FTX’s SBF had a secret 'back door' to transfer billions off the books
cnbc.com
cnbc.com
This individual stealing people's money sheds light on how regulations exist for a reason, especially when handling billions of USD. Doesn't really speak positively or poorly on cryptocurrency as a technology though.
Banking regulations exist to counterbalance the personal incentive to abuse any authority you have and take off which what you can take.
In the absence of regulations, everyone does exactly that... eventually.
Even with regulation we probably all have our number, our price.
A big argument against cryptocurrency was that those governments and institutions had developed financial oversight for a reason.
History and contemporary geopolitics are both littered with examples of governments that absolutely ruin their population’s lives with currency problems. What if it were possible to have consumer protection regulation and also remove some of the nasty side effects of government and institutional preference in monetary policy?
However, the rest of us have a name for "bypassing government regulations" - we call it "crime".
> What if it were possible to have consumer protection regulation and also remove some of the nasty side effects of government and institutional preference in monetary policy?
"Crime, with extra steps".
Yeah, like hiding Jews during Holocaust was a capital offense. Pretty dumb argument.
Pretty impressive, I'd say.
They didn't refute the argument. They treated "crime" and "wrong" as an implication, and my Godwin invocation fits well to show it is absurd.
I don’t think that’s what we call crime. Isn’t crime the direct violation of government regulations?
By your argument, the use of _any_ currency other than your own government’s would be a crime. Or, is the use of every currency a crime in every other country? When I exchange Euros for JPY in the US, have I committed a crime?
As far as I’m aware, there are no laws against the use of cryptocurrency. There are plenty of laws against things like securities fraud and fraud in general, and those are all generally well and good.
> Some governments have been financially irresponsible in the past, so we need a tool to allow us to bypass all government regulations
I think you should probably gain a clearer understanding of how the currency markets have been behaving over the last year. Many currencies have lost >30% of their value against the USD (which might not matter so much if the USD were the same status as the others).
FTX had both a US and offshore location. US regulations do not apply to offshore entities.
SBF's parents are financial compliance lawyers and Standord professors. His dad has gone in front of Congress to argue for various tax and compliance regulations. What SBF did was criminal fraud, and he was equipped with world class compliance advice and yet here we are. A brazen theft of billions of dollars by a risk-addicted, self-delusional altruist.
It seems they are learning the same lesson as the OG computer nerd power users: nontechnical people suck and they ruin everything for everyone. Making crypto easy-to-use was the beginning of its downfall.
This is a naive conclusion to reach. "Non-technical" people are very much the reason that those who transact strictly in digital products and services can survive, not the other way around.
Centralized institutions exist because the establishment of trust is essential to even the most basic of human societies. Yes, they can be abused to corrupt ends, but crypto clearly has the same problems, with the malfeasance often committed by "technical people" themselves.
Yes the world would look dramatically different, it'd be more IRC/P2P than Slack/Youtube. But it would be a much better world where users are in control, and can do advanced things after skilling up in the appropriate area. I think that what is happening with Mastodon is a good example of what happens when the mainstream gets its hands on something that maybe it should learn about first.
And the thing is, anyone can become technical. They just need to cross that knowledge barrier to entry. But our society, in all its dysfunctional ineptitude, has decided that this is "inaccessible," and that is evil because everyone should be able to fuck up everything at every time. Yet somehow the guilds of doctors and lawyers and engineers (and drivers of cars!) carry on.
The main crypto part is that it's the person who dictated the upcoming crypto exchange legislation.
That corrupt CEO was greasing politicians (to the tune of $40m), was using an ex-CFTC commissioner to lobby a law regulating exchanges (which, by chance, would have made FTX legal and Binance and decentralized exchanges illegal) --ex-CFTC commissioner who just deleted his Twitter account by the way--, had nomimated has CEO of his Alameda Research fund the daughter of a colleague of the SEC's chair, etc.
Here what a US congressman has to say about the SEC's chair:
Interesting. @GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this.
Interesting indeed.
There's much more to this story than: "we fucked up using leverage so we used a shitcoin of our creation as collateral to hide billions in losses".
We're potentially talking about a little cabal trying to regulatory capture the cryptocurrency exchange market very likely with the intent to run an ever bigger scam.
"had nomimated has CEO of his Alameda Research fund the daughter of a colleague of the SEC's chair, etc."
do you have a link ?
Technology doesn't exist in a vacuum though, and the fact that so much of the ecosystem that sprung up around crypto is rotten is a hint that maybe the technology isn't all that useful. Crypto's nominal reason to exist is to have a way to transact without government oversight, but its popularity is due mostly to speculation and outright scams enabled by said lack of oversight.
Good job to us!
https://www.cnbc.com/2021/12/21/criminals-have-stolen-nearly...
The crypto market blowups pale in comparison to even dotcom era exuberance, and the recovery from bear market conditions has been much more rapid (usually less than 3 years to recover to previous levels). Crypto rebuilds quicker, and grows more resilient with every passing year.
On-chain exchanges like Uniswap can't be hacked, can't misrepresent funds or exchange rates, and are fully open source. This is the future we're working towards. Not centralized scam operations like FTX.
This has all the earmarks of big-time crookery.
Here we have crypto golden child SBF worth billions of dollars. He literally never had to do anything for the rest of his life. Even if he lost billions on Alameda and/or fTX he'd still be completely fine. Instead, he seemingly stole FTX customer assets in a failed attempt to save Alameda, run by his girlfriend.
The upside here was what? More money? How much money do you need? Or is it not about the money but rather he simply values how he's perceived? So instead he's going to be a John McAfee like figure or spend a significant chunk (if not the entirety) of the rest of his life in prison because this will absolutely end in US criminal prosection.
As an aside, crypto-skeptics such as myself will point out using an exchange like this still requires trust (like TradFi). DeFi Andys will say DeFi doesn't. Crypto Andys will still argue crypto's imagined benefits but one of those "benefits" is the irreversibility of transactions, which means in cases like this where assets are stolen, backdoored, hacked (I'm being generous) or whatever, you have no recourse to get them back.
You can see that the same drivers and personality traits that allow a person to succeed at such an enterprise are the same ones which would lead a person to fail at such an enterprise.
Ie. Actually holding all the assets you claim to hold?
I suspect the answer might be no... If you were to set up an honest exchange today, you would be outcompeted by dishonest exchanges who spend all their customer deposits on marketing schemes, referral bonuses, liquidity incentives, etc.
Given this, the fact that some of you believe that this is a flaw in blockchain technology worries me because: either you just hate (stupid position, it's like hating toasters) and you're taking pleasure in other people's misery or you really don't know what blockchain is and you don't understand the value it can add.
The saddest? That tomorrow another Ivy League graduate with trouble understanding a Ponzi scheme will go to a VC and be given millions to create nothing.
> they did not force you lazy greedy humans
No, if a CEO lies and commits fraud to steal from investors, it is the CEO's moral and ethical fault.
> the fact that some of you believe that this is a flaw in blockchain technology worries me
All of blockchain technology is "a flaw". And thousands of lines of my C++ are in one of the top five blockchains, so it isn't ignorance on my part to say this.
So far, no application of the blockchain has appeared that isn't cryptocurrencies. The consensus phase is wildly expensive, and yet not at all useful for anything else. And cryptocurrencies are almost as old as the smartphone, and yet the only applications so far are "evading government regulations" (what most people call "crime") and wild, unsupported speculation.
Don't get me wrong. Strong cryptography is great. Digital signatures are great. Merkle trees are great. Just not the blockchain.
So in your opinion (correct me if I've misunderstood), having a tool that decentralizes power isn't worth the energy it consumes? Is that why you call it "flawed technology"? With infinite clean energy, would you agree that this is actually a good idea or not?
FTX was a regulated exchange, so your alternative to crypto currencies is then broken as well, the regulators didn't then do their job, this scammer Sam Bankman-Fried was allowed to create fake money out of thin air and the regulators were not able to stop them.
If you can't follow the mantra "not your keys not your crypto currencies" or if you don't have the technical ability to hold your own keys then don't take part in it.
You let someone else hold your crypto currencies, don't take the time to check if the said people holding your money has any validity and then you lose all your money? it unfortunately is your fault for trusting a scammer, you got duped by a scammer, just because someone can run a Superbowl advert, get main stream media to call them an amazing vegan who's such an amazing role models to us all, or hire a few celebrities to say good about their company doesn't make them someone you can trust.
Crypto currencies and block-chains are still a very young and developing industry, its risky, there are thieves like Sam Bankman-Fried and then there are politicians and other special interest groups who will get in to bed with these scammers and try to take your hard earned money from you. Don't be a victim to this kind of scum.
Crypto currencies and blockchains are here to stay.
Sequoia and their team of analysts, lawyers, etc did not see anything wrong with FTX. You expect individual investors to be able to research and see something wrong?
In a lot of crypto currency circles people were questioning FTX, many warned about leverage.
* There can only be 21 million btc.
* If someone says you can leverage BTC they are selling you something that probably doesn't exist.
* If you don't hold your own BTC you don't own any BTC.
It's an alternative system that helps people store value.
>>take away retail and these coins will have much much less demand
I was talking about people who don't do due diligence and get caught in scams. Are you implying that retails is somehow the only ones that get duped by scammers like Sam Bankman-Fried ? There's plenty of people in retail who have done better than some so called institutions both in the crypto currency markets and the stock market.
Plenty of people in the crypto currency space were not so quick to trust that conman Sam Bankman-Fried. Many were even warning about him.
p.s Not everyone wants to take part in crypto currency markets to get rich fast. There's plenty of legit reasons for people to be in these markets. Its the get rich quick crowd, the scammers like Sam Bankman-Fried and the folk sitting in the sidelines critiquing it without offering a better valid alternative who are actually the problem.
the idea that crypto exists for reasons significantly other than speculation seems hopeful in the extreme given all the overwhelming evidence. maybe someday!
Then again, sometimes the kid standing in the kitchen with the chocolate on his face and his hands behind his back looking guilty actually did steal the cookies from the cookie jar...
He broke plenty of regulations by co-mingling customer funds, trading deposits, and it seems just recently flat out stealing.
I think it’s funny that so many people have been hypnotized by get-rich-quick schemes and promises of a utopian monetary system while forgetting what the original —actual— value proposition of crypto was: Buying heroin.
As a corollary to “not your keys not your coins” I submit “if you can’t confidently exchange it for illegal drugs, it’s not a currency”
That's totally unfair.
It was buying all kinds of drugs, and weapons, and child porn, and stolen credit cards, and hiring assassins.
The assassins invariably turned out to be working for the FBI, of course.
It's a tool that can be used for good or evil, just like the personal automobile, which was also abused in early years for malicious ends - just as telephony, the internet, and a number of other technologies were.
Criminals are early adopters of new & emerging technologies, that doesn't make those technologies inherently evil.
Also, why lump drug transactions in with weapons / CSAM / cc fraud / assassinations? Most drug buyers are not hurting anyone.
The marketplace for all of the above (except assassination) was the same - Silk Road. I remember seeing different sections for weapons, credit cards, fake ids and drugs, but I don't remember seeing a section for CSAM unless it was masquerading as something else.
This boils down to two things, really: 1. To skirt the law (aka regulatory arbitrage) and 2. Act as a techno-libertarian “sound money” experiment.
Ghost guns can be used for good. But it’d be pretty silly to suggest that criminals use them because they’re early adopters. Criminals use them because they’re criminals. Sometimes the laws they’re breaking are unjust—but these are just tools for breaking the law.
And just because you can use crypto to buy things legally, there’s virtually no reason to do so, like taking a ghost gun to your local firing range.
Uncensorability is a desireable property for legal adult content producers, who are locked out of many payment platforms despite operating entirely within the law.
Irreversibility is a desireable property for merchants, who are the ones left holding the back when chargeback fraud occurs.
Permissionless nature is a desireable property for those at risk of discrimination from traditional financial institutions. While rare in the developed world for law-abiding customers, there are plenty of countries where people of certain races, religions, and ethnic groups are denied access to financial resources like a bank account because of such factors.
While these traits may be attractive to criminals, especially ransomware authors, they aren't only attractive to criminals, and all of them find demand in law-abiding users, as detailed above.
None of this means that the war on drugs etc was justified or that its implementation did not have serious flaws, just that the drug trade isn't a manufacturer of purely victimless crimes.
>> “if you can’t confidently exchange it for illegal drugs, it’s not a currency”
What?
Here is one of my posts from that time.. looking back on it , I encouraged Bitcoin as an investment back then, but cautioned at the end of my blog post about its prospects as a currency: https://magarshak.com/blog/?p=148
My cofounder tried to get me heavily into building on crypto and smart contracts since 2014. I told him I was already building a decentralized network since 2011 (qbix.com) and so stop pestering me.
Eventually, I looked at the space and saw many problems. Including lack of real adoption as a currency. So in late 2017 we started Intercoin.org to solve them… and followed all the regulations. As a result we raised “only” $555K, filed a Reg D with the SEC, etc.
Crypto and Web3 Smart Contracts have so much potential to do to world finance what the Web 1.0 did to publishing and Web 2.0 did to communities socializing online. It has the power to enable decision making and governance and tokens and contests and much more. But first it has to grow up. NFTs and Memecoins are first-generation crap, like <blink> and <marquee> tags, and myspace profiles, or Pong / Arkanoid.
In the same time that Bitcoin and crypto has existed, WeChat has rolled out a payment system that has the most mainstream adoption of any on the planet - millions of merchants in China. Here is what a decentralized version of that would look like:
https://intercoin.org/presentation.pdf
And there are many more applications:
https://intercoin.org/applications
We aren’t the only ones. FileCoin is working on the FVM and MaidSAFE is next-generation. The Web 3.0 world has been corrupted by centralized privately owned entities, just like the Web 2.0 world. Some of them were actually funded by YC and the VC industry, such as OpenSea. In a world where Elon owns Twitter and Zuck owns Facebook, people are looking for viable alternatives.
The other driver of internet adoption in general was online stock brokerages and banks.
And in the 1970s, people thought the only use for a personal computer was storing recipes.
I don’t know, I am not into crypto. I assume you might have to ask one of the many thousands of people that have lost untold quantities of money to a nearly infinite number of scams why they might question the practical value of the crypto ecosystem.
While FTX & co. don't match the technical blockchain-based definition of crypto, they are what people think of when they talk about the crypto ecosystem, and are part of the crypto hype chain.
If we filter the crypto market to only the true not-my-keys-not-my-coin crowd, the market wouldn't be anywhere near as large and influential as it is today.
But also, it's predicting human behaviour, like a trader attempting to get in front of the trade flood. There's going to be pain as a result of further dominoes falling that were propped up against FTX, and this will result in a shark-like media feeding frenzy that will scare off, for years, any (potential) retail traders that weren't already in the game.
You're not wrong, it's just that humans are more emotion driven than logic driven. Logic requires effort and second-order thinking, emotion is passive; involuntary.
There's also the very real distinction between Bitcoin (and Ethereum) and "the rest"; the other fucking thousands of 'projects' that has VC / insider distributions and haven't had the time to decentralise and / spread themselves amongst a large group and still have the ability to be controlled by a central entity.
I'm no Bitcoin maxi, but I'm inching closer, which is not the direction that progress should be taking me, and it's due to fraudsters corrupting the ideals, and seemingly being in The majority as it relates to founding projects and services in the cryptocurrency space.
Also we can't hold USD due to government regulations, if we get the transfers via a bank, so every USD is converted to local currency which is getting devalued faster than USD.
Therefore for people like us the easiest way to get money is via the blockchain.
I think the problem is not with the technology but with people who used it to get rich quick by running these Ponzi schemes and used the technology to create things that doesn't improve the way we transfer wealth but instead used to invent NFTs which is again a get rich quick scheme.
I hope this does not mean the end of blockchain and crypto as a technology, but just as the bursting of the dot-com bubble, we will see some good companies and ideas emerging out of this crisis.
The problem with any new currency is that unless an entire government forces it on people, there's no real reason for anyone to use it. Think about it: what use is a currency that no bank will store, no business will accept as payment, and nobody else has ever heard of?
There needs to be some incentive to "get the ball rolling". Bitcoin relied on using an artificially imposed cap on the total coins to force the currency to be deflationary, rewarding early adopters. The earlier you get it, and the more you commit, the more you are rewarded. This gets things moving, hopefully to the point where it becomes a real currency.
The hiccup with this is that it turns any currency utilising this mechanism into a giant Ponzi scheme. It's a inherent trait of deflationary currencies, and no amount of arguing will ever make that not be true. Rewarding the early adopters with the cash deposited by later adopters is the point! It's not some accidental side-effect that can be swept under the rug. It's also the literal textbook definition of a Ponzi scheme.
Other people saw that there was $$$ to be made, so this concept has been copied into virtually all cryptocurrencies. What would be the point of some SV startup of 10 pimply kids making a currency that didn't reward early adopters? Nobody would give a shit, not even their own friends and relatives. But if there's that sweet early-adopter profits to be made? Suddenly billionaires will dump a few million in and profit.
This is just the nature of the entire ecosystem now, and arguments against are either hopeless naive, or a waste of everyone's time.
The only way crypto can ever be legitimised is not "organically", like it is now, but by the actions of large organisations. If a bunch of banks got together to make "Terran Credits" based on a blockchain, without the deflationary aspect, that would work, perhaps used for centuries... but nobody could "get rich quick" off it, so it wouldn't be an exciting web 3.0 opportunity. It would just be... money.
Oh, and of course, the corollary is that if big banks or some governments got together to make "Earth Bux" or whatever, you can bet it would have all the same rules and restrictions around it that there are now around holding gold, USD, or whatever.
Wherever you are, the government will continue to impose their will upon you, one way or another.
Apart from not stored at a traditional "bank" I think most popular cryptocurrencies have the other 2 aspects. I know it's not accepted by amazon but there are some stores that accept payments.
I think the exchanges act as the "banks" and, I maybe wrong, therefore should be regulated like banks and not the blockchain and the associated technologies because you don't need an exchange to store the currency, you can use your personal wallet or cold storage to store the money.
But on the other hand you can always convert them to standard currency when you need it, so that is not an issue. I just want to have a way to send money across borders without censorship (and not for any criminal activities) because my government and PayPal and banks are not allowing it.
It doesn't take off like other cryptocurrencies into a billion dollar market cap, it is sitting below 50 million. It has extremely low volatility. You can't make much money off something that doesn't go up or down constantly.
Your argument is this: "Some government regulations from some governments are wrong, so we need a tool that will let us bypass all government regulations from all governments."
> Therefore for people like us the easiest way to get money is via the blockchain.
I am truly sorry that you live under an incompetent government, but instead of breaking the rest of the world's financial laws, it would be better for absolutely everyone if you simply fixed YOUR country.
Literally trillions of dollars are stolen from we the people by money laundering and tax evasion already.
1. Access controls - If the CEO can secretly manipulate records, it's obviously game over.
2. Compliance is sort of an all-or-nothing game. You either do it all, or a sufficiently motivated party will slip through the cracks that you leave.
It's likely that Sam genuinely believed his own deceptions that he created earlier to grift and the amphetamine have eroded his capacity to manage risks such as committing multiple felonies that no other CEO would dare because of its obvious consequences such as spending the rest of your life behind a prison.
I've heard a few legal experts and their take was : Sam & Caroline are going to spend the rest of their lives locked up. The reality still hasn't sunk in yet seeing Sam's wild apology that destroyed his last possible defense of alleging incompetence (he's depiction of himself as a bad coder that caused the situation) with a weird insistence that what he tweeted is not admission.
It seems pretty clear from interviews that they have pretty bad god/savior complexes as well. Would definitely play into the delusions.
This is exactly why you need strict compliance controls! So your drug addicted executives can't go do something crazy
In this case, I’d bet that he’s safe if he ends up in federal custody since being in prison is also effective punishment from this perspective. If not, it’s easy to imagine something happening to him if he tries to hide somewhere since the message “you can’t run far enough” will heard by everyone in that world.
Sam himself is unquestionably going to jail or exile.
/s
See Elizabeth Holmes, Trevor Milton, Billy McFarland, and others.