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> The real problem behind all these crypto companies is the people who make the money have no concept of what "integrity" is.

You don't need integrity while "the line goes up". Integrity is only for when it goes down. Until recently, the line has been consistently going up. SBF was banking on it going up forever. If it had gone up forever, he would not have been caught!

While the line goes up, integrity just eats into potential profits. It's an extra cost. No business willingly spends extra money they don't have to. That's why regulation and oversight is mandatory.

> ...he taught me that with customer money you cannot get even a single cent wrong.

SBF gave an accounting on FTX holdings with an error margin of "plus-minus 10 billion dollars".

Can you imagine having error bars 20 billion dollars in size!?

For reference, companies with market caps in that range include: Tata Motors, Best Buy, Komatsu, Zoom, East Japan Railway, Mitsubishi Electric, Delta Airlines, or Panasonic!

Sit down and picture telling someone with a straight face that you may or may not have misplaced "value" on the same order of magnitude as an entire airline, or an electronics manufacturer with a worldwide presence built up over seven decades of growth.

>> You don't need integrity while "the line goes up".

Integrity is how you behave when no-one is watching.

That's a very nice quote.

Probably better quote:

“Integrity is doing the right thing even when no-one is watching.”

"Only in darkness are we revealed. Goodness is not goodness that seeks advantage. Good is good in the final hour, in the deepest pit, without hope, without witness, without reward." -- Nardole

Only when the tide goes out do you discover who's been swimming naked. - Warren Buffet.

> the people who make the money have no concept of what "integrity" is.

It's outrageous that there is no honour amongst scammers.

Terrible point of view, you need integrity regardless of whether the line goes up or down. As often, the line goes up DUE TO unethical behavior and poor integrity. The incentive to act without integrity is what often what drives the line going up, when it should have to begin with.

Yes, I can imagine having error bars in 20 billion dollars in size, its what the financial audit space does every single year. It's what keeps companies like you've listed in line, because you audit against a materiality.

> Traditional banks, for the most part, have DNA built around protecting customer interests and customer money.

I don't think we're living in the same world :) Traditional financial institutions are just as bad, if not worse, than most crypto companies. You just have look at all the financial system crashes and exchange frauds. A key difference is that the government is there to bail them out because they are tightly linked, and that traditional institutions know they'll be punished because of strict regulations. It's not about the actors, or some kind of fuzzy DNA/culture, but about government and regulation.

I think it's also important to note the discrepancy in transparency. Yes, FTX was just a centralized exchange that had little to do with the blockchain, but you were still be able to see some of FTXs balance movements on-chain, simply because they are forced to use ETH/BTC/FTT/etc. If we hadn't, FTX may have gotten away with what they're doing a lot longer. Nobody may have found out.

With traditional financial institutions you have almost no transparency. You have absolutely no idea what they're doing behind your back. All you can do is trust the government to eventually bail them out if they mess up. Or trust that they're scared enough of going to prison that they don't try shady things.

> I think it's also important to note the discrepancy in transparency. Yes, FTX was just a centralized exchange that had little to do with the blockchain, but you were still be able to see some of FTXs balance movements on-chain, simply because they are forced to use ETH/BTC/FTT/etc. If we hadn't, FTX may have gotten away with what they're doing a lot longer. Nobody may have found out.

I think people might have noticed that customers could not withdraw funds, and the exchange declaring bankruptcy in any case.

You clearly aren't aware of all the cryptocurrency exchanges that have gone bust. Exchanges are not banks, they are not supposed to act or even fail like banks. Exchanges only take a fee on every transaction. That is all they do. It is literally impossible to bankrupt an exchange if it is run honestly.

Banking meanwhile can fail even with honesty because of the nature of borrowing short and lending long.

>>My first introduction to this way of thinking was many years ago when I worked on a software development project and the project manager was extremely concerned about a single cent being wrong in the calculations

On one of of my previous contracting gigs (about 20 years ago), for a very large, USA-based financial services company, the VP hired me for a full month (at consultants pay rate, 40 hrs a week) to investigate and track down a 1-cent discrepancy in $4,000,000,000 under assets for a particular division that differed between two reports by exactly 1 penny(one generated on the mainframe/cobol system, and one generated on a custom pc based system).

Turned out it was a rounding error in like the 8th decimal place on the mainframe side. I thought it was crazy at the time - but guess his thinking was there is no difference between being a penny off, or a million dollars off - you need to be able to account for every cent.

It's not just crypto. The entire fintech space has an ideology that lines up far better with Silicon Valley than with Wall Street. The Wall Street mentality would dictate a very different course of action than the Silicon Valley mentality in many of the situations described in the cases brought by the DoJ and the SEC, and yet the Silicon Valley mentality seems to have been the guideline used by SBF/FTX -- perhaps because of a lack of experience dealing with customer funds, or perhaps due to ignorance of the seriousness of consequences.

Edge cases matter a lot more to Wall Street than to Silicon Valley. Wall Street is a world where the new hire on the desk gets a talking-to by the managing director for making an error that could have led to a big loss, and where people are regularly reminded not to put anything in writing that they wouldn't want to see on the cover of the New York Times. Silicon Valley is a world where "move fast and break things" is a central mantra, and sometimes those things that get broken are the rules.

A license should be required to prove you understand your ethical obligations to handle anyone else's money.

It's sad that the entire crypto industry happened too fast for the regulations to keep up, with the unsurprising result that vast amounts of customer money have been lost and stolen - the precise reason for regulation.

I would not be surprised if many people have taken their own lives as a result of crypto losses arising directly from lack of integrity of the companies managing the customer money.

I totally agree.

Licenses/certifications do exist. SBF had the FINRA Series 7 and 55.

https://brokercheck.finra.org/individual/summary/6204362

The loophole is that employees at hedge funds and investment advisers don't face the same licensing requirements as employees at banks and brokerages who deal directly with customers. There are people who trade billions of dollars of customer funds a week without any required regulatory exam or license.

He had a series 7? Did not know that. But, right, he was a trader with Jane Street, so he had to have a Series 55 and probably the Series 7, which is for brokers. (Everybody in finance takes the SIE, the "securities industry essentials" exam. That should be required for programmers in finance.)

So he knew what he was supposed to be doing.

There are a few trading firms that require all SWE/Traders/Quants to get the Series 7.

I have a Series 7 and have never handled client money, but I wrote software and had had access to these systems.

Not all fintechs are evil.

No one is breaking the rules because they don't know them and nobody knows the rules better than those breaking them.

The only reason bitcoin and friends are “worth” anything at all is precisely because there are no regulations. If crypto companies had to play by the same rules as real fintech firms the whole thing would collapse. Why? Because the entire crypto space is nothing but hot air.

If exchanges and stuff had to play by any rules, they’d go out of business because there is no other reason for crypto’s existence but to run scams.

(Okay maybe it won’t entirely collapse but crypto certainly wouldn’t be valued anywhere near what it is now)

This is why I'm very wary watching foreign developments in the payment space. Living in a country where contscyless payments and free instant transactions were a thing long before Apple and Google arrived with their products, these services seem to add very little except for a foreign third party. Sure, PayPal was around in case you needed to buy something online in another country, but I don't believe it's as deeply ingrained.

At the same time I read stories about other countries where people think it's completely normal that some third party app has replaced the bank's role as a payment processor, even going so far as to include these services within the banking environment itself.

The way I see a large amount of fintech is that business savy people see their banks struggle to get up to standards that were common elsewhere ten years ago and try to make a quick buck throwing together an implementation before the banks can get themselves together. These companies solves the needs of the end customer, but only patch over the underlying problems that keep building up because there is no reason to address them anymore.

How much can you really trust a company built on profiting off the failings of a basic institution underlying almost all commerce?

> How much can you really trust a company built on profiting off the failings of a basic institution underlying almost all commerce?

Meh. Being a middleman, or doing something better than companies do themselves, is the foundation of most economic value creation.

> of most economic value creation.

As Schumpeter observed, value creation is accompanied by creative destruction, and right now it looks like we're in the "creative destruction" phase when it comes to fintech.

It was one thing when in the early 2000s creative destruction was involving entities like pets.com, no-one was really hurt by those companies going down, but it's another thing when the company going down might hold your "savings" or owe you money as a SME, like Revolut or Klarna.

I've never been near code handling money, but "never put anything in writing that you wouldn't want to see in the New York Times" is something I've heard repeatedly at a big tech company too. It seems like pretty standard advice nowadays.

The "move fast and break things" slogan was by Zuckerberg at Facebook, though they've since abandoned it.

> Silicon Valley is a world where "move fast and break things" is a central mantra, and sometimes those things that get broken are the rules.

And, Wall St is where this isn't the case?

It’s crazy to think Wall Street has never once moved fast and broken things, like the global economy, for instance.

I’ve worked at market making firms in US and there were exceptionally strict controls and regulations. Engineers had to be properly qualified to even touch certain parts of the codebase and it potentially came with legal ramifications.

an ideology that lines up far better with Silicon Valley than with Wall Street.

An interesting observation. My take is that even though Wall Street has unfathomable levels of hubris and poor ethics, it understands CYA.

Fintech on the other hand...

> Traditional banks, for the most part, have DNA built around protecting customer interests and customer money.

Would you feel comfortable wiring your money off to a bank account in the Bahamas? I wouldn't. I think safety is more about jurisdiction (and therefore regulations) than it is about what type of currency a business deals in.

Bank DNA has always coded for taking foolhardy risks with customer money. It wasn't until heavy regulation came into play that banks stopped going bust left and right, at least in the USA. Even under heavy regulation, you still see their true colors from time to time such as when they discovered risk loopholes in 2008 that led to the financial panic.

Until regulation hits crypto custodians, they will largely be fly-by-night yokels that go bust left and right, just like the first American banks did. After regulation hits, they will be just as safe as modern banks (and likely, many crypto custodians WILL be modern banks - see e.g. Fidelity entering the custody business recently.)

> The real problem behind all these crypto companies is the people who make the money have no concept of what "integrity" is.

The entirety of Wall street has no concept of what "integrity" is. The solution was heavy regulation. It happened to banks, and it will happen to crypto. Crypto custodians are speed-running banking regulation.

You mean like how Goldman sold junk bonds to customers while knowing it was junk?

Junk bonds are bonds with high credit risk, what’s wrong with selling them to customers who are after high yields?

It's not like junk was a part of the name right?

Didn't they get credit agencies to rank them as premium and not junk though? I think that we know they were junk after the fact.

Junk bonds are just High Yield bonds at a certain rating. GS doesn't set the Price/Yield or the rating.

You have a point, but you may be thinking of the CDOs they and other sold, knowing that they were full of risky mortgages but laundering them through overly-chummy ratings firms.

They only sell those to accredited investors - indeed, the counterparty in the famous lawsuit was a German bank who'd bragged about how they were smart traders playing with the big boys.

https://calpaterson.com/bank-python.html

> One of things that tends to boggle programmer brains is while most software dealing with money uses multiple-precision numbers to make sure the pennies are accurate, financial modelling uses floats instead. This is because clients generally do not ring up about pennies.

No, it's because models are not accounts. They're not expected to add up exactly because they're based on approximations anyway.

I find it funny that you’re associating integrity with Wall Street. From my perspective, Wall Street’s morals and ethics is not far off from Silicon Valley’s if not worse. The main difference is that Wall Street has mastered the art of adapting to regulations and lobbying politicians and their very own regulators. It’s not a secret that there’s a revolving door between top regulatory bodies and Wall St entities. Also while having private corporations like the DTCC and FINRA fool the masses into thinking that they’re public regulatory bodies, it doesn’t fool us. Wall Street has way more crooks than Silicon Valley. They’re just better at hiding and legalizing their theft and corruption. At lease Silicon Valley creates things with value for society.

Old Russian proverb: "when fish begins to rot, it starts from the head".

Yes these crypto bros are young grifters out for the big score with zero integrity or morals and hopefully they will look forward to spending their best years in a jail cell. But they are enabled and encouraged by a good old boys network of VCs, journalists, and other influential figures in the tech community. Madoff at least picked rich people as his marks; the media have blown up the likes of SBF as geniuses and encouraged ordinary people to invest money they can't afford to lose in crypto.

Do traditional banks protect customer interests? They may now after being forced to, but the UK government is deregulating the banking sector considerably to try and avoid losing even more face by London losing financial capital status, and I would not be surprised at all if we see banks taking stupid risks/being wilfully negligent again.

Let’s not forget that these regulations they’re getting rid of came about after 2008, when banks had to be bailed out by taxpayers around the world.

As they say, what causes more damage, the founding of a bank or the robbing of a bank?

I think it depends on the part of the organization.

The teams managing the money-handling-software care very much about protecting your cents.

The product managers inventing new fees do not.

> The real problem behind all these crypto companies ...

> Traditional banks, for the most part, have DNA built around protecting ...

Traditional banks lack of "integrity" has wrecked considerable more havoc than crypto companies. Actually, the impact of these exchange crashes are completely negligible compared to the financial crisis ~2007.

Be honest with yourself, do you really believe every single crypto company acts without integrity and ethics? If so, it's clear you haven't familiarized yourself with the whole industry. Plenty of crypto companies have strong controls around security, consumer protection, compliance, etc.

Wasn't that what people said about FTX before now, too?