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Comment by Animats | Hacker News Reader

Well, we're about to find out if the Bitcoin exchanges in China have all the assets they should. The PBOC told them to stop trading, turn over copies of their records to the PBOC, and refund the balances of their customers. We should know within days which exchanges were stealing customer assets.

The exchange executives were told not to try to leave China.

(Remember Big Vern? Paul Vernon, CEO of Cryptsy. Took the money and fled to Liaoning, China. Started a Bitcoin exchange in China. Wanted in the US. Might be a good time to push through diplomatic channels for the government of China to find and return him. The PBOC investigators may have found him by now.)

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People actually knowledgable in the crypto community would have told you literally years ago that the Chinese exchanges were shit. ChangPeng Zhao who now runs binance out of Hong Kong, made a reddit post (now deleted) stating exactly what was going on. The issue of exchanges "investing" client funds was known two years ago, and most people stayed away from these exchanges.

I think this is exactly the point the author is making. There exist regulatory entities to protect people from exactly the kind of logic you are using. If I don't know anything about cryptocurrency, and want to start trading, it would be nice to have entities that I can go to to find out the status of various players in the industry. If I'm new to the scene, what would make me inclined to believe 1337_haxor on some crypto-forum? Excluding everyone without deep knowledge is bad for the industry; including everyone without regulation leads to theft. Somewhere in the middle is probably better than either

The exchanges investing client money does not surprise me at all. I worked in UK finance for 6 years or so where you have mandatory "CASS" training to warn you what is and is not OK to do with client money. I remember when I first started I was like "well obviously you keep client money and assets separate from the corporate accounts..." and EVERY year in the "refresher course" our Compliance dept gave they had new cases of banks fucking this up and getting insane fines for it [0].

If these supposedly respectable banks managed to repeatedly do this (this is after the financial crisis btw) then it's anyone's guess what goes on in the Wild West that is Bitcoin exchanges. That said, the stupidity and lack of common sense in UK financial industry continues blows my mind.

[0] - https://www.moneymarketing.co.uk/why-the-fca-rewrote-the-rul...

Yes, we will see what the situation is in terms of exchange liquidity. With that said, the reports were of exchanges investing customer-deposited RMB funds, not selling customer-deposited crypto for fiat and then investing that fiat for profit.

Well investing the client deposits is pretty much exactly the situation I described. Probably could be seen as less directly scammy or intentional than selling their assets and investing it in <pick-a-product>, but certainly still a pretty standard client money breach

This such an annoying pattern. Something unflattering comes to light(for some greater measure of coming to light) and the predictable response always, "Geez... Everybody already knows this. It's in the wiki!"

Not to mention the richness of implying chinese exchanges are somehow uniquely bad! Exchange shenanigans on the english speaking web are a central part of the bitcoin story to this point.

"You didn't know that was a scam? Don't you subscribe to Offshore Alert?"

There are still people putting money into MMM, which is a long-running scam with its own Wikipedia article.[1]

The binary option industry, run out of Ramat Gan in Israel, was a whole industry of bucket shops pretending to be brokers. It got so big it was 40% of Israel's financial sector. About 95% of binary option investors lose their entire investment. Turns out it's legal in Israel to scam non-Israelis. Once that came out, it became a political embarrassment.[2] “Binary options is causing anti-Semitism around the world.” - a member of the Knesset.

[1] https://en.wikipedia.org/wiki/MMM_(Ponzi_scheme_company) [2] https://www.timesofisrael.com/unhappy-with-bill-israels-coal...

Bitcoin and all of the other alt-coins are numbers on a screen. Few people pay taxes on them, and few places treat them as a real asset or fungible currency.

Why then, do the authorities in the US and China aggressively pursue those people who ("steal", "lose") the coins of their depositors?

Big Vern, Karpeles, Pirate@40, just to name a few.

Sure, these guys lost people's coins. But I was there back then. It was all wild west stuff. Buyer beware.

How can the government arrest someone for stealing an asset that doesn't really exist?

Would they arrest someone who stole water from my pool?

Edit: I don't know why I bother commenting here.

A downvote without counterpoint? What do you gain from that?

Grapple with my assertions with evidence. If you don't, it will just become even more of an echo chamber.

> Few people pay taxes on [their Bitcoin holdings]

This is tax fraud.

> How can the government arrest someone for stealing an asset that doesn't really exist?

“Buyer beware” doesn’t exempt someone from fraud statutes. Honest services fraud is broadly defined in most jurisdictions to include any economic activity.

> Would they arrest someone who stole water from my pool?

Yes. At the very least, the perpetrator would have trespassed.

Disclaimer: I am not a lawyer. This is not legal nor tax advice. Don’t commit fraud.

Have I committed fraud when I steal your World of Warcraft gold? Yes.

Should I pay tax on that gold when I sell it for cash? Yes.

Will the police help you when you call them to report it? I highly, HIGHLY doubt it.

It's easy to put your head in the sand and just say "yeah that guy committed a crime", but in reality, enforcement is really a lot more nuanced than that.

So like forgive me if I think it's a waste of tax money for Bharara and the courts and the police to go after Big Vern, while the Equifax guys are not pre-emptively detained while a fine is calculated.

> Will the police help you when you call them to report it? I highly, HIGHLY doubt it

With honest-services and securities fraud, the police are generally there to document, not enforce. If someone stole your WoW gold and you sued, you'd almost certainly have a case. If I were your lawyer (I'm not a lawyer), I'd send a letter to the relevant tax authorities and attorneys general, as a point of leverage during settlement talks. (This is not uncommon in lawsuits--

TL; DR No, one does not always get caught. I won't say I've always been faithful to every city's open-carry alcohol laws. But when you break such laws (a) it's still breaking the law which (b) exposes you to more than just the government.

> So like forgive me if I think it's a waste of tax money for Bharara and the courts and the police to go after Big Vern, while the Equifax guys are not pre-emptively detained while a fine is calculated

You're forgiven for having an opinion? I still disagree. We know there was criminal conduct on behalf of Big Vern. Not yet Equifax. Though on a higher level I agree, since ordinary people were harmed by Equifax. My sympathies for people who lose money in Bitcoin fraud is less, though I think that's a function of familiarity with the system.

I did some Googling. WoW gold theft results in Blizzard suggesting you open a support ticket, despite the fact that WoW gold, like bitcoin, has unofficial street value.

I will do more digging but I don't know if anyone has gone to the police for WoW gold theft. I'm not sure why WoW gold is treated differently from Bitcoin, which is apparently an honest to god bonafide US security in the eyes of the law.

Re: your point about not always getting caught, then it sounds like we have an unequal application of the law/enforcement problem. Which I suppose is the crux of my entire argument.

Why are we going after Big Vern when there are more pressing crimes to deeply investigate? I even used his exchange and I literally don't care. The coins were numbers to me, not dollars.

Re: Equifax, plenty of suspected criminals are detained for years before any criminality is proven. Just look at all the pre-trial detentions on Rikers Island in NYC.

You have young kids being accused of marijuana possession or etc, suspected trespassing, and then they don't go before a judge for many many months.

Whereas with Equifax, you basically have smoking gun stock trade proof and admissions of guilt.

It can therefore only be true that the reason an interrogation of these Equifax officials has not occured, is because the law/enforcement is being applied unequally.

> Why are we going after Big Vern when there are more pressing crimes to deeply investigate?

This is a silly argument, it's not an either or situation, law enforcement can and should pursue all crimes. By your logic, why go after any financial crimes where there are still unsolved murder cases? Do you see how absurd you're being?

> The coins were numbers to me, not dollars.

What your feels tell you has no bearing on the law; bitcoin is a commodity of value and like all commodities of value it's subject to law.

Bitcoin is a commodity of value, but WoW gold is not? Subjectively applying the law. I don't understand how you can't see this.

Law enforcement and governments don't have unlimited resources. Frivolous crimes should not be pursued as vigorously as crimes of violence and physical/financial/corporate victimhood.

Equifax executives are chilling in their house right now. Big Vern is wanted by the feds for loss of fictional assets. Come on, apply the law equally.

53% of prisoners are there for possession of marijuana. Surely you don't want your tax money spent on this victimless crime?

Well, it currently is being spent that way, while many murders go uninvestigated.

> Bitcoin is a commodity of value, but WoW gold is not? Subjectively applying the law.

They're both commodities. People get away with not reporting WoW gold because the mean holder probably holds less than the mean holder of Bitcoin. As you observe, law enforcement resources are limited. That said, counting on flying under the radar is a horrible tax policy.

(It does not help that there is a (a) history of successful prosecutions surrounding Bitcoin, (b) a vocal group of Bitcoin enthusiasts arguing they aren't subject to tax and (c) a veritable black market around Bitcoin.)

> Equifax executives are chilling in their house right now. Big Vern is wanted by the feds for loss of fictional assets

Due process, my friend. The Equifax executives are being investigated; they have not yet been found guilty or even charged. One might argue they should be. But that's a discussion about what the law should be, not what it is. (That said, the insider trading charges look promising.)

As others have repeatedly mentioned, any delineation between "fictional" and "non-fictional" assets is itself a fiction. Arguing that something shouldn't be prosecuted because it isn't as illegal as murder is ridiculous. Better strategy: understand it's illegal, follow the law and organize to lobby to amend it.

Disclaimer: I am not a lawyer nor a certified accountant. This is not tax, accounting, legal or any other sort of advice.

Bitcoin is a 63 billion dollar market, you are being dishonest when you call these things frivolous crimes; people have lost their life savings playing in crypto, there's nothing frivolous about it. If you can't see the diffence between WoW gold and Bitcoin, then I suggest you look more into how many people have been financially devastated and robbed in each, because that's why the government cares more about crypto than WoW gold.

You're using the word subjectively incorrectly; the word you seek is selectively.

Bitcoin assets are not fictional, they translate to real dollars, Big Vern stole tens of millions of dollars of other people's assets. You are minimizing this for some reason that you don't make clear.

Equifax didn't commit a crime, having lax security is not illegal, getting hacked is not illegal. They may be been unethical about not disclosing shit soon enough, but there's no obvious crime to charge anyone with, yet; that may change after an investigation. Big Vern however stole people's money, that's a clear crime.

> Few people pay taxes on [their Bitcoin holdings]

>>This is tax fraud.

It is not; you only have a tax liability when you cash out, not when you hold, you could cash out and have a gain or have a loss and you need to reflect that on your income tax for that year.

> It is not; you only have a tax liability when you cash out, not when you hold

It depends [1]. If you receive the Bitcoins for goods or services, they are taxed as income. If you hold them as capital assets, the IRS won't tax you for holding, though your state or local jurisdiction may. Either way, not reporting those holdings is tax fraud.

[1] https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/Tax...

Disclaimer: I am not a lawyer nor a CPA. This is not legal nor tax advice.

Anytime you trade one cryptocurrency for another, you also are taxed

You are mistaken, and your advice has the potential to severely harm people who take it. The IRS has been very explicit that, as with all barter, they want their slice and are entitled to it under law. The details are in their 2014 guidance, which you should read carefully if you're messing with cryptocurrency without competent legal or tax advice. https://www.irs.gov/pub/irs-drop/n-14-21.pdf

It's correct it's just numbers in the screen. But this is not to say we can't abstract anything form it, or it's worthless. After all, the internet and yourself are "just stuff flying around".

Child porn is a crime committed via Internet. It is vigorously prosecuted.

Identity theft is a crime committed via Internet. It is lazily prosecuted.

Stock fraud ("securities" fraud) is a crime that is also vigorously prosecuted.

Bitcoin and alt coins, just like WoW gold, are not stocks. Therefore how can the state say Big Vern is committing securities fraud, and that we should spend millions of dollars attempting to "bring him to justice"?

EDIT:

Correct, I agree, but this occured in 2014 and would therefore be retroactive application of the law.

From what I remember, we were operating in a complete and total vacuum.

Big Vern's only mistake was being born a US citizen. If he was Russian, he would be a free man.

I didn't comment exactly on THAT, only on your first points. Anyway, I actually believe Bitcoin is not private property to begin with. But I still think contracts are legally enforçable.

I apologize, that's tunnel vision on my part from other comments XD

I don't really understand what contract there is to legally enforce. Say I send some bits to Big Vern's site. One day, the bits aren't there anymore. If it was a legally incorporated real bank, and my bits represented real dollars or Euros or etc, then I would be fuming pissed and would be suing.

But Big Vern did not run a site with any express guarantees, and I did not send him any legal tender. So we were effectively operating in a legal vacuum.

One time I left my car at a repair shop. All the cars they had in the lot were stolen. The police didn't arrest the shop owner for negligence. They just went and tried to find the thieves.

As I understand it the SEC has begun to classify crypto-coins as an official asset class based on various criteria[0]. This means that while bitcoin and other alt-coins may not be a "Stock" they are being considered a "Security" under U.S. regulation and thus saying Big Vern commited securities fraud is not inconsistent with U.S. regulation.

[0]: http://www.businessinsider.com/bitcoin-price-security-equity...

> Bitcoin and alt coins, just like WoW gold, are not stocks.

Not relevant, securities doesn't mean stocks. A security is basically any financial instrument of value, and crytpo's are most certainly securities and obviously always have been.

You need to get over this notion that "new" things are somehow not subject to existing laws. Slapping a new name like bitcoin on a financial security doesn't suddenly make it not a security; the law is not so trivially circumvented, the law doesn't need to mention a thing by name for it to apply to said thing.

Bitcoin wasn't a security in 2014

You can't retroactively apply the law. Well apparently the government acts like they can. But in my (biased) mind they shouldn't.

Bitcoin was a security the second it came into existence. The law doesn't need to retroactively be applied, it always applied. New things aren't somehow immune from existing law because they haven't been explicitly named by the law. The law doesn't need to say "crypto's are securities" for crytpo's to be securities. Don't confuse regulators clarifying how they're going to enforce the law with changes in the law. Those clarifications come out to make it clear to "magical thinkers" that existing laws do apply and will be enforced as X.

> The law doesn't need to retroactively be applied, it always applied. New things aren't somehow immune from existing law because they haven't been explicitly named by the law. The law doesn't need to say "crypto's are securities" for crytpo's to be securities.

How about.. when a law is wrong? or if it's not just? or is changed, for this matter? since you think it's retroactively applied, which way or which one of 2 or more conflicting law are/is 'applied' retroactively?

The law isn't wrong, bitcoin is obviously a financial security and always was from its inception. Nothing is being retroactively applied here. The only issue here is cryto fans odd beliefs thinking crypto is somehow immune to existing regulations.

> Big Vern's only mistake was being born a US citizen. If he was Russian, he would be a free man.

There aren't a lot of crimes you can't excuse this way (by substituting various countries in place of Russia).

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