This was a failure of traditional financial institutions and people who are ok with them, not of crypto.
Satoshi wouldn't be encouraging people to put their coins on a trusted third party like that. All fundamental crypto values say this.
Satoshi wouldn't be encouraging people to put their coins on a trusted third party like that. All fundamental crypto values say this.
CEX and DEX can both have hacks. An open source DEX can be verified, formally tested, and made immutable and un-upgradable on chain, like Uniswap.
Uniswap V2 contract is 2 years unchanged, $3.8B TVL and $1B daily volume, close to 10 year old Coinbase CEX. Not bad for being a joke.
I'd rather gamble with Uniswap protocol risk than FTX human fraud and greed risk.
Hardly says that DeFi as a category is reliable.
You said "day traders on FTX are learning first hand the value of DeFi", but DeFi is just as much of a shitshow as the rest and has had just as many collapses.
I am one of these people: I had funds locked into a CEX, was lucky to pull them out some days before turmoil but others not so lucky. During that time my DeFi holdings were fine. I would now rather take on protocol risk of something established and proven like Uniswap, instead of risking with an unregulated CEX.
I think that the problem with the Cryptocurrencies movement has been that the use peopel want to give to it has surpassed the technological advances that it provides. At some point, the ETH network will get there, providing "trustless" alternatives for a lot of the stuff that CeFi services are giving. But that is still several years away.
If that proves to be important in the long run is something that we will see in the future, of course.
But people don't care too much about that. If so many crypto users, who we can assume are more informed and care more about decentralization than the average person, massively flock to centralized exchanges, why would the general population use decentralized services if they're worse?
Also, if I do decide to use a custodial provider, I can choose to use a provider that publishes proof of reserves [0], giving me more confidence in the provider.
With fiat, you also have the option of storing gold yourself.
Granted, that would be stupid, but it's certainly an option.
You have the option with Fiat too - you can get paper currency and store it yourself in a secure location. $10,000 can be stored in $100 bills in as little as c0.03 meters^3.
Using a bank is much more convenient to store Fiat though if you want to buy/sell things, much like using an exchange to store Crypto is much more convenient if you want to trade crypto (because let's be honest, not that many people are using Crypto to buy pizzas!).
The security is based on you remembering a 12 word string or geolocation, and the string/geolocation can't be siezed via court order (other than exceptional circumstances, or by finding the location/keys).
The 'storage' in both instances is decentralised. If you forget your 12 word string or geolocation, you lose your money.
Banks on the other hand:
* Provide convenient and safe access
* Will invest your money (in exchange for interest).
* Allow you to reset your credentials if they are forgotten (by proving identity)
* Are centralised
As time moves on it's clear to me all these assets are becoming important members of the financial landscape. If crypto were merely a degraded version of the dollar, then I don't think so many people would use.
All of those are more convenient than storing dollar bills or gold bars. So, yes, fiat has options, crypto is another kind of option and probably the most convenient for self custody, hence a very good one to avoid trusting institutions.
That's really not the same though. With crypto I can store on a hardware wallet that requires a pin to unlock (and resets after 3 attempts) with a backup seed stored elsewhere (potentially split up in n of m shares). How do I backup my cash? How do I lock up my cash in a similar way?
In addition, I can setup "smart" wallets that require an approval from another person to initiate the transfer. Or forces a cooldown period on transfers. None of this is possible with cash.
You buy a vault or a safe, which you can access with a 'pin-code' (in the fiat world this is called a combination lock). Safes come with two keys, which allows you to keep a backup of your 'secret' elsewhere, and you can also insure the cash inside if you want to pay for a full 'backup'.
In addition, "smart" safes and dual lock safes are available which have two keys, mean you need approval from another person to initiate the transfer.
It's not an exact 1:1, but you can hardly say that you don't have the option of storing Fiat by yourself.
... what do you call putting cash in your wallet?
With crypto I can:
* lock my cash on a device behind a pin (with forced reset after a few attempts)
* back it up in multiple physical locations, and require n of the m recovery locations to be accessed for recovery
* memorize the seed phrase before escaping from an oppressive regime
None of this is possible with cash in my wallet.
In a fixed money supply currency, fractional reserve banking should be illegal and banks should instead make money off fees. Venture capital should put their own money at risk to invest in the economy. How will people afford houses though? The housing market booms and busts because of the wildly fluctuating availability of credit caused by the money multiplier rapidly creating and destroying money which is tied to the fractional reserve banking concept. Homes would be drastically cheaper and people would actually be able to save to buy them if it weren't for the huge supply of rapidly created and later contracting credit available to buy them. Things we buy with credit like housing and education have gone up steadily in price, while things bought with cash have not.
The fractional reserve people are so sick of crypto, that ,in one platform, you can buy bitcoin but you can't send it to a crypto address. You have to get your friend on the platform, you can send it to them, and then they can convert it back into fiat. It's ridiculous, you're basically just buying and selling a security that tracks Bitcoin and not Bitcoin itself.
>In a fixed money supply currency, fractional reserve banking should be illegal and banks should instead make money off fees
Which, ok... But then jump to
>The housing market booms and busts because of the wildly fluctuating availability of credit caused by the money multiplier
Which seems to be a thesis about our current world. I can't figure out the connection between them. Are you saying this is evidence of why the first thesis is correct? But USD is not a "fixed money supply currency", which was how we started out.
I understand that easy credit induces demand for housing which has inelastic supply and somewhat sticky prices. This doesn't seem to be a problem of Fractional Reserve banking though. The VCs in your proposed system will still invest in mortgages as a fairly safe bet, because people are highly motivated to have a place to live.
And mortgages are an important tool so people have a place to live _before_ saving for 30 years. Given our current population dynamics and everything else...
But -- will every single entity that actually does follow "fundamental crypto values" be destroyed? Almost certainly not. That's where the good (and healthy) action is. Follow THAT, everyone.
All you've gotta do to get people to keep their coins "correctly" is eliminate the benefits of agglomeration. Good luck!
What are the advantages of decentralization in this context? Be specific.
What else?
What really surprised me about the space was the refusing of not registering as a speculative asset. As even if you look into the regulations, it's merely making the mechanisms transparent and creating reporting.
As if DeFi followed through with the true promise of decentralization and transparency. The FTX situation would never have happened in the first place. So with that, the crypto space actually went against its principles and we are seeing the result.
The closest you can get to decentralization with the traditional finance system is to withdraw and store cash, which is expensive/risky and causes inflation to eat away at your savings. Good luck with other parts of the finance system (eg. investments or loans). It's ironic how you portray centralization as something that people willingly engaged in because it was beneficial, considering that the disadvantages are all there by design (eg. the government refusing to make high denomination bills, or instituting a monetary policy that causes inflation).
I don’t see how it’s any different from the situation with, say, bitcoin. If you store a bitcoin, it just sits there, and its value follows that of the market. The fact that bitcoin is deflationary has nothing to do with decentralisation; a central bank could do that as well. They don’t because deflation is a terrible way of running an economy, not because it’s not possible.
> Good luck with other parts of the finance system (eg. investments or loans).
You could loan cash as well and get interests from that. Decentralised, anonymous, not traceable in any practical sense if you use regular used notes. Again, this has nothing to do with cryptocurrencies. The infrastructure that was built on top of cryptocurrencies enable doing it at larger scales and over longer distances, but that’s not a qualitative difference (besides the fact that this tends to concentration, running against the decentralisation ideal).
> It's ironic how you portray centralization as something that people willingly engaged in because it was beneficial,
It’s something that emerged because of economies of scale. Personally, I feel much safer with my money with an institution that is big and resilient enough that I am very close to 100% certain that it’ll still exist tomorrow. This can also be done with cryptocurrencies, but against this goes against the dogmatic ideal of decentralisation.
> the government refusing to make high denomination bills
How is it a problem in practice?
> instituting a monetary policy that causes inflation
Mild inflation is much better than deflation from an economic point of view. What do you think are the advantages of deflation? I can see the “the value of my pile keeps getting bigger”, but how would that work e.g. for farmers who need to invest to produce food, or people who need a loan to buy a house, if the whole system is deflationary?
But again, that’s a red herring because central banks can have deflationary policies. They don’t because that causes the economy to contract, unemployment to rise, and investments to fall.
Note, that by "expensive/risky" I was talking about the physical storage of the bills (eg. risk of theft or needing to install security equipment), not the opportunity cost of not putting the money to work. The latter is a whole can of worms that I don't want to get into.
>The fact that bitcoin is deflationary has nothing to do with decentralisation; a central bank could do that as well. They don’t because deflation is a terrible way of running an economy, not because it’s not possible.
>Mild inflation is much better than deflation from an economic point of view. What do you think are the advantages of deflation? I can see the “the value of my pile keeps getting bigger”, but how would that work e.g. for farmers who need to invest to produce food, or people who need a loan to buy a house, if the whole system is deflationary?
>But again, that’s a red herring because central banks can have deflationary policies. They don’t because that causes the economy to contract, unemployment to rise, and investments to fall.
I don't doubt there are great reasons to run an inflationary monetary policy, but the fact still remains that if you want to keep cash around you'll be subject to inflation.
>You could loan cash as well and get interests from that.
But now it turns into a full time job.
>Again, this has nothing to do with cryptocurrencies. The infrastructure that was built on top of cryptocurrencies enable doing it at larger scales and over longer distances, but that’s not a qualitative difference (besides the fact that this tends to concentration, running against the decentralisation ideal).
No, because with cryptocurrencies you can deposit your money into some sort of lending protocol and have that handle it for you, rather than having to do it yourself by being a loan officer/servicer and debt collector.
>It’s something that emerged because of economies of scale. Personally, I feel much safer with my money with an institution that is big and resilient enough that I am very close to 100% certain that it’ll still exist tomorrow. This can also be done with cryptocurrencies, but against this goes against the dogmatic ideal of decentralisation.
But the whole reason why you have to worry about your whether your money is in a "big and resilient" institution is that the only way of storing money in the finance system is at a fractional reserve institution, which can be subject to bank runs. It's possible to structure a bank that doesn't have this problem (eg. narrow banking), but for some reason the government isn't too big on it.
>How is it a problem in practice?
It's an issue any time you want to store/transfer a large amount of money. Although to be fair most americans don't have enough savings for this to be an issue so I'll let that slide.
Also no, there’s no risk of a bank run in the US due to other protective systems such as FDIC.
Please check the thread. We were talking about doing it in a decentralized way.
>Also no, there’s no risk of a bank run in the US due to other protective systems such as FDIC.
Again, not decentralized.
The decentralised instances are experiencing all kinds of trouble.
I fucking love centralisation!
You can literally say this about "regular" currency. Just don't put your money in banks! But people do, why? Once you answer that, you'll realize why people do it for crypto too. You can't complain that it's "against fundamental crypto values" when it doesn't have any mechanism for preventing it. It's convenient, it has benefits, therefore people do it.
1. cash is bulky and risky to keep at home
2. inflation eats away at your savings
Bitcoin is designed to solve both issues.
I'm not sure how you can conclude that password protected, geographically distributed (eg. 2 of 3 multisignature) storage "can't be better than physical possession.. i.e. cash".
2. Deflationary currencies reduce the urgency to invest or spend and crush economies.
Bitcoin makes both issues worse.
I find this sentiment of "not your coins, not your crypto" unsettling. The average person doesn't even back up the pictures on their computer or phone and they are one storage device failure away from losing all of their wedding pictures, baby pictures, etc.
The big push now is for people to use hardware wallets. I guarantee that 50% of people over the span of a decade will lose access to 100% of their funds.
2023 will be about everyone learning how much of a joke cryptocurrency is.
Or, if you think like foreignpolicy.com thinks:
> The crypto bag-holders all actually lost their money long before, when they bought the bitcoins. In the time since, they’d been telling themselves and everyone else that their magic beans were worth money and never mind the lack of buyers. But this was not the case. The beans were always worthless, and the only way to make money from them was to sell them off before other people caught on.
If decentralized were actually better, then why would people flock to centralization?
Decentralization is at odds with that. It’s not convenient. It’s not easy. It’s not simple. Not for a lay person anyway.
When an ecosystem comes along and can solve those for the masses, it’ll be revolutionary.
Why? Because I decided the odds of Coinbase going down were less than the odds of losing the coins myself without their help. There were just too many ways I could have messed up my own wallet.
In any case. Satoshi was about using Bitcoin as a currency not a store of value, right? So either way this view is butchering what Satoshi wanted
So without exchanges, there is literally no purpose or use of bitcoin. Currently it mainly serves as a way to record a store of fiat value.
There is no conspiracy here. The reason exchanges came into being and were successful was that there was no other purpose to bitcoin. Few users successfully use bitcoin as it was intended.
You interchanged crypto with bitcoin, but bitcoin is not all crypto. The value of crypto comes from them being decentralized and independent of a financial bank. This has the negative side effect of it being very valuable to illegal and fradulent activity, too.
The value of that is exactly zero when you live in a stable and developed country, and you are not engaged in criminal activity.
Other than one off gags, I've never actually seen anything being sold for crypto. Perhaps things are different where you live
Gold has value because it is scarce and can easily be verified, and has industrial uses. Moreover, you don't need a third party to check for gold. It is straightforward to ensure that gold is real if you have basic tools. However, if gold brokers did not exist and gold were not also easily divisible, gold would have little utility.
Bitcoin has value because of the exchanges. If there are no exchanges, then it has no value.
But, what all three of the above have in common is that the only reason they currently have any value in our markets is because they can be exchanged for pieces of paper that governments will throw you in jail for should you fail to pay them upon transfer of any of the above assets.
Setting up our tax system to be transparent and auditable by any citizen would be the greatest benefit to a distributed ledger, but something tells me that the current institutions would heavily resist that transition, so you are correct that it has little current value.
- The QR code to pay didn't work with the binance app
- Had to find a way to copy the hash tag of the account from desktop to mobile to pay (luckily if you have a macbook pro and iphone this is easy)
- Initially chose the incorrect network for payments on binance so the transfer didn't go through. Had to read online which network to select.
With a card payment is normally just putting the cards details and in a few cases do an additional authentication.
This feels mighty similar to the old "communism didn't fail people, people failed to do real communism" rationalization.
- Crypto is being used and abused by people and purposes that don't need it.
- Fundamental practices haven't matured yet.