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Thanks for all the information. I was operating on some false assumptions, so this clarifies quite a bit.

I meant that the flat system of crypto where (at least before industrial mining), people could spin up mining rigs (which is still possible, I think at least with some altcoins), but also, that the barrier to entry for folks trading crypto is lower than traditional markets. Some may chalk this up to the need for KYC/AML, but I think there are intentional barriers to entry for individuals that people in power don't want to have access to say, equity markets, that don't exist as much in crypto markets. I don't think crypto markets should be used to supplement terrorism, money laundering, tax avoidance, or anything else like that, but if you take a look at say, Robinhood, who tried to lower some of these barriers to entry to traditional markets, I think crypto as a whole is trying to do that. I also have said in other posts, and will continue to, that blockchain analytics will only continue to get more advanced, so the narrative that crypto is only used for illegimate activity is bullshit. I do think that it is a power to the people that can't be stopped, due to its decentralized nature, and that it is the only possibility I've seen so far as an alternative to everything else going on that requires sovereign government policy and currencies (that are backed by war, control, etc).

> Those interested with very low latency are not hedge funds but market makers, and the kind of microstructure signals they exploit is not only orthogonal to what a retail investor would do, but often brings in just bips per trade, meaning the leverage required to make it worth it is anyway out of the retail league.

Thanks for clarifying.

> What is a normal retail investor? Obviously hedge funds are going to be faster to react to e.g. earnings events than you. That doesn't mean this information is not public. It's just that HF pay data providers, invest in automatic data processing and decision making, etc.

Well, this is sort of what I'm saying. As a regular person, you just don't have the same information, or the ability to act on it as quickly. Sure, buy and hold investors aren't really affected, but they are providing liquidity for these folks who can take some advantage. I may be pretty wrong about this, however, it's just like anything where there are friends / contacts / associates. Some parties just have more information, especially if they have money to spend. You did mention earnings though. I just have a hard time believing that hedge funds only act on public information. They might structure their trades based on how not to get flagged, but how do they not have friends or contacts in the space that tell them a thing or two? This is what they are doing full time, so I would imagine they spend a good majority of their time thinking about how to make the most money and not raise any red flags. I actually don't have an issue with this, but I always see claims that the traditional market is totally fair, but it does not seem like a very flat system to me. Those in power seem to have some advantage. If that was how the market was presented (i.e. some people have sway, more information, and the ability to act more quickly than retail), I wouldn't have any issue with this. I see the opposite though, the narrative is that retail traders can make trades without worrying because it's totally equal. If all retail traders were doing was buy and hold, then again, no issue, but not all retail traders trade that way.

> Yes, what about them? The name triggers the imagination of people but there's really nothing fancy about it. The objective of dark pools is to allow the exchange of shares without too much of a movement in the orderbook. This is actually good for both users of dark pool (they get lower slippage) and users of the public market (it prevents artificial big swings in price due to large buyouts, which would be announced anyway). The liquidity at time T in the order book is not tailored to absorb any ridiculous amount that a large investor could be willing to exchange.

Where do I learn more about dark pools? My initial response to learning about them was that they are basically tailored to hide trades from the general public, for the benefit of institutional traders. I was concerned that dark pool operators would also have information that then they could front-run the rest of the market with. I feel like when I make a trade in the equity markets, or if I read something in traditional news, someone else has heard about this earlier that day, or maybe days before, based on insider information, just due to them being more deeply involved with the market. I just don't really see how this is fair (and this is the claim I see time and time again in traditional markets). I don't think all this information is public. If it's in some obscure place, that 95% of the investing public doesn't see, is it really public? Maybe the SEC protects against that, but it seems like the big players have an advantage. It seems like I have a lot of incorrect assumptions though, so I'd like to learn more about this.

> What exchanges do, though, is offer rebates to providers of liquidity (including the market makers that you seem to despise) in exchange for the liquidity they provide. This is not a random decision by the exchange, it's because providing liquidity to the market is beneficial for everyone. As an investor, it means I won't have to worry that I will not be able to sell my shares whenever I want to. It also means that the spread will be tighter, thus lowering my slippage. And subsequently, it also means arbitrage is most likely in place, so I'm not being scammed just because I didn't check the price on 5 different platforms.

Yeah, I get it, this is a quite mature market (and that's a good thing). I still have a feeling that the extremely powerful have sway in the market, in a way that isn't exactly "fair", but maybe it just comes down to the amount of capital they have (but again, I would think that the size of the trades should be on public markets then, not dark pools). Anyway, in the end, what I've learned from all this is how far the traditional markets have come, and how other markets (like crypto, which also have things like dark pools) can learn from this.

Mint also did screen scraping, powered by Yodlee [1], if that’s what you mean. So, yes, same risks as Plaid.

They later moved off of Yodlee to Intuit APIs, post acquisition, although those also do screen scraping [2], and thus carry the same risks.

[1] https://news.ycombinator.com/item?id=1537825

[2] https://money.cnn.com/2010/12/02/pf/mint_leaves_yodlee/

> As you learn more about crypto and traditional finance, it'll be fun to compare the two. Your confusion about the role of an exchange in traditional finance might be because you see the crypto world, where a single entity often performs the roles that many entities perform in traditional finance (exchange, clearing firm, broker, etc.).

Yes, I agree!

In terms of what I called antiquated technology, I think there are a lot of layers on traditional finance, and a lot has changed since its beginnings. I think crypto will go through a similar evolution, in terms of tech, regulation, etc. I think we're in the very early stages for crypto and it has a chance to be an even better system.

I do know that HFTs exist in crypto, and it still is the wild west in some ways, but in the end I like that innovation is happening and that there are alternatives to existing systems.

That said, I appreciate all the responses and I'll take some time to learn more about traditional markets.

I still like the distribution of power to those who wouldn't have had a chance otherwise.

Thanks. I'm going to check this book out.

I don't know that much about this, so you could chalk it up to "great ignorance", I suppose.

I'm a software engineer, interested in crypto, and not that involved in traditional markets (except for holding an S&P 500 index fund).

I do think the exchanges in traditional finance shouldn't have required HFTs in the first place (i.e. it's an antiquated technology). I also think hedge funds and the ultra rich have privileged info, that retail investors don't have.

Anyway, I appreciate the clarification. I like learning about all this.

At what cost are they providing this service though? They make a ridiculous amount of money doing so. Shouldn't the exchanges have offered the best price, and provided liquidity, in the first place?

Flash Boys: A Wall Street Revolt by Michael Lewis painted HFT in a pretty bad way. I have read criticisms of the book, but it's hard to separate out bias from the criticism.

There's also all the heat on Robinhood about selling order flow, which I'm surprised was even news to regular investors. It's great they eliminated fees for normal trades, and I also understand most major brokerages sell order flow as well (and still charged for trades for a long time). I read that Fidelity is the only major player that doesn't sell order flow.

Do you have some sources that someone could learn more about this, ones that don't have a vested interest in painting it in a positive way?

Also, I'm still wondering, considering dark pools [1], and the inside information that would come along with that, since those trades wouldn't hit public markets, how the stock markets can be considered a fair place to trade?

[1] https://www.investopedia.com/articles/markets/050614/introdu...

I was going to mention HFT. How is it a level playing field when they are in the picture? Paying top dollar just to be closer and closer to the exchanges to get the fastest, "best price", when really, they have info before anyone else.

Also, what about dark pools?

Contrary to my username, which I just get a kick out of, I don't actually work on wall street or anything, but I've always felt the stock market was rigged for the elite. I think it is very likely that they have info before normal retail investors have any idea.

I like crypto but the way I read this is that it's a good number of the reasons that the existing financial infrastructure is better (particularly once the US infrastructure updates to things like instant FedNow payments).

I think defaulting to using a mixer would be inconvenient and it could get folks flagged for even using it at all.

Also, what ever happened to not re-using addresses? I know it doesn't make it totally private, but I thought it helps some, since you'd still have to tie addresses to identities somewhere in the chain.

I think companies should still provide a way to link accounts via small deposits. It takes a few days, but at least you don't have to share your credentials. (This applies to US accounts, maybe there are better solutions elsewhere.)

If you use Plaid, I think it should only be if there's no other option and you change your credentials after. I've always thought giving away your credentials to a screen scraping company like Plaid was crazy.

In terms of the class action lawsuit, the only one who will see a meaningful payout from this are the lawyers.

It's become political at this point. Vaccines, too. Funny thing is, even Donald Trump got the vaccine.

If they are able to replace real world contracts one day, that could be a benefit, i.e. escrow and title transfer for real estate. They would need to be pretty complex to do so, since currently title companies track local laws and make sure everything is in order, but, stuff like this could automate some things which are done manually now. There also would probably need to be a way to have human intervention, i.e. being able to upgrade or sidestep the contracts, if something doesn't go as expected, but I still think automating this can modernize certain fields.

In my opinion, the process of buying / selling real estate, at least in the US, seems antiquated. There has to be some way to automate this instead of manually having some escrow company hold funds and then manually releasing them once the sale is complete, and issuing the title (gets more complicated if it's a mortgage vs a cash deal, since a bank loan would also be involved, but either way, it is possible). The smart contracts could be coded in a way where the funds are automatically released, and a title issued, once certain criteria are met. One risk is that the smart contracts could be hacked, but over time the code could be become more solid.

It seems that as a whole the world will move more to automation, over time, and smart contracts might play a part in that. That said smart contracts that can't really be stopped could also become Skynet or something (i.e. Terminator), but I don't think fear of that should prevent us from exploring the possibilities. My point is that smart contracts could automate certain things that are done manually now. They might still require some human involvement, but the amount of human involvement required could be dramatically reduced. I don't think the main benefit of smart contracts is just that they are unregulated. I also don't think that the way smart contracts are used today are the only ways they can be used. It is a new field and many things that folks haven't even thought of yet are possible with this type of technology.

Here's the link for Mastering Ethereum: https://github.com/ethereumbook/ethereumbook

Yes, agreed, I had made an edit about this.

That doesn't appear to be their plan [1][2].

It is worth noting that they also have been subject to several 51% attacks [2].

[1] https://investorplace.com/2021/06/ethereum-classic-will-stan...

[2] https://ethereumclassic.org/knowledge/roadmap

[3] https://www.coindesk.com/ethereum-classic-blockchain-subject...

I think it would be worth understanding how Bitcoin works first. It's designed to be more robust. It doesn't change as often (some criticize it due to that), however, it could also be seen as a strength. You could read the Bitcoin white paper [1]. If you wanted to learn more about programming Bitcoin, you could also check out Mastering Bitcoin 2nd Edition - Programming the Open Blockchain by Andreas M. Antonopoulos [2].

Ethereum was created after Bitcoin. It was designed to be more of an open programming platform. It was designed to be Turing Complete and enabled the use of "smart contracts". The DeFi space runs on smart contracts and Ethereum kicked off DeFi. This is the Ethereum white paper [3]. Mastering Ethereum by Andreas M. Antonopoulos & Gavin Wood is another book you could check out [4].

Here are a couple of introductions to DeFi, as well [5][6].

The hack that everyone is discussing here was on Poly Network, which a layer 2 solution for Ethereum [7]. Layer 2 solutions were created due to lower the high gas fees on Ethereum, as well as increase transaction throughput. Ethereum itself is also working on moving to Ethereum 2.0 which would help address the issues that layer 2 solutions are trying to solve [7].

Edit: Poly Network actually appears to be more of a bridge between different networks (Ethereum, Polygon and Binance Smart Chain) [9], so it's worth noting that this wasn't a direct hack on Polygon, which is a layer 2 solution for Ethereum.

[1] https://bitcoin.org/bitcoin.pdf

[2] https://github.com/bitcoinbook/bitcoinbook

[3] https://ethereum.org/en/whitepaper/

[4] https://github.com/ethereumbook/ethereumbook

[5] https://ethereum.org/en/defi/

[6] https://blog.coinbase.com/a-beginners-guide-to-decentralized...

[7] https://www.gemini.com/cryptopedia/polygon-crypto-matic-netw...

[8] https://ethereum.org/en/eth2/

[9] https://www.reddit.com/r/CryptoCurrency/comments/p1qfdo/psa_...

$2.3 Million of the Colonial Pipeline ransom was recovered [1].

I haven't seen news of anyone from DarkSide being arrested for that hack yet though.

[1] https://www.justice.gov/opa/pr/department-justice-seizes-23-...

It is already the taxpayer’s responsibility to report their capital gains.

The IRS has issued "John Doe" summons to Coinbase in 2016 [1] and Kraken in 2021 [2]. They also already gave warnings to 10,000 US tax payers, in 2019, that they thought did not pay their fair share of crypto taxes [3]. They are working with plenty of information already.

Anyone who chooses to omit capital gains from crypto may also see consequences in the future. Most blockchains are immutable public ledgers. The auditing of this technology will only get more advanced over time.

To your point about depositing, how does the exchange know the original price that the crypto deposited was purchased at, when it could’ve been purchased elsewhere (including a different centralized exchange like Coinbase, Kraken, KuCoin or Binance, or a decentralized exchange like Uniswap), or perhaps it was mined, or perhaps it was from a fork of another coin (with the current US tax laws, the cost basis is zero from a fork). It’s not as simple as you are making it sound when the source of the crypto is unknown.

How would formal verification actually work for a single exchange to calculate cost basis, i.e. the gain or loss, considering all these different cases? The people making these laws do not actually know in practice how these things would be enforced by the exchanges. They are trying to fit old securities laws into a new technology. Just saying that's it's too complicated is not the right answer. I think laws should be adjusted to accommodate for new innovations. I also think people should pay their taxes and crypto should not be used as a method of tax avoidance.

[1] https://www.justice.gov/opa/pr/court-authorizes-service-john...

[2] https://www.justice.gov/opa/pr/court-authorizes-service-john...

[3] https://www.cnbc.com/2019/07/26/irs-is-warning-thousands-of-...

I agree that some crypto folks may not have basic personal finance education (although some people investing in stocks, and promoting that to others, also do not have basic personal finance education). I also agree though that some cryptos basically print money (as one example, go look into the inflation rate of Curve DAO, a popular DeFi protocol, which I don't invest in, due to the inflation rate).

Bitcoin does not print money or have a high inflation rate, and that is the point of it (it was the original cryptocurrency that took off, so saying that the whole crypto sphere is bad is kind of like saying that because there is some bad software that all software is bad, or that because there is one stock that is bad that all stocks are bad). The max supply of Bitcoin is capped. I don't think that Bitcoin is the only digital asset worth investing in, but I also don't think it is valid to claim that all crypto is printing money, or that all crypto is bad.

I am a crypto fan. I don't think that it's the only way of storing wealth. I also invest in an S&P 500 index. I do think that crypto has a higher potential to beat inflation over time, with inflation currently at 5.4% [1], vs stocks. US stocks have been propped up by The Fed printing USD (which they can due to it being the world reserve currency, which may or may not last forever) and investing it into Wall Street, as well as dropping lending rates to essentially zero, since the March 2020 crash. The Fed has already signaled their intention to raise rates in the next few years, which would damper some of the bullishness of the stock market.

Crypto is a new asset class that investors can consider if they have some risk tolerance, with the potential for a high reward. The thing that I think a lot of people miss is that traditional finance is by no means perfect. There are negative interest rates in some parts of the world (i.e. see Europe). There have been synthetic assets in traditional finance like CDO's (i.e. see The Big Short), which are detached from reality (and assets like that will continue to be created because big money will continue to be bailed out). The current P/E ratios of even some popular stocks (i.e. TSLA) don't reflect traditional fundamentals, so there is a lot of speculation, just like with crypto (I don't think that speculation is bad, there are folks betting on what a company or a technology can become in the future). Also, the US Debt increases every year, with no signal that they will ever pay it back. Based on all this, I think it is worth considering some other asset classes to invest in vs purely traditional finance.

Anyway, just because crypto is not perfect and the space has many digital assets (and not everyone understands them), it doesn't mean that as a whole that it's bad and should be destroyed. There's so much already invested in the crypto space, and it's not just capital, it's startups and human time invested (like any other software project or field). People will continue down this path in one way or another. Regulation will likely mature the space and more people will feel comfortable to invest in it based on that. I think that crypto will at least exist alongside traditional finance, even if it does not completely transform it, and it's worth being open to seeing how this technology can benefit us all.

[1] https://www.usinflationcalculator.com/inflation/current-infl...

I thought the Wyden-Lummis-Toomey amendment was well thought out [1] and I called my senators to support that.

The newly proposed amendment from Warner-Portman-Sinema [2] could cause a few issues that I see:

1) Limiting the Lightning Network for Bitcoin, which enables off chain, instant, low fee payments (I think that Bitcoin itself would be fine considering that it is proof of work).

2) Limiting DeFi protocols.

3) Limiting proof of stake coins. My guess is that Senators Warner, Portman, or Sinema couldn't describe the difference between proof of work and proof of stake if asked. However, they have only called out proof of work in their newly proposed amendment. I think both miners in proof of work and stakers / validators in proof of stake are worth protecting given that both consensus mechanisms have pros / cons. One benefit of proof of stake is that it uses a lot less energy, which seems like a big oversight to not include in their amendment. Asking miners or stakers / validators to KYC and provide 1099s for transactions they are processing is not even possible right now. If the senators understood the technology in more detail then they would understand that this is unenforceable.

I understand the narrative that crypto is being included in this infrastructure bill to try to help pay for it. OK, sure. I also think that folks should pay their crypto taxes. However, I'm not really OK with senators who don't understand the tech in depth to make laws about it.

I also do think that this could drive crypto innovation outside of the US, moving jobs elsewhere. I think the US has an opportunity to be a crypto hub just like they are the predominant player in the equity markets. I believe we should foster crypto innovation in the US, not stifle it.

This video from Charles Hoskinson [3], co-founder of Ethereum (which is moving to proof of stake from proof of work) and the founder of Cardano (which currently utilizes proof of stake), has some commentary on this as well.

[1] https://www.finance.senate.gov/imo/media/doc/Wyden%20Lummis%...

[2] https://twitter.com/jerrybrito/status/1423429377459736577

[3] https://www.youtube.com/watch?v=JEF8dwF36qY

Here is the full transcript: https://www.sec.gov/news/public-statement/gensler-aspen-secu...

This is also a different take on his statements from the forum: https://cointelegraph.com/news/nakamoto-s-innovation-is-real...

Here is the full transcript if you would like to decide for yourself: https://www.sec.gov/news/public-statement/gensler-aspen-secu...

Crypto can be withdrawn from exchanges to a personal account that only that individual controls. This is unlike stocks, which sit in brokerages and could only be transferred to another brokerage (in kind transfer).

An example for someone in the US is that they buy crypto on Coinbase, and then they withdraw that crypto to a hardware wallet that they have control of. They leave their crypto on their hardware wallet for a few years and then transfer all or maybe only some portion of it to a different exchange, say, Kraken, and sell it there. How do the exchanges file a 1099 for that?

Maybe while the crypto was on the individual's hardware wallet, they also used some of it to purchase some goods or services. How is that tracked except on the individual's tax return?

I'm for regulation because I think it means the crypto space will mature and more people will feel it is safe to get involved. I also don't think people should use crypto for avoiding taxes (I do think that is overblown in the media considering that most blockchains are literally a public ledger, and all the government needs are some crypto experts and they can look at current as well as previous years of transactions, so folks shouldn't be doing anything shady).

I do also think that laws should adapt to new technological innovations. The only issue is that there isn't a critical mass yet that this technology is here to stay. The analogy is like fitting a square peg into a round hole. That's what the government is trying to do by over regulating crypto with regulations from the 20th century.

I actually would love if crypto exchanges could somehow give 1099s. That would extremely simplify the crypto tax reporting process, which right now can be very complicated, but I just don't see how it would work unless individuals only bought crypto on an exchange, left it on that exchange, and only sold whatever they bought on that exchange.

PayPal is centralized.

S3 is centralized.

This is not an apples to apples comparison.

Compensation is what is driving the decentralized ecosystem (including payments, file storage, among the other things mentioned in this thread).

You don't want to stay in an org that allows such behavior, or you're wanting to take a career break? Maybe it could be good to decide which of those it is?

If you just don't want to stay at that company, maybe find a new job first, before quitting? 400k in equity is a pretty decent amount. Also, although hiring and salaries are crazy right now, so are the interview processes.

My understanding is that foreign real estate buyers have also pushed real estate prices up. That said I think you make a lot of good points and crypto is about the only thing I disagree with you on.

If you have technology that can transfer a rock across the world in seconds then I would be interested in that. Same w/ crypto (with the added benefit of crypto not requiring a centralized entity to do so).

My main point is let's wait and see how this new technology evolves instead of just shooting it down. I don't think everything about traditional finance is perfect. Negative interest rates in some parts of the world are one sign of that.

I think we can iterate on traditional finance as well as explore other potential solutions. The aversion to cryptocurrency as a technology, when Bitcoin has only been around for a bit over a decade, seems premature to me.

There have been comparisons of cryptocurrency to the internet, which everyone may not agree with, but what if we just shut down the internet before it really took off? Well, we wouldn't be having this conversation.

I think it is notable that Switzerland also has very favorable capital gains laws though, at least for private investors. Could hold stocks, gold / silver or crypto in Switzerland and not pay tax on gains as long as you hold them for 6 months or more, and didn't make more than 50% of your income from capital gains. [1]

[1] https://thepoorswiss.com/capital-gains-switzerland/ (mainly talks about stocks but applies to capital gains in general).