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Comment by bodiekane | Hacker News Reader

It's wild that 99% of the "point" of crypto and a Bahamas-based exchange was to avoid all the laws around securities trading, banking, money transferring (anti-money laundering, taxes, etc), etc and yet when things go south, people still expect the government to come in and enforce a tiny subset of the financial laws they've otherwise been operating outside of.

This is a weird form of "privatize the profits, socialize the losses" but with the benefactors being the people intentionally avoiding all the financial laws.

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If you conduct criminal activity while employed, you conducted criminal activity. You can't just walk into work at 8am, kill someone at 9am, and go home at 5. You still did the crime, and can be prosecuted for it.

So let me rephrase your question: can a US citizen file some papers internationally that would permit them to conduct criminal activities in the US against other US citizens.

The answer should not be surprising.

That's not at all how I interpreted the comment you are responding to.

That is, FTX's customers knew, or most definitely should have known, that FTX (and crypto at large - that is essentially the primary selling point of crypto) was "outside the regulatory financial framework". Yet when things blew up and all these FTX customers lost all their money, there was very little reflection of "Hey, perhaps these financial regulations really do have some purpose.", it was more "I want the government to now enforce the banking laws that I was essentially trying to evade in the first place."

SBF wasn't convicted for violating financial regulations (such as maintaining capital liquidity, reporting transactions or meeting KYC requirements). He was convicted of fraud and conspiracy.

Yes, I know, but the type of fraud and conspiracy SBF committed is much easier when you're at a financial institution that essentially has no regulators or auditors keeping tabs on thing.

Just read some of the reports John Ray III, the current "cleanup" FTX CEO, wrote shortly after he was brought in. It was a total clown show, with little to no documentation for things like huge multimillion loans to FTX principals. It's a lot easier to steal money when there is no standardized, auditable paper trail to begin with.

If you look at the superbowl ad, it all looks American style and doesn't say much about offshore. "FTX US all rights reserved." and crypto is volatile it says in the small print. It looked kind of US regulated and US regulators certainly took note when it stole US customers money. https://youtu.be/hWMnbJJpeZc?t=129

> people still expect the government to come in and enforce a tiny subset of the financial laws they've otherwise been operating outside of.

I don't see how people ever expected the government not to enforce these financial laws on electronic currencies.

I agree, the average citizen would have expectation that the government would enforce these laws. However, I do think OP can be more clear that when they say "people" here, they don't mean your average citizen, but proponents of crypto who would agree that 99% of the "point" of crypto and a Bahamas-based exchange was to avoid all the laws.

> This is a weird form of "privatize the profits, socialize the losses" but with the benefactors being the people intentionally avoiding all the financial laws.

No, it's, as usual, the government choosing to do the wrong thing with your tax money, because it will be bad publicity not to, because votes, because power.

Yeah, I agree. This should fall under “caveat emptor”. Everyone using unregulated exchanges (which IMO should be an option for everyone) should recognize that they are subject to additional risks (and benefits).

The government shouldn’t outlaw free climbing either.

It’s your own fault if you treat a bunch of foolish kids with millions of dollars the same way you would an onshore FDIC-insured regulated bank.

Canada Bill Jones would like a word.

I agree with you as well, but this is a major example of how, despite this ideal, something like this can sweep up so many people that would otherwise never interact with a system like this. People who don't know who SBF is, never heard of Hacker News, who don't understand crypto, getting convinced to put money into this by, say, a younger relative. It is a real side-effect of this thing existing on this scale on a planet populated by humans.

People don't go mass free-climbing because it isn't something you do by accident. The danger is obvious. But this danger is abstract, and the ease of entering this type of system can happen with just a few clicks from the comfort of your home. And getting dollar signs in your eyes is a very psychologically influential pull.

Free climbing in populated areas is outlawed (and should be). Try climbing your nearest skyscraper and see how it goes.

Similarly, torching your money on some random shitcoin isn't outlawed. But when they enter populated areas, renaming stadiums and hiring celebrities to try to trick the masses, the rules change.

It's worth noting that a huge amount of the government's case involved evidence that SBF and team were buying lavish oceanfront condos, paying superstar athletes for weird TV commercials, etc.

This was actually a tiny slice of the overall financial mischief at FTX. But it told well in front of a jury. And it reinforced a big point that prosecutors keep wanting to make, as publicly as possible. "Don't take the customers' money to live large on your thefts!" That's a message that they want countless bookkeepers, financial planners, etc. to hear, again and again.

So, yes, they wanted to make an example out of SBF. The intricacies of FTX's full financial gyrations were sometimes too complicated to put in front of a jury. But the clueless or duped crypto-trading clients got a free bailout anyway. It came on the back of a prosecution that was largely intended to be a public slapdown of a guy committing lifestyle offenses with other people's money.

> The intricacies of FTX's full financial gyrations were sometimes too complicated to put in front of jury.

What evidence do you have of this? Jury trials frequently involve ‘complicated gyrations’ — that’s what expert testimony is for.

https://www.cnbc.com/2023/11/04/three-hours-were-all-the-jur...

The article doesn’t say that anything was too complex to put in front of the jury. It says that prosecutors presented the story as a straightforward case of fraud.

>The key at trial, aside from the multiple cooperators, was the way in which prosecutors simplified the case and tried it as a garden-variety fraud instead of as a complex crypto scheme.

Climbing pedant checking in. I think the type of climbing you're referring to is free-solo, that is climbing alone with no partner or protection from falling. "Free climbing" is climbing using only hands and feet for upward progression but typically involves the use of protection (gear, ropes, and a partner) to save you in the event of a fall. It's called "free" because the climber does not use metal tools, hooks, pitons, or bolts for upward progression like in aid, ice, or alpine climbing.

Luckily, you knew exactly what I meant.

Can you elaborate on how FTX's losses were socialized here?

Its the US Government courts who are handling FTX's bankruptcy. So at a minimum, they are expecting the USA Government to figure out how to split the money / clawback what they can and untangle the mess of the balance sheets (rumor has it: a completely non-existent set of documentation in the case of FTX).

That's not really what socializing losses usually means. This isn't an FDIC bailout, for example.

I'm really looking for a response from GP, bodiekane.

How is FDIC "bailout" socializing losses?

SIVB stock collapsed and all the investors into SIVB were wiped out. US Government stepped in and started allocating the remaining assets, prioritizing the customers and hurting the bondholders and shareholders.

IE: The shareholders / bondholders of SIVB were basically wiped out. The losses were privatized so to speak, isolated to the investor class.

Sure, you can quibble somewhat -- investor losses are not socialized. However, the FDIC insurance fund that makes depositors whole is ultimately funded by taxpayers.

> However, the FDIC insurance fund that makes depositors whole is ultimately funded by taxpayers.

FDIC funds don't come from taxpayers. *Banks* pay FDIC insurance fees.

Now you can quibble if FDIC is paid by banks, or if you think the "costs are passed onto the customers". But bank-customers are not necessarily "tax payers". At very least, the vast majority of my cash is in VMFXX and SWVXX, so I personally have very little money in Checking/Savings (so I barely pay any kind of "banking insurance" fees in practice, just enough to keep my checking account open).

The little banking insurance that my money is going towards is my Checking account / Savings Account at a local Credit Union as well. Which is NCUA (not FDIC), so a totally different insurance program.

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So none of my personal wealth is actually tied to FDIC in any way, despite myself paying plenty of taxes all the time. I'm simply not a bank customer, so there's no way I personally am related to any FDIC related situation.

And plenty other people are like me as well.

"Expecting the government to bear the costs of enforcing the law" is not generally what is meant by "socializing the losses", even if you can define the expression in a way that that makes sense.

But I'm going to go out on a limb and guess you've never referred to it as "socializing the losses of having possessions in your home" when police unravel a burglary operation and return the loot to its rightful owners.

Murder is still murder even if it’s a dispute between two criminals. I suppose the same is true of fraud. Law enforcement is always a socialized cost.

Though, there are fines. Apparently, FTX might owe $9 billion in fines and penalties and $10 billion other government litigation [1]? The creditors might not get much at all.

I don’t know what the users of a cryptocurrency exchange expect. I think there’s always some chance of a “rug-pull?”

[1] https://cdn.arstechnica.net/wp-content/uploads/2024/03/US-v-...

> > This is a weird form of "privatize the profits, socialize the losses" but with the benefactors being the people intentionally avoiding all the financial laws.

It was SBF who put it in the hands of the US by declaring bankruptcy in essentially 3 days instead of playing the long wait game

Also SBF who put it in the hands of the US by staying in the Bahamas and essentially waiting to be arrested (and immediately extradicted to the US) instead of fleeing to Cuba or Colombia or South America. 25ft Inflatable ribs can make that route.

During the first day of crisis he could have gone to Russia too by private plane and pull a Snowden

That ship sailed years and years ago. You can buy Bitcoin ETFs from traditional investment companies (like Fidelity and BlackRock), and those companies aren't in it for the freedom.

More to the point, the IRS has been collecting taxes on Bitcoin earnings since around 2014[1]. Since the government is taxing you, it's fair to ask the government to protect you.

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[1] https://www.irs.gov/individuals/international-taxpayers/freq...

I agree 100%. You want to operate outside the law? That's fine with me, but you gotta accept the risks. However, that means you have to be extra-judicious about who you operate with. I've found it funny to hear crypto proponents scream about how the government needs to prosecute him yet they'll turn right back around and demand that the government needs to have less regulation and taxation of crypto.

The government must preserve the population even against themselfes.

Depending how south things go, you can get assasinated inside an embassy or killed in plain day light with the whole world knowing who did it.

I'm sure the people running the Bahamas-based exchanges (such as Sam) wouldn't like this law to be enforced.

Those people are mostly hypocrites.

Your complaint would be solved with less gray area.

Businesses outside of the US should be able to do business with US citizens _without_ the consent of the US government. This comes with the caveat that if you, the customer, reject the "protection" of the US government, you are completely and totally SOL if things go south.

Time and time again this just results in people complaining to the government to "fix" it once their get rich quick scheme blows up in their face.

Because time and time again the government does. While hypocritical its a perfectly logical step to take because it has proven success.

The hard part is that US citizens may not know they are doing business outside the jurisdiction of the US government. Are you rejecting the protection of the US government if the company is doing its best to obscure that fact and the associated risks? How about if they are advertising in the US? On the superbowl?

If they're putting life changing amounts of money into a company they should be doing a modicum of research on it. If someone gives $100k to a Nigerian prince, I don't think the US government should be spending thousands of dollars of resources on attempting to recover that money.

US citizens have never implicitly been allowed on these off-shore exchanges. You have to deliberately circumvent and lie to get an account.

I'm not aware if any cryptobros advocating to decriminalize fraud. Fraud is always going to be illegal. This isn't some regulatory compliance thing.

I've definitely heard variants of "the market will decide what is fraud" from people that I know in real life.

Let me just provide a counter-point. As an early crypto advocate, and someone who has lost thousands of USD to hackers and scammers, I did not ever expect the government to bail me out. As you said, the whole point of crypto was to free ourselves from these regulations, which means high risk high reward investments, and the opportunity to create truly innovative products. High risk means sometimes you lose your money, even to illegal and unethical actions.

The real tragedy is that NFTs turned into digital trading cards and DAOs turned into pump and dump scams. The really interesting use cases will appear once the USDT Tether books are exposed and Bitcoin price plummets. Imagine NFTs attached to shipping containers tracking custody throughout a series of mutually distrusting last mile carriers. Or DAOs that allow people to organize for collective action with radically transparent finances to prevent corruption and grift.

Of course I'm sure this will not go over well here on HN, where everyone reflexively hates crypto and loves government regulation. It's a bit ironic for a forum where the majority of members are engaged in the business of "disrupting" one or another traditional industry. Of course the industry of finance is too sacrosanct to risk such disruption. Why should Uber have to pay for taxi medallions though?

As a former eth miner and now crypto un-enthusiast, i was attracted to the idea of contract disruption and value transfers utilizing blockchain but ever since the entire industry has become scams, wall street and *bros, yeah I'd love to see it all crash and burn. Exposing tether would be a great start.

Same here, former enthusiast now appalled by it.

GP: > HN, where everyone reflexively hates crypto

Yeah, no, the hate of crypto stems from a fairly well grounded understanding of the technology here. BTW, the good folks at FT Alphaville also mostly hate crypto - there, it stems from a good understanding of finance. Basically, everyone that understands the tech/finance intersection reasonably well hates crypto, with one important caveat best expressed by Upton Sinclair nearly a century ago:

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”

Using crypto with or as a custodian never had that standard you are referring to.

Fascinating level of cognitive dissonance that is prevalant in this thread. It’s a mixture of conflating competing ideas, and strawman arguments to discredit crypto users.

Custodians are subject to liability based on their own citizenship, the citizenship of their clients, and the location of the infrastructure being used, it doesn't matter what type of asset is involved.

Dang, we should really flag these non sequitur posts on every crypto thread that appears on HN, we’re almost 20 years in and the discussion level is a large aberration lower compared to other tech topics on HN and other dev and enthusiast crypto forums still, when it should be the opposite. flagging practically everything would promote more substantive discussions by making that point to otherwise well adjusted people, and surfacing the things that work well within crypto to people that otherwise aren’t exposed to that.

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