Please explain how they can use the money from other people account to cover the losses. If i had a account there, i wouldn't allow them to use my money to cover this.
As an example, take Bernie Madoff. He took in people's cash and then sent them regular statements about how much money they had. But they were just statements doctored to look good. When some people withdrew money, he just gave them money that was handy. At some point, the difference between the numbers on the statements and the actual assets was over $50 billion. More details here: https://en.wikipedia.org/wiki/Madoff_investment_scandal
None of the Madoff investors "allowed" it. I don't know anything about Crypto.com, but the same thing is surely happening with other "crypto" companies. It doesn't even have to be malice; often a failure starts out with some event like a sudden loss to theft. Insiders believe they can make the money back, so they just keep on operating and hope nobody notices.
This opportunity for divergence between reported and actual funds is one of the big reasons US banks are highly regulated. The FDIC is on the hook for large sums in the event of failures, so they're quite vigorous in making making sure that doesn't happen too often.
They're...not going to ask your permission?
If you have an account there, they have a large central pile of assets, and a database row saying that you are entitled to X amount of those assets. Someone else has a database row saying that they are entitled to Y amount of those assets.
If someone breaks into the other account, and makes an illicit transfer, then Y goes down and the central pile of assets goes down. If crypto.com makes the other account whole, they simply increase Y back to the original amount. But the central pile of assets hasn't gone up accordingly. They just used "your money" to cover this, and they don't ask you for permission.
When you go to them later and say: "I want to withdraw my X somewhere else", they might say: "I'm sorry, we don't have X right now". That's a run on the bank.
Fortunately, we have protections around specific institutions to prevent these kinds of situations. Capitalization requirements, FDIC, etc. Unfortunately, if you have an account with crypto.com, none of those protections exist for you. You're banking on them having the funds when you ask to withdraw them.
[1] https://www.reuters.com/article/us-bitfinex-hacked-hongkong/...
Once it enters their hands, the money isn't really “from” a particular account in any tangible way.
> If i had a account there, i wouldn't allow them to use my money to cover this.
An account is just a record of funds to which you are entitled; there are certain types of relations where someone keeping money for you legally needs to keep it segregated from other funds of theirs, but crypto.com doesn't have that kind of relationship with account holders. If they don't provide you with your funds when you ask, you can try legal action to recover it, but you don't have a veto on whether they update the entry recording someone else's balance to make them whole after a hack, even if that increases the risk that they won't have your money when you want to withdraw it.
It s not each of the user individually seeing their balance go down, it s the company lying even more about its ability to liquidate all accounts.
Your number on their html page they graciously present to you will go unchanged. It s not a new phenomenon, every bank does it, except crypto.com does it to pay losses for a theft while banks would do it to lend to a baker buying a bakery on mortgage. If said baker screws up and cant repay, and many more others as well, clients cant all withdraw the pretty number.
Another interesting difference is that a bank pays you for lending to them with your savings account, at market rate (very low these days), while I dont think crypto ponzis do because you re suppose to just wait and moon.
If you re retiring and expect the bank to be good on a million $ worth of some sort of instrument, you're fucked minus 250k.
And this is totally fine: you re compensated for a low risk of default when you lend to your "savings account" and must accept this could happen. There s no way to make money waiting doing nothing risklessly. Creeptards know that well, they all in on wind, there s no worse risk.
Yes, they do.
> Banks have insurance policies, both private and federal, that would cover the losses.
The federal insurance policy covers you if, after operating this way (or for some other reason) the bank ends up without money to cover your account (and, the regulation that comes with the insurance means that it's more likely that the Federal government will force the sale of your bank to one that does have extra money to cover your account even before that happens.)
But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.)
> But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.)
It's really not. Customer deposits are segregated from the operating accounts in accordance with applicable law. You're not suggesting they're taking payroll out of customer deposits are you?
Banks don't keep money segregated in accounts.
Banks have reserves, and accounts basically record the right of people to draw money.
When they cover a fraud loss from one account by increasing the balance for that account to make the owner whole, they are doing exactly what crypto.com would be doing. Neither involves taking balances from others accounts, but both increase the risk of inability to cover accounts (including those of other people) as a result. Now, yes, banks provide consumers with more protection against the risk this creates, and are regulated in ways which make them less likely to do it to an extent which would create as much risk as a hype driven crypto exchange in the first place, but in terms of the basic mechanics, it is not any different than what has been suggested.
The model of money actually being held segregated in an account works for things like lawyers holding client funds and a very few other specific things, but it doesn't really capture what goes on with banks at all.