Cryptocurrency scams cost owners $7.7B in 2021, driven by DeFi-based “rug pulls”
blog.chainalysis.com
blog.chainalysis.com
But how do you know which third party auditors to trust?
What DeFi projects are laying bare is that it’s an absolute marvel that we have functional societies at the scale we do today (USA, EU). Most people can live their lives intuitively knowing which instructions to trust (financial, groceries, restaurants, medical, you name it). All of it is ultimately backed by laws, systems, real people who can be held accountable, and government monopoly of force. Furthermore we rarely have to see that stuff for the system to work and that monopoly on force is rarely abused.
It could be a meaningful technological shift if a lot of the financial infrastructure goes decentralized, digitized/programmatic, and open source. But I’m dubious the mainstream person’s day to day experience will change much, the stability and peace of mind afforded by the structures of our current society are pretty amazing and I don’t see them being replicated in a purely digital and decentralized form.
It's important to note that “DeFi” is more centralised than our existing financial infrastructure. (Also, our existing infrastructure mostly uses open, public, well-known standards with many implementations; most DeFi stuff… documents how it currently works, I guess? Though it's hard to find that documentation.)
financial -> 2008 subprime loan crisis, recent inflation
groceries -> couldn't buy toilet paper at the start of the pandemic, still some lingering supply issues, prices going up
restaurants -> many not open reliable hours anymore, many closing
medical -> costs way too high and continue to rise, hospitals oversaturated with patients from time to time, nurses quitting
All of it is ultimately backed by laws, systems, real people who can be held accountable -> maybe if you are rich
I can't fault the average-income (or slightly higher/lower) person for having the point of view that these are starting to fall apart and aspects of DeFi becoming attractive, even though the practicalities have a long way to go before they would become anywhere near as foundational.
Your local bank at least complies with regulations that cap transaction fees for your chequing account. Meanwhile, ETH gas fees are completely unpredictable, and can easily be higher than the amount you're transferring.
I don't think DeFi helps with most of the problems you're talking about. Supply chain issues, COVID-related business restrictions, health care prices and the role of insurance providers, none of these are caused by centralized financial systems.
A few common ways:
1. Use your admin privilege to withdraw or upgrade the smart contract to drain the funds
2. Withdraw all liquidity for your token and disappear
3. Sell the entire token supply all at once, which is functionally equivalent to (2)
4. Pretend to get "hacked" and lose your private key
5. Program a backdoor into the smart contract (the least common way). Some of these are economic in nature (e.g. frontrunning), which can't necessarily be found in an audit
Arizona has a stupid motorists law [1]. If a car “becomes stranded after driving around barricades to enter a flooded stretch of roadway,” the driver “may be charged for the cost of their rescue.” A similar concept for crypto may be necessary. Law enforcement will pursue. But if they catch the crooks, the cost of enforcement is deducted from the proceeds and flows straight to the Treasury.
Find out how much money we can get policing crypto. We can even charge a greater percentage of potential funds recovered to extract an amount that would make it worth our while. At any rate, with that data we could determine if the money is better spent policing tax cheats.
In short if we're going to get paid well, we should help. If not? Well, sorry crypto bros. Sucks to be you.
It's certainly not the government's job to jump in and prop up financial systems in which it's not involved. Its interest is in protecting its own citizens from criminality, not in the level of "trust" in "DeFi".
I thought the whole point was to be trustless?
Society relies on trust. The crypto dream that it can be trustless is just a way to cheat people.
It is if you're trying to stop these scams by putting greater constraints on, say, the fiat on- and off-ramps.
I mean, how exactly are you going to stop the average investor in doing something dumb like dumping their money into a shady project, without placing additional hurdles on everyone else? The whole point is that you're allowed to move, manage, and spend your assets as you see fit, without any government's ability to freeze your assets or block you from accessing financial services via sanctions -- for better or for worse, of course. And yes, the freedom to manage your assets as you see fit includes the freedom to make stupid financial decisions -- as you see fit.
That’s a selling point advanced by crypto advocates.
Frankly, it’s ok to make that point. What is not ok is pretending that crypto isn’t also a high risk environment full of scams.
I’m not trying to police anything. I can’t stop crypto advocates claiming it’s a good place for regular people to invest.
I don't pretend that at all. Like I've said elsewhere in this thread, "caveat emptor." I am sorry if others have told you that is not the case about crypto. Unfortunately, I cannot do anything about them.
> I’m not trying to police anything. I can’t stop crypto advocates claiming it’s a good place for regular people to invest.
Then we are in full agreement. As I said elsewhere, the average Joe who cannot remember their own passwords should not be using crypto, IMO. With freedom comes the freedom to shoot yourself in the foot, and unless you understand basic digital safety procedures, you are best off not shooting yourself in the foot.
Yes, I agree with you on this.
However this is far from the dominant narrative coming from crypto advocates. That is all I am objecting to.
Open systems lead to less trust required, because anyone can verify and report issues. Open finance leads to less trust required because anyone can verify and report issues with the smart contracts.
.. anyone who finds an issue in a smart contract can just steal it. Potentially all of it. Pseudonymously.
No, they have.
https://www.cvedetails.com/vulnerability-list.php?vendor_id=...
That's just less important than running free software to some people. For better or worse.
But the existing system latches onto any point of centralization in any kind of alternative and uses it to impose the same problematic constraints of the existing system that the alternative was intended to redress. Hence the desire for decentralization. The lack of those pressure points.
It would work well enough if we would just have multiple banking systems and let them compete with each other without international pressure to conform to a uniform set of defects, but that isn't what we have. So how do we fix that, if not with this?
No, it is not trustless, it simply shifts trust from central authorities to more nebulous entities such as anonymous developers, shady mining cartels, unregulated exchanges, and even yourself to not lose your private keys. Which you consider to be better is essentially a political decision.
Traditional banks should exist and be regulated and insured etc. People with a low risk tolerance should be encouraged to use them.
People with a higher risk tolerance or who are trying to do something innovative or disruptive should have a system that works for them too. People with a low risk tolerance are not required to use it. People with a high risk tolerance will be exposed to a high risk, as requested.
But it does nothing for transactions outside of that world. The core idea behind the "DeFi economy" is making things happen in the real world (by financing business ideas, buying 230 year old documents, etc...). And that part requires that the crypto resources be given to some kind of real actor in the real world who's going to do something real with them.
And those actors are people, and they cheat. Hence the new term of art "rugging". You can cheat people in the crypto world, in some sense, more easily than you can regular consumers precisely because they got fooled into thinking they didn't need to trust you.
Social engineering and financial hacks are not fair game, and are "illicit" in the sense that crypto is obviously an international martial zone.
Exhaustively brute forcing a keyspace is valid, making your username an XSS to steal funds from an insecure page/downstream app is not valid.
Finding and leveraging an exploit in a contract is valid, both a paper/legal contract and a literal codified Eutherem contract. Flashing incorrect token prices on CoinMarketCap.com to take advantage of (unauthorized? grey) downstream screenscrapers and rugpulling affected tokens is NOT valid, but, admittedly murkier.
>You cannot legally rob a bank just because they left it unlocked and unmanned.
Exactly - because it isn't a bank, it is a bunch of cash on the street, if it was unlocked and unmanned.
And even if there was a clear Sticky Note with foreboding text, you would be in the clear to pocket a stack of cash sitting on the sidewalk, left unattended, guarded only with a sticky note.
The steelman and strawman are nearly identical - a bugged contract or implementation isn't a bank, it is a bunch of cash on the street. It stopped being a bank once a bug was found.
If you found a gift card with the PIN in the street, it would entitle you to a moral inhibition. If you went through a stack of discarded gift cards and found ones with change, you would be less morally wrong, but just as legally right.
Finding a debit card in the street with the PIN is akin to finding someone's wallet.dat file on their github. That is stealing, so no comparison.
That's not true, and not true globally. Unattended valuables being taken is still theft. Though prosecution is rare, it still happens [0].
But if you leave your valuables in the street unattended and then come back shocked to discover that they aren't where you left them, this is not a problem that requires new legislation to solve. The solution to preventing this from happening to you in the future is quite obvious and doesn't involve the government.
And if the government manages to catch the thieves, great. But if they don't, c'est la vie.
It still gives me delight to remember that. I needed the money, but the continuing pleasure in recalling has been worth far more.
Nobody suggested making crypto crimes legal. Just metering the degree to which law enforcement, a public good, is put to use pursuing it. Why should a law-abiding saver bail out what in many cases looks like a gambler’s foray?
Because having an idea about how these frauds are committed are helpful for society as a whole. Law enforcement investigating such crimes is the first step towards meaningful laws and regulations.
Acting as though these crimes never happened because they're not enshrined somewhere in the criminal code is cutting off one's nose to spite the face. The negative externalities will still be there, and they will land squarely at society's doorstep. We will all have to foot the bill one way or another.
Everyone's a rugged individualist until they get rugpulled.
The guarantee that a bank gives is not the same guarantee that a smart contract gives you. the bank guarantees the safety of your money, the smart contract guarantees that it will as stated in the code.
It's on the the contract dev to write the correct thing and on the contract user to determine if the does what is "says on the thin"
And they routinely admit that some cases are not clear cut. But crypto has no grey zones, by design - you either have the keys, or you don't. And that is the explicit agreement code-contract signers agree to when they go out of their way to DeFi their agreements.
Obviously legal precedents and statutes are not fitted for this purpose yet, because they are reactive, not proactive.
Furthermore, when you talk about the court you're talking about a Judge. The Judge gets final say and they can take their sweet time, regard or disregard anything they want. In local matters, Judge's act without restraint. Appellate court, the state bar, the judicial qualification board, federal court, all gets involved so rarely they can be ignored. Additionally, these Judges are no stars of the legal profession: cohorts of lawyers will often rig elections and appointments to favor a well-connected but bad lawyer, because being a judge is actually really easy.
So, yeah, it mostly depends on who the judge likes better, and whether society is better or worse if this dispute is decided this way or the other way. I can't stress enough the arbitrariness, and supreme unaccountably, of a local judge's decisions.
Exactly. Code-contract signers hate this, and go out of their way to avoid the possibility of this interference.
Judges should tell crypto cases to get rightfully fucked.
If I appear and sue a drug dealer for giving me fake 100's, I'd get laughed at.
Considering crypto is just an massive abstraction layer to hide the online drug trade, the courts should similarly laugh at these _technical_ exploits, in the context of Euth-shit code. Because it's sole explicit purpose of existence is to conduct business without arbitration.
Is that actually true? On the criminal side, I served on a grand jury, and a lot of the cases we saw were criminal-on-criminal crime. I guess the idea driving the crime was that criminals make easier targets as they're less likely to go to the police. But some did.
The net result is a system where attorneys are falling over themselves to prove who is more obsequious to all the judges. If you become a problem in one case, you will suffer in your other cases, too, so individuals with legit complaints against the court can and will be ignored.
The net result is a court that ignores all but the most mechanical rules (and loves to stall on those when it can, because it approximates the appearance of "work"), and has no mechanism for correction. I'm sorry, but the rules don't really matter, to anyone.
Your assumptions about the law, about judges, and about rationality, rhetoric, and the justice system in general are about to be destroyed. The lawyers know the high variance of court and generally want to avoid court like the plague.
(The justice system is badly broken, obviously. The core issue is that it takes far too long to judge a case, and a big reason for that is a) the rules are too complicated and b) not adopting better tech. We should have trials that start a week after filing, with online juries, online judges, and real-time access to data. The attorneys can finally earn their ridiculous wages by learning how to fly through information and present it in a compelling way.)
Some civil court hearings are already conducted online.
I don't see how they're unaccountable, or how contract disputes mostly depend on a judges disposition.
No, they're not. They're entirely reasonable. Stop trying to shame people for expressing a common, reasonable and fair opinion that you don't like.
They may be in search of outsized returns, but I think people can absolutely be victims of the ‘have fun staying poor’ meme. The implication is that if you don’t buy into crypto your assets will be decimated by inflation. I think it’s reasonable to consider that it’s not ‘greed’ but rather fear of being left behind that is driving many victims.
So your environmental criticism of Proof of Work is not applicable here. A PoW coin with no premine doesn't allow for a rug pull.
I realize the dangers of posting something remotely pro-crypto on HN, but I have to say this is a pretty rich comment. Shame is all that is doled out to the many people who have reasonable and fair opinions about cryptocurrency that you don't like (such as thinking some cryptocurrencies are reasonable or worth speculating over).
If anything, I'd say the corner is turning and the previously pro-crypto HN is just now becoming more anti-crypto.
I agree. They are not unreasonable. They are crass. If a child is told not to touch a stove and then burns herself, I may consider them stupid, but I can still have sympathy for the pain they are experiencing.
I hate civil forfeiture. That’s why I specifically suggested the proceeds flow to the Treasury. Not the law enforcer’s budget.
There is also a world of difference between taking something you legally possess, and taking a cut of things returned to you at the expense of the public purse.
There are exactly two types of people in the crypto space:
- scammers, who know exactly what they are doing
- fools, who have very little understanding of how the world works
And yes. Fool and his money are easily parted.
So, are the comments crass? No. Not in the least.
When we talk about law enforcement stepping in, I struggle to see what they could possibly help with in scenarios like this. TBH the FTC or SEC needs to step in and investigate these instances.
Even now they’re rationalizing - US banks offer 0% interest and took $12B in overdraft! See how much worse that is? Well except the $12B is out of $18T in assets so DeFi hacks cost 1400X as much per user.
In fact 10% of all TVL in DeFi was stolen this year. That means if you’re not making a 7% return for inflation and a 10% return for risk loss, you’re losing money in real risk adjusted dollar terms invested in DeFi. 17% APR in DeFi is equal to 0% in real dollar terms.
https://www.cnbc.com/2021/12/10/consumer-price-index-novembe...
[1] https://www.treasurydirect.gov/indiv/products/prod_ibonds_gl...
> Rug pulls have emerged as the go-to scam of the DeFi ecosystem, accounting for 37% of all cryptocurrency scam revenue in 2021
So 37% of $7.7 billion is $2.849 billion.
> All in all, rug pulls took in more than $2.8 billion worth of cryptocurrency from victims in 2021.
> It’s important to remember that not all rug pulls start as DeFi projects. In fact, the biggest rug pull of the year centered on Thodex... In all, users lost over $2 billion worth of cryptocurrency, which represents nearly 90% of all value stolen in rug pulls. However, all the other rug pulls in 2021 began as DeFi projects.
The graph shows $2.6 billion was lost with Thodex. So that leaves $0.249 billion that was lost in projects that were rug pulls that began as DeFi projects.
"i am going to retire in 5 years. have you heard of prove-your-steaks? its gonna change crypto. you can get 20% back, just lock up your starving kids Earned Income Tax Credit for a year, and you'll make $500!"
"have you heard of this new shitcoin? probably not - i know you retired from crypto! haha...anyway, it exposes you to upside leveraged of @PISSCOIN and is tethered to the stable-genius coin. its basically free Unisex-swapped tokens."
"hey. some guy on discord was helping me install a chrome plugin to manage my coins and now my $400 in life savings is gone...are you still good with computers?"
"Turns out my pension fund was investing in BBB- CDOs, now they've gone BBBust"
The argument that you can't (or don't) get burned in non-crypto markets is made in bad faith.
Pension funds don't deserve to go bust, but shouldn't be bailed out if they fail to diversify their portfolio.
There are a lot more safe-gaurds in investing, because all these games have been played before.
But those require consent too - with crypto, someone can, and will, irrevocably steal your funds without possible recourse.
a large majority of those people fall into the greedy category not the victim
* Axie Infinity. That's a Ponzi in the collapse phase. Their Smooth Love Potion token is down 90% and in a screaming dive, and their Axie token is down 37% from peak. That one is going to hurt a lot of poor people in the Philippines. Many quit their jobs to play Axie's play-to-earn game. All the money comes from later entrants, so it's a Ponzi by definition.
* OpenSea. The NFT market is in worse shape than it looks. People are minting crap art like crazy, and people are buying it at inflated prices, hoping to flip it to a greater fool. If you look at actual resales on OpenSea, they're not happening much. The supply of greater fools is running out. As I've pointed out before, this works just like Beanie Babies on eBay. Asking prices around US$5000, actual sales around $50, most items show zero bids. NFT markets don't visibly crash, they just quietly stall. Most NFT markets don't show statistics which expose that.
Which brings up my other point, that people know the risks they are taking. Casinos are still legal. Someone that yolos their life savings into Smooth Love Potion was going to lose it some other way. If you don’t know your 100% apy isn’t sustainable in a DeFi ponzi, that’s on you.
Casinos are not pyramid schemes, Axie is.
"The fact that I am able to exploit these people means that I am entitled to" is everything wrong with Silicon Valley.
Depends where you are in the world...
NFT is art (VERY LOOSE COMPARISON). If you believe that then of course there is TONS of art that not only has zero bids but also never gets sold. I think NFTs are overhyped now but there is clearly a market for them. Speculating on them is similar to art collecting, all speculative. So I don’t see anything inherently wrong with it (something being puffed up isn’t illegal)
Natural entropy and new novelty will erode the foundation of that specific ecosystem for something that provides a wider opportunity for more new users to create/retain value.
Axie is not a Ponzi scheme, but is definitely a pyramid scheme (via their scholarships).
The price of the Axie coin is only supported by new buyers (by definition) and coins being sold are nothing more than early adopters cashing out. Any crypto "going to the moon" has this dynamic, coins being sold at 10,000% ROI is ponzi, early adopter paid by a late adopter, the person who bought at the top has already lost their money.
I guess Axie may be both, since there is also a multi-level dynamic.
Circle/Coinbase use the exact same mechanism.
These kinds of stablecoins are destroyed only upon explicit redemption. Not when sold to someone else on the open market.
It’s not that different from a brokerage account’s deposits. People don’t actually withdraw that much because they don’t need that much cash. They keep their cash in those ecosystems waiting for other trading opportunities and add more from other sources into the exchange.
I know it’s absurd to assume tether functions as described, 99% of the time for 99% of the value. But the market is showing the same thing with stablecoins that are better governed.
For the decentralized/permissionless/uncensorable minded people, The best bet is for other kinds of stablecoins to grow faster
Coinbase, an Y combinator unicorn, is behind Centre/Circle and the USDC stable coin. And there are now $41.5 bn USDC circulating.
At one point it was billion of USDT circulating and USDC didn't exist yet.
Then USDC began to took off and there were, out of memory, $5 bn USDC and $23 bn USDT.
But, overall, the trajectory is clear: USDC is growing faster than USDT.
It's $41.5 bn vs $76 bn today.
Maybe in a few months USDC shall catch up, then maybe even surpass USDT.
Do we all believe Coinbase and its Centre/USDC stable coin is a scam? It's an american company, with real people behind it. It's not some scammy thing in the Bahamas.
Now here's an intriguing question: if we believe Coinbase isn't a scam and that these $41.5 bn USDC are really mostly or all backed, does tether's $76 bn really look that unthinkable?
Oh yes I forgot Americans can't be scammers.
What you’re missing is that whenever there’s panic selling there’s always someone on the other side finding a great discount.
All scammers are real companies with real people behind them. Until they aren't. Location of a company doesn't matter.
"Ponzi Scheme" literally comes from a man who was scamming his victims in the US and Canada.
Enron would like a word!
One example of a "rug pull" is that the team provided liquidity to the AMM liquidity pool, and then removed it, leaving people with no where to trade the token. Its honestly hard for me to call that a scam, although I understand the community expectation being undermined.
First: the SEC exacerbates this reality. Tokens that don't want to be considered a security have to consider NOT providing an expectation of liquidity. The team has to avoid expectations of providing secondary market liquidity just to stay out of the crosshairs of the SEC. And even in SEC registered land, If you look at the "risk factors" section of public equities, they frequently say "there may be no market for these securities, a secondary market may never form, there is no guarantee that it will always be there", which is true in all markets!
Second: with the advent of AMMs, ANYONE can provide assets into the liquidity pool. (even the acronym of AMM don't tell you much about what this is, its just a different model of exchange that is very popular). So even if token traders had been relying on the team under an unspoken symbiosis of the team providing liquidity, the token traders now can do it themselves. This is also very common. The token traders typically follow incentives to actually do it, but they CAN without those incentives.
Third: Token traders are the community and can take over any project to try to make their investment more profitable, it just requires more risk. It happens, but the times it doesn't happen the token traders just stop engaging with the project as well.
How can this be distinguished from other "rug pulls"? I don't think it is possible.
If the team went through all of these steps with the intention of pumping the value of the coin, hyping others into buying it, and then extracting as much money from them as possible with no intentions of helping the coin succeed long-term, that seems like a scam to me.
The victim-blaming mentality runs deep in the cryptocurrency world. It's fascinating how many people in the cryptocurrency space are reluctant to call a spade a spade only because the underlying blockchain or algorithmic rules weren't violated.
My point stands that the community can do what the team did but fail to take further risk or organize. They disperse just like the issuer did, when in fact they do all have agency and can fill the vacuum. unless the token was backdoored, then we can call it a scam.
these are colloquially called rug pulls, because the liquidity pool was the rug. these happen so fast these days. These things can play out completely within 20 minutes, as bots and individuals are scanning the blockchain mempool for erc20 token creation transactions and liquidity pool creation transactions, just to get into a potential big project before anyone else.
here, the traders are at no disadvantage to the issuer, from a community perspective, to continue the project and attempt making their investment valuable, specifically by adding to a liquidity pool themselves.
again, my main point is that things that are very common are not being distinguished from whatever you or others want to argue about. its an article about this year, not 2017, not 2018, or some other year dominated by an antiquated style of ICOs.
there is something to debate, but the vocabulary itself doesn't allow it, perpetuated by an organization that gets no benefit from distinguishing as all they want is technology contracts from governments.
I think "rug pulls" is not defined well.
It's a standard type of investment scam, "take the money and run". The SEC even has a video for the clueless.[1] And a web site on ICOs.[2]
This scam long predates cryptocurrency, or the Internet. Newspapers made mass-marketing a scam possible. That started about two centuries ago. Most scam types, like this one, are old. They just keep coming around in shiny new wrapping paper. This isn't innovation.
> It's a standard type of investment scam
But upon a second reading, I don't think you get my point that there are categories of things called "rug pulls" and the chainanalysis article does not distinguish well. I also think distinguishing is not possible to reach consensus, right now, but attempts should be made.
I'm happy with my bank's fraud protection. How can crypto users protect themselves without recreating traditional banking?
Bitcoin was released ~13 years ago, and wallet/transaction security has been one of the most important requirements since then (along with scalability, but let's not go there). If trillion dollar market caps and god-knows-how-many billions of investment couldn't figure out how to protect consumers after 13 years...
Mind you, it's worth noting that MPS had four centuries of independence before listing itself on the stockmarket and losing its independence comparatively shortly afterwards in the 2008 crisis.
And when even the professionals fail to see scams, how is the general public supposed to do so?
And sadly a lot of charities.
https://en.wikipedia.org/wiki/List_of_investors_in_Bernard_L...
People routinely fell victim to fraud. Why else would the government have introduced bans for ponzi schemes or regulatory requirements to go public with stocks, if not to reduce the amount of fraud?
Just because an entity uses "crypto" instead of "US dollars" it should not be absolved from the requirements of established players, they were instantiated for damn good reasons.
- The scams are online, so I cannot knock on the scammer's door with an angry mob and ask for our money back.
- Pseudonymous identities means scammers have strong protections against being sued or prosecuted.
- Digital wallets, as opposed to cash in bank vaults, means that you can lose all your savings in one mistake.
- Complete lack of trusted third parties means there's no one to appeal to, or to raise alarms in suspicious cases.
The old protections were already pretty bad (scams and thievery very much did exist), and cryptocurrencies are lacking even those basic protections.
>- Pseudonymous identities means scammers have strong protections against being sued or prosecuted.
>- Complete lack of trusted third parties means there's no one to appeal to, or to raise alarms in suspicious cases.
I think that all these things are not fundamental aspects of crypto, but rather how the user chooses to use crypto. If I wanted to I could use crypto only for buying eggs from the local market, or paying a plumber to do some work for me, etc. Scams have existed for decades that involve essentially mailing cash to people that fit the criteria you listed - it's not an issue with cash, but an issue with how people are transacting (with remote unidentified people).
>- Digital wallets, as opposed to cash in bank vaults, means that you can lose all your savings in one mistake.
This is no longer strictly true, at least for loss of wallet keys. There are all sorts of solutions out there (Argent, for example) that allow you to have 'fallback' key methods for if your main key is lost. Yes, if you mistakenly send all your money to the wrong address in crypto you lose it, but that was true of cash as well. Once you spend it it's gone.
So...by staying out of cryptocurrencies entirely, then?
Sounds good to me.
I believe in the USA there was already some legislation passed some time ago that would allow banks to be custodians of crypto-currencies?
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[0]: https://bitcoinethereumnews.com/crypto/two-german-banks-comm...
It's similar to stocks and bonds - you could own them yourself, but for not-huge private investment it's often simpler to have a financial institution hold them on your behalf.
It's also worth examining the current system. How happy are you with your bank's 0.01% interest rate? Which is actually negative when you factor in inflation that's eroding the value of our dollars faster than ever, and increasingly transferring wealth to the top 1%? How happy are you about bank CEO compensation and bailouts? No one in crypto is asking for a bailout, even when it crashes 80%. And what about the fact that bank's charge poor people the most or flat out deny service? Or the fact that it's all closed source and behind closed doors.
The "rug pulls" you see are from contracts written maliciously. DeFi is a ponzi scheme written into a Smart Contract, but some of them have an extra function that allows the creator to instantly steal all the money out of it.
For a very narrow definition. You still need a way to get Bob's wallet address, and to secure your own wallet. Just look around and you'll see plenty of experts failing to do that correctly.
> The "rug pulls" you see are from contracts written maliciously.
And the contracts, being from DeFi land, are immune from chargebacks or legal prosecution. Regular old fraud, made exponentially more damaging because of cryptocurrencies.
Fair enough. A transaction is secure, but the wallets might not be. If you rely on a 3rd party to host your wallet (ie, Coinbase), then you risk your money being stolen when they get hacked. If you host it yourself, then you risk losing the keys unless you make a backup, and the backup could get lost, or if you store it in cloud storage, it could get stolen there.
Credit cards are harder to secure than wallets IMO, but at least with CCs, you have recourse in the case of fraud.
The whole at least somewhat civilized world has moved to a more advanced versions of money, but cryptocoins are a step backwards and it is entirely intentional.
I'd never mail cash for that purpose.
There are <0.0001% of the population who understand transaction risk.
If I pay $Cash for Goods, In a trustless network, both side of the exchange have to be instantaneous. I can never pay cryptocurrency for any item that are not verifiable by the network itself, unless there is another trusted 3rd party (cough cough, Credit Card Processors/Banks).
They could just invest in well-established projects with proven technology instead of obvious scams in hopes of a "moon shot". This has very little to do with Bitcoin and other legitimate projects, which are a far cry from useless fly-by-night ERC-20 tokens with stupid animal names
If you want to push for those technologies, you have to explain how to give consumers a minimum level of protection.
I am working with people in the banking industry to add a layer of protection without compromising core values of crypto (permissionless, trustless), but funnily enough they do not want to do anything against the regulators. Retail banks have become very cautious after 2008 and won't do anything unless they are told to do it by the regulators. And the regulators are a bit clueless, tbh.
No bank in the world will care if someone steals your wallet.
If you didn't notice the total crypto market cap is 2 trillion dollars. People are happy with the way crypto works, most don't want it to be like a bank, but for those that do there is ways to make it so.
Ok i'm exaggerating of course, it just seems like some people are not willing to admit that cryptocurrency does not address certain things that people want out of a money/payments system.
Right now international cryptocurrency transfers are a legally gray area, and have the aforementioned lack of protections. So the expensive and slow, but legal and safe, international transfers are a service that cryptocurrencies don't offer at all. No reason to think it'll be faster and cheaper when it's offered.
The huge popularity of crypto is really eroding the tx capacity advantage.
And even in the backwards US, ACH can now settle later same day and it's free. That makes BTC a lot less attractive.
Transferring funds uses an extremely small amount of gas. You clearly have never used the chain so stop making things up.
Here I sent 11K USD to another wallet for a fee of $10. It was confirmed within 5 minutes. There is no other service outside of crypto that is that fast and that cheap. https://etherscan.io/tx/0x3edc74a15742f65d166dfc9ddb567afabf...
But wouldn't confirmations take, as you said, five minutes on a good day? I see people saying 5-20 minutes typical for Ethereum to reach 30 confirmations. And sure you can accept fewer but 30 seems a pretty widely accepted convention. That's still slower than wire transfers which are functionally instantaneous (in practice of course it takes a minute or so). And right when I looked now the base TX fee is $19.10, which is a few dollars lower than I thought, but I see that it fluctuates by a few dollars pretty quickly so it would depend on the moment. I don't know the Ethereum situation with regards to EIP-1559 in very much depth so if I misunderstand how fees currently work please correct me.
This seems to put Ethereum basically right on par with what my credit union charges for wire transfers. Now $20 is on the lower end for wire transfers on a consumer account (I think $25 is common), but you can also get lower on commercial accounts. It just seems like they're fairly on par with each other from a fee perspective, and Ethereum is at least a few minutes slower.
This doesn't protect against your credentials being compromised, and it's not useful advice unless you can explain your criteria for declaring an exchange trustworthy and how that would have excluded all of the exchanges which have lost their customers' money.
> No bank in the world will care if someone steals your wallet.
Yes, this is why most people use regulated banks which have the fraud handling and reversal processes which cryptocurrencies lack. It's not just that you don't have to carry it with you, it's that there are things like verification and reversal processes which mean that individual people are both less likely to lose money in the first place and more likely to get it back. If you've ever bought a house, the process of verifying a large amount of money being transferred is very different from writing a small check whereas all you need is a typo to lose cryptocurrencies without recourse.
The Winklevosses came up with an elaborate system to store and secure their own private keys. They cut up printouts of their private keys into pieces and then distributed them in envelopes to safe deposit boxes around the country, so if one envelope were stolen the thief would not have the entire key.
https://www.nytimes.com/2017/12/19/technology/bitcoin-winkle...
So these dudes both "saw" FB and cryptocurrencies.
Hate as much as you want on FB and cryptocurrencies, it's still quite a feat to have foreseen both.
Regarding storing parts of the secret here and there: it's basically and "m out of n" scheme AFAICT. There are many variations of this but the overall idea is that you can afford to lose (n - m) parts and yet you'll be able to recover the secret. And if a thief were to steal parts, he'd need m parts to be able to recover the secret.
The difference between a Shamir scheme and a true multi-signature scheme is that the former requires combining the m-of-n pieces to reveal the single private key to sign a transaction, which is a huge vulnerability and single point of failure.
Bitcoin script allows the m-of-n signatures to remain geographically dispersed, each signing the transaction with only their own key, so no single party ever needs to possess the full private key.
In a exaggerated 100-out-of-1000 scheme, even if you steal 99 out of the 100 required shares, you still have zero information. You are better off trying to brute force the value from scratch than trying to use the 99 shares you have.
It's also very simple to implement, making it my favorite algorithm.
[1] https://en.wikipedia.org/wiki/Information-theoretic_security
from my perspective, you are comparing a user experience that has nothing to do with the technology.
a bank is a third party service providing custody to bearer instruments.
a future financial institution will be a third party service providing custody or other protections to your crypto bearer instruments.
> If trillion dollar market caps and god-knows-how-many billions of investment couldn't figure out how to protect consumers after 13 years...
there are DeFi insurance protocols, many people get paid back after being scammed, rug pulled, exploited. Look at the source, it is convenient for this to not be mentioned as all chainanalysis does is sell fear to governments to land contracts.
That's true some times, but then it works like an insurance policy to me. I like insurance, especially when it's about my life savings.
> a future financial institution will be a third party service providing custody or other protections to your crypto bearer instruments.
As you mentioned, that's a bank. There's no reason to believe that crypto-based banks will be any better than traditional ones, especially if you compare to newer fintechs.
> many people get paid back after being scammed, rug pulled, exploited
I was not aware of that, thank you. But it's still too few compare to the whole.
That wasn't the supposition. Who cares? Wait I know people that do care, you thought I was one of those? I view blockchains as a platform to launch projects, and crypto as the necessary fuel to use those platforms, I like the censorship resistance but I don't care about the ideologies, I would like to seamlessly move unlimited sums in and out of them and thats that. I care about fulfilling market needs and niches, I don't care about the accuracy of those needs.
Regarding Defi insurance protocols, there is a lot of education necessary and some ease of use improvements necessary.
Many people think it will be Fintech in the front, DeFi in the back version of crypto that services mass adoption. The big difference is there is global, permissionless infrastructure for anyone to build tools/apps/services on. No more walled financial system, some kid in India can make a new banking app and it can be as useful as hsbc. They can use the same lending protocols, currency conversion, insurance protocols, and then choose what services they want on top. Maybe someone wants their banking app to be hentai death metal themed and all their moeny to be in picutres of dogs(rather than pictures of the queen or a president). Those who want self ownership and to code their own things, or arent liked by the banks (e.g. sex workers, immigrants, travellers) have just as much access to the system. To me it will be kinda like how lots of people are happy with Windows, but a smaller group like the freedom of Linux.
Traditional banking is not perfect by any means, but if 6-figure frauds are making the news, it means they are uncommon. Meanwhile, cryptocurrencies regularly have scams and hacks in the hundred-million dollar range.
Some will say that you can still prosecute the crimes even if you can't initially reverse the transaction, but you can see how well that is working with hackers from adversary nations. Basically no prosecution and risk free ability to move on to the next victim.
"Friction is a feature with money transfer"
My experience is that moving money between countries where there is a high likelihood of collaborative justice against scams and thefts, ends up being pretty simple. It gets harder to transfer money to places where it is easier for thefts and scammers to get away with it.
I think we want it this way. How many people get taken in by the romance scams[1] where they wire their money to a country with 0 chance of recovery. The money transfer system has been specifically making it more difficult to send money to countries where this is commonplace as that is the only effective way to stop the crime. There is no viable criminal process only friction to make it less profitable and more difficult for the scammers.
[1] https://www.fbi.gov/scams-and-safety/common-scams-and-crimes...
For example, today the 5-member Advisory Board has unilateral power to change the contract as they see fit[1], and only the smart contracts have been audited, not the organization itself[2].
The only information about this all-powerful Advisory Board is on the home page, and I'm forced to take that at face value. What happens if I put my money there, the board runs away with it, and I try to sue them only to find out that these five people don't exist, or are not related to the project? This is far from the basic security level of any traditional financial institution.
Again, I have major respect for this team. The service is useful, and the documentation is honest and comprehensive. But a blockchain plus this insurance does not make a safe consumer space.
[1] https://nexusmutual.gitbook.io/docs/users/understanding-nexu... [2] https://nexusmutual.gitbook.io/docs/welcome/audits-and-secur...
Isn't this true of the entire cryptocurrency cult though?
As not being scammed goes, I just avoided everything that was super new (like a project 3 days old that already has $3b in TVL), avoided things that sounded super scammy (Most recent one coming to mind being SQUID token. I mean, come on), avoided things that had no real reason to be, avoided things that I didn't really understand despite research.
My most successful investments are those made in crypto winters, during "see? crypto's over".
In the real world, "crypto holdings" are IOUs with a dynamic value of how much is being owed. This absolutely can create (and especially transfer) real world wealth.
Right now, there's an active google ads phishing campaign targeting the "Biswap" crypto exchange, so if you google "Biswap," there's a good chance you'll see fake Google ads. If the very first thing you see on Google is what you're looking for, and it leads you to a site that looks just like the site you expect to be on - why would you think twice?
We've also seen cases where scammers create fake support accounts to impersonate legitimate organizations, such as Opensea, and use Twitter to trick victims onto counterfeit sites. The sites may seem obvious on their own, but when you combine these additional steps scammers take, it's clear to see why the scammers are having so much success.
Here's our Twitter feed where we post some of what we find on our day-to-day. https://twitter.com/GuardYourDomain
- is there exponential growth still to go, so that we might expect $70bn lost in 2022?
- or is there a finite amount of victims to be scammed, after they've lost all their money the rate of scam will decline?
- or is it more likely that there will be some kind of intervention?
(Barring some massive SEC/DoJ crackdown, or something. And even then, that'd only put a dent in it and would just scare away some US scammers. Most of the big ones are outside the US's reach.)
We’re also looking at theft-of-stake instead of theft-of-work to reduce energy usage, allowing scammers to be much more efficient and green.
To the moon!
A lot of value of crypto is based on a small volume of transactions to cash which give a number to the entire asset.
If I create 1B secret numbers, sell one for $1, and someone steals the rest, is anyone really out a billion dollars?
it's not hyperbolic, there is a lot of liquidity in this multi trillion dollar market.
although if you're asking this question, the next point might dilute my prior point to you, but a reality is that many people aren't seeking fiat. They don't want dollars. They want more crypto. For physical goods and services there are also enough closed loops to acquire whatever is desired without touching dollars. For digital goods and services they can already be acquired for crypto.
But outside of that, charities accept crypto donations. Private equity firms accept crypto in-kind investments as the third party fund administrators have also updated their technology. Politicians accept crypto.
No different than any of these entities accepting stocks or bonds, and considering to liquidate some eventually. Except the crypto is more easily exchanged for goods, services, donations, investment.
it shouldn't sound absurd, but if it does, just remember that they can also get as much cash as they want whenever they want.
Why was this necessary to say at all?
like the people who say
"$X is not that much these days" (it is and they want it)
"That billionaire doesn't really have that much money" (billionaire then sells 10% of their holdings in 3 days for billions of USD)
"What about after taxes?" (pay for an accountant, you'll see its better than you think)
and the reality is that liquidity changes faster than the culture. especially across all markets over the last 2 years. so its time to force that introspection.
So you're intentionally being insulting, then. And you see that as necessary?
Crypto is a worldwide, 24/7, permissionless market. It's likened to the wild west. There have been numerous rug pulls, but if you focused all your energy on snake oil salesmen and gangsters in the West, you'd miss the fact that there was real, sustainable value there.
A lot of people left Bitcoin after the Mt. Gox meltdown in 2013. And yet the space continued to evolve and grow.
If you're interacting with DeFi, especially if you're new to crypto, stick with the blue chips like Uniswap, Aave, Compound, and Bancor. They are battle tested.
Look for projects that pay for audits, bug bounties, and do due diligence with regards to security. Don't chase a copycat fork of a popular project on a third rate chain because you feel you missed out.
I have 1000 toenail clippings I've carefully collected over the last few years. Each is unique and carries a genetic signature that is very difficult to replicate. My toenails don't grow very quickly, so the supply is limited.
This morning, I sold one toenail clipping to my wife for $100,000.
My toenail shard pile now has a market cap of $100 million. That is value that has been created.
Who's actually using these coins to do anything in the real world?
My understanding of the idea is this:
1) Using distributed code, the operation of which is assured by code on a blockchain based system like Ethereum, lending and investment can happen without the intermediation of banks and capital markets gate keepers. The savings from cutting these layers out can be shared between the supply and demand side of capital.
2) On a temporary basis only, some element of the rewards of contributing external capital, computational power, or other resources to a particular pool of capital are "extra" on top of the core capital allocation function of the pool. These can be structured in various ways but essentially the idea is to bootstrap money into the pools through a reward system that declines over time.
3) If the core proposition, that there is gain to be had from the disintermediation, is true, then at some point pools reach a sort of "ignition" point where the pool exists for that purpose only and the temporary bonuses are no longer required. This would mean that despite structural similarities, these are not Ponzi schemes since there is an eventual state reached were a real function is being performed. Some people will stop contributing to a pool as the rewards taper, but that won't matter because most of the money is now in there to be lent out for profit.
4) If that core proposition is not true, then they are Ponzi schemes because all the growth is coming from the rewards.
My problem with (1) is that these are already relatively low margin activities so how can there be enough disintermediation to go at once you account for the default and scam risk on the side of the borrower? It isn't the case that capital is expensive right now, tech investors are giving it away like its going out of fashion, headline borrowing rates are incredibly low, PE is going crazy buying everything. It's also striking to me that the promoters of these DeFi schemes spend so much time on bringing in new lenders but very little seems to be done on the borrower side. Surely if you're building a sustainable capital allocation business, you need a pool of borrowers? Ideally one in a business where they can provide substantial collateral for their loan, support high returns, but somehow can't access other forms of finance (but not because their business is illegal). That would seem to be a rare commodity so I'm surprised not to see pools fighting over access to these borrowers.
Like paint on paper costs almost nothing until it has the right artificially scarce provenance and becomes a work of art, some cryptocurrencies can become valuable to hold and trade in and of themselves thanks to perceived scarcity.
Apparently the answer is "crypto margin trading".
[0] https://www.crowe.com/global/news/fraud-costs-the-global-eco...
I'm not sure if the current level of crypto-enabled pump and dump is the optimal level though ;)
No, these scams and the $7.7B are going into the pockets of the normal group of capitalists.
Somebody creates a new smart contract (token) with a funny brand or meme name, puts liquidity into a DEX like Uniswap and sends the token around to named wallets. Some people hop on the train and swap the token for ETH. The clue and actual scam is that you can't ever sell it. If you decompile the smart contract, only the creator address can ever transfer the token.
The whole play takes 10-14 days, they pull the rug in their liquidity pool and move the money to another wallet to start with a new token. The token I got scammed with ended up making 10 ETH profit, after all transaction costs mind you.
Happy times /s
What can possibly go wrong?
Also, I accidentally sent money to the wrong address, is there a support number I can call to reverse that?
I also wrote a blog post about the safety crisis in smart contract development: https://timdaub.github.io/2021/12/08/illuminating-the-dark-f...
The do not have value in any sense - even sending money overseas is cheaper, more convenient, and more secure by traditional methods.
Money going out + money spent on mining = money coming in.
Crypto evangelists are always keen for punters to put in regular amounts - presumably because then someone can take out regular amounts, and so avoid actually having to work for their living.
Oh, wait...
My outsider's perspective is that the entire thing seems like a shyster's market: scammers scamming scammers, with yet other scammers deciding how much each scammer has gained or lost with only loose ties to ingoing or outgoing money.
I totally understand why folks fell for Bernie Madoff's scheme. He had a brick and mortar office, a stellar reputation, and a relatively well-known face. Revealing his scam destroyed his life and he couldn't have easily disappeared into thin air before facing consequences. His clients are no better off, but the consequences alone would keep the vast majority of investment managers from blatant cash grabs.
Conversely, the caveat emptor nature of cryptocurrency and the ubiquity of scammers would stop me investing a cent based solely on a website, PR, and/or social media buzz— none of which require anything beyond a small amount of initial capital. Do their techniques go beyond that? Were any anchored to well-known people or organizations?
People have a right to spend their money on things. If the choose to spend their money on nonsense that has no contractual obligation to return their funds to them that seems like a legal transaction when the funds don't get returned.
I do feel for some of the people who thought they could have a better life by 10xing or 100xing their networth on scam coins but the reality is they didn't do their research and willingly walked into this.
A lot of decisions we make in the modern day have guardrails set up to protect the individual to a varying extent (which is often a topic of politics), so it may be we eventually get guardrails in the crypto space as well.
This has always been my concern about crypto: fiat currency is backed by judges, and if you don't do what the judge says, it is backed up by the violence of an enforcer with a weapon and the ability to put you in a cage.
Crypto doesn't have that. If someone steals it from you there is really no recourse, unless we "recentralize" the network to give certain entities more power than others like we have with fiat currency.
Default meaning, the Gemini coin will be worthless when you try to withdraw. You could try to ride 8% junk bonds for 3-24 months too.
I am unsure how they are doing it but I presume they are using a technique similar to the "Arbitrage in Dual Classes" for stocks. Basically you bet that the price of the class A and the class B of a stock will eventually merge to the same or a very similar price. In this case I think they do this with the BTC spot and future price.
This technique worked well for stocks until 2008 when they all got REKT in the Volkswagen Class A stock short squeeze and lost everything. One guy went from billionaire to broke within one day and jumped in front of a train... I have the sad feeling this is going to happen again.
As a bonus, Celsius also claims to do Rehypothecation, the thing that caused the subprime crisis.
Have fun "unbanking" yourselves.
No education will stop many from going to Casino and blow through their savings. If they wish to engage into recovery effort - there will be rules of this engagement.
The right core meme can be a catalyst for compounding user generated content growth. Look for memecoins with community growth metrics that look exponential, make sure the tokenomics are safe, and hold on for dear life.
For me, DogeBonk and perhaps one or two other memecoins have the community growth and memetic qualities to be exponential. So long as there’s no rug.
$2M scammed by a rug pull named... "WarOnRugs" ?!
You mean "speculate" here, not invest.
People definitely want (and must be able) to invest money that they cannot afford to lose, at least not all in a split second.
edit: Initially I vastly underestimated how much GameStop stock went up
That's reported as a drop from the peak. But it doesn't necessarily reflect the real losses, in terms of initial investment. It's a number larger than the total amount of "real" M0 money in 2000, for example! Feels more like "an unrealized gain that never materialized" than "loss".
I remember that time, it was just after I graduated. There was a lot of business craziness on a scale that defi is yet to reach, although it's already hit some of my peak markers like "rename a stadium".
Let them keep saying crypto is scam, people who believe in it will win in the long run anyway.
The net effect of equity investment is to increase the amount of capital targeted towards the production of capital goods; i.e. deferring consumption makes humanity richer in the long term.
I think the biggest predictor for being conned is not low IQ but high greed.