I’m not convinced there’s any destruction of value when the entire value proposition is a lie.
When I tell you my lemonade stand is worth a billion, and you believe it for a while, and then you realize it isn’t really, no value was destroyed.
When I tell you my lemonade stand is worth a billion, and you believe it for a while, and then you realize it isn’t really, no value was destroyed.
We as a society accept large scale fraud all the time and normalize it.
All the US banking crises since the 1920s have involved some form of deregulation.[1]
Am I crazy? Are we not describing 2 identical problems and classifying 1 of them as fraud?
The soundness of loans in a deregulated environment is no better than the soundness of a self-invented currency.
Few of the crypto clowns publish their balance sheet. FTX, we now know, didn't even have a balance sheet.
1) Regulatory oversight. 2) Relative transparency.
Legit differences between Crypto exchanges and traditional finance. Keep em' coming, I'm learning :)
The reply to that was to explain that regulation was the key to maintaining a stable banking system.
You then ignore all that an conflate unregulated banking and regulated banking as equal.
I hope you understand that this makes your argument dishonest, and that you attempt to avoid this in the future.
I understand that the level of fraud committed specifically by FTX goes far beyond simply misleading lenders and regulators about their collateral which consisted mostly of their own crypto. In general, however, this seems to be the root of the issue and the systemic problem across all centralized crypto exchanges.
From the start and well prior to this conversation I have had the belief that Crypto "scams" like this bear a striking resemblance to the world of traditional finance and specifically the securities market and MBS.
I'm not trying to argue in bad faith or use any kind of argumentative tactic or fallacy (at least not intentionally).
This is not to say the space shouldn't be regulated, but all regulation on the soundness of loans suffers from this. e.g bank leverage limits rest on the same type of assumptions about the value and liquidity of different types of collateral. And if those assumptions are wrong they will fail no matter how solid the regulatory model says the bank is.
For the uninitiated: https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
Like a cult brainwashing, they have attached their identities to those worthless pictures and now are trapped in greedy stupidity.
I mean, buying a $1M ape NFT with real money makes no sense - but if you were Sam Bankman-Fried and you had an unlimited supply of coins you knew to be worthless, you're just swapping something worthless for something maybe-worthless, which is much easier to explain.
So, the NFT did really cost Y dollars and if it's trading at Z, you have lost Y-Z dollars
No, I don't collect that crap :)
I think the biggest problem with crypto is that it was way overhyped for anything outside of having fun online.
It's like meme stocks. It's fun to waste $50 playing some silly online game! It's not fun to waste $50k gambling on something that you think will change the global financial systems.
I also think there's plenty of room for fungible tokens that represent ownership over digital content, eg, buying 4% of the rights to the future profits from the monetization of a digital video, as opposed to the patronage system of platforms like Twitch or Patreon. If we truly are reliving the existing financial system shouldn't we expect to reinvent a marketplace for intellectual property?
It's like saying that clapping with your hands at the gas station is somehow equivalent to the purchasing fuel. Sure, BP for example, can demand all fuel buyers to clap their hands once and claim that hand clap = fuel. But really it's just a dumb addition to the real transaction which does nothing.
NFTs are such hand clap when buying digital (or real) objects. The only difference is that they are served with metric ton of technical and pseudo-technical jargon, to the point when even some people in IT are starting to have doubts. But then you think about NFTs again and the mist of bullshit dissipates leaving only bare facts.
This is basically how Yi-Gi-Oh physical cards work. They make official cards and they don’t manage the ownership of those cards.
The advantage for Konami is that they don’t need to build much of any infrastructure for a market for trading or selling virtual cards. The advantage for players is they don’t have to rely on Konami for these ownership related features and can buy, sell, lend as they see fit.
The MTGO marketplace is really awful but it’s the only choice that MTG players have if they want to buy, sell or trade virtual MTG cards.
They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).
Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.
Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.
User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.
What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.
Some other NFT fans also claim that they allow moving assets between companies or even people. This is simply impossible to do with only blockchain, again, because centralised DB and management systems are required due to technical limitations, and because companies must agree on the cross compatible formats and agree to take revenue cuts, which is a fantasy. And moving assets to the humans is also impossible because NFTs don't transfer any partial or full IP rights, they are technically incapable of doing this. Then again you are dependent on the centralised DBs.
As you can see, NFT is an interesting artificial construct which does literally no useful functionality on it's own. In any proposed system with NFTs, you can cut out NFTs and have exact same functionality remaining.
https://github.com/williamcotton/openpublish
So let's imagine that instead it is a non-fungible token. The only difference between a fungible asset and a non-fungible asset is that a fungible asset can be split up into parts and owned by multiple parties. A non-fungible digital asset has only one owner at a time.
> They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).
You don't need to store anything in the blockchain other than the cryptographic hash of the digital item in question. In fact, you can take the cryptographic hash of many different digital messages and then take the cryptographic hash of those combination of cryptographic hashes and store that data in the blockchain, along with data related to ownership.
> Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.
This is incorrect. Let's say I'm Shueisha. I create a physical device that I install in game stores that comes pre-installed with valid public keys for digital cards issued by Shueisha. Then I issue a number of non-fungible digital assets that are signed with one of the private keys paired with the public keys stored on the physical device in the game stores. This physical device will only work with digital assets that were originally issued by Shueisha, say a virtual pack of 15 virtual cards. These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish.
When someone purchases a pack of digital cards they provide their own public key and Shueisha publishes their own signed transaction that transfers ownership to this person. The physical device in the game store is connected to the internet and can see the valid and confirmed transactions. The physical device in the game store ignores all assets that did not originate from Shueisha but will honor ownership of all future transactions of digital cards that did originate from Shueisha. The physical device in the game store also connects to a database run by Shueisha that when given the cryptographic hash (or the hash-of-hash and the hash) of a digital card will return the details about the card... link to the URL for the digital art, the flavor text, card rules, etc.
> Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.
All that needs to be written to the blockchain is the cryptographic hash and the recipient signed by the original owner. So when you buy a pack of digital cards from Shueisha they write a transaction to the blockchain signed by one of their private keys that says they are transferring ownership to your public key. The public key pairs for Shueisha, again, are stored in the physical device in the game store. If you bring a device with your private key to the game store then the physical device will let you use any cards that are shown to be owned by your matching public key.
> User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.
The only need for a centralized database is for all of the meta information about the card... the art, the name, game details, etc. The only need for a decentralized database is in determining the cards owned by the gamer as proven by their private key on some device they bring to the game store.
The physical device at the game store then makes sure that the players own the virtual cards that they say make up their deck by checking the decentralized data stored on the blockchain. The physical device then gets all of the meta data about those cards from the centralized server.
> What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.
This is incorrect. In the system I am describing the decentralized data stored on the blockchain is only the cryptographic hash of the digital asset. The meta data is stored on a centralized DB owned and operated by Shueisha. This is just like how I can't scribble on a Yu-Gi-Oh card to make it say whatever I want (at least for tournament play) but I can indeed buy and sell and trade Yu-Gi-Oh cards without the involvement of anyone else.
I see you are still making the same error as others - "These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish."
Cards are not tokens, and cards are not on the blockchain. Cards are digital assets, but they can't fit inside a token, they can't fit in the blockchain (for a reasonable price with a reasonable blockchain performance and decentralisation).
You have complicated my example, but it is essentially the same - your physical device is the centralised DB now (or you are using two centrlised DBs - device memory and some corporate cloud server together). Assets (cards) are stored inside it. To access them you need a key. In your example key is the token, but at this point - that's not really mandatory, we have many other ways to sell and store keys. But it's an option, yes.
What you have described is just another way to access assets stored in a centralised way and authenticate yourself as a person having access to them.
And you don't "own" your assets (cards), unless of course there is some agreement, likely on the web site or with purchase of that physical device saying that IP rights are transferred to you Name Surname. You are renting your cards based on the good will of Shueisha, and when you say sell cards - that just means Shueisha gratiously allows transferring of some record in their DB from one of their registered users to another. Just as an example - let's say Shueisha uses Tezos bc, user A is a registered customer of Shueicha and "owns" a digital card from them. Can he sell it to whatever random person with a Tezos wallet? Well, no. Unless Shueisha makes allowance for that, but that would be dumb because it will expose asset to everyone (same as today's NFT pictures work).
Everything is stored on Shueisha servers or DRM'ed devices from them. Everything is managed by Shueisha directly or indirectly via coding some physical device which will do it. Tokens are used to access stuff, but they either insecure, or you will need to have additional parallel authentication with card storage to access them.
NFTs are just layers of technical comlications not really adding anything of substance. They make look like it's easy to buy and sell digital stuff, so very popular for speculation, but in reality they are crippled by inability to actually store medium being sold and to transfer any IP rights by itself, without centralised services.
> As a result creating and destroying money doesn't create or destroy wealth.
I'll give you a MacBook, which is a durable good you can use to produce goods and services, if you go to the bank, withdraw all of your money, and then set it on fire. This is a good deal for you. Your wealth will not change from setting the money on fire, as destroying money does not destroy wealth, and you will have a capital good that will increase the amount of wealth you have.
So you're worse off because your share of the wealth is smaller... if only we had a way to describe that. Perhaps you could say that you're less wealthy and by burning your money, you've destroyed your capital?
Look, I get what you're trying to say. The value of each currency unit is roughly the total amount of economic value divided by the number of units of currency. So the sum of the value of all the currency units doesn't change as you add to or subtract from the money supply. The piece you're missing, though, is that the VCs didn't create the money they invested in BlockFi. The money came from investors and partners. So in a very real sense the capital of those investors and partners was destroyed.
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
So yes, if you redefine the word capital to fit whatever you like, then sure, I agree with you.
Resource. Noun. a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively.
Even if the commonly accepted definition of "resource" didn't explicitly state that money is a resource, the ability to acquire resources is itself a resource.
"I will give the bearer of this piece of paper my car."
Do I have created a new car? No. The piece of paper is still a piece of paper, and there aren't any more cars in the economy than there were before. And likewise, if I proceed to destroy the piece of paper no cars will be destroyed in the process.
When we talked about burning money you said: "[burning your money], however, rather screw with being able to get some of those resources allocated to you." If you burn your "car IOU", does that screw with your ability to have resources allocated to you? No it doesn't. So you can see that your car IOU is not an appropriate analogy to money.
Just being perfectly honest here, I think your position has been shown to be logically inconsistent in multiple ways.
1. We started this discussion by talking about whether or not investment in BlockFi represented a destruction of capital. You said it didn't because money invested is not capital. You then later admitted that there are definitions of capital that include money. I would consider this an uncharitable reading of the initial point regarding investment in BlockFi. If there is a valid definition of the word "capital" in which the original point is true, that it is charitable to assume that was the intended definition.
2. You agree that burning money in your bank account would make you less wealthy, but somehow disagree that you cannot consider this destroying your wealth. That's inconsistent.
3. The "car IOU" analogy has an obvious flaw in that burning it does not reduce your wealth as was the case in the burning money example. Despite this absolutely crucial difference, you maintain it is somehow valid without an explanation of the difference.
If you burn your money, the financial capital doesn't just go away. It's effectively reallocated to everyone else via deflation. That's why "destroying capital" isn't a good way to describe it.
If you destroy half the machines in the world, evenly distributed, the economy crumbles. If you destroy half the dollars in the world, evenly distributed, nothing really happens.
And back to this case, the VC money wasn't burned at all. It went to paychecks and service providers and customers and scammers. It didn't disappear, it moved.
Also worth nothing that we’re not really talking about money. We’re talking about equity in companies with the statement that billions of capital was destroyed by investing in BlockFi.
I don't dispute that. But the value of each unit can be complicated.
> So if you invest it in scams, you can call that destroying wealth.
Colloquially I might say that, but the wealth isn't actually destroyed, it went to the scammers.
The fact was destroyed. The assets were not destroyed; they went to other people.
Capital doesn't have a double meaning like that. Capital is the latter. Capital was not destroyed here.
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
There is even a bank called "Capital One." Originally, Capital One's only product was credit cards, i.e. providing monetary loans. It feels like this entire thread has been arguing about what people "feel" capital should be. In the case of BlockFi, capital has very much been destroyed. Company equity going to 0 is the ultimate capital destruction.
The status was destroyed, the assets were not destroyed.
Take my last post and replace the word "capital" with "money", and I would say that version is just as true.
You can destroy money, but that's a totally different topic. The money that was invested in this exchange didn't get destroyed. It went to other people.
Remember that the original post wasn't talking about 'wealth'. You can't come in and say "capital=money=wealth, and investor wealth was destroyed, therefore investor capital was destroyed". That's like saying "nothing is better than happiness, and a sandwich is better than nothing, so a sandwich is better than happiness". The meaning of "nothing" changes halfway through, like the meaning of "wealth" changes halfway through.
Whether "capital" includes or excludes "money" is a distraction that doesn't really matter.
If I gave you dollars in return for magic beans that turned out to be imaginary, that value is destroyed.
I'm just saying because it's the truth.
We don't do real "fractional reserves," we don't have "gold" etc. Our money is backed up by "America, with the guns, is good for this made up money," which I believe is generally true, and not a terrible system.
Or maybe it is just not useful, and acts as a distraction. Getting into another 'why fiat backed by the USA works while monopoly money from the boardgame (or cryptocurrencies) does not' is pointless because no one who makes that argument really cares about the difference, they just want to point out that 'everything is made up'.
- one of the main advantages of crypto is lack of centralized regulation, which is also why no one stopped FTX from having back doors to loot the vault
- if one can print their own coins at will (like FTT), its value is at the whim of the printer
- inflation is not necessarily a bad thing. It can be used responsibly.
- a credit card has almost no risk and can crank out transactions as much as necessary
- fiat is accepted all over the place whereas crypto as a transactional currency is more similar to trading gold and cowhides
We have seen how many bad actors control USA fiat and are deemed "too big to fail". That is a failed system and we have seen its ugly face plenty of times. Much of crypto challenges that. How successful it is so far is up for debate.
"Everything is made up" is probably one of the more important arguments to be made, and we'd all be better off if it was taken more seriously. It's difficult to reckon with and it's noisy, but that doesn't make it any less true or valuable.
I think it's especially important when trying to figure out regulation, taxes, and broadly how we deal with rich people in the world.
The belief that money is concrete and real helps cement unworthy powerful people. It's good to chip away at it.
We, somehow, collectively decided to have it this way. It is not a law of nature!
Really, video games and thinking about video game design helped me get it. Because it's a design, and not something like science or nature. It's not that real or unexpected consequences don't happen -- of course they do. But it's exactly like what happens in game dev, because someone tweaks rules.