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Comment by Animats | Hacker News Reader

If they'd inflated the valuation of some crypto thing, they'd have the crypto crowd cheering them on. But they did it with something people understand, a deli. So it's obvious the value was inflated.

The SEC brings the hammer down on about two crypto scams a month. This month, Sparkster, Ltd., and Chicago Crypto Capital, Inc. Last month, Dragonchain, Bloom, and Crypto Crusaders.

The SEC is still working on the crypto scams of 2018-2019. Remember Initial Coin Offerings? There's a big backlog of those. So they haven't gotten to NFTs and DeFi yet. Soon, though. The SEC just doubled their crypto enforcement staff.

With NFTs, if you sell something that already exists, it's a collectable. That's probably OK. If you sell something that doesn't exist yet, such as metaverse land for a metaverse that isn't running, that's probably not OK. That's a security offering. See "Howey Test".

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Web3 is built on the blockchain; Web4 is built on the deli counter.

proof of yummy

Store of caloric value

What's your hashbrown rate?

Government block of cheese?

Hodl the pickle

I know not with what weapons web3 will be fought, but web4 will be fought with salami and hard cheeses.

Gives new meaning to the phrase, "That's a load of Bologna."

At least Bologna has some intrinsic value/use as a food product.

I could at least understand a blockchain (meat-chain? ew) based on Deli products.

I just posted how the parent comment was the funniest thing I’d seen today but this is awesome too.

I knew I come to HN for a reason…

The everything bagel verse!

Web3 may end up in the cell-block, in chains.

According to Biden, the big banks will put it back in chains.

if you have a problem figuring out whether you’re for me or SEC, then you ape block

> Web3 is built on the blockchain; Web4 is built on the deli counter.

This the funniest thing I’ve seen all day. I actually laughed out loud…

Web4 with chips and a coke please

Seriously what happened to ICOs? Like even "Silicon Valley" the tv-show had an ICO arc. The money gathering process for crypto ventures is now NFTs. Seriously, what is the current state ICOs? How are the ICO coins or importantly the ICO-backed ventures are doing?

That scam got tired, everyone moved to NFTs. Gotta keep your TLAs fresh.

You ever shine a bright light on a roach infestation? They'll scurry away and hide in places they can't be seen within seconds.

Much better version than the long explanation I posted.

What happened with ICOs is that the SEC sent a letter to each of them asking why they hadn't registered their initial public offering with the SEC. Most of them backed off and gave the money back. A few did register for an IPO. Some outside the US stopped selling to US persons. Some qualified as "utility tokens", but for that the issuer has to redeem them for something, like a Starbucks drink or an iTunes download. To issue utility tokens, you have to also make something that has some utility.

NFTs were an attempt to evade the rules on public offerings. If an NFT represents a real thing, even a silly real thing such as a Bored Ape picture, then it's probably a collectable, which the SEC does not regulate. But if an NFT is tied to something that doesn't exist yet, it's an investment. Also, once huge "NFT collections" and "fractional NFTs" became a thing, they started looking more like securities.

There's a a long history of attempts to evade security registration by claiming your new thing is different. It hasn't worked in the past. The "Howey test" came from a 1949 attempt to sell the right to harvest oranges from orange groves in Florida to large numbers of people nowhere near Florida.

The process for simply registering an IPO with the SEC isn't what holds back crypto issuers from doing it. It's that you have to file a prospectus, explain who you are, who's involved, their backgrounds, and what you're going to do with the money. Under penalty of perjury. What crypto people call a "rug pull" quickly results in felony charges.

That is super interesting. Thank you for this.

I liked the Silicon Valley arc because their token was redeemable for credit in their service, and scaled in value as their service became more valuable.

The SEC is still working on the crypto scams of 2018-2019.

One problem with this narrative is that they managed to kill off Kik/Kin and Telegram TON before they launched but they let other pump and dumps play out. Clearly it's possible for the SEC to do their job effectively but they just aren't doing it.

(Not to mention Libra/Diem which was an outlier.)

Alternatively, the SEC can do their job but don't have the necessary tech-savvy manpower to do it enough.

Is it tech-savvy people they need? The Howey test doesn't say anything about tech or computers. I would have guessed they need finance-savvy lawyers.

I assume that you need a tech person and a lawyer to go after crypto. The lawyer lacks knowledge (and the ability to give expert testimony) of exactly how the coins work and therefore how the law can be applied. I could be wrong, I'm just extrapolating from my experience that normally the limit of tech talent and lawyers is whichever came second.

> that they managed to kill off Kik/Kin and Telegram TON before they launched

Going by this[1] SEC complaint from 2019 Kik had already illegally sold $55 million worth of tokens to investors in 2017. I am not sure how you can look at these dates and get a "before" out of it, especially since it seems that some sort of launch did happen.

[1] https://www.sec.gov/news/press-release/2019-87

Before mainnet launch, which is when the VCs and whales dump on the public.

I'm not sure what's going on with Kin specifically because they lost the SEC case in 2020 but their website makes it look like it's still happening. (If you define constantly switching blockchains as happening.)

I don't follow the logic. Isn't the fact that the SEC got wise to crypto scams and started enforcing them belatedly a good thing? Better late than never, right?

From your tone it seems to me like you think the injustice here is that Kin and TON should have been allowed on the gravy train too?

Sorry, I wasn't clear. I want the SEC to shut down all crypto and I want them to shut it down as early as possible, not years after the dump. I think they are competent to do this but they're prioritizing their resources poorly.

I don't see the timing as significantly different than the linked article about the deli, though. It's a civil infraction, not a life-and-death violent crime case. It happens with lawyers and injunctions and it takes time. The goal of SEC enforcement isn't to prevent scams mid-fraud, it's to make fraud unattractive as a moneymaking endeavor.

> Remember Initial Coin Offerings?

Pretty much everything that had become regulated on on Wall Street had found a new home.

"Pink sheets! Got your pink sheets `ere!"

Far too many to keep track of, many simply walked away winners.

Bloom ICO "investor" here, let the SEC crack down on them!

The SEC brought the hammer down on Bloom last August.[1]

"The SEC's order finds that Bloom violated the registration provisions of Section 5 of the Securities Act of 1933. In its offer of settlement, Bloom is undertaking to register the Bloom Tokens with the Commission and conduct a claims process to compensate investors who purchased the tokens. Bloom agreed to pay a $300,000 penalty, and the order includes a provision for an additional springing penalty, up to the value of the offering proceeds, for a total possible penalty of $30.9 million, if Bloom fails to complete the claims and registration processes."

There's a slow process, but there should be refunds at the end of it.

[1] https://www.sec.gov/enforce/33-11089-s

For some people here everything is about how crypto is bad.

It’s a tech site; there’s a whole tech industry devoted to what is basically securities fraud, and it’s annoying. I work in smart contracts trying to build an ambitious global network, so I’m not exactly some Luddite afraid of the future.

If I read an article about people artificially inflating the price of something in a pump and dump scheme, I pattern match that to crypto. I’m tired of hearing about it, too, but I to stop hearing about it because someone regulated the fraudsters out of business, not because defrauding unsophisticated people became a norm we don’t criticize.

Just replace "crypto" with "human nature" or "capitalism."

Fraud is not exclusive to crypto, it's just laughably easy.

Nah, only 95% of it.

Look, there are plenty of technologists who are very into crypto. You can find lots of them here.

But to many, it reeks of some long-reviled parts of the tech scene: vaporware and marketing hype. And that's before you get into the astounding levels of fraud and waste.

At this point, crypto is much more of a social phenomenon than a technological one. That's not a problem in itself. The issue is that foundation is one where legimately interesting technology is neither necessary nor sufficient to solve very many real-world problems, but the financialization at the core of it facilitates these collective delusions that it is.

Everyone's LARPing the original dotcom bubble, but the world's entirely different. The dotcom bubble certainly had its crackpots, but it also had a lot of people who accurately saw that pervasive networking was going to unlock massive opportunity. But the low hanging fruit has been plucked over the past 25 years.

Web3 people are trying to tell the world that a decentralized permissionless log is as the same magnitude of technological impact, and it simply isn't.

>Look, there are plenty of technologists who are very into crypto

One of the reasons why everything about crypto is bad is because the technologists who are into it can tell you what the code does, but the "business people" who are into it can't tell you why this crypto use case couldn't/shouldn't be backed by a centralized database. Literally name a use case and I will tell you how a centralized database would be better.

Even if the Internet boom of the late90's was full of grifters, at least most could explain why an email is better than a letter,

I’m anti-cryptocurrency (forget the tech, the economics make no sense) but the censorship resistance of a distributed ledger is surely stronger than a centralised database?

It's not clear that there is really much value in one of those - certainly net-net.

The problem is that a blockchain can only trustlessly and verifiably encode things that are wholly represented on-chain. As soon as you bridge it to anything in the real world you're relying on some degree of trust, and trustlessness is all-or-nothing.

That's why only proper un-backed-by-anything cryptocurrencies actually make any sense - they're wholly on-chain. On the other hand their value flails around wildly like a balloon you forgot to tie off and that limits their practical value to basically nothing. Their monetary policy is in the hands of some un-elected group of randos accountable only to their own enrichment.

Stablecoins: who knows whether they're redeemable? You just have to trust the issuer and the legal system. They also get frozen all the time - Tether freezes more tokens than anyone and there's zero process and probably zero backing. Even Circle/USDC lied about their backing.

Deeds on the blockchain: not your keys not your house? Ok, no thanks? If you have to rely on the court to have final say then the real world diverges from the chain and of course then why even have a chain?

The iron law of blockchain is "if you think the blockchain is a good solution to any given problem you either don't know enough about the blockchain or you don't know enough about the problem."

It's not clear they're anything more than a technological curiosity that's been coopted by anarchocapitalist libertarian grifters.

I think that depends on what people man by censorship resistance. A lot of times people talk about it like they can send money around without anyone preventing them but, as with real censorship, is the problem there prior restraint or after-the-fact consequences? Even in the worst countries, it's not that people can't speak but that they [rightly] fear the consequences if they do so — and blockchains are a terrible choice for anyone who needs to worry about an abusive government because you're leaving a public, irrevocable evidence trail for the prosecutors. This is also transitive, as we're seeing with Tornado Cash — yes, technically it's possible to transfer funds without government approval but even if you're comfortable with that risk it doesn't help you much if most legitimate businesses and exchanges stop accepting tokens traceable to some kind of block-list.

The thing blockchains _can_ be better at than a classic SQL database is tamper-evidence, but that's also possible with less overhead using classic PKI and/or Merkle trees. Using trusted third-parties to sign things could be better if something came to a court or other public form because then you'd be able to have some institutional weight rather than random internet strangers: “My filing record was signed by the USPTO and their signature was notarized by the DPMA before the date when the other party claimed…” sounds better than having to explain to a court why it's unlikely that you were able to suborn miners to favor your transaction.

A "censorship resistant" blockchain versus real-world legal systems sounds like the old "immovable object versus unstoppable force" ponderable.

Except the legal system doesn't have to go after the blockchain per se, they go after the users who still have to have some way to access the value in it.

Maybe, with absolute perfect OpSec, you can use a "censorship resistant blockchain" to finance your ($politically_unpopular_activity), but it's going to be very difficult to get mainstream users involved in a platform that could become increasingly radioactive.

Eventually it becomes a legal death spiral-- as mainstream opportunities leave the network, so does the legal fig leaf for participation.

>censorship resistance of a distributed ledger is surely stronger than a centralised database

People bring this up a lot.

1) In practice, blockchains get censored and edited all the time when mistakes happen.

2) I don't see the advantage vs. a publicly readable database that a distributed set of users can archive in a cryptographically secure way. Again, blockchain's main failure point is that it does what centralized databases (which can be cryptographically secure, some even are!) do, but it takes 200x more effort to do it.

> Literally name a use case and I will tell you how a centralized database would be better.

Money laundering, purchasing illegal substances, or paying ransom.

I would much rather have a centralized database to take the heat from me in all those scenarios!

The advantage crypto has is that noone will set up that centralized database (because it would be stupid too!).

I buy and sell NFTs that represent fractional ownership in real estate. Well technically they represent ownership in an LLC that owns the real estate. Governance is done via votes of the token holders. There is a company that facilitates the transactions, but they don't hold or manage the real estate.

This type of investing has long been done on paper, but the blockchain makes it much more liquid. Selling your fractional ownership in a property was onerous at best, and took a long time and a lot of fees.

Now it's just sending a token to someone else in exchange for money (fiat or crypto).

Another advantage is that it doesn't matter if the facilitator goes out of business, because all the ownership records are on a public blockchain instead of their secret central database.

I generally agree with you, A LOT of crypto is crap and could be better solved with a central database. But there are valid use cases.

That "sending a token"? Unenforceable and still need to be backed up by, you know, an actual paper contract in the real world.

Also, this comment nails it: https://news.ycombinator.com/item?id=33002963

The piece of paper (the LLC formation that owns the house) literally says “whoever has control of these tokens owns this LLC in proportion to how many tokens they have”.

And yes it’s backed by a paper contract. That’s why I’m ok with it. But it’s still gives me liquidity and ownership security I couldn’t get with a central database.

> the LLC formation that owns the house

> backed by a paper contract

So.... What's the point of blockchain in this case? Other than "hey, we have blockchain"?

> But it’s still gives me liquidity and ownership security

What gives you ownership security is the paper contract, not some bytes in some database.

You cannot have partial control of an LLC without being part of the LLC. That would be a C-Corp. Members of the LLC have to be defined in the articles (with filing fees every time it changes) and are liable for criminal activities (this includes tax evasion).

For everything you want a c corporation provides the exact same guarantees while not becoming a money laundering hotspot

> This type of investing has long been done on paper,

Fractional ownership in real estate has a long history of scams.

>This type of investing has long been done on paper, but the blockchain makes it much more liquid.

Being digital makes it much more liquid. There's literally nothing about fractional real estate ownership that needs distributed consensus.

>Another advantage is that it doesn't matter if the facilitator goes out of business, because all the ownership records are on a public blockchain instead of their secret central database.

You could solve that problem by only working with companies that have publicly readable centralized databases? Again no need for distributed consensus.

I’m a crypto fence sitter, and I mostly think these things are scams.

But I think that the distributed-public-database thing has real value. Companies come and companies go, and opening up data to the scrutiny of daylight is sorta a prisoner’s dilemma problem much of the time. Building a long-lived business on top of a by-design-public data store seems like a really cool thing.

Sure, any company could decide to host a Postgres instance on AWS with world-readable creds. But does that happen? And what happens when the company goes under? Who keeps paying the AWS bills?

95% is a scam and 5% is the worlds slowest and least efficient database.

Feels like every new technology starts by innovators and then gets ruined by profiteers. The Internet in general (numerous small hobbyist sites → huge ad revenue behemoths), email (plenty of providers → everyone just use gmail), social media just between friends → massive propaganda machines, independent blogs → twitter/fb, and crypto is no different. Once professional investors got involved the focus changed.

Kinda a pessimistic view, and there is some value to centralization (e.g. Apple and Google probably contributed more innovation than a sea of small startups) but there's also a cost.

It’s not just information technology. Standard Oil was the catalyst for much of US anti-monopoly legislation.

Businesses in general tend to consolidate over time.

And whenever there is a post (rightfully, IMO) criticizing crypto, you get the predictable "you all just hate crypto you luddites!" responses.

I didn't originally despise crypto. I remember reading the original bitcoin whitepaper and thinking how genius it was. But I did come to loath crypto over time for 3 reasons:

1. As has been abundantly clear, crypto seems to be a haven for all sorts of hucksters and fraudsters looking for an easy way to commit their fraud, while adding nothing of value.

2. Crypto has developed into this weird cult where people actually believe the meme-y nonsense of r/Bitcoin.

3. Most importantly, though, I came to understand that the fundamental reason for crypto to exist, that you can have irreversible transactions without needing a trusted middle man, is a horrible idea. My favorite very recent simple example of this: Crypto.com is suing a woman to recoup $7 million they accidentally refunded to her because an employee put the account number into the amount field. I.e., they made a payment mistake, and to rectify that mistake they are using the time-honored court system to make judgements about who actually deserves the funds. Crypto.com should be thanking their lucky stars they didn't refund her in actual crypto...

This article has nothing to do with crypto. HN never fails to bring up crypto whenever possible.

Stock fraud? Wow should have done crypto. Guy got murdered? I wonder if the hitman was paid in crypto!

The top comment on this site will never be pro-crypto. That’s how you get shadow banned here.

Shows how big and important crypto is even if it still has little mainstream adoption. $1 trillion total market cap. Coinbase alone has millions of users just in the US.

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