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Comment by Animats | Hacker News Reader

Here's the list of SEC crypto enforcement actions.[1] They start about two or three cases a month. 30 cases so far this year. At first, they focused on the out and out scams. Then, they shut down the ICO industry by sending out letters asking why each ICO wasn't registered as a security. Then they went after some of the NFT guys. They went after some paid influencers. Now they're going after the bigger exchanges. Plus, along the way, the usual out and out scams: "fraud for misappropriating at least $12 million of offering proceeds to purchase luxury goods including sports cars, watches, and a 555-carat black diamond..."

The SEC's position is simple: the same rules apply to crypto as to other financial products. After FTX, nobody is seriously opposing that any more. The "crypto is special" argument is dead. The scams are not even original - the scams are Ponzi schemes, pump and dump, front-running, insider trading, and just plain stealing customer assets. All of those were known before 1900. The crypto crowd isn't really that innovative.

[1] https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...

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Nothing soured my (already negative) opinion of Crypto as much as regular conversations with a Crypto VC. Every time we spoke they were either sceptical or very excited about something that, to me, was obviously a trivial example of 1 or more classic scams. Whether or not they were excited about it didn't seem to track with the scamminess.

That’s sort of general problem with people regardless of industry who’ve drunk the startup coolaid … wrong way around, let’s say. The point of innovation is not to reinvent the wheel. Saying you are startuppy does not excuse you from actually learning about the field. One could even radically propose knowledge of field helps to find innovations. What one should avoid is saying ’no’ just because such a thing does not exist yet. If the thing exists, has a name like ’Big Bad Mistake’, you should at least acknowledge it. (Yeah yeah, rockets were impossible and Musk beat them but that happened via respect of existing art and extending it, not completely ignoring it).

When I did my second startup and first to get proper VC funding, we were young and stupid and got talked into changing strategy because the VC, while not going for an actual scam, was very clearly thinking we could win a game of musical chairs that necessarily would end badly - this was a the height of the dot-com boom, and they wanted us to chase signups over revenue because per-user valuations were way out of whack with what there was any reasonable hope of earning from users who had signed up for a free service.

Their hope was we could exit before the music stopped (we didn't; we survived, barely, thanks to mostly sheer luck of having closed our B-round weeks before the bubble burst, and managed to pivot and survive with massive cuts). We still hoped we could make it profitable without that, but there was no way we could generate enough revenue to justify the exit we were hoping for, but the proportion of our budget that went to marketing certainly made achieving profitability much harder.

Which is to say that VC's often chase very high-risk ways of getting growth even in cases where they know it's just a question of time before valuations will collapse, because most of them are in the business of producing returns, not sustainable companies, and many of them are "dumb money". It's a tough business. I spend a few years in one, analysing the track records of other funds among other things, and I saw so much stupidity in that dataset.

> Which is to say that VC's often chase very high-risk ways of getting growth even in cases where they know it's just a question of time before valuations will collapse, because most of them are in the business of producing returns, not sustainable companies, and many of them are "dumb money". It's a tough business. I spend a few years in one, analysing the track records of other funds among other things, and I saw so much stupidity in that dataset.

This is a highly logical approach by VCs simply due to their business model of only needing one hit out of hundreds to make a positive return. Reading a recent article called Why You Shouldn't Join YC [0] was quite illuminating with regards to this fact. It is the ergodicity that kills most startups, which is exactly what VCs capitalize on. Personally, most of the counterarguments in the HN thread do not move me, of course a startup might pivot but they need not do it based on the VCs' insistence.

[0] https://news.ycombinator.com/item?id=37869760

What soured my opinion was everyone and their dog trying to explain to me how they were going to get rich with bitcoin and NFTs.

And this was when I was actively employed developing crypto finance instruments! Like, I have warned people not to buy the thing I have built because they did not understand it.

It is/was a great playground for modeling different instruments imo, but people don't want to treat it like the back alley casino it is.

> The SEC's position is simple: the same rules apply to crypto as to other financial products.

If you only reference the SEC's own press releases, you are going to miss the nuance here.

The SEC on its own doesn't get to decide when and how existing securities law applies to cryptocurrencies. Absent a settlement, any action undertaken by the SEC must be decided by a federal court.

Importantly, the SEC has been losing in court. For instance, the SEC, which had been blocking a spot Bitcoin ETF, was told in unequivocal terms by the DC Court of Appeals that its reasons for not allowing the ETF to issue were completely unsound. More pertinent to the question of enforcement: another federal court recently found that exchange-traded Ripple XRP tokens are not securities, with the implication that the SEC does not have jurisdiction to regulate the trading of Ripple XRP tokens on exchanges. If you extrapolate this finding to other cryptocurrencies, the SEC cases against Kraken and Coinbase are on shaky ground.

The fact that the SEC can list so many victories on its website is more a function of how costly it is to fight the SEC in court, rather than being a function of whether the SEC is right in all of its assertions.

There have been too many cases of fraud in the crypto industry, and it's good that the SEC has pursued enforcement against them. There are cases, however, where SEC has gone too far, and continues to go too far—especially in light of the fact that the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities.

Now that the SEC is going after larger players, we are starting so see more cases actually go to court. If the trend continues, one or more of these cases will end up before the Supreme Court, and we will find out what the actual law is in the United States with regards to which crypto tokens are securities and which ones are not, and whether the SEC does in fact have any jurisdiction at all over the crypto exchanges.

You should not be surprised if after everything is said and done—after we have a Supreme Court opinion—crypto is in fact a special case under US securities law, at least with regards to some tokens.

You should also not be surprised if some of the cases in the list that you reference lose their legal support once the law is clarified by the Supreme Court. In hindsight, some of these SEC enforcement actions may be seen as unfair and unjust.

> the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities.

Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value"

It's not the responsible of enforcement agencies to educate people as to what crimes are. This is like pleading ignorance.

> Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value"

Is that your own definition? Luckily, the SEC is constrained by laws passed by Congress and by Supreme Court precedent—both of which run counter to your definition—and doesn't have the same flexibility that ordinary citizens do when articulating policy.

OK:

(1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

OK, so how, under this definition, does Ethereum qualify as a security? XRP?

Based on the definition of an investment contract by the Howey test in cases of secondary sale?

By answering in the form of a question you seem to be implying that the answer is obvious.

But the judge in the SEC v. Ripple case found that exchange-traded XRP tokens are not securities; even if you think she is wrong, the fact that she disagrees with the SEC (and with you) is evidence that the answer is in fact not obvious.

With regards to whether Ethereum is a security, even the SEC is unsure. When asked under oath before Congress, the SEC Chair has repeatedly refused to give a direct answer. The commission has also avoided naming Ethereum as a security in any of its crypto exchange lawsuits, while it does name direct Ethereum competitors. If it were obviously a security, why would they name other tokens but not Ethereum?

And what about Bitcoin? The SEC has said unequivocally that it is not a security, but they refuse to say what specifically distinguishes Bitcoin from other tokens. Bitcoin cannot be one-of-a-kind in this regard—what would it take for another token to fall in the same category as Bitcoin?

Clearly, some tokens are not securities! If you cannot specify clear criteria to distinguish between security tokens and non-security tokens, you don't have a valid definition.

That’s actually not exactly what the decision in the Ripple case says: it says that certain types of transactions are not securities transactions, but some are. On the balance, the decision is probably reasonably regarded as a loss for the SEC I agree.

The uncertainty about how legislation should be interpreted in the case of novel facts is a fundamental aspect of the business of law and the courts and is not special to cryptocurrency; nor does it indicate special victimization of cryptocurrency practitioners.

When do facts stop being novel? There are hundreds of millions of crypto users worldwide, and more than a trillion dollars in value at stake. Cryptocurrencies have been around for more than a decade, and only in the past few years has the SEC begun to assert broad authority across the whole category.

Whether or not the crypto industry is victimized or not has nothing to do with my point, which is simply that the SEC has avoided clarifying the difference between security tokens and non-security tokens, while at the same time undertaking aggressive enforcement actions that depend entirely on where that line is drawn. I imagine that you and I agree on this?

> That’s actually not exactly what the decision in the Ripple case says: it says that certain types of transactions are not securities transactions, but some are.

Thank you for pointing that out. I added the qualifier exchange traded when referring to XRP in an attempt to highlight that distinction, but my terminology was imprecise.

As you note, the court identified the transaction as the proper level of analysis, and found that whether or not participants entered into an investment contract depended on the nature of the transaction, not the token.

Implicit in this mode of analysis is that the XRP token is never itself a security; rather, securities laws are implicated when the XRP token is part of an investment contract, where the investment contract is itself a security, but the underlying asset is not.

A court has already ruled that XRP does not pass the howey test. If it is an investment contract, who are the parties to the contract?

Way, way too broad. Even arcade machine coins or gambling chips fall under that definition. Do you expect everyone who operates an arcade or casino to seek SEC approval?

Where did you get that definition? It seems to be trivially false because it includes all sorts of classic non-security commodity contracts like corn, oil, etc. And stocks are not negotiable yet they are securities, so the definition seems to fail on that front too.

Imo completely valid for the SEC to file lawsuits for a broad spectrum. All of this crypto stuff is a point where both "knowns" and "unknowns" regarding law interpretations/rules meet.

So essentially them losing sometimes makes it clearer what is allowed, whether the SEC is actually responsible or not.

Does it have to go to SCOTUS for the powerful precedent to be set?

I would imagine the SEC will be keen to avoid a country-wide precedent should they lose in district courts.

Excellent comment btw. It’s the 201-level analysis vs the 101 that we see in the media of SEC shutting down crypto etc

> the SEC refuses to set forth clear criteria as to which crypto tokens it considers securities, and which crypto tokens it does not consider securities

This is a PR soundbite. Coinbase has milked this one quite extensively. "Woe is us, we're trying to do the right thing but the SEC won't tell us what to do!"

It's not actually accurate.

And when the people responsible for writing become Coinbase's lawyers, not their marketing team, and the rubber hits the road in court, Coinbase says no such thing. This is the actual crux of their complaint, in their own words:

> for many tokens, registering is not possible due to effort involved, or not economically viable.

Coinbase doesn't like the cost of having to register securities for the shitcoin du jour - there's no money to be made.

But the SEC isn't obligated to make a profitable business model for Coinbase.

But it sounds far better to get the crypto club and libertarians up in arms about unhelpful government organizations.

Where has the SEC stated whether they consider the second largest cryptocurrency, Ethereum, to be a security or not (and thus under their jurisdiction or not)?

If "missing criteria" is nothing but a PR soundbite, perhaps I missed where the SEC shared that criteria.

The last I recall is that the SEC considered all crypto to be a security. And Coinbase is absolutely aware of it. In fact, in the previous sentences to my quote, in their court filing, they are aware, but disagree:

> We disagree that the majority of digital assets are securities.

And you seem to miss my point.

Not once in Coinbase's lawsuit did they actually say "We'd love to comply, we just don't know how to".

In fact what they did say was that they knew how to comply, "but the cost and effort makes it not profitable for us".

But because of their PR everyone is latching on to this spin of "we'd love to follow regulation, but we don't know how and no-one will tell us!"

So why didn't they say that in court?

> The last I recall is that the SEC considered all crypto to be a security.

That's not true. "US regulators including the SEC agree that Bitcoin, which is by far the largest digital asset, isn't a security."

https://www.washingtonpost.com/business/2023/06/09/why-crypt...

The big unanswered question is whether they consider Ethereum to be one.

> Not once in Coinbase's lawsuit did they actually say "We'd love to comply, we just don't know how to".

They seem to say that pretty explicitly on Page 14 of their Wells submission.

https://assets.ctfassets.net/c5bd0wqjc7v0/2pW56ln6rPJ7koLHlu...

> In fact what they did say was that they knew how to comply, "but the cost and effort makes it not profitable for us".

I don't see anywhere where they said that.

> So why didn't they say that in court?

They did say that in court.

"For years, Coinbase has voluntarily submitted to regulation by multiple overlapping regulatory bodies, has adhered to the public and limited formal guidance from the SEC, senior SEC Staff, and the courts about the application of securities law to its industry, and has begged the SEC for guidance about how it thinks the federal securities laws map onto the digital asset industry as the SEC’s actions reflected an escalating but undisclosed change in its own view of its authority."

https://storage.courtlistener.com/recap/gov.uscourts.nysd.59...

The SEC does not consider Bitcoin to be a security because there is no issuer. Etherium is currently a maybe because of the change to proof of stake. Miners are competitors, but stakers all want the price to go up. So there's a common enterprise.

Let's be realistic here: The US supreme court always tells us what the law is, every time, regardless of how clear the law's writing is, and how the court had rules in the past. The same can happen in lower courts, as federal circuits come back with head-scratching rulings whenever it suits the judge's aesthetic preferences. Judge shopping is quite popular in expensive cases for good reasons.

So we shouldn't be surprised when anything changes, ever, given how much activism we are seeing in courts today. So the question is, how much do the people that actually decide what a law means really like cryptocurrencies? I suspect the only good chance most of those companies have is rely on the court's dislike for government agencies, regardless of what laws say. But as far as I am aware, the good friends of the court tend to be very involved in old banking, and thus they aren't fond of crypto companies either.

So maybe those companies should start lobbying Harlan Crow and his circle of friends.

The SEC doesn't set the legal standard for what is or is not a security. The courts do, based on the statutes passed by Congress.

Here's a guide they published: https://www.sec.gov/corpfin/framework-investment-contract-an... It summarizes the law.

The SEC obviously will not be publishing a release saying it won't enforce the law according to criteria written to suit cryptocurrency promoters. Its key public mission is investor protection.

The SEC's public mission also includes maintaining fair, orderly, and efficient markets, and facilitating capital formation. Both would be well served by an explanation as to how the SEC distinguishes between security tokens and non-security tokens.

Did you read the guide I linked to above? From its first paragraph:

> In this guidance, we provide a framework for analyzing whether a digital asset has the characteristics of one particular type of security – an "investment contract."[4] Both the Commission and the federal courts frequently use the "investment contract" analysis to determine whether unique or novel instruments or arrangements, such as digital assets, are securities subject to the federal securities laws.

I am quite aware of what the document says. It's just that it hasn't been updated since April 2019, and today more clarity is needed.

https://news.ycombinator.com/item?id=38414770

> another federal court recently found that exchange-traded Ripple XRP tokens are not securities

You mean this case?[1]

No, that's not what the court decided. The setup with Ripple was that institutional investors bought tokens directly from Ripple, and then resold them on an open market. The court ruled that resale of the tokens on the open market did not violate the Howey test because Ripple was not a party to that transaction. But the initial sale to institutional investors is still being litigated. Whether the resale by the institutional investors is a regulated event hasn't been litigated yet.

So this is a token-laundering scheme that may have worked. Or not; the remaining parts of the case go to trial on April 23, 2024.

[1] https://www.nysd.uscourts.gov/sites/default/files/2023-07/SE...

Did you read the document you linked to?

"...the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts"

It is not only third party sales that were deemed not to be investment contracts—it was all programmatic sales. As I said, the federal court found that exchange-traded Ripple XRP tokens are not securities.

Also, you should know that the SEC has dropped the remaining charges that were to be tried in April. The next step in the litigation is an appeal of the summary judgement.

"Fools, as it has long been said, are indeed separated, soon or eventually, from their money. So, alas, are those who, responding to a general mood of optimism, are captured by a sense of their own financial acumen. Thus it has been for centuries; thus in the long future it will also be." - John Kenneth Galbraith

Source: https://www.goodreads.com/quotes/10115990-fools-as-it-has-lo...

There are over 1.8 million crypto tokens. If the SEC is going to shut down the industry, they’ll need to at least start shutting down more projects per month than are starting up.

Where's the tax dollars to pay for this?

If the fines are high enough, seems like it could be self-financing.

Usually this kind of enforcement attempts to reimburse victims, or failing that, goes to general funds. Anything else is a moral hazard for enforcement (eg, USA local police confiscations)

Are you trying to say USA local police confiscations don’t exist at large scale?

No, I'm saying that they are an example of moral hazard.

Sure, but one that continues to exist after decades of being used no? It’s an example of folks not caring about that hazard and doing it anyway.

So? That doesn't mean the feds should do it too.

The local seizures are run under a Federal program. [https://www.justice.gov/afp/types-federal-forfeiture] [https://www.forfeiture.gov/]

That is why it is so prevalent everywhere in the US.

The feds use it too, extensively.

Okay - worse than I thought.

That's a fair point. From the point of view of the taxpayer, though, it's still a net positive.

According to the article:

To make this palatable to the American public, those whistleblower rewards are not courtesy of the taxpayer; they’re courtesy of money seized from previous Bond villains. A portion of Binance’s settlement(s) will go to pay the whistleblowers at the next Bond villain. It’s a circle of life.

> Where's the tax dollars to pay for this?

You're kidding right? The US government is one of the biggest holder of Bitcoin. They seized insane amount of Bitcoins. And the US is a country where capital gains are taxed. The US government is making a shitload of money when cryptocurrencies go up.

You cannot have it both ways: if you tax your citizens on their capital gains made on crypto, then you prosecute the scammers like SBF when they prey on US citizens.

I don't disagree, but you're arguing that the government gives a greater share of its tax receipts to the SEC. This is a question for Congress, not the agency. The usual assertion of "let's spend more money on x" results in the obvious question "instead of what?".

OP was suggesting that the SEC ramp up the rate of actions, which will need funding (at least, initially). I don't see Congress doing that?

The SEC is largely self-funded by fees on banks, no need for tax dollars.

A government mandated fee is an excise tax, they are essentially the same thing.

The SEC is largely self-funded via fees charged to financial institutions. Funding increased enforcement of crypto entities doesn’t have to require more tax revenue.

Do any of them reach even 1% of Binance's size? If crypto stays a bunch of niche projects that only enthusiasts invest in, isn't that the SEC's goal accomplished? I can't imagine they would care about a coin that doesn't attract either a lot of retail customers or big financial institutions.

Binance value comes from servicing those niche projects - it’s an exchange. As long as those niche projects exist, new projects will emerge to service demand. What will change is design; future exchanges will be less regulatable. Already dexes are waiting in the wings; UNI has been in a price uptrend due to these decisions.

A smarter strategy would be to do what the US Justice dept is doing; co-opt the biggest players, install plants, and cut down any upstarts. Government enforced monopolies have worked for hundreds of years as an effective way to control industries.

All of that's assuming that demand will continue. What this will do is remove crypto from the mainstream. And without paid celebrity endorsements, where will the new dumb money inflow come from? And if that dries up, how will the mining rigs pay their electricity bills?

A lot of people use crypto for utility, which is why it doesn’t go to zero in bear markets. Not everyone needs or wants crypto tokens, but those that do form the base of the ecosystem. You can call it dumb money if you want to be elitist, but it’s the same so called dumb as any consumer activity.

If you start an ICO, you are harmless until you get someone to buy into your token. For the SEC, you are harmless until you collect "millions" of dollars. Otherwise, you are just another one of these small scams that are happening all the time regardless of it using crypto or not.

Unless they do a complete and total eradication program, that will just create a selective environment for tokens that are able to avoid SEC fines. What you’re saying does seem to be the SEC strategy, and it is probably the profit maximizing strategy in the short term. It also requires the least effort; rule making that allowed for regular fee collection instead of sporadic ones might be profitable in the long term, but it would be a complex activity the SEC might not be capable of.

Crypto could have been special. Sadly it turned into stocks instead and people reinvented the entire financial system on top of it. I don't even mind their attempts to regulate this stuff anymore. Exchanges are literally banks.

They should stop just short of regulating the underlying cryptocurrencies themselves. Just treat these institutions like they're banks.

> Crypto could have been special. Sadly it turned into stocks

This is the libertarian version of "true communism has never been tried". Of course people wanted to reinvent the financial system, it was profitable to do so.

Not really. True cryptocurrencies were tried. They even work. Monero is the truest cryptocurrency, it's what bitcoin should have been since the beginning and it already works.

The tragedy is nobody's actually using it because everyone's too busy feeding their money into literal banks and speculating with it.

It's as much of a tragedy that people don't use Monero as people who go walking down the street and don't stop to look under every rock. They could do it, but not sure the point.

>The tragedy is nobody's actually using it because everyone's too busy feeding their money into literal banks and speculating with it.

To borrow a phrase: Nice idea, wrong species.

Once very large financial interests (those capable of destabilising international trade, funding transnational smuggling operations, or --gulp!-- financing war) are attracted to an opportunity, the game is way beyond the scope of inconsequential small-scale adopters. The latter will be wistful about their dashed hopes.

The libertarian ideology, like many others, is at best an extraordinarily naive interpretation of the individual and the world.

"Libertarians are like house cats: absolutely convinced of their fierce independence while utterly dependent on a system they don't appreciate or understand."

> They should stop just short of regulating the underlying cryptocurrencies themselves.

The problem with not regulating a currency at all, is that it implies a permission for someone to print it at will. Cryptocurrency is no exception to this scenario; you are asked to trust the developers (technocracy) and node operators (50%+1 attack and all the usual power dynamics of the rich having more say than the majority) to not do it. The most important question you must ask yourself is, how long will the interests of that elite continue to align with yours (if they ever did).

The dream of a decentralized, community-run, grassroots infrastructure died sometime around the first GPU PoC - Satoshi themselves expressed discontent, saying GPUs would trivially out-mine the common man.

Communities can self-regulate because they run on trust; it's extremely difficult to build trust in a system designed around distrusting every single one of your peers.

> The problem with not regulating a currency at all, is that it implies a permission for someone to print it at will.

Not a problem. This is determined by code in ways everyone can see and understand. It's actually better than governments printing money whenever they feel like it.

The economic impact of money printing is actually minimal. Most inflation is actually generated by fractional reserve banking and their loans which is already something exchanges do. BTC maxis don't seem to grasp this fact.

> you are asked to trust the developers (technocracy)

You are asked to trust code. Either way I'm actually OK with this. I actually trust them a whole lot more than the communists in charge of my country's economy right now.

> node operators (50%+1 attack and all the usual power dynamics of the rich having more say than the majority)

The only problem with this is it turned out cryptocurrency mining is not actually as decentralized as it was supposed to be. It should have been one CPU one vote but it turned into massive operations involving custom hardware.

New cryptocurrencies need technology to fix that problem. Monero uses ASIC resistant proof of work algorithms to mitigate it.

> The dream of a decentralized, community-run, grassroots infrastructure died sometime around the first GPU PoC - Satoshi themselves expressed discontent, saying GPUs would trivially out-mine the common man.

Exactly. That's the true tragedy of cryptocurrencies.

> This is determined by code in ways everyone can see and understand.

That's just a slightly more wordy way of saying "technocracy". An overwhelming majority of people in the world (including cryptocurrency enthusiasts) are incapable of following through a fizzbuzz program, let alone an SHA256 implementation, and the hash algorithm is barely the tiniest building block.

> Monero uses ASIC resistant proof of work algorithms to mitigate it.

Proof of waste stopped being sexy the moment we realized the environmental impact, and continuing to defend it on any "practical" merits is shortsighted at best.

> Exactly. That's the true tragedy of cryptocurrencies.

With all of your doubling down on technocracy, I find it odd that you defend a concept that, by design, began falling apart as soon as it started gaining traction. The original idea was noble, but it was almost meant to be perverted. What we should have done was to get back to the drawing board: how can we build distributed/decentralized infrastructure that actually helps people.

> An overwhelming majority of people in the world (including cryptocurrency enthusiasts) are incapable of following through a fizzbuzz program, let alone an SHA256 implementation, and the hash algorithm is barely the tiniest building block.

So? It's still more open than traditional finance. You can actually see how it works if you try. Unlike some central bank's political machinations at some abstract far away place. We need exactly one guarantee: that nobody can change how the system works to benefit themselves.

Besides... The overwhelming majority of people do not even understand the nature of money itself. They do not understand fractional reserve banking. Most people think inflation is caused by the government printing money. Somehow that's not an argument against having money.

> Proof of waste stopped being sexy the moment we realized the environmental impact

Not this nonsense again. Even at the peak of the last bullrun, it didn't even amount to 1% of global energy consumption.

> The original idea was noble, but it was almost meant to be perverted.

I agree it was a noble idea and that it failed. I disagree that it was "meant" to be perverted.

> What we should have done was to get back to the drawing board: how can we build distributed/decentralized infrastructure that actually helps people.

Agree. At this moment in time, I think Monero is closest to that ideal. I am not opposed to even better and more decentralized technology. Ethereum's zero knowledge proofs are very interesting.

> [...] it didn't even amount to 1% of global energy consumption.

When you put it in these terms, we should also just de-regulate fuel, plumbing, and electronics, because the combined lead poisoning won't kill as much as 1% of the population.

No. When I put it in these terms, it means I expect you to prioritize far more impactful targets for regulation than cryptocurrencies. Trading with China should be number one in your list. As should be every other modern western comfort and privilege.

To me you all seen plenty happy to buy made in China computers to post your environmentalist takes with and it makes it really hard to take any of it seriously. Maybe after the world is done taking care of the truly impactful stuff we can revisit this proof of work debate.

> As should be every other modern western comfort and privilege.

Seems to me like gambling, speculation, and proof of waste all perfectly fit the definition of "comfort and privilege".

> Maybe after the world is done taking care of the truly impactful stuff we can revisit this proof of work debate.

It's crazy how much we can agree on!

The only problem is, PoW is considered harmful even by the larger crypto community, to the point where alternatives were not only considered, but also implemented (e.g. PoS). I'm more than willing to reconsider PoW's merits at a later time (as you suggest), under the condition that all ongoing PoW schemes are paused until we're done dealing with these more important things. I think it's a perfectly reasonable compromise.

> The only problem is, PoW is considered harmful even by the larger crypto community, to the point where alternatives were not only considered, but also implemented (e.g. PoS).

I have nothing against proof of stake, I think it's fine but inherently less decentralized than proof of work. The whole idea was that anyone with a computer could participate and be rewarded for contributing to the decentralization of the network. In order to actually participate in ETH proof of stake validation, you need to own 32 ETH. That excludes vast amounts of people including myself.

It's a tradeoff and I'm not entirely sure it's worth it. Compared to the current status quo of huge centralized BTC mining operations it certainly looks attractive. There are better proof of work implementations though like Monero which better guarantee 1 CPU = 1 vote. I'm not ready to write it off yet.

> I think it's a perfectly reasonable compromise.

I don't accept that compromise.

Relativity. Trade with China generates a lot of wasteful byproducts, at a lot of benefit to society.

Proof of work generates not as much wasteful byproducts, but far more relative to its current utility. Not its potential or idealized utility, but for what it gives now.

The cost-benefit on those two examples are at vastly different sides of the spectrum.

And your argument that because of that, we can't take claims about proof of work seriously doesn't hold muster. We can still do things about it. Just like we can still do something about the fountains at the Kardashian homes just being fresh running water (they were annoyed about the cleaning process, so had the bright idea to just install a drain and have the fountains be an open tap, so one of their homes was using 1/2 million gallons a month of water).

Ironically, to you, that's a drop in the ocean and we should let them do it because it doesn't move the needle.

I am trying to find a source for your claims about the fountain but nothing comes up in the first few pages of a search. The results that do come up mention their extreme overuse of water during the droughts of 2022, but nothing as extreme as your anecdote.

> You can actually see how it works if you try. Unlike some central bank's political machinations

You can also see how those work, it's just that they're boring.

https://www.ecb.europa.eu/press/govcdec/mopo/html/index.en.h...

> They do not understand fractional reserve banking

Entertainingly the crypto people managed to immediately re-invent it, in several different forms, because it turns out to be inextricable from the concept of credit.

I oppose the very idea of credit. None of that should have been reinvented.

I'm sorry, but what?

Credit has pretty much existed in humans decided to settle down and plant crops. What exactly are you planning to replace the last 10,000 years with?

> Even at the peak of the last bullrun, it didn't even amount to 1% of global energy consumption.

Getting close to 1% of global electricity consumption to do a piddling quantity of transactions is a massive amount of waste. This is, like, 5 orders of magnitude or worse less efficient than normal banking networks, or about the same usage as all televisions.

I don't care about the energy usage as long as it buys us private global government-free currency. If that "inefficiency" is the price I pay it gladly. My only objection is the fact this energy is being poured into obsolete technology like BTC which doesn't provide us privacy. It should be going into Monero instead.

TBH Helium was the only crypto I saw and actually started trying to get into.[0]

Proof of Coverage was an interesting form of POW, and had the advantage of doing something -potentially- useful with relatively low power consumption. [1]

[0] - Life things happened alongside delays on getting the actual 'miner' so... IDK where it is now. oops.

[1] - The odd question I never quite got far enough in the setup to ask myself was whether this was, in and of itself, a bizarre side-step around reselling internet services.

Most of crypto trading is on centralized exchanges.

What made crypto big was making trading approachable to the common man, mostly through sophisticated loan systems.

It's a classic blockchain fallacy that a 51% attack allows you to print the underlying crypto at will.

As for the developers, they could write code to print a billion bitcoins if they wanted to, but for it to take effect everyone's gotta agree to run it.

The attackers could mint new coins under a new process and then force everyone to transition over by trading old for new.

Holdouts will find that old-coin transactions never succeed, and will have no other choice except to walk away in financial ruin.

It's not entirely clear to me what you mean by "regime", but it seems most likely to me that if forced with a choice of two hard-forks:

1) Removing the attacker directly (PoS) / changing the hashing algorithm to remove the attacker (PoW)

2) Submitting to the whims of the attacker

it would be a no-brainer to just remove the attacker. Embracing an attacker-controlled chain seems like a strictly worse option than removing the attacker, no matter how messy. It seems like a choice between disruption or certain ruin.

An attacker at that scale would certainly understand this game theory, and realize that if they attack, after some potentially very messy shake-out and serious temporary disruption, they will soon have no influence over the chain anymore.

No, it straight up doesn't work as a money, outside of very niche use cases like crime and evading the state.

Most people have no use for that, or speculation upon that, and just want a money that's simple, easy, fast, and reliable.

A decade after bitcoin, no-one but crooks and when-moon fanboys use it. Contrast that with AI: the moment it hit the retail market every man and his dog is using it for everything.

> it straight up doesn't work as a money

I've gotten paid for services via Monero.

> money that's simple, easy, fast, and reliable

That was my exact experience with Monero.

Ever tried to set up a Stripe account for GitHub Sponsors? I literally had to open a new bank account for that. With cryptocurrency, you just generate a private key in your wallet app.

> A decade after bitcoin, no-one but crooks and when-moon fanboys use it.

Yeah, that's kind of my point. It's tragic. I don't understand it.

You're a techie - everyone else views the complexity and unreliability of computers as "computers are a necessary evil" rather than "oh this is an interesting challenge!".

To the layman, a single unfamiliar word or concept equals "my money will disappear".

Even among techies there's no adoption. Just look at this site.

Shopify takes payments in USDC (Coinbase’s stable coin that’s pegged to USD). They use Solana Pay to do it, and the fees are considerably lower than traditional banking alternatives.

https://solanapay.com/

> people reinvented the entire financial system on top of it

That's the goal, to remove intermediaries and trust.

There are permissionless and trustless application, but HN likes to use centralized scams like FTX to dunk on crypto and feel smug.

It'd be like me pointing to bernie madoff and saying "see, I told you all of the stock market was a scam!"

Okay but what percentage of the total value transacted in crypto happens on centralized exchanges? If I had to guess, probably something like nearly all of it.

You are talking about a fringe minority or crypto transactions. everyone else is talking about the reality on the ground.

So, the underlying issue is the wrong people are scamming money from the poors.

I base this entirely on the trackrecord of the SEC and the market.

Now, to wait for someone to argue that PFOF and Dark Pool trading is "fair".

As always, new technology is neutral, but the latency between a new technology appearing and the attention of the law breeds scams that are completely mundane.

I think this quote of the prosecutor in Bankman-Frieds' case summarizes it well: "The crypto industry might be new, the players like Sam Bankman-Fried may be new, but this kind of fraud is as old as time and we have no patience for it".

Note though that the fraud that the prosecutor addresses here doesn’t have anything to do with crypto per se. As in, it’s not about securities laws, or even AML stuff.

The fraud that scam bank man fraud got sentenced for was plain old theft. Taking customers assets (mainly crypto assets) and using it as his personal piggy bank.

That's literally what the prosecutor said.

> Note though that the fraud that the prosecutor addresses here doesn’t have anything to do with crypto per se. As in, it’s not about securities laws, or even AML stuff.

That's playing pretty tight with definitions to push "crypto" out of the picture.

SEC's press releases was "SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX". https://www.sec.gov/news/press-release/2022-219

The release said "crypto" ten times.

Truth be told, the FTX case isn't even a cryptocurrency case. The Bankman essentially ran an unregulated bank. People deposited money into it and he just took it. He pretty much robbed his depositors.

It's ironic. Cryptocurrency was supposed to put an end to guys like that by ending the need for banks.

Well put. Following that line of thought I’d say that by now crypto has shown that you can never trust a system, in the end you have to trust the people behind it. I find people to be more trustworthy when they go to jail if they do wrong.

Cryptocurrency was meant to reduce the number of people you need to trust to an absolute minimum. Ideally, the only people you'd have to trust would be world class cryptographers.

The whole problem here is people reinvented the entire financial system on top of it. Exchanges are really just banks in disguise. They do fractional reserve banking, they offer cryptocurrency loans, they even have savings accounts.

There are permissionless and trustless exchanges like uniswap

I apologize, in my post I meant to say centralized exchanges.

How do I get real money out of uniswap?

Ultimately there has to be an off-ramp, or it's no different from an ingame currency.

> Ultimately there has to be an off-ramp

Not if people start using the cryptocurrency to actually pay for stuff. That's the point of money, after all.

It’s been 15 years and nobody still uses cryptocurrency to pay for stuff. And as you say, that’s the point of money.

So maybe, just maybe crypto is actually not very good as money, which is why people have been increasingly desperate to invent new stories to keep someone paying real money for crypto (digital gold, NFTs, etc.)

I paid for something with crypto just two days ago. I don't do many transactions with crypto, because most of the time it's easier to just use my cards, but on occasion it's handy.

Frankly, it works well, but it's not user-friendly for non-technical users still.

So basically unless the existing financial system gets really broken, it’s not worth using?

It's been worth using for me when I've used it, just not very often.

I would contend that being friendly for non-technical users is a necessary condition to consider it working well. It clearly works, nobody is saying it doesn't.

Plenty of things works well only for people with niche knowledge.

And plenty of people take a far more negative view of crypto.

‘Niche money for nerds’ doesn’t sound like a world changing concept.

I'm writing this post over a VPN subscription I bought using BTC, paid from my wallet. It was as painless as putting in credit card details.

You are not addressing the point. There's a wold of difference between usable for something, and it being a good use case. You can go shopping in a monster truck, but that doesn't mean it's a good general use case for monster trucks in society.

Why is it a bad use case? It was literally as convenient as any credit/debit card transaction.

Because when it comes to fraud, myself and the average person tend to have a lot of protection against fraudulent actors.

“caveat emptor” is a very poor society wide model.

I've gotten paid for services via Monero. It works surprisingly well. Just start using it.

And what did you do with that Monero after you received it?

Tried to find stuff to buy with it. Didn't find anything, sadly. I want people to start using it because then I can pay them with crypto too.

Most people don't use cryptocurrency to pay for stuff, but back when I lived in Cambridge there was a nice pub where you could buy your pizza with it, and last week here in Berlin I passed a Subway[0] that let you pay for your sandwich in BTC. Or at least it said it did, BTC by itself is a terrible idea[1].

[0] And a subway. Except the subway was elevated and the "proper" railway was submerged (but not covered): https://www.google.com/maps/search/S%2BU+Schönhauser+Allee+(...

[1] And to shortcut the conversation: Alice: *something about payment layers*, Bob: *how payment layers destroy the one thing BTC actually does provide*

Once you start buying goods and services in the real world, then the whole “trustless” part of crypto becomes useless.

How is crypto going to ensure the landscaper actually cuts my grass. I have to have some measure of trust and there has to be infrastructure to resolve disputes and try to make people whole. Once you have that, you are in many ways back at fiat currency.

Which is why central back digital currencies will be / are a thing.

I've also argued that we already have workable digital currency for regular consumer transactions. I pay my landscaper with Zelle. Who cares that it's denominated in dollars? Point is I can already move money practically wherever I want with the click of a button. And that money is already accepted by everyone I transact with.

Crypto is a solution looking for a problem. And money laundering/crime ended up being the problem they ended up solving. I'm enjoying watching this space slowly grind down / burn to the ground. Good riddance to a level of evil where the perps joke about the fact they're making money helping criminals "they're here for the crime" etc. 18 months is too little time in prison.

Zelle is among the worst, yuck

That maybe, but my bank offers it and so I've used it because it was there, and I have had no problems with it. Which is all I need. It worked without a seconds thought

That's more than crypto offers me.

> How is crypto going to ensure the landscaper actually cuts my grass.

Same way cash ensured that. People generally don't pay until the service is done.

You can have cryptocurrency or you can have wildly manipulated assets in an attempt to become rich at the expense of everyone else who didn’t get in first. It’s a stampede toward number two by literally everyone I’ve encounter over the past decade who plays crypto markets.

P2P exchanges like Bisq use escrow and verification methods with dispute resolution for on/off ramp. There are other options as well for secure decentralize offramps, but bisq is much larger than any other protocol.

And why can’t bisq play games and be bribed to release things out of escrow or just steal escrowed funds and run?

Because it’s a p2p open source protocol. If you’re interested in the details of how it works, rtfm.

Ah, so someone can trick it into doing all the above (via bug or code push) and no one is 'on the hook', since no individual is responsible for everything?

And escrow isn't really escrow (in the sense of independently verified), but honor based? At least based on the FAQ.

Since things like 'USD arrived in a bank account' can't be verified by a third party.

So, seriously - what's the point?

The point is self custody. Even if a trade were to fail (it’s more difficult than you might think) the funds stay in you custody before and after the trade. That’s different from a cex where you’re trusting someone to hold all your assets. Someone like SBF could not do a similar fraud, even if such a party existed within bisq.

Regarding code, there have been attempts by people to take over p2p protocols before. Most famous was Justin Suns takeover of Steem. Since all the code was open source, most of the community forked the code over to Hive successfully. If a malicious actor tried something similar with Bisq, the community would just fork an older version of the code.

More fundamentally, these protocols work because people are incentivized to make them work. It’s quite different than the vc crypto with the big marketing budgets that most people hear about; most of those are just traditional finance reskinning itself.

Ethereum DAO hack? Hello?

You just moved the cheese to the escrow agent.

There is no agent. Funds are held in a 2 of 2 multisig wallet, with the sole key holders being the trading partners.

Sure, but that doesn't mean you have to hold your money at the off-ramp. Just pass through briefly and you minimize your exposure to centralized actors.

>The whole problem here is people reinvented the entire financial system on top of it

The whole problem is that some of what they do adds value, because it turns out the banking industry as a whole has some valuable functions that people need.

Yeah, but ideally all of those features should be "native" features of the cryptosystem, such that they're all just as zero-trust as the core stuff the cryptosystem does with its gas currency.

The problem is that developers see "this cryptosystem supports smart contracts" and interpret it as "this is a Turing-machine substrate which I can use to deploy effectively centralized / trust-us infrastructure, but then turn around and market it as being decentralized and zero-trust."

If a cryptosystem supports "smart contracts", ideally they should be restricted to only to serve as an interface for extending the deployed cryptosystem with additional decentralized / zero-trust features. Sadly, it's impossible to have a compiler determine whether your code is decentralized / zero-trust.

Well, the financial system exists because it provides services that are desired. From what I understand there's really no way to offer those same services purely in the blockchain, except for some imitations that have their own equally big problems.

In essence, all a financial system functionally provides is a set of buffers/caches so that individual or company lives can overcome some bumps quickly at the expense of promise to refill the buffer + some extra later.

Not really. The complexity can’t simply be reduced to a computer science metaphor.

Other the to exchange fiat for crypto, I’m not quite sure why people keep their cryptocurrencies on these exchanges. They proven time and time again that they’re usually a scam.

I mean, this article suggests that Binance isn’t a scam, rather it has a perfectly sound business model that is illegal and immoral.

Often it's a desire to be able to quickly run a trade or arb play.

Because you can't gamble if your money isn't in the casino.

Because, as it turns out, using cryptocurrency as currency is too expensive. The exchanges let you "trade" and then settle themselves in way fewer transactions, so you don't have to pay nearly as much in fees.

It's the same reason we keep our money in banks instead of everyone owning a Fed terminal and requesting ACH pulls.

The thing is... I honestly am not smart enough to trust the cryptography! I guess at a high level I could make some sense of it but there is no way I could fully evaluate any crypto as safe or not.

I think there is great irony in the fact that probably 90% of the people involved in crypto don't understand the math behind the systems they trust so much. They could swear these systems are more trustworthy than traditional banks cause decentralization, smart contracts, cryptography, etc. But all of these are just abstract concepts for them in which they just chose to place their trust, because of vibes or smth.

Also because some of the code was supposed to be open source I guess ? Trust the code ?

The code is not the system, the code is not the network, the code (and the coins) themselves have zero value. Much like money itself is valueless. You can't eat the money, you can't build anything with money. It's the interface between money and real objects that gives money said value. The digital coins wanted to cheat that connection to fungibility with real life objects.

People put money into FTX to buy and sell cryptocurrencies.

FTX appropriated assets for a hedge fund that bought and sold cryptocurrencies.

Why did they think they could run an exchange without complying with the laws for those? It was for cryptocurrencies.

There are few if any "crypto cases" in the sense of cases about breaking laws specific to cryptocurrencies. There are very few of those laws.

There are an awful lot of "crypto cases" in the sense of companies focused on cryptocurrencies breaking laws that long predate cryptocurrency. That is and should be affecting general perception of "cryptocurrency".

Remains the question: Why was it allowed to even live a little, when for the first dimes, it was clear it was a scheme that necessitated illegal actions at every step?

What’s illegal step is mining crypto on your gpu?

Nothing illegal about proof of work.

No, but there should be a ban on proof of waste.

Waste? Better forget about crypto then. Even at its peak it didn't even amount to 1% of global energy consumption. Maybe you should suggest putting a ban on trading with China instead.

1% of global energy consumption is outrageous.

More like 0.5%. A literal drop of water into the ocean of western wastefulness.

My only objection to it is the fact all that energy is being poured into obsolete technology like bitcoin. I wouldn't even mind if Monero used even more energy. That energy is buying us something: a true cryptocurrency.

> More like 0.5%. A literal drop of water into the ocean of western wastefulness.

If we accept the analogy, 0.5% of the oceans is 5 100 000 km³, which is quite a bit more than "a literal drop": https://www.wolframalpha.com/input?i=0.5%25+of+the+volume+of...

A tiny fraction of the world’s total population use or benefit from cryptocurrencies, but it consumes “just” 0.5% of world energy consumption.

This is self-evidently insane.

Maybe they should start using the currency as well?

What the fuck are you talking about? You want to consume all the energy generated, just for currency? You think people will stop creating new coins? You think using the worlds energy to generate random numbers is a form of freedom?

I want to ask rhetorically if you are out of your mind but, like I said, it’s self evident.

> What the fuck are you talking about?

Cryptocurrencies and the relative irrelevance of the energy consumption associated with them.

> just for currency?

Not just any currency, one that guarantees privacy and anonymity.

> You think using the worlds energy to generate random numbers is a form of freedom?

I don't see anyone complaining about the energy that gets poured into processors every single day to make them generate random numbers that are then used as secret keys in cryptography just so that users can securely shitpost on social media. All those advertisers are making a killing so all this activity must be moral, right?

You can't attack another user like this, regardless of how wrong they are or you feel they are. It's not what this site is for, and destroys what it is for.

We have to ban accounts that do it repeatedly, so if you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules, we'd appreciate it.

Right, so we increase our entire planetary energy needs by several orders of magnitude so that everyone can use crypto….

So that anyone and everyone can have private, anonymous, censorship-resistant, global, cheap, instant financial transactions.

It’s not worth the energy. You know it’s not, you’re just trolling.

China does useful stuff; their energy consumption is going up because they have over a billion people who e.g. want AC units in a tropical heatwave. They're building literally more renewables than any other country in the world and still aren't keeping up with demand. If we permanently switched off all those power plants then tens/hundreds of millions would die.

In contrast, switching off all crypto farms would be a free reduction in emissions, and indirectly save lives.

Cheap consumer goods for entire western nations. Truly the peak of usefulness.

Tell me what they should stop producing. Most of what they make is just boring every day stuff that we need to live comfortably. Do you like using knives and forks? What about cookware? A toy for your 2 year old so they can have some fun? Useless shit right?

> Tell me what they should stop producing.

The consumer electronics people use to post environmentalist takes with. That'd be a good start.

OP didn't say China was the most "productive" state in the planet, instead that they do at least produce despite being seen as an obfuscator.

The "maker" sphere in China is analagous to that in EU/US, the people are waiting for societal change.

Amen to that.

Of course, just as most of yesterday's crypto experts are today's AI experts, the main wastage seems to be moving towards LLMs these days.

Yeah, let's get a ban on video games (waste) and video game achievements (proof of waste.)

This part takes the least to claim the worst isn’t here. Akin to saying Al Capone was “just doing dishes” when he was arrested, why would you.

There are various illegal parts: Creating a currency for example. But even if one can walk around the definition of a currency, exchanging it for dollars is most probably questionable: You give banknotes to someone in exchange for a token which you don’t know how it was obtained. In most cases, it is facilitating drug exchange and hitmen, so, unless one can prove where a Bitcoin comes from, I’m surprised it is even legal to exchange it for tender money.

The whole thing should have been sued from the start.

> Creating a currency

Shouldn't be illegal.

> exchanging it for dollars

Shouldn't be illegal.

> You give banknotes to someone in exchange for a token which you don’t know how it was obtained.

It doesn't matter how it was obtained.

> In most cases, it is facilitating drug exchange and hitmen

Oh... Just like USD then.

Why don't you go after them for those crimes? Without coopting us into your warrantless global surveillance network?

> unless one can prove where a Bitcoin comes from

That it is even possible to prove that is actually a failure of bitcoin's design. Thankfully Monero fixed it. Money should be fungible. There should be no dirty/clean bit attached to coins.

There's a huge difference between physically transporting a large amount of cash and disposing of it usefully without being detected versus electronically moving it around the world and exchanging it for fiat currency entirely anonymously.

Here's a clue: one of those is hard to do and massively increases your risk of being caught, and the other actually enables further criminal activity which would not otherwise be easily possible.

So no, not just like USD.

And yet every criminal out there seems to be using USD. Funny how that works. Maybe we should ban USD too.

Well, if you want to actually spend your ill gotten gains, you pretty much need it in fiat currency. I don't see the point you are making.

The original purpose of cryptocurrency was to replace fiat by getting everyone to use it for their transactions. People would be pricing things in bitcoin or monero instead of USD.

Well, yeah, that was the original idea. Didn't work out like that though.

Yes. That's the point. The fact it didn't work out like that, and turned into stonks line go up instead, is the tragedy of cryptocurrency.

> > Creating a currency

> Shouldn't be illegal.

This is exactly where the bullshit should stop. Creating currencies should be the sole privilege of sovereign governments.

Bullshit? It's the government currencies that are bullshit. You're replying to someone who lives in a country that actually went through several currencies. They became so worthless they had to be replaced. If you search "Brazil" here on HN you'll find the top post is about how "fake money" saved my country. They essentially tricked everyone into believing this time was going to be different. I'm sorry but I don't believe these people for a second. And neither should you or anyone else.

> In most cases, it is facilitating drug exchange and hitmen

Except this isn’t even remotely true? Less than 1% or so of transactions are even remotely linked to crime?

Unless you're stealing electricity or computing of course.

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