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Comment by RestlessMind | Hacker News Reader

I like reasoned critiques of crypto. Heck, I think many crypto actors are scammers and should be punished. However, a lot of crypto is legit and this piece reeks of bias. Some examples:

- comparison with heroin - wtf? To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin. What message is SEC trying to deliver? That holding Bitcoin via futures-based ETF is okay but crypto itself is scam? Kafka couldn't have invented a better plot

- scare quotes when saying “tyrannical” Gary Gensler - tyrannical is an apt description of Gary. See the previous point about kafkaesque treatment. Also see the congressional testimony where the dude didn't even have a clear answer about the status of Ethereum, which is bigger in market cap than 90% of S&P500. Talk about protecting American consumers!

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> To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin.

So uh, you know you just described the opioid crisis in a nutshell right?

Modern opioid painkillers are in fact generally if not entirely accurately, 'heroin based products.' Not just that, prior to the Narcotics Tax Act of 1914 it was kind of a free-for-all, Bayer was selling heroin too! Opium was used to settle fussy babies (note, I'm sure it was very effective). [1] They were approved by the FDA. Then, of course, the FDA went after the makers of these drugs and tightened access to the drugs themselves.

[edit] If I were to offer a generous interpretation of the actions of the SEC, it would be that they didn't want to be seen as killing innovation in the crib. They gave crypto latitude, and then they decided they really didn't like what they saw. It's kind of a 'damned if you do, damned if you don't' thing - you either kill it early and get reamed for that, or you let it fester and get blamed for ever having allowed it at all.

[1] https://gizmodo.com/when-opium-was-for-newborns-and-bayer-so...

I hate to do this but I don't want people to read your comment and make that their understanding of history:

The FDA did not exist until 1930. Even if you count the predecessor agencies they did not 'approve' drugs. They were tasked with fraud prevention (selling things that weren't what they claimed to be) and safety in the sense that the product wasn't poison, but not with ensuring that the thing it claimed to be was actually safe. The legislation which gave the FDA authority to restrict drugs to prescription use and require safety and efficacy approval was the Federal Food, Drug, and Cosmetic Act which was passed in 1938.

It is certainly unclear what I meant when I said "they were approved by the FDA" - I was referring to 'modern opioid painkillers' - medications like oxycodone and fentanyl [1], not heroin. Those enjoy FDA approval to this day. Heroin, as a schedule I is not recognized as having any medical use.

[1] https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?ev...

> Opium was used to settle fussy babies (note, I'm sure it was very effective)

In central/eastern Europe, there was historically brew/tea being done from poppy heads, to calm down babies. Generally poppy growing is very much allowed in places like Slovakia and Czech republic and part of many cakes and pastries, and nobody thought about doing opium/heroin out of it.

But go over the border to Poland and its all banned, just like most of Europe, for obvious reasons. Imagine raising a really fussy kid as opium addict in medieval ages...

Huh, TIL. Looked it up and they loosened up the regulations last year to permit growing poppies for personal use. It's bizzare given that poppy seeds are a very common ingredient in our cakes and pastries.

I think you're dangerously conflating opium and poppy just like people sometimes conflate cannabis and hemp.

I can't speak for all of Europe but here's how it works in Germany: Poppies aren't banned, poppies that can be used to produce opioids ("opium poppies") are. Likewise hemp isn't banned in most of Europe, hemp that has a high THC content is. Actually hemp is more strictly controlled (e.g. you need a license to grow hemp at all and high THC hemp is banned outright) whereas you'll find poppies grow by the wayside or sold at florists - unthinkable for hemp. In Germany (like Poland) poppy seeds are also a staple for bread and sweet pastries, so you'll find them in the baking section of most supermarkets (tho they're likely no good for growing).

Also a fun fact: poppy seeds can set off drug tests so if you know you are going to take one, it's recommended you don't eat anything with poppy seeds in it and if you did, you're supposed to inform the person performing the test because it will skew the results. There are trace amounts of opium in regular poppies even though it's not enough to use them to produce actual opium.

Anecdotally, my grandmother told me that when she was a child it was considered normal to douse a knotted rag in hard liquor and let fussy babies suckle on that.

Gripe Water[1] used to be Quite Alcohol: "For a 4kg infant, the maximum recommended dose of Woodward's gripe water (3.6% alcohol) would be the equivalent of almost five tots of whisky in an 80kg adult."

[1] https://journals.sagepub.com/doi/pdf/10.1177/014107680009300...

No, it was definitely Papaver somniferum, opium poppy. Nobody was regulating markets in any way back when I was growing up behind iron curtain, heroin (same with all other modern drugs bar alcohol and nicotine) was literally unheard of. I had to explain to my parents what cannabis is (and grandpa thought I was growing hemp in my youth to make some clothing or backpack).

We had maybe 30kg bag of dried poppy seeds for the winter, same as my grandparents and other friends and family, you can imagine how big the fields were. We used some of the seeds to plant next season, and this continued for decades within families, nobody was buying seeds back then.

People were not so desperate to get high and escape reality, alcohol was enough. Probably the only advantage to life in communism, that and lack of organized crime.

You can make poppy seed tea with unwashed poppy seeds. From experience, you even used to be able to buy unwashed poppy seeds from Amazon in the UK.

It's incredibly addicting and even harder to quit than heroin, because there are many alkaloids present in the tea, all with different half-lives and strengths.

All you'd do is pour some seeds into a bottle, add some citric acid, add some strong-tasting liquid to cover the taste, then shake the whole thing, strain out the seeds and drink the result.

I'd like to add that doing this is very risky, because it can be quite hard to know how strong the tea ends up being, and so it's easy to take too much. And poppy seed tea absorbs a lot faster than you might expect too. I had friends who were "seasoned" opioid users who supposedly knew what they were doing, who OD'd and died from poppy seed tea.

I agree that you have an excellent point in relation to the thread ancestor, but to refocus the debate on the actual matter at hand:

A key difference being that opioids have a very real potential to cause massive, undeniable and observable harm to casual users (like all mind altering drugs including alcohol).

Crypto means that people can trade without having the regulators whitelist all the transactions. Historically speaking, that would appear to be an extremely positive thing for the traders. There are worrying signs about that we are about to repeat the 1920s, 1930s then the 1940s - this is a great time to start working with government-independent money. The Canadian trucker incident alone is a nasty foreshadowing of what we are likely to see more of as energy availability tightens. The government is not governed by compromising liberty-minded types.

The illegal uses of crypto aren't going away, so we may as well make it easy for all the honest people to use it.

And there are people who think that consuming energy is in itself a bad thing. I wonder how they feel about people voluntarily taking holidays, which are a much bigger waste of energy. At some point we have to let people make their own choices about what they value without trying to second guess them based on personal opinions.

> There are worrying signs about that we are about to repeat the 1920s, 1930s then the 1940s

The rest of this comment was not where I thought you'd go with this. You realize the creation of the SEC was a direct result of the stock market crash in 1929 ,due mainly to people's life savings being invested by commercial banks without regards for the underlying economics of the investments, exactly what the SEC is trying to prevent happening with crypto (by regulating it under the same doctrine)

I mean, so? Crypto isn't an investment. I haven't heard a plausible theory why its value would increase over time. It'll be lucky if the equilibrium position is value holding steady.

“not an investment” is an interesting way to describe financial instruments that are being marketed as investment vehicles.

These are not magic words; repeating them does not make one immune from regulation/prosecution.

Crypto is an asset with no yield and a maintenance cost in keeping the network running. That doesn't sound like a very promising investment. If any asset counts an an investment then sure, it is that. But it isn't going to be a money maker.

Over time it is probably going to behave more like savings. The price looks like it might be stabilising with respect to gold which is an interesting thing [0].

[0] https://www.longtermtrends.net/bitcoin-vs-gold/

Sorry, so the key difference is that opioids have the potential to be useful or harmful, and so should be regulated, while crypto has the potential to be useful or harmful, and so should not be regulated?

> comparison with heroin - wtf? To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin

You’re describing regulated opiates versus street heroin. That is the point. Nobody thinks street heroin distributors can reasonably be shocked they’re breaking the law just because pharmacists distribute similar products.

Expressing good arguments forcefully isn’t irrational. The comparison to heroin distribution is an argument ad absurdum showing why Coinbase’s arguments aren’t novel. The rhetoric would not be a structurally different argument if it were instead about jumbo jets or vodka.

> the dude didn't even have a clear answer about the status of Ethereum

Is he required to? The SEC isn’t doing anything to suggest it claims jurisdiction over Ethereum. (It’s also not at his discretion.)

> Is he required to?

Not knowing the answer to the most obvious question is mildly embarrassing, to say the least. It's clear that he didn't do his due diligence and jeopardized the SEC competency and integrity. His very clear conflict of interests with FTX (i.e. Sam) and Binance (where he was refused a position some years ago) were already not really helping.

And yeah, not knowing the most obvious answer just begs a simple question: how shall all these crypto exchanges have known (better than the SEC) that A, B or C are a commodity but D or E aren't? Please...

Crypto will prevail, Gary is just a bump in the road. The question is how much more damage he is going to cause to the US before he is removed, while the world is watching China toying with Ethereum having issued yesterday tokenized notes on that blockchain.

> Not knowing the answer to the most obvious question is mildly embarrassing, to say the least

Whether Ethereum is a security is far from obvious. Had Gensler acted like it was, he would have lost credibility. In any case, it's irrelevant to Coinbase, who weren't charged in relation to their Bitcoin or Ether trading.

> how shall all these crypto exchanges have known (better than the SEC) that A, B or C are a commodity but D or E aren't

The SEC released The DAO Report in 2017 laying out a framework [1]. This is when crypto's lobbying stepped up; the status quo was clear. They wanted a different one.

> while the world is watching China toying with Ethereum

China has banned crypto since 2021 [2]. BOCI's $30mm placement in Hong Kong through UBS is interesting, but far from a belwether [3]. (UBS Tokenize has been selling digital assets to wealth management clients in Hong Kong and Singapore for a while.)

[1] https://www.sec.gov/litigation/investreport/34-81207.pdf

[2] https://www.bbc.com/news/technology-58678907

[3] https://www.ubs.com/global/en/media/display-page-ndp/en-2023...

> The SEC isn’t doing anything to suggest it claims jurisdiction over Ethereum. (It’s also not at his discretion.)

That's the thing - they are not clarifying whether they have jurisdiction or not. And then you have to play the guessing game, with CFTC also chiming in about their preferences.

This is the cost of operating business in a grey area. Nobody put a gun to Coinbase's head and forced them to open up shop and get stupidly rich.

If you are running a sketchy business, you better have a team of lawyers going through case law and sketching up a theory of law that is defensible in court. Instead, it looks like Coinbase disliked the answer lawyers gave them, and went for the PR strategy instead. If Coinbase honestly thought they were on the right side of the law, they wouldn't be begging the public to vote for different people.

I suspect that Gensler was obfuscating intentionally when asked about cryptocurrency. Modern regulators seem to prefer retrospective punishment over prospective advice and regulation.

It seems like a massive regulatory failure to let Coinbase IPO if there are the sort of glaring issues they claim. Coinbase has a market cap of around $10 billion, and is owned by retail investors as part of standard index funds. If it goes to zero tomorrow because of the SEC, that is billions of dollars in losses that could have been avoided by more responsible regulatory behavior. Meanwhile insiders will have cashed in through salary, stock sales, etc.

Here is Coinbase's S1 - https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/699359d...

And the S1A https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/c947576...

In particular:

> Bitcoin sparked a revolution by proving the ability to create digital scarcity: a unique and finite digital asset whose ownership could be proven with certainty. This innovation laid the foundation for an open financial system. Today, all forms of value – from those natively created online such as in-game digital goods to traditional securities like equities and bonds – can be represented digitally, as crypto assets. Like the bits of data that power the internet, these crypto assets can be dynamically transmitted, stored, and programmed to serve the needs of an increasingly digital and globally interconnected economy.

> Today, we enable customers around the world to store their savings in a wide range of crypto assets, including Bitcoin and USD Coin, and to instantly transfer value globally with the tap of a finger on a smartphone. We provide companies with new ways to transact, incentivize, and reward their users, from offering compounding rewards on savings that pay out by the second to compensating users for virtually completing tasks through global micropayments.

The claim is that they're selling assets and traditional securities that are represented digitally.

And they acknowledge the risks of future regulation:

> • We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition.

> ...

> • A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected.

The 'i's are dotted and the 't's are crossed. Is the SEC to evaluate those future possibilities that the assets they claim (in addition to Bitcoin) may be considered securities? Coinbase said its a risk and, well, yep - it is.

> It seems like a massive regulatory failure to let Coinbase IPO if there are the sort of glaring issues they claim

Did you read the article? Specifically the part where it explains why the SEC does not evaluate the business models of companies?

I did... the article lists several examples with the claim that the SEC cannot be expected to understand every business under the sun before approving a public sale, completely ignoring the fact that in this case, knowing if a company is operating as an unregistered securities exchange is their supposed expertise and reason to exist.

Did you read it?

Do you think that if the SEC thinks that Coinbase is operating some sort of unregulated securities exchange, that they should bring some sort of enforcement action?

Also do you think that if Coinbase admitted that the SEC might take adverse regulatory action in the S1, should anyone be surprised when the SEC actually does?

Yes, but I think first, they ought to tell us what their criteria is in no uncertain terms.

Sorry but law enforcement entities do not have a mandate for, nor are they required to, tell you specifically whether an act is expressly legal or illegal if you ask them.

Call a police department and ask them if you are allowed to bury your recently deceased relative on your property. They will tell you to get a lawyer. If they feel like arresting you for illegal disposal of human remains you can't use the defense 'but I asked them and they wouldn't tell me'.

Come on. The SEC is also a regulatory agency. Your police department isn’t.

This changes what, exactly? Are you suggesting that the government act as a free lawyer to everyone asking?

Example: 'Would it be fraud if I bought an Amazon gift card with my credit card and sold it for cash since that would be a cash advance but it went through as a regular purchase?'

Would you expect that the FTC answer that question for you in a binding way?

In a rational world I would absolutely expect the authorities that bind me to answer basic questions about following the rules.

You want to hand judicial authority to regulatory agencies?

I don't think I said that. You seem to be setting up a(nother) false dichotomy here as if there can only be one end of the spectrum or the other, with no grey area or nuance in-between.

What is a grey area for 'makes a binding ruling regarding interpretation of law'?

I'm sorry, but I'm not willing to answer that for you in a binding way.

I love it when people refuse to follow the logical conclusion of their own argument and then act like they are being clever when they stonewall with that logical conclusion without realizing what they just did.

You have fallen into the trap of thinking that government bodies tasked with such things should be providing you a customer service -- but they are providing society with a customer service and you are treated as a road would be treated by the government, not as a driver would be treated.

Note: by 'you' I mean if you were in the position of a regulated entity.

I think there is a very important difference here, specifically that the police department is not going around deciding what is and isn't legal but the SEC is deciding what is and isn't a security.

The police department absolutely exercise discretion over what they choose to arrest people for and what they don't.

The SEC is not deciding what is legal or not, they're deciding whether or not to bring an enforcement action. The court decides if that is legal.

IDK, you can ask polish tax authority for a individual interpretation of law and it's binding in court.

The US IRS also has this; a “Private Letter Ruling”. https://www.irs.gov/newsroom/understanding-irs-guidance-a-br...

But they have, repeatedly, haven't they? Crypto coins except for Bitcoin are securities, and must be treated as such. Any business allowing for their trade must behave like any other securities trade business.

They haven't said that all coins other than Bitcoin are securities. They've said that most coins are securities, and former SEC members have said that Eth isn't a security, but the current SEC isn't commenting on Eth at all.

They have muddied the waters with their public comments.

Hopefully these lawsuits will provide better clarity or we'll have to wait on pending legislation to provide clarity on how the US views decentralized asset classification.

"If the SEC was in the business of making merit-based judgments on companies before they IPOed, they would need to somehow have expertise in everything from industrial filtration to financial management to projection technology to biotech to the manufacture of skincare products, bandages, and mouthwash. It’s simply not feasible, much less desirable."

Yeah that part doesn't make sense. A "merit-based judgement" that requires that kind of expertise is obviously not what is being asked for! The request is for them to look at [sufficiently big] securities [or possibly-securities], in the exact same way they would look at them post-IPO, using their normal realm of expertise.

It's perfectly reasonable that the Coinbase S1 doesn't include any descriptions of activities that are illegal, and for Coinbase to subsequently start doing illegal things. They even list this risk in the S1!

The SEC saying your S1 and IPO offering is probably kosher isn't a carte blanche to then do whatever you want without continued regulatory oversight.

> It's perfectly reasonable that the Coinbase S1 doesn't include any descriptions of activities that are illegal, and for Coinbase to subsequently start doing illegal things. They even list this risk in the S1!

It's also possible for the Coinbase S1 to contain descriptions of things that are currently not known to be illegal, and which subsequently become illegal, without any changes on Coinbase's part.

They also list this risk in the S1 as well!

Their job is to make sure that the IPO document discloses everything material so that investors can make an informed decision. That’s it.

In this case they would’ve been content with the disclosure that the entire business was at risk of being regulated, which is what’s happening here.

One of their jobs is to protect consumers from unregulated securities.

The earlier they act, the better, and right before IPO is the most impactful time they could intervene.

> In this case they would’ve been content with the disclosure that the entire business was at risk of being regulated

They don't have to do it, but they could make that risk disappear and it would be very good if they did so. So I wish they did have to make those decisions, unless there's some huge downside.

It seems to me that regulators who are power motivated have more to gain by not saying what can and cannot be done and instead implying that you're breaking the law and using that as leverage over you.

I mean he was chumming up FTX before it imploded. He seems personally butthurt about crypto for some reason. He’s contradicting himself on statements just a few years ago. He has the maturity of a child, playing games.

What does SBF have to do with any of that?

> Modern regulators seem to prefer retrospective punishment over prospective advice and regulation.

In most cases that’s what you want. The Communications Decency Act was written way too early and most of it was struck down, except the important section 230. When the Food, Drug and Cosmetic Act was revised in 1962 a huge swath of previously approved drugs of longstanding experience (e.g. aspirin) were grandparented.

Most cases. Nuclear reactors are a good counter example.

I consider cryptocurrency mathematically interesting but otherwise arrant nonsense. Nevertheless I think the “wait and see” regulatory approach, while frustrating, was the right one: don’t stop it (so people can innovate) but don’t provide the protection of widow-and-orphan rules until it has had time to develop. After all, perhaps there is a pony in there, and early regulation could have strangled it.

I think there's a reasonableiddle ground and that the SEC waited far too long to take a stance. Allowing companies like Block One, Solana, and IOHK to start up and offer highly-centralized "crypto" assets to US consumers put those consumers at risk of "highly volatile crypto" + centralized control.

The SEC did the right thing when suing Ripple, but they've missed opportunities to go after bad actors who were misrepresenting their product as a decentralized network, and now retail investors will be the one who lose.

In my opinion, they've failed to act in a reasonable time frame and their inability to do their job will end up hurting common people in the US. I'd like to see Gary Genslar held accountable for his mistake. It's not like he is ignorant around crypto assets and he even evangelised his friends blockchain network to his students when he was teaching at MIT.

> Modern regulators seem to prefer retrospective punishment over prospective advice and regulation.

The pertinent laws have been in force since 1933 and 1934, and the Howey Test since 1946. I'd call that regulation prospective enough. Not the SEC's fault that Coinbase preferred wishful thinking (I mean, it sort of worked for Uber).

> However, a lot of crypto is legit and this piece reeks of bias.

Reminds me of the fortune teller admitting that most fortune tellers are scammers, you just have to go to the legit ones.

They are not 'scare quotes' because it is a literal quote of Rep. Warren Davidson. One of the people who introduced the act the paragraph is talking about. It helps explain the purpose of the act and the position the people who wrote it in their own words.

Provide some evidence, any evidence, of your allegations of tyranny.

Just because he's being mean to crypto doesn't make him tyrannical.

Example: regulation by enforcement.

What he should have done: clarified upfront the status of Crypto tokens, like "X, Y, Z are commodities. A, B, C are securities" etc. And then offer a path to register those securities so that Coinbases of the world can start offering them properly.

What he did: sued Coinbase for trading 10-11 tokens as unregistered securities. And good players still don't know how to register Crypto tokens with SEC as securities.

I'm not sure of the legal framework around securities in the US, but I imagine, when a novel financial instrument is being traded, the regulations work along the lines of "Here's the law. We expect you to use it to decide if this instrument is a security or not, and if it is, well, comply. And if you decide it's not, please have a really good argument."

Like when you're filing a tax return, you decide if something's deductible or not, based on the tax code, and if you get it wrong, then the Government unleashes pain on you. But they're not holding your hand.

It makes sense to me that the people with the most to gain from a novel financial instrument should be the ones who determine if it's legal, and explain why it's legal.

And if you don't have legal certainty about the status of token X... ...don't trade it.

The exchanges took the risk, made some good (fiat) coin doing so, and now they're finding out they were wrong.

And tbh I'm not sure there's an path to registering the many tokens that function as effective Ponzi schemes, because they're illegal.

Don't get me wrong, I think that the SEC was asleep at the wheel for years on this, but I can't see how that justifies being outraged when the regulator eventually pulls thumb. They made a lot of money while the regulators were napping.

And yeah, still don't see this as tyranny tbh.

The analogy was about Binance's desire to be a broker, exchange and clearinghouse at the same time, something the SEC is specifically tasked to prevent (as far as I understood it). That doesn't have to do anything with the Blockchain technology in general - and it seems reasonable to me that if Coinbase conflates those two things, they are trying to muddy the waters, nothing more.

A more specific analogy might go like this: Imagine some awesome new biotech startup that develops a completely new method to interact with cells - activate cellular receptors through long-distance quantum tunneling and gravitational nanolensing or whatever. Then it packages that tech into small, consumer-friendly devices which are programmed to activate a specific metabolic pathway in the wearer's brain: As it happens, that pathway is the exact same that is activated through heroin. Then they sell those devices to the general public without any restrictions.

One day, the FDA knocks on the door and says "hey guys, your tech is cool and all and we're sure it can trigger all kinds of amazing medical breakthroughs - but right now, you're using it as heroin with extra steps. And selling hard drugs for recreational use is forbidden."

To which the startup guys might reply "oh no no no mister, we're not in the business of making drugs, we're actually a long-distance quantum tunneling/gravitational nanolensing company. You see, this is such a new field and fundamentally incomparable with anything that came before it that, unfortunately, there are no laws yet that we would fall under. However, we absolutely do see the need for regulation, and we're willing to work with you and together arrive at a sensible set of guidelines that won't stifle the immense potential for innovation of that field..."

At which point the FDA guy would probably tell them to cut their bullshit and the startup might respond with some long rant about how a tyrannical FDA literally suffocates American innovators or something.

> reasoned critiques > bias

It’s a piece by Molly White, temper your expectations lol, she’s rabidly against cryptocurrency in pretty much any format ever full stop.

Molly White is being dishonest (misguided?) here, but this is typical of her work.

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