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Comment by scoofy | Hacker News Reader

"It was a crime" seems to be the cope du jour that for those who invested in an asset intentionally designed to avoid regulation.

I don't want this to come off as dunking on anyone who has touched by this tragedy. I feel for the people I know involved in this, just as I see these events as part of the inherent risk structure of the space.

Am I wrong here? I really want to know if these cries of foul are substantively different than, say, the required reserves to prevent these types of collapses. Or say, the existence of FDIC insurance in cases of mismanagement or even outright illegal trading by banks?

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Crypto is pretty much just people tearing down Chesterton's Fence and then going "surprised Pikachu" when most of the protections they bypassed turned out to be necessary.

It can also be hard not to blame the victim after they responded to skepticism with shrill political diatribes, although that's not a new trick when it comes to fraud schemes. The guys trying to sell bogus patents for tapwater-powered cars in decades past used similar rhetoric in order to make pawns out of the gullible. "It's not a scam! That's just what they want you to think!"

The protections they bypassed aren't "necessary" but they are certainly there to protect the investors so I have little sympathy for the libertarian crypto people (or libertarians in general) when they have nothing to fall back on after bypassing all the regulations that were there to mitigate these issues.

I don't believe libertarians have a problem with punishing transgressions against sensible anti-fraud laws post-fact, which seems to be what the article is calling for.

Libertarians are typically against regulation. Where the boundary between regulatory red tape and anti-fraud legislation lies is a matter of taste.

Let's say I start an exchange to trade magic beans. The beans are worthless, but lots of people like trading them. In my terms of service, I say I won't use user funds for anything else and won't rehypothecate user beans if posted as collateral. I claim to make money off fees. Then I do both, lose all the money, and people lose billions of dollars---which they realize when they ask for their money back. You may think magic bean trading is dumb. You may think the people trading them are dumb. But what I did would still be a crime, and calling it a crime doesn't necessarily mean you're delusion about beans.

Put differently, it sounds like you think people who put money into FTX are dumb. Fine. But the law still protects dumb people, as it should.

Not dumb. I just think this result should have been part of the risk-adjusted value calculation.

One of the main reasons I hesitated on DeFi, and I probably read a dozen white papers, was my concerns over not being in control of my assets when off exchange. The staking rates always seemed insane.

Certainly not as concerned as when I didn’t understand the Luna white paper and my friends who were rich off it couldn’t explain it to me, but still concerned.

As someone that loves DeFi I think that take is reasonable. If you don't understand it don't put your money in it, and only invest an amount that is equal to the risk of that protocol failing.

Because code is immutable you can simply wait until a protocol is a few months / years old and if it hasn't been hacked you know it's going to be safe.

This is why regulation isn't as needed, because the code can't secretly change like humans at opaque financial institutions can. Immutability + Transparency + Time is the regulation.

> I don't want this to come off as dunking on anyone who has touched by this tragedy. I feel for the people I know involved in this, just as I see these events as part of the inherent risk structure of the space.

> Am I wrong here?

I think so. The overwhelming majority of the lost money comes from some combination of a) criminals b) investors in crime-enablement technology c) speculators who thought they could make money off a) and b). It's not much of a tragedy, and dunking on them is warranted.

> I really want to know if these cries of foul are substantively different than, say, the required reserves to prevent these types of collapses. Or say, the existence of FDIC insurance in cases of mismanagement or even outright illegal trading by banks?

The problem with being outside the law is that you're outside the law. Banks do dumb things and lose money all the time, but the rest of us support them because they're fundamentally a part of society; they submit to society's rules, they pay the fines they get charged without complaint (even when those fines are often blatantly unfair), they generally follow the law as best as they can and go through the proper processes when they want to get the law changed (which is not to say they don't lobby for their own interests - they absolutely do - but they play by the rules).

It looks like a pretty clear cut case of embezzlement and fraud.

They're both crimes.

It really looks a bit less clear cut than you’re saying. First I’m not sure he’s subject to American financial laws at all since ftx was offshore. Second he has some sort of explanation of alameda just taking a margin loan and he had no idea that the collateral was worthless. Would that fly in the us? Probably not. In the Bahamas? Who knows.

FTX.us was also dragged down by the last ditch flick of the Balrog's flaming whip

>I’m not sure he’s subject to American financial laws at all since ftx was offshore.

He almost certainly is. Under US law, it doesn't actually matter where you're based. If you are engaging in substantial activity in the US, and have a presence in the US, then you are within the jurisdiction of the US, at least for that portion.

FTX could probably be sued in every jurisdiction where they had customers.

I have no idea what the deal with FTX.us is, but the main exchange can plausibly say they had no customers in the US and did no business there. American IPs couldn't enter the site.

Let's not be silly. The criminal himself admitted he stole the money. It's not rocket science. If your banker tells you he used your savings for his holiday it's not ambiguous

The problem is both his parents are Stanford professes and lawyer. He business partner father is a MIT professor. NYT and WSJ are trying to coving up the stolen money. This is what makes it complicated and why he might not be charged

> It's not rocket science.

It's not rocket science, but it involves banking and property law. I'm not sure which one is more complicated.

> If your banker tells you he used your savings for his holiday it's not ambiguous

In fact, your banker does routinely use your savings for his holiday. This is called "fractional-reserve banking", where the bank doesn't put your money in a metaphorical "safe", but rather they use it for whatever. Most of the money is loaned to other parties, but the money can also be used to pay employees' salaries (which can get used on a holiday).

I'm not saying FTX didn't do anything criminal. Most likely they did. It's just that laws are sometimes more complex than they seem. (And that you probably have the wrong impression of what your bank can do with your money?)

It's a meaningless statement that can be said about anything. It's more complicated.

You intensionally misconstrued the banking theft example as legitimate lending to make a nonexistent point

> It's a meaningless statement that can be said about anything.

Which statement?

> It's more complicated.

Says the person who claimed "It's not rocket science."

> You intensionally misconstrued

Assume good faith. https://news.ycombinator.com/newsguidelines.html

> the banking theft example

Even during a bank run, employees are supposed to get paid. When the banker takes your money and uses it to pay salary, it's not banking theft. Theft happens when the exchange (not banker) promises you to hold your assets in escrow and then uses it to pay themselves. There's a legal difference between bankers and exchanges in which one borrows your money, and the other holds your assets on your behalf.

The fact that you don't (want to) understand the point doesn't make it non-existent.

The GP does have a point though.

According to some, supposedly cryptocurrencies was the solution to get around financial and banking regulations, and the only truth was written on the blockchain ledger. "Smart" contracts will make traditional contracts based on the legal system obsolete. At least for those cases, it can be argued that those people waived their rights to recovering economic loss via the legal system by using cryptocurrencies.

That said, I don't buy it. But maybe a desperate lawyer could try to argue that...

>The GP does have a point though.

No. What happened at the company FTX has nothing to do with blockchain and smart contracts. It could have been an online exchange for euros or dollars or Pokemon cards. Violating the ToS and stealing users' funds is a crime.

There's plenty of people in here who think that the investors "deserved it" because they traded cryptocurrency. They have such a hatred for it that they would be glad to let these criminals get off scot-free, just to spite those who invested in crypto and lost it in a scam. There's no discussion to be had there. It should be obvious that FTX operated as a traditional centralized financial institution that happened to trade primarily crypto and therefore should have been subject to regulations, but no. Crypto bad, therefore props to the scammers.

Insanity.

that's exactly what I commented, and the comment was downvoted, contradicted, flagged, and has vanished (really, deleting comments ? is that what this site is about ? I thought is was a site for the open minded ) (edit : it was folded, not deleted. but still)

I share the same perspective, but I'm surprised by everything that is happening around.

Users on Tweeter and some crypto websites are speculating and investigating on how ftx got a banking license (shouldn't they have done it in the first place, before they invested ?)

They're also defiant to the media (as in the intro of the featured article)

And posts on HN about the very nature of the crypto industry are hot.

I find all of that pretty amateurish yet still convinced, after seeing both the wave of tech guys who believed in cryptos for what you said, then of more or less proud 'crypto bros' who just saw a financial opportunity, with hardly any financial, tech, or political knowledge. The former didn't see the latter come in and ruin their usage of the crypto, and the latter ignored the warnings from specialized journalists

What is happening right now is very interesting to watch. I've spent two years to get a better paid job before I could have more money to invest, so I'll watch around to learn.

I've already seen basically the same, on documentaries about Wirecard.

The first lesson I'll take will be about being humble, being able to listen outside of bubbles, and to take criticism without flaming other commenters. The second one will be that collapses can arrive very fast. The poor investors lost everything in a snap. It looks pretty bad

Just based on the usage patterns of crypto as a whole, it's likely that a fair number of FTX's users were involved in human trafficking, opioid dealing, and/or money laundering. I'm not sure how big of a percentage that was of FTX's user base—maybe it was too trivial to matter—but it does make me less sympathetic.

Don't forget the massive energy/CO2 emissions cost[0], producing over 100 grams of e-waste per transaction[1], and being used to fund the nuclear programs of rogue states[2].

[0] https://hardwaresfera.com/en/noticias/criptomonedas/consumo-...

[1] https://cen.acs.org/environment/sustainability/Bitcoin-poses...

[2] https://www.cnet.com/culture/features/north-koreas-crypto-ha...

I have always wondered if Satoshi (the anonymous creator of Bitcoin) might have been working for one of the rogue states in question. Pure speculation, but it would explain why Satoshi has never gone public to take credit for it.

Or it's because Hal Finney was Satoshi, and he never took credit for it because he was scared people would harass him even more than they already did, and he died in 2014, so he won't be able to take credit for it any more.

The problem is most outside crypto don't understand the difference between centralized crypto (FTX, Celsius, Binance etc) and decentralized crypto (Uniswap, Aave, GMX)

Almost everyone in the crypto industry wants the centralized institutions regulated, because they are opaque companies that could do market manipulation or steal funds at any time.

In stark contrast is DeFi, the second group, who are completely transparent and have no way for the owners to run off with user funds. These ones should not be regulated (scammers should be prosecuted if they code secret backdoors, but they don't need normal bank reporting, kyc, etc)

The distinction is very important.

Theft is a crime regardless of what is being stolen, so is fraud.

No need for regulation to deal with this.

Umm, what? We have regulations all over the place to make fraud more difficult. Literally independent auditing is the biggest example. “Trust me” is generally considered insufficient when the cost of the theft is billions of dollars.

I got a loan against my BTC as collateral in the regulated Blockfi company and put it into highly regulated storage at Gemini.

The part I missed is that the contract contained a hidden part where Blockfi can take out the money from the regulated storage and do whatever they want with it without notifying me.

I was paying regular loan repayments and had no idea that they put it in a casino.

When people don't go for known thiefs and mix them with other people, it just gives me more confidence in the important of decentralization.

Cope de jour.

Classic.

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