when they first started.
Calm down. That is not true. Smart contract based exchanges do not let people exchange real money into crypto. There will always need to be offchain exchanges for trading USD for crypto. Additionally, trading off chain is much cheaper than on chain.
Centralized exchanges will always exist because people want on / off ramps, people want low fees, and because people are willing to trust others.
it's superior in terms of not having the trusted third party that facilitates your trade make off with your money, as is happening in these self-described exchanges right now. Keeping a trusted third-party in the loop is always cheaper than automating that function using a blockchain, unless the risk is factored in.
There are a few classes of users. If you're the type who always uses the "I forgot my password" workflow on sites then you probably are the type who will lose your keys.
But if you're the type of trader who makes a trade and then forgets about it for a while you're at risk of losing the funds left on the exchange - like with Paypal.
Lots of things are tradeoffs. In this case, the tradeoff is that trades are more expensive on chain, but you don't have to worry that the exchange will blow up and lose all your money, like happened with a huge exchange just last week.
As a bonus, Ethereum's scaling roadmap is coming along pretty well, with a pretty clear path to 100K tx/sec within the next few years. That should make transactions quite a bit cheaper.
The flaw of BTC: everyone wants to cash out in dollars, euros or Swiss francs. Real money
BTC is barely used as an actual currency to buy things with. I could be wrong but I thought the idea was that you'd be using BTC in daily life so that you wouldn't need to go "off the ramp".
Well yes but at 2-3tx/sec, that supports a large flea market or a mid-sized costco, not a global economy. Even onboarding everyone onto Lightning would take 75 years, the entire rest of the block reward, about a trillion dollars worth of electricity and many gigatons of e-waste.
There are people, even today, who have no better choice but to use BTC for transactions or for storing value.
The point is that if you want to (or need to), you can do it. So people now have that option, which they didn't have before BTC was created.
As an example, it might be the best option for doing transactions and storing value for large amounts of people in some area, in times of crisis (e.g. financial crisis, war, oppressive governments, etc). You might not be able to use a fiat currency in such cases without significant downsides, such as extreme inflation, confiscation, blocking of bank withdrawals or transactions, going to prison, etc. Bitcoin is available and can be used whenever such events happen.
In fact, if you ever run into a situation like this, you might even desperately need BTC and will be very glad it exists, so don't discount its value so easily.
That said, sure, it would be better if there was more adoption. I think there should be and hope there will be.
But it's not exactly a flaw, in the same way as you not being able to use the currency of some obscure country in your daily life is not a flaw with that currency.
> storing value for large amounts of people in some area, in times of crisis (e.g. financial crisis, war, oppressive governments, etc).
> Bitcoin is available and can be used whenever such events happen.
Except the fact that bitcoin needs continuous internet access and electricity. The first can be blocked by oppressive government. The second can be hard to come by in times of war.
Bitcoin is a first-world solution to imaginary problems.
> Except the fact that bitcoin needs continuous internet access and electricity. > The first can be blocked by oppressive government.
First of all, bitcoin users don't need continuous internet access. At best, they need intermittent internet access.
It's also possible to use Bitcoin without internet access. Nowadays you can send and receive Bitcoin transactions over satellite, SMS and I think even over radio, no Internet required.
There are also ways to get around Internet blocking.
> The second can be hard to come by in times of war.
There are ways to produce your own electricity. And using Bitcoin (as opposed to mining it) doesn't require much electricity. You just need to be able to charge your mobile phone with a small portable solar panel.
There are also many, many, many examples of such crisis where people have access to both the Internet and electricity.
> Bitcoin is a first-world solution to imaginary problems.
You really are completely oblivious to the many crisis around the world that have happened in recent decades, aren't you?
> It's also possible to use Bitcoin without internet access. Nowadays you can send and receive Bitcoin transactions over satellite, SMS and I think even over radio, no Internet required.
All of these mean: continuous easily available connection at any point. And to send anything through SMS or radio? Again. First. World.
"To send Bitcoin (or any cryptocurrency) over ham radio you need to download the apps TxTenna and Samourai wallet, sync your phone with a goTenna mesh device, and then you’ll be set up to send and receive Bitcoin via a mesh network "
Ah yes. Apps. And readily available proprietary mesh devices.
> There are ways to produce your own electricity.
And all that is surely available and instantly accessible to people living with oppressive governments and in times of war. Instead of, you know, actual cash, barter, and storing valuables in actual valuables.
> You really are completely oblivious to the many crisis around the world that have happened in recent decades, aren't you?
It's precisely because I know of these crises that I find "generate your own electricity to just charge a mobile phone to just send bitcoin transactions over satellite or radio in times of war/oppressive government" laughable.
> You might just eat these words one day.
See, I lived through at least one of these crises in the 90s [1], after the fall of the Soviet Union. The idea that your bitcoin fantasy would survive a single brownout (or a blackout) when you need things like potable water or food now and not when "intermittent internet access is available" shows how much you understand about "the many crises around the world".
And that's without war or an oppressive government.
What good is a book on gardening when you're hungry right now? What good is a herd of cows when you need to put out a fire? You sound like an anti-second amendment person asking if we intend to use our guns to shoot down an f35 fighter.
No, bitcoin and crypto aren't going to be the savior for someone who wakes up in Mosul in the middle of the fighting.
But they might be a way out of the country with wealth intact, the difference between being a penniless refuge and a valued citizen.
> Again. First. World.
You're using first/second/third world incorrectly labels, and you're wrong. Even in the poorest places in the world, and the most war torn, we see people with their mobile devices and tiny solar panels, or charging from a merchant with a larger panel.
> continuous easily available connection at any point
No, you really don't need that. You could produce a signed transaction alone, disconnected from everyone, on your phone, and represent it as a QR code with bushes in your backyard and I could scan it from a satellite photo, decode it, and submit it to the blockchain.
This is far fetched but the point is that the transaction can be made alone and offline, transmitted to the blockchain by any means even over months or years, without risk of being modified on the way. You could hide these in letters overseas, or boxes of goods, etc.
> Instead of, you know, actual cash, barter, and storing valuables in actual valuables.
If I was you I'd list all the ways that cash and valuables can be taken and that barter might be for broken or worthless goods. Instead I'll summarize as "there are risks in everything".
>> smart contracts didn't exist when they first started.
> Calm down. That is not true.
It pretty much is. Bitcoin's solution to scripting exploits was to weaken scripting. It would have been impractical to use BTC for defi and more work was undergoing to fix those problems. The weasels snuck in at the beginning and now that we can do without them they're already in the walls.
> Smart contract based exchanges do not let people exchange real money into crypto.
For trading there are a couple of options (aside from Tether, which is a scam) for pegging a trade to USD.
For on/offramp, you are sorta right. If I want to trade for strawberries I need someone holding strawberries, and I have a risk he'll give me raspberries.
> Centralized exchanges will always exist because people want on / off ramps, people want low fees
On/off ramps don't require centralization, they only require one legally bound actor, and we can all pick our fave. You may trust a lawyer near you, I may trust my local gold bullion store for up to $5k at a time, etc.
Low fees are far better achieved by a channel or rollup based solution, where the assets are essentially on-chain the entire time.
> and because people are willing to trust others.
This is bad argument. You're trying to make trust virtuous even though removing the need for trust is far better for society - removing risk and friction for everyone.
If you let somebody borrow your car and they steal it, that's still a crime. You don't need to be a regulated and registered automotive lender to make it anymore or less of a crime. The law has surprisingly strong enforcement of even informal agreements (such as e.g. an email), and these agreements were anything but informal.
Incidentally, protection of property rights is one of the primary roles of the government in a libertarian ideology. It's not anarchy.
> you let somebody borrow your car and they steal it, that's still a crime
Agreed. But there is no public requirement to direct prosecutorial resources towards your recovery. If the criminal is prosecuted, recovery is a secondary concern, an enforcement cost often borne by the victims through civil action.
Crypto isn't money. You are not a bank customer depositing cash. I'm not sure why their customers should be creditors at all, it's a bit like asking GMail for your emails back when Google goes bankrupt.
> a bit like asking GMail for your emails back when Google goes bankrupt.
And I sure as heck would want by e-mails back if Google goes bankrupt. Google shouldn't own them, they're just an exchange for e-mails. The idea that another entity would buy those e-mails and do with them what they like is ridiculous, regardless of any juristic reality.
As much as tech-bros think that the legal system is stupid, it's usually had to deal with many variations on a theme and has ended up with broad definitions around things of value. It doesn't matter if that thing is chickens, a right to land, potential mining rights or a stamp worth millions. A weird techno thing that has a public dollar value is not hard for it to work with.
Bernice can't sleep. She tosses and turns, tosses and turns. Her partner asks, "What's the problem?"
"You know the $1,000,000 bridge loan we got from Fred's bank? It's due tomorrow and thanks to not closing the PQX deal, we don't have the money to pay."
Her partner thinks for a moment, then pulls out an iPhone and says aloud, "Hey Siri! Tell Fred that Bernice doesn't have the money to repay the bridge loan... Send!"
Bernice is aghast. "What did you do that for!?"
Bernice's partner smiles. "Now it's Fred's problem. Let him toss and turn, you can go back to sleep."
Matching orders is what brokers canonically do. Exchanges came about to consolidate their activity. There is nothing resembling a true exchange in the crypto space.
There are multiple exchanges in the crypto space. I spent 20 years working in conventional exchanges and where I work now is very much the same.
This said, we don't appear on the radar, as a conventional exchange is not as highly profitable because they can't make use of client funds or holdings. (We offer a few other unexciting institutional services that make more money than the exchange).
One day people will realise the value in conservatism in financial markets.
That's fair - in any case, the segregation of customer cash and securities from proprietary activities is a (the?) fundamental obligation of broker-dealers.
One thing that FTX was doing was minting a new totally BS coin, putting out a small float but retaining the vast majority of it. Then propping up their financials using that completely illiquid asset as collateral. On top of that, allowing Alameda to front run announcements about different coins. There's no way FTX is the only one doing this. How such a thing is allowed is absolutely baffling. It's very Enron-mtm-esque.
> An exchange shouldn't count deposited crypto as their asset. It is an asset of their customers.
Yes they should. A deposit liability arises from the fact that they received an asset in a deposit transaction. Liabilities and assets aren't mutually exclusive in any transaction, and both must increase when you receive a customer's deposit, or else where does the liability come from?
> Banks need to be heavily regulated because they are investing the assets of their customers. An exchange should not be doing that, it should be holding customer assets and making them available on request.
If the exchange doesn't spend assets they received from their customers, they still have assets. If they sit on them until they receive instruction from a customer to dispose of it, it's still an asset on their books until they carry out the instruction.
> Yes they should. A deposit liability arises from the fact that they received an asset in a deposit transaction. Liabilities and assets aren't mutually exclusive in any transaction, and both must increase when you receive a customer's deposit, or else where does the liability come from?
Does a cash transporter count the contents of their armored vans as assets? Does DHL count the contents of their vehicles and warehouses as assets? Why should exchanges be different?
I know it's the law for exchanges to account custodial funds as assets (SAB121), but I don't see why it should be this way. In fact it seems to achieve the opposite of consumer protection.
They way I look at it, deposit and withdraw implies storage. I'm not giving you something to transport, I'm giving you something to store until I tell you what to do with it at a later time.
I'm not sure I agree it achieves the opposite of consumer protection. The liability to the customer is equal to the asset being stored this way. Lack of regulation is what achieves the opposite.
An exchange facilitates trades between two parties and should not hold client assets at all, not even custodial basis.
A clearing house settles trades between two counter parts often acting as counterpart to both sides of the trade for a nominal fee. Some clearing houses also hold performance bonds (think of margin on futures).
For instance, NYSE uses National Securities Clearing Corporation (NSCC) which is a subsidary of the Depositary Trust Clearing Corporation (DTCC). DTCC is a private company owned by many banks and brokers.
In fact, banks count assets of their clients as liabilities because it is in fact money in their possession (read: control) that they owe to their clients.
There are some 0 fees exchanges, often requires significant volume or occasionally it's for limited periods and/or on a small list of pairs, but I wouldn't be suprised that someone's running fractional reserve with an exchange and offers 0 fees because they make money elsewhere.
Exchanges provide the infrastructure for trades to happen (i.e. they maintain order books, match market orders against these, ensure that settlement will eventually happen etc.), but do not take on financial positions themselves.
The "exchange rate" is only determined by the order book, i.e. ultimately by supply and demand.
So if an exchange makes money, it needs to charge at least some of its participants for these services. That can happen through transparent fees, or through less obvious mechanisms (like making retail trades free, and charging an exclusive market maker for the privilege of that exclusivity).
What do you mean by "providers"? Different exchanges?
Long-standing price differences are usually reflective of market inefficiencies that can't easily be arbitraged away, such as difficulties funding a given exchange account, insufficient volume to make it worth trading there, or many others.
Binance and bybit offer 0% fees on spot, but you usually want some kind of leverage, so you pay interest in your margin loan.
If you are not a small retail and want to trade crypto, you usually need to use futures - which are associated with fees - because of liquidity and tighter spreads.
That's how they made their money for most of their existence, and how crypto exchanges still do, but not anymore. The NYSE actually makes most of its money now by charging for colocated server space which HFT's use to get super low latency connections to the market.
Wait, really? That sounds weirdly counterintuitive. Do you know if there's any public information about this? The only thing I could find from a quick search was [0] which doesn't provide a huge amount of info...
OP is wrong though. Their entire data and hosting revenue is $838m, but more traditional listing and transaction fees make up the rest of their $3.8b revenue. So basically 20% data and hosting, 80% classic exchange profit: https://www.sec.gov/Archives/edgar/data/1571949/000157194922...
I know nothing about the world of crypto currencies, but I do know finance.
The exchange does not hold the trades instruments/currencies/securities as assets. The business of a normal exchange is normally risk free (just matching buyers to sellers). Some exchanges step in as middle man in the trades, a process that I believe is called novation of the trade. The original trade between the buyer and the seller is novated, transformed into two trades, both against the exchange, one for each party and opposite direction. In this case the main risk is counterparty risk, the risk that one of the counterparties fail in some way.
An exchange never holds its own positions.
What is the difference in these cases? Have the crypto exchanges somehow used their users cryptosecurities as assets?
Crypto exchanges usually combine a function of an exchange and a clearing house. And tend to create ad-hock financial instruments. Hence the risk.
To me it feels like it is time to rethink at least the proof-of-work coins, particularly the CO2 emissions and energy use. It is crazy that people go cold in Europe while the energy is spent to mine bitcoins. And that the amount of CO2 produced by mining bitcoins is that of a small country. While the benefits of of all these coins seem to be nonexistent.
It's pretty dangerous though. Even though crypto is mostly on the way down and out some coins will predictably lurch upward from time to time.
If you hold an asset long you have a finite potential for loss but infinite potential for gain. Short it's the other way around. Algo traders and hedgies often treat short and long positions as symmetrical as they almost are when linearized but over long periods of time and large princemovements that's wrong. It leaves you with the hedgie viewpoint that it's as bad a "risk" that the stock market goes up too much as if it goes down which is not the way most people think.
Most of the exchanges are considered international and dance around laws and regulations. Some have versions of their site that are supposed to be dedicated to certain countries laws, but as we have seen lately that seems to be a lot of lies for a some of these exchanges as well. They make money on customer trades, but when the market is down, trade volume craters. If they were responsible with funds they would know this is coming and have planned accordingly, but most of these exchanges operate like its a perma-bull market. On top of all of that, they are leveraging heavily into other financial devices using customer funds on their books. Its a recipe for disaster.
It would be fine if it were only an exchange. If the only assets are those of the customers deposited, then everyone can withdraw at the same time without issue. The problem is that they are also lending on margin, which means they are lending customers money to use to buy more crypto.
Each customer has their margin loan secured by the crypto in their account, but in a steep drop in crypto valuations, the value of the crypto can drop below the loan principal. And if individuals don't cough up the cash to pay the balance, the exchange is on the hook for it.
And it gets worse. Where does the exchange get the cash to lend in the first place? They borrow it, of course. And like the individual traders use the securities in their account as collateral for their loans, the brokerage uses all of the securities they hold as collateral for their loan. Problem is that they don't own these securities, but rather hold them on behalf of customers. So in a situation where the exchange as a whole is undercolateralized, the brokerage as a whole can get a margin call. And then they will have to liquidate securities they hold (your crypto). This means that even if you are a customer with a low risk portfolio, you can lose your securities because the exchange took on risk to finance someone else's risky trade. This exact process happened at MF Global back in the financial crisis, and would have happened to a lot more firms if the government hadn't bailed them out.
Margin lending in the stock market is heavily regulated, and I'm sure you can see why. Crypto is the wild west. A lot of lessons were learned about this in the crash of 1929, and the crypto market is learning them now.
It gets fixed by largely replicating the traditional finance system, which would of course be completely pointless. The whole point of crypto is to evade government regulations, which means this kind of stuff is inevitable.
The problem with all these current Crypto "projects" is that they don't want to be boring. Banks and other typical financial institutions are boring; and there's a good reason for that. There's a reason why you have all those audits, certifications, compliance programmes and red tape. We (as developers/workers) may like it or not; but as customers we love it.
Banks are audited every month to verify that their reserves are there. They are also audited to see the balance between their risks and assets. Their systems are audited to ensure accountability (everyone must take at least 5 days of PTO a year, to ensure no single point of failure/fraud).
But the kids that are creating these new Crypto CeFi companies hate being boring. They got in because of the millions and the whirlwind of excitement that the Crypto space brings. And for that reason they have a mess in their internal ledgers.
I love Blockchain technologies, Bitcoin and Ethereum. But I couldn't care less for all the "cool kids" wanting to get into this train without proper adult supervision.
The problem is that the people who run the exchanges can't stop themselves from using customers' money to try to get rich.
In theory it is possible that an exchange could just take customer money, keep it in a lockbox, and make their revenue by charging transaction fees. But does that ever happen?
The kind of people who are so into crypto that they build a business out of it are fundamentally incapable of that kind of self control. They think they are revolutionaries who are remaking the financial system. They do really dumb financial stuff that the rest of us learned was bad after the 19th century. They aren't the kind of people who would just leave customer deposits alone.
Remember that FTX was supposed to be the responsible exchange. All the other ones were considered to be worse.
That's an interesting related problem - their costs are real dollars/Euro/Peso etc, but their revenue is in crypto. Eg they have to pay rent, salaries, AWS bill but their revenue is in ETH or BTC or SOL which is a fraction of what it used to be. Banks dont have that problem - their costs are denominated in same currency as their revenues.
With your description I am guessing that what you call FIAT world is a financial system that is regulated where in fact banks (not exchanges, although they are also regulated in terms of what they can do with whatever is deposited and how they create revenue) are forced to hold cash to handle the risk and ensure some safety for the deposits.
> If this is true, how does it get fixed?
So far the only way to fix this seems to be with regulations, which seems to go against one of the main arguments in favor of these assets.
It's in the name, isn't it? An exchange is where assets are exchanged.
For that service they get a fee, usually tied to the transaction volume. Pay any expenses out of that fee and keep transactions rates high is a good mode for survival.
Unfortunately, if asset prices depreciate, fees tank too. But that's manageable.
What's not manageable though if you start using assets of your customers to create a new revenue stream by locking those assets up somewhere or by using them for high-risk trades.
When people start asking their assets back you suddenly have a problem.
In the real world all organizations are regulated and fraud is illegal. But sadly something being illegal does not prevent if from happening, and greasing political palms always help:
> The 30-year-old Bankman-Fried has been a major force in Democratic politics, ranking as the party’s second-biggest individual donor in the 2021–2022 election cycle, according to Open Secrets, with donations totaling $39.8 million. That ranks only behind George Soros (about $128 million) but ahead of many other big names, including Michael Bloomberg ($28.3 million). What’s more, he had promised to spend far more on Democrats moving forward, predicting in May that he’d fund “north of $100 million” and had a “soft ceiling” of $1 billion for the 2024 elections.
Yet 18 of the 25 top donors were Republican leaning. Billionaires comprise 20% of Republican funding vs. 14% for Dems. Most republican megadonors were entirely republican. The big ones are from hedge funds.
So yeah, SBF donated to the dems. We need more regulation to get money out of politics. But let's not kid ourselves into thinking the republican party is immune to this. They are in it. They tend to be more in it.
96% of house seats were won by the party that spent more in their race.
> 96% of house seats were won by the party that spent more in their race.
I don’t think the causality here is clear. A lot of companies/billionaires/millionaires and even regular people tend to donate money towards the people who are likely to win the race. If you wanna be in the good graces of the person representing a certain district in the House the best way to do that is to make a bet on the likely winner ahead of the elections.
Many have literally $0 by outside spenders (ignoring the parties themselves).
On the other hand you don't see a ton of money going to non-competitive races because it doesn't really matter. The politician doesn't benefit all that much so it's not exactly a great way to earn favors. Or at least, that's what I'd assume. Lobbying is cheaper than people expect but a lot of these totals are so low I can't imagine it really matters to anyone.
The highest spending race was Nevada 3. With ~$15M for Republicans and ~$5M for Democrats. Predicted a likely democrat Win by 538 and ultimately won by democrats 52-48. Contradicting kind of all points here we're making. It's fuzzy of course. Need to get money out regardless.
>On the other hand you don't see a ton of money going to non-competitive races because it doesn't really matter. The politician doesn't benefit all that much so it's not exactly a great way to earn favors.
Just my own speculation, but this is probably only true to a certain point. A politician in a non-competitive race is not going to have anything productive to do with 15 million as in NV3, but money that goes to the PAC run by your former aide helps to grease his palm (so 100k goes in and 50k is spent on ads, 50k on the PAC CEO's salary for example), or to similarly grease the palm of your various consultants, friends, and family, or to grease the palms of friendly industry groups who you sincerely hope will hire you on a do-nothing job once you retire from politics.
Money coming in to a certain point is always a good thing, and I speculate being in a foregone conclusion race probably helps limit the scrutiny on how you spend it.
> So yeah, SBF donated to the dems. We need more regulation to get money out of politics. But let's not kid ourselves into thinking the republican party is immune to this. They are in it. They tend to be more in it.
Fair enough and thanks for the context, but politically connected is politically connected. Can be politically connected to democrats or republicans.
Some people will never understand how damaging this level of tech money tied up in politics is. Apparently it's easier to jump on one side and do finger-pointing than to actually accept the level of fraud happening.
SBF spent 99.9% Dems and 0.1% Repub, according to your first link.
You’re telling untrue facts according to your own sources — to minimize that the second largest Dem donor was a criminal stealing customer funds. Your comparison to Repubs is unfounded as none of their donors engaged in organized crime like SBF.
Ok buddy, look, one. You're right, it was a mistake. I misremembered something. I cited a source containing the right information and you pointed it out. Thanks.
> Why are you spreading election misinformation?
Two, Fuck off. This is needlessly passive aggressive. There is no need to throw in a worst-faith assessment of my motivations for posting all of this.
This is more misinformation than the OP - there's more criminal money flowing into republicans by far, the below is just two examples (edit: two examples) from 10 seconds of searching for an article:
Even if talking just about people who are later found to have acted improperly, look at the CEO of FTX Ryan D. Salame, one of the largest Republican donors.
10 seconds of searching is where your argument falls apart, good luck with that.
Anyway you are justifying this destructive behavior with more destructive behavior? It's no wonder you don't take more time to understand these things.
No one is justifying any behavior, criminal activity is criminal activity and the money needs to be out of politics in general. My comment is only calling out the commenter for making an obviously biased statement without even taking half a second to see if it's even conceivably true.
The argument falls apart because two examples were quick to find? If all you can complain about is that it was too easy to find two examples to counteract the commenters clearly partisan and facetious claim then it sounds like you're grasping at straws.
Please enlighten us on how we should have spent more than 10 seconds to understand that there are actually no republican donors engaged in criminal activity and the commenter was just making a factual statement we obviously don't understand.
Nobody is unbiased in their opinions about what politicians do with the money, nor should they be. But if you really want to spend more than 10 seconds I'd say reference something more academic that what google spits out as fast facts. Yes, I am partial to books and history in assessing this situation, and see no issue with complaining about you minions taking their latest "internet research" so seriously.
I'll reiterate my comment to the original OP. Billionaires donating may generally be legally doing their business. That doesn’t make it moral or ethical or completely legal. If the entire billionaire system is corrupt, pointing all fingers at the corrupt Dem party when the Repub party is just as corrupt, if not more so, is weird, uniformed, and biased. Are you spreading election misinformation?
Those other billionaires donating a ton may be mostly legally doing their huge business. That doesn’t make it moral or ethical or completely legal. If the entire system is corrupt, pointing all fingers at the corrupt Dem party when the Repub part is just as corrupt if not more so is weird, uniformed, and biased. Are you spreading election misinformation?
Who is excusing it? I'm not! You have to lock SBF up assuming everything we have heard so far is close to the truth.
I want the lot of billionaire donors to have their and their company's finances and political involvement investigated and made transparent for the public. Keep them all accountable. But ofc SBF is worse than all the rest because of how bad his actions have been. The worst. But overall we shouldn't allow any one to have such outsized power. Don't make it legal to politically donate this much money to any one.
On the other hand, you appear to be excusing the Republican donor's. Your comments are saying "go after this visibly criminal (according to our justice system) Democrat. Focus on that! Ignore all the republican [and other Democratic] ones". Being as partisan as can be.
>Excusing criminality by saying “well, legitimate business isn’t totally ethical!” is nonsense gaslighting.
I think the point was not whataboutism, but rather that the sewer of filthy lucre that we call "campaign finance," regardless of who gives/receives such funds, creates perverse incentives in the political system and should be discouraged/done away with.
It would seem that there are other failures and frauds predating Bankman-Fried, wouldn't it?
While I'm told that the ideological and technical underpinnings of crypto are designed to avoid government regulation, I hope that he is prosecuted thoroughly for any crimes he may have committed.
But further, I hope that this high profile Democratic donor drives Republicans in the House and Senate to support strong regulation on this burgeoning financial asset class/stateless currency (I'm still unsure of what it is). And in fact stronger regulation on the financial industry generally.
Republicans are about de-regulation. Whatever they may do for optics temporarily means nothing for their actual focus and goal. Democrats are not much better but I’m not hoping only one of the two parties is going to do legit sustained regulation against the way they actually behave in the medium and long term.
Why are you only looking to the Repub party? Ilhan Omar for example doesn’t care much if Biden was given corrupt money. She’s not going to suddenly do everything centrist Biden does. Biden has more in common with your average neoliberal Repub than a progressive Democrat, who themselves are normally only center-left.
> And in fact stronger regulation on the financial industry generally.
Both parties and neoliberals across the board have done the opposite since Reagan has been in power. Republicans specifically are publicly about deregulation while Dems will flip how they talk but are also about de-regulation and keeping class divides.
Look at the top donors on both sides. They are all non-working class. They all make more money via de-regulation and a capitalist society where the rich have more power than others. They already show their hands. They vote for the establishment to maintain their money and power.
Banks have regulatory requirements that reduce risk. There are insurance mechanisms to protect bank deposits and securities insurance to protect custodial assets.
The problem with crypto stuff is that it was the Wild West and that atmospheric attracts and breeds crooks.
Wrt loans, people were pretending that these coins were cash. The reality is that they are sort of like virtual silver. All debts get settled in legal tender.
This part is not actually that much different with respect to banks, where the cushion is the equity (the stock). Also, if I'm not mistaken the debt securities (bonds) issued by the bank are below the bank account claims, so that's your regular customer cushion too.
Bankruptcy is essentially drawing a horizontal line across the pyramid of liabilities, where everyone below the line gets nothing, everyone above the line gets fully paid back, and everyone on the line is the new shareholder. This line is called "fulcrum".
The difference is in government oversight (regulations) and the social agreement that bank accounts will be bailed out. Because of the former the latter rarely happens (yes I know, 2008, but this concept has been around for a century and a significant minority of protected liabilities such as bank accounts have had to be rescued since then world-wide).
> In the FIAT world, banks make tonnes of money from things like loans and mortgages so they can handle some risk by holding onto cash.
And by being a member of national and international banks; if a bank in NL fails, there's the Dutch National Bank that will step in and guarantee people's money (up until a certain amount); above that is the European Central Bank that holds a lot of money to ensure stability, reliability and trust in the fiat banking system.
Don't get me wrong, the traditional financial system is fucky (professional term) and they do a lot of weird shit with people's money ($1 invested 10x over) but there's checks & balances at least.
It's not true, they're just dipping into customer funds to make risky bets on extremely volatile instruments (more crypto assets) and losing. Along with straight up fraud stealing customer funds and having shit security and getting robbed.
It gets "fixed" by regulatory bodies like the SEC appropriately and quickly requiring a set of rules and regulations on any exchange that operates in country along with auditing, fines, and general fast and effective enforcement.
These exchanges aren't failing because of accidents or inherent risk, they're committing fraud and taking foolish risks that traditional banks aren't allowed to take.
> In the FIAT world, banks make tonnes of money from things like loans and mortgages so they can handle some risk by holding onto cash.
Also, IIRC, conventional stock exchanges make their money from transaction fees on trading volume. Are there cryptocurrency exchanges not doing that? I suppose even if they are, they're probably in trouble, since once the bubble bursts there will be a lot less trading activity going on.
Unless the exchange is only crypto-crypto they need cash as well.
> can only come from trading crypto
"trading" is a really broad term. They will get fees from trading, but they will probably also be doing things like providing liquidly to other exchanges and arbitrage (crypto is of course very volatile so arb opportunities are all over the place).
Banks don't make money from mortgages and loans, but from deposits. Our financial system uses fractional reserve. When you deposit $1 in a bank account, they are allowed to have ~10x that, or $10. They can literally create virtual money and deposit on other people's accounts (loans).
From $1 deposit, they make 900% instantly.
From $1 loan, they make 5-10% a year.
Crypto exchanges can't create money. Unless they have their own tokens. But even these tokens have more transparency than our current financial system.
So yes, they're pushed to handle their customers' money in risky ways to make a profit.
It's dumb. Against the whole point of decentralization...
>Our financial system uses fractional reserve. When you deposit $1 in a bank account, they are allowed to have ~10x that, or $10. . . . From $1 deposit, they make 900% instantly.
That is not how fractional reserve works. The way it works is when you deposit $1, the bank loans it to some other customer but there is a rule saying that they can loan out at most 90 cents of that $1. The purpose of the rule is to make it less likely that the bank will need to resort to the Federal Deposit Insurance Corporation when the bank's customers withdraw more money than the bank expects or hopes they will withdraw.
No regulation would have prevented this crime from happening.
I want to be clear here, what happened here is already illegal as is, and no regulation would have prevented it from happening in the first place.
Hell, the firm was already being audited, and those auditors didn't catch the accounting discrepancies, so it's doubtful that any additional regulation would have found this earlier either...
Regulation would have prevented it from occurring. FTX didn't sell its services in the US (FTX US did) and they certainly didn't have a NYS Bitlicense. I think this is facially obvious.
back in the day (as in like 30-60 years ago) a popular scam was to create a situation where frontrunning trades was really easy. there are a million examples of similar things.
i don't think regulation is a good thing when a single person is trading with a single person. but, at some point an exchange becomes so big (they deal, seemingly fairly and with honestly, with many people) where people start to trust it. there is an inflection point where people can take advantage of that part of the human condition. then, you need regulation, not because people are stupid, but because we're human and it is easy to fall victim.
in these cases regulation helps to preserve the trust in the systems. otherwise, people just will not use them, or they will use them in ways that are not beneficial to the group.
We need to have regulation that allows startups to open mini exchanges and banks with easy compliance and unconditional licensing but with heavy restrictions on per customer funds and total funds they are allowed to manage.
The problem is that if you want to open an exchange in say Germany that is practically impossible. You can't get equity or loans for a bank if you don't have a bank license. You need a million or more starting capital to start your own bank. It is a chicken and egg problem.
That leaves a huge hole that unregulated exchanges want to fill and they have a massive competitive edge because they aren't held back by these regulations that are meant for megacorporations.
i do think there is a separate problem entirely that regulations are often really hard to follow, i think limiting the involvement in lobbyists may help there, or at least some lobbyists...
(like, turbotax really should not have a say in how i file my taxes... or how hard it is...)
You aren't wrong, maybe it's my wishful thinking. What do you think the solution is here? Do you think the house of cards stayed propped up because a lot of people were in on the fraud? Were the auditors just incompetent or were they in on it? Auditors are reasonably well known firms.
The solution is simple, relegate centralized exchanges to niches that so far can't be fulfilled in any other way (namely fiat-crypto transactions), and use them only briefly and immediately withdraw any assets from it once the transaction you need is complete.
You may also take on insurance against such malfeasance on the part of the exchange, increasing your likelihood of recovering your funds. On the plus side insurance agencies now have a financial incentive to ensure the exchanges they insure are honest.
In other words, see centralized entities as the unreliable partner that they are and work accordingly.
If you're on HN you can be knowledgable and proactive regarding your security with crypto, but I just don't see mainstream adoption without trusted 3rd parties. I don't think insurers would underwrite that sort of thing given crypto's history.
Yes, exchanges shouldn't commingle their assets with clients funds, yet they have large operational outlays (coding &security, traditional financial fees, meth & luxury condos in Bahamas, etc.) that seem unlikely to be coverable with trading fees alone. Even if we allow them to work like banks, they still can't seem to justify the tens of billion valuations.
Pardon for living under a rock, but why are crypto exchanges affected by the mood in the crypto market?
I thought that a crypto exchange functions like a currency market: I put an offer to sell 10,000 EUR for 1 BTC and someone else puts an offer to buy 10,000 EUR for 1 BTC. When orders cross, a transaction happens and the exchange gets a fee, whether in currency or crypto units.
What are crypto exchanges fundamentally doing differently that they are suddenly losing money?
Surely a drop in transactions would make them lose fees and require them to fire some staff, but I expected a "Facebook-like" downsizing, not a full-blown bankruptcy.
Firstly, people keep their Crypto with the exchange for trading purposes and because it is easier than self custody. This means if the exchange goes bankrupt they potentially lose their money.
Secondly, as it is an unregulated space, we have instances such as FTX where they were using clients funds which should be segregated. This arguably crosses into fraud, and we do not really know which exchanges have been doing this and which ones have been properly segregating client funds. Coinbase is probably the only one we know for sure as they are an audited US publically traded company.
Finally, we also have situations where exchanges are doing things such as not matching client deposits to their reserves 1-1, or hold those reserves in less liquid investments. This could range from another fraudulent situation to good practice, but leaves them very exposed to situations where everyones wants their money back now.
Re point #2 - this is one of the crazy things for me. When you work in finance, in the UK at least, you get it drilled into your head what "client money" is, what that implies, what you can do with it, and notably you get reminded during any training session the size of the fines that get imposed on people who fuck with client money.
So to me it suggests that they simply don't employ anyone with any experience in banking or compliance, if they did those people would be raising hell or at least leaking or whistleblowing
Well, yes, it was a startup by a bunch of twentysomethings with no real banking experience. There was no partitioning.
> the size of the fines that get imposed on people who fuck with client money.
This is crypto, law doesn't apply here.
Well, that's the marketing pitch at least. So far a lot of exchanges and such like have gone bankrupt or been blatently stolen by their operators and nowhere near enough people have gone to jail.
I should say that what surprised me wasn't that a bunch of kids started up a company and during that process skirted, if not regulations, at least common sense. But that once serious money got involved and they grew into the millions and then billions of assets under management, nobody was around who could tell them that this was reckless and dangerous
All of the modern startups have skirting laws as a selling point to investors, they want them to be like that. Look at the Greyballing Uber was doing when it was a multinational billion dollar corperation. They actively don't want to play it the right way, they're going for the money.
On the contrary, they were being touted as a shining example of responsible crypto. They paid for a good reputation by donating to the “correct” causes and politicians.
It's worse than that. FTX's regulation and compliance officer was previously the legal representation for a shady online poker operation that used a bunch of offshore shell companies and whatnot to avoid US law for years. It's clear FTX's posture was to maximally avoid regulation.
You have to look at the business model of the exchange. They way you describe it is how it SHOULD work. The exchange makes money directly from you through transaction fees or just account fees. They would not need to "invest" your crypto in anything, because they have other ways to make money. This is (I think) the way Binance and Coinbase operate.
But a lot of these exchanges have attracted customers by offering interest (rather than charging a fee) and/or free transactions. But then how can the exchange make money and keep the lights on? Well they have to "invest" the customer's money. Then the investments go bad and it all blows up.
That most of them, not all of them but, by very far, most of them are downright scams, planned as scams from day one, just like in the FTX case. Evidence is mounting quickly that both Alameda Research and FTX were mounted as scams (despite the narrative that's going to be sold that it was bad luck / bad trades that sent them in a death spiral).
There are people who warned about the very scam Alameda and FTX were putting the very day FTX launched.
For FTX, turns out they called themselves "crypto exchange" but lent the money just like a bank, making them, surprisingly, vulnerable to bank run, which happened.
Unfortunately, this is common, just like $LUNA called themselves "stable coin" but it was stable only against assets in the crypto that were not stable at all.
Live by "Do your own research" and die by it. I guess.
The thing that you are missing is that crypto transactions are slow and expensive. When I say slow I mean hours to complete a single transaction. That's why people keep their money on the exchange, it's far more efficient and usable. Of course it's also risky because exchanges do rug pulls all the time. Knowing when to pull your crypto and bail is a trick. If you're seeing news articles about "minor irregularities" and "temporarily suspended trading" it is too late. Your money is gone.
Name one Crypto chain that takes hours to confirm a transaction. Bitcoin has a blocktime of 10 minutes and Ethereum is 10 to 20 seconds. More modern networks process transactions in orders of magnitude less time, eg. Solana has a slot time of 0.5 seconds and time to finality being 1 or 2 seconds.
Last time I bought something with Bitcoin (admittedly a couple of months ago) it took 7.5 hours for the transaction to clear. This wasn't with a bottom barrel transaction fee either, although it also wasn't exceptionally large. The transaction fee ended up being about 40% of what I spent on the whole thing.
Most of them are committing massive fraud. Gambling with customer funds. Misreporting trading volume via wash trading, and using that to create false impressions in the market that they can trade on. For instsnce, using their own tokens or "stablecoins" and then juicing the numbers for those.
As far as I know, Coinbase works this way. They don't transact, trade, or create derivatives of the crypto coins they manage. They simply make a profit by charging a fee per trade. They are regulated and a publicly traded company (which means certain standards of accounting) so they might be one of the only ones standing when this thing is done falling down.
These other exchanges are doing far more exotic things like creating their own coins to grant status on their exchange and creating derivatives so traders have more leverage and therefore action. Coinbase would be considered boring to these users since it is a vanilla exchange.
Crypto exchanges also function like banks (holding customer deposits, making loans/investments with customer funds), just without reserve requirements or FDIC insurance. The protections against bank runs that we have in place in TradFi are largely lacking in crypto, and the whole sector seems to have reached 1929 in its speed run of modern economic history.
Well, a lot of people will keep some $$$ and some cryptocurrency in their account at the exchange. Maybe because they want to play the day trader, being able to buy and sell at a moment's notice.
So the exchange ends up with a big account of client funds containing cash, and a big wallet of clients' cryptocurrencies.
If a bit of that money goes missing, they can cover it up for a long time, if cryptocurrencies are growing and there's net more money flowing in than flowing out. You just pay departing customers' withdrawals from new customers' deposits.
It is only when the tide goes out we find out which swimmers have lost their trunks.
And once a company's demise becomes inevitable, perhaps insiders decide to help it along. If you've already been hacked for $10 million, why not make it $100 million given the company's going under anyway and you'll be the prime suspect?
Even if an exchange doesn't start out as a scam, it might become insolvent due to a partial hack, or losing a wallet by accident, or some other screwup.
An exchange can be technically insolvent for a long time without anyone noticing, and try to fill the hole with money from fees etc. All will look normal from the outside... until too much money gets taken out too fast.
The only way to be profitable is to fee transactions.
There are a magnitude more ways to be unprofitable, however, and because of rampant incompetence, the the scales are clearly favoring the bold/gullible holding large bags of those who have fleeced.
From a legal perspective there are no required internal controls on the flow of crypto going in and out. Apparently when there is a couple of hundred million worths of crypto sitting in a wallet, it becomes real tempting to go to the racetrack so to say.
Also, most of these exchanges have their own tokens which they control the supply of and keep as "assets" on their books. In doing so they can use these self printed tokens as collateral for loans. Add to that some nicely leveraged positions in all kinds of shitcoins and you start to understand how we got here.
Crypto exchanges always have lots of money because plenty of people keep their money inside. Those lots of money are getting withdrawn by owners and spend. It would be stupid not to do so. Free money yo. It works as long as exchange grows (more money to spend) or at least does not shrink. It stops working when lots of people want to withdraw their assets which are already gone. Time to hide.
> What are crypto exchanges fundamentally doing differently that they are suddenly losing money?
Fractional reserve banking. Exchanges now offer traditional banking services such as savings accounts and loans.
They are unregulated banks with none of the insurance and government protections to bail them out. They cannot resist the temptation to gamble with the vast amounts of money they are sitting on. Only a matter of time before they lose it all and people can't withdraw their cryptocurrencies because there's no money in the reserves.
This all seems like less a problem of crypto as such, and more that exchanges are making a virtual fractional reserve currency by leveraging customer deposits for loans/investments.
ie it's a 'banking' problem, specifically a 'fractional reserve banking' problem, not a crypto problem.
This is exactly why fractional reserve banking is heavily regulated.
None of these collapses have been due to fractional reserve banking, because fractional reserve banking requires being open about what you're doing. These collapses have been about fraud. There are lots of other kinds of fraud; getting rid of this type would barely make an impact.
While there's nothing intrinsic about cryptocurrency that would make it more prone to fraud than anything else, the culture around it seems highly susceptible to it.
> While there's nothing intrinsic about cryptocurrency that would make it more prone to fraud than anything else
There are absolutely intrinsic things that make cryptocurrency more prone to fraud. The inability to reverse transactions, quasi-anonymity, and lack of any central authority to resolve disputes.
To limit fraud to the levels you see in traditional finance, you would need the regulations and oversight by centralized organizations that you have in the traditional space. The entire purpose of cryptocurrencies are to avoid those things, so while you technically could have them with a cryptocurrency, you would end up with no good reason to have a cryptocurrency at all.
> The entire purpose of cryptocurrencies are to avoid those things, so while you technically could have them with a cryptocurrency, you would end up with no good reason to have a cryptocurrency at all.
I will substitute a word from your post that will help you understand this easier:
"The entire purpose of cash is to avoid those things, so while you technically could have them with cash, you would end up with no good reason to have cash at all."
Cryptocurrency is not antithetical to banks just like cash and gold are not. It is a digital version of cash, not credit.
Cryptocurrencies are nothing like cash for one important reason: they are not subject to physical constraints.
You cannot easily scam millions of people around the world out of their hard-earned cash in a couple of days. You cannot easily move millions of dollars in cash without conspicuously hauling objects around and/or engaging many people to help with that. You can reverse a cash transaction immediately by grabbing the person and calling the police. You cannot maintain anonymity when dealing in cash without giving strong cues to bystanders and counterparties and risking being recorded on video. It is not the purpose of cash to avoid any of those “downsides”; but it clearly is a feature of cryptocurrencies.
Cryptocurrencies are a qualitatively new thing humanity has never had to deal with ever, no matter how insistent are cryptocurrency aficionados’ in calling it merely “a digital version of cash”. This serves their wallets, by suspending deserved wariness and encouraging unsophisticated people to invest into a financial pyramid, but not truthful description of reality.
> Cryptocurrencies are a qualitatively new thing humanity has never had to deal with ever, no matter how insistent are cryptocurrency aficionados’ in calling it merely “a digital version of cash”. This serves their wallets, by suspending deserved wariness and encouraging unsophisticated people to invest into a financial pyramid, but not truthful description of reality.
Holding no cryptocurrency myself (I don't need to buy anything with it atm :D) I would hardly call myself an 'aficionado'. But you must understand that to compare does not mean to equate. All I was saying is that cryptographic currencies have some of the properties that cash has, but that they also have the ease of transport and storage afforded to us by credit.
I don't see the issue with being able to transport cash across the 'net. Governments can still regulate businesses, banks, so if you go and buy a car and your government wants to know to tax it, the business selling you the car can just report this income. If a bank held your asset for you, they could just be subject to similar regulations as when they hold other assets for you. Once you stop treating it like credit or like some amorphous blob that cannot be regulated, this stuff gets pretty simple to understand.
> I don't see the issue with being able to transport cash across the 'net.
The very idea of “physically unconstrained cash” is relatively new to humanity so there are some unknown unknowns, but even then I think the issues are obvious by now.
The necessity to handle a physical object limits the scale of potential upsides (help relatives, etc.) and downsides (scam people, etc.) of cash—and it might have transpired that, with that necessity removed, the downsides and exploits are much more sought after and outweigh potential upsides.
I believe that every single sentence in your second paragraph is factually incorrect. I know of all of the things you say aren’t possible with cash are, for a fact, possible and common.
You live in a different world, I guess. In this universe you need duffel bags to move a moderate amount of cash, vans or trucks a large amount, because physics. Ah, and those duffel bags and vans 1) are conspicuous and obvious on CCTVs, 2) require people to handle, and 3) can’t teleport across oceans.
(This is just one sentence you claimed incorrect; I don’t see the the point on going through the rest because maybe I’m missing something but they seem similarly obvious to me personally.)
This sort of rhetoric is suboptimal. It only seems persuasive because you consider cryptocurrency to be analogous in purpose to cash, but the person you're trying to convince likely does not believe this. If they did, then they likely would already see purposes of cryptocurrency other than avoiding regulation, via the analogy.
If you're going to argue through analogy, you ideally need to ensure agreement with the analogy. Since asynchronous discussions make this difficult, we often need to settle for motivating the analogy instead. Simply assuming it is usually not persuasive.
Thanks for the advice. I use synchronous media like chat protocols much more often, and was blind to this- and yep, it does seem like the primary objection to that argument was born out of a flawed understanding of the analogy.
The entire purpose of cash is NOT to avoid a central authority... in fact, all cash has a central authority in the form of the government who issues the currency.
But the WHOLE point of crypto was to avoid governmental control. If the government is regulating it that means they can control it. And it becomes completely worthless. If you want digital gold as an inflation hedge you can literally buy a GLD ETF. It gives you digital shares in actual GOLD.
There's nothing to stop people using crypto to buy/sell goods directly, or to trade directly between themselves, completely outside of government control. And crypto itself can't be inflated away, or obsoleted, or otherwise really controlled by government, except by attacking it; making it illegal to own or trade, to operate nodes, to write code, or use CIA shenanigans, etc.
But if an exchange claims that they hold your crypto 'frozen' and completely separate from their trading activities, and especially if the exchange also deal in government currency, then I think it's quite right for government to regulate, and ensure the exchanges are compliant.
Vendors of goods and services have virtually no interest in self custody. They want deposits going to a bank/exchange. So you are not going to be able to buy many goods or services directly. How many businesses are CASH only today? That is best case scenario for buy/sell crypto directly.
> But the WHOLE point of crypto was to avoid governmental control
I think from a purist perspective that is true. I said this upthread but what people really want is more USD in their checking account. These exchanges are a place where they can roll the dice and maybe make that happen. As I said before, i bet 95% of the people burned couldn't care less about the philosophical aims of crypto currencies and just want a chance to get rich (in USD).
That may actually be counterproductive. If you start regulating crypto, then you are IN. You can't do it half way. Now you have yet another banking sector to regulate.
Maybe what's better and cheaper is to let this wild west "enjoy being poor" nonsense flame out until everyone shoots themselves and it's curtains.
It will sort of be like Usenet - it didn't go anywhere but you have to know how to find it.
Sure, without the safeguards. No FDIC. No lessons learned from the history of banking.
I agree it's a banking problem in that they're trying to streamline a new economy by not doing what "legacy banking" does. Which is like streamlining airlines by starting the rule book from scratch. But the rules and regulation of the airlines have been paid for in blood. Discard them at your own peril.
Or, in the case of cryptocurrencies, at the peril of the finances of anyone investing in your experiment.
So, having been around since the early bitcoin days, core to the salespitch back then was the fact you would have control. You'd have your coins in your wallet, and no need for banks etc. Apparently nobody does this anymore, and gives their wallets to these exchanges (i.e. banks) and balks when the obvious happens in pyramid schemes. People just don't get distributed currency if they promptly undistribute it.
As I've noted before on HN the entire concept of people being able to manage their own wallets flies against everything we know about people. People forget stuff, make mistakes, and lose things. The margin of error for a wallet is tiny. It's not rare for crypto forums, twitter, etc to prescribe completely ridiculous processes and systems for securing wallets, backing up seed phrases, etc. There's an entire cottage industry built around people etching their seed phrases on steel plates for people to (I'm not kidding) bury them like they're gold in the 1800s.
Plus funds in a wallet require extra steps when you want to trade on an exchange (extra costs via gas, time, possible errors, etc). The use cases for crypto are so minimal for the general population one could argue it's only survived this long through making trades on exchanges - to what essentially amounts to gambling. You can't gamble with funds in a wallet which defeats the entire purpose of crypto for the vast majority of the "users" in the space.
> There's an entire cottage industry built around people etching their seed phrases on steel plates for people to (I'm not kidding) bury them like they're gold in the 1800s.
"I write these words in steel, for anything not set in metal cannot be trusted." - The Well of Ascension, by Brandon Sanderson
A friend of mine would use fiberglass resin, bondo, and plywood because they wanted their sculptures, which they then boxed into custom-sized crates, to last for at least one hundred years.
>There's an entire cottage industry built around people etching their seed phrases on steel plates for people to (I'm not kidding) bury them like they're gold in the 1800s.
I was about to say this isn't the worst opsec until I realized you mean people are sending businesses their passphrases and not purchasing an etching kit to make the plate themselves.
Your first instinct was right, they come with little steel squares with individual letters pre-etched, and when you receive them you arrange them yourself into your seed phrase
The paranoia pertains to burying metal plates underground, preparing for a post-collapse future. As if bitcoin will be a viable currency when we're all trying to figure out food and shelter.
The funny part of that is that you literally cannot have $1000000 in a crypto wallet, because that's not how dollars work. Oh, you've got something in your crypto wallet, but it ain't dollars.
There's a market here for a safe way to store crypto. Something like a thing you carry with you, a thing you can keep at home, a thing you have a friend hold, a thing you have in a safety deposit box, and info a service holds for you. Some combination of majority votes, time delays in days or weeks, and warning messages lets you recover from loss and damage. With backup from an insurance company. But nobody has addressed that market.
I can speak only about Bitcoin, not "cryptocurrencies" generally (and in fact, all of the real innovation in secure storage that I am aware of is happening on Bitcoin, with crypto lagging by many years).
> But nobody has addressed that market.
Au contraire! You've correctly identified an important market! There is both existing work and ongoing development that tries to satisfy exactly what you've asked about (and doesn't involve burying etched steel plates).
Encumbering your bitcoin with the requirement for multiple, M of N threshold signatures ("multisig") is an important way to protect large amounts. Companies like Unchained Capital [0] provide a service wherein the user holds two keys and the company holds 1 key in a 2-of-3 multisig setup; if the company key is needed, video authentication and other procedures are required.
Other, non-company-assisted multisig setups use schemes such as you propose; one example is the Nunchuk wallet [1] which allows you to sign multisig transactions on your own, or request signature(s) from a key held by a family member or friend, passing the PSBT (partially signed Bitcoin transaction) over a secure communication channel.
Finally, two great examples of physical devices to protect your Bitcoin are (1) the Tapsigner [2], which is an NFC-enabled smartcard holding your secp256k1 private key that does on-card signatures; and (2) Jack Dorsey's Block (formerly Square) is developing a hardware wallet that integrates with your smartphone [3] -- one neat innovation here is that policies can be set such that the user may spend small amounts of funds with the phone only; but larger transactions require a thumbprint or pin on a physical device.
You also mentioned time delays -- this is also supported by Bitcoin script; advancements such as miniscript [4] allow you to express complex spending conditions in a tree-like way.
FWIW, that user experience is most likely Coinbase, or something very much like Coinbase. Not only is the UX good, but customer funds are taken seriously now and have been for a long time.
> There's an entire cottage industry built around people etching their seed phrases on steel plates for people to (I'm not kidding) bury them like they're gold in the 1800s.
I was stunned to see so many of these products on Amazon last time I searched for smartcard stuff. On that note, I hate that you can't search for smartcard products anymore without 80% of your results being crypto wallets.
Can we acknowledge that both of those options are utter trash compared to conventional banking, though?
The system that the crypto advocates hate on, but provides 250k per person + per bank + per account type as insurance by default to all registered financial institutions?
In Lebanon, people are robbing banks to get their own money out. Maybe they are a little bit more comfortable than you are with holding keys to an unseizable asset.
If you live in the US and are hedging against the collapse of the FDIC you may be better served by investing in things like dried goods and seeds than cryptocurrencies.
Banking may well collapse in the US (I'm not betting it will - quite the opposite, to be honest - but historically speaking it's not an impossibility.)
The issue is that if banking in the US collapses... well - we have much, much bigger issues than "crypto". You'd be far better served with a stash of dried/canned products and a gun or three.
Also - it won't be crypto that matters in this case. It will be the new currency of whatever regional nation states pop up in the US after the collapse, or if the federal gov manages to hang on, the new USD.
Side note - last time I bought in bulk (because hedging against this is relatively cheap, all things considered) split peas were the best bang for the buck in terms of cost/calorie. Just slightly beating out plain white sugar.
75 days of food for 4 people at 2000 calories per day cost about $350 (not including storage containers) and will last a very long time if it's composed of dried legumes, flour, oats, sugar, rice, oil, etc... in airtight containers.
If you cook yourself and rotate through, it's actually a fairly cost effective way to eat cheap and healthy (although without any additional inputs - also very bland) while also keeping storage on hand and not feeling like a complete prepper.
> Can we acknowledge that both of those options are utter trash compared to conventional banking, though?
Yes, yes we can.
The only things that ever justified the use of cryptocurrency were ideological fantasies and speculative gambling. Every other justification is just hype created as a post-hoc rationalization for one of those two things. If you look at any of them closely, they completely fall apart when compared with competitor technologies (such as fiat paper money esp. the US dollar, conventional banking, and even gold).
I look forward to a future where "crypto" again unambiguously means cryptography.
Buying drugs online was a real use case that actually worked, as was being able to smuggle wealth out of a country with exit restrictions.
As for legal uses, yeah, there are not many at the moment. Maybe some day there will be a DAO-type org that is worth being invested in or something but not today.
> Buying drugs online was a real use case that actually worked,
Kinda sorta. Wasn't that back when people assumed cryptocurrency provided the same kind of privacy that cryptography does, which was (in retrospect), pretty dumb?
> as was being able to smuggle wealth out of a country with exit restrictions.
That one doesn't make much sense either. How are you supposed to get your cryptocurrency to smuggle out in such a country? Wire your money to a foreign exchange?
> As for legal uses, yeah, there are not many at the moment. Maybe some day there will be a DAO-type org that is worth being invested in or something but not today.
I agree the "best" actual use cases involve illegal activity, but I think even those are sketchy. Most of the ideas don't actually work unless cryptocurrency is ubiquitous, but that doesn't matter since it will never become ubiquitous without compelling use cases. And given the illegal activity it enables, even if it did have compelling use cases, it would probably be made illegal if it was on its way to becoming ubiquitous (which would instantly marginalize it in a way it could never overcome).
For me, my one and only use of crypto (back in the day) was to put it through a mixer and then use it to pay for hosting for some TOR exit nodes in Iceland that I didn't want tied to me personally.
> For me, my one and only use of crypto (back in the day) was to put it through a mixer and then use it to pay for hosting for some TOR exit nodes in Iceland that I didn't want tied to me personally.
That use case at least makes some sense and isn't illegal, but there are probably only dozens of users who'd ever want to do something like that, which isn't enough to support a payment ecosystem.
There are also probably conventional alternatives that probably work for that. I'm somewhat paranoid about getting doxxed based on some teenage internet experiences. There are a couple of forums out there with paywalls that exist mainly to reduce moderator workload, and (10-15) years ago I was able to subscribe with a combination of Visa gift cards and PayPal. The gift cards let you enter (un-validated) identity information so they could be used like credit cards online, and PayPal didn't seem to like them but there was a long delay before they were detected. So I created a throwaway PayPal account with a small-denomination gift card as a payment source, paid for the membership, and abandoned the PayPal account (which would eventually get locked).
> Kinda sorta. Wasn't that back when people assumed cryptocurrency provided the same kind of privacy that cryptography does, which was (in retrospect), pretty dumb?
Well, there are currencies that do provide strong anonymity, so no?
But yeah agreed that cryptocurrency doesn't have that many use cases, just as cash has a declining number of them. I hope someone makes an Amazon-like platform for it.
I'm talking about how both bubbles were a consequence of all the money being pumped relentlessly by governments. That it was going to pop, we should not have no doubt. If it wasn't for crypto "exchanges", it would be a dot-com v2 (which is also happening, but without crypto to take all that capital this crisis would be bigger still), or it would be something else entirely... but at the end of the day, as long as we have governments addicted to growth, we will have boom and bust cycles.
> smart contracts are a different think, unaddressed here
Let me address this, then:
- they are not smart
- they are not contracts
- they are programs written in esoteric programming languages running on world's slowest and most inefficient VM
- due to esoteric nature their own authors cannot find trivial bugs in their implementations that are exploited at scale which would make any real platform nonviable
- cannot be updated or reverted because blockchain
- have literally no use outside the virtual imaginary world of crypto
- have zero legal standing, and cannot be enforced
- in every single case would be more efficient and better served by Visual Basic running on a single Raspberry Pi from a sqlite database.
Do you really feel that Uniswap is better run with sqlite on a Raspberry Pi? If so, you are advocating for putting your money into a CEX, because somebody has to own and control that database and physical device.
Your point is that centralized financial services on sqlite is good, decentralized protocols on a blockchain is bad? If that is your point, it's a funny one to make in a thread about a CEX collapsing.
> If that is your point, it's a funny one to make in a thread about a CEX collapsing.
What's funny is inventing arguments for other people and valiantly fighting against them.
"Smart contracts" were mentioned as "other uses of crypto currency, as yet unaddressed". I addressed them. I couldn't even care less how you made the illogical leap from that to whatever you accuse me of.
Uniswap is a good application of smart contracts. Your comments explicitly suggest that Uniswap would be better run on something like sqlite, which needs a centralized owner, which is functionally the same as replacing a DEX with a CEX.
> in every single case would be more efficient and better served by Visual Basic running on a single Raspberry Pi from a sqlite database
Funny how out of 8 points listed, all you've latched onto a single one.
Let me rewrite this on point in a single sentence "this ineffecient unenforceable bug-ridden fest that can only use the imaginary tokens can be run more efficiently from a single Raspberry Pi".
But, you are still making the claim that a decentralized smart contract protocol would be better replaced with a centralized traditional database on a Raspberry Pi. We disagree.
Come on. You started with assigning me arguments and thoughts I never said and thought.
> you are still making the claim that a decentralized smart contract protocol would be better replaced with a centralized traditional database on a Raspberry Pi.
A person who claims that their opponent makes arguments in bad faith ignores everything their opponent says and keeps pretending their opponent said something he didn't.
There are eight bullet points. Read them. Understand them. However, I'm not going to continue this conversation.
I'm amazed how many people think the average person can't memorize a 12 word phrase. Most people I know can memorize their social security number, address, at least one if not more passwords, their own phone number as well as the phone number of at least one loved one for emergencies, the DOB of their children and their own DOB. Most of that is a gobligook of numbers rather than words.
Absolutely no one needs to be putting a private key on paper in their house, that is insanity.
---------------
RE:
>The question is if you can reliably remember it in ten or twenty years without ever using it in the interim.
I check my bank account daily for fraudulent transactions; it would behoove anyone storing any sizeable amount of value to check/refresh on that daily, however that looks like for your form of storage.
Print your key works fine if I’m locking my “money” under a mattress. If the point of Bitcoin I was to replace currency then I’d still need an easy way to keep it close with my all times. So, carry your signed transfer title to your house in the wallet and lose your entire house to a mugging seems more appropriate as an analogy.
FYI, there is a world of BS around "fire proof" anything. It's all about the time it's around fire.
If your house burns to the ground and collapses in on itself, the extreme majority of fire proof safes, aren't. If the fire dept shows up and it's out in an hour and it wasn't buried, your things will probably be alright.
I dealt with a guy's gun collection stored in his $10,000 "fire proof" safe stored in his garage. Almost everything was garbage. Saved a handful of parts here and there.
The use of intermediaries is due to the deficient user experience of cryptocurrencies and cryptocurrency community:
1) They downplay the expertise and knowledge required to manage your own tokens.
2) They advocate for the use of cryptocurrencies by normal (i.e. non-expert) users as this increases the value of their holdings.
3) They prefer to blame users who make mistakes, are hacked/scammed, or otherwise lose (real) money for their lack of technical expertise.
Given this, it's not surprising that the enormous gap between naive engineering assumptions and human reality is filled by intermediaries despite how consistently they fail. As long as cryptocurrencies continue to exist beyond a tiny niche I don't see this changing.
The knowledge gap between "normies" and "crypto-aficionados" is pretty large.
Which is, of course, why so many crypto "businesses" turn out to be scams of one sort or another -- the asymmetry of information makes most folks easy meat for scammers.
To point up this asymmetry, go ahead and watch this[0]. The lack of knowledge WRT crypto-currencies (let alone smart contracts) among the hoi polloi is striking in comparison to those who are in the know.
That's right. Not to mention the transaction fees are so high that moving from a wallet you own to an exchange can cost non-insignificant amount of money.
Add on top of that the general volatility of crypto, people not wanting to deal with maintaining their own wallet, and you have a recipe for people keeping their funds on exchanges.
>"Not to mention the transaction fees are so high that moving from a wallet you own to an exchange can cost non-insignificant amount of money."
I realize that transaction fees are probably a moving target but is there a ballpark figure you or someone else could say? I'm guessing it's percentage-based?
> I realize that transaction fees are probably a moving target but is there a ballpark figure you or someone else could say?
I'll give the answer for Bitcoin as of a couple of years ago, and others can chime in for things like Etherium and other cryptocurrencies.
With bitcoin it's not a fixed fee, it's more like a priority bid. So, there's a pool of "pending" transactions that any miner can grab from. Each pending transaction has a bid for its transaction fee. Each miner will then grab whatever set of transaction it wants to bundle into a block, and try and compute the hash for that block. Once a miner finds a hash for that block, all the transactions in that block are added to the chain and the transaction is "complete" (in practice, people will often wait until one or two blocks are added _after_ the transaction is included in the block chain to be _sure_ it's done).
So, to your question, ultimately the transaction fee is a bid for how quickly you want your transaction included. You can bid $0, and it's likely your transaction will _never_ be included. It doesn't really matter how _much_ you're transferring, but _how quickly_ you need it included in the chain.
How much you'd practically pay for a transaction (in USD) has been super variable over the lifetime of Bitcoin. It fluctuates with how many miners there are, how many transactions are happening, and the exchange rate of BTC to USD (since the feeds are paid in BTC). See the chart at the bottom of this page: https://privacypros.io/tools/bitcoin-fee-estimator/
It looks like it's generally between $0.75-$1.00 right now. So if you're making a transaction of $1M the fee is trivial, but if you're buying a cup of coffee for $5 it's...pretty high.
It is not percentage based but based on the demand for the next block space. That demand is on the basis who will pay the most per byte for each transaction so your is based on the number of bytes in your transaction (usually directly proportional to the number of inputs and outputs) and how quickly you want it in the next block. Currently about 44 cents will guarantee you in the next block - note this is a moving target based on the competition for block space. mempool.space is a good visualisation.
You're not taking crazy pills. It's become abundantly clear that the vision of everybody being their own bank will never work.
People don't want to be their own bank, just like they don't want to be their own bakery, or their own farmer.
Sure, some people do bake their own bread, but they do it either because they have to, or because they enjoy it.
So the people who control their own keys need to have a reason to do so. Because it takes more effort than not managing your own bank.
What exactly are the reasons to run your own bank? What problems in your life are solved by it?
I can think of a two:
* You want to hold more cash than FDIC guarantees.
* You think the government will seize money out of savings accounts, as happened in Cyprus.
These have to be weighed against the facts that while not literally in your mattress, the money becomes pretty easy to steal, for anyone willing to point a gun at you. And being your own bank comes with obligations, too, so the government will come after you if they want to drain your bank. And the justice system can put you in a box if you don't comply.
Basically: If you already have a bank, why would you not just use it? And if they refuse to do your thing (like order a hit), then buy tokens and pay a hitman in tokens.
If there were FDIC for tokens at your real bank, redeemable in same number of tokens, then any general public that wanted to use cryptocurrency would likely just use that. Because outside of fringe LARPing nobody wants to run their own bank.
> Basically: If you already have a bank, why would you not just use it?
Basic corollary: if you already use a bank, why not just use money?
> If there were FDIC for tokens at your real bank, redeemable in same number of tokens, then any general public that wanted to use cryptocurrency would likely just use that. Because outside of fringe LARPing nobody wants to run their own bank.
So the only remaining question is why would normies who say (according to you) amen to all above would need crypto besides a ponzi-speculative joy ride?
On one hand we have funny money backed by a world power and all its resources, and protected by ICBMs and an impressive navy and bases around the world and a financial infrastructure around USD & convertibles.
On the other hand we have funny tokens issued by "genius" -mushrooms- who are elevated into the spotlight by the likes of Forbes magazine and the rest of the media circus, protected by nothing [though the genius scammers themselves are apparently protected ..]
> So the only remaining question is why would normies who say (according to you) amen to all above would need crypto
Exactly. They don't. Not as a currency. It's gambling. And "normies" don't want to run a bank just to gamble.
> money backed by a world power and all its resources, and protected by ICBMs
And e.g. in the US the USD is not just protected from outside threat (ultimately) by ICBMs, but also internally by the fact that tax is due in USD.
There are cryptocurrency advocates who say that the USD is backed by nothing. Which is a very odd thing to say because as long as the US has tax laws there will be demand for the USD (under penalty of prison), to pay your taxes. Demand for a thing creates value for that thing.
Anyone who thinks that backing is not real is likely to feel the physical effects of its reality.
I suspect the government / Fed will have something to say about these in the future since it's a bit contra the purpose/intent of FDIC insurance but for the moment, you can abstract away all of the complications.
No, that's exactly it. People love the idea of decentralization and doing things on your own, except then they realize that it's actually kind of hard to be off-exchange and still be liquid (whatever the hell that means in crypto-land).
So basically no real change except they're much more exposed to risk (fraud and market swings notwithstanding)
The core truth in this day and age is that nobody (understand this a non-significant minority if you prefer) wants to host their own stuff. It's way more convenient to use centralized services that do the heavy lifting for you. If you don't have that convenience, you can't have mass adoption.
This is the key to understanding a lot of things about the "cryptocurrency community". There are two groups there with wildly different interests.
A large chunk (probably even a majority) of the people involved in the cryptocurrency space don't actually care about cryptocurrency as a technology at all, they're just there to make money. To these people, market price is everything, and the technology is irrelevant except to the extent that it affects the market price.
Then in the other camp there's a group of people who don't care about the current trading price, they're just interested in the technology and the new capabilities it enables.
I'm in that second camp (perhaps unsurprisingly, since this is Hacker News), so in my view this story isn't really all that interesting or surprising. From a legal/societal perspective, yeah this is terrible and probably someone should go to jail. But from a technical perspective, the fact that exchanges can scam people out of their money is hardly new information. As the saying goes: not your keys, not your crypto.
Though obviously for those who are interested in cryptocurrency solely to make money on speculation, yeah this is a big story.
I think so many cryptocurrency users avoid maintaining their own wallet for the same reasons most people (these days) don't store all their wealth as cash or gold under the mattress: it's both inconvenient and easy to lose.
Of course what folks are seeing now is that it's real easy for exchanges to lose their buttcoin deposits too.
You do have control. You can start your own blockchain and keep the transactions flowing. Of course, transactions imply other people will use your chain. It's like you can create value not by gold, or tobacco, or even math, but by the very trust people have in your asset. And this brings us to a concept that some may be familiar with but is relatively new to the crypto community. A new kind of coin is here.
This is a concept that probably never existed before crypto, called "fiat." "fiat" is the latest and greatest in crypto technology. True decentralization. Multiple countries. Multiple municipalities. Multiple systems, multiple institutions, multiple protocols and multiple contracts, the picture of decentralization that crypto could only dream of. And of course, if you make a mistake, you can revert your transaction, a form of technology crypto has not yet mastered. Oh, NFTs? Please. "fiat" utilizes advanced art international HS92 commodities exchange codes to kick start the burgeoning modern art scene of completely legitimate businesses.
That's because nobody really cares about what crypto can do anymore, and only cares about making fast money.
If you internalize this fact, then it explains why people just keep their coins on exchanges, why they buy centralized "cryptocurrencies" , why they leap at the chance of buying the latest Paris Hilton NFT and why they keep defending Tether as legitimate.
Fundamentals are thrown out of the window unfortunately.
The people who were pushing the fact that you'd have sole control over your wallet were those who wanted to be immune from the government seizing their money: scammers, criminals, tax dodgers, and exchange runners (a combination of the first three).
Those people put a bunch of money into bitcoin to inflate the price, but they need a bunch of rubes trading the currency to keep the value of the coin (relatively) stable so they can withdraw their holdings, but they don't care much if those rubes have full control, and that's where exchanges come in.
Exchanges are there as a way for the first movers and the ultra-wealthy to extract wealth from uninformed, naive new investors into crypto.
> The people who were pushing the fact that you'd have sole control over your wallet were those who wanted to be immune from the government seizing their money: scammers, criminals, tax dodgers, and exchange runners
How sad that you think the only people that cares about not giving governments control of everything are "scammers, criminals, tax dodgers, and exchange runners".
I think once crypto gained traction beyond early adopters into more mainstream people it became an "app" and that "app" was the exchange and non tech, non crypto people don't put more effort into it then that.
What is alarming and becoming more revealing is how much of this crypto was being back-doored from one crypto "product" (exchange, fund, coin, ICO, etc.) into another. In programmer terminology: it looks like there are (were) a lot of pointers to the same memory address.
The crypto community is very much to blame for this. Initially, back when bitcoin was hovering about $1 per coin, everyone was talking about personal wallets, and educating people how the wallet was just a bunch of numbers you can write on a piece of paper and which you can keep hidden in the lining of your pants, etc.
But then bitcoin started getting popular and emerging towards mainstream culture, the talk about wallets seized. All the new crypto firms started marketing accounts and "cloud wallets" and the personal pocket wallet was never mentioned.
Crypto then continued to advance in mainstream culture and personal wallets were kept a secret. I doubt the average crypto user even knows about personal wallets.
And if you disagree, please prove me wrong. There are many crypto commercials on mainstream media, show me one that has mentioned that you can keep a personal wallet.
So the crypto industry is to blame for this. They basically hid the most important part of crypto from the public because they would make more money without it.
Is that the right takeaway? People didn't know cryptocurrencies could be kept on your computer? Or could it be that users just don't want to deal with the complexity enabled by cryptocurrencies, and the bank model is just the natural one that always appears when the public starts making use of money?
A lot of crypto investors are day traders or naive hodlers who have no idea what blockchain and DeFi means. But DeFi protocols like Uniswap and Aave are holding up fine and are incapable of pausing user withdrawals.
There is still the question of how to convert your crypto to actual spendable dollars again. Sure, uniswap will let you get another token but you still need an exchange to get dollars. This gets particularly important when, say, the giant scam that is Tether finally crashes and burns,
Yes, a regulated centralized exchange is valuable for on and off ramp. All they would need to do is process user transactions, take a small fee, and not gamble with user funds. Regulators could do audits and keep consumers protected.
But regulators have failed to provide clear framework for exchanges in the US[1], so most CEXes are running off shore.
The user growth is high enough that at any given time roughly half of the people involved have been at it for less than 18 months. So the space is dominated by the least-savvy and has been for some time.
Many people will never be capable of self-custody because the lack the interest to do it. They see money to be made and ignore the warnings of those who try to explain what they have on an exchange is a promise of money, not money itself.
When you say "nobody does this anymore," that's kind of true, but also not true. Those who have learned the hard way do, the newbies (which vastly outnumber the first group) don't.
Self custody requires knowledge of some basic math, cryptography, and the ability to understand basic security principles.
User growth explodes with exchange rates. Those diving in understand very little about what they're doing and should stay out. They don't listen to people saying such things and the result is, well, predictable.
You get things, I think, but bitcoin’s transaction bottleneck meant it was never going to be able to handle anything approaching wide scale adoption for day to day transactions. Attempts to address that with other coins or centralized exchanges is at least one of the major factors that lead to this point.
I mean, do you store all your cash under your bed in case your bank go bust? People keep crypto on the exchange because it makes transactions easier, and in some cases you might have other perks such as being able to lend it for interest or spend it with crypto credit cards.
This idea that you can have a digital currency without some kind of bank or exchange is fundamentally flawed imo. Unless you believe the only valid usecase of crypto is as a digital alternative to physical gold then it probably makes more sense on an exchange. The main issue here is that the exchanges are not regulated.
But I suppose given the lack of regulation I would have to agree with you that the only safe use case right now is as a "store of value" in a cold wallet.
Trading is addictive. Like all forms of gambling, it lights our reward centers up.
On decentralized exchanges, you pay each time you trade (gas fees and such). That cuts right through the endorphin rush.
Centralized exchanges keep those fees low by making everything centralized. It's akin to casinos keeping their guests comfortable and liquored up.
As a person who works in crypto, I'd like to see us engage with this more forthrightly. When we cut out gambling, how many use cases are left? How many are viable today?
You still have people with their own wallet. But the vast majority of people don't want to deal with the complexity of decentralization so they prefer centralization
I think the vast vast majority of people just want to increase the balance of their checking account. The fastest way to do that with crypto is speculating on an exchange. I bet 95% of the people getting burned on these exchanges don't even know what a "wallet" is (in the context of crypto currencies).
"Not your keys, not your coin" is a popular adage, but it doesn't really seem like many people follow it. Thus the popularity of coins with high transaction fees.
The original crypto culture which emphasized privacy (although speaking of a public list of all transactions ever performed on the network as privacy oriented is pretty hilarious), control and decentralization has for the most part been lost to crypto's eternal September.
I do this (for the most part). Whenever I buy currency on an exchange, I Immediately transfer it to a personal wallet. This is actually what drove me away from anything based on Ethereum, because the transfer speed and fee system for Ethereum is so horrendous, I found myself leaving that currency in the exchange managed wallets.
Somehow, humanity has gotten good at taking systems that were designed to be decentralized and distributed (like crypto, E-mail, personal websites, and so on) and instead, surrender them to a few big companies who become single points of failure. We keep failing to learn from this every time.
It’s almost as if most people are too busy to figure out the complex processes at doing things themselves, and the very concept of civilization is built on exchanging good and services for money whereby tasks are delegated to parties that are better suited to focus on them.
I suspect the problem is due to the fact that designers of decentralized systems often underestimate the importance of the user experience.
Managing your own mail server, website, social media instance, music streaming, cryptocurrency wallet, power grid, vegetable garden, etc requires more time and skill than just paying someone else to do it for you. The result is that most people end up using a handful of centralized offerings except for a small niche of enthusiasts who derive enjoyment from the work and/or can justify spending the additional time.
Ultimately it's up to the designers of distributed systems to make them trivially easy to use if they want them to be popular and remain distributed. (Napster and maybe BitTorrent are the examples that come to mind.) Otherwise it remains a niche for enthusiasts and/or ends up with centralized intermediaries.
That is still the promise and unlock of cryptographic currencies. But that does not seem to be the use case for much of the people I've seen in the space the last years. I think the fact it is crypto currencies is incidental, it is all about earning money through appreciation of some popular asset.
I read an interesting thread on why this isn't a pyramid scheme. Basically there's no one at the top. It's decentralized so there's a loose federation of edges arranged in a many-sided polygon. So we need a new name. Instead of Ponzi, this is a Nakamoto Scheme.
I say this in jest. There are more than one reason to be interested in crypto, but when bitcoin suddenly went from 1BTC=USD$1 to $1BTC=USD$100 (I don't actually know when the boom happened--I wasn't watching that closely) the individualist, libertarians were obscured by the quick-buck types looking to turn their thousand into a million. Thats when the scammers all came out.
> People just don't get distributed currency if they promptly undistribute it.
Same as with source code version control. As soon as distributed VCS appears (git), people promptly centralize it with another abstraction layer (github, gitlab, bitbucket, etc).
The same thing has happened with git over time, no? Decentralized source control, forking whatever you want/have access to when you have a flash of inspiration, etc.
Now everything is in github, gitlab, or bitbucket, and centralized there.
Pretty good analogy. Discovery and trade (clones/PRs) are so much easier in a centralized system.
At one point I asked (rather naively - not trying to sound wise here) whether our dependence on GitHub was an outage risk. Response from CTO was that git is distributed and everyone has a copy and whatnot. In retrospect, yeah, the code is not lost, but we had never actually built the infrastructure / tested the procedures to actually handle that fallback to a distributed world...
The thing is that the people that are most active in crypto and typically have the largest stacks are traders. They grow their stack by shorting/longing, leverage, staking and DeFi, all of which require an exchange.
Crypto has really only lived in a zero interest rate policy world and it is shitting the bed majorly now when rates are going up. It is likely far from the bottom.
Crypto is highly correlated with equities and is sensitive to interest rates in the exact opposite way than you'd expect for something that is supposed to be inflation-proof.
As a simple example: BTC stopped dropping and actually rose $1000 on Thursday when the CPI numbers came out indicating that inflation grew less than expected last month. This shouldn't happen if crypto was actually an inflation hedge. Instead, almost all of crypto's value is speculation-based and so when the supply of money is more expensive (i.e. higher interest rates), the value of crypto assets in USD tends to decline and vice versa when interest rates are predicted to be lower (or not rise as much as expected).
Crypto very much follows the stock market. Interest rates are inversely correlated to stock market performance. After 2008 the stock market went into the longest bull run in history which has now reversed this year. Stock market is down and crypto is collapsing because it is the wild west. There are for sure going to be multiple exchange collapses not just FTX.
Both. It follows it observably and the reason it does is because with low interest rates there is an excess of capital. Money is too cheap so it flows into speculative asset classes like stocks and crypto.
Higher interest rates mean that investors can earn money by buying bonds, which are lower risk. Riskier investments (stocks, real estate, cryptocurrencies) are less attractive to investors as a result, unless they can provide even more return to compensate for the risk, which is unlikely.
It is a goal of crypto to be an independent medium of exchange, free from governments and to some extent the rest of the economy, and perhaps even someday become the basis of the economy itself.
That does not mean it has done these things. It does not mean it has failed these things either, because goals frankly don't mean much. This is in one of my favorite classes of wisdom, "things that sound obvious when I say them but observably by their actions most people aren't thinking this way." Do not be too quick to say to yourself "oh, yes, jerf I know that goals aren't results", because, again, by their actions many people observably do not have this as clear in their head when they are planning and acting as they may think.
As for the results of crypto, it is certainly clear that crypto is a haven for scams, pyramid schemes, and pump-and-dumps. That also on its own does not disqualify it; I think there's more in crypto proportionally than the US dollar but all fiat currencies have also had scams, pyramid schemes, and pump-and-dumps denominated in them. It is much less clear that crypto has attained its listed goals; there is non-zero evidence that they are in play, but it is also very mixed evidence and you can find plenty of evidence to the contrary of all the things I list.
Crypto has largely existed in a regime with 0% interest, as was mentioned. It is a very viable theory that despite the goals of crypto of being an independent currency, that it is in fact a derivative of existing fiat currency. As for the evidence, there is the fact that it is acting exactly like a very leveraged fiat derivative would be acting when money stops being free, which doesn't necessarily perfectly logically prove the case but is strong evidence. Perhaps someday crypto will be independent but it isn't putting on a very convincing show of it right now. Instead it's looking an awfully lot like the most leveraged fiat currency derivative there is out there at the moment, or at least the most leveraged one us normals can see.
Which is when you get bubbles of all kinds. Because with a bit of painting snd decorating - and wishful thinking, of which there is always plenty - you can make almost any bubble look like a safe profitable investment.
Then the tide goes out and everyone says "How could this have happened?"
Again.
It's all suspiciously faith-based and aggressively anti-realistic.
Crypto was a play thing for people with too much money that didn't know what to do with it. The money dries up, the only use case for crypto (gambling) disappears.
Is it? There's no reserve rate on the books but there's still a natural interest rate. And I'd estimate that for something like Bitcoin it's sky high. That's how it produced massive returns with no equity or assets. When Bitcoin was first launched, economists said the mining and splitting algorithm would be massively deflationary and that seems to have come true.
This is blatantly untrue. Venezuelan bolivar has lost 100% of its value (within a rounding error) - current exchange rate is something like 800 trillion of old bolivars to USD. Argentine peso is doing somewhat better than bitcoin this year, only losing 40%, but you don't have to go far back for it to become much, much worse. In the entire history of bitcoin there are very few periods when you'd come out on top holding argentine pesos rather than bitcoins.
It depends on the observation window, really. Bitcoin is deflationary in the sense that there is a maximum amount of BTC that will ever be mined. So, all else equal, the price of bitcoin should go up relative to other assets as the economy grows (and the stock of bitcoin does not). Of course, it might implode along the way, and there are plenty of wild swings on the way up (which what we've seen so far).
In the past year, yes. I'm talking about the bull run years. It's well below it's peak but still trading around $16k when it was worth $0 15 years ago.
Also not your cheese if you bought BTC any time in the last few years. Without the exchanges, and especially without investor confidence, the days of wild speculation are ending. The price is going to continue to fall and everyone with BTC in their personal wallets gets to take a haircut too.
Why wouldn't you get out of any/all crypto you can right now?
If you're bullish on crypto's long-term prospects you can always buy back in after the crash. There will be a new "ground floor". (I would suggest no one do that... just saying, even if you believe whole-hog in the future of crypto, now's the time to sell any way you can.)
Hacker news is one of those places I love to visit because of the insightful and informative perspectives on issues of technology and culture... that is, until the topic has anything to do with Bitcoin.
2) Announce they are being frozen at some later time
3) Anyone who is powerful/influential enough to "get to you" gets their withdrawal processed
4) The rest are not dangerous enough to worry about having a hit taken out on you
I hope everyone recognizes that it's about transparency and common sense more than regulation. Sadly this will probably cascade to other exchanges as general awareness forces more people to withdraw from exchanges. Hopefully the stronger exchanges persist.
The real question everyone should be asking is: who is the counterparty to these "losing" leveraged deals?
I've had a store credit card (via Comenity Bank) having "system maintenance issues" since early June, refusing to pay out the money owed per their rewards scheme. No one at either the store's corporate office can tell you anything nor will the backing bank say anything other than "We value you as a customer and appreciate your patience."
It's a common industry tactic, sadly, to scapegoat IT operations for internal failures.
Somewhat unrelated but unless it's absolutely dire circumstances do not EVER get a "store credit card".
They have obscenely low limits which adversely affects your credit score as relatively small purchases can end up using a substantial portion of the available credit. Balance vs total credit (available credit) is a very important factor in calculating scores and credit worthiness.
The interest rates are extremely high even when compared to most other major CCs from the usual suspects. All of these merchants don't push these things because they're doing you a favor - they likely have agreements in place with the issuing bank to get kickbacks on interest.
As you already know most of them are issued through "Comenity Bank" which all signs point to as a bottom feeder and absolute joke. It's not a "real" bank as your experience demonstrates.
This is off the mark. I used to research credit reports for mortgage loans. The "perfect" report has a mortgage, auto loan, edu loan, bank credit card, and a retail store credit card.
While the balances vs limits are a factor in scoring, it's just one factor among many. Retail credit cards won't trash your report unless you hit on specific bad patterns, like opening a bunch at once.
I see this pattern all the time, where someone will take a true statement, like that the balance to limit ratio and absolute high water mark are a factor in the scoring, and then mistakenly turn it around into normative advice about how you should shape your report. You're not going to fix a bad score by dropping a retail card or two.
Here's the secret to having a good credit report: use credit often, pay it on time, don't run large balances relative to your regular spending. That's what lenders want to see and what the score aims for.
Appreciate the correction! Credit (to most people including myself) is somewhat of a black box. I've just always done what I've done and maintained scores high enough to get access to credit with great rates, etc. I'm very surprised to hear having a store card (who they seem to hand out to anyone with a pulse) with a $300 limit can ever be a good factor on a report. This goes against everything I've ever "heard" and read about these cards. I trust your experience but I'm really struggling to understand how being issued a card in minutes at checkout at Best Buy (or wherever) is any sign of credit worthiness and a contributer to a "perfect" report.
To be pedantic I don't think I ever implied dropping a store card will have any significant impact on an otherwise bad (or good) credit report.
That said, OP started with his nightmare of an experience with the shady banks store cards end up with so (to me) that's reason enough to stay away from them.
Yeah, it's very opaque, way more than most consumers know.
For example you don't have a single FICO or XPN score. When a lender pulls a report they pick an option for the purpose, and that picks one of a couple dozen different models. All the models come from Fair Isaac but are tweaked to context.
I have a bit of a unique perspective on all this because my job was basically to research negative items on mortgage applicant credit reports, and if I could get the creditor to say something that met one of a couple dozen criteria then I could pull the item off the report and resubmit it to the big 3 for a new score.
A big part of my job was explaining to loan officers what the score impact of particular changes to the report would be. Fair Isaac obviously keeps the details of their models proprietary, but doing my job you'd accumulate an intuition for what would do what. This was all in the early 00's and I've no doubt things have changed in detail but not really in the overall picture I'm presenting.
The main thing to understand about credit scores is creditors want to see you using credit but paying reliably. They want to see you carry some balance because that's where they make money, but they don't want to see you running into what looks like unsustainable balance growth relative to your payment history. Retail credit cards are a positive signal because it shows you're a good little consumer that will float a balance for a few months to buy that new whatever but you always end up paying on time.
The mistake a lot of people think about these scores is that they're some sort of measure of personal fiscal discipline. They aren't. They're a score of how likely you are to make a lender money as a borrower. They want debt addicts that pay interest reliably, something that is pointed a different direction from personal fiscal prudence in most cases.
As long as I'm rambling a couple other tips:
Creditors will often remove negative payment history if you simply ask. You've got nothing to lose by trying, and it works doubly well if you're applying for a new product at the same bank. There is no more effective bank customer service agent than a loan officer determined to get that commission. They will go on a hilarious scorched earth warpath of conference calls with the borrower to get it done.
Most lenders are only really interested in the last 2 years of history. If you're in a bad spot just make getting 2 years of clean payments on a couple sources of credit your goal. Get a secured card if you have to. Use it for ordinary daily expenses vs a cash or debit card, and pay it off each month.
If you want to game the system, the most effective way is to file a dispute with the big 3 on Monday, then apply for the loan or whatever on Tuesday. Disputes temporarily knock items off the report, so you can try to work within the lag time of the bureau processing the dispute. This is particularly effective vs Transunion, which is the main reporter for collection agencies and other really bad stuff on reports, and also is a hilariously lazy and incompetent company.
As to your last point I totally agree about that part. But it's getting hard to avoid the shady in banking. I worked for Wells Fargo, and it was very apparent to me that quality control was structured to whitewash not find fraud. So much obvious fraud that met the law and rules came across my desk. I was totally unsurprised by the 2008 crash as well as the story about Wells Fargo branch managers opening second accounts for customers with forged permission.
The whole credit reporting industry needs severe reform, but it's not even a visible issue on capital hill.
> They have obscenely low limits which adversely affects your credit score as relatively small purchases can end up using a substantial portion of the available credit. Balance vs total credit (available credit) is a very important factor in calculating scores and credit worthiness.
I mean yes but if you have other credit cards that aren't maxed out, it should not make a huge overall difference compared to if you put that same amount on another card; while one card having a high balance load has an impact, the overall load on your credit is the bigger store factor.
> The interest rates are extremely high even when compared to most other major CCs from the usual suspects. All of these merchants don't push these things because they're doing you a favor - they likely have agreements in place with the issuing bank to get kickbacks on interest.
They get kickbacks, and the high interest rates help cover some of the cost of store CC customers that use promotional financing but consistently pay the item off before interest gets added.
> They have obscenely low limits which adversely affects your credit score as relatively small purchases can end up using a substantial portion of the available credit. Balance vs total credit (available credit) is a very important factor in calculating scores and credit worthiness.
I would say this was my experience with them - having large credit limits elsewhere, I could only get an initial 300 later increased to 1500.
I was stupidly lured in by an initial 25% off a 4-figure purchase and 5 cents on the dollar reward.
Ultimately, I was a responsible pay-off-the-balance customer so one wonders if this wasn't a way of ridding themselves of an unprofitable consumer...
> All of these merchants don't push these things because they're doing you a favor
Generalized, this is good advice. If somebody is shilling something to you, it's not for your own good. Ads aren't PSAs and even many PSAs aren't really PSAs.
Nothing is really "free" - somebody is always paying for it usually via some clever marketing budget allocation from the store - they probably realized that too many people are redeeming their rewards (usually 20% don't bother) and it is costing them actual money.
Comenity is probably one of the scummiest organization's I've ever dealt with. I got one card with them & never will again. They actively charged me late fees on a closed account for months until I called them and suddenly they 'fixed the problem'
I think a rewards program is far less priority compared to processing actual transactions. If a credit card provider can't process transactions, it's essentially a dead company. Same for these exchanges stopping withdrawals.
Recent exchange shutdowns have spooked investors who are taking out money in droves. These crypto exchanges maintain fractional reserves, instead of acting like a wallet and holding 1:1. As more people withdraw their money, more exchanges will shut down and that will lead even more people wanting to withdraw their money from crypto. What we are seeing is just the beginning.
The language used in announcements like these just convince me that "absolute laughing stock" is the correct term to describe these outfits.
"We are hopeful that as a community, we can brave through these troubling times together."
It sounds to me like a speech given by a middle school candidate for school president when the cafeteria has decided to cancel Taco Tuesdays, not a professional organization responsible for safeguarding billions in assets. I can't imagine a large traditional bank or trading outfit in the US giving a similar sounding press release.
BlockFI was offering 8.5% APY on deposits. FTX was offering 8%
A true exchange, where you just buy and sell, will never pause withdrawals because they won't be acting with these ponzi-like methods
A decentralized exchange won't give you free money, so less people will use it. Also the same with a centralized exchange offering you 0% APY and full liquidity at all times. You could build one, but will people sign up?
>A true exchange, where you just buy and sell, will never pause withdrawals because they won't be acting with these ponzi-like methods
While operating a ponzi scheme in addition to an exchange certainly wouldn't help, even ponzi-less exchange is still susceptible, if they offer leverage.
>You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions. If you are a crypto exchange that provides leverage, then you are probably bank-like enough for a run on the bank.
> A true exchange, where you just buy and sell, will never pause withdrawals because they won't be acting with these ponzi-like methods
Coinbase is also offering APY on its deposits through Coinbase Rewards, as does Binance.
This "true exchange" sounds like the no-true-Scotsman fallacy. Literally no one does what you claim. Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business.
You are referring to staking. FTX was giving a static yield on deposits. The funding for this came from their marketing budget. Very different from what Coinbase does.
>"staking" == crappy loans / bonds business.
Staking is not a loan. It is a component of proof of stake networks to maintain security. Coinbase provides stacking services, but all they do is pass the yield onto the customer while taking a cut for the resources required for staking (e.g. AWS bill).
Some token networks may market a mechanism as "staking" when it's just a way to keep people from selling. That's a different topic.
Yes it is. You give your money over to another organization, and that organization promises a % yield / APY in return. You aren't allowed the money back until later.
Its totally a bond.
> Some token networks may market a mechanism as "staking" when it's just a way to keep people from selling. That's a different topic.
I'm feeling some "no true Scotsman" fallacy here. If those guys call it staking, then its staking.
> You give your money over to another organization, and that organization promises a % yield / APY in return.
Coinbase is not promising a yield. It would be illegal for them to do so. They are advertising the current market rate defined by the token's network. That rate incentivizes stakers. It is defined in code. If too many people are staking on, for example Ethereum, the network would lower the rate automatically. Just as they are doing, you could stake the tokens yourself with your own hardware/connectivity, or use hosted resources (e.g. AWS).
> You aren't allowed the money back until later.
The yield is paid out according to a defined schedule. Unstaking is possible on some hosted platforms (e.g. Coinbase) even if the network doesn't allow it, but there is usually a penalty.
> "no true Scotsman" fallacy
It's nothing to do with it. I haven't made any qualitative judgements on which network is a "true" staking mechanism.
This article describes the confusion caused by some token networks:
"Somehow, over time, the word ‘staking’ has been repurposed and redefined. Instead of receiving rewards for contributing to chain security with collateral at stake, modern “staking” just seems to mean idk we give you more coins as a reward if you don’t sell your current coins lol."
> If those guys call it staking
I don't know which "guys" you're referring to. Different networks treat it differently. That's all. It's a designed mechanism. The Ethereum devs have no say in how the Solana devs implement staking. Platforms then just provide a hosting service.
I've only provided facts. I don't personal do any staking, or encourage others to do it. Seems you are only interested in arguing, and prefer to not understand reality. Good luck on your crusade!
> Yes it is. You give your money over to another organization, and that organization promises a % yield / APY in return. You aren't allowed the money back until later.
> Its totally a bond.
But in a bond and in a loan you are not guaranteed to get your money back (or the yield), while in staking, you are always guaranteed to get it back because of the consensus rules, right?
So I don't think it's the same thing, as in staking there is no such default risk because the staked coins remain yours [0] (with cryptographic assurance) and the yield is financed by currency inflation, which is guaranteed to happen (assuming there are no major bugs in the consensus rules, and that Coinbase and Binance don't become malicious and try to cheat the rules and get penalized for doing so).
[0] Well, technically they belong to Coinbase / Binance at that time if you use them to stake the coins, because in that case they are the holders of the cryptographic keys.
You're guaranteed to get your money back from an Overnight loan to the Fed. (literally a 1-day loan to the USA's central bank).
This "risk free rate" serves as the basis of the theory behind our entire banking system. The fact that Ethereum decided to recreate this under separate principles is somewhat amusing, but its just that. A recreation of what we're already familiar with in the financial world.
The next question is if the cryptocoin world realizes how important it is to set the risk-free rate as appropriate for their ecosystem to function. Given how arbitrary it was to set the Etherium rate however, I don't think there was much thought put into that in practice. But baby steps I guess. The cryptocoin world is learning things at a different rate than the historians / financial experts who already see where things are going. Bad things happen if you set the risk-free rate too high, or too low by the way.
> You're guaranteed to get your money back from an Overnight loan to the Fed. (literally a 1-day loan to the USA's central bank).
Well, then those loans are also risk-free, right? Because they are also financed by increasing the money supply and the Fed can't spend the money that was loaned to them.
But normal loans and bonds are not risk-free, they have a default risk. Which is the entire reason why when you loan your money, sometimes you can't get it back.
Staking, however, is risk-free, so the following statements of yours are wrong.
> Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business.
> > Staking is not a loan.
> Yes it is. You give your money over to another organization, and that organization promises a % yield / APY in return. You aren't allowed the money back until later.
I think the confusion is that they believe the token that is staked is a sunk cost, the same way a business would spend the money from a loan. Like you said, the token will be returned when unstaked.
If I take a loan out to buy and run a pizza restaurant, I can't just give the principal back if it fails. I would have to liquidate the business, which would not be equivalent to the starting capital costs.
The Fed always can return the money, because they control how much money is printed. Therefore, the money loaned to the Fed through the overnight rate is risk-free. That's why its called the risk-free rate.
It may only be a singular day worth of bond / IOU, but its still a loan/bond/debt instrument.
-------
Similarly, the Ethereum rewards are printed out of thin air, are they not? By the Ethereum staking system? Its not like the Ethereum they print existed beforehand.
> Frankly, I see no contradiction, with what I said in any of my posts. Could you lay out more clearly where you think a contradiction has occurred?
Sure. You said (in the context of talking about Binance and Coinbase):
> Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business.
This phrase, in the context of the news we're discussing (about suspending withdrawals), implies that Coinbase and Binance are also incurring in a risk of suspending withdrawals because they might run out of liquidity due to staking (which you said is equivalent to a "crappy loans / bonds business").
However, staking is not equivalent to a "crappy loans / bonds business".
To argue that point, someone said that "Staking is not a loan", implying that unlike loans you can't lose money because of staking, but you said "it's totally a bond" because, I suppose, you're not allowed to get the money back until a certain time.
However, I think that you are missing the fact that unlike with loans and bonds, there is no risk of running out of liquidity because of staking.
If Coinbase and Binance were operating a real loans and bonds business (like banks do), and suddenly all customers demanded their deposits back, these exchanges couldn't force the borrowers to pay back their loans/bonds immediately so that they could fulfill the withdrawal demand. Not to mention that if the borrowers went bankrupt, the money would be lost, which would lead to Coinbase and Binance potentially losing customer funds, also becoming bankrupt and suspending withdrawals.
This seems to be more or less what is happening with some of these exchanges that are running out of liquidity, because they seem to be essentially gambling with customer funds.
But I think in staking it's completely different, because, as I argued, in staking there is no risk that borrowers go bankrupt and default on the loan/bond, as there are no borrowers. Instead, the yield is financed through inflation and the staked coins remain your property throughout the whole staking process -- nobody can spend them, so there is no risk that they can't be payed back.
And on top of that, customers aren't allowed to withdraw the staked amount until the staking expires, so there is no risk that Coinbase and Binance can't fulfill withdrawals because of staking.
Which means there is no risk of running out of liquidity because of staking.
In fact, coins can only be staked if the customer decides to stake them. Which is also completely unlike the loans/bonds business, which happens behind the customer's back, essentially. The latter leads to broken customer expectations (and ruined lives) if/when the loans/bonds business goes under.
Well, that's my understanding at least, but I'm sure I may be missing some points as I'm not actually an expert (or anything close to it) on staking.
VMFXX has federal regulations, where it is _required_ to prove your liquidity reserves _DAILY_. EVERY SINGLE DAY, VMFXX publishes how much money they have that can be satisfied within 1-day, 1-week, and other such benchmarks.
The entire publication is available online, every single day, not only from VMFXX, but also all of VMFXX's competitors (such as SWVXX).
What Coinbase / Binance is doing is "Crappy" because their reporting guidelines are so much worse than what "the real banks" are doing. There's no one checking or double-checking these reserves.
Every single dollar (and even penny) is tracked in a money market fund. The _EXACT_ makeup of the loans is also tracked. The rules for how a "bank run" would be handled, are regulated and stated in advance. Everything has been planned out, discussed, debated, in Congress over-and-over again for the past 100 years as our laws have evolved.
VMFXX handles over $200 Billion of assets, and has been doing so for decades, in a tradition that follows US legal rules for nearly a hundred years (established since the times when the banks did lose a lot of money: back in the Great Depression). Its battle tested, pragmatic, and cheap (0.11% fees/year), extremely transparent, well regulated, well understood.
The comparison to Coinbase and Binance is laughable. There's no regulations, they haven't even been around for a decade, Binance isn't even being checked by anybody (being an offshore accounts), though I admit that Coinbase is at least in the USA and subject to US Law. But even Coinbase's reports on their assets pales in comparison to the information I get from VMFXX's pages.
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I'm trying to show you what a "real bank" does, such as VMFXX / Vanguard, with their "equivalent stablecoins" (aka, money market fund).
No, I mean like when a bank buys government bonds, company bonds, or loans money to customers and businesses.
That's the kind of business that leads to bankruptcy if all your customers suddenly ask for their money back (which you have been lending behind their backs).
> What Coinbase / Binance is doing is "Crappy" because their reporting guidelines are so much worse than what "the real banks" are doing. There's no one checking or double-checking these reserves.
I'm not sure if that's the case, but if it is, then I agree with you.
Crypto exchanges should be the subject of periodic financial audits by reputable firms and as far as I know, some of the more reputable ones are already moving in that direction out of their own free will (to assure customers that are getting worried by their less reputable competitors that are now going bankrupt), even going so far as publishing cryptographic Merkle proofs of crypto reserves (but traditional financial audits are also necessary).
> Every single dollar (and even penny) is tracked in a money market fund. The _EXACT_ makeup of the loans is also tracked. The rules for how a "bank run" would be handled, are regulated and stated in advance. Everything has been planned out, discussed, debated, in Congress over-and-over again for the past 100 years as our laws have evolved.
It doesn't matter, bank runs can still happen when you're in the crappy loans and bonds business.
And when they do, nowadays not only banks get rewarded with government bailouts, but it's always the tax payer that ends up paying the bill, even though those tax payers are not responsible for the bank's risky and immoral (due to lack of customer consent) money managing policies. And the vast majority of those tax payers are not even customers of the bank!
> No, I mean like when a bank buys government bonds, company bonds, or loans money to customers and businesses.
Did you see the asset sheets on VMFXX? Its all government bonds, loans, and so forth. There's no "cash" just sitting there. Its all, completely composed of various kinds of loans (averaging 11-days in maturity).
I've given you a "real bank" (Vanguard, an investment bank specifically but yes, a bank), that's conducting these "loans" / bonds that you're talking about.
I've also brought up SWVXX, Schwab's competitor fund, is a "prime" MMF that consists _mostly_ of commecial paper (ie: loans to non-government entities), with higher levels of risk involved.
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Based on how this discussion is going, perhaps I should focus on SWVXX instead.
There's even "less cash" here than in VMFXX. That's why I'm talking about these money-market funds. These are... the things you're trying to talk about, right? These banks / entities that are making a ton of loans / bonds to each other?
I'm thinking of real-world entities and trying to match them up to what you're talking about. These things have names ya know. They're not just mysterious "banks" out there. People invest into SWVXX or VMFXX, or other such tickers / funds.
> Weighted Average Maturity: 9 days
You see that? It will take 9 days for most of those funds to mature and turn into cash, on the average for SWVXX today. This isn't "cash", its a pile of loans. Very short-term high-quality loans, but its a pile of loans. Is this not what you were trying to talk about?
> That's the kind of business that leads to bankruptcy if all your customers suddenly ask for their money back (which you have been lending behind their backs).
Yes. That's why there's strict liquidity tests, liquidity reserves, and publication requirements for entities such as SWVXX. The risk is real, and we need to keep an eye on it to make sure that Schwab and Vanguard aren't cheating the books.
Those publication requirements simply do not exist for Binance or Coinbase. There's no asset sheet vs liabilities sheets. There's no reporting guidelines. There's nothing.
> I've given you a "real bank" (Vanguard, an investment bank specifically but yes, a bank), that's conducting these "loans" / bonds that you're talking about.
Investment banks are not problematic because the customer is the one who decides how much and where their money is getting invested (therefore he knows how much he is risking, and how it is getting risked).
This is unlike what happens with traditional banks, which is what I was referring to when talking about the crappy loans and bonds business (and lending the customer's funds behind their backs, even if the customer is aware of it and does not consent).
> Those publication requirements simply do not exist for Binance or Coinbase. There's no asset sheet vs liabilities sheets. There's no reporting guidelines. There's nothing.
If that's the case, then I agree, this should change. I would prefer if exchanges themselves would do this and customers would verify this, but even though I'm a libertarian, I wouldn't object to the government requiring reasonable, periodic financial audits of crypto exchanges by reputable financial audit firms because I am in favor of complete transparency[0] (be it regarding government or companies) and I recognize that too many bad apples are entering the crypto business and ruining its reputation (and customers of crypto exchanges are obviously not doing sufficient due diligence).
[0] More transparency can greatly increase the benefits of market-based capitalism, because it works more efficiently (i.e. market participants make better decisions and get more value out of it) when the participants are acting with more information than when they are acting with less information.
> Investment banks are not problematic because the customer is the one who decides how much and where their money is getting invested (therefore he knows how much he is risking, and how it is getting risked).
Do... you know what a MMF is? (money market fund)
A MMF is a federally regulated investment product where 1-share equals $1. Investors invest into MMFs because they are "safe", and have a huge amount of federal regulations to almost-guarantee the 1-share == $1 price point. (but not "totally" guarantee). Small levels of risk are acceptable.
Yes, they're offered by investment banks rather than traditional banks. But the "fundamental trust" that 1-share in VMFXX == $1 is extremely deep.
That's why I keep bringing up this comparison. MMFs are allowed to loan out their money and partake in various investment schemes to generate a yield. HOWEVER, there's reporting requirements, there's investment requirements, there's rating requirements, there's transparency, etc. etc.
All of this giant exercise with crytocoins trying to "make a stablecoin", where 1-stablecoin == $1 all the time is just a crazy scheme to recreate MMFs. That's my overall point and viewpoint.
> That's why I keep bringing up this comparison. MMFs are allowed to loan out their money and partake in various investment schemes to generate a yield. HOWEVER, there's reporting requirements, there's investment requirements, there's rating requirements, there's transparency, etc. etc.
I think that's a good thing, although there are 2 things I disagree with:
1) I believe the investment requirements are a scheme that is unfair and can lead to forced (and unnatural) inequality.
I would replace this with (sufficiently strict) tests of investment knowledge for new investors.
2) In practice the ratings agencies have a less than stellar record, as the way they are set up, they have an inherent conflict of interest. This leads to a false sense of security.
So I would just get rid of these, but I don't see anything wrong with the rest in general (I'm sure there would be some specifics I would disagree with).
> All of this giant exercise with crytocoins trying to "make a stablecoin", where 1-stablecoin == $1 all the time is just a crazy scheme to recreate MMFs. That's my overall point and viewpoint.
It's quite different, as stablecoins can be traded in a completely decentralized way (i.e. peer-to-peer) with blockchain protocols using cryptographic assurances.
But yes, in theory an MMF-backed stablecoin could be traded on a blockchain, and I see nothing wrong with that. That said, an MMF-backed stablecoin would be a bit more risky than a USD-backed stablecoin, due to an MMF being inherently a bit more risky than the USD.
However, yeah.. another point is that the companies that issue stablecoins are also quite far from being sufficiently transparent. They also need to be subject to the same periodic financial audit requirements by a reputable firm as a crypto exchange should!
USDC doesn't keep its USD in "cash". Its claiming its got "commercial paper" backing it. ("Commercial paper" being a codeword for loans, the same 5-day / 9-day loans that make up an entity such as SWVXX). Or government loans, etc. etc. Its the same thing, but worse.
Its no more secure than an MMF as it is. In fact, due to the much weaker reporting guidelines, USDC is likely worse than an MMF like SWVXX.
No stablecoin promises "cash" holdings. Literally none. The best you've got in the cryptocoin world is MMF-like promises, except without any of the MMF regulations.
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There's no guarantees that USDC's backing of "commercial paper" has any good rating at all. What 5-day loans are USDC banking on? Is it Bank of America? Or is it a loan to Binance? No one knows.
> USDC has always been backed by the equivalent value of U.S. dollar denominated assets; USDC reserves are kept in the management and custody of leading U.S. financial institutions, including BlackRock and Bank of New York Mellon
Yeah, I know... what these companies are doing is absolute crap and I suspect that in the future this is going to lead to an even bigger crisis than what's happening right now in the crypto industry.
I suspect that this is a side effect of 1) being impossible to store large amounts of USD cash in a bank, at least without incurring into significant risks of losing it or actually even losing money over time due to negative interest rates and/or 2) being more lucrative to hold these paper products rather than keep everything strictly in cash, perhaps even also 3) lack of moral standards? I don't know.
I think this is even worse than what the traditional banks are doing and I'm completely against it. Especially due to the lack of transparency that you are mentioning.
Just because its a complicated loan/bond doesn't mean its not a loan/bond.
Lending money to somebody else, with a promise for future returns, is fundamentally a bond. It will act like a bond, subject to the economic principles of a bond / loans / etc. etc.
It is an alternative to proof-of-work, which requires capital investment to provide security to the network (e.g. purchase and run Bitcoin mining machines). Staking is a substitute for that capital requirement. You are refusing to understand this simple fact.
If you loan a business money or buy a government bond, they are SPENDING that money to run the business/government. The Ethereum network is not selling your staked ETH to maintain security.
So lets say I own 10 ETH. Explain to me how I get my staking rewards.
Because step #1 involves me transferring that ETH to Coinbase (or some other entity with a large enough ETH basis to serve as a trusted staking entity). That is a loan. I don't own ETH anymore, I gave it to Coinbase.
Coinbase creates an "IOU", saying "I promise that dragontamer will get his 10 ETH back", through some system of trust, contracts, databases and whatnot. It doesn't really matter what the details are, the whole thing is an IOU, a promise to return my ETH later.
Similarly, when I deposit $10,000 into a bank (be it a savings account, or money market account), the Bank writes down an IOU saying it owes me $10,000. The bank then sends the money to the market (and worst-case, to the Fed Overnight loans), and lends the money out. Later, I withdraw the money, the bank undoes the process.
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The only difference is that ETH doesn't allow you to withdraw the money as often as a savings account or money-market account/fund. So its kind of crappier than a normal savings/money market style loan that goes on.
I guess ETH also gives a different level of rewards, seems to be 4.4% (though denominated in ETH rather than dollars).
You DO own the ETH. Regardless of whether you are staking it yourself, or have given it to Coinbase to stake. Similar to how you maintain ownership of your rental property even if you allow a property management company to run it.
This is true if you move your ETH from a self-custody wallet to coinbase (custodial wallet). Either way, you maintain ownership. The tokens earned are taxable as income, just as income from a paying tenant on your rental property is taxed.
Also, the IRS defines crypto tokens as "property." As far as I know, there is no such distinction for bonds or loans.
Personal wallets cannot participate in ETH staking and you know it. The first step is to transfer your ETH to a large scale, trusted wallet, like Coinbase's wallet.
What you own is an IOU from Coinbase saying they owe you the ETH at a future date. The value of this IOU is taxable of course. But the important thing is that if Coinbase goes bankrupt, it is an unsecured IOU / bond that is junior to Coinbase's other creditors.
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Just like how depositors into Celsius "owned" IOUs saying they had BTC or ETH or USDC in Celsius... it turns out that the value of those IOUs is worthless as the bankruptcy proceedings carried forward. Customer deposits, in the USA, are junior to investment banker's bonds that funded the business to begin with.
> The first step is to transfer your ETH to a large scale, trusted wallet, like Coinbase's wallet.
Absolutely FALSE. I don't know how you could possibly be so confidently wrong. One of the big selling points of PoS is that you don't need mining facility/hardware. You only need 32 ETH, and the resources to run the node. NO central entity is required.
"Solo staking on Ethereum is the gold standard for staking. It provides full participation rewards, improves the decentralization of the network, and never requires trusting anyone else with your funds."
Even if you move it to Coinbase for them to do the staking, the custodial wallet is in your name. The same happens with ETH held for trading. You can move it from one exchange to another, and still not trigger a taxable event as long as you own both accounts/wallets.
> Similarly, when I deposit $10,000 into a bank (be it a savings account, or money market account), the Bank writes down an IOU saying it owes me $10,000. The bank then sends the money to the market (and worst-case, to the Fed Overnight loans), and lends the money out.
Incorrect! My understanding is it would be illegal for them to give away your deposits. That includes the Reverse-Repo market (RRP), which is the source of the overnight rate you referring to. The RRP is a contract, not a transfer. Factional-reserve banking means they don't loan out customer's deposits.
Also, you are confused about the users of RRP. It is overwhelmingly money-market funds, NOT checking/saving accounts. This would include Vanguard, Fidelity, Schwab, etc. which are not banks.
"In practice, the vast majority of ON RRP usage is done by MMFs, who have $4.5 trillion in assets. That enormous pool of capital is the mechanism through which Fed policy is transmitted in the money markets."
ON RRP = Overnight Reverse-Repo
MMF = Money-Market Fund
And it is never "spent" by the fed. It is held as a liability on their balance sheet. The reason you see such a high RRP now is due to a shortage of low duration treasuries. They want the RRP to be high in case there is a run on MMFs like in 2008.
Real life bonds range from Savings accounts (which are tied to the overnight Fed rate, with an assumed repayment within days or one week at the worst), to "Junk" bonds to companies and/or governments that are currently going through default and/or bankruptcy (See Greek bonds between 2009 and 2017)
At the lowest risk end, we have the "risk-free rate", guaranteed by the central bank. At the higher risk end, we have highly risky loans (ex: Greek Bonds in 2014 or so). Or mortgaged backed securities. Or student loans. Etc. etc.
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Bonds / loans are a very old economic subject that have been around for hundreds of years (maybe thousands?). There's a myriad of historical subjects and writings on this subject.
In general, the more trustworthy the issuer and the shorter the maturity, the safer the loan is. An overnight loan with the Fed (aka: Central bank of the United States) will be lower risk than a 30-year subprime mortgage. The economics will demand that the longer-loan will (usually) be priced higher (except in times of inverted yield curves, where people think there's more near-term risk than long-term risks). Etc. etc. Its a big complex subject.
But its all about loans and bonds, and money and IOUs and promises and trust.
>Coinbase is also offering APY on its deposits through Coinbase Rewards, as does Binance.
>This "true exchange" sounds like the no-true-Scotsman fallacy. Literally no one does what you claim. Everyone in the cryptocoin world is doing this "staking" == crappy loans / bonds business.
If coinbase statements[1] and SEC filings[2] are to be believed, customer funds should be segregated and not used for loans.
>We will never repurpose your funds: We do not lend or take any action with your assets, unless you specifically instruct us to. Many banks and financial institutions use customer funds for commercial purposes including lending and trading, meaning that they often hold only a fraction of their customer assets at any given time. Coinbase always holds customer assets 1:1. This means that funds are available to our customers 24 hours a day, 7 days a week, 365 days of the year.
Presumably the coinbase rewards product is treated separately. ie. if you put your money there and whatever difi lending platform it's being invested in blows up, you'll lose your money that's in coinbase rewards, but everything else should be fine.
I mean, what are they doing to generate you that money, and how safe is it?
FTX gave customer deposits to Alameda, without much knowledge I'd guess they wanted Alameda to generate that 8% APY, but customers weren't in the know
"literally no one does what you claim", except in the FIAT world, which I see crypto enthusiasts claim FTX was under just as strict government oversight as a FIAT exchange/bank
If your point is to say, even Coinbase are risking traders money, then yeah they are. If someone were to build "the TD ameritrade" of the crypto world, I guess they'd fail because they aren't giving away free money
They are widely used and process billions per day.[1]
There are other problems with DeFi: protocol risk, transaction fees, speed, UX. They are newer and less known than CEXes and most users who buy and hold crypto on FTX or BlockFi do not know how to use the blockchain. Most of these problems can be overcome, like see L2 development, but it will take some time.
A protocol is just code, code can have bugs. Another risk is around governance. Some protocols use proxy contracts, so a single developer or team can upgrade them. But they can accidentally push out a bug in a new version. Other protocols like Uniswap opt for non-upgradeable contracts, users have to opt-in to the new version.
Most people use fiat, there is no way to use a credit card to buy crypto on a DEX.
Also, transaction fees are usually higher and some coins just cannot be supported unless wrapped, like trading bitcoin on an ethereum DEX requires you to use WBTC or similar tokens, which are usually costly to wrap/unwrap and might even be centralized.
The entire point of a cryptocurrency is to be a decentralized electronic currency.
Centralized exchanges exist to handle the problems with decentralized electronic currency.
If there was a good way to decentralize a centralized exchange, that solution would just be part of the decentralized currency and the exchange wouldn't need to exist.
DEXs don't interface with state backed currencies, which makes them have limited utility for typical users who want to engage in economies they actively live in.
> Due to the failure of our third-party partner, some users' balance data were found abnormally recorded in our system. Hence, limiting our services to prevent further risks, the technical team has had to manually proofread and restore the system to ensure maximum accuracy of all users’ holdings.
This is a joke, it has to be a joke, right?
The technical team is manually proofreading? What the hell does that mean?
If an exchange cannot 1:1 fund withdrawals it is not an exchange, it's a ponzi scheme. Full stop.
All real exchanges should be releasing evidence of 1:1 backed customer deposits ASAP like Coinbase has. And if they don't, it should be considered a canary of systemic risk.
Problem is that exchanges are getting caught fudging their "proof-of-reserve" reports. Crypto.com just got called out for "accidentally" sending $400M to a rival exchange that used the balance to prop up their reserve reports. It's becoming a joke at this point.
Until recently all crypto exchanges had to be scams. They can only profit by selling/loaning customer funds or by trading with a dishonest advantage by being the house. If an exchange was profitable, and they all were, it was because it was a scam.
This is the same analysis that shows that Tether is a fraud. If they took a dollar for every dollar token sold and then paid to store those dollars as collateral they'd be losing money, and would have no profit because they sell $1 for $1. They are wildly profitable though which proves that it's from crime because their base model has zero profit.
Recently though, the last few years, you can loan crypto for zero time and with zero risk in a process called a flash loan. You structure a single transaction to borrow funds, spend those funds and profit, and return those funds with interest. This actually allows an exchange to use user funds without risking them.
Hopefully we're done with centralized exchanges though, because even if they can be made possible they can never actually be made safe for the users.
Not necessarily -- you can create a profitable exchange by having a standard taker fee or commission. That's how exchanges have made money since the dawn of time and there's nothing wrong with it.
The issue with FTX etc is that they didn't segregate their revenue model from their customer accounts. That's a no-no not only from a legal perspective but from a risk management perspective.
Indeed. There's a reason FTX had a spread charged of 0.1% while more legitimate (hopefully) operations such as Coinbase and Kraken charge around 10x as much. If they're not making their money there, where exactly are they taking...err, making it from?
Banks are also incredibly tightly regulated and your deposit is in almost all developed countries insured [1] by something like FDIC [2].
What the failing crypto exchanges are doing is similar to you buying stock in Apple, but they figure that Wal-Mart will give a better return, so they buy that instead, and when you go to sell your Apple, they hope to pocket the difference. With the fintech variety of financial engineering on top of this.
This is the most important sentence to say over and over again in this entire discussion. Crypto people have somehow forgot this idea or maybe most of them never realized it in the first place. Your wallet is where your coins should be stored - the exchange is a place where you have pointers to your N wallets for N coins - not the freaking contents of the wallets themselves!
The issue is, traditional exchanges are able to avoid taking custody of funds by a whole system of laws and contracts which provide for how the actual transfer of one thing for another takes place, completely separate from the exchange (typically, through the Depository Trust & Clearing Corporation). The whole process of making a trade for traditional securities takes a total of 2-3 DAYS.
Crypto exchanges, on the other hand, mostly operate as broker-dealers, who happen to be engaging in off-exchange transactions (which are mostly illegal, or heavily regulated at least, in traditional assets). Furthermore, some, such as FTX, have taken it upon themselves to act as banks on top of this all. It's true that you can borrow money from a traditional broker-dealer, however, behind the scenes, regulations T, U, and X govern the process by which the BD pledges securities held in your account as collateral (which you allow them to do when you sign a margin agreement), in exchange for money from the bank, who in turn is governed by a heck of a lot of regulations and in turn is backed by the Federal Reserve and FDIC.
Basically, they're trying to be the entire financial system spun up in a few lines of html, javascript, and whatever flavor of the day scripting language they happen to be using is. Big surprise -- it's not working very well.
At the end of the day, the ones doing a better job are the ones that at least are leaving the banking side of things out of it, and charging a higher spread on executed trades, so that they can avoid needing to monetize simply holding your assets. This isn't a surprise -- if someone's charging you less than 1% on your trades, you should be VERY supicious.
If only we had some kind of electronically transferable currency, in which there was government regulation to guarantee this kind of thing, and secure your deposits...
In the current climate, I'm left wondering who still has their crypto on exchanges. Which maybe thats the problem - people withdrawing funds causing even more bank runs.
People usually have crypto on exchanges for leverage, which is a valid reason. People do this with many stock brokers as well, e.g. for option trading.
That’s probably a fairly small minority who really really like gambling. I had some ETH on coinbase until earlier this year when I sold it because that was the easiest method.
I have something like 600 stuck in blockfi (original 1k - market value since then).
I had almost totally forgot about it until someone posted something on reddit, and they sent an email, and now I can't get the money out. I believe it's 50% 'stablecoin' 50% btc.
I do not follow crypto and think the proselytizers are a bit crazy.
In my mind I wanted a small amount of crypto exposure.
But post this stupidness, 5-6% or whatever interest does not correlate with what the actual risk seemed to be in my mind.
well rated corporate bonds are approaching that now. I was just googling examples I think big name corporates are sitting like 5.3%
so in my mind 5-6% was not a big bright ponzi warning sign, especially since they stopped taking new deposits to 'go legit.'
Like afaik there are big brand name corps that are b level rated that have coupons that or higher.
and would be shocking if they all went bust in the same week.
The risk -> return % seems like the yield should have been bigger
I had mine on Gemini, which I actually trust as the most reliable exchange. I don't expect them to run into trouble[0] as they've submitted to NY finance regulations and haven't dabbled in obvious scams like Tether.
However I'm taking them off today on principle. I bought-to-hold because I think the tech is cool and I like the 'emotion' of having an investment to motivate me to keep an eye on the space. But if I really think the tech is interesting at the protocol level and think it might find future application, I should embrace self-custody, which is the whole point.
If I were a betting man, and I am because I am involved in this crypto-calamity, yes, do expect this cascade to reach them eventually. Putting aside the philosophical questions about contributing to a bank-run, if you have assets on Binance it may behoove to you start withdrawals sooner rather than later.
anyone who claims to know is lying to you. historically speaking, a good heuristic would be: not your keys not your coins, no matter what the exchange is. if you control your own keys then you don't need to wonder about whether binance is solvent or not.
Honestly, I've never really understood crypto so maybe I'm mistaken, however if pretty much all of the major exchanges disappear off the face of the earth, can there be any other outcome than the value of crypto going, as near as makes no difference, to zero? You may still be able to transfer ownership of your coins but for what purpose?
New exchanges will emerge, plus there is Coinbase and Gemini and other regulated ones. You don't need to store your coins on the exchange if you're not selling them. If you want to buy, other people who want to sell will have their coins on the exchange, and after you buy you can withdraw them. I'm not sure why people conflate "liquidity" for trading with people just leaving them there when they're not selling them. Even when people do leave them on the exchange, these coins are not contributing to trading liquidity because they are not up for sale.
The fact that crypto severely and relatively quickly punishes bad custodians who fractionally reserve and trade customer funds is a feature not a bug. And the reason this punishment happens quickly to crush bad actors is the "bank runs" necessary to trigger the event can occur within minutes of rumors or information being revealed to the market, and assets can be withdrawn globally very quickly. No other "banks" or exchanges or brokers are exposed to this much pressure punishing insider schemes like this.
Even the gold and silver markets have a lot of people claiming there is paper leverage way in excess of physical supply, and that large geopolitical interests suppress the price of gold so as to defend against it taking value from sovereign debt and currencies. I think there is some truth to this, but the reason it is allowed to persist and that there may not be true "price discovery" in gold and other commodity markets is that no one takes delivery, and so many simply leave their physical asset on custodian banks. Who knows what they are doing with this, or if their asset is truly allocated. It would require a crypto style "bank run" to punish these potential bad actors. Only crypto has this over and over again at scale.
> if pretty much all of the major exchanges disappear off the face of the earth, can there be any other outcome than the value of crypto going, as near as makes no difference, to zero?
Presumably someone will make a new one; it seems unlikely to me that all crypto will go to zero in the near to mid future, even assuming what you say.
If Binance was to topple, the price of coins would drop. Most people using crypto exchanges don't care about holding keys, they only care about making a profit in a fiat currency.
> if you control your own keys then you don't need to wonder about whether binance is solvent or not.
That's not really true though, is it? The value of those coins is directly tied to the existence and function of (enough) exchanges to facilitate their use. Enough exchanges fold, and your coins won't be worth the bits they're taking up.
How much of Binance's $500-million worth of FTT did they manage to salvage before FTT / FTX went bankrupt? We already know that Binance had at least one giant pile of FTT, as they tweeted about this before FTX / FTT troubles started to go down.
In some sense, it has already reached Binance. The real question is whether or not Binance has enough funds to weather that kind of storm.
The FTT is one thing. Another question is whether Binance is levered in a way that can cause insolvency when the value of its assets drops (many cryptos have been dropping in value). CZ says no, but SBF said the same.
Depends on the cost basis. When FTT was created Binance could have received 500MM worth of tokens for providing say 10MM of UST. Such is common for early token sales to gain support of large players to convince commoners to pump the token.
I doubt anyone at Binance would lose any sleep over a 500 million hole in their balance sheet. (Because I believe that Tether is, was, and will be significantly undercapitalized.)
The only thing that can unravel Binance and Tether is a big enough bank run.
Small sample set, but I recently saw a poll on a DeFi fb group that I'm in and the question was: "where are you moving your crypto during this sh*t show?"
If/when this cascades to Binance we can it will be a big big setback for crypto and probably slows down adoption of decentralised currencies by decades.
See, bank and bank regulations have some problems and are not bulletproof, but we don't want to just have some problems, we want to have all the problems!
These morons didn't think to stage whatever massive change/upgrade they did and then toasted user data forcing them to manually restore data. Yeah I can totally trust them with my assets.
...or they're flat out lieing and are rug-pulling before they join SBF and friends in Argentina.
These guys won’t be around in 2 weeks. Clearly they are experiencing a liquidity crisis and are buying time, hoping to somehow get needed funds in that time.
Scams always end this way - the exit gets crowded as more people are trying to get out than are coming in and it unravels.
Having worked on a crpyto exchange myself in the past, it's almost never a technical issue; the traffic isn't bloated with media resources or anything, and those requests were just thrown in a backend queue until they were pushed to the chains.
I'm sorry for the ignorance, but why a crypto exchange is expected to keep the money of the customers in case they want to change back their crypto, and it's not like a regular exchange house where you exchange one currency for another currency, and once the transaction was made, they not obligated to exchange back.
It seems you are thinking of the crypto exchange as selling crypto to customers and then "holding on" to their money. That's not the right model.
Party A deposits 1 BTC into the exchange. Party B deposits $1000 into the exchange. Party A wants to sell a BTC for $1000 and party B wants to buy a BTC. They trade through the exchange, pay some fee to the exchange, and an entry in a database is changed such that the $1000 in the exchange now belongs to A and the 1BTC in the exchange's wallet now belongs to B.
Since actually holding cryptocurrency is inconvenient for users, many will just choose to keep the BTC on the exchange until they want to use it/sell it for cash or a different cryptocoin. Many crypto users are speculators who view it the same as holding stocks in brokerage accounts and not as just an exchange.
This money is held in the exchange platform but belongs to the users. They should in theory be able to withdraw it whenever they want.
Instead the crypto exchange decides to make use of these idle customer funds and invest in speculative funds/embezzle all the money and all of a sudden there is not enough funds in the exchange for all users to withdraw.
Pull enough cards out, and the house will collapse completely.
Ironically, an exchange may not be in actual danger at this moment, but they may recognize the coming (what's a word for worse than a winter?...), and they may decide to close up shop, use the failures of others as an excuse, and walk away with as many marbles as they can liquidate.
Yes this is a pessimistic view, but it has already happened many times in history (not just crypto).
Why do people leave their money at exchanges? When you go to the airport to exchange foreign currency do you leave your entire bank account there until the next time you need an exchange?
Because the money you exchange for at an airport currency exchange can be used for goods and services, which is the primary use case. With crypto, the primary use case is speculation and trading, so it makes more sense to leave it there.
I believe in Crypto, but have less than zero faith in "Big Crypto"
The whole point of the tech is that centralized players are simply not needed. Why did an engineer design a system where they're not needed? Because they commit fraud whenever given a chance. Greed and ignorance is what reinstalled them into the stack.
There are plenty of ways to commit fraud with fully decentralized protocols. For example, build in a well hidden backdoor, and then steal all the users funds with it (via a good VPN of course, so nobody knows it was you, and you can publicly claim you were hacked).
I have USD or EUR. I want BTC or ETH. To sell my USD or EUR in exchange for BTC or ETH, I use a centralised exchange. Then I immediately transfer the BTC or ETH that I bought to a wallet that I control.
> In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
Way back to get a Schengen tourist visa you have to prove you had a certain amount of money available to cover expenses - you just borrowed money from friends and family for a few days, got a letter from the bank stating you had X in your bank account and then went over living in backpacker lodges and moonlight as a waitron to make money while travelling.
A common, tired take on HN: crypto bros will re-invent every piece of financial regulation they condemned.
I doubt it.
The reason is simple. If you think this latest round of panics and collapses is anything new, you haven't been paying attention. This is but the latest round in a 10+ year history of shenanigans. They come in waves spaced roughly 4 years apart. Regulation has not and never will fix it.
Nor did that highly-touted financial regulation do anything to stop the panics, scams, and financial idiocy of the 20th and early 21st centuries. Lots of regulation. Lots of oversight. Congressionally-empowered regulators with fancy degrees and highfalutin titles. None of it stopped the Great Depression, the S&L collapse, the crash of 2000, the GFC, or the current brewing crisis in the Eurodollar system.
Indeed, there's an argument to be made that regulation and regulators incited those catastrophes through moral hazard.
Clucking at all the rubes losing their shirts on exchanges is an old game with no reward. It leads nowhere and advances no new insights.
For those interested in a possibly more eye-opening perspective, consider that Bitcoin not only makes financial regulation unnecessary, but practically impossible.
Truly though I have a lot of sympathy for users of these platforms, the portion that thought they were on the ground floor of something that would change how the economy functions, and any speculators who were not simply operating on the "greater fool" theory.
I myself thought "heck, this could work, if institutional money gets involved and the stronger coins find a real economic outlet." After all, pure faith in the entrenched financial systems of the world is a big part of what keeps them going when times get tough too. Though I was still entirely too cynically skeptical to risk my own money, I was cautiously optimistic that some interesting shakeups could be in the works.
As it turns out, crypto was still entirely too much of a closed system to sustain shocks like this, assets entirely too correlated with each other, fraudsters entirely too prevalent, many who were entirely too ready to throw the baby out with the bath water when it came to ignoring lessons learned by traditional finance, and on and on.
I think part of what this all reveals is that blockchain transparency of coin transactions is not enough. The rebuilding phase to come needs to focus on the next level up. A blockchain providing a level of brutally clear transparency into all the layers of their own dealings that operating on top of or along side of or in connection to coins/tokens. This is needed for all of the somewhat centralized entities that are useful (and, IMHO necessary) to reduce friction & increase usability of crypto.
^^Regarding that, maybe it's not even a problem that tech can, by itself, solve. Though often derided, legalese is professional jargon that has developed over the course of centuries in an attempt to minimize ambiguities in transactions between people, and we still need courts with human judgement to sort things out around edge cases, oversights, etc. It may simply be impossible to solve, at least at the level of "code is law", issues like we see with FTX and its contagion to all levels of crypto that were (either deliberately or in good faith) not operating carefully.
I don't know. I'm conflicted on the topic, as perhaps the above rant-ish ramblings show. I was rooting for this generation of crypto tech to take hold as it shook off the scammers and other barnacles of the industry, rooting for it to find a bridge to utility with the actual economy, but even as I rooted for things to go well I am unsurprised by this outcome.
I think what it comes down to is that the folks who really want to make this happen and change the way financial systems run society (rather than only to become rich themselves) need to take a step back reassess their philosophy. They need to determine if technology really can address the goals derived from their philosophy. If it can then they start the hard work of building it. If it can't, then there's the even harder work of pruning away the goals derived from their philosophy that can't be achieved by tech, software, etc.
For myself, the core part of the philosophy that I think is fundamentally flawed is the "trustless" pillar. I think it may be fundamentally impossible to build something systemic to the infrastructure of society that does not, at a fundamental level, also rely on trust to one degree or another. Bruce Schneier's book Liars and Outliers is an excellent exploration on the topic of trust, and it's hard to come away from that book & still believe in the vision of a truly trustless financial system which, at some level, underpins a great majority of our lives.
"At this point I'm convinced Satoshi Nakamoto was actually a public administration professor trying to teach kids why financial institutions have the rules in place that they do.
Given enough time, the entire crypto space will have reinvented every regulation they tried to get rid of and understood why they existed in the first place."
Precisely the failure of crypto is thinking that people will follow "fundamental crypto values" and underestimating the power of convenience and ignorance. "Traditional financial institutions" are inevitable in crypto.
But at least in crypto I have the OPTION of storing it myself.
Also, if I do decide to use a custodial provider, I can choose to use a provider that publishes proof of reserves [0], giving me more confidence in the provider.
> But at least in crypto I have the OPTION of storing it myself.
You have the option with Fiat too - you can get paper currency and store it yourself in a secure location. $10,000 can be stored in $100 bills in as little as c0.03 meters^3.
Using a bank is much more convenient to store Fiat though if you want to buy/sell things, much like using an exchange to store Crypto is much more convenient if you want to trade crypto (because let's be honest, not that many people are using Crypto to buy pizzas!).
Storing a 12/13 word string in your head for a cold wallet puts it into territory a lot closer to a bank account, and in the US normally words in your head can't be seized via court order (there are some exceptional circumstances, but they're far more limited than freezing bank accounts).
I think it's closer to hiding a pile of money personally.
The security is based on you remembering a 12 word string or geolocation, and the string/geolocation can't be siezed via court order (other than exceptional circumstances, or by finding the location/keys).
The 'storage' in both instances is decentralised. If you forget your 12 word string or geolocation, you lose your money.
Banks on the other hand:
* Provide convenient and safe access
* Will invest your money (in exchange for interest).
* Allow you to reset your credentials if they are forgotten (by proving identity)
Clearly the advantages and disadvantages have both overlapping and mutually exclusive elements. For this reason It makes sense to me that some may choose to diversify their holdings by taking advantage of both. To me relying fully on the bank doesn't seem safe at all, as the IRS and other agencies have been known to arbitrarily seize accounts based on absurd claims of 'structuring' even for sub 10k deposits [0]. Crypto is volatile, and you can forget your seed string, but nearly impossible to seize if appropriate precautions taken. Local value like land/durable goods retain value largely as long as you can defend them by force, but are poor choices when fleeing.
As time moves on it's clear to me all these assets are becoming important members of the financial landscape. If crypto were merely a degraded version of the dollar, then I don't think so many people would use.
> You have the option with Fiat too - you can get paper currency and store it yourself in a secure location. $10,000 can be stored in $100 bills in as little as c0.03 meters^3.
That's really not the same though. With crypto I can store on a hardware wallet that requires a pin to unlock (and resets after 3 attempts) with a backup seed stored elsewhere (potentially split up in n of m shares). How do I backup my cash? How do I lock up my cash in a similar way?
In addition, I can setup "smart" wallets that require an approval from another person to initiate the transfer. Or forces a cooldown period on transfers. None of this is possible with cash.
You buy a vault or a safe, which you can access with a 'pin-code' (in the fiat world this is called a combination lock). Safes come with two keys, which allows you to keep a backup of your 'secret' elsewhere, and you can also insure the cash inside if you want to pay for a full 'backup'.
In addition, "smart" safes and dual lock safes are available which have two keys, mean you need approval from another person to initiate the transfer.
It's not an exact 1:1, but you can hardly say that you don't have the option of storing Fiat by yourself.
crypto has a lot of traits of a bank without the bank. Fast transactions (as opposed to carrying money to different locations), secure storage (as compared to having guards for your hoard of gold), it does not rot/burn (if you backup keys adequately) and many others.
All of those are more convenient than storing dollar bills or gold bars. So, yes, fiat has options, crypto is another kind of option and probably the most convenient for self custody, hence a very good one to avoid trusting institutions.
The problem with fiat is a completely unknown monetary supply function. Gold makes a lot more sense IMO in your scenario as there's a finite amount in and on the earth, and it would take a scientific breakthrough to economically create more than that.
That's nice, but it's unrelated to the issue I'm talking about. If we care about crypto widespread usage, we have to look at what most people will do, and most people will choose convenience and won't have enough knowledge/interest/time to make informed decisions. Relying on "but you have the OPTION to do it properly" just leaves all those people behind and vulnerable to scams and situations like this. And ultimately, as the parent comment says, crypto will just speedrun financial history and find out why regulations exist.
Fractional reserving is taken as something that is good and wonderful, but before you had the fed who could print money at will, you had banking crashes caused by it on a regular basis.
In a fixed money supply currency, fractional reserve banking should be illegal and banks should instead make money off fees. Venture capital should put their own money at risk to invest in the economy. How will people afford houses though? The housing market booms and busts because of the wildly fluctuating availability of credit caused by the money multiplier rapidly creating and destroying money which is tied to the fractional reserve banking concept. Homes would be drastically cheaper and people would actually be able to save to buy them if it weren't for the huge supply of rapidly created and later contracting credit available to buy them. Things we buy with credit like housing and education have gone up steadily in price, while things bought with cash have not.
The fractional reserve people are so sick of crypto, that ,in one platform, you can buy bitcoin but you can't send it to a crypto address. You have to get your friend on the platform, you can send it to them, and then they can convert it back into fiat. It's ridiculous, you're basically just buying and selling a security that tracks Bitcoin and not Bitcoin itself.
I can't really follow the comment. You seem to start a thesis about
>In a fixed money supply currency, fractional reserve banking should be illegal and banks should instead make money off fees
Which, ok... But then jump to
>The housing market booms and busts because of the wildly fluctuating availability of credit caused by the money multiplier
Which seems to be a thesis about our current world. I can't figure out the connection between them. Are you saying this is evidence of why the first thesis is correct? But USD is not a "fixed money supply currency", which was how we started out.
I understand that easy credit induces demand for housing which has inelastic supply and somewhat sticky prices. This doesn't seem to be a problem of Fractional Reserve banking though. The VCs in your proposed system will still invest in mortgages as a fairly safe bet, because people are highly motivated to have a place to live.
And mortgages are an important tool so people have a place to live _before_ saving for 30 years. Given our current population dynamics and everything else...
I remember when WikiLeaks first decided to accept Bitcoin's for donations. Nakamoto cautioned that Bitcoin was not mature enough fr something like that.
I think that the problem with the Cryptocurrencies movement has been that the use peopel want to give to it has surpassed the technological advances that it provides. At some point, the ETH network will get there, providing "trustless" alternatives for a lot of the stuff that CeFi services are giving. But that is still several years away.
And at the point that the ETH network provides its alternatives, centralized services will have better products, more users, and more features simply because building centralized services is far, far easier and less time consuming than building decentralized ones.
> Well yeah - but they still won't be decentralized.
But people don't care too much about that. If so many crypto users, who we can assume are more informed and care more about decentralization than the average person, massively flock to centralized exchanges, why would the general population use decentralized services if they're worse?
I love this observation, because I think it's the perfect wedge point. Will most people fail at this? Yes.
But -- will every single entity that actually does follow "fundamental crypto values" be destroyed? Almost certainly not. That's where the good (and healthy) action is. Follow THAT, everyone.
Yes, because DeFi never suffers from collapses or hacks. Nobody every drained a DAO with a flash-loan, or used one to cash-out illiquid assets with no intention of paying it back... DeFi is as much of a joke as the rest of the ecosystem.
Those stories about smart contract programming errors leading to money getting permanently frozen are quite scary. Though admittedly in the grand scheme of things they seem to have “only” lost millions of USD, not billions.
Yes, it's a risk. If a contract or protocol is several years old, processing billions per day, and the code is un-upgradeable, you might say the risk is lower.
I'd rather gamble with Uniswap protocol risk than FTX human fraud and greed risk.
Great, you can point to some that haven't been hacked, exploited or just plain collapsed yet.
You said "day traders on FTX are learning first hand the value of DeFi", but DeFi is just as much of a shitshow as the rest and has had just as many collapses.
Uniswap, AAVE, MakerDAO traders will disagree with you.
I am one of these people: I had funds locked into a CEX, was lucky to pull them out some days before turmoil but others not so lucky. During that time my DeFi holdings were fine. I would now rather take on protocol risk of something established and proven like Uniswap, instead of risking with an unregulated CEX.
But you realize that banks (and individuals) could have all the advantages of decentralization if they just chose to be decentralized too, right? This prompts the question: why are they so centralized? It turns out the advantages of centralization are more significant than the advantages of decentralization, and this is true even in a market with religious orientation toward decentralization.
All you've gotta do to get people to keep their coins "correctly" is eliminate the benefits of agglomeration. Good luck!
The point is to custody money, of any sort. And for that, they are excellent - the economy of scale in having a single organization arrange for security of such money for thousands or millions of customers, is unbeatable. Unless you enjoy employing security guards, building vaults (digital or otherwise), and arranging transports, you want to use a bank - or risk losing all your valuables to skillful thugs every single day.
The banking industry is not centralised. Banks provide financial services and compete against each other for customers. DeFi can't even get the most basic terminology right, yet somehow thinks that it can replace the entire financial sector.
Issue is they reinvented the wheel in the crypto space. Centralized or decentralized it's all on the same market is only a matter of scale. As even in centralized markets the concept of edge is just hitting parity.
What really surprised me about the space was the refusing of not registering as a speculative asset. As even if you look into the regulations, it's merely making the mechanisms transparent and creating reporting.
As if DeFi followed through with the true promise of decentralization and transparency. The FTX situation would never have happened in the first place. So with that, the crypto space actually went against its principles and we are seeing the result.
Namely no risk of you losing your assets due to technical glitch, fraud, or overextension. Of course this is not a substantial advantage, especially in the US, given the various non-technical (i.e. legal/cultural) guarantees against these failure modes. It doesn't overcome the disadvantages of e.g. having to physically protect your own assets - thus why people tend to use financial institutions.
>But you realize that banks (and individuals) could have all the advantages of decentralization if they just chose to be decentralized too, right?
The closest you can get to decentralization with the traditional finance system is to withdraw and store cash, which is expensive/risky and causes inflation to eat away at your savings. Good luck with other parts of the finance system (eg. investments or loans). It's ironic how you portray centralization as something that people willingly engaged in because it was beneficial, considering that the disadvantages are all there by design (eg. the government refusing to make high denomination bills, or instituting a monetary policy that causes inflation).
> The closest you can get to decentralization with the traditional finance system is to withdraw and store cash, which is expensive/risky and causes inflation to eat away at your savings.
I don’t see how it’s any different from the situation with, say, bitcoin. If you store a bitcoin, it just sits there, and its value follows that of the market. The fact that bitcoin is deflationary has nothing to do with decentralisation; a central bank could do that as well. They don’t because deflation is a terrible way of running an economy, not because it’s not possible.
> Good luck with other parts of the finance system (eg. investments or loans).
You could loan cash as well and get interests from that. Decentralised, anonymous, not traceable in any practical sense if you use regular used notes. Again, this has nothing to do with cryptocurrencies. The infrastructure that was built on top of cryptocurrencies enable doing it at larger scales and over longer distances, but that’s not a qualitative difference (besides the fact that this tends to concentration, running against the decentralisation ideal).
> It's ironic how you portray centralization as something that people willingly engaged in because it was beneficial,
It’s something that emerged because of economies of scale. Personally, I feel much safer with my money with an institution that is big and resilient enough that I am very close to 100% certain that it’ll still exist tomorrow. This can also be done with cryptocurrencies, but against this goes against the dogmatic ideal of decentralisation.
> the government refusing to make high denomination bills
How is it a problem in practice?
> instituting a monetary policy that causes inflation
Mild inflation is much better than deflation from an economic point of view. What do you think are the advantages of deflation? I can see the “the value of my pile keeps getting bigger”, but how would that work e.g. for farmers who need to invest to produce food, or people who need a loan to buy a house, if the whole system is deflationary?
But again, that’s a red herring because central banks can have deflationary policies. They don’t because that causes the economy to contract, unemployment to rise, and investments to fall.
>I don’t see how it’s any different from the situation with, say, bitcoin. If you store a bitcoin, it just sits there, and its value follows that of the market.
Note, that by "expensive/risky" I was talking about the physical storage of the bills (eg. risk of theft or needing to install security equipment), not the opportunity cost of not putting the money to work. The latter is a whole can of worms that I don't want to get into.
>The fact that bitcoin is deflationary has nothing to do with decentralisation; a central bank could do that as well. They don’t because deflation is a terrible way of running an economy, not because it’s not possible.
>Mild inflation is much better than deflation from an economic point of view. What do you think are the advantages of deflation? I can see the “the value of my pile keeps getting bigger”, but how would that work e.g. for farmers who need to invest to produce food, or people who need a loan to buy a house, if the whole system is deflationary?
>But again, that’s a red herring because central banks can have deflationary policies. They don’t because that causes the economy to contract, unemployment to rise, and investments to fall.
I don't doubt there are great reasons to run an inflationary monetary policy, but the fact still remains that if you want to keep cash around you'll be subject to inflation.
>You could loan cash as well and get interests from that.
But now it turns into a full time job.
>Again, this has nothing to do with cryptocurrencies. The infrastructure that was built on top of cryptocurrencies enable doing it at larger scales and over longer distances, but that’s not a qualitative difference (besides the fact that this tends to concentration, running against the decentralisation ideal).
No, because with cryptocurrencies you can deposit your money into some sort of lending protocol and have that handle it for you, rather than having to do it yourself by being a loan officer/servicer and debt collector.
>It’s something that emerged because of economies of scale. Personally, I feel much safer with my money with an institution that is big and resilient enough that I am very close to 100% certain that it’ll still exist tomorrow. This can also be done with cryptocurrencies, but against this goes against the dogmatic ideal of decentralisation.
But the whole reason why you have to worry about your whether your money is in a "big and resilient" institution is that the only way of storing money in the finance system is at a fractional reserve institution, which can be subject to bank runs. It's possible to structure a bank that doesn't have this problem (eg. narrow banking), but for some reason the government isn't too big on it.
>How is it a problem in practice?
It's an issue any time you want to store/transfer a large amount of money. Although to be fair most americans don't have enough savings for this to be an issue so I'll let that slide.
> Satoshi wouldn't be encouraging people to put their coins on a trusted third party like that. All fundamental crypto values say this.
You can literally say this about "regular" currency. Just don't put your money in banks! But people do, why? Once you answer that, you'll realize why people do it for crypto too. You can't complain that it's "against fundamental crypto values" when it doesn't have any mechanism for preventing it. It's convenient, it has benefits, therefore people do it.
except it doesn't solve either, because it's still risky to keep (whether with a 'trusted third party' or at home on some physical device... at the end of the day it can't be better than physical possession.. i.e. cash). volatility is a lot worse than stable inflation, and deflation (just HODL!) is much, much worse to the point of demonstrating the degree to which bitcoin is not useful as a monetary unit of exchange.
>it's still risky to keep (whether with a 'trusted third party' or at home on some physical device... at the end of the day it can't be better than physical possession.. i.e. cash).
I'm not sure how you can conclude that password protected, geographically distributed (eg. 2 of 3 multisignature) storage "can't be better than physical possession.. i.e. cash".
I mean a realistic use case that a normal person would actually do… people who are used to just tapping their iPhone twice to pay for things. My mom has absolutely no clue what you’re talking about… at best she might have a ledger nano one day
Of course it's still a thing, both regular robberies and digital ones. And people lose savings to online thieves and cheats who take control of their accounts, or manage to perform transfers on their behalf.
Satoshi wouldn't be encouraging people to put their coins on a trusted third party like that.
I find this sentiment of "not your coins, not your crypto" unsettling. The average person doesn't even back up the pictures on their computer or phone and they are one storage device failure away from losing all of their wedding pictures, baby pictures, etc.
The big push now is for people to use hardware wallets. I guarantee that 50% of people over the span of a decade will lose access to 100% of their funds.
2023 will be about everyone learning how much of a joke cryptocurrency is.
> The crypto bag-holders all actually lost their money long before, when they bought the bitcoins. In the time since, they’d been telling themselves and everyone else that their magic beans were worth money and never mind the lack of buyers. But this was not the case. The beans were always worthless, and the only way to make money from them was to sell them off before other people caught on.
I'm technically competent and (before I got out entirely) my coins were on Coinbase.
Why? Because I decided the odds of Coinbase going down were less than the odds of losing the coins myself without their help. There were just too many ways I could have messed up my own wallet.
Traditional institutions will always be dominant in some capacity, as many people are attracted to the convenience they offer. Unless something catastrophic occurs, crippling traditional financial systems or are truly compelling/easy to use platform releases, I can't imagine anything not owned by a "Traditional institution", let alone anything close to what Web 3 proponents preach regarding decentralization & where ownership lies.
The only way for crypto to ever be a thing will be to integrate with traditional financial systems, to a degree. Continually beating the drum of “this isn’t crypto” has not worked and will never work aside from making crypto fundamentalists feel like they’re the only ones on the one true path.
Unfortunately, absent the crypto exchanges, which let you easily convert crypto to fiat, there is no reason why crypto has any value. Given that bitcoin transaction times are nowhere near VISA or cash times, bitcoin is fairly useless to purchase things in person and few online vendors take bitcoin alone (most use an exchange to convert bitcoin to cash instantly).
So without exchanges, there is literally no purpose or use of bitcoin. Currently it mainly serves as a way to record a store of fiat value.
There is no conspiracy here. The reason exchanges came into being and were successful was that there was no other purpose to bitcoin. Few users successfully use bitcoin as it was intended.
> there is no reason why crypto has any value. Given that bitcoin transaction times are nowhere near VISA or cash times,
You interchanged crypto with bitcoin, but bitcoin is not all crypto. The value of crypto comes from them being decentralized and independent of a financial bank. This has the negative side effect of it being very valuable to illegal and fradulent activity, too.
Cryptocurrency has value because people are willing to trade for it, whether money or goods. I don't understand why people are willing to trade for it, but to say it has literally zero value isn't exactly accurate.
Who is willing to trade it other than exchanges to purchase fiat currency? I've never found an item that I can actually buy with crypto, where the seller is not simply using crypto as a money transfer service. If a seller 'accepts' crypto via an exchange that converts it to fiat... that's not really crypto. That's just using it for money transfer, but we have way better solutions for that.
Other than one off gags, I've never actually seen anything being sold for crypto. Perhaps things are different where you live
If it can be exchanged for money that can be exchanged for stuff, it has value. I can't spend gold or equities at the grocery store but those are priced in dollars and have value as well.
Equities are not currency. Equities have value because of the dividends they pay (or retain).
Gold has value because it is scarce and can easily be verified, and has industrial uses. Moreover, you don't need a third party to check for gold. It is straightforward to ensure that gold is real if you have basic tools. However, if gold brokers did not exist and gold were not also easily divisible, gold would have little utility.
Bitcoin has value because of the exchanges. If there are no exchanges, then it has no value.
But, what all three of the above have in common is that the only reason they currently have any value in our markets is because they can be exchanged for pieces of paper that governments will throw you in jail for should you fail to pay them upon transfer of any of the above assets.
I'm fully aware of the lightning network. I'm also aware of something called VISA and American express. Which number do I call to get concierge service with bitcoin? That's what I thought.
Having sent $100k via traditional banks as well as crypto, I can add my anecdote that the latter was far easier. Some would argue that it shouldn't be that easy, and I agree to some extent.
Setting up our tax system to be transparent and auditable by any citizen would be the greatest benefit to a distributed ledger, but something tells me that the current institutions would heavily resist that transition, so you are correct that it has little current value.
There's some flaw there if people are saying "YOU'RE USING CRYPTO WRONG" in response to these issues and in defense of the tech, but the "WRONG" way of doing it is so popular, and there aren't alternatives.
Exchanges are the primary reason crypto value is as high as it is though. Without the easy way to get money in (and usually out) of $COINs there's less speculation, less money flowing in, less market to drive prices. If we were back in the days of Local Bitcoin being the best way to buy coins there'd be even less of the meager adoption we've seen in business too.
A high value is certainly an implicit outcome of taking this literally:
"What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party"
One could make the argument that crypto ownership could be a short-lived thing - you buy some crypto, use it immediately for an electronic payment, then you have no more crypto, which would keep its value low, but then you need a trusted third party to buy the crypto from, and the retailer needs one to sell the crypto to.
Removing a third party means that you need to be paid in crypto, and do all your transactions with crypto. Given that Bitcoin was created with a finite pool of coins, it's obviously necessary that each coin be worth a vast amount of money, for it to replace all fiat currently used for electronic payments.
Right, they said it should be a payment method over the internet. But they failed, mostly for two reasons:
- they not anticipate ASICs, or even GPUs, which destroyed the idea of decentralized mining where individuals would just mine to get coins to spent, and forced people to buy coins instead (leading to the rise of exchanges).
- their Austrian economics prejudice misled them about the nature of money, and the link between money and scarcity. The bitcoin supply was much too small, and too limited in growth, to accommodate for a exponential growth in usage. As a result, bitcoin instantly became deflationary, which is the second worse thing that can happen to something aiming to be a mean of payment (the first one being hyperinflation). For something to be a mean of payment, you need people to be willing to spend their tokens. Economies survive two-digit inflation, but even 10% deflation makes as much damage as Venezuela or Zimbabwe-like hyperinflation.
Had Satoshi not been libertarian, and decided for instance to index the amount of mined bitcoin to the difficulty of the block, they'd have not created an investment asset headed to the moon but they'd have been much closer to create the payment system over the internet they dreamed about (putting aside the privacy and scalability issues of course).
Also the network is far too slow to handle even a fraction of the day to day transactions handled by VISA. Even if you relegate it to more substantial transfers SWIFT handles around 35 million transfers per day and for the whole month of October this year the main chain only handled 7.9 millionish from what I can find. It's so slow there's a whole opaque secondary layer that had to be built to get it even close to potentially handling day to day transactions.
True, but if you think about the initial goal of a decentralized payment method over the internet and not in a crypto-maximalist perspective, it doesn't necessarily make sense to compare it with VISA or Swift which mostly process payments IRL.
When bitcoin was designed, its throughput was a significant fraction of Paypal's which doesn't sound so bad. In fact, having a decentralized, uncensorable and open-source payment system taking 20% of Paypal's market share would have been a major success regarding Satoshi's stated goals, and this was something achievable even with the slow network. But it never happened, and all we have instead is this gigantic VC-funded distributed Casino where hackers and fraudsters thrive.
The inherent problem there is the capacity is essentially fixed without a protocol change causing a hard fork. That's a doomed service in the long run.
> their Austrian economics prejudice misled them about the nature of money, and the link between money and scarcity
Do you have any references or more to say on this? Not arguing. I’d just like to look into it.
I agree with your assessment that they were overly idealist and libertarian in their outlook. It has bled into crypto fundamentalists touting “this isn’t crypto!”.
Satoshi was advocating for "digital cash", i.e. something you could do mundane transactions with, yet it's utterly unfit for that puropose. It's 2022, nobody gives a damn about what Satoshi was advocating for and especially not people believing in Bitcoin.
If your comment is a joke, nice one. If not, yes I have heard about it and it's unreliable, doesn't scale and is nowhere near close to make Bitcoin "digital cash", but nice try.
It is interesting to me that Satoshi’s name gets thrown about like a sort of crypto Jesus or, maybe more accurately, Bokonon. No one knows who he is or if he even existed as a single person or what his deal was.
Certainly privacy is a thing, but one does have to wonder who they (single person or group) were and what their true motivations were. It’s possible they were just a cryptography enthusiast with an overly idealistic way of how monetary systems could work in reality.
That's the way I see it. Anarcho-libertrian cryptobros who think government regulation is a net negative are like people who don't wear seat belts because they know somebody who died in a crash despite wearing one. It is true that sometimes these safety measures don't prevent the bad thing from happening, but if you focus on those cases then you miss all the times it did work.
Nothing is yes/no. Everything is maybe/maybe not. We're just moving the needle towards maybe or towards maybe not.
A seat belt moves the needle a lot in the "maybe not" section for the "dying in a car crash" category.
Government regulation is mixed but guess what, the empirical evidence shows it works. How do we know that? What do we call countries with crap, weak and abused regulation? Failed states.
Mostly agree. But not all those regulations. The power given to Trudeau to freeze the bank accounts of his political opponents does not serve any public good. Those regulations are also being abused all over the place at various degrees. Doesn’t mean there shouldn’t be any regulation but over regulation is a thing.
Totally, if only they had been regulated and too big to fail as a result of regulatory capture, which is how our system works, the taxpayers would get to bail them out and award SBF a multimillion dollar bonus. Bailing out the banks and execs in 2008 to perpetuate this was just great.
Would you be surprised to learn that SBF was the champion for regulation, was advising congress and a top political donor?
Regulated banks and currencies have similar issues, for example:
- the government can print more money and devaluate your savings (it's like a form of tax one cannot avoid). But it is difficult to "print" more cryptocurrency.
- the government can put limits on amount of money one can withdraw from a bank account. So you legally have the money but cannot use it.
- the bank can refuse to deal with you under AML acts without need to prove anything. But nobody will ban you from mining and exchanging crypto.
- the bank can go bankrupt
The most reliable way to keep your savings safe seems to be to store it as gold. However, there are usually high taxes for buying/selling gold (because why let people store their savings safely) and often governments outright ban gold (folks from US are probably familiar with such situations [1]).
>The most reliable way to keep your savings safe seems to be to store it as gold.
This is nonsense. FDIC insurance is adequate for most people and you can open multiple bank accounts without any issues to expand your coverage limit. Stop giving people bad advice.
And everything you said about banks is an issue with gold. Most people don't have a vault at home they are storing gold in... they are simply buying a certificate that says they own gold in someone else's vault--which has all the same issues as banks and exchanges.
Gold is not even keeping track with the S&P500 vs inflation. You're also conflating a savings/checking account with investing. Totally different issues. This is why people really shouldn't listen to random users for financial advice.
> You're also conflating a savings/checking account with investing
As I understand, investing is a risk because you can lose everything and nobody will compensate you. Investments are not covered by FDIC insurance or similar systems in other countries.
But as for gold, your gold will stay with you unless the government decides to confiscate it.
>But as for gold, your gold will stay with you unless the government decides to confiscate it.
You're infinitely more likely to get robbed than the bank is to fail or the S&P500 is to go to zero. Also, as I said most people invest in gold indirectly and they hold a certificate that says they hold X amount of gold. Idiots store gold at their property and the exchange rates for buying/selling make this by far one of the worst strategies.
A lot of these exchanges have suddenly died because they printed more currency than could be reasonably liquidated on short notice. And borrowed heavily against these tokens.
When the bank goes bust there's insurance on your deposits. If the amount stored is greater than that insurance you may want to invest the difference.
And gold is practically hard to work with and barely functions as an inflation hedge (point 1) over reasonable time periods (your lifetime).
> When the bank goes bust there's insurance on your deposits
Usually it covers only limited amount, not full deposit. In US it seems to be generous $250 000 but in other countries it is much lower (e.g. just about $20 000 here).
> gold is practically hard to work with and barely functions as an inflation hedge
And deposit interest rates are often below inflation in developed countries.
And gold costs money to store, i.e there’s an interest rate charged to you. Its value does change though — in positive & negative directions that don’t correlate to inflation or an underlying monetary fundamental. Because it’s not money or a money equivalent.
Most people are, in fact, willing to trade the government preventing lawlessness with money for the protection of the law with regards to their money. It’s a great trade, for non-criminals.
It also addresses the bankruptcy problem with government loss protection + regulation on net reserves (which worked and are tweaked as multiple overlapping failure conditions are tested, last in 2008).
>But it is difficult to "print" more cryptocurrency.
Except it's not. It's trivially easy. Any exchange (or person/entity) can mint a coin, and FTX collapsed in-part because they were backed by their own coin.
> Due to the failure of our third-party partner, some users' balance data were found abnormally recorded in our system. Hence, limiting our services to prevent further risks, the technical team has had to manually proofread and restore the system to ensure maximum accuracy of all users’ holdings.
"We're aren't sure customer's recorded balances are accurate and it may be possible for money to simply appear or disappear in our system, but we definitely have enough money to pay out everyone's balance (which as already mentioned is inaccurate)"
My take is more like "We might technically be in debt since our system recorded exchanges of now worthless crypto for other denominations, but we're going to manually go back on those orders and claims its due to system errors."
This will be a hard lesson but a good lesson for a lot of people.
To be honest, crypto doesn't even need exchanges. Some even have smart contract capability that can explicitly outline the terms and conditions of any single trade. An exchange is superfluous. So as soon as you see people going to an exchange en masse, to trade assets with smart contracts on them, you know something is out of place.
It actually makes sense if they were “dropshipping” lol, which an exchange might do to increase liquidity. In other words, when you deposited to their exchange they actually held your money and executed your trades at FTX for certain pairs. Then FTX suddenly zeroed everyone’s balances (! or at least many people’s) so their crappy scraping system overwrote your old balance with zero and they have to manually check backups to see how much money you had with them. Definitely possible as an exchange is a chicken and egg problem and they seem to be a nobody.
I think it's safer to assume they saw the implosion of FTX and figured now was a good time to take the money and run. No crypto exchange deserves the benefit of the doubt in the court of public opinion; everybody is safer if they assume all crypto exchanges are thieving snakes.
At the very least, if you really want to be in on the crypto thing, keep the funny money yourself in your own wallet, and wait a few years/decades for government regulation to catch up before you trust any crypto exchange.
This is a major indictment of blockchain technology. Supposedly, all these accounts are recorded on an immutable, verifiable chain. Manual proofreading means something is wrong with your blockchain code, or you're lying to users about where the recording happens.
I mean this as a genuine question (not an indictment), and as a complete blockchain/crypto noob who has just been a spectator:
Why is this the case? Isn't this like one of the best use cases of the blockchain in crypto? Why would they not utilize the technology to prevent this exact thing from happening? Are there tradeoffs I'm not aware of?
The practical tradeoff for not using the actual currency blockchain is instant settling time and 0 cost for transactions. If every transaction was on the chain, they may take hours or longer to settle (not unlike trading shares on a "real" stock exchange), and there'd be a fee for each one.
As for why they don't keep them on an internal blockchain, there's really no advantage in doing this vs a proper setup with a database. The part that makes crypto work isn't necessarily the blockchain, it's the public record part.
Blockchain and crypto go together because the blockchain acts as a public ledger between parties who don't (or don't need to) trust each other. On an exchange, there's no trust issues- you and the person you're trading with have both agreed to trust the exchange and their records.
Edit: I'm not super up-to-date on the crypto world, but I'm reasonably sure that there are on-chain/decentralized exchanges. I also think that there's been a lot of development towards making pseudo-on-chain exchanges through projects like the Lightning network in regards to BTC.
Don't most of the exchanges pool the coins and keep their own ledgers for who owns what? Once the coins go into the exchange it's kind of just a black box and you lose the blockchain audit trail, right?
Can someone actually explain what the intrinsic use of coins is supposed to be (aside from speculating). Their value is so volatile they suck as actual currency, not to mention if you were the guy that spent 10,000 bitcoins on a pizza back in the day you'd feel pretty stupid about your 300 million dollar pizza. They're not even particularly good for illegal purchases -- you have to know what you're doing to keep your blockchain transactions actually anonymous.
Besides the uselessness, let's not ignore the awful downsides. They're a huge boon for randsomeware. Oh and they're an environmental disaster.
Frankly I'm not really sad to see this stuff collapse, because when you get rid of speculation there's not much good about crypto.
I do think we need some sort of crypto currency in the future. I believe in the _idea_ of it. But the current implementation is ridiculous and awful. It needs to function as an actual currency, that you would be willing to spend, not as some sort of incomprehensible "investment" vehicle.
Volatility aside, stuff like Bitcoin _is_ already used for payments, albeit in a much lower volume than the crypto proponents wish it would be. I pay contractors now and then with BTC, particularly in South America and Africa, and works MUCH better than SWIFT (even if I have to convert from USD to BTC and they have to convert from BTC to whatever on their side).
Projects like Ripple also have their use - it's mostly a replacement for SWIFT & similar systems (you'd be surprised by just how fragile these interbank systems are).
Some countries are implementing their own "digital currencies" as well (notably China), and they may end up being some flavor of crypto currency (although a public blockchain is not mandatory for these cases - see the example of PIX in Brazil, which works incredibly well without any public chain shenanigans).
So yea, there's value on the whole thing, but the amount of fraud, money laundering and flat out scams (in particular now that mainstream VCs are propping up the entire system) is really too big of a downside to ignore.
Avoiding all regulatory scrutiny and delays of an international wire transfer by converting them to domestic transfers in both countries is a major use of crypto that has almost no way of being quantified. International wires are fraught with painful user experiences and costs and time issues and its all unknown beforehand.
This works even better when you already have inventory of ANY crypto, or keep stablecoins on hand because you use them. then the request to pay doesn't require you to get USD over to a crypto exchange and convert, just the near instant act of transferring. When your contractor is able to get goods and services and invest in crypto, they don't need their local fiat either, just a common reality, not something to convince anybody of (unlike when we were doing this during the last decade).
Cryptocurrency is Pandora's Box and the last thing to escape it will be decentralization.
Everything you listed is the cost of decentralization and making sure a few powerful players can be held in check. Before someone chimes in and says things are still "centralized" in crypto, things are slowly progressing to decentralization. And even if it takes decades, some industries like payment processing are the ideal case for crypto (Pornhub only takes Bitcoin for payment).
Decentralization has a cost, but understanding if it will even work has a even bigger cost.
I can explain seriously and answer follow-up questions. I will simplify and just highlight the most valuable current use case, there might or might not be others now or in the future.
The value of ether (ETH) is to be a currency that you need to spend in order to include transactions into Ethereum's distributed ledger. Most useful transactions are transfers of stablecoins like USDT or USDC. USDT and USDC can be exchanged for goods and services all over the world, and are very convenient for any international transfers and cash exchanges bigger than 500 USD.
Price of stablecoins is ideally tethered to the underlying fiat currency, so price swings don't matter. Price of ether is _whatever_, because usually your stablecoin ledger transaction fee is low enough, so price swings don't matter again.
I fail to understand how this use of stable coins is better than licensed currency transfer companies. You still need to exchange your local currency twice on shady unlicensed crypto exchanges.
Or am I missing something here? I regularly transfer thousands of Dollars to different countries, the provider I use usually gets the job done on the same day.
There are also huuuge differences in crypto exchange rates depending on country. Crypto exchanges work with unfavorable FX rates when selling USDT unless you already have USD. Binance in my country is currently showing a 4% difference compared to exchange rates on XE.com. Even my bank gives me a better FX rate than that.
> I fail to understand how this use of stable coins is better than licensed currency transfer companies.
It's not better—if you have access to licensed currency transfer companies. But 220 million people from Russia and Iran don't nowadays, and likely from many other "third world" countries where people still want to do honest work, buys stuff, pay salaries, feed their kids, etc. Hundreds of millions of people all over the world can't just walk in and open a low-fee bank account, they just instantly get rejected.
Previously I thought that "think of the unbanked" was a rather silly excuse, until this year it happened to me and my business.
Yes, like when you go to a shopping mall, you do need fiat currency to purchase goods, _but_ you also need to keep your car's gas tank topped up to get there. Your car's gas price also fluctuates, but usually it does not affect your shopping plans too much, unless you're doing very large-scale shopping.
>Can someone actually explain what the intrinsic use of coins is supposed to be
It's supposed to be a digital equivalent to physical cash. Specifically the ability to be transferred directly from one individual to another without either having any special permissions, access, or power. The ultimate goal is for all transactions to be completely stateless. Meaning, you should be able to "drop" a bitcoin into a digital "bucket" without needing any kind of pre-existing authorization/account/identification/association/etc with the holder of the bucket (or any third-party acting on their behalf).
You are correct in your assessment that in their current (and foreseeable future) states, cryptocurrencies are completely useless as actual currency.
Theoretically, the coins also act as an ownership share in their respective technology. Or are a transaction unit for it. You could have a deed to something on a blockchain instead of at a title company.
But to your point, if 99.99% of the technology the coins represent is... more coins? Then yeah, it's a big ol' Ponzi scheme.
I always thought it would be interesting to have a coin specifically based on its demand. You have to post something for sale in that coin for a new coin to be minted. So the coin only propagates so long as there is actual demand for it.
I find it helpful to think about blockchains as the next step in the fintech ladder. Imagine you want to represent ownership of a company, i.e. stock. You don't need electricity to do that. You can accept orders in person, record ownership in a book, issue paper certificates, etc. However, when the mainframe was invented, it became easier to track ownership electronically. Using electronic transactions also made it possible for many more people to trade and expanded the types of products offered, e.g. options became commonplace. Now, the blockchain has arrived. It does everything a mainframe at a large financial institution can do, but it opens up the platform so that more complicated transactions can happen and democratizes the platform so that anyone with a computer can write their own smart contract.
What we're seeing now is akin to the the dotcom boom / bust in the late 90s and early 2000s. A new technology has appeared on the scene which leads to two things:
1) People get ahead of themselves. In the late 90s, people could envision all the cool things the internet would unlock and tried to start businesses to realize the potential. Many of those business ideas would be viable today, but the tech wasn't there at the time leading to a lot of empty promises being sold. Today, people can envision how the blockchain will lead to the securitization of everything, but the tech isn't quite there to make the transition yet.
2) As with any optimism boom, there will always be crooks ready to separate a fool from their money.
Its not practical as a global currency with regards to BTC. It never really has been. It is too slow and too expensive compared to centralized options. The idea of a neutral all digital currency sounds fantastic but it glosses over a key advantage of the US dollar. The dollar is backed by the US Gov't and the US military. It didn't just randomly become the defacto monetary standard in the world by accident.
Price fluctuations would diminish with more adoption as well. We also interact with things that vary wildly in price year over year too, like the price of gas (oil). We have just become used to it. The dollar itself fluctuates a fair bit, the DXY index is at 106, and it will probably get much higher next year indicating a strong dollar if there is a global recession. Actual price adjustments are just slow to trickle down to consumers because of a lack of practicality of changing on the shelf prices each day. Also, inflation will drive prices higher, but even after the economy is back under control, prices rarely will go back down.
When Ethereum/ another crypto VM becomes fast enough, decentralised applications will be the new iPhone - stuff we can’t imagine will be built there.
As far as NFTs, 90-99% of the activity is nonsense, fraud and money laundering, but there are real artists in the space. Whether that’s satisfactory for you is really a matter of perspective.
> When Ethereum/ another crypto VM becomes fast enough, decentralised applications will be the new iPhone - stuff we can’t imagine will be built there.
Imagine someone told you in 1989 when all the internet did was email and ftp, that the internet was going to do a lot of other things but they didn't really know what yet.
There was still plenty that could be imagined in 1989 that the Internet could be capable of - there was none of this "it is just too unimaginable to even consider" nonsense.
E.g. there were plenty of dialup BBS services and things like Prodigy with GUI, chat, etc. in the 80s. It wasn't that much of a great leap to see how moving those types of things from proprietary networks to the Internet would occur.
DAOs are fantastically interesting and if you look into the ones that work, Vitalik’s ideas for Quadratic Voting, there’s a lot toucan imagine could happen there.
DAOs and NFTs are already incredible in my view, they are just in pre-alpha stage and everything is kind of a mess. But people see the pre-alpha and goes “this will never work”. I really disagree. I see for instance how DAOs and blockchain could help developers receive compensation for commits to open source software, creating a possibility for the commercialisation of open source that competes with even large companies. I know people who looked into this. And I hope it happens.
It would dramatically change the incentives if you could get as much or even more money from open source software as a developer, and even more so if you could colect royalties for your work wherever it’s used. The entire digital economy would change if you could have open source software that’s fully open, permission less and paid for.
> I see for instance how DAOs and blockchain could help developers receive compensation for commits to open source software, creating a possibility for the commercialisation of open source that competes with even large companies. I know people who looked into this. And I hope it happens.
I was appropriately reprimanded by dang yesterday for starting a comment with an attack, so I'll slow down and just point out the following:
1. GitHub, for example, already makes it extremely easy to contribute to open source developers. It's called GitHub Sponsors.
2. I have actually donated to a developer that writes a library I love using GitHub Sponsors. It was trivial to do, I just entered my credit card, the money came out on a monthly basis, and I cancelled after a year (I told the dev I'd support them for a year). I'll also note that I don't live in the same country as the developer and the developer's country uses a different currency.
3. The thing that gets me about these kinds of examples proposed by crypto fans is that the mechanics of how to, for example, pay open source devs is zero part of the problem. The problem is that a lot of people are willing to work for free, and software users don't like to pay for stuff that they can get for free.
Again, I see a lot of "hand-wavy utopianism" from crypto enthusiasts, but I see zero examples of (a) why this would be better than GitHub Sponsors, or (b) why do you think GitHub Sponsors hasn't been more successful (hint, it's not that actually making payment with a GH Sponsorship is difficult).
I’ve gotten some flak from dang as well ;) happens sometimes
I think we are describing fundamentally different economies. GitHub Sponsors is optional. I’m talking about a way to have mandatory payments in open-source, with fully transparent automatic payment mechanisms to all contributors.
And before you say well how, MakerDAO is kind of already working like this (I’d have to look into it more but that’s my impression).
Imagine you buy a piece of software - and it costs you 20$. It’s open source but when you buy it you get an NFT that lets you run the software. The commit tree and their importance are valued by the community. And when you buy the software everyone who’s contributed gets a piece. If you add or extend to it, you’ll also get a share, or you can sell your modules on the side and make your own money on top. But using the blockchain as a method of developer verification, open source becomes profitable in a way that’s verifiable, decentralised and permission less. Anyone can fork but whatever much of the software youve re used still goes to the original developers.
I’m talking about full open source software that would always be paid, where the devs would be IDed on chain, where anyone could write new modules for and get paid on chain for their contributions. All of this is not crypto Utopianism - again some DAOs are already there or close.
Im not talking about “hey sponsor this dev”. I’m talking about a way to earn money while keeping software open source and rewarding people for expanding it in a completely novel way. This is already partially true, even if my whole vision at the moment is a bit fuzzy, it would solve a major challenge that I think we have now.
I am a bit sleepy so I wonder if my comment will make sense but I hope it does.
But fundamentally I believe MakerDAO already does this, it’s just a web app and you pay to use it. Part of that revenue goes to Ethereum miners/stakers, some goes to the protocol, and the protocol decides who to reward.
I don’t see why that model wouldn’t work for a lot of other things. Essentially with crypto VMs you can enforce a model that A. Is open source B. Rewards contributors financially.
Asking why this is better than GitHub Sponsors is a bit like asking why people didn’t pay for digital art before NFTs. It’s just fundamentally different imo.
There is a lot going on here, but I'll just say I don't see any benefit in reality:
1. "It’s open source but when you buy it you get an NFT that lets you run the software." You seem to fundamentally misunderstand what open source software is. If you need to buy some sort of NFT to run your software, it's not open source, and this goes against pretty much every definition of open source I've ever seen. You're free to sell your own software now, just don't call it open source if it can't be modified and run independently.
2. "But using the blockchain as a method of developer verification, open source becomes profitable in a way that’s verifiable, decentralised and permission less." This is another pet peeve of mine, when crypto enthusiasts rediscover cryptographic principles that have already been in use for decades and decide by calling it "blockchain" that it is something novel. We have a very nice, cryptographically secure method to verify the commit history of any open source software. It's called git and it's been in use for about 2 decades now.
Again, all I really see is a rube-goldberg machine trying to solve a problem that is fundamentally not about difficulty of existing payment systems.
I agree with you. Of course you could have a GitHub Sponsors that would work fundamentally similar to a DAO. Then the question is - why do you think it doesn’t?
Data immutability and decentralisation helps this use case from my point of view for a very simple reason - because if you’re a developer it means no one can in the future just remove you from the list of people who will get money for contributing code in the past, and that users/community can determine to approve your contributions to the repo instead of some centralise core team, who may or may not decide to let you reap the rewards of the repo.
If your code is being used, you get paid period. The community gets to vote on who gets paid for what, certainly, and you can easily prioritise features in the roadmap by just letting people place their tokens/rewards on certain features and let developers figure it out.
Maybe the NFT idea is pretty silly. Actually what I should have said is - MakerDAO already built this and I can see it being applied to other pieces of software. The system works, so far. Users get tokens, they use those tokens to reward developers for their work, they can ask developers to prioritise a feature by pooling their tokens as a reward, any developer, core team or not, who solves that feature gets paid, and any significant contribution as determined by the community gets to reap protocol rewards for a while.
Look at the synergy you can have between the users and developers, and look how it’s all being done in a fully decentralised and permission less way. Anyone can contribute, users pay for features, and everyone reaps protocol rewards for as long as its used. Could GitHub sponsors do that? Maybe. But a DAO might actually be a better way just because it’s trust less.
Now I agree with you it’s Rube Goldberg-y. The thing is blockchain solves trust issues, not tech issues. A DAO with reasonable rules sounds inefficient, but it’s more capable and adaptable than any centralised solution.
I’m not sure why it’s so hard to understand. Basically you are building an open source piece of software where people get paid to contribute, irrelevant of their background, location or previous history. Users get to be in control and developers get to be paid to make open source software. MakerDAO already does this. Again - is this something Sponsors can do? And if it is, then why doesn’t it?
Isn’t the idea that any developer can make a commit to any piece of open source software and get paid for it, not only once but recurrently, far more interesting than our current system of “work for company get paid”? Isn’t it phenomenally more interesting if one could live their life looking around for interesting things to do, fix them, and get rewarded for it?
Let’s imagine two futures and an app that’s just been bought - Figma. Figma is a cool app that people worked on, did a good job and the owners (repo owners essentially) sold to Adobe. The whole software is closed source, the developers got paid per time worked, and only 2/3 people made the decision to sell the repo to Adobe. Lots of devs there might not want to work for Adobe, but did they have a choice? The repo has been acquired and them with it.
Now let’s imagine FigmaDAO. Same piece of software but it’s open source and run by a DAO. One day you get really interested in image manipulation and rendering. You look into the FigmaDAO feature request/reward roadmap and you choose to implement a much needed feature. The community votes to include your work, and you get paid the reward. They also decide that your feature addition is so important that it will earn you 1% of protocol revenue for 10 years. You are now part time benefiting from FigmaDAO. Suddenly you realise there’s another DAO, GimpDAO where you could use your newly acquired skills to build another much needed feature. You move into that community, deliver the feature and… rinse repeat.
On one of these futures, we carry one as we are and companies keep building piles of closed source software. On the other one, developers become free agents who get to contribute to any piece of software at will and get rewarded for it, without having to go through bothersome tech interviews and just building (permissionless), their contributions are recorded in an immutable ledger that no one person in particular can edit (trustless) and they get paid automatically whenever their contributions are used (programmable money).
> decentralised applications will be the new iPhone.
What makes you think that? Genuinely curious. I can think of lots of reasons that the opposite might be true, so I’m curious as to what my blind spots may be.
Unfortunately in order to learn about crypto you have to ignore virtually everything that exists in the space right now, since white collar criminals have realised this is a free for all space where they can commit fraud at will and never get charged (with some exceptions).
Really there is only one interesting thing you need to study. And that’s Ethereum. Bitcoin is pretty much stuck in the past and it’s a mummified open source project imo. And all the other interesting chains are just Ethereum clones with some changes - Polkadot, Algorand, Tezos are perhaps the very few that matter. But everything comes from Ethereum, and if you study and earn about ETH you will understand the whole space.
So look at the interesting ideas and read the books from the good people who’ve done their research - Cryptopians came out recently and that’s a good one even though I haven’t read it I trust Laura Shin (her podcast is also excellent ). Out of the Ether is also good.
But here are some thoughts:
- DAOs are already working in making fully decentralized open source dev collectives and rewarding them for work done. See MakerDAO
- dapps running in cryptoVMs can be made to run at no cost to the developer. That’s pretty cool, since a lot of the “moat” that Uber, FB and Twitter build is two-fold - first they own your data, then they build giant infrastructure to serve you the app. With crypto VMs you don’t need this - people pay for usage. If you could figure out an algorithm that’s better than Uber’s at allocating people who want to drive point to point, you don’t need to go “oh well I guess I go fund raising to build the infra”. Crypto VMs give you that for free, since the user pays for the usage of the application in the transaction.
- decentralised applications can be made safely, even though again they are hard to make and lots of them are just copy paste by fraudsters and schemers (and inevitably get hacked). Uniswap, Compound, Lido, Curve Finance. There are multiple dapps that have never been hacked as far as I know.
- Gitcoin is already quite an incredible little way to fund projects, I believe it’s implemented some form of Quadratic Voting, which Vitalik Buterin has talked about
- NFTs actually work - in the sense that there are real artists building communities and selling their digital art (not monkey pictures) I know of multiple artists who quit mind numbing work at big Corp and became quite successful in NFTs. Again 99% of the space is money laundering, fraud, wash trading - but so is real art (the idea that NFTs are special in that regard is a fiction only someone who hasn’t interacted with the “art world” can hold).
I can go on but illl have to think. But DAOs, NFTs, decentralised VMs with immutable data are pretty cool already. The reason I say I can’t predict what’s going to happen is because even being a digital artist myself, I had no idea about NFTs. And when I discovered them I was blown away. The possibilities that NFTs open up as a digital artist are pretty incredible - you could in theory make “designer levels” for Mario Maker and sell only 7 copies of the map! Making it a collector’s item. And you would colect royalties forever on chain if people sold your map to each other. That’s pretty cool and just couldn’t be done before.
So I have no faith in my ability to predict the future, but I like the internet better with DAOs and NFTs, instead of likes and digital feudal lords who own all your data.
https://overcast.fm/+YVsUUTgOg - the Blockchain Socialist’s interview with Buterin is really interesting, giving you a nice overview of Vitalik’s thinking about the space atm.
I have no idea. Potentially decades. It could also be a flop, but I made another comment with the example of how DAOs by themselves could change open source development entirely. That's probably the best articulation of what I think so far.
For now that’s true. I’m not giving judgment on crypto VMs for 10-20-30 years.
Right now 90-99% of the space is scams and nonsense, which happened because of the lack of a regulatory environment. Any smart white collar criminal and fraudster with brains knows they can make millions to billions on crypto and never be charged of a crime.
Crypto is in its ARPANET whatever days. It’s purpose is not fully clear, there are a few usable applications (Uniswap, NFTs, MakerDAO) but really it’s purpose will only be realised when the main snags are solved:
- it needs massive throughput
- it needs some form of hack resistance, even if that means the ability to reverse transactions
- it needs some form of regulations to avoid rampant crime and fraud
- UX/UI need to be dramatically improved (I’ve heard good things about Rainbow and Argent Wallets).
Then user facing applications will show up naturally. You just need it to be able to process some X amount of quantity of transactions, and potentially, reversibility.
The penny stock phenomenon comes from the Bitcoin fantasy of it becoming a currency. Cryptos are not currencies and I don’t think they will ever be. Ethereum is just liquidity for a decentralized VM, and whether that idea will work out or not is decades away from being clear.
I don't use a ton of cryptocurrency, but I have a few uses for it.
My primary use case right now is using Filecoin to pay for off-site backups of various kinds, encrypted with (supposedly) quantum-proof cryptography that I encrypt my data with before finally replicating it to numerous instances across the world. This is together with also writing my backups to CDs, using online services like rsync.net and one big USB stick at one. One time I lost my backups so I'm trying to make sure this never happens again...
Secondly, I've used Algorand, Ethereum and Bitcoin for transferring funds to relatives and friends to/from South America and Africa, which ended up being the cheapest way of transferring funds to them, even accounting for me buying it, the transfer fee and them cashing it out. It also was way faster than anything we tried before, so pretty good experience overall.
But to your main point, most if not 99% of all cryptocurrency is definitely over-hyped beyond anything I've ever seen. I wouldn't touch most of the ecosystem with a ten-foot pole, doing a lot of research and actually understanding the protocols that you use. Most people don't, so they tend to get burned. Countless of times I've had to help family and friends to avoid scams that they come across, and it honestly makes me kind of glad that what is happening now is happening, it'll shake off all of these scammy projects that are just trying to scam people.
I think algorand is by far the best crypto platform out there, but the sad part is that it's the economic / behavioral issues that hold crypto back. if you could earn Algo and it was widely adopted, it would be an attractive alternative currency and smart contract platform.
but for me tech and adoption are like two out of four things needed to make crypto non-evil (literally) - the third is democratic governance. the fourth is environmental impact which Algorand checks off. But it's not democratically organized or run, which is a complete non-starter.
the foundation that runs it is probably the least corrupt org I can think of in crypto (I am not an expert) but its still a group that hold a giant percentage of the existing coins, which is a huge non-starter as well, and there is no concept of citizen ship or personhood that maps to the real world.
I dont believe in the decentralization nonsense and this pseudo anonymous thing over crypto is not good. to really run a DAO you need real people interacting in something like a co-op. kind of like the internet, actually.
what some people call decentralization I call by an old fashioned name - distributed. there is another concept which is more to the point than the term centralization and it is concentration. The Gini index of a logical dimension of a system is more important to me than whether it is centralized per se.
So voting power should not be too concentrated, wealth should not be too concentrated.
We are a long way from a workable model for crypto that fulfills these criteria. Buterin who is a frontman for libertarians (and worse) who are actually evil is the closest thing we have besides the Algo founder to a non-greedy figurehead, but we need no figurehead.
what has proven good enough for countries will prove good enough for crypto. democracy.
one dude explained that they wanted to make a loan platform that would avoid usual bank management costs since it's automated, so he claimed the higher yields came from that. It seemed a coherent explanation to me (he could be lying too, but at least his talk had some foundations and not moonshots of potential decentralized nirvanian future)
How does the automated loans-on-blockchain platform discover someone’s real income and existing debts in a way that can’t be forged? If it doesn’t do that, it’s not really automating anything that banks currently do when deciding to extend you a loan. And if it uses existing sources like credit scores and the salary data sold by employers, then it’s merely the same as the systems banks and other consumer lenders already use.
The only real use case for crypto has always been buying drugs online (and other, similarly illegal things that normal payment processors won't touch). Tons of hot air has been generated proposing other things but none of them have any product market fit once you remove the traders/speculators.
I can see some value in ethereum's VM. The upside there is a bootstrapped cloud that every computer can join when not in use, unlocking tons of value that currently is just sitting around. Seems reasonable to believe that 10 years from now ML training/other compute intensive async tasks might be done via the ethereum VM.
Probably would be easier to just do this via a centralized organizer, but getting enough buy in to actually attract users might be difficult. Ethereum already has it.
Every new form of money and trade had the people learning important financial concepts and took many, many years to start to iron out their weaknesses through better technology or best practices.
For instance, when barter and basic trade was used, people had to figure out new methods to do accounting and record-keeping: whether through sticks, tablets, papyrus, etc. It seems simple now, but these basic methods were incredibly huge technological leaps that took a long time, perhaps centuries in some cases, to develop.
When silver/gold were beginning to be used, different lessons had to be learned such as making the edges of coin ridged to prevent certain people from clipping chunks off of coins and taking a small piece of precious metal.
With fiat currencies that are not backed by anything, people had to learn the lessons of inflation. I'd argue that not all humans have even learned this lesson even today. While inflation is particularly glaring today, all people alive today have been systematically robbed of their savings every day, yet this fact is commonly ignored. The amount of value lost by people to inflation is much more glaring than any loss that's happened in the crypto space. In comparison, crypto doesn't have this flaw: there can be no circumstance that changes the fact that Bitcoin only ever has 21 million units and cannot ever be inflated.
Crypto has much smaller problems in comparison to other forms of money. It certainly needs better user interfaces and best practices and a little time for social acclimatization, but the progress from what was a proof of concept in just 13 years has been remarkable.
> there can be no circumstance that changes the fact that Bitcoin only ever has 21 million units and cannot ever be inflated
Yes it is deflationary, which is worse for a currency. Why buy anything with a currency whose value will always rise? Better to just hold it. Thus it fails as a currency
> Yes it is deflationary, which is worse for a currency.
Cui bono?
Who told you that deflationary currencies are inherently bad? Perhaps you're repeating this lesson from central bankers and politicians who would have no ability to manipulate for power if they didn't have the printing press.
> Why buy anything with a currency whose value will always rise? Better to just hold it. Thus it fails as a currency
IMO, this has always been a dumb criticism of a deflationary setting.
People still save their money in an inflationary setting and will also spend during deflation because people still need to eat and live their lives. Certainly people would tend to be more cautious about their spending during deflation: not inherently a bad thing.
This is hilarious. Buying “down” coins on binance. Seems like all real coins will drop in value, and “down” will go up. Splashed 100£. Guess i’m buying twitter soon.
I feel bad that my tax money is going to be spent to feed crypto scammers when they end up in jail. I wonder if we could come up with a law that makes crypto-related fraud, scams, hacking and theft completely legal? After all, one of the main selling points of crypto has been that they do not want to have anything to do with centralized government, so why should government care? Let them sort it themselves.
(There are some challenges with this idea on what comes to violence and threat of violence, as I am not probably willing to make those legal in any case, but maybe those could be solved somehow.)
