FTX exploited the lack of legal clarity and regulation inside the US - the solution would seem be to create those things not let it 'implode' due to their absence.
That's a soundbite that people like Brian Armstrong use, because it's shifting the blame onto The Enemy (the traditional finance system) but it's a hard sell. People engage with cryptocurrency because it offers the sort of unbounded financial opportunities only available when there's no regulation: there is already regulation that applies to all financial companies, the reason FTX primarily operated outside of the US was because of that regulation. Had there been "regulatory clarity" that further reiterated that what FTX was doing outside of the US isn't acceptable inside of the US, FTX would have remained outside of the US and continued to do the unregulated things.
Anybody who wanted to use an exchange that complies with regulations could just use Coinbase. There's a reason people don't.
This doesn't make any sense. There is legal clarity and regulation inside the US. Crypto largely is deliberately attempting to create ambiguity. All the financial instruments created by crypto have real world regulated equivalents, whether that's ICOs or currencies of commodities. They already exist. What was FTX doing that CME, or a big hedge fund aren't? Well for one, FTX is a mix of those two businesses - why doesn't that exist in normal finance? Because of the dead obvious conflict of interests that we have seen resulted in exactly what happened at FTX.
So what do you want? FTX to operate under the same regulations as traditional financial institutions? Ok. That's fine, but we already have those regulations, it's the crypto organisations that are pretending that they don't exist - for the exact reason they don't want to follow them.
I could not agree more as a crypto bull. Please avoid regulating us as much as possible and let everyone involved be responsible for themselves. No bailouts, never ever. Participants will be forced to invent new ways to establish trust which is ultimately good in the long run.
I concur. Also part of establishing trust is moving away from all the ticking time-bomb centralized intermediaries from Mt.Gox to FTX and everything in between, etc. Either figure out ways of accomplishing everything decentralized and on-chain, or accept the impossibility as a natural constraint of the tech and learn to do without.
Are you quite sure the root of the problem is centralized exchanges? Everything in "tradfi" is centralized, and there are frequent frauds and bad actors, but it remains much more robust than the cryptoasset ecosystem.
I'd submit the root of the problem is finacializing things that are not economically productive. As cryptoasset supporters frequently point out, every market has some ponzenomic qualities, but pulling tokens from thin air amplifies them.
> Are you quite sure the root of the problem is centralized exchanges?
That’s the big hypothesis being tested right now. So far it’s only the centralized entities that are collapsing, and crypto market values are down as a result, but that’s not the same thing as a collapse or failure of the protocols.
But this train wreck is still happening, so we’ll see if it causes some cryptocurrencies to fail too. Possibly some of the weaker ones will lose too much mining/validating power and get hacked or 51% attacked. If that happens to the bigger ones then it will expose a serious problem with the tech and economics of it all.
This is arguably the most valuable informational period in crypto’s history - the first high-interest environment stress test it’s ever had. Either it will cull the weak and leave standing only the ones robust enough to withstand such environment, or will cull the entire industry. Either way at least we’ll empirically know the truth of it all.
> Everything in "tradfi" is centralized, and there are frequent frauds and bad actors, but it remains much more robust than the cryptoasset ecosystem.
I think the GFC demonstrated “tradfi” is anything but robust. If not for the govt and Fed bailouts, the scale of the losses could have exceeded the banking system’s cumulative revenue of its entire modern history, going back to the 1800s. And that was with regulation (albeit steadily weakened since the 80s).
You could potentially make the argument that certain forms of tradfi are robust, for example under the Glass-Steagal regime that separated commercial banking, investment banking, and insurance into separate legal entities, among other restrictions (a form of decentralization).
Also Germany’s local community banking system, which until recent decades was the main financier of Germany’s industrial economy, and which has never had a financial crisis since its origins in the 1700s/1800s, is also quite a robust model (also a form of decentralization).
> I’d submit the root of the problem is financializing things that are not economically productive
I don’t disagree. Low-interest cheap money environments tend to have that effect, crypto or no-crypto.
The missing piece is having CBDCs that your bank accepts on something like Uniswap. Until that happens on/off-ramps are needed, and these can only be centralised by definition.
I’m not sure having ubiquitous CBDCs with all that may entail would be better than having a few trusted centralised exchanges for fiat on/off-ramp though.
People may not like it (because it will look similar to the inner workings of the eurodollar ["Eurodollar University" on soundcloud, "Monetary Mechanics" Substack] system that we all live in now, and will continue to interface with such off chain systems in more complex ways [esp as on chain liabilities become more and more valuable in more places compared to off chain liabilities]), but I think native on-chain credit origination, built on top of on chain derivatives protocols will be the solution.
Permissioned decentralized global monetary system will simply keep evolving into a more permissionless decentralized global monetary system.
I have never scammed anyone. Just as there are scams in traditional finance (see Wolf of Wall Street, Nikola, Enron) there are scams in crypto. At this point far more in crypto however.
I think people need to know that no one is going to help them - caveat emptor. If the goal of crypto is to rebuild finance, eliminating taxpayer funded bailouts is a top priority.
I guess even someone with most hardcore anti-regulation views would most likely approve of (and quite likely, support) education, including being upfront about all the unsavvy bits and dangers.
That's because the non scammers don't have any incentive to run superbowl ads, because we're not running casinos.
The information is freely available to anyone. Sadly, it's always hard to separate the signal from the noise, especially when the herd and the wolves arrive.
Should casinos be regulated or should we allow somebody to throw away their life savings if they have a bad day? “No regulation” may sound appealing but society has to pick up the pieces when people wreck themselves.
As a bitcoin/monero maxi who's watched my dollar denominated net worth cut in half this year and expect it to go lower, I strongly agree.
The wheat is being separated from the chaff, and I am absolutely here for it. I wish more innocent people would have listened to us and not trusted centralized exchanges or yolo'd huge money into shitcoins, but sometimes you have to watch a child touch a hot stove for their long term well-being.
Bitcoin and reusable proof of work is the mind blowing innovation that represents a turning point for human civilization. Mutually assured preservation via softwar.
The rest will at best be iterative technology that may eventually be integrated into the traditional securities and exchange systems governed by the local monopoly on violence, but is generally uninvestable in its current form.
None of it (including Bitcoin) generates any value. Nothing is created that benefits the human race. It's speculation all the way down - the only value that a bitcoin has is the likelihood of someone else paying more for it than you paid for it. It's not a turning point for human civilisation; it's a slot machine in a digital casino.
Not that the derivatives of "tradfi" are any better. But underneath all that speculation at least there is actual stocks in actual companies that are actually making real human value.
> Nothing is created that benefits the human race.
With Bitcoin, we're talking about nothing less than the separation of money and state, like we obtained the separation of church and state. This is huge.
Let's not forget that the entire point of "proof of work" is to waste electricity and waste electronics in persuit of making pointless calculations until one is randomly correct. What a great system!!
The point of PoW is to make money hard to create, unlike state money (fiat).
You could say gold, silver or basically any store of value use PoW too: they require a considerable amount of time and energy to obtain. If you could just use dirt as money, it would be worthless as anyone could produce some effortlessly. It's the basis of sound money.
Bitcoin currently uses about 85TW/year of energy for its mining. Estimations for the traditional finance system seem to be around 2000TW/year. Factoring the amount of transactions, Bitcoin is about 50 more efficient per transaction (accounting transportation, paper and coin production, datacenters, energy used by banks). Its energy usage is also independent of the amount of transactions, so it becomes more efficient as the number of transactions grow.
With Bitcoin, we're talking about a concentration of wealth (on early miners and "hodlers") orders of magnitude worse than with fiat. It benefits mostly a tiny fraction of the human race.
Bitcoin actively took a decision to not be a currency but to be a "store of value".
It cannot function as a currency because it's too slow (you can't wait for ~10 minutes to see if your transaction for included in the block in order to pay for a coffee).
In order to separate State from Money, we need a currency. Until I can buy a coffee with my hypothetical FreeCoin, I need to rely on fiat currency supplied by someone both I and the barista trust (like a government).
The Bitcoin blockchain is a layer 1, it acts as a settlement layer, or put simply, a notarization layer, or a store of value layer. It's not intended to be used as a full scale transaction layer as it couldn't scale and would bloat the blockchain.
Large amounts of transactions should be made off-chain through payment channels, with only the final balance between the parties written to the blockchain. This what layers 2, sitting above the blockchain, are about.
Common layers 2 are Lightning and Liquid, the former being the most widely used.
I don't own any crypto but I think this is an overly reductive take and fails to make comparisons to its natural competitors - cash and gold. Cash has zero intrinsic value and while gold's intrinsic value is non-zero it would be worth far less if only industrial uses were considered. It isn't reasonable to compare crypto to stocks or farmland for this reason.
The distinction between cash and crypto boils down to if you have more trust in centralization or de-centralization.
It's too bad that (bitcoin, mostly) maxis are using the recent crypto embarassment as a way to justify their own vested crypto interests. To say "we're better than them" without really explaining how in a way that doesn't require incredible feats of mental gymnastics.
Some quotes about bitcoin from Jack Mallers in the video:
- "it's an abritrage on the trend" (multiple times)
- "humanity really found it's stride in inventing bitcoin"
- "we made and engineered the best version of <money>"
- "there's bitcoin and there's everything else"
- "a well engineered freedom fighting tool for our species"
- "gives everyone in the world real property rights secured by mathematics"
- "first monetary asset that we've been able to engineer with no natural issuer"
- "is a guaranteed fixed protected monetary policy and instrument"
- "accessible to everyone and equitable for everyone. no one has an advantage"
What? I have no idea what he's talking about because he never bothers to explain why bitcoin is pure magic and all other crypto is trash. He's just jumping on CNBC to hype his flavor or crypto for obvious reasons.
> accessible to everyone and equitable for everyone. no one has an advantage
That could have been true if Bitcoin had a never changing block reward. The miners in the first 4 years (including Satoshi himself) had a huge advantage.
anyone could have decided to buy bitcoin when it was cheap. the advantage of bitcoin is that your enemies have to expend prohibitive amounts of energy to screw anyone over, and that protection is accessible to everyone
> anyone could have decided to buy bitcoin when it was cheap
Wrong; the vast majority of people were unaware of bitcoin, and how its emission worked, in the first 4 years when half of all bitcoin was emitted and it was still relatively cheap.
Unfortunately, the cost of goods and services denominated in bitcoin has also gone up a lot this year. The money supply is only one side of the equation when it comes to the price of goods and services.
It means that the index went up 3x denominated in (priced in) bitcoin, rather than priced in dollars. i.e. using bitcoin as the unit of account instead of dollars.
I suspect that 'denominated' doesn't mean what you think it means.
The PricedinBitcoin21 index shows the price of goods and services priced in bitcoins. It's akin to the CPI showing the price of goods and services priced in USD. The PricedinBitcoin21 index going up 3X means goods and services are 3X more expensive when paid with bitcoins, which means bitcoin has been devalued 3X.
It's bad for bitcoins for the index having gone up 3X. It's like the CPI has gone up 3X. You want the index to go down if you're holding bitcoins.
From your previous comments it seems you believe your net worth has gone up because of this index gone up. This index going up has the opposite effect on your bitcoin based net worth. I hope I'm mistaken.
I suspect you asked your initial question incorrectly and wanted to know if my dollar denominated crypto holdings have increased or decreased in value. They have obviously decreased when measured in dollars.
When it comes to value, there is no objective measuring stick. There is no SI standard of measure for value. Every way to measure value is subjective and must be compared relative to other measures. You can measure your net worth by the measuring stick of dollars, euros, Venezuelan bolívars, oil, gold, bitcoin, cartons of eggs, or McDonalds big macs. The Big Mac index is a popular example of this, https://en.wikipedia.org/wiki/Big_Mac_Index
When you ask what my "bitcoin denominated net worth" has done, what you asking is what my net worth number has done when measured in terms of bitcoin rather than in terms of dollars. In this value measurement context, if all of my net worth was directly in bitcoin, there would be zero change, just like if all of my net worth was directly in dollars there would never be any change to my dollar denominated net worth.
Main stream adoption will only happen if those that want it can have the security blanket of fraud coverage to cuddle in. The answer here is still a non-regulatory, market solution: Crypto Insurance. Non-transparent, un-auditable coins and exchanges simply won't be able to be insured. People can decide if they want to speculate using uninsured currencies and exchanges. My prediction is that non-transparent, sketchy schemes will wither. Of course, the insurers themselves need to be sound -- but Lloyd's seems to have solved that problem about as well as it can be back in the days of wooden ships. This is not a new concept.
I'm not really a fan of having my life savings just a hack away from being stolen. I am infinitely more confident in my retirement savings being managed by Schwab or Fidelity than any possible way of crypto, online, offline, or whatever.
I don't need to worry about insurance, or picking the wrong insurance vendor!
I don't think I understand. Fidelity 401k - Millions of people put in their paychecks, millions of people have withdrawn successfully in their retirement. An unsophisticated investor will not lose anything.
Crypto - no way to know what, if any, company is legit. If I use a hardware wallet and lose it I'm screwed. FTX seemed pretty legit a few weeks ago, they even had an NBA arena named after them! There are dozens of ways an unsophisticated investor can lose everything.
Fidelity is insured through Lloyd’s of London, among other vendors. You pay for that insurance as a customer. There is no reason a company with infrastructure based on different technology could not also purchase insurance.
Am I understanding you correctly that you basically want to normalize scams? That we shouldn’t proactively try to protect the innocent from bad actors, rather we should allow scammers to take advantage of them even when we know they can be irreversibly harmed?
If I understand you correctly, this is a terribly unethical take, lacking in any sort of empathy. But also lacks any historic understanding of scammers and psychological understanding of human behavior.
This plan won’t work, there will always be innocents to scam, and scammers will continue to exploit it until authorities put a stop to it. There is a reason why ponzi schemes were criminalized, if they wouldn’t have been, we would still see criminals exploit people from the same playbook today.
That’s not the point. People are still harmed by scams. Many criminals do get away with scams, and even if they don’t, they are often caught well after several successful scams when victims have already needlessly suffered, and most won’t be fully compensated.
Here, as in other criminal areas, prevention is always preferable to punishment.
Easily exchanging fiat to and from crypto is a requirement for normal users, as is something like a bank who actually manages the process.
If you want this all to be an unregulated wild west of scams, eventually you won't have any normal users left as they all lose their shirts and eventually wise up. All you'll have left is crypto propeller heads (and the rubes too clueless to catch on to the risk associated with exchanges), and with such a small potential user base it'll never be useful for any practical application.
The problem I have with this is that it’s indistinguishable from “don’t protect the sheep from pyramid schemes. It’s their own weakness, let us prey on them.”
Cryptocurrency is a solution desperately looking for a problem.
The white paper was written 13 years ago. What actual problems does it legally solve?
Store of value? Not so successful. Inflation hedge? Nope. Micropayments? Nobody wants them - any traditional financial company could implement it instantly. If people wanted it.
So we are left with the few things that cryptocurrency has actually been good at: tax avoidance, illicit transactions and ransomware.
Cryptocurrency has been a scourge and has no redeeming quantities.
ETH mining did pay for a computer I bought a few times over though so I guess thanks for that.
Anonymous and pseudonymous public, permissionless cryptocurrencies remove debt and leverage from the system, making GFC-like financial crises impossible. Without native identity, you can’t have native debt, leverage or margin. No native identity = no credit ratings or any other means of enforcing repayment. (Yes centralized crypto exchanges have these, but not the actual blockchains).
All financial contracts on these systems must be fully- or over-collateralized, and if the collateral is used up there’s no margin calls for more, instead the contract is automatically closed. That creates an immense buffer against cascading financial collapse and house-of cards style financial structures that Wall St. likes to build.
The possibility of a GFC or Great Depression (leveraged credit crises/collapse) is arguably the single biggest problem in all of the traditional financial system. Cryptocurrency may solve it.
Oh? Correct me if I’m wrong, but it seems all the ways of preventing Wall St. from becoming over leveraged fundamentally depend on regulation, which is vulnerable to lobbying and political capture. That’s happened twice now - dismantling of Glass-Steagal after the Great Depression, and dismantling of Dodd-Frank after the GFC. The former took decades, the latter was done in just ten years.
My point is, crypto may represent a permanent and deterministic solution to this problem, implemented at the protocol/infrastructure level, and which is difficult or impossible to corrupt via lobbying and political capture.
Well there are two general ways of financing economic growth - debt-based and equity-based. Equity-based is the main way that the startup ecosystem works, for example, though debt is also a part of it.
With little or no debt, economic growth would no doubt be slower in the short/medium term. But an equity-only system with slower growth might be comparable in the long-run, due to continuous growth with no principle drawdowns and setbacks from periodic financial collapses.
I don’t know of any research attempting such comparisons, everyone assumes debt is inevitable and doesn’t bother thinking about this.
True, though you have to include the stock market too, that's equity. US Bond market cap is roughly $120 trillion, stock market cap is ~$45trillion. So the equity market is about half the debt market, if you exclude govt debt.
That said, if somehow you had a similar hypothetical economy but with little or no debt, the equity side might be larger.
Vast majority of stock market cap does not contribute to company capitalization. Primary equity offerings on the market are rare and use only a fraction of total equity. Most trades are secondary and don’t capitalize the company. The entire bond market value is a capital raise for the companies.
If we wanted to remove leverage we could sign a law to remove it tomorrow. The problem is credit is a good thing that lets us accomplish more that what resources what we have right now. The fact that some people abuse trust doesn't mean we should throw trust out altogether, rather find ways to cost of breaching trust more.
Theoretically we sign a law to remove it tomorrow, but practically it’s completely impossible. The financial industry would never allow it, and would spend billions defeating both the law and any politician who even remotely supported it.
Not because there will be billions spent, but because such a law would be extremely unpopular. Try convincing people that any option for your home loan and your car loan won't exist anymore (those are leverage too!) and see how happy they are.
> If we wanted to remove leverage we could sign a law to remove it tomorrow.
The kind of unsafe leveraged bundling that caused the great financial crisis was already illegal. In theory, the banks should have suffered the consequences of their poor trades. In practice, both the banks and the government knew that by enforcing those consequences, the entire financial system as we knew it would fall apart. So the banks smartly factored the bailouts into their risk calculations when entering into those trades.
Crypto enables systems that cannot be as easily bailed out. It changes the game theory so that failure is no longer a "get bailout and still win" condition for speculative lenders. So in a way, crypto absolutely does create "ways to make breaches of trust cost more."
Digitally and trustlessly transferring value without being at the whim of some big corporation that makes and changes the rules as they see fit.
I don't care about any of the use cases you mention because those are made up. The need to transfer value isn't.
There's a new Stripe or Paypal horror story on HN every other week, and the only way to get around them is to trust the next best entity until they break down, or to give up more privacy than a simple purchase should ever require.
7 transaction per second, so (as far as I remember) for every person in this world to make one transaction it would take around 30 years. Finance of the future and all that.
The only use case I have for crypto is as an alternative payment method. I take payments by credit card, give or take 70%, and PayPal the next 25%. The rest are check and crypto, which I have started in the last year. So I have been mostly off crypto until it became easier integrating a payment system - which I used coin base for. For myself , it has to be centralized - integrating into my billing system and tracking payments is something I didn’t want to do. Now, payments are increasing and I’d love to get crypto as a third payment option and a much higher number. It doesn’t need to be first but having most payments through a merchant account that will raise fees regularly , or PayPal which has higher fees and is not known for good support is a risk on its own. Crypto has helped with payments from countries like Nigeria who have currency limits on payments of $20.
Before Bitcoin, there did not even exist the possibility of programmable money because no unit of account could ever be guaranteed to actually exist since there was no way to verify said existence. After Bitcoin, we now have a fundamental change where programmable money is now a possibility. So what if we have not found all the possible use cases of programmable money? That's going to be a work in progress for a long long time. You can assert that programmable money doesn't have any real use and you are welcome to have that opinion. Personally I think programmable money will have many uses and will allow for the creation of a more robust and more efficient financial system.
Let it burn indeed - it's a hands-on history lesson for GenZ tech bros why every single cumbersome, expensive regulation exists in the financial sector currently.
Besides, why should there be a need for regulation in a trustless system at all? If you think this is a beneficial setup, live (and die) by it.
FTX was not a trustless system. It was trusted, centralized exchange that happened to be trading crypto.
Uniswap is a good example of a trustless exchange. It runs on chain and doesn't have admin keys. If you have assets in uniswap, the only person who can move them is you.
We should regulate trusted actors that hold other people's money, and avoid interfering with trustless systems.
Not sure what bearing that has on my argument but probably not many, other than its developer (who collects fees). There's a governance token but even if you bought at the bottom and sold at the very top it was only a 13X gain (and if you held until now, a 2X gain overall). It's just a simple system that does its job with extreme reliability.
Lots more people have made some money on Uniswap, either by trading well, or by providing liquidity and collecting a portion of fees.
Um, I'm saying just the founder of Uniswap got rich. I think you'll find that the founders of traditional exchanges, banks, and other businesses in legacy finance also tend to get quite rich. They also provide essential services to the rest of us.
(And Hacker News is a forum run by ycombinator, whose whole point is the founding of new companies, with the goal of making a few people rich and, hopefully, providing valuable services to lots more people.)
I don't know how Uniswap founders got rich before UNI, as all the fees went straight to liquidity providers.
UNI probably did get them rich through the usual insider-y mechanisms, but as I recall they were almost forced into it by SUSHI and friends. I found it a little sad as before it looked 100% trustless/0% insider-rewarding.
This is an excelent regulatory option. The creation of money substitutes in the crypto space is not something a state wants to encourage, and is very detrimental to financial stability. The basic tools of the central bank - regulating reserves and interest rates in response to economic conditions - cease to function.
These private money substitutes should be firewalled from the traditional financial system, nobody's pension should be invested in speculative crypto assets. The long term value of crypto should then result from the actual wealth they generate intrinsically (for example, ease of trade, enabling fast innovative transactions that fiat can't) - as opposed to broad "adoption" by the conventional financial industry, who would just use the space to circumvent existing regulations.
Traditional finance can, in time, adopt tools and systems from the crypto space (for example, distributed ledgers, "blockchains") if they are technically robust, without the associated speculative mania.
> Traditional finance can, in time, adopt tools and systems from the crypto space (for example, distributed ledgers, "blockchains") if they are technically robust, without the associated speculative mania.
New technologies and speculative mania naturally come hand in hand, no? Crypto seems to be following the same adoption curve that all flashy new technologies have followed.
The problem with crypto is that instead of speculating on the premise of the actual inovative technology, the speculation is centered around the close money substitute that the technology enabled. Investors bet on crypto-assets themselves, freshly printed private coins, as if they are going to have substantial market dominance in the future to the detriment of state-issued fiat money. That is completely unsound.
It's as if investors in the tech stocks would bet that a single company with an innovative trading solution would come to replace a substantial part / all of the stock market.
> It's as if investors in the tech stocks would bet that a single company with an innovative trading solution would come to replace a substantial part / all of the stock market.
But there was a single company with an innovative trading solution, and it did come to replace effectively all existing stock market settlement, at least in the US. It's the Depository Trust & Clearing Corporation, and it was founded in the 70s.
It replaced the trading mechanism of existing stocks with its own. It didn't replace the traded stocks with it's own stock or stocks it controlled, which is what crypto is trying. Perhaps the example was not clear.
> It didn't replace the traded stocks with it's own stock
I guess I still don't fully understand what you're implying, but I am interested.
If we go back to your original comment:
> The problem with crypto is that instead of speculating on the premise of the actual inovative technology, the speculation is centered around the close money substitute that the technology enabled.
I would argue that an investment in e.g. Ether is speculation on the promise of (an implementation of) the technology, rather than a "money substitute". The chain is designed such that as it charges usage fees, that value accrues to holders of the native token, ETH. It behaves not unlike a (hopefully) profitable autonomous company of some sort.
> charges usage fees, that value accrues to holders of the native token, ETH
The trouble with that is that if the fees are negligible compared to the economic activity that is mediated (as crypto bulls claim), then you need to lock a massive amount of capital in the collective float of the currency.
For example, the M2 money stock velocity of the US Dollar is historically in the 1-3 range, so that each dollar either in electronic or hard currency form changes hands a few times in a year.
So for Ether to generate even something like a meager 3% yield to beat inflation you need to charge on the order of 1%-3% for each transaction, which is orders of magnitude over what is expected or competitive. It follows then that the vast majority of the holders of Ethereum, and the backers of the scheme themselves especially, do not expect to earn from the fees, rather they speculate on the token itself, they hold it because it will appreciate in the future. They are betting ether will replace, say, dollars in mediating transactions and hope to gain value by depreciating the dollar.
To be very precise, I'm not saying that Ether can't move much faster and accrue larger fees (as it in fact did recently), but that the preference of the vast majority of non-speculators is to hold on to currency and near money substitutes for periods much larger than it would allow holders of ether to earn trading fees commensurate to the risk of holding ether. So the flurry of recent activity (and the willingness to pay large fees) must be of a speculative nature, unsustainable on the long run.
> So for Ether to generate even something like a meager 3% yield to beat inflation
Inflation eats away at a rate of 3%, so to beat inflation Ether needs to beat a -3% real yield, not a 3% real yield. A 3% real yield would mean that Ether appreciates at 6% compared to an asset that inflates at 3%.
> you need to charge on the order of 1%-3% for each transaction, which is orders of magnitude over what is expected or competitive.
That figure depends entirely on the total number of transactions and the fee paid by each transaction. It doesn't depend on the percentage of money transacted that is charged as a fee for each transaction. For many transactions, "percentage charged" is actually meaningless because the transactions don't even involve Ether at all aside from the payment of the fee. Ethereum is a virtual machine that charges for compute time.
> It follows then that the vast majority of the holders of Ethereum, and the backers of the scheme themselves especially, do not expect to earn from the fees, rather they speculate on the token itself, they hold it because it will appreciate in the future.
The vast majority of stock buyers do not expect to earn from the eventual dividends, rather they speculate on the stock itself, they hold it because it will appreciate in the future. That's just a feature of speculative financial markets - despite that, stocks plod along all the same.
> the preference of the vast majority of non-speculators is to hold on to currency and near money substitutes for periods much larger than it would allow holders of ether to earn trading fees commensurate to the risk of holding ether
Among other things Ethereum is a money transmitting service, not unlike PayPal. If we look at the money stock velocity of dollars on PayPal, I'm sure we would see that it is orders of magnitude higher than the general supply of all dollars out there.
> if the fees are negligible compared to the economic activity that is mediated
Hopefully blockchain scaling techniques will mature, and blockchains will be able to benefit from the economy of scale, charging fractions of a penny each for billions of transactions. That's the path this tech will have to walk if it wants to provide more value.
To beat inflation you need a real yield of zero - that's what real means, inflation adjusted; but I didn't type "real" so I don't understand this nitpick.
> transactions don't even involve Ether at all aside from the payment of the fee. Ethereum is a virtual machine that charges for compute time.
Yes, a stupendously inefficient computation on a distributed machine that's only selling feature is that it does not have a central failure point, either technical or legal. The only application that has been found to date for this computation model is settling financial transactions outside traditional regulatory regimes, so all the discussion is predicated on the profitability of this business. You proposed that trading fees could make the model profitable, I countered that it clearly does not.
Perhaps in the future it could be used to cure cancer or put people in orbit, web5 and all that vapor, but to date it's a payment/settlement network.
> The vast majority of stock buyers do not expect to earn from the eventual dividends, rather they speculate on the stock itself, they hold it because it will appreciate in the future.
That's exactly what I claim, crypto is similar to a stock with near zero dividends long term, pure speculation, close to zero fundamental value (or at least, extremely overvalued in regards to its actual technical merits). "But other people bought Enron stock and many people got rich trading it" does not really contradict my point of view, sure, suckers and their money can be parted in many ways.
> money stock velocity of dollars on PayPal, I'm sure we would see that it is orders of magnitude higher than the general supply of all dollars out there.
I'm willing to bet the exact opposite is true: the real world (non-crypto related, NFTs, ICOs etc.) trade enabled by Ethereum and subchains is a very small fraction of the trillion dollar or so that would be implied by its stock valuation multiplied by typical monetary velocities. Alas, no trustworthy data is likely to exist, so each must use their gut feelings.
But also please regulate and support US dollar backed stablecoins. Folks in various other countries shouldn’t suffer from their own governments lack of fiscal restraint and sophistication. If the US dollar is going to remain the reserve currency, make it accessible for everyone around the world.
Should the US invade, say, Trinidad and Tobago if a company headquartered there starts a $1 Trillion market cap crypto stablecoin called USDX that's supposed to be 1:1 backed by dollar but actually isn't? We know that if there is a fake physical dollar printing press there, there will 100% involvement of physical force. How would crypto be different?
In an unregulated market the unethical actor will always have an upper hand, and sometimes drastic actions like that will be necessary to protect the reserve currency status of USD. Are you ready for it?
Why would an invasion be necessary there? If the US government does not accept USDX as payment for taxes, there remains a foundational difference between USDX and a real USD.
> In the aftermath of the collapse of FTX, authorities should resist the urge to create a parallel legal and regulatory framework for the crypto industry.
Agreed on not creating new frameworks, but...
> It is far better to do nothing, and just let crypto burn.
Is that like just letting every Bernie Madoff's scam run its course -- eventually retail investors and retirement funds will learn to stop investing in scams?
Crypto scammers seem to be loving the wait&see thus far.
Can't we just use the existing tools for dealing with investment scams, general fraud, etc., to take it all down?
> Is that like just letting every Bernie Madoff's scam run its course -- eventually retail investors and retirement funds will learn to stop investing in scams?
Madoff was a scammer operating in a well regulated traditional financial space, where legitimate investment funds exist.
The authors here propose segregating crypto from traditional finance by forbidding fiat fiduciaries to invest in crypto at all. Basically, recognize that most of the crypto is zero sum speculative game that has no legitimate investments, just like banks today are forbidden from purchasing lottery tickets with their depositors' money.
> just like banks today are forbidden from purchasing lottery tickets with their depositors' money.
Crypto should legally be considered gambling, because that's what it is.
The scammers are just this generations gambling houses and the early adoptees are the equivalent to how the house always let's people win to get more people playing.
Though wary of being too much of a negative naysayer ... still, yes, let it burn.
So many of these scams have made their way into legitimate systems, like a disease.
Let crypto find is way to utilitarian need via true, ephemeral, idiosyncratic and weirdo experiments, like the 'old days' of the web - not through leveraged Ponzi schemes disguised as progress.
A lot of people have been waiting for this for some time.
I just can't want for it all to go away, or at least the scammy bits.
If you actually let it burn , it s going to be more powerful than you can ever imagine. Imagine a generation that actually knows what financial risks mean. That generation no longer needs regulation, nor handholding, and understands the concept of being their own bank. So they can leave the banks en masse, irreversibly, and internationally. And then crypto will be able to fulfil its purpose, the destruction of traditional finance and/or central banking
If you don't bail them out, you 're only showing the cruel and elitist face of traditional finance. The 2008 crisis is too close to be forgotten.
I really really really want to believe this is how it will turn out, but unfortunately I just can’t. The number of people who keep falling for the same confidence scams and whatnot (in and out of crypto) over and over, just makes me think that too many humans’ brains are hard-wired to be forever gullible to this stuff and will literally never learn no matter how many times they get burned.
It won't happen. Finance evolved out of the laws of economics and the rules of capitalism. Those are completely orthogonal to the aims of crypto. So long as some people need loans and some people have excess capital to invest, all the exact same patterns will emerge every time. Crypto will just have no safety net, no disclosure or liquidity requirements, no anti-discrimination rules. It's only benefit is privacy and that massively favors the corrupt over the honest.
Sure, but the base currency will be subject to the physical limitations to which gold was. Doesn't mean there won't be any banking, but it will not be able to collude with governments to create and funnel money under the force of guns.
Not none, but less. There's less poverty, more development and much stronger responses to crashes than in the past. There are still market failures but recoveries are much more manageable.
If this article was about avoiding bailouts, most crypto proponents would actually agree
But this article is about:
> Rather than creating a new legal and regulatory framework that legitimises crypto, we should simply let it burn.
in which case I don't agree, or only partially. Although crypto proponents are often allergic to the word regulation, there are some things that could be beneficial. But even with the traditional financial system, a couple CEOs in the 1930s thought it would be funny to get Congress to add confidence to their system with taxpayer dollars, none of this was default, and it would be naive to think the same couldn't be done with crypto.
Not your keys - not your crypto. Stop keeping your money on exchanges. Use Dexes like Uniswap, lending marketplaces like Aave.
The main problem crypto has is lack of adoption (user friendly interfaces, and community adoption) and lack of scalability in layer1.
People are too distracted with zero-sum games to focus resources on innovating out of them.
Similarly in the Web2 tech world.. advertising is a zero-sum game and Big Tech companies like Google and Facebook have been adding more and more ads obnoxiously over the years to compensate for the diminishing returns. This year they crashed whereas Apple and Verizon are going strong.
The point is — innovate and build more usedul business models that aren’t zero sum!
That was five years ago; it's no longer like that. Blockchain software design has progressed past its dial-up era. If you haven't noticed that, you just haven't been paying attention.
> That was five years ago; it's no longer like that.
Straight up misinformation, see here [0] that Ethereum gas fees were almost 10x just one year ago. If the prices have fallen, it is because 1. no one is using ethereum anymore, not like in its hayday, and 2. Ethereum price itself has fallen. It's not because of "technological innovation" as you'd like to pretend.
No, you're the one perpetuating straight up misinformation. You said that "crypto can't offer a better rate than $50 fee per swap," and I'm telling you that that's completely inaccurate, no matter how you slice it.
You can do cheap swaps and borrows on Optimism, Arbitrum, Loopring, Polygon, Solana, etc. - none of those networks were mature in 2017. The cheap swaps are enabled in part by technological innovation that changes the blockchain execution model from an N-of-N model (where every node is required to re-execute a transaction to verify its validity) to a 1-of-N model reliant on proofs - notably optimistic rollups with fraud proofs (Optimism/Arbitrum) and zk-rollups with zero knowledge proofs (Loopring, with novel ZK-STARKs).
> It's not because of "technological innovation" as you'd like to pretend.
If you aren't actually following the innovation, don't pretend that there is no innovation. Either educate yourself, or don't make false claims about what the tech can or cannot do. Even Uniswap itself is multi-chain now, running on Polygon, Optimism and Arbitrum. But if you weren't following the tech, then you wouldn't necessarily know that.
Nobody mentioned Ethereum until you did. If Ethereum is the only project you're following, that explains why you have such a large knowledge gap.
This lecture by Berkeley CS professor Nicholas Weaver is a fantastic overview of what cryptocurrency and Blockchain actually is and why it is a complete waste of time, energy, and money and needs to be reduced to 0:
I used to think "well maybe there is some real application of Bitcoin" but the more I learned about it I just realized the entire enterprise is awful and the only real benefit it has is uncensored money transfer. Which is great for ransomware.
Now that Bitcoin is practically controlled by under 10 miners, there really is no decentralized part of it.
Bitcoin maxis say you don't need to trust anyone, but that's not true. You gotta trust the code. Trust the miners.
Also what good is magic internet money if I need to keep everything in an offline cold storage wallet to be secure?
The only useful application now is using Bitcoin as a honeypot in your servers to notify you if a hacker has access to your systems (you'll see it when the wallet is drained!).
You can be secure with a hardware wallet. The keys stay internal to it, it shows the transaction data on its own display, you press a button on the hardware wallet to approve, and it passes the signed transaction back to your computer.
That's not a problem either, you keep a 24-word seed phrase as a backup. That's what goes in your deep cold storage. This has been well-known basic practice for years now.
An emerging option is social recovery, as advocated by Vitalik. There are phone wallets now that let you have, say, 3 of 5 recovery, where the five are trusted friends/family or even a business or two.
This presentation has great content but it's let down somewhat by the guy's presentation style.
He's an adult professor in his late 40s with the mannerisms of a teenage redditor: a veneer of self-impressed haughtiness over clear insecurities. All the high-pitched exclamations were hard to listen to.
It’s amusing how some people treat the collapse of one fraudulent CEX as the end of crypto. If there was an event that could’ve killed crypto then that would’ve been the collapse of Mt. Gox. Systemically speaking, the collapse of FTX is orders of magnitude less of an issue now than the collapse of Gox was then. I’m not saying crypto can’t be killed. It probably can be. But this is not it, not even close.
The sentiment is understandable but I think the hands-off approach has pretty clearly failed: ordinary retail investors are in fact plowing funds into crypto as investments (I went to grade school with several of them, who post constantly about this stuff on Facebook). In the status quo, nothing keeps a company like FTX from plastering Tom Brady and Gisele Bundchen all over Chicago, positioning itself as a real alternative to Fidelity or Schwab.
Regulation doesn't have to mean legitimation. It can mean the opposite thing: ban public promotion of crypto assets, the same way we do with hedge funds and other qualified investments. Forbid FDIC-regulated institutions from accepting crypto as collateral. The contagion seems easy to stop.
It looked like Gensler was trying to secure a monopoly for FTX in the US, so making sure Coinbase didn't have a competing product was a cornerstone of that game plan.
One might be against crypto, I get it. But this whole article looks like as if it's written by a compulsive teenager who hates crypto because they've lost money in it.
Regardless of the context and which side one is in, I'd expect more formal and serious articles from FT instead of teenager flame forum posts.
I think this is from FT Alphaville or at least affiliated (though the authors are professors so I am a bit surprised still). Alphaville seems to be an attempt to keep the FT relevant for a younger generation based on what I read during the SBF debacle. It's more in line with the tone of a Substack/newsletter post, which I think makes sense given the influence of similar approaches to financial reporting like Matt Levine.
I think a lot of people are responding to just the headline. For me a key part is, as the article says, making the new regulations "ones that limit exposure of traditional leveraged intermediaries to the crypto world". But I also think we need to make sure the existing substantial barriers for unsophisticated individuals investigating in dangerous products cover the crypto world.
Pure "caveat emptor" works in a low-trust society. But it's wildly inefficient, which is why rich countries are high-trust societies enabled through regulation. E.g., the reason you can safely eat at most restaurants is a web of food safety laws and health department restaurants. People who are used to that are in for stomach-clutching surprises when they travel to low-regulation, low-trust areas.
So for me letting crypto burn includes real barriers to scammers hoovering up the life savings of the naive. The simplest thing would be to extend the "accredited investor" standard, such that anybody who wants to play the digital ponies either needs to be rich enough to afford the losses or prove sufficient sophistication that they really know what they're doing.
(And the answer to "but why" is twofold. One, society has to pick up the tab for people who run out of money. And two, the more money criminals have the more crime they can do, so we all have an interest in keeping the level of scams low.)
> The simplest thing would be to extend the "accredited investor" standard, such that anybody who wants to play the digital ponies either needs to be rich enough to afford the losses or prove sufficient sophistication that they really know what they're doing.
I think this is already more or less the case. The SEC recently updated the accredited investor standard to include not just means testing, but alternate sophistication tests like Series 7/63/etc, CFA iirc. I’m not sure how/if they fully enforce it or not, but they do to at least some extent, which is why FTX, Binance and others run two versions of their services, a US-based one and an international one.
FTX had billboards up all over Chicago. A hedge fund can't do that; the regulations on qualified investments (at least pre-JOBS) prohibit promotion to retail investors.
It might depend a little on the fund but I think it’s probably right that conditional on a client investing a small amount of money, they are more likely a big pain to deal with. On the other hand I think startups often accept pretty tiny (eg 5-10k) angel investments. But maybe I’m wrong about that.
I think a typical hedge fund won't accept less than $100k. For a lot of brand-name funds, the minimum is $1M or higher. Many of them won't accept new investors at all, or when they do, it's for very large amounts of money. For example, Citadel is $10m+. Millenium is $25m+.
It’s not just crypto, apps like Robinhood also grant access to instruments and trading that were only accessible to sophisticated or high net worth investors prior to that which can also cause a lot of problems for people who don’t know what they are doing and trying to follow some WSB get rich quick fad.
There is a reason why the terms “sophisticated investors” and “high net worth investors” are defined and regulated in most if not all jurisdictions, it’s to protect people from being overly exposed to high risk and being preyed upon and prevent society form picking up the bill.
Discount brokerages have existed for a long time and brokerages in general even longer. I don’t know what products you think only became available via Robinhood that weren’t available through eg interactive brokers or Schwab before. That said, there was a fee to trade which made small orders more expensive and maybe Robinhood encourages people to try more risky things (eg options)?
This isn’t about discounted brokerages it’s about what kind of positions and types of trades you are allowed to open, and do you or do not get access to leverage.
This isn’t about someone buying stocks more easily and cheaply this is about opening a complex leveraged position on some esoteric derivative that the 500 layers turned traders who came up with don’t even understand that can put you in the red for sums orders of magnitude larger than what you are investing in the first place.
We’ve learned the hard way that we need to limit the risk exposure of traders by both their experience and ability to take on losses and yes Robinhood cuts through that wall quite effectively.
Maybe I misread your previous comment because it sounded to me like you were making a claim about new things robinhood was giving people access to and that’s why I pointed out that I don’t think those things are really new or unique to the recent app-based brokerages.
Regarding what you wrote above:
I don’t really know what you mean by esoteric derivatives? Are you talking about single-stock options or various futures or ETNs or maybe VIX derivatives? FWIW, I think retail options trading isn’t great for almost anyone doing it, and I think people trade single stocks too much too. I think most ETFs/ETNs are ok but others might disagree about e.g. 3xS&P500 or whatever. There are other exceptions.
However these things aren’t new to robinhood. It’s been possible to trade those things (albeit without fireworks, and maybe with some kind of annying approval process) at plenty of discount brokerages for a long time. Crypto is a bit of an exception. Maybe there are other things one can trade at Robinhood and not elsewhere?
Accredited investor structures are a class-based society which I disagree with. I disagree with "if you are in the club, you get access" which seems opposed to the ideals of crypto in the first place. Let ordinary folks participate in the benefits of crypto, hedge funds, etc.
What are the rules for accredited investors? Right now it's limited to rich people - they're not going do a subjective test on sophisticated vs unsophisticated. It's all based on wealth right now. What if I'm a comp sci PhD who really studied crypto in-depth... "nope, you're out because you're a poor student".
You also imply that it's a forgone conclusion that crypto is a bad thing. People plowed money into tech stocks in 1999, which crashed in 2000/2001. In the aftermath, what if you banned investing in dotcom tech in 2003 and beyond. Google and Amazon stock is only for "qualified" investors?? Crypto could turn out to be good.
> ...or prove sufficient sophistication that they really know what they're doing."
You could extend the standard by other ways which don't depend on how much one owns - e.g. require people to take a test and make sure they understand the basics of the product/ecosystem they are investing in.
Might also be useful to put up limits how much of your savings can be invested. But in a few $1000 play money is one thing, betting your entire life savings or your children's college fund is something else.
I see it similar to driver's licenses. A driver's license is technically discriminating in the sense that it excludes everyone physically or mentally unfit to drive a car. But it does so with good reason, because attempting to drive when you're really not able to do so can have catastrophic consequences.
They're not going to do something like drivers license or a test. Right now being an "accredited" investor is solely based on wealth. Sometimes on a broker website you click a multiple choice questionnaire that says "are you sophisticated: yes or no". It's a broken system that's not going to change. Extending it is a bad idea. Nanny states are bad idea.
There are basic EU regulations were you need to state whether you understand the product or not - and to make sure the bank is not selling stuff you don’t understand, and that you won’t sue them claiming ignorance.
Anyone can and has to do it. Bank offers free materials for you to understand what you are doing.
Making sure you don’t commit financial suicide and then turn around crying “banks are bad” is, to me, a positive measure for everyone. And is free to consumers.
Yeah that sounds good. Not actually limiting people. Make them responsible for their actions. But that is not in the same spirit as other commenters mentioning "accredited investors".
One could argue that a separate crypto exam would be useful, but I think it's better to just include it in some existing exam as another asset class.
> You also imply that it's a forgone conclusion that crypto is a bad thing.
I don't. Based on the trash fire of the last decade that would be a reasonable conclusion. But my point here is just that it's unregulated, and therefore has a much higher level of risk, especially to unsophisticated investors.
The requirements to be an accredited investor changed recently. It’s possible to be an accredited investor because of passing certain tests that are basically required for lots of people who work in finance anyway.
The wealth requirements are, roughly, $200k personal income, $300k joint, or $1m net worth. The numbers look big but I think they aren’t really that high. The numbers are nominal and haven’t changed in a long time so the bar has been lowering over time. $200k income used to be a much higher bar (both in general due to inflation and on this site as income for programmers has gone up a lot in the last 20 years). If the $1m includes real estate wealth then the requirement is basically to be old and to have had a high-but-not-crazy income and bought a house somewhere where prices have gone up a lot.
Every now and then there will be some news story about some unfortunate dentist who got tricked into investing into some terrible scheme or who made some other poor decisions (e.g. ‘I wanted maximum safety so I figured I’d buy bonds and I put all my money into buying bonds in this Turkish real estate developer that paid 15% that I found from a Facebook ad and now they’ve gone bust and I’ve lost all my money’) which they were only able to do due to their upper-middle-class income/wealth qualifying them as an accredited investor. So I think the rules aren’t particularly fit for purpose. Having a test is maybe better. Having an annoying process where a bunch of government officials tell you that you’ll lose all your money is a funny idea but presumably scammers are much better at learning how to walk people through that sort of thing than the government is at making it do what is intended. Having some process which takes a while might help a bit but maybe is too annoying.
I think it’s also extremely false that getting rid of accredited investors gets rid of the class system that currently exists. There will still be ISDAs and relationships and so on. Even if you’re an accredited investor, you’re not going to get the opportunity to participate as an angel investor in all the best companies and you can’t phone up Goldman and get them to construct some new derivative for you to buy, so I think there’s a lot of adverse selection for someone who becomes an accredited investor but doesn’t have much to invest or many good connections.
My (poor) understanding is that this is also true in crypto in that the better deals will generally be available to early investors (ie some big fund, not you) who can then dump their positions on everyone else (ie you) after some relatively short lockout.
Finally, I don’t think being a ‘comp sci PhD who really studied crypto in-depth’ is actually a good example of a way to tell if someone is fit to invest in something. The qualifications are generally about understanding the financial product rather than understanding the underlying ‘business’.
Impossible to fix. The more diverse a society is, the lower the trust it has in its governments. We don’t want to pick up the tabs caused by the problems introduced by “the others” in our diverse society. For example, student loan forgiveness, affirmative action, diversity hiring, stimulus checks, petty theft forgiveness, etc.
You're using the words "low trust society" to mean something different than I am, which doesn't strike me as particularly helpful.
If you as a person do not want to trust government regulation, that's great! Please do your own research, test food quality yourself, and inspect the kitchen every time you want to order a burger.
Also, if you don't want "the others" in "our diverse society" to be seen as a dog whistle, you should perhaps choose some different phrasing.
in a diverse society like the USA, we have too many things that we disagree upon. In a homogeneous society like Japan, we don't. Hence we can trust the government more.
Yes, I want my government to test food quality, to inspect the kitchen. But I don't want my government to bailout petty thefts, to give stimulus checks, to hail criminals as saviors (BLM), to require me to pronounce different genders, etc.
If you want your government to test food quality and inspect kitchens, then you trust your government in those things, and then can therefore trust that eating at a restaurant is safe. Part of what makes first-world societies work is that sort of effort. People can just go about their business and not have to investigate every little thing.
Similarly, the reason that the US has one of the most robust financial markets in the world is regulation. That regulation comes from governments and exchanges and it is intense. But that means that investors can generally trust financial statements, etc. Lowering the barrier to investment means more capital invested, making things better for everybody.
Trust is economically valuable and it isn't free.
> It is a dog whistle. I meant to say that.
Ok. I appreciate you admitting that you are choosing to be racist. So few racists do these days.
Sounds like a pretty sorry state of things and not how I like to live. I bet you trust a lot of aspects of society though, such as every piece of food you buy at a grocery store and in a restaurant, every prescription and over the counter medicine you consume, and every bridge you drive over.
Indeed it is. Unfortunately, I am not a globalist. I used to be, used to be gung-ho about diversity and multiculturalism. Not so much anymore, began to see the cost it brings.
We don't need diversity to have modern 1st world comfort. See Japan.
That looks unenforceable. True, most devices today (ios and android) have protections, but still there are devices running Linux or Windows that allow anyone to install unwelcome software, including crypto wallets.
> Both crypto and traditional finance are simply combinations of a database and computer code. It would be straightforward for a group of technicians to convert any set of conditional cash flows from one into the other.
chuckle
Interesting take for a publication like FT. The Economist, another “reputable”, traditional outlet synonymous with traditional finance, has a more balanced and optimistic take, if anyone cares to read it.
> Absent clear and easily enforceable property rights, relying solely on private investors to monitor and discipline the behaviour of opaque intermediaries has never been safe and effective. There is no prospect for a technological solution to these age-old problems.
The technical solution to opaque intermediaries is already here, and it's transparent intermediaries (enabled by smart contracts.) They let you replace an opaque piece of code running in a company's back room with a transparent piece of code that can be publicly read, understood, and audited. It can make an interaction with an intermediary very predictable and reliable, because you can trace/simulate the intermediary's exact code execution path (and thus know exactly what they are going to do with your money) before you even send the request.
It's striking to me that the author doesn't state his opinion on smart contracts anywhere in the post. It makes me wonder whether he really thought they weren't a topic that readers would naturally use to contextualize his post, or whether he's ignorant of their existence.
That's aside from the entire premise of the article being based on this idea that "crypto" is some monolithic corrupting force, rather than simply a messy emergent series of public databases that are as unthinking and uncaring as MySQL or Git.
> Both crypto and traditional finance are simply combinations of a database and computer code. It would be straightforward for a group of technicians to convert any set of conditional cash flows from one into the other.
The author seems so close to "getting it". If only he asked the question "now what changes when the general public has unfettered real-time read access to those databases and computer code," perhaps he could see the uniqueness of the design space, and appreciate that there's much more emergent game theory to work through before writing crypto off as being on a path of implosion into irrelevancy.
Can you show me a smart contract that will let me exchange some amount of cryptocurrency for a banana? Ideally one which allows me to go after the banana seller if it turns out to be rotten, or worse, poisoned.
If you can't, then please understand that in the real world you will always need a counterparty and a thousand intermediary for something as simple as a banana. All the "smart" contracts [1] are good for is a fancy way of swapping shitcoin A for shitcoin B, and until that changes none of what you said has any effect.
[1] smart until they end up on rekt.news leaderboard.
> Can you show me a smart contract that will let me exchange some amount of cryptocurrency for a banana?
Agricultural futures contracts technically do what you're describing, and trading them currently involves a lot of intermediaries that could theoretically be replaced with smart contracts in a straightforward way.
And Unisocks exchange lets you exchange cryptocurrency for a tokenized sock, by the way, redeemable on demand. Technically this disintermediates online shops and payment processors, though obviously it's a toy project and there's a whole lot more that it doesn't disintermediate. Systems like these are inherently composable, for instance you could imagine an international shipping company wrapping the sock token into their own token, creating a token that represents a sock shipped to anywhere in the world. In this way, smart contracts enable obligations to be nested in a way that is completely transparent to the public.
Your query comes off to me like a 70's computer critic saying "can you show me a computer program that will let me exchange some amount of money for a banana?" Of course computer code can't reach out of the screen and put a banana into your hand, yet software can and does help facilitate coordination between you, the distributor, and the grower.
> If you can't, then please understand that in the real world you will always need a counterparty and a thousand intermediary for something as simple as a banana.
Try something intangible. Like a banana futures contract, a share of stock, a domain name, a concert ticket, a video game license/skin, a stock photo license, a building key card, with proper regulation a property deed, the list goes on.
We live in a society where a few bits in a bank/government database somewhere are the biggest separator between the homeless and the wealthy. The vision of smart contracts is to bring more accountability, transparency, and predictability to the processes that handle those critical bits of data. A snippet of code isn't going to be solely responsible for putting a banana on your table, but eventually it might make it a bit easier for a South American banana farmer to financially hedge his crop, for a consumer to transparently trace which shipping companies signed off for the banana before it was purchased at the supermarket, or even enable a banana DAO which could make sure everyone in a banana supply chain gets paid without requiring a traditional corporate structure.
Yes obviously we all know a Blockchain can't reach into the real world and put a banana in my hand... But the point is that what does Blockchain give anyone that a simple app (zelle, PayPal, bananas r us, etc) doesn't? I still need to trust the vendor.
Copying my comment from an old thread because I'm still looking for a satisfying answer:
> To the crypto-inclined people commenting on every thread about how failing centralized exchanges don't effect you and are actually good for Bitcoin, how are you planning to convert your hard earned crypto into US dollars that you can spend at a grocery store? If your answer is "P2P exchanges," how do you plan to secure your cold wallet against the infamous rubber hose cryptanalysis?
I think it's prudent to use exchanges as needed, but only transfer assets that you intend to exchange in the near future, and withdraw once the exchange is done.
There's still a slight risk, but much less compared to just letting funds sit on an exchange indefinitely.
Of course, choosing a reputable, long-standing exchange like Coinbase also helps.
> Absent clear and easily enforceable property rights, relying solely on private investors to monitor and discipline the behaviour of opaque intermediaries has never been safe and effective. There is no prospect for a technological solution to these age-old problems.
I disagree. If anything, technology would provide solutions to these problems, but Crypto in its current form ain't it.
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[ 4.8 ms ] story [ 262 ms ] threadAnybody who wanted to use an exchange that complies with regulations could just use Coinbase. There's a reason people don't.
So what do you want? FTX to operate under the same regulations as traditional financial institutions? Ok. That's fine, but we already have those regulations, it's the crypto organisations that are pretending that they don't exist - for the exact reason they don't want to follow them.
I'd submit the root of the problem is finacializing things that are not economically productive. As cryptoasset supporters frequently point out, every market has some ponzenomic qualities, but pulling tokens from thin air amplifies them.
That’s the big hypothesis being tested right now. So far it’s only the centralized entities that are collapsing, and crypto market values are down as a result, but that’s not the same thing as a collapse or failure of the protocols.
But this train wreck is still happening, so we’ll see if it causes some cryptocurrencies to fail too. Possibly some of the weaker ones will lose too much mining/validating power and get hacked or 51% attacked. If that happens to the bigger ones then it will expose a serious problem with the tech and economics of it all.
This is arguably the most valuable informational period in crypto’s history - the first high-interest environment stress test it’s ever had. Either it will cull the weak and leave standing only the ones robust enough to withstand such environment, or will cull the entire industry. Either way at least we’ll empirically know the truth of it all.
> Everything in "tradfi" is centralized, and there are frequent frauds and bad actors, but it remains much more robust than the cryptoasset ecosystem.
I think the GFC demonstrated “tradfi” is anything but robust. If not for the govt and Fed bailouts, the scale of the losses could have exceeded the banking system’s cumulative revenue of its entire modern history, going back to the 1800s. And that was with regulation (albeit steadily weakened since the 80s).
You could potentially make the argument that certain forms of tradfi are robust, for example under the Glass-Steagal regime that separated commercial banking, investment banking, and insurance into separate legal entities, among other restrictions (a form of decentralization).
Also Germany’s local community banking system, which until recent decades was the main financier of Germany’s industrial economy, and which has never had a financial crisis since its origins in the 1700s/1800s, is also quite a robust model (also a form of decentralization).
> I’d submit the root of the problem is financializing things that are not economically productive
I don’t disagree. Low-interest cheap money environments tend to have that effect, crypto or no-crypto.
I’m not sure having ubiquitous CBDCs with all that may entail would be better than having a few trusted centralised exchanges for fiat on/off-ramp though.
Permissioned decentralized global monetary system will simply keep evolving into a more permissionless decentralized global monetary system.
I think people need to know that no one is going to help them - caveat emptor. If the goal of crypto is to rebuild finance, eliminating taxpayer funded bailouts is a top priority.
I guess even someone with most hardcore anti-regulation views would most likely approve of (and quite likely, support) education, including being upfront about all the unsavvy bits and dangers.
The information is freely available to anyone. Sadly, it's always hard to separate the signal from the noise, especially when the herd and the wolves arrive.
Are you of the opinion that the government should have blocked the superbowl ads?
The wheat is being separated from the chaff, and I am absolutely here for it. I wish more innocent people would have listened to us and not trusted centralized exchanges or yolo'd huge money into shitcoins, but sometimes you have to watch a child touch a hot stove for their long term well-being.
Tick tock, next block.
Tick tock, next block.
Bad in the long run for who? What did these VCs invest in? A huge pile of scam alt coins / alt chains, centralized exchanges, stuff no one wants.
Bitcoin is digital gold. It’s boring and has operated mostly the same since the beginning. We don’t need FTX and I hope the tourists don’t come back.
The rest will at best be iterative technology that may eventually be integrated into the traditional securities and exchange systems governed by the local monopoly on violence, but is generally uninvestable in its current form.
None of it (including Bitcoin) generates any value. Nothing is created that benefits the human race. It's speculation all the way down - the only value that a bitcoin has is the likelihood of someone else paying more for it than you paid for it. It's not a turning point for human civilisation; it's a slot machine in a digital casino.
Not that the derivatives of "tradfi" are any better. But underneath all that speculation at least there is actual stocks in actual companies that are actually making real human value.
With Bitcoin, we're talking about nothing less than the separation of money and state, like we obtained the separation of church and state. This is huge.
How is that better?
We're also rolling the Stratum v2 protocol, which will considerably improve the decentralization.
https://braiins.com/blog/stratum-v2-bitcoin-decentralization
You could say gold, silver or basically any store of value use PoW too: they require a considerable amount of time and energy to obtain. If you could just use dirt as money, it would be worthless as anyone could produce some effortlessly. It's the basis of sound money.
Bitcoin currently uses about 85TW/year of energy for its mining. Estimations for the traditional finance system seem to be around 2000TW/year. Factoring the amount of transactions, Bitcoin is about 50 more efficient per transaction (accounting transportation, paper and coin production, datacenters, energy used by banks). Its energy usage is also independent of the amount of transactions, so it becomes more efficient as the number of transactions grow.
It cannot function as a currency because it's too slow (you can't wait for ~10 minutes to see if your transaction for included in the block in order to pay for a coffee).
In order to separate State from Money, we need a currency. Until I can buy a coffee with my hypothetical FreeCoin, I need to rely on fiat currency supplied by someone both I and the barista trust (like a government).
This isn't huge, it's shit
Large amounts of transactions should be made off-chain through payment channels, with only the final balance between the parties written to the blockchain. This what layers 2, sitting above the blockchain, are about.
Common layers 2 are Lightning and Liquid, the former being the most widely used.
https://www.bitcoin.com/get-started/what-is-lightning-networ...
https://www.investopedia.com/terms/l/lightning-network.asp
It might interest you to note than clightning is written by Rusty Russel, mostly know for its work with the Linux kernel, and also author of iptables.
We're also seing some layer 3 like RGB for smart contracts, but I digress. Suffice to say, Bitcoin is more than its layer 1 and store of value.
The distinction between cash and crypto boils down to if you have more trust in centralization or de-centralization.
It's too bad that (bitcoin, mostly) maxis are using the recent crypto embarassment as a way to justify their own vested crypto interests. To say "we're better than them" without really explaining how in a way that doesn't require incredible feats of mental gymnastics.
edit: here's an example:
https://www.cnbc.com/video/2022/11/16/theres-bitcoin-and-the...
That could have been true if Bitcoin had a never changing block reward. The miners in the first 4 years (including Satoshi himself) had a huge advantage.
anyone could have decided to buy bitcoin when it was cheap. the advantage of bitcoin is that your enemies have to expend prohibitive amounts of energy to screw anyone over, and that protection is accessible to everyone
Wrong; the vast majority of people were unaware of bitcoin, and how its emission worked, in the first 4 years when half of all bitcoin was emitted and it was still relatively cheap.
Crypto has been put forth as the hedge against fiats, but in reality it seems to be more as a speculative instrument.
My bitcoin denominated net worth has gone up a lot this year. Most of my other money is in the S&P 500, which has almost tripled in value this year. https://www.pricedinbitcoin21.com/chart/index/GSPC.INDX
Unfortunately, the cost of goods and services denominated in bitcoin has also gone up a lot this year. The money supply is only one side of the equation when it comes to the price of goods and services.
Are you interpreting the PricedinBitcoin21 index correctly? I don't think the index going up 3X this year really means what you've thought it meant.
I suspect that 'denominated' doesn't mean what you think it means.
It's bad for bitcoins for the index having gone up 3X. It's like the CPI has gone up 3X. You want the index to go down if you're holding bitcoins.
From your previous comments it seems you believe your net worth has gone up because of this index gone up. This index going up has the opposite effect on your bitcoin based net worth. I hope I'm mistaken.
I suspect you asked your initial question incorrectly and wanted to know if my dollar denominated crypto holdings have increased or decreased in value. They have obviously decreased when measured in dollars.
When it comes to value, there is no objective measuring stick. There is no SI standard of measure for value. Every way to measure value is subjective and must be compared relative to other measures. You can measure your net worth by the measuring stick of dollars, euros, Venezuelan bolívars, oil, gold, bitcoin, cartons of eggs, or McDonalds big macs. The Big Mac index is a popular example of this, https://en.wikipedia.org/wiki/Big_Mac_Index
When you ask what my "bitcoin denominated net worth" has done, what you asking is what my net worth number has done when measured in terms of bitcoin rather than in terms of dollars. In this value measurement context, if all of my net worth was directly in bitcoin, there would be zero change, just like if all of my net worth was directly in dollars there would never be any change to my dollar denominated net worth.
Whatever make you happy. Happy investing.
I don't need to worry about insurance, or picking the wrong insurance vendor!
Crypto - no way to know what, if any, company is legit. If I use a hardware wallet and lose it I'm screwed. FTX seemed pretty legit a few weeks ago, they even had an NBA arena named after them! There are dozens of ways an unsophisticated investor can lose everything.
If I understand you correctly, this is a terribly unethical take, lacking in any sort of empathy. But also lacks any historic understanding of scammers and psychological understanding of human behavior.
This plan won’t work, there will always be innocents to scam, and scammers will continue to exploit it until authorities put a stop to it. There is a reason why ponzi schemes were criminalized, if they wouldn’t have been, we would still see criminals exploit people from the same playbook today.
Here, as in other criminal areas, prevention is always preferable to punishment.
If you want this all to be an unregulated wild west of scams, eventually you won't have any normal users left as they all lose their shirts and eventually wise up. All you'll have left is crypto propeller heads (and the rubes too clueless to catch on to the risk associated with exchanges), and with such a small potential user base it'll never be useful for any practical application.
The white paper was written 13 years ago. What actual problems does it legally solve?
Store of value? Not so successful. Inflation hedge? Nope. Micropayments? Nobody wants them - any traditional financial company could implement it instantly. If people wanted it.
So we are left with the few things that cryptocurrency has actually been good at: tax avoidance, illicit transactions and ransomware.
Cryptocurrency has been a scourge and has no redeeming quantities.
ETH mining did pay for a computer I bought a few times over though so I guess thanks for that.
All financial contracts on these systems must be fully- or over-collateralized, and if the collateral is used up there’s no margin calls for more, instead the contract is automatically closed. That creates an immense buffer against cascading financial collapse and house-of cards style financial structures that Wall St. likes to build.
The possibility of a GFC or Great Depression (leveraged credit crises/collapse) is arguably the single biggest problem in all of the traditional financial system. Cryptocurrency may solve it.
There are many ways to prevent Wall Street or other organizations from becoming overleveraged.
My point is, crypto may represent a permanent and deterministic solution to this problem, implemented at the protocol/infrastructure level, and which is difficult or impossible to corrupt via lobbying and political capture.
With little or no debt, economic growth would no doubt be slower in the short/medium term. But an equity-only system with slower growth might be comparable in the long-run, due to continuous growth with no principle drawdowns and setbacks from periodic financial collapses.
I don’t know of any research attempting such comparisons, everyone assumes debt is inevitable and doesn’t bother thinking about this.
That said, if somehow you had a similar hypothetical economy but with little or no debt, the equity side might be larger.
The kind of unsafe leveraged bundling that caused the great financial crisis was already illegal. In theory, the banks should have suffered the consequences of their poor trades. In practice, both the banks and the government knew that by enforcing those consequences, the entire financial system as we knew it would fall apart. So the banks smartly factored the bailouts into their risk calculations when entering into those trades.
Crypto enables systems that cannot be as easily bailed out. It changes the game theory so that failure is no longer a "get bailout and still win" condition for speculative lenders. So in a way, crypto absolutely does create "ways to make breaches of trust cost more."
Receiving payments from abroad is far faster and cheaper than bank transfers, and I can do it ignoring restrictions by various governments.
I can finance anti-Putin initiatives without risk of getting caught and prosecuted.
Bitcoins is a godsend and even if it didn't have any other uses, these would be enough to make it valuable.
Idk if I’d be so confident about this point.
I don't care about any of the use cases you mention because those are made up. The need to transfer value isn't.
There's a new Stripe or Paypal horror story on HN every other week, and the only way to get around them is to trust the next best entity until they break down, or to give up more privacy than a simple purchase should ever require.
Besides, why should there be a need for regulation in a trustless system at all? If you think this is a beneficial setup, live (and die) by it.
Uniswap is a good example of a trustless exchange. It runs on chain and doesn't have admin keys. If you have assets in uniswap, the only person who can move them is you.
We should regulate trusted actors that hold other people's money, and avoid interfering with trustless systems.
Lots more people have made some money on Uniswap, either by trading well, or by providing liquidity and collecting a portion of fees.
(And Hacker News is a forum run by ycombinator, whose whole point is the founding of new companies, with the goal of making a few people rich and, hopefully, providing valuable services to lots more people.)
UNI probably did get them rich through the usual insider-y mechanisms, but as I recall they were almost forced into it by SUSHI and friends. I found it a little sad as before it looked 100% trustless/0% insider-rewarding.
These private money substitutes should be firewalled from the traditional financial system, nobody's pension should be invested in speculative crypto assets. The long term value of crypto should then result from the actual wealth they generate intrinsically (for example, ease of trade, enabling fast innovative transactions that fiat can't) - as opposed to broad "adoption" by the conventional financial industry, who would just use the space to circumvent existing regulations.
Traditional finance can, in time, adopt tools and systems from the crypto space (for example, distributed ledgers, "blockchains") if they are technically robust, without the associated speculative mania.
New technologies and speculative mania naturally come hand in hand, no? Crypto seems to be following the same adoption curve that all flashy new technologies have followed.
https://i.imgur.com/uhYF1OW.png
There's the trigger, the peak of inflated expectations, the trough of disillusionment, the slope of enlightenment, then the plateau of productivity.
It's as if investors in the tech stocks would bet that a single company with an innovative trading solution would come to replace a substantial part / all of the stock market.
But there was a single company with an innovative trading solution, and it did come to replace effectively all existing stock market settlement, at least in the US. It's the Depository Trust & Clearing Corporation, and it was founded in the 70s.
I guess I still don't fully understand what you're implying, but I am interested.
If we go back to your original comment:
> The problem with crypto is that instead of speculating on the premise of the actual inovative technology, the speculation is centered around the close money substitute that the technology enabled.
I would argue that an investment in e.g. Ether is speculation on the promise of (an implementation of) the technology, rather than a "money substitute". The chain is designed such that as it charges usage fees, that value accrues to holders of the native token, ETH. It behaves not unlike a (hopefully) profitable autonomous company of some sort.
The trouble with that is that if the fees are negligible compared to the economic activity that is mediated (as crypto bulls claim), then you need to lock a massive amount of capital in the collective float of the currency.
For example, the M2 money stock velocity of the US Dollar is historically in the 1-3 range, so that each dollar either in electronic or hard currency form changes hands a few times in a year.
So for Ether to generate even something like a meager 3% yield to beat inflation you need to charge on the order of 1%-3% for each transaction, which is orders of magnitude over what is expected or competitive. It follows then that the vast majority of the holders of Ethereum, and the backers of the scheme themselves especially, do not expect to earn from the fees, rather they speculate on the token itself, they hold it because it will appreciate in the future. They are betting ether will replace, say, dollars in mediating transactions and hope to gain value by depreciating the dollar.
To be very precise, I'm not saying that Ether can't move much faster and accrue larger fees (as it in fact did recently), but that the preference of the vast majority of non-speculators is to hold on to currency and near money substitutes for periods much larger than it would allow holders of ether to earn trading fees commensurate to the risk of holding ether. So the flurry of recent activity (and the willingness to pay large fees) must be of a speculative nature, unsustainable on the long run.
Inflation eats away at a rate of 3%, so to beat inflation Ether needs to beat a -3% real yield, not a 3% real yield. A 3% real yield would mean that Ether appreciates at 6% compared to an asset that inflates at 3%.
> you need to charge on the order of 1%-3% for each transaction, which is orders of magnitude over what is expected or competitive.
That figure depends entirely on the total number of transactions and the fee paid by each transaction. It doesn't depend on the percentage of money transacted that is charged as a fee for each transaction. For many transactions, "percentage charged" is actually meaningless because the transactions don't even involve Ether at all aside from the payment of the fee. Ethereum is a virtual machine that charges for compute time.
> It follows then that the vast majority of the holders of Ethereum, and the backers of the scheme themselves especially, do not expect to earn from the fees, rather they speculate on the token itself, they hold it because it will appreciate in the future.
The vast majority of stock buyers do not expect to earn from the eventual dividends, rather they speculate on the stock itself, they hold it because it will appreciate in the future. That's just a feature of speculative financial markets - despite that, stocks plod along all the same.
> the preference of the vast majority of non-speculators is to hold on to currency and near money substitutes for periods much larger than it would allow holders of ether to earn trading fees commensurate to the risk of holding ether
Among other things Ethereum is a money transmitting service, not unlike PayPal. If we look at the money stock velocity of dollars on PayPal, I'm sure we would see that it is orders of magnitude higher than the general supply of all dollars out there.
> if the fees are negligible compared to the economic activity that is mediated
Hopefully blockchain scaling techniques will mature, and blockchains will be able to benefit from the economy of scale, charging fractions of a penny each for billions of transactions. That's the path this tech will have to walk if it wants to provide more value.
> transactions don't even involve Ether at all aside from the payment of the fee. Ethereum is a virtual machine that charges for compute time.
Yes, a stupendously inefficient computation on a distributed machine that's only selling feature is that it does not have a central failure point, either technical or legal. The only application that has been found to date for this computation model is settling financial transactions outside traditional regulatory regimes, so all the discussion is predicated on the profitability of this business. You proposed that trading fees could make the model profitable, I countered that it clearly does not.
Perhaps in the future it could be used to cure cancer or put people in orbit, web5 and all that vapor, but to date it's a payment/settlement network.
> The vast majority of stock buyers do not expect to earn from the eventual dividends, rather they speculate on the stock itself, they hold it because it will appreciate in the future.
That's exactly what I claim, crypto is similar to a stock with near zero dividends long term, pure speculation, close to zero fundamental value (or at least, extremely overvalued in regards to its actual technical merits). "But other people bought Enron stock and many people got rich trading it" does not really contradict my point of view, sure, suckers and their money can be parted in many ways.
> money stock velocity of dollars on PayPal, I'm sure we would see that it is orders of magnitude higher than the general supply of all dollars out there.
I'm willing to bet the exact opposite is true: the real world (non-crypto related, NFTs, ICOs etc.) trade enabled by Ethereum and subchains is a very small fraction of the trillion dollar or so that would be implied by its stock valuation multiplied by typical monetary velocities. Alas, no trustworthy data is likely to exist, so each must use their gut feelings.
Please let it all burn.
But also please regulate and support US dollar backed stablecoins. Folks in various other countries shouldn’t suffer from their own governments lack of fiscal restraint and sophistication. If the US dollar is going to remain the reserve currency, make it accessible for everyone around the world.
In an unregulated market the unethical actor will always have an upper hand, and sometimes drastic actions like that will be necessary to protect the reserve currency status of USD. Are you ready for it?
Agreed on not creating new frameworks, but...
> It is far better to do nothing, and just let crypto burn.
Is that like just letting every Bernie Madoff's scam run its course -- eventually retail investors and retirement funds will learn to stop investing in scams?
Crypto scammers seem to be loving the wait&see thus far.
Can't we just use the existing tools for dealing with investment scams, general fraud, etc., to take it all down?
- Create regulations that parallel the traditional financial system, or
- Do nothing
When there is a reasonable third option:
- Don't create new regulations, but do aggressively pursue existing fraud in the market.
Madoff was a scammer operating in a well regulated traditional financial space, where legitimate investment funds exist.
The authors here propose segregating crypto from traditional finance by forbidding fiat fiduciaries to invest in crypto at all. Basically, recognize that most of the crypto is zero sum speculative game that has no legitimate investments, just like banks today are forbidden from purchasing lottery tickets with their depositors' money.
Crypto should legally be considered gambling, because that's what it is. The scammers are just this generations gambling houses and the early adoptees are the equivalent to how the house always let's people win to get more people playing.
It's inherently gambling, just slightly obscured.
So many of these scams have made their way into legitimate systems, like a disease.
Let crypto find is way to utilitarian need via true, ephemeral, idiosyncratic and weirdo experiments, like the 'old days' of the web - not through leveraged Ponzi schemes disguised as progress.
A lot of people have been waiting for this for some time.
I just can't want for it all to go away, or at least the scammy bits.
If you don't bail them out, you 're only showing the cruel and elitist face of traditional finance. The 2008 crisis is too close to be forgotten.
(i hope they don't bail anything out, of course)
But this article is about:
> Rather than creating a new legal and regulatory framework that legitimises crypto, we should simply let it burn.
in which case I don't agree, or only partially. Although crypto proponents are often allergic to the word regulation, there are some things that could be beneficial. But even with the traditional financial system, a couple CEOs in the 1930s thought it would be funny to get Congress to add confidence to their system with taxpayer dollars, none of this was default, and it would be naive to think the same couldn't be done with crypto.
Not your keys - not your crypto. Stop keeping your money on exchanges. Use Dexes like Uniswap, lending marketplaces like Aave.
The main problem crypto has is lack of adoption (user friendly interfaces, and community adoption) and lack of scalability in layer1.
People are too distracted with zero-sum games to focus resources on innovating out of them.
Similarly in the Web2 tech world.. advertising is a zero-sum game and Big Tech companies like Google and Facebook have been adding more and more ads obnoxiously over the years to compensate for the diminishing returns. This year they crashed whereas Apple and Verizon are going strong.
The point is — innovate and build more usedul business models that aren’t zero sum!
Shameless plug: Bisq is fully P2P and decentralized, it doesn't even require a website. Robosats is another contender.
https://bisq.network
Surely it's the people's fault that crypto can't offer a better rate than $50 fee per swap.
That was five years ago; it's no longer like that. Blockchain software design has progressed past its dial-up era. If you haven't noticed that, you just haven't been paying attention.
> That was five years ago; it's no longer like that.
Straight up misinformation, see here [0] that Ethereum gas fees were almost 10x just one year ago. If the prices have fallen, it is because 1. no one is using ethereum anymore, not like in its hayday, and 2. Ethereum price itself has fallen. It's not because of "technological innovation" as you'd like to pretend.
[0] https://ycharts.com/indicators/ethereum_average_gas_price
You can do cheap swaps and borrows on Optimism, Arbitrum, Loopring, Polygon, Solana, etc. - none of those networks were mature in 2017. The cheap swaps are enabled in part by technological innovation that changes the blockchain execution model from an N-of-N model (where every node is required to re-execute a transaction to verify its validity) to a 1-of-N model reliant on proofs - notably optimistic rollups with fraud proofs (Optimism/Arbitrum) and zk-rollups with zero knowledge proofs (Loopring, with novel ZK-STARKs).
> It's not because of "technological innovation" as you'd like to pretend.
If you aren't actually following the innovation, don't pretend that there is no innovation. Either educate yourself, or don't make false claims about what the tech can or cannot do. Even Uniswap itself is multi-chain now, running on Polygon, Optimism and Arbitrum. But if you weren't following the tech, then you wouldn't necessarily know that.
Nobody mentioned Ethereum until you did. If Ethereum is the only project you're following, that explains why you have such a large knowledge gap.
https://youtu.be/J9nv0Ol-R5Q
I used to think "well maybe there is some real application of Bitcoin" but the more I learned about it I just realized the entire enterprise is awful and the only real benefit it has is uncensored money transfer. Which is great for ransomware.
Now that Bitcoin is practically controlled by under 10 miners, there really is no decentralized part of it.
Bitcoin maxis say you don't need to trust anyone, but that's not true. You gotta trust the code. Trust the miners.
Also what good is magic internet money if I need to keep everything in an offline cold storage wallet to be secure?
The only useful application now is using Bitcoin as a honeypot in your servers to notify you if a hacker has access to your systems (you'll see it when the wallet is drained!).
An emerging option is social recovery, as advocated by Vitalik. There are phone wallets now that let you have, say, 3 of 5 recovery, where the five are trusted friends/family or even a business or two.
He's an adult professor in his late 40s with the mannerisms of a teenage redditor: a veneer of self-impressed haughtiness over clear insecurities. All the high-pitched exclamations were hard to listen to.
EVERYBODY knows about Saint Bankman-Fried, the one honest man in crypto. This is a bigger deal for confidence than you think.
Regulation doesn't have to mean legitimation. It can mean the opposite thing: ban public promotion of crypto assets, the same way we do with hedge funds and other qualified investments. Forbid FDIC-regulated institutions from accepting crypto as collateral. The contagion seems easy to stop.
this would have been smaller if gary gensler didn’t intimidate brian armstrong
pretty clear gary is hurting a lot of people by saying he’s helping
Regardless of the context and which side one is in, I'd expect more formal and serious articles from FT instead of teenager flame forum posts.
Pure "caveat emptor" works in a low-trust society. But it's wildly inefficient, which is why rich countries are high-trust societies enabled through regulation. E.g., the reason you can safely eat at most restaurants is a web of food safety laws and health department restaurants. People who are used to that are in for stomach-clutching surprises when they travel to low-regulation, low-trust areas.
So for me letting crypto burn includes real barriers to scammers hoovering up the life savings of the naive. The simplest thing would be to extend the "accredited investor" standard, such that anybody who wants to play the digital ponies either needs to be rich enough to afford the losses or prove sufficient sophistication that they really know what they're doing.
(And the answer to "but why" is twofold. One, society has to pick up the tab for people who run out of money. And two, the more money criminals have the more crime they can do, so we all have an interest in keeping the level of scams low.)
I think this is already more or less the case. The SEC recently updated the accredited investor standard to include not just means testing, but alternate sophistication tests like Series 7/63/etc, CFA iirc. I’m not sure how/if they fully enforce it or not, but they do to at least some extent, which is why FTX, Binance and others run two versions of their services, a US-based one and an international one.
There is a reason why the terms “sophisticated investors” and “high net worth investors” are defined and regulated in most if not all jurisdictions, it’s to protect people from being overly exposed to high risk and being preyed upon and prevent society form picking up the bill.
This isn’t about someone buying stocks more easily and cheaply this is about opening a complex leveraged position on some esoteric derivative that the 500 layers turned traders who came up with don’t even understand that can put you in the red for sums orders of magnitude larger than what you are investing in the first place.
We’ve learned the hard way that we need to limit the risk exposure of traders by both their experience and ability to take on losses and yes Robinhood cuts through that wall quite effectively.
Regarding what you wrote above:
I don’t really know what you mean by esoteric derivatives? Are you talking about single-stock options or various futures or ETNs or maybe VIX derivatives? FWIW, I think retail options trading isn’t great for almost anyone doing it, and I think people trade single stocks too much too. I think most ETFs/ETNs are ok but others might disagree about e.g. 3xS&P500 or whatever. There are other exceptions.
However these things aren’t new to robinhood. It’s been possible to trade those things (albeit without fireworks, and maybe with some kind of annying approval process) at plenty of discount brokerages for a long time. Crypto is a bit of an exception. Maybe there are other things one can trade at Robinhood and not elsewhere?
What are the rules for accredited investors? Right now it's limited to rich people - they're not going do a subjective test on sophisticated vs unsophisticated. It's all based on wealth right now. What if I'm a comp sci PhD who really studied crypto in-depth... "nope, you're out because you're a poor student".
You also imply that it's a forgone conclusion that crypto is a bad thing. People plowed money into tech stocks in 1999, which crashed in 2000/2001. In the aftermath, what if you banned investing in dotcom tech in 2003 and beyond. Google and Amazon stock is only for "qualified" investors?? Crypto could turn out to be good.
> ...or prove sufficient sophistication that they really know what they're doing."
You could extend the standard by other ways which don't depend on how much one owns - e.g. require people to take a test and make sure they understand the basics of the product/ecosystem they are investing in.
Might also be useful to put up limits how much of your savings can be invested. But in a few $1000 play money is one thing, betting your entire life savings or your children's college fund is something else.
I see it similar to driver's licenses. A driver's license is technically discriminating in the sense that it excludes everyone physically or mentally unfit to drive a car. But it does so with good reason, because attempting to drive when you're really not able to do so can have catastrophic consequences.
Anyone can and has to do it. Bank offers free materials for you to understand what you are doing.
Making sure you don’t commit financial suicide and then turn around crying “banks are bad” is, to me, a positive measure for everyone. And is free to consumers.
This is incorrect. There are now non-wealth ways to become accredited: https://www.sec.gov/education/capitalraising/building-blocks...
One could argue that a separate crypto exam would be useful, but I think it's better to just include it in some existing exam as another asset class.
> You also imply that it's a forgone conclusion that crypto is a bad thing.
I don't. Based on the trash fire of the last decade that would be a reasonable conclusion. But my point here is just that it's unregulated, and therefore has a much higher level of risk, especially to unsophisticated investors.
The wealth requirements are, roughly, $200k personal income, $300k joint, or $1m net worth. The numbers look big but I think they aren’t really that high. The numbers are nominal and haven’t changed in a long time so the bar has been lowering over time. $200k income used to be a much higher bar (both in general due to inflation and on this site as income for programmers has gone up a lot in the last 20 years). If the $1m includes real estate wealth then the requirement is basically to be old and to have had a high-but-not-crazy income and bought a house somewhere where prices have gone up a lot.
Every now and then there will be some news story about some unfortunate dentist who got tricked into investing into some terrible scheme or who made some other poor decisions (e.g. ‘I wanted maximum safety so I figured I’d buy bonds and I put all my money into buying bonds in this Turkish real estate developer that paid 15% that I found from a Facebook ad and now they’ve gone bust and I’ve lost all my money’) which they were only able to do due to their upper-middle-class income/wealth qualifying them as an accredited investor. So I think the rules aren’t particularly fit for purpose. Having a test is maybe better. Having an annoying process where a bunch of government officials tell you that you’ll lose all your money is a funny idea but presumably scammers are much better at learning how to walk people through that sort of thing than the government is at making it do what is intended. Having some process which takes a while might help a bit but maybe is too annoying.
I think it’s also extremely false that getting rid of accredited investors gets rid of the class system that currently exists. There will still be ISDAs and relationships and so on. Even if you’re an accredited investor, you’re not going to get the opportunity to participate as an angel investor in all the best companies and you can’t phone up Goldman and get them to construct some new derivative for you to buy, so I think there’s a lot of adverse selection for someone who becomes an accredited investor but doesn’t have much to invest or many good connections.
My (poor) understanding is that this is also true in crypto in that the better deals will generally be available to early investors (ie some big fund, not you) who can then dump their positions on everyone else (ie you) after some relatively short lockout.
Finally, I don’t think being a ‘comp sci PhD who really studied crypto in-depth’ is actually a good example of a way to tell if someone is fit to invest in something. The qualifications are generally about understanding the financial product rather than understanding the underlying ‘business’.
We don’t trust our governments.
By we I mean crypto believers (yes me included)
Impossible to fix. The more diverse a society is, the lower the trust it has in its governments. We don’t want to pick up the tabs caused by the problems introduced by “the others” in our diverse society. For example, student loan forgiveness, affirmative action, diversity hiring, stimulus checks, petty theft forgiveness, etc.
If you as a person do not want to trust government regulation, that's great! Please do your own research, test food quality yourself, and inspect the kitchen every time you want to order a burger.
Also, if you don't want "the others" in "our diverse society" to be seen as a dog whistle, you should perhaps choose some different phrasing.
Yes, I want my government to test food quality, to inspect the kitchen. But I don't want my government to bailout petty thefts, to give stimulus checks, to hail criminals as saviors (BLM), to require me to pronounce different genders, etc.
It is a dog whistle. I meant to say that.
Similarly, the reason that the US has one of the most robust financial markets in the world is regulation. That regulation comes from governments and exchanges and it is intense. But that means that investors can generally trust financial statements, etc. Lowering the barrier to investment means more capital invested, making things better for everybody.
Trust is economically valuable and it isn't free.
> It is a dog whistle. I meant to say that.
Ok. I appreciate you admitting that you are choosing to be racist. So few racists do these days.
We don't need diversity to have modern 1st world comfort. See Japan.
I like my homogeneity.
chuckle
Interesting take for a publication like FT. The Economist, another “reputable”, traditional outlet synonymous with traditional finance, has a more balanced and optimistic take, if anyone cares to read it.
https://www.economist.com/leaders/2022/11/17/is-this-the-end...
Disclaimer: I hold ETH and am excited about its potential, and I also believe in Vitalik Buterin, which is a very different type of person from SBF.
> Absent clear and easily enforceable property rights, relying solely on private investors to monitor and discipline the behaviour of opaque intermediaries has never been safe and effective. There is no prospect for a technological solution to these age-old problems.
The technical solution to opaque intermediaries is already here, and it's transparent intermediaries (enabled by smart contracts.) They let you replace an opaque piece of code running in a company's back room with a transparent piece of code that can be publicly read, understood, and audited. It can make an interaction with an intermediary very predictable and reliable, because you can trace/simulate the intermediary's exact code execution path (and thus know exactly what they are going to do with your money) before you even send the request.
It's striking to me that the author doesn't state his opinion on smart contracts anywhere in the post. It makes me wonder whether he really thought they weren't a topic that readers would naturally use to contextualize his post, or whether he's ignorant of their existence.
That's aside from the entire premise of the article being based on this idea that "crypto" is some monolithic corrupting force, rather than simply a messy emergent series of public databases that are as unthinking and uncaring as MySQL or Git.
> Both crypto and traditional finance are simply combinations of a database and computer code. It would be straightforward for a group of technicians to convert any set of conditional cash flows from one into the other.
The author seems so close to "getting it". If only he asked the question "now what changes when the general public has unfettered real-time read access to those databases and computer code," perhaps he could see the uniqueness of the design space, and appreciate that there's much more emergent game theory to work through before writing crypto off as being on a path of implosion into irrelevancy.
If you can't, then please understand that in the real world you will always need a counterparty and a thousand intermediary for something as simple as a banana. All the "smart" contracts [1] are good for is a fancy way of swapping shitcoin A for shitcoin B, and until that changes none of what you said has any effect.
[1] smart until they end up on rekt.news leaderboard.
Agricultural futures contracts technically do what you're describing, and trading them currently involves a lot of intermediaries that could theoretically be replaced with smart contracts in a straightforward way.
And Unisocks exchange lets you exchange cryptocurrency for a tokenized sock, by the way, redeemable on demand. Technically this disintermediates online shops and payment processors, though obviously it's a toy project and there's a whole lot more that it doesn't disintermediate. Systems like these are inherently composable, for instance you could imagine an international shipping company wrapping the sock token into their own token, creating a token that represents a sock shipped to anywhere in the world. In this way, smart contracts enable obligations to be nested in a way that is completely transparent to the public.
Your query comes off to me like a 70's computer critic saying "can you show me a computer program that will let me exchange some amount of money for a banana?" Of course computer code can't reach out of the screen and put a banana into your hand, yet software can and does help facilitate coordination between you, the distributor, and the grower.
> If you can't, then please understand that in the real world you will always need a counterparty and a thousand intermediary for something as simple as a banana.
Try something intangible. Like a banana futures contract, a share of stock, a domain name, a concert ticket, a video game license/skin, a stock photo license, a building key card, with proper regulation a property deed, the list goes on.
We live in a society where a few bits in a bank/government database somewhere are the biggest separator between the homeless and the wealthy. The vision of smart contracts is to bring more accountability, transparency, and predictability to the processes that handle those critical bits of data. A snippet of code isn't going to be solely responsible for putting a banana on your table, but eventually it might make it a bit easier for a South American banana farmer to financially hedge his crop, for a consumer to transparently trace which shipping companies signed off for the banana before it was purchased at the supermarket, or even enable a banana DAO which could make sure everyone in a banana supply chain gets paid without requiring a traditional corporate structure.
> To the crypto-inclined people commenting on every thread about how failing centralized exchanges don't effect you and are actually good for Bitcoin, how are you planning to convert your hard earned crypto into US dollars that you can spend at a grocery store? If your answer is "P2P exchanges," how do you plan to secure your cold wallet against the infamous rubber hose cryptanalysis?
There's still a slight risk, but much less compared to just letting funds sit on an exchange indefinitely.
Of course, choosing a reputable, long-standing exchange like Coinbase also helps.
Why?
I disagree. If anything, technology would provide solutions to these problems, but Crypto in its current form ain't it.