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Comment by twblalock | Hacker News Reader

This has been a wonderful social experiment, enabling people who didn’t live in the 19th century to see what happens when banking and investing is treated like the wild west.

Maybe something could have been different this time? In the end it wasn’t, and it proves the necessity of regulation and institutions.

There aren’t very many other aspects of our society where we get to have that kind of experiment and find out whether our approaches to past problems were really correct. Letting us do that may turn out to be the true value of crypto, after the coins go to zero and we start mentioning it in our history books alongside tulip mania and the South Sea bubble.

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I don't see why crypto is incompatible with regulation and institutions. Crypto is a unit of account, not some magical lawless thing that's doomed to never have a regulation written about it. In fact, places like New York already have pretty strict regulations requiring specific licenses for crypto-related businesses.

Crypto crises like these are in general due to regulation not having caught up yet, not because companies that involve crypto are inherently un-regulatable. Crypto is speed-running banking regulation over again. It's an ugly process, but the end result will be crypto institutions that are strictly regulated like banks (and/or existing banks will start to handle crypto just like they do any other foreign currency balance).

As for the current state of things, FTX is (was) a Bahamas company not subject to the financial oversight of the general western world. The public would generally hesitate to wire large amounts of money off to some company in the Bahamas, but when it's crypto, people don't think twice about it for some reason. After the FTX blow-up, perhaps more people will. It's hard to prevent people from wiring money off to a company in some other country that has much looser financial regulations, but that's not a crypto problem, it's a financial education problem.

Why bother with proof of work or proof of stake mechanisms if you want political regulation? In that case, you might as well empower a state's central bank to develop a payment mechanism, and task them with ensuring fairness and enforcing laws around taxes, illegal activity, etc.

Wouldn't that be crazy!?

You're right in that if all we wanted was a domestic payment network, blockchain consensus mechanisms would be overkill and introduce unneeded overhead. Personally, I'm excited about the FedNow payment service coming online in the USA next year. Perhaps I'll finally be able to easily send money from bank to bank without involving third party fintechs like PayPal and Venmo, and without waiting a day or two for ACH.

However, crypto is useful because it standardizes behavior across regulatory boundaries, and because it creates a stateless unit of account.

Standardizing behavior across regulatory boundaries means that crypto "just works" to send value from one country to another, without needing cross-border intermediary companies that support your specific country pair to convert things between currencies/systems.

The stateless unit of account part is perhaps more interesting to me, though. Before crypto, there were no digital representations of value independent from state. No country has the power to hyperinflate crypto, and there doesn't seem to be a clear path to be able to accomplish a unit of account like that through traditional political means. The closest thing we have to that is the Euro, but it doesn't tick all the boxes.

Is a stateless unit of account good, or better than traditional government currencies? I'm honestly not sure. It does have some drawbacks in terms of the ability to use monetary policy to loosen and tighten markets. But it's an interesting enough concept that I would say it's worth it to "bother" with blockchain consensus technology.

We can have an international unit of account through, e.g. Special Drawing Rights. This makes plain the political bargains struck to ensure international economic stability. Crypto alternatives would have the same political valence as a return to the gold standard, which was abandoned to avoid the crisis potentials peculiar to it.

The most influential statement of your proposal is Hayek's article "Choice in Currency: A Way To Stop Inflation"[1] which he later expanded on in "Denationalisation of Money".

Hayek's views have an admirable internal consistency, but his political premises are contrary to the core values of almost every pre-industrial society, and of the social democratic tradition in Europe which has been internationally influential.

Very few people understand the full scope of Hayek's political vision, which is premised on a thoroughgoing skepticism toward the very possibility of rational democratic deliberation. If they fully understood his proposal's implications, I doubt they'd support them; but certainly there are some who are willing to fully own their anti-democratic implications.

1: https://iea.org.uk/publications/research/choice-in-currency-...

Well, I mean...that's the thing. There really isn't much point to crypto once it's regulated the same way as traditional finance...and there's no world where that wasn't eventually going to be the case.

Crypto is incompatible with regulation and institutions because it was designed to be, and is consistently a part of the ethos espoused by pretty much all crypto players?

Literally, the first sentence in the Bitcoin whitepaper (which arguably kicked off 'crypto' as a thing) is "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution".

[https://bitcoin.org/bitcoin.pdf]

I mean, seriously?

I don't understand your point. My grandfather tries to use only cash which allow 'payments to be sent directly from one party to another without going through a financial institution'.

And that is arguably the simplest explanation of what bitcoin is: digital cash.

Which by definition is fundamentally impossible to do transfers without a middle man of some kind.

Bitcoin has no middleman.

Cash doesn't announce your balance to the world...

Transaction broadcast is not the problem. Censorship is. However, if you want privacy, use Monero.

It’s a problem if you don’t want to have to worry about some third party deciding post-facto to come after you for the transaction!

And since it’s global, that third party could even be some foreign gov’t or entrepreneurial individual.

How you can transfer bitcoin between exactly two people with zero outside involvement from other entities? I suppose you might be able to have a bunch of pre-filled wallets of various amounts that you can transfer via thumb drive, but in a practical sense your transaction is going over various networks and through other machines.

In order for a balance to be transferred on the chain, it MUST be included in a mined block (the longest chain one/aka the primary blockchain).

So there is always a middleman, unless you’re on your own chain. But it’s distributed, no one can reliably pick who is going to be the miner (or always be the miner) because of the POW algorithm, and everyone can trust the outcome because of the way everything is structured. There are very strong incentives for everyone to try to mine, for instance, and the more mining power there is, the more difficult it is for anyone to have a controlling interest or monopoly on mining, barring special economies of scale in mining hardware, anyway. (Which do exist, but not enough to make it doable to get a monopoly right now)

Worst case, the miners can ignore your particular transaction indefinitely, but the counterparty can see that too, and it would require active collusion from a very large percentage of miners to even attempt that.

I thought of a random analogy here - the block chain miners are the equivalent of a common carrier parcel service here (albeit with far stronger guarantees against tampering).

So it’s not a middleman like a bank or a payment processor. Rather a bulk processor who moves a bunch of opaque chunks somewhere for money without any particular regard for who or what as long as they get paid for it.

Can you elaborate? When I give a cash payment to the babysitter, who is the middleman?

Sorry I meant that comment in the sense of bitcoin not cash.

Who is the middleman in a bitcoin to bitcoin transaction?

Whoever includes the transaction in the blockchain (the miner).

That's monero. Because it's deflationary and has a completely open record of transactions, Bitcoin is digital gold.

I was talking about bitcoin as a reference class for digital currencies, as opposed to Apple Cash balances or whatever.

Hang on, when did gold come with a transaction record?

If you're buying gold these days, typically it just sits in fort Knox or wherever, and you're buying a record of ownership.

There is a very, very long history of that being a bad idea. There are some situations (commodity exchanges) it’s necessary, but they are heavily regulated and audited for that reason. They also have non trivial storage costs.

Gold depositories have the same issues as crypto exchanges have typically had - it’s almost inevitable that someone absconds with the actual gold without telling anyone, or ‘prints’ extra without backing assets, etc. and until someone does an audit or everyone tries to withdraw their gold/tokens/whatever, no one knows.

It also enables a lot of other scams.

[https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/f...]

For anyone reading, educate yourself so you don’t get defrauded.

Not all depositories are a bad idea in all situations - but be cautious.

(Also, historical footnote - the last credible audit of the gold at Fort Knox was in 1974, hah - https://www.usmint.gov/learn/history/historical-documents/in...)

Which every financial institution and western government keeps trying to get rid of because it is essentially impossible to regulate or police?

And which cops have a nasty tendency to seize on sight in the US if seen in any significant quantity (outside of an armored car) because ‘proceeds of crime’?

And pretty much every drug transaction, illegal sexual transaction, whatever is done in cash? To the point most major crime shows and drama shows have scenes involving some massive pile or duffel bags or whatever of cash as a plot point?

Cash on the barrel head is the textbook definition of ‘difficult to regulate’.

Also, most people buying person to person used cars and doing yard sale transactions use it too, of course.

It’s not a requirement that Cash transactions involve a crime at all. Same with crypto.

If your transaction is illegal though, using Venmo seems pretty dumb.

> …and western government keeps trying to get rid of…

But then there’s China, right?[0] And arguably India?[1]

I agree with your larger point, but I don’t think it’s “western” per se to dream of the surveillance state knowing our every spend.

[0]: https://www.nytimes.com/2020/10/27/technology/alipay-china.h...

[1]: https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetis...

For sure, but I wasn’t familiar enough with their efforts to say how vigorously or effectively they have been pursuing it.

Thanks for the links!

Cash has serial numbers for traceability, and is emitted by a central bank. That's a big chunk of a financial institution right there. Additionally, if you pay for $50, the state won't give a damn, because it's $50. Pay a company $10k in cash and every alarm will go off and the transaction will have to be notified to a financial institution. Tracfin in Europe for example, etc.

So, no, cash isn't entirely separated from financial institutions.

I didn’t say cash didn’t require institutions somewhere. Cash creation (physical), and cash into and out of the system requires institutions.

Cash transactions do not, so spending, receiving, and if one is crazy storage can be done without institutions.

That hypothetical $10k transaction for instance only sets alarm bells off if it’s an abnormal transaction for an individual account.

Someone doing a cash business is going to do stuff like that so much, it’s a drop in the bucket and no one cares. Coin shops, check cashing places, certain types of convenience stores and restaurants, etc.

If they manage the cash themselves instead of a cash drop, such as if they are a dispensary and are unbanked, a given dollar bill can circulate a very long time before touching a bank, depending on which parts of the economy it touches.

The reality is it isn’t super hard to launder funds apparently, so it ends up back in a bank somewhere soon, but with the intermediary transactions hidden.

> Pay a company $10k in cash

Do you mean bank transfer?

Let’s say I buy a legal widget for $10K and I pay cash and I don’t plan to treat it as a business expense. On my side, I’m done, and any alarm that might be invoked is the problem of the seller, and probably dependent on their compliance with weakly enforced regulations.

For some classes of widget I might want a receipt, but definitely not for all. You can easily spend that much on a birthday dinner with your friends, if that’s your thing.

I don’t think anybody is arguing that cash is “entirely separated from financial institutions” but — even above $10K — it allows for the possibility (not the guarantee) of transaction privacy.

That reminds me of the excellent Econtalk episode: Devon Zuegel on Inflation, Argentina, and Crypto

Devon Zuegel talks with EconTalk host Russ Roberts about the crazy world of money and finance in Argentina. When inflation is often high and unpredictable, people look for unusual ways to hold their savings. And when banks are unreliable because of public policy, people look for unusual ways to keep their savings safe and to make financial transactions. Welcome to Argentina, where Zuegel finds surprising applications of cryptocurrency for solving problems.

https://www.econtalk.org/devon-zuegel-on-inflation-argentina...

That's the underlying payment network, but a whole "industry" of institutions have grown on top of it. Those can be regulated.

Sure. The problem I’ve seen is there is zero value add (and significant costs and value loss) when that happens over a normal bank.

Like, theoretical value add? Composable open source finance seems like a cool idea.

Practical value add? Less clear. On-chain comes with "contract risk", off-chain is more or less unregulated and comes with these FTX-like collapse risks.

IMO, Cool is ‘value add’ in that it makes it easier to part naive investors or customers from their cash, not in value add in the way that actually makes something hard easier and more efficient, or enables some new high value thing that was previously impossible.

I mean it obviously enables things previously not possible: open experimentation with financial primitives which results in new ideas like automatic market makers. Nothing within the traditional financial world allows you, as a random tinkerer, to create algorithms for exchanging between pairs of assets along a curve defined by the relative amounts of reserves for each asset.

However, whether this freedom to tinker and invent new primitives is worth all the extra risk from people trying to "invest" in this stuff, way less clear. Especially when the freedom is most often used to recreate traditional flavors of financial fraud dressed up as new technology.

There needs to be some conceptual separation between the actual on-chain technology (used by a very smaller minority of people with some kind of financial stake in crypto) vs. buying tokens/coins off-chain. At the very least marketing and promotion of buying made-up crypto tokens should be illegal and probably every off-chain entity related to crypto should be heavily regulated to avoid using the cover of "new technology" to perpetuate scams.

The network was designed not to be regulatable. Businesses however are regulatable.

The US has shown they can effectively enforce AML/KYC requirements across the vast majority of exchanges and businesses. Any exchange the average person tries to use to buy crypto will request your ID to do any meaningful transaction.

Granted, there are exchanges you can use a VPN and access without KYC, and while it is difficult to manage billions of dollars in the dark, it's certainly possible. But they can regulate the vast majority that any regular user will find, and have shown they're willing to OFAC others.

It is not going to be long before regulations are increased, and some exchanges/services will be known to be subject to them - and will likely lean on that as a selling point. The others will only be accessible to those going out of their way to use them.

Sure, but that’s building a giant industry around the tech to make it explicitly NOT what it was designed to be, or what the ethos has been - secure, point to point electronic cash with no one telling you who you can transact with or what you can spend it on. Aka electronic cash.

No one needs a pile of paperwork to prove to the gov’t who they are to spend or get paid cash.

No one needs to be on a list, and have their every transaction double checked to make sure it’s with a validated counterparty to pay in or get paid cash.

Etc.

At that point, it’s literally cheaper, easier, and safer to just use a normal bank.

Which is I guess the point.

> Sure, but that’s building a giant industry around the tech to make it explicitly NOT what it was designed to be, > No one needs a pile of paperwork to prove to the gov’t who they are to spend or get paid cash.

To be clear there's different types of regulations, some we/I personally agree with more than others.

Personally, I agree with you that kyc/aml laws are over the top. I think privacy and money laundering are two things people often conflate, and that privacy is something we should want. (Side tangent - the majority of crypto was not really designed for anonymity or privacy, although that's a whole different topic). People claiming "crypto is just for money laundering" as a reason it's bad should be applying the same logic to physical cash.

What I'm particularly interested in is regulations around the big exchanges to prevent them from putting all of their clients money somewhere stupid, losing it all, and go illiquid.

> At that point, it’s literally cheaper, easier, and safer to just use a normal bank.

I mean yes, an FDIC insured bank is absolutely safer than an unregulated crypto exchange. This is the exact reason why the phrase "not your keys, not your coins" exists, and why everyone says you shouldn't keep your keys on an exchange. Done properly, a crypto wallet should be safer than a bank provided you can assure physical safety and redundancy of your keys.

Part of the problem IMO is that crypto became this "get rich quick" thing - with "exchanges" advertising double digit returns, people using NFTs for art for some reason, etc. I think the technology has uses, but this "get rich quick" bs has been a massive hinderance. I really think this "the point of crypto is to make money" mentality is missing the actual use of it.

tl;dr - a properly used crypto wallet should be safer then a FDIC bank, an FDIC bank is faaar safer then a crypto exchange, there could be more regulation on just the exchanges, and aml/kyc laws are a seperate type of regulation - I was just using these as an example of the US government successfully regulating exchanges.

Well, one issue is it’s pretty hard to make money being a responsible custodian of cash, electronic or otherwise. It fundamentally doesn’t earn interest just sitting there, it’s a tempting target for thieves so you have to go through a lot of effort to protect it, etc. that’s true even if you’re just an exchange, and you only hold it for a day.

It’s a lot easier to make a lot of money if you steal it, or play games. Most of those are already illegal, no regulators required.

Regulation can help of course, if someone actually comes by and checks that nothing illegal going on. but the type of regulation that comes along with ‘have a reliable audit of what you’ve got every night, or else’ also tends to include ‘and make sure you don’t do business with drug lords and human traffickers’, at least in the West.

God help you if you try to fight that last one too.

Well, you can't mix identity regulations (that only add friction at this point indeed) with securities regulations that organisations should succumb to when dealing with clients' assets.

Right regulation right now would be to straight ban BTC in Europe because of the energy usage and CO2 emissions . And hopefully California could pass a right act during next elections and join the ban.

KYC/AML regs are required everywhere that handles my money, at least in the US, near as I can tell.

That just means there are powerful forces that can act against "what it was designed to be" for their own interests, whether it's the financial industry, government or both acting together.

It's not about pleading to these entities that they are "doing it wrong". They know this, because this is their way to control it / oppose "doing it right".

I can pay you in cash without going through a financial institution. That doesn’t make the Euro unregulated.

It makes spending Euros defacto unregulated, no?

Or do you have to fill out a slip and get audited for every transaction?

Modern crypto has little to do with bitcoin.

Bitcoin was about digital money, out of the reach of central banks as a response to the 2008's financial crisis.

Modern crypto is about trying to convince others your altcoin has some intrinsic value by selling rumours, partnerships, governance or some other vaporous dream, so it can be used for gambling.

The problem are central exchanges creating monstrous speculation instruments and of course gambling with user funds on top of it by lack of regulation.

They all use it as support in their value prop, and try to claim some association, near as I can tell.

But yeah, it’s mostly semi-transparent grifts, and has been for awhile.

Once you accept the necessity of middlemen, known counterparties, and regulators; what's the point of Crypto?

Businesses operating as custodians should be subject to all the usual banking regulations. They are holding other people’s money.

But that’s not crypto, that’s just a crypto-related service.

Regulated exchanges are just onramps; once the user takes custody of their funds they become free to transact without middlemen.

Crypto is naturally globally networked. What jurisdiction could it be in?

The internet is also naturally globally networked, and it's regulated in every jurisdiction.

When a packet hops from one country to another, it's bound by a different set of laws. Same thing with an international financial transaction, crypto or otherwise.

Banking is largely globally networked as well, at least in the West.

What you regulate; cryptocurrency exchanges, cryptocurrencies or decentralized exchanges?

Companies, of course.

Edit: Businesses, more specifically.

So I could become a trusted individual and handle hundreds of millions of dollars in transactions through my homegrown exchange (read: I cloned a git repository) and I will not be regulated because I'm not a company?

Sounds like a solid plan.

Buying and selling property is a tricky thing, legally.

To buy and sell cars in a personal capacity, you don't need a license. But if you run a business with the intent of making a profit by buying and selling cars to other individuals, that's illegal to do without a licensed corporation.

To buy and sell gold in a personal capacity, you don't need a license. But if you run a business with the intent of making a profit by buying and selling gold to other individuals, that's illegal to do without a licensed corporation.

It all comes down to whether the government deems something to be a personal activity or a business activity. Handling hundreds of millions of dollars worth of trades may well be considered a personal activity, if you're rich and making a series of OTC trades with a friend. But if you're attracting a diverse customer base and making a business out of it, that's when regulations apply.

A great example of the murkiness of this distinction was the crackdown on localbitcoins. It wasn't the people doing one-off personal trades who got in trouble, it was the people profiting off of volume, doing many trades and capturing the spread. The people who traded with several counterparties, but maybe not enough to be considered a business - well, that's where the gray area lies and personally, I am not a big fan of that gray area.

> if you run a business with the intent of making a profit by buying and selling gold to other individuals, that's illegal to do without a licensed corporation.

Do you have a USA reference for this belief? From my experience and knowledge that claim is not true.

I believe it's mostly a state-by-state thing. The state laws I'm familiar with apply to "precious metal dealers", defined as people who are "in the business" of buying and selling. The laws require a state license and cover things like customer KYC, mandatory transaction records, criminal background checks, and restrictions on transactions with minors.

The critical distinction is between someone who is buying and selling precious metals, compared to someone who is "in the business of" buying and selling precious metals.

It appears TX explicitly exempts from license selling of coins or bars. https://occc.texas.gov/industry/cpmd

"crafted precious metal dealer". And that sounds like a professional license, not a requirement to start a corporation.

> As for the current state of things, FTX is (was) a Bahamas company not subject to the financial oversight of the general western world.

The headline says filing for US bankruptcy so I’m assuming they have some US based entity — which as of yesterday was perfectly solvent because the accounts weren’t commingled.

So one would presume (without actually reading TFA) that they are indeed subject to US financial oversight and have some explaining to do to the people in charge of those sorts of things.

So what happens to crypto now?

A reasonably likely possibility is that the SEC starts sending letters to every issuer and exchange that sells to US persons. If you're an issuer, you have to register as a security or get a no-action letter that says yours is a utility token. If you're an exchange or a broker, you have to register as an exchange or a broker. Sign up for FINRA regulation and pay SIPC premiums. They did that to ICO issuers back in 2017, which is why you don't see many ICOs any more. NFTs were a workaround for that, but the SEC has been saying that bulk NFT issues and fractional NFTs are probably securities.

The SEC has been reluctant to do this, partly because they were still litigating over whether crypto issues are securities, and partly due to political pressure. Last week, the SEC won SEC vs. LBRY with a decision that crypto is almost always a security. Much of the political pressure came from FTX, which is now a political liability. FTX donated to both Republicans and Democrats. Now, on Capitol Hill, key committee leaders from both parties are against them.[1] The SEC is now ready to act.[2]

The crypto industry sees regulation coming and is freaking out. It's not that filing an S-1 is that hard. It's that you have to give all the info crypto issuers like to hide, such as where the money is going, the business plan, and who's running the thing. Under penalty of perjury.

(I want to see an S-1 for Yuga Labs (Bored Ape Yacht Club / Otherside). They raised $400 million, printed some pictures, and threw some raves. That could be the most fun S-1 to read since BOYSTOYS.COM did an IPO for a strip club.)

There are fewer offshore havens available. China pulled the plug on crypto mining. (Literally. Power was cut to crypto mines.) Cyprus cracked down. Japan, post Mt. Gox, licenses and regulates crypto exchanges. Bahaman regulators were about to take FTX into liquidation. Cyprus cracked down after the binary option debacle. There's still Bulgaria.

What will be left after all the sketchy operators are shut down?

[1] https://www.cnbc.com/2022/11/11/crypto-meltdown-washington-t...

[2] https://finance.yahoo.com/news/sec-chair-gensler-slams-non-1...

Crypto seems like the kind of risky/novel investment the accredited investor program was designed for.

Of course that would kill crypto.

In general I’m glad the government let the experiment be run. I was not one of the people saying crypto should be banned, and I’m still not. But at this point I think it should be regulated, for the same reason most other investments are.

> It's not that filing an S-1 is that hard.

Doesn't it cost 200K$+ in attorney fees?

The actual filing fee is $110.20 per $1,000,000 raised.

How much it costs to draft depends on how convoluted your financial structure is.

FTX was a centralized exchange. Those who believe in trying to build an alternative financial system did not use centralized exchanges except perhaps for on-ramp off-ramp. Uniswap among others has been stable with very audited open code that prevents anyone from doing what FTX did.

Just want to remind ppl to not put them in the same bucket.

You're always going to need a centralized ramp to convert crypto to fiat though. If everyone thinks they're scams crypto has a big problem.

You can "buy cash" right now in amount from $100 to $1M on most d-web exchanges. Decentralized versions like Open Bazaar have worked for years just no one uses them so its more expensive and less choice.

Decentralized on/off ramps have existed for a LONG time and the fist was a key reason Bitcoin Core (BTC) broke away from the Bitcoin roadmap and became more of an "alt-coin" than the Bitcon we started with. Many think "SegWit" was a hack desigend to inject malicious code into Bitcoin Core to make these types of decentralized exchanges more difficult but then Vitalik just said fuck the US Government and came out with Ethereum.

Yeah, but the conversion happens very quickly. Deposit, trade, withdraw.

Unfortunately, people leave tons of money on exchanges, for long periods of time. That's the problem. That's what the majority of exchange users are doing.

People leave money on exchanges because the alternatives are worse. They're almost as dangerous (if not more so): how many people have lost millions or billions due to malware, forgotten passwords, failed hard drives, death of the owner and inability to transfer that wealth to their heirs, etc.?

All of these problems are solvable with ludicrous levels of complication and confusion, and the average person doesn't even realize they need to take these sorts of measures until they've irrecoverably lost everything.

Do you think it's a good thing that we as a society are collectively extremely ignorant about how money works?

Don't you think that maybe people should start becoming more educated about how our economy runs? Or what protects their assets?

Don't you think someone with millions of dollars to lose should take some responsibility and become informed about how to protect them?

> Don't you think someone with millions of dollars to lose should take some responsibility and become informed about how to protect them?

I really just think that if someone thinks an institution might disappear with their money they won't use the institution. If the alternative is too much of a hassle, or also seems like it could lead to loses then people will just not use crypto.

You could replace "money" with any specific area of human expertise. I don't need to fully understand how my body works because my doctor does. I don't need to fully understand how my car works because my mechanic does. I don't need to know how to build my home because my contractors know.

The information is available to those who are interested or want to further that area of human expertise, but the collective knowledge of humanity is too great for all of us to know everything. That's why we pay (mostly) regulated experts to handle these things for us.

(1) Knowing how to use crypto safely is hardly "expertise". It's something that can be learned quite quickly from experts.

(2) Having a general idea of many areas in life is important for a functioning society and becoming a healthy human being.

I really dislike this narrative that we must not think for ourselves. Always delegate. Always leave it to the experts. I see the same anti-intellectual sentiment in programming communities.

- Don't write assembly, compilers are smarter than you.

- Don't think about building your own networking stack. It's too complicated.

- Don't write your own OS. Do you think you can outperform Linux? Lol

I believe BlockFi had all their assets on FTX

Without greater fools in sufficient quantity, cryptocurrency loses its speculative use-case. You won't get greater fools in sufficient quantity without centralized exchanges where people hold their funds.

Great, we don't need speculation in crypto. We need people taking a chance on the technology, and empower democratization of finance.

This is pretty clearly not a failure of cryptocurrency. Bitcoin et al. are still chugging along just fine. This is, once again, a failure of a centralized business in which people placed way too much trust. I hope SBF, and other "crypto" company execs, are held accountable for misleading customers about their offerings. Specifically calling it crypto when it's not.

That's what people don't get. FTX' spectacular failure is literally an advertisement for decentralization.

The "no true Scotsman" is such an old and failed defense for crypto. Not even the believers believe in it anymore.

What? FTX is a centralized custodian. It is in competition with DeFi protocols.

Bitcoin failed, though?

All the proposed usecases except speculation and censorship resistant wealth transfers (eg. getting money out of Russia) have been abandoned.

I used bitcoin to remit money to another country just yesterday.

While losing a ton of money during this process

I used PayPal to remit money to another country just yesterday

I sent EUR from one bank account in country X to another bank account in country Y the other day. It arrived in five seconds and it cost me less than 1 EUR to transfer 2k EUR.

I'm assuming this was in the EU and you weren't exchanging currencies?

Correct.

I have also done that. Congrats. Some places it’s easier to move money with bitcoin as even though i can send money directly they have tons of limitations in place around amount that you can send that is very low.

Just because you haven’t found crypto helpful doesn’t mean it doesn’t have use cases.

Well yea, the main use case is crime. You've just admitted to committing a crime.

Surely we can think of other reasons they might want to avoid TradFi?

Maybe the payment is related to, say, Cannabis, so companies like Wise would refuse to facilitate it [1], legal or not.

Or perhaps they've heard the stories of PayPal seizing funds with no explanation or recourse (e.g. [2]), and don't want to roll the dice on that.

Maybe they want to exchange currency at the actual market rate, rather than PayPal's 3-4% spread.

Or they might not want to wait forever for a two-sided ACH transfer (usually the cheapest option with e.g. Wise), or pay wire fees and still have to wait until Monday morning before a US bank will consider processing the transfer.

[1] https://wise.com/acceptable-use-policy

[2] https://arstechnica.com/tech-policy/2022/01/paypal-stole-use...

I used the app my internet only bank made to send money to buy a house for cash a few months back, pretty sure bitcoin wasn’t an option.

You can buy houses for bitcoin in some places but im really not arguing that bitcoin is the best money to use for every day. I responded to a person who said it had no use case. I use bitcoin multiple times a year for transactions where it works better. And i happened to do that yesterday.

It’s crazy how stupid HN becomes at the word crypto.

“A non binary view about crypto omgzzz can’t compute!!!”

No, you are not buying houses for bitcoins. You are using bitcoins that are converted to the currency the house is quoted at and if the amount is greater than the contract price you get the house.

It is no different from saying "In some places I can buy houses with cocaine". Sure, if the buyer thinks they can immediately offload cocaine for cash, the buyer might take it. That does not mean that the house is sold for cocaine.

I pay all salaries in Bitcoin. Way faster, cheaper, easier than fiat.

This is good for Bitcoin.

1. BTC has cratered 20% in the past couple days. I know, par for the course for crypto, but also a good example of why it doesn't share standard features of real currencies.

2. All the "not your keys, not your coins" mindless chanting misses the point. While true, a modern financial system depends on being able to have trust in financial institutions if you actually need to move money quickly. Years ago I went the "move everything to cold storage" route, and it was a major pain in the ass, not to mention slow and expensive every time you needed to move to an exchange to trade or convert to fiat. It's the equivalent of stuffing your money under your mattress - valid for emergency situations, but not for a currency you actually want to transact in.

Oh, and the reason hardly anyone actually stuffs money under their mattress any more is that we've built up institutions (e.g. FDIC insurance, SIPC insurance, and the associated regulations to provide this insurance) to reliably protect depositors.

Cold storage is kind of an old concept. Now there are multisig variants and tools like Fireblocks to allow active trading without being immediately hacked.

> 1. BTC has cratered 20% in the past couple days. I know, par for the course for crypto, but also a good example of why it doesn't share standard features of real currencies.

Currencies tanking is not uncommon either. I'm not sure what you think this proves exactly.

Major fiat currencies tanking 20% in a matter of hours is extremely uncommon, that's my whole point. In the forex world moving a percent or two in a single day is considered a major, major move. In the land of crypto that's standard lunchtime volatility.

Cryptocurrency failed to be fast enough to support sophisticated DEXes. This failure created the need for FTX.

I think you missed the point. It’s about saying “this is different, the rules don’t apply and we can do whatever we like”

The actual tech is sort of irrelevant, it’s the hubris and exceptionalism

Bitcoins is not fine. It is down roughly 75% over this year.

It seems like you're conflating the value of crypto with the recent blunders of crypto-focused businesses. The fundamental value of cryptocurrency is being able to self-custody tokens of value without relying on any other mechanism besides the proper functioning of the blockchain and its respective rules. What we're seeing here is a lack of clarity/regulation amongst world governments on how crypto and the businesses that manage them should be treated.

The promise of DeFi has a higher barrier of entry for those unfamiliar with the technicalities of interacting with decentralized systems, but they generally have more transparency in management of funds than crypto-centric businesses. All code running on the blockchain can be audited and so can the funds held within smart contracts. There are plenty of valid criticisms that can be made of various cryptocurrencies with those models of on-chain finance (and even with the value of cryptocurrencies themselves), but criticism of cryptocurrencies deriving from bad businesses that manage them shouldn't be one of them in my opinion.

> The fundamental value of cryptocurrency is being able to self-custody tokens of value

Like dollars under my mattress? Sure, self-custody can be useful sometimes. But (almost) anyone with substantial quantities of "tokens of value" generally appreciates that delegating custody of them to a (regulated and insured) institution provides a lot of both convenience and protection that's difficult to replicate with "self-custody".

> This has been a wonderful social experiment, enabling people who didn’t live in the 19th century to see what happens when banking and investing is treated like the wild west.

The only difference is that the bank-analogs do not get to face era-appropriate "frontier justice", but instead get to hide under the skirts of 20th century bankruptcy laws.

even the idea of "declaring bankruptcy" is a modern regulated construct.

In medieval times, if you "declare bankruptcy" your family and dependents get sold into slavery and your wife is sold off to the highest bidder who will buy your debt.

In many previous times, if you couldn't pay debts you'd just be killed.

This idea of auctioning off someone's wife seemed (seems) unlikely to me in a medieval European context (since divorce was hard to come by).

What I found was actually weirder:

> In medieval Italy and southern France, it was common for the cedens to stand nude but for his shirt and strike a stone with his posterior ('vituperii lapis') while declaring 'cedo bonis'." The patent purpose of this ceremony was as much to satisfy the anger and frustration of creditors as to publicize the debtor's bankruptcy.

http://www.mgh-bibliothek.de/dokumente/b/b071148.pdf

The medieval version of "I Declare Bankruptcy!!!"

Well, those 'previous times' where you just got killed ran concurrent too those slavery times. And if you borrow money from the wrong people today, it can still happen.

They literally had debtor’s prisons when Charles Dickins was still writing!

This is the downright civilized version of what happens in the financial wild west. SBF will likely keep possession of his entrails and his head.

This has been a wonderful social experiment, enabling people who didn’t live in the 19th century to see what happens when banking and investing is treated like the wild west

For those who can read long books, see Anthony Trollope's The Way We Live Now. https://en.wikipedia.org/wiki/The_Way_We_Live_Now

The 2001 television version was also excellent: https://en.wikipedia.org/wiki/The_Way_We_Live_Now_(2001_TV_s... , and only four episodes, instead of 100 chapters.

Defi can help. There are still issues with contract vulnerabilities, but I don't think you can get away with the same level of fraud as you can on a CEX, where there's far less transparency.

This post conveniently ignores the long line of 20th and 21st century banking and finance disasters, which occurred under the watchful eye of Congressionally appointed regulators.

One could also argue that the presence of regulators and regulation creates the very problem it tries to solve through moral hazard.

As long as there are schmucks with dollar signs in their eyes and little patience to read history, these disasters will continue - with or without regulation.

Or maybe it is the opposite? Why did (institutional) investors trusted and funded this ... thing so much? Maybe the fact that the Founder was literally born inside academic elites has something to do with it?

The guy who is supposed to have "won" this , is running an exchange apparently banned by china, largely disliked by regulators and disinvited by governments, and not funded by any government or large investors, right?

Why would this prove the necessity of regulations? This occurred within the realm of regulations, not in the wild west. FTX.US is a regulated entity in the US, and FTX Intl wasn't available to US customers. Doesn't this prove that calamity happens even despite the regulations

Bitcoin is neither banking or investing. It's a decentralized ledger.

I for one am not very excited to continue using the legacy systems with countless of middle men and entrenched rent seekers to extract the maximum they can out of the completely legal trades I do with other consenting individuals.

Institutions funded FTX - what are you on about with your very wordy but empty post?

maybe the real true value of crypto was the frens we made along the way

Why does this need to be regulated? We already have banks for that. And it's not like regulation saved them from being able to become insolvent.

I get whiplash wearing a seatbelt when my car gets into a crash. Why should I bother wearing that seatbelt? It didn’t save me from the whiplash!

Even in 2008, no depositors in FDIC-insured banks lost their money. Some banks died (Washington Mutual comes to mind), but it's not like FTX where the depositors are left with nothing.

I banked with WaMu in 2008. They died. Chase absorbed them. My account balances moved to Chase and were left 100% intact.

Because financial fraud isn’t a victimless crime.

In this particular instance of fraud it's impossible to feel any sort of sympathy for the "victims". They absolutely deserve their losses.

> it's not like regulation saved them from being able to become insolvent.

It may have, in a way.

It's too early to tell, but it's possible that FTX's USA-based corporation ("FTX US") is still solvent. I believe it's the Bahamas-based entity that's in bankruptcy - the one that's in an offshore haven not subject to US regulations.

Edit: Looks like FTX US is bankrupt too, but still it may or may not be solvent.

FTX US is included in the bankruptcy proceedings.

Thanks, I just read that elsewhere in this thread.

The US generally protects retail investors from risk like this in other financial instruments and markets. This isn't really different, its just new enough that regulators haven't caught up. This kind of event could speed that up.

Regulation saved the economy from the worst of it. But this is the kind of uninformed ignorance that is common in these parts. It has been consistently proven that regulation and central banking have prevented the worst of excesses. But live in your own world without reading anything. No one is stopping you.

an opaque shadow bank in the Bahamas crashing has nothing to do with its niche of crypto.

try not to conflate the two.

19th century, or 2008. It’d be same.

In 2008 depositors got their money back. In the 19th century they lost it.

2008 had a lot of things the 1800s didn't, like the Fed and FDIC, both of which were very busy.

2008 was not 19th century though.

Hmm, I’m not sure about your conclusion.

I would rather see people be more scrutinizing when giving their money to others. It doesn’t matter if there are rules and regulations, people are always going to be duped. When I read about FTX I just think that people need to be better educated.

Maybe one could argue that the rules and regulations are specific to providing consumers with tools to make educated decisions about financial investments.

> I would rather see people be more scrutinizing when giving their money to others.

"I just wish everyone is better" is never a solution for anything that has mass appeal/is used by the general public. You can't ever depend that individual actions will solve a systemic issue, it's not realistic.

The same argument can be made for government intervention.

I don’t buy it, there are a ton of examples where not only does the gov get it wrong but also have the opposite effect of what they were trying to achieve. Good intentions is not realistic.

The systemic issue is education.

Tell me what systemic issues were solved by individual action. I'd really like to hear examples, I've never found them.

Protectionist government is the only reason why societies would need to go through cycles of repeating the experiment. When they are protected, they forget how to protect themselves... from their own decisions.

I red a bunch of financial books including some history of financial systems to learn to invest but also because I am just curious about how we got where we are.

It is interesting that the waves that we are experiencing are nothing new, everything has been repeating every 20-40 years for the past three centuries or more.

Yeah, bitcoin is nothing new. It is the roughly similar thing happening all over again -- people buying something they absolutely do not understand just because they see the value is going up. Investing is hard and here is this golden opportunity -- just put your money in and see it multiply. And for a long time this works because more people are putting their money in and expecting returns. Then suddenly for whatever reason the positive returns dry up (at the very least you have to run out of new capital at some point) and those same people who were only in to speculate now want to get their money back. But as the first are able to do it, the price starts to fall.

Then you get companies or individuals swarming nearby the stream of money because, hey, for every greedy person with capital you will find a greedy person without it. And lots of these people also want to get rich quick.

It really is just another pyramid scheme that lures in people who do not understand finances but want to get rich quick (and some who do understand but are just too greedy to pass on the opportunity or play with somebody elses capital), the difference being it looks way more legit and legal because of the number of investors and amount of capital.

The cycle length has something to do with how long people remember the previous painful lesson before they forget and do it all over again. Remarkably stable over centuries...

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