I talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds. So they decided to just start hiring everyone they could from paypal, to move into "blockchain payments". They paid huge sums. The directors there had no experience ever managing huge teams of people. It was a giant mess of unqualified people funded by cheap capital.
She also said the money movements on the blockchain facilitated by BlockFi were done manually by blockfi employees. The software was a facade and wasnt trusted for large sums of money
This seems to be largely what is going on. I think also, there are a few startup ideas considered to be "the future", and VCs are basically just choosing which horse they will bet on for that idea. So they pick through different founders chasing that market, and invest. Then all the other VCs pile in on those chosen horses, regardless of the due diligence.
As a naive and younger outsider I always thought these people were all very competent. Clearly there is something very different going on here.
> I think also, there are a few startup ideas considered to be "the future"
This. I’m getting annoyed with my jQuery/Spring app with ~million of revenue that I can’t get sexy for employees nor for funding; sometimes I want to throw away ethics and say we’re building “a blockchain of solar-powered AI european-central-bank ledgers”. It would be so much easier. Nah, we’re just storied field data in 7 tables, and customers love it.
But the tide is turning. I have a friend who mentioned the blockchain on his funding papers and he can’t even get an office in my city (France). I’m happy the tide finally turns for the blockchain, to value it for what it’s worth: A good idea for 1% of the present usecases, and bad idea for everything else. Even though not being able to sign an office lease for insurance reasons is quite comical.
99% of the time when someone can’t hire the problem isn’t the tech or the product-space, it’s that they aren’t paying enough. If you pay me a million per year I will build boring crud apps and web integrations for you all day.
This is exactly the answer. I've worked on one very old codebase in my career. I was paid well for doing so.
The graph of investment in software starts high with greenfield projects, drops over time to an all-time low as optimizations take hold, and as the software continues existing will rise to the greenfield (or more) levels of cost. The interesting thing to me is what substantiates the rises; for instance, in greenfield experimentation and iteration is what costs the most. In old software it's usually the employees.
You won’t get a million per year from my revenue since I’ve built it and I’ll still be there come hell or fire; but you can get 10% at the beginning and I don’t hesitate to increase employees as they maintain the existing one or contribute to increasing the revenue. In fact I generally give them more than they contribute, and I’ve increased my employees 30% this year in average, unprompted.
But there is always this HN comment with, no matter how much you pay, they put exclamation marks about how little the compensations are in France and how 35hrs is too long or having to be in office a few days a week is the bane of their existence. I’m always wondering whether we’re unionized here, it looks like a systematic complaint, no matter the conditions.
Well, I don’t know, create your own company I guess.
1) has several layers of middlemen that all take cuts along with 2) and 3). Typical LPs for VC funds are often institutional investors like university endowments and pension funds, or they are hedge funds that are themselves funded by university endowments and pension funds. So when #5 happens, the loser is oftentimes not an individual rich person (though family offices participate in this ecosystem as well), but a collection of not-very-rich people that have entrusted their money to a professional money manager.
Here’s a true story: a friend and former startup coworker got verbal agreement on funding a startup. His business pitch consisted only of a list of names of people he’d worked with in the past who could execute well.
So where is the due diligence that the VCs talk so much about, especially in the case with FTX, which supposedly didn’t have any appropriate financial management?
Having been through due diligence with several top VC funds (Softbank Vision Fund and others) I would say that due diligence generally focusses in on a few key areas which are crucial to the upside and risk factors in the specific business. For example, is the financial model broadly accurate (ie there’s nothing in the finances that would cause the investment hypothesis not to work out), if they’re a software or saas company, do they own their software or are they exposed to IP litigation risks etc[1], what’s the cyber risk like, etc. Then they will deep dive on anything that gives them a spidey sense tingle during that first phase. It’s not a general seal of approval of all the controls in the company, they know for a startup you’re building the plane while you’re trying to fly it, they don’t expect perfection they just want the plane not to crash into the mountain before they hit their exit.
On that basis, the FTX thing is kind of baffling because the financial controls would seem to be core to the thesis. Having read some of the things sequoia said about their original meetings with SBF it seems they were dazzled by him personally and allowed their greed to overcome basic prudence.
[1] So for example for SVF I had to go through all the transitive dependencies of all our software (which for JS and python is generally a lot), check the licenses and actually track down authors of a few packages in the node ecosystem and ask the authors to explicitly license their software so we knew we had a right to “depend” on it.
The TLDR of the above which I never actually state is you should never think because X investor is in a situation that you don't need to do your own diligence/research. You should always do your own research and satisfy yourself before putting your own money at risk.
You are missing the key point. It's not hard work, skill and luck.
The Fed has been on a money-printing spree since 2008 [0]. The idea was that it would create jobs and stimulate economic activity. In reality, it lowered the bar for things considered investable, so the Ivy-educated VCs were trying to tap into that stream of cheap money, while paying themselves handsomely. Either get acquired (using cheap debt that will also be used to pay the acquiring execs) or IPOed (using the excess money from the public). Profitability was out of question for at least a decade.
Not directly, sure. The low interest rates, and the overall increase in money in the system, made VC investing less risky compared to other options. Now that changes.
Interest rates are for banks borrowing from the Fed, affecting interest rates on loans issued by banks, and the rate of bank lending. But I don’t think VCs fund themselves by taking bank loans.
These crypto companies are primarily capitalized by VC and selling crypto.
Alternative "assets" like crypto gained more credence when rates were low. Bond returns in such a regime were not attractive, equity markets rallied to elevated levels, and there was little incentive for debt issuers to use free cash to pay down debt that could be rolled out into perpetuity.
The Fed essentially held the cost of money near zero and that had far-reaching effects.
It prints money, that money flows into institutions and chases returns. Much of it flows to VC, guaranteed. That’s what the Fed was literally created to do.
The fed was created to be an intermediary between banks so all banks form a network that in aggregate cannot be insolvent because if one bank is insolvent, another bank has plenty of money to lend to the insolvent bank. When you withdraw into cash, then you are basically banking with the Fed which means banks borrow from the Fed.
New money is created through bank loans, or monetizing government spending, or emergency asset purchases by the Fed – none of which are the typical source of VC funds.
From https://hackernoon.com/the-macroeconomics-of-venture-capital...:
"when the Fed engages in quantitative easing, it goes a step further and attempts to keep returns for longer-term bonds down as well. In the United States, this meant the purchasing of mortgage-backed securities and government bonds. (In Japan, central bankers have had to utilize even more extreme measures, going so far as directly buying not only government bonds but also stocks on the public market). By bidding up the prices of long-term bonds through quantitative easing, the Fed forces investors to seek returns in even riskier assets, such as equities.
As investors flow into the equity market, stock prices are bid up to the point at which expected returns for stocks also become unattractive. At this point, the logical next move for global, institutional investors is to move to more risky investment options such as private equity and venture capital. This is exactly what we’ve seen."
I once heard that a well-known gig economy company would open up new cities by giving employees essentially-unlimited credit cards and telling them to buy whatever they thought was needed, with no controls or multi-person approvals.
It'll be interesting to see how VC changes in the modern environment - will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth, or will they begin looking more for experienced operating teams who reach and maintain profitability (or a rapid path to get there at all times)?
Super Pumped: The Battle for Uber is the most well-known tell-all book. I think they also made a TV miniseries based on the book but I haven't watched it yet.
Wild Ride: Inside Uber's Quest for World Domination is mostly a summary of the headlines involving the company rather than a tell-all but it's accurate enough if you want to familiarize yourself with the subject.
I don't believe anyone has written a book about the technology team specifically which is sad because they actually made some really great technology, especially in the monitoring space, and I would love to hear the story of how that came to be.
Ubers lie was it would be profitable at scale. They were never profitable at all while growing, but always claimed that if they just had a few more markets they'd finally be profitable.
Turns out unsurprisingly, if your revenue is negative and you multiply it by 1000000 it's really negative.
Option A- you task some employees with buying office furniture and equipment and then waste everyone's time by having some extra meetings and emails and bureaucracy where someone asks "is that a good price for 50 desks? Did you get multiple quotes?" and the employee says "yes" and then they approve the expense.
Option B- the same employees make the same decisions, but without the extra meetings and emails and paperwork.
Being more efficient, giving employees more autonomy and focusing on what actually matters is why startups displace incumbents. These are good things.
> will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth
From some previous experience, outside of crypto - which was DIFFERENT™ - this already started changing in 2019 or so. Softbank was one of the most infamous players, and when they started to pull back, so did some others.
Not that there aren't still some "huh"-inducing things - like the new thing from the WeWork guy - but it seems a bit saner-paced on the ground, and now even crypto will get its reckoning.
This happens because of the boom-bust cycle we see in capitalism. I was a child in the 1990s when the Netherlands went through a boom that looked like the Japanese bubble and lasted 20 years.
I don't expect anything to change because it never does.
With all of the capital they have, you would think they would hire competent people from big tech. Instead they just find some stanford grad with a few years of experience to manage 50 people. It doesnt even make sense
I’ve seen that in practice. A non-crypto fintech I was at was acquired by a traditional lender and a number of staff took off immediately after the acquisition. A bunch went to FAANG (or FAANGish) places and a bunch jumped to crypto shops. In general the ones who jumped to crypto were either pure promoters or were able developers who had no understanding of finance, economics or the payments system.
Give us your money to invest in this new, fresh face that's going to change the world.
If you're an old face - why haven't you changed the world already?
The story isn't as catchy.
It has nothing to do with what makes sense. For a large subset of VC (obviously not all) - it's more about what you believe you can sell to others than what you believe is actually going to succeed.
Competent people will tell leadership what's wrong which leadership perceives as a threat to their egos/power. Incompetent people will tell them they're doing great while simply cashing their checks.
I've seen a couple startups with ~10 people and no market fit paying $500k/y to hire a FAANG VP. That's even more damaging than a fresh grad kid managing 50 people!
Getting the FAANG VP is usually critical to landing the next round of funding. If sending $500K/year [1] out the door brings in $50M for your next round of funding, it's well worth it. Particularly if you recognize that your enterprise is a Ponzi scheme [2] and that getting that next round of investors is how everyone gets paid.
[1] seems ridiculously low BTW, that's a line manager or extremely skilled software engineer at a FAANG, VPs make multiple millions per year.
Thinking about it, market fit would be the latest point to hire an experienced adult. Preferably from one to two levels below the role a start-up is hiring for, e.g. director level for a VP position.
Maybe hire earlier, as soon as an adult is needed to set up proper structure, processes and operations. If a company screws this up, e.g. when inexperienced founders hire former COOs and senior VPs from big names for those big names only, things can turn south pretty well.
> talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds
So was SBF (MIT) and raised from Sequoia and Blackrok and his GF was a Stanford'ite with a Math degree and is responsible for the largest loss of funds from that cluster**.
Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works; as a fintech boot strapped founder with over a decade in the Bitcoin community its been fairly obvious for at least 7 years since Blythe Masters and all her cronies from traditional finance got involved this was the case.
Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
Pretty clear some ivy league degree holders are raising money with no product/no qualified background. While others are slaving away to get "product market fit" before a VC will touch them
> Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
This may just be me because I from CA and was inspired to work in tech as kid in the 90s and saw the drastic and detrimental culture changes that have come over the years/decades: many of you keep attributing these scamming events to us when in reality you FAANG/SV/VC insider types likely went to school or worked with them and turned a blind eye to this very obvious behavior that bred this culture; if you worked for or with them you likely even enabled this behavior in order to clout/status chase for a 'disrupter's' reference or network connections for funding. I've seen it far too often, and somehow for calling it out we become 'persona non-grata' in our homes because trnsplants who only came to SV for the money and status rather than make remarkable tools and disrupt legacy gate-keepers 'want to get theirs' all while all playing some odd cosplay to the contrary.
The truth is that the tech that underlies cryptocurrency's like Bitcoin have it's roots in SV and has been advocated by Cypherpunks from the late 80s-90s and many of it's most notable people in this space were around in that time (eg Hal Finney worked for Phil Zimmerman during the Crypto wars and took on the US Government and risked prison). And it's a slap in the face to be told how we're not wanted or just scamming people with our focus and pursuits in tech because of this gross over-generalization that is based on an immense blind spot that who you are talking about is within your side more often than amongst out own--I admit we have had scams but the most notable are due to incompetence and ignorance in dealing with new tech (MTGOX) in real-time rather than an outright desire to scam.
Bad players have existed in Bitcoin, I've seen it plenty of times, but as is the case with the biggest ones like FTX and BlockFi it tends to be from your ilk, not ours.
> May want to add Do Kwon (Stanford) and 3AC (Columbia) to further solidify your case.
But it's more fun when other's help drive the point further for me!
I would also include conbase (not a typo) ties to Goldman Sacs and YC, but unless you've seen its horrible descent over the years you wont know why they should be included.
SBF and his girlfriend Caroline Ellison were also both traders at Jane Street after graduating. Being hired as a trader at Jane Street is no easy feat and more impressive than attending MIT/Stanford I would say.
> SBF and his girlfriend Caroline Ellison were also both traders at Jane Street after graduating. Being hired as a trader at Jane Street is no easy feat and more impressive than attending MIT/Stanford I would say.
I guess I have to quote myself here, and re-emphasize that they are all part of the same group of insiders:
>>Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works
I worked at a megacorp pushing 'blockchian not bitcoin' BS and it was only because they realized they couldn't co-op it and instead ran with alts that ended up getting investigated by the SEC.
Let me makes this very clear: I've been on both sides of this equation and I can assure you even though we didn't have much if any money on the BTC side until very recently (most traditional and VC money went to these insiders) those of us that built companies had to knew how this tech worked and often had to built the infrastructure from the ground up.
I personally couldn't even code until I got into BTC despite having several opportunities to do so, because this space demands that you do since it moves so fast and the pace of innovation requires you to know how it all works otherwise you get left behind. And because of this it becomes very clear who knows what they're talking about and who doesn't when you start to hear the merits of a 'private blockchain' and realize what they're describing is essentially just a SQL database with different branding but totally not that bitcoin thing or why the Byzantine General's problem was thought to be unsolvable by Computer Science prior to Bitcoin, let alone how the mempool works or what a UTXO is.
Only 1 of the BlockFi founders (Flori) has an ivy league degree (from Cornell). Zac is a moron who made his wealth playing poker and through a scam loans startup (Zibby).
>Only 1 of the BlockFi founders (Flori) has an ivy league degree (from Cornell). Zac is a moron who made his wealth playing poker and through a scam loans startup (Zibby).
It's much, much harder to make millions at the poker table than it is to get a degree from an Ivy.
It's also much harder to make millions from the lottery than it is to get a degree from an Ivy. There might be a few hundred winning the lottery every year.
So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
If you have an open mind, I encourage you to look in to poker theory. It's far deeper than you appear to think, requiring a competent understanding of statistics, good mental maths, and an ability to perform under pressure. There's a reason many consistently successful modern poker players have some math pedigree. Many pro players go on to work at trading firms, Jesse Martin and Vanessa Selbst come to mind.
If you do truly think it's no different to the lottery, I'm interested in your explanation as to why these people (a) come from the background they do (a high schooler with decent maths can tell you why the lottery is -EV) and (b) go on to the careers they go on to.
> So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
Poker is played competitively both online and in the casinos of every country all over the world 24/7. There are a phenomenal number of players compared to Ivy league students.
Unlike the lottery, it is also largely considered to be a game of skill based on a combination of statistics and social manipulation.
GP is generally implying that because the ratio of players to successful players is so small for a game so widespread that is is very difficult and requires a huge amount of skill to make a significant amount of money playing poker.
Those pension funds have a small part of their portfolio chasing high-yield investments. I don't cry crocodile tears when they overperform the SP500, and I can't say I'll be crying them when they underperform.
... Although given how frequently the Ontario Teachers' Pension fund has made the 'Pension funds invests into an incredibly dumb startup' news cycle, I suppose grifters, thieves, and conmen might consider them to be an easy mark.
VC is a very small component of a pension fund; it's money that's often deliberately invested in weird decorrelated shit, for portfolio-theoretic reasons. There are lots of reasons to have a problem with crypto and defi! But the safety of pension funds vis a vis institutional VC is probably not really one of them.
(You can imagine batshit pension funds that invest directly in crypto/defi stuff; that's extremely problematic.)
I regret to inform you that it was not isolated to "crypto funds". A lot of VCs mish-mashed them together with their other investments and slapped a Cathy Wood style name on it like "future innovation fund". VCs are mostly just salespeople, and so are founders. VCs sell to organizations such as pension funds, and founders sell to VCs. Most VCs lose money, especially in an environment full of froth, and most VCs don't know what they are really doing. From what I have observed, a lot of laypeople have a ton of respect when they hear the word "VC".
There is a lot of literature on how much pension funds are chasing exotic and high-risk investments due to the unexpected longevity of pensioners and persistence, until recently, of low interest rates
Implemented the “facade” for a services company a dozen years ago. Request comes in and sales agents manually find a good local in the area.
Got it the point where we were ready to scale nation wide.
Leadership decided it was useful to have as something to prove we knew had great tech. But really wanted to do manual sales of other services. They were only looking at next quarter profits. Not seizing the industry.
Finally left in disgust. They gradually faded as manual wasn’t scalable.
Was years before I saw comparable competitors.
I think part of it is non technical people not trusting their technical people/not willing to give them the keys to the business. They can "see" the manual parts and control it.
Theranos had all the financial backing they needed, and a coterie of ex-gov, ex-military elites playing defense for them against the FDA for years. Their plan was explicitly to lie, mislead and obsfuscate for as long as they could.
BlockFi is just incompetence without the SBF-like malice.
Theranos was exceptional in its industry, where most actors sell valuable products, have existed for decades if not centuries and will continue to do so for the foreseeable future.
BlockFi is just your typical blockchain company, a complete waste of money if not a scam, see FTX, Terra, BitConnect, MtGox and so on. An exception to the rule would be a company that's not a complete disaster run by ignorant, arrogant scammers.
Given the amount of handwringing we've seen over the past couple of weeks in re: Twitter's headcount, it astonishes me that we haven't seen anything close to that for these cryptocurrency firms.
Twitter ran one of the world's largest social media networks with around 7000 people; what in the world is Kraken doing with ~3400[1]?
Kraken is one of the OG cryptocurrencies exchange. Maybe the oldest still around. They're in the business since 2013 or so.
Since then the Crypsy, Quadriga, Mt Gox, FTX, etc. have all come and gone (with their customers' money) but Kraken is still there. If they are on a scam, it's a really long con: a decade and a half of a con?
They're not "Binance big" but they do nearly as much volume as Coinbase, so 3 400 employees doesn't feel that surprising.
I don't think BlockFi did anywhere near the volume of trades Kraken is doing. As I understand it BlockFi was some kind of a "fire and forget" thing where you'd loan your crypto and get some yield in return. So very little things actually happening there compared to Kraken.
Yes, 900 employees was insanely huge for BlockFi. But I don't think 3 400 employees for Kraken looks that crazy.
3400 employees at 1.4B revenue (2021) is not great, it’s lower than twitters per employee ratio which was also not great. Amongst financials that headcount-to-revenue is pretty abysmal.
Why is headcount so important? Especially for internationally run (read: not Silicon Valley expensive) companies and with probably large customer service depts (read: not expensive), is the headcount number that easy to use as a metric?
Kraken actually handles money so it needs customer service and Twitter is just a bunch of already written code for posting stuff and sometimes (although much less now!) getting ad dollars.
What do (did) 7000 people do at Twitter? I hate to ask the question because it aligns me with Elon whom I despise right now. But what do all the employees do at tech companies? I thought the beauty of tech and why the valuations were so high is that it scales quite easily since it is all code. What do 32,500 employees at Uber do?
Huh what? Do you assume that code just works? Something's always breaking and there's always new features that people want. Editing tweets just barely became a thing. Which, btw, is the exact sort of feature that would be easy peg as trivial, but likely is not when you're running at Twitter scale. Before, a tweet had two states: created or deleted. Now it can have arbitrarily many states and possibly even interleaved ones. In a distributed system that's a lot more complicated.
Twitter runs its own infrastructure too. That takes a bunch of people. Computers don't just run themselves and they certainly don't provision themselves.
Traffic is likely super spiky too because of how Twitter reacts to current events. That probably requires cutting edge load balancing and real time code.
Not to mention all of the work getting everything translated and accessible to the entire globe. And of course moderating a site with millions of people so that literal civil wars do not start. And keeping in contact with various governments who probably contract each other and themselves on a regular basis. These are problems that are not as scalable as writing a bunch of code. You need real, physical people to handle these issues.
And now setting up a creator economy and their Clubhouse competitor.
Having an immutable ordered log + a single bit flag for "deleted" is radically more efficient than an arbitrarily mutable ordered log.
ex: You could store every tweet compressed in S3 with a bitmap for which are deleted (a bit that can be cached forever). That assumes you aren't going to ever have to update the object in S3. Once you have to update it that entire design is horrible, you'll need something completely different.
Consider that there are thousands of tweets per second with significant fan out for reads. There's search, relationship data (did you @ someone? did your edit remove that @?), business analytics, and more.
Add to that deletion flag a tweet redirect ID. Redirect deleted tweets with the ID to new tweets seamlessly. Touch up the old code to account for all this. Now you can edit tweets with immutability intact.
Also has the benefit that retweets and likes point to the old version, which is how it should be.
oh ok so now instead of 1 immutable bit that can be cached forever we have to store an id. Good news, instead of a wonderfully compressable bitmap you now have a bunch of uncompressable 128bit nullable uuids. Only a few thousand times less efficient!
Oh and of course you now have a linked list structure you have to traverse every time you want to resolve a tweet. Cool.
The value proposition of decentralized finance was supposed to be a replacement for traditional finance: automating away the hundreds of manual roles that banks currently employ as part of their regulatory requirements and customer services.
Do you have a source that shows that a substantial percent of Kraken's headcount is customer service? They've tried recruiting me a handful of times, and each time they highlighted their voracious appetite for engineering talent (and corresponding rapid growth of their engineering teams).
As I said: Twitter was one of the largest social media networks on the planet, one that ran its own datacenters and independent ad business (along with moderation teams, service teams, etc.). I'm not particularly interested in defending a headcount of 7000 people; only that it makes far more sense to me than roughly half that number at a cryptocurrency firm.
To be fair cexes are like a bridge between defi and regular finance and need tech and knowledge in both areas. Ask how larga a headcount dexes like uniswap need, and your argument makes more sense.
> Kraken actually handles money so it needs customer service and Twitter is just a bunch of already written code for posting stuff and sometimes (although much less now!) getting ad dollars.
If you view Twitter as a 'service for posting 140 characters', they don't need 7000 employees.
If you view it as a 'service for supporting five billion dollars worth of ad spend across the entire world', with all the proprietary software, ads front-ends, ads back-ends and reporting services, weird one-off partner integrations, ads account management, sales, advertiser support, moderation and compliance, legal compliance... Well, all that quickly adds up to a lot of headcount.
It’s crazy how I bypass all that with simple adblockers. I don’t think I ever see ads on Twitter. Five billion dollars spent on information asymmetry from users that don’t know how to block ads. I guess I don’t even think about the ad part and workers needed for it.
You (like me) are probably an outlier: over 90% of Twitter users probably use the Twitter apps, which make adblocking much harder (although not impossible -- people maintain mass ignorelists!).
I also feel like people who know of and use adblockers are less likely to be persuaded by ads. So losing that segment is not such a big loss for a platform.
The accumulated events and decisions over the lifespan of the company.
What's done in house, what's done elsewhere? What "bus factor" do you want your engineering teams to have? What events have left scars on the organization? What prejudices and preferences does the executive leadership have? How does the company handle the fiefdom builders who hire just to make their org size increase? How does the company handle attrition?
It's not like there's one "correct" staffing for a large company. There's hundreds of factors, some large some small, that add up over time. The company has goals to reach and problems to solve as each of those decisions are made, and those evolve as the company evolves.
The point is, it’s easy to vomit a laundry list of reason why a company needs more staff. But it doesn’t shed light onto why a 7000 figure is reasonable until it justifies why other figures are too high or too low. Nor does your comment.
Your comment continues to presume that there is a specific correct value or range of values. That's simply not the case. The list of potential reasons is long because there are a lot of contributing reasons.
What are Twitter's goals pre-buyout? Are those the same as Twitter's goals post-buyout? What are the decisions the company makes in pursuing those goals, in each of those contexts?
Analyzing all the decisions that brought Twitter or any other company to a specific count of employees is an extensive undertaking, and would require extraordinary memory and honesty of a huge number of people. And you'll still have a giant pile of decisions that could have gone either way depending on slight changes in conditions.
>No, I was replying to a comment that was attempting to justify ~7000 as a reasonable figure for what Twitter’s app needs to do.
Let's look at the comment you were replying to:
>If you view Twitter as a 'service for posting 140 characters', they don't need 7000 employees.
>If you view it as a 'service for supporting five billion dollars worth of ad spend across the entire world', with all the proprietary software, ads front-ends, ads back-ends and reporting services, weird one-off partner integrations, ads account management, sales, advertiser support, moderation and compliance, legal compliance... Well, all that quickly adds up to a lot of headcount.
You characterize this comment as justifying ~7000 as a reasonable figure "for what Twitter's app needs to do." The comment makes an important distinction between what you might need to run the most essential aspects of a thing that allows Twitter-like social media interactions to occur versus an enterprise that leverages those social media interactions as one part of a larger system. It says outright that you wouldn't likely need 7k just for the essential "let people make tweets" aspect.
TBH you appear to be the one with comprehension issues in this thread.
Its very simple if you think about it. Can you think of other web services with the scale and popularity comparable to Twitter that run on much lower headcounts?
Go ahead and make a Twitter clone this weekend. There are plenty of tutorials. Then let's assume you go viral and now your little service needs to scale. Then the email and issues start to come in. Now you have to balance fixing bugs and tending to customer support. Oh, are you going to outsource all cloud services or hire a 200k+ a year SRE to scale it out? One wont be enough you will soon find out. Did yo do your research on compliance? Are you sure your app is legal in every country it serves? Pretty soon you have a team whose salaries + benefits are costing you several million dollars a year. And you only have 10 people.
I could go on and on. Yes, creating a twitter clone is trivial. Scaling it and tending to real customers is a completely different story.
Telegram doesn't have "more functionality". It's significantly less performant and it doesn't have any global search or sophisticated recommendations system. It's also pretty lightly moderated.
Moderation, customer support, sales, and then everyone to support all those people.
You don't think that matters, but it has a real impact on your bottom line. Companies are stopping advertising now, not because Musk took over, but because they can't support for advertising (probably because they were sacked).
It was one of the worlds largest social media platforms!
Couple that with the reality that Twitter needs at LEAST twice as many people to function than it currently has, even after Musk sent everyone packing. How do I know this? Because the remaining people need to work at least twice as much to make up for the people that left.
And this of course ignores all the things that have failed since he took over. The current people are NOT keeping Twitter at 100%. It's already failing.
I didn’t express an opinion on that, and actually believe the opposite of what you just hastily attributed to me. My point is that, when gauging whether 7000 is a reasonable figure, it’s not enough to vomit a laundry list of work that the company needs to do — because that kind of argument would apply equally well to justifying 3500, 7000, 14000, or a million. To justify a specific figure, you need more rigor than hand waving about general work categories. The parent didn’t.
The parent poster, as an outsider, only makes informed, but speculative guesses about Twitter's business footprint, as does ~anyone who does not have T9 vision of the firm.
I am not going to tell you that their right size is 3500, or 1500, or 7000, or 14000, because I don't know what it is. But I will say that it's very likely to be measured in the thousands. [1]
[1] Although you can always try to shrink the business... A Twitter that doesn't work, and has no revenue could probably be ran by ~0 employees.
At lot of that is dealing with large customers(advertisers etc.) who need to be able to talk to someone at those companies to make sure they get their money's worth of services, and isn't left alone to sort out their issues based on bad documentation and internet hearsay.
Another big part of it is simply admin, for twitter a lot of that is babysitting the moderation algorithms as their customers(who is not the people tweeting) can be pretty sensitive about what kind of content they are associated with.
Then there is defensive research i.e. any big company in a particular space wants to have prototypes and technology ready to compete with anything their competitors might come out with especially if they expect a growth in overall sector revenue.
For uber they are also a de-facto employer for a lot of drivers and a provider of real world services so they need the full range of hr and customer support services that those kind of services and driver numbers would require had it not been a tech company.
I don't know, but Discord has a small fraction of the employees. They have hundreds of millions of active users, handle tons of live audio streams in addition to the text traffic, and their client software has a lot more features than twitter. Why can Discord do more with less?
That's not lean. FB had less than that in total employees before they went public, at which point they were already profitable and had over a billion users.
A large chunk of the 3400 employees are not eng or the like. Most of these people are customer support or customer support adjacent (eg compliance). In this way, Kraken is a little bit different from most other tech companies.
Where do you start? You start with company that builds a lemonade stand, and they dress it up like a life changing lemonade that's going to replace all other drinks in 38 days or whatever. So let's ignore what it does, let's pretent is does literally nothing, it's just a stand. So what's next. This lemonade stand has some market price, it's probably not zero, right? Let's say it's 20 million dollars market price. Maybe in your world if you create a lemonade stand it's worth 180$. But in my world, when people create lemonade stand and twit about it, people are like "ooh, a Lemonade Stand! Noice!" and it's worth 20 millions. And all these sophisticated games go like "ohh, if there are 100 million dollars in the lemonade stand, then it's going to get 16 million dollars of profits this year. That's pretty good, let's put a little bit more into it.". And maybe that happens with the other 200 million dollars in the stand. So you know, sophisticated traders and cryptards or other similar parties decide to put 200 million dollars in the stand. And other people go like, "oh, this is a pretty cool lemonade stand, it's valuable stand, and who a re we to say it's wrong?". Lemonade stands can be great. I love lemonade as much as the next guy, right? And then people are recalibrating, "20 million dollars for this stand? that's it? it's probably valued at 1.5 billions at least!".
To be fair, that is how the entire fractional reserve banking system started. Safe houses for gold handed out slips of paper to make it easier for the guys storing their gold to spend it and said, "hey, we'll actually pay you to let us hand these slips of paper out to people who want to borrow your gold. We just need you to stay quiet and be cool with us committing fraud and handing out WAY more borrow slips than there is gold. Cool? Cool."
We as a society accept large scale fraud all the time and normalize it.
That's the crypto community delusion about how fractional reserve banking works. The way fractional reserve banking actually works is that banks lend out money, and the loans are their major assets. This only works if there's heavy regulation on how sound the loans have to be. Without regulation of loan quality, there's a banking panic every few years.
All the US banking crises since the 1920s have involved some form of deregulation.[1]
The same could be said for FTX. There just needs to be regulation about how sound the self-created coin backing your margin needs to be. Without regulation of the soundness of the economic value of your self-created coin you get a crypto crash.
Am I crazy? Are we not describing 2 identical problems and classifying 1 of them as fraud?
The soundness of loans in a deregulated environment is no better than the soundness of a self-invented currency.
Your original response was an insinuation that banking systems in general are based on fraud, and that gold should be the basis of monetary value. In fact, the case has been proven that gold is a poor basis of monetary value and that banking systems, when properly regulated, are not fraudulent, or are very rarely fraudulent.
The reply to that was to explain that regulation was the key to maintaining a stable banking system.
You then ignore all that an conflate unregulated banking and regulated banking as equal.
I hope you understand that this makes your argument dishonest, and that you attempt to avoid this in the future.
Please understand I am not trying to be dishonest or make arguments in bad faith. Maybe I need to be further educated.
I understand that the level of fraud committed specifically by FTX goes far beyond simply misleading lenders and regulators about their collateral which consisted mostly of their own crypto. In general, however, this seems to be the root of the issue and the systemic problem across all centralized crypto exchanges.
From the start and well prior to this conversation I have had the belief that Crypto "scams" like this bear a striking resemblance to the world of traditional finance and specifically the securities market and MBS.
I'm not trying to argue in bad faith or use any kind of argumentative tactic or fallacy (at least not intentionally).
these nakedly fraudulent scams are nothing like real finance, its night and day. you need to get educated and then come back with better-informed opinions
The key problem is that crypto only has value in the absence of a regulatory authority. If users have a 3rd party they both trust (the government), all of the waste in crypto is unnecessary. However, it turns out for crypto to be used, it has to be centralized. Without centralization, it's too complicated for the masses.
Soundness of loans can't really be regulated. Everybody who makes loans thinks that they're sound. They just turn out to be wrong sometimes. e.g the mortgages in 2008 we're thought to be solid because they were covered by collateral. But as it turns out that collateral wasn't worth what it was assumed to be.
This is not to say the space shouldn't be regulated, but all regulation on the soundness of loans suffers from this. e.g bank leverage limits rest on the same type of assumptions about the value and liquidity of different types of collateral. And if those assumptions are wrong they will fail no matter how solid the regulatory model says the bank is.
Weren't all those ape NFTs brought with monopoly money anyway?
I mean, buying a $1M ape NFT with real money makes no sense - but if you were Sam Bankman-Fried and you had an unlimited supply of coins you knew to be worthless, you're just swapping something worthless for something maybe-worthless, which is much easier to explain.
NFTs are collectors items. It's as stupid as collecting anything, including fine art, photography, baseball cards, rocks. I'll admit it seems more strange because it's uninteresting, but claiming collecting is idiotic is pretty short-sighted.
There is one "small" problem - NFTs are NOT in any way related to the items/files someone is collecting. And collecting NFTs is about as interesting as "collecting" numbers from the random number generator.
NFTs are probably the most interesting and legitimate use of these kinds of computer systems. For example, I could see a lot of value in specialized Yu-Gi-Oh projection card tables installed at game stores that only worked with officially issued NFT virtual cards. Players could rent out their virtual cards to other players and turn their purchases into assets. There are already companies in the MTGO space that rent out virtual cards but the whole trading system is (poorly) managed by Wizards of the Coast and lacks programmability.
I think the biggest problem with crypto is that it was way overhyped for anything outside of having fun online.
It's like meme stocks. It's fun to waste $50 playing some silly online game! It's not fun to waste $50k gambling on something that you think will change the global financial systems.
I also think there's plenty of room for fungible tokens that represent ownership over digital content, eg, buying 4% of the rights to the future profits from the monetization of a digital video, as opposed to the patronage system of platforms like Twitch or Patreon. If we truly are reliving the existing financial system shouldn't we expect to reinvent a marketplace for intellectual property?
I have to repeat myself - your "YuGiOh virtual cards" are in no way related to the NFTs. Sure you can require buyer of a card to also buy NFT, you can even pretend that was a single transaction. But really NFT has zero function in this example, it provides zero value, and if you remove it from the system altogether - NOTHING will change.
It's like saying that clapping with your hands at the gas station is somehow equivalent to the purchasing fuel. Sure, BP for example, can demand all fuel buyers to clap their hands once and claim that hand clap = fuel. But really it's just a dumb addition to the real transaction which does nothing.
NFTs are such hand clap when buying digital (or real) objects. The only difference is that they are served with metric ton of technical and pseudo-technical jargon, to the point when even some people in IT are starting to have doubts. But then you think about NFTs again and the mist of bullshit dissipates leaving only bare facts.
If the projection system in the game store requires NFTs that were issued by the creators of Yu-Gi-Oh then you would need these virtual cards to participate, just like how you need virtual Magic cards in MTGO in order to participate, the difference being that in the former it would be some open standard where people could trade, sell, and lend as they see fit.
I'll try again. Company A (Shueisha) creates digital collectible cards.
They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).
Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.
Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.
User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.
What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.
Some other NFT fans also claim that they allow moving assets between companies or even people. This is simply impossible to do with only blockchain, again, because centralised DB and management systems are required due to technical limitations, and because companies must agree on the cross compatible formats and agree to take revenue cuts, which is a fantasy. And moving assets to the humans is also impossible because NFTs don't transfer any partial or full IP rights, they are technically incapable of doing this. Then again you are dependent on the centralised DBs.
As you can see, NFT is an interesting artificial construct which does literally no useful functionality on it's own. In any proposed system with NFTs, you can cut out NFTs and have exact same functionality remaining.
So let's imagine that instead it is a non-fungible token. The only difference between a fungible asset and a non-fungible asset is that a fungible asset can be split up into parts and owned by multiple parties. A non-fungible digital asset has only one owner at a time.
> They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).
You don't need to store anything in the blockchain other than the cryptographic hash of the digital item in question. In fact, you can take the cryptographic hash of many different digital messages and then take the cryptographic hash of those combination of cryptographic hashes and store that data in the blockchain, along with data related to ownership.
> Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.
This is incorrect. Let's say I'm Shueisha. I create a physical device that I install in game stores that comes pre-installed with valid public keys for digital cards issued by Shueisha. Then I issue a number of non-fungible digital assets that are signed with one of the private keys paired with the public keys stored on the physical device in the game stores. This physical device will only work with digital assets that were originally issued by Shueisha, say a virtual pack of 15 virtual cards. These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish.
When someone purchases a pack of digital cards they provide their own public key and Shueisha publishes their own signed transaction that transfers ownership to this person. The physical device in the game store is connected to the internet and can see the valid and confirmed transactions. The physical device in the game store ignores all assets that did not originate from Shueisha but will honor ownership of all future transactions of digital cards that did originate from Shueisha. The physical device in the game store also connects to a database run by Shueisha that when given the cryptographic hash (or the hash-of-hash and the hash) of a digital card will return the details about the card... link to the URL for the digital art, the flavor text, card rules, etc.
> Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.
All that needs to be written to the blockchain is the cryptographic hash and the recipient signed by the original owner. So when you buy a pack of digital cards from Shueisha they write a transaction to the blockchain signed by one of their private keys that says they are transferring ownership to your public key. The public key pairs for Shueisha, again, are stored in the physical device in the game store. If you bring a device with your private key to the game store then the physical device will let you use any cards that are shown to be owned by your matching public key.
> User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.
The only need for a centralized database is for all of the meta information about the card... the art, the name, game details, etc. The only need for a decentralized database is in determining the cards owned by the gamer as proven by their private key on some device they bring to the game store.
The physical device at the game store then makes sure that the players own the virtual cards that they say make up their deck by checking the decentralized data stored on the blockchain. The physical device then gets all of the meta data about those cards from the centralized server.
> What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.
This is incorrect. In the system I am describing the decentralized data stored on the blockchain is only the cryptographic hash of the digital asset. The meta data is stored on a centralized DB owned and operated by Shueisha. This is just like how I can't scribble on a Yu-Gi-Oh card to make it say whatever I want (at least for tournament play) but I can indeed buy and sell and trade Yu-Gi-Oh cards without the involvement of anyone else.
I see you are still making the same error as others - "These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish."
Cards are not tokens, and cards are not on the blockchain. Cards are digital assets, but they can't fit inside a token, they can't fit in the blockchain (for a reasonable price with a reasonable blockchain performance and decentralisation).
You have complicated my example, but it is essentially the same - your physical device is the centralised DB now (or you are using two centrlised DBs - device memory and some corporate cloud server together). Assets (cards) are stored inside it. To access them you need a key. In your example key is the token, but at this point - that's not really mandatory, we have many other ways to sell and store keys. But it's an option, yes.
What you have described is just another way to access assets stored in a centralised way and authenticate yourself as a person having access to them.
And you don't "own" your assets (cards), unless of course there is some agreement, likely on the web site or with purchase of that physical device saying that IP rights are transferred to you Name Surname. You are renting your cards based on the good will of Shueisha, and when you say sell cards - that just means Shueisha gratiously allows transferring of some record in their DB from one of their registered users to another. Just as an example - let's say Shueisha uses Tezos bc, user A is a registered customer of Shueicha and "owns" a digital card from them. Can he sell it to whatever random person with a Tezos wallet? Well, no. Unless Shueisha makes allowance for that, but that would be dumb because it will expose asset to everyone (same as today's NFT pictures work).
Everything is stored on Shueisha servers or DRM'ed devices from them. Everything is managed by Shueisha directly or indirectly via coding some physical device which will do it. Tokens are used to access stuff, but they either insecure, or you will need to have additional parallel authentication with card storage to access them.
NFTs are just layers of technical comlications not really adding anything of substance. They make look like it's easy to buy and sell digital stuff, so very popular for speculation, but in reality they are crippled by inability to actually store medium being sold and to transfer any IP rights by itself, without centralised services.
How do you verify the entity you think is Konami is actually Konami? If you're only going to going to allow their cards then what's the actual benefit of being on whatever chain instead of using Konami's own database where they can implement all the features desired without the complication of byzantine consensus?
Konami makes this really great projection system that keeps track of game state and projects onto a big table and they give/lease/sell these devices to game stores. The device comes installed with trusted public keys of a certificate authority managed by Konami and will only work with virtual cards issued by Konami. The ownership of those virtual cards is handled by a mechanism not managed by Konami.
This is basically how Yi-Gi-Oh physical cards work. They make official cards and they don’t manage the ownership of those cards.
The advantage for Konami is that they don’t need to build much of any infrastructure for a market for trading or selling virtual cards. The advantage for players is they don’t have to rely on Konami for these ownership related features and can buy, sell, lend as they see fit.
The MTGO marketplace is really awful but it’s the only choice that MTG players have if they want to buy, sell or trade virtual MTG cards.
I think the difference is that no one was trying to convince a generation of artists that baseball cards were the future of digital art, and that they should inject their own money into the baseball card market to "support the community".
The real losses are the VC capital (that could have been deployed to more meaningful businesses) and the loss of client capital. Many people put their life savings that may or may not evaporate.
I think this is predicated on the assumption that VCs generally deploy their capital wisely, which I don't necessarily buy. Before cryptocurrencies, the rage seemed to be "Uber but for X." I'm not convinced there was much social or financial benefit in most of those, other than cynical value cycles culminating in offloading junk onto public markets.
Money and capital are different things. Capital in a broad sense is any durable good that is employed in the production of goods and services. For example, a road. Money is not capital. Money is simply a good without intrinsic value that is used as a means of exchange. As a result creating and destroying money doesn't create or destroy wealth.
You are using a very non-standard definition of capital.
> As a result creating and destroying money doesn't create or destroy wealth.
I'll give you a MacBook, which is a durable good you can use to produce goods and services, if you go to the bank, withdraw all of your money, and then set it on fire. This is a good deal for you. Your wealth will not change from setting the money on fire, as destroying money does not destroy wealth, and you will have a capital good that will increase the amount of wealth you have.
If you set your own money on fire, the amount of wealth in the economy won't change. However you'll be worse off, because your share of the total wealth is now smaller (and everybody else's share is bigger).
> However you'll be worse off, because your share of the total wealth is now smaller
So you're worse off because your share of the wealth is smaller... if only we had a way to describe that. Perhaps you could say that you're less wealthy and by burning your money, you've destroyed your capital?
Look, I get what you're trying to say. The value of each currency unit is roughly the total amount of economic value divided by the number of units of currency. So the sum of the value of all the currency units doesn't change as you add to or subtract from the money supply. The piece you're missing, though, is that the VCs didn't create the money they invested in BlockFi. The money came from investors and partners. So in a very real sense the capital of those investors and partners was destroyed.
Destroying money doesn't destroy capital. It doesn't matter who created it. Money is not capital. You're mistaking a claim on a good for the good itself. These are completely different things.
Again, you're using a totally non-standard definition of capital. Google "capital definition"
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
So yes, if you redefine the word capital to fit whatever you like, then sure, I agree with you.
I'm not redefining anything. I'm an economist, and I know the terminology of economics well. Capital can refer to two things, either 'capital' (or 'real capital') or 'financial capital'. The definition that you've posted matches (more less) the definition of financial capital. But, either way, this is not complicated. The fact remains that destroying money doesn't destroy wealth. Mistaking money for real wealth is a common mistake.
Ok, so I think we’re in the same page: there is a definition of capital that includes money but is for some reason not applicable to this conversation because you’re an economist and know better. And if you burn your money in your bank account, then you’re less wealthy but that cannot be referred to as destroying [your] wealth or capital.
To help out a little - money is only a signalling protocol for resource allocation. Nothing more. Burning the money in your bank account does not destroy any resources anywhere. It does, however, rather screw with being able to get some of those resources allocated to you.
Resource. Noun. a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively.
Even if the commonly accepted definition of "resource" didn't explicitly state that money is a resource, the ability to acquire resources is itself a resource.
No, it isn't. Let's say I take a piece of paper and write:
"I will give the bearer of this piece of paper my car."
Do I have created a new car? No. The piece of paper is still a piece of paper, and there aren't any more cars in the economy than there were before. And likewise, if I proceed to destroy the piece of paper no cars will be destroyed in the process.
Have you created value by writing on the piece of paper? No. But if the entire world agrees that your piece of paper has value, then you would lose wealth by giving away the piece of paper and the person you gave it to would gain wealth by receiving it.
When we talked about burning money you said: "[burning your money], however, rather screw with being able to get some of those resources allocated to you." If you burn your "car IOU", does that screw with your ability to have resources allocated to you? No it doesn't. So you can see that your car IOU is not an appropriate analogy to money.
Because this only happens once the IOU has been put in circulation. In my example, the paper money I created was not put in circulation, consequently no redistribution effect took place. The analogy is solid and appropriate.
Ok, so what would be involved in putting it into circulation? In your original analogy, you simply you said you wrote an IOU. Unless putting it into circulation is trivial, then your analogy is neither solid nor appropriate. A substantial amount of work goes into providing a stable currency.
Just being perfectly honest here, I think your position has been shown to be logically inconsistent in multiple ways.
1. We started this discussion by talking about whether or not investment in BlockFi represented a destruction of capital. You said it didn't because money invested is not capital. You then later admitted that there are definitions of capital that include money. I would consider this an uncharitable reading of the initial point regarding investment in BlockFi. If there is a valid definition of the word "capital" in which the original point is true, that it is charitable to assume that was the intended definition.
2. You agree that burning money in your bank account would make you less wealthy, but somehow disagree that you cannot consider this destroying your wealth. That's inconsistent.
3. The "car IOU" analogy has an obvious flaw in that burning it does not reduce your wealth as was the case in the burning money example. Despite this absolutely crucial difference, you maintain it is somehow valid without an explanation of the difference.
You put the IOU in circulation by selling it or by giving it away. (I don't know what's so hard about that.) The point is that the act of writing the IOU doesn't create any new cars. And likewise the act of destroying the IOU, at any point in time, and regardless who's holding it, doesn't destroy any cars either. This simple example shows that no actual resources (i.e. capital) are destroyed as a consequence of IOUs being destroyed. If you still don't understand why this is the case, I don't know what else to say to you.
If you smash your machines, you destroy real capital.
If you burn your money, the financial capital doesn't just go away. It's effectively reallocated to everyone else via deflation. That's why "destroying capital" isn't a good way to describe it.
If you destroy half the machines in the world, evenly distributed, the economy crumbles. If you destroy half the dollars in the world, evenly distributed, nothing really happens.
And back to this case, the VC money wasn't burned at all. It went to paychecks and service providers and customers and scammers. It didn't disappear, it moved.
You’re conflating the money supply with money. The inherent value of the money supply is constant. That’s why you could halve it uniformly without impacting much. But that also necessarily means that each unit of currency does in fact have value. So if you invest it in scams, you can call that destroying wealth.
Also worth nothing that we’re not really talking about money. We’re talking about equity in companies with the statement that billions of capital was destroyed by investing in BlockFi.
Capital can mean money. It was mentioned elsewhere in this thread, but Google "capital definition"
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
There is even a bank called "Capital One." Originally, Capital One's only product was credit cards, i.e. providing monetary loans. It feels like this entire thread has been arguing about what people "feel" capital should be. In the case of BlockFi, capital has very much been destroyed. Company equity going to 0 is the ultimate capital destruction.
The status was destroyed, the assets were not destroyed.
Take my last post and replace the word "capital" with "money", and I would say that version is just as true.
You can destroy money, but that's a totally different topic. The money that was invested in this exchange didn't get destroyed. It went to other people.
Remember that the original post wasn't talking about 'wealth'. You can't come in and say "capital=money=wealth, and investor wealth was destroyed, therefore investor capital was destroyed". That's like saying "nothing is better than happiness, and a sandwich is better than nothing, so a sandwich is better than happiness". The meaning of "nothing" changes halfway through, like the meaning of "wealth" changes halfway through.
Whether "capital" includes or excludes "money" is a distraction that doesn't really matter.
It matters, because if you aren't careful you'll jump to the wrong conclusion (such as thinking that capital was destroyed, when in fact no capital was destroyed at all). Resources can be bought with money. Someone who has money can be thought of having resources. However convenient this simplification may be, it's not true that money is itself a resource. And this is especially important to bear in mind when we're assessing the amount of resources in the economy (in order to figure out if any resources were in fact destroyed). Counting money as a resource is an accounting error known as double counting, which occurs when the same thing is counted twice.
Yeah, I see all my downvotes. I'm not saying it because I strongly favor OR hate either of these systems. I'm not here trying to say "Fiat is dumb and evil and crypto will save us all."
I'm just saying because it's the truth.
We don't do real "fractional reserves," we don't have "gold" etc. Our money is backed up by "America, with the guns, is good for this made up money," which I believe is generally true, and not a terrible system.
For a highly technical and intelligent group that is HN, being blanket negative on crypto is the battle cry, but pointing out how fiat is largely based on fiction as well ("faith" written next to a stone mason eye in a pyramid) is not tolerated.
> but pointing out how fiat is largely based on fiction as well ("faith" written next to a stone mason eye in a pyramid) is not tolerated.
Or maybe it is just not useful, and acts as a distraction. Getting into another 'why fiat backed by the USA works while monopoly money from the boardgame (or cryptocurrencies) does not' is pointless because no one who makes that argument really cares about the difference, they just want to point out that 'everything is made up'.
"Everything is made up" is probably one of the more important arguments to be made, and we'd all be better off if it was taken more seriously. It's difficult to reckon with and it's noisy, but that doesn't make it any less true or valuable.
I think it's especially important when trying to figure out regulation, taxes, and broadly how we deal with rich people in the world.
The belief that money is concrete and real helps cement unworthy powerful people. It's good to chip away at it.
Look, I literally have a degree in economics from an Ivy league university, and I promise you I didn't come close to actually understanding any of it until many years after graduating -- by including the "it's all made up part."
Really, video games and thinking about video game design helped me get it. Because it's a design, and not something like science or nature. It's not that real or unexpected consequences don't happen -- of course they do. But it's exactly like what happens in game dev, because someone tweaks rules.
Yes, exactly. I disagree that it's a distraction. It is to point out that there are a plethora of issues with crypto but pointing out issues with faith-based currency doesn't separate crypto from fiat. As a fan of crypto I see these issues as very glaring:
- one of the main advantages of crypto is lack of centralized regulation, which is also why no one stopped FTX from having back doors to loot the vault
- if one can print their own coins at will (like FTT), its value is at the whim of the printer
- inflation is not necessarily a bad thing. It can be used responsibly.
- a credit card has almost no risk and can crank out transactions as much as necessary
- fiat is accepted all over the place whereas crypto as a transactional currency is more similar to trading gold and cowhides
We have seen how many bad actors control USA fiat and are deemed "too big to fail". That is a failed system and we have seen its ugly face plenty of times. Much of crypto challenges that. How successful it is so far is up for debate.
I think the true answer to this question is that it was/is a gold rush with low interest rates that led large amounts of capital to be allocated to less than competent people. In particular, the companies and operators that look the smartest when a bubble is inflating are the ones that genuinely hedge downside risk the least, while pretending to enough to fool people with capital to allocate. This only becomes apparent, of course, when the bubble pops.
As you may notice, this also describes the tech VC bubble of the last decade, too. However, where normal tech has already found its use cases and does real things for real people in the real economy, downside is a little more capped. If you want to be generous to crypto, it's currently tech in 2000, where almost everyone has a total nonsense business model, but that a lot of the vague ideas will eventually find some variant with product-market fit. If you want to be less generous, it's all a house of cards.
EDIT: I'll also add that, of course, thinking very carefully about which narrative is true here and being right is the stuff fortunes and careers are made of. The people that weren't dissuaded by the tech crash in 2000 profited handsomely by thinking carefully for themselves about what was actually true and what information was actually latent in the financial crash. Of course, the tulip true believers in 1638 didn't fare nearly as well.
> I think the true answer to this question is that it was/is a gold rush with low interest rates that led large amounts of capital to be allocated to less than competent people.
Ironic, given that the narrative during its rise was that the "Best and Brightest" were working in crypto and everyone else was fighting over the "B" level people.
Bitcoins scalability issue should have killed off al notions that it could ever gain widespread usage as an alternative to traditional currency for regular payments and after that it became yet another speculative derivative without any real backing in real world assets.
It was never actually going to replace fiat currencies for most people and the industry is absolutely dominated by exotic financial instruments(mostly of the ponzi variant), run by a mixture of fools and scammers.
On the other hand, people chasing the dream of crypto scalability have actually invented a remarkable amount of math and tooling around large scale proof construction, summarization and validation. The Zero Knowledge proof ecosystem (and its relatives in multi-party computation and fully homomorphic encryption) might be the only useful thing that is left after the current incarnation of crypto fully implodes.
And yet their fundamental lack of functional economic theory means that all of that is currently being completely wasted on crypto projects that's often little more then window dressing for what is basically very unimaginative financial scams.
There is probably scenario's where a temporary blockchain can solve some synchronization issues but the idea that a single static blockchain will replace traditional dynamic structures for organizing the economy is basically not viable.
I think you'll see the ZK stuff used increasingly for non-financial applications, it's a legitimately novel and powerful area of mathematical primitives for verifiable computation. FHE is also very cool and just starting to be usable for privacy preserving ML.
That's a good point. If nothing else, the stupid money caused more practical exploration of ZKP and other exotic math constructs than we'd seen in decades previously.
I'd like to see more "toy" exploration of this stuff as the money drains out. That's where interesting things are going to come from, for a while. Time for a zero-knowledge app to select lunch destinations, a dating matcher that doesn't leak before the reveal, secret agent spy communicators for kids...
I agree that Bitcoin has chosen some trade-offs against mass adoption, like limiting block size. I think this is a bad move, since security is more than enough.
Lightning is not viable, because it requires "watchtowers" to check for early state commit attacks. Not everyone will be able to run such a server.
But, for instance, Bitcoin Cash has larger blocks (the reason for the first fork of Bitcoin). However, in spite of its technical advantages, adoption severely lagged compared to Bitcoin. I wonder why that is.
> I think this is a bad move, since security is more than enough.
Security isn't/wasn't the concern, the trade-offs exist to ensure verifiability in the most trustless way possible (low hardware and bandwidth requirements). This enables a decentralized system which is open to any participant and keeps miners accountable. If running a node is limited to miners and exchanges and requires a renting server racks there is just no point.
> Lightning is not viable, because it requires "watchtowers" to check for early state commit attacks
This is inaccurate. LN has shortcomings currently but this isn't one. Without a watchtower your peer in a channel can force close it while you are offline by publishing an outdated state on-chain and attempt to defraud you, but if at any point before the end of the grace period (usually ~2 weeks) you are online and you produce a more recent state you get the whole balance of this channel back (this is how dishonest peers are punished). This is one channel mechanism (Poon-Dryja), another mechanism (Eltoo) which doesn't require as much monitoring/penalties will eventually come but depends on changes to Bitcoin protocol which are still pending.
Secondly theses optional watchtowers which automate this process minimize trust a lot as they can only publish the most updated state IF and ONLY IF the counterparty in your channel published their outdated state. So they have no real custody of your funds.
Lastly solutions like local federations (Fedi to name one) can address your concern of people not being able to run servers, if the users aren't content with the public offers of existing watchtowers.
> But, for instance, Bitcoin Cash has larger blocks (the reason for the first fork of Bitcoin). However, in spite of its technical advantages, adoption severely lagged compared to Bitcoin. I wonder why that is.
Because having larger blocks is not a technical advantage if your goals are the principles mentioned in the first paragraph. If you intent to compromise on these then just build a centralized database, it will be more efficient and at least you won't lie to people pretending that your system is open/decentralized (like Bcash supporters do).
It's a house of cards, all interlinked and interdependent, all 'investing' in each others' black boxes that magically produce returns, suspiciously in tokens they self-issue, swapping 'billions' in imaginary value and claiming billions more in assets which all mysteriously evaporate in the light of day.
And at the bottom of it all, one of the first dominos to tumble, was a company called 3 Arrows Capital, which promised to generate revenue by buying crypto-dickbutt NFTS... and then went on the run. I'm not even kidding.
>And at the bottom of it all, one of the first dominos to tumble, was a company called 3 Arrows Capital, which promised to generate revenue by buying crypto-dickbutt NFTS... and then went on the run. I'm not even kidding.
They lost borrowed funds in a ponzi scheme called Luna. I get that you wanted to poke at nfts, but the last remark may make someone think this is how it actually went down.
It is part of what they were doing, part of their investment strategy to grow the funds that were invested with them was to nfts such as "cryptodickbutt #1462". Look it up if you don't believe me.
Yes, I'm sure that Terra/Luna was a big part of it, and you're right that it's worth calling out, it may even have been the single biggest factor. But it wasn't the only way 3AC squandered invested funds.
Perhaps Terra/Luna should be called out as the first domino to fall, it was indeed spectacular. If it was a ponzi it was a complex one with extra steps, an algorithmic stablecoin that was metastable at best, and IIRC a lending protocol that charged less for loans than it paid for deposits. All sorts of crazy.
I remember just as the pandemic was kicking off someone at work tried to convince me that they were all going to get rich on a pornography based token (pornies or spermies or something like that. Whatever it was it was the murkiest sounding thing ever.) I haven’t looked it up to see how that worked out in the end, but my guess is he’s still waiting for his riches.
That's the thing, you only depend on centralized actors if you want to. The entire point of cryptocurrencies are to not depend on centralized institutions that can screw you over.
When designing the iPhone, one of Apple's findings was that majority of people struggle with understanding the concept of the file system (and hence, there's no visible file system in iOS). In such world, only a small minority of people will be interested in decentralized cryptocurrencies, as the bar of technical skills required is too high for most people. This is what led to the success of centralized cryptobanks.
Ding ding ding! Crypto isn’t cool to majority, nor do most want to (or need to) care about it. People want to spend money and if crypto makes that happen so be it. Society had been sending money for awhile without crypto and the edge cases crypto addressed are just that, edge cases.
I’m intrigued by crypto but merely because I’m a nerd. I don’t care about crypto when it comes to my day to day life.
This exactly. I recently came across a tweet explaining how Merkle trees in some new crypto would make it better or something. If with a CS degree I find it hard to understand what this remotely has to do with my money, I don't think my 80 year old granddad is going to fare any better. Which is why I believe crypto is fundamentally doomed for anything but the most niche use cases.
I hate how accurate this comment is. Without going too far with examples, PGP exists, but using it is simply harder so most people default to an easier email sending.
Now.. the question remains as to whether it would be the same, if it tech was not made so accessible ( some people would be forced to learn since the bar was high ). I mostly think that battle is already lost.
PGP has horrible user experience for experts. Its CLI is incredibly un-intuitive and needlessly complex and integration with mail clients is poor to non-existent.
>PGP has horrible user experience for experts. Its CLI is incredibly un-intuitive and needlessly complex and integration with mail clients is poor to non-existent.
Thunderbird[0] has pretty good (see what I did there?) PGP integration[1]. The UI is decent and there is discoverability support with various key servers as well.
But that would require folks to break their addiction to web-based email and use an actual email client. As such, I won't hold my breath.
You were never intended to craft your own blockchain transactions any more than to hand-write your network packets or interbank transfers. Wallets are/were expected to advance and handle this for users and mostly have.
The issue is that the problem cryptocurrencies solve is not a real problem.
The blockchain, being a public ledger, ensures that transactions are accurately recorded and can be publicly verified as such.
But it’s been centuries since the actual accurate recording of transactions has been an issue. The real problems are far removed from this. When was the last time you heard about people complaining that they paid off their Visa but it did not credit them for the payment?
Meanwhile, real problems that people do face, such as a vendor not providing you the goods or services that you paid for, are still a problem with blockchain.
The fundamental problem with cryptocurrencies are that they add a whole lot of complexity to solve a problem which is a trivial issue in practice at best, without providing any tools to solve the actual problems people face and in many cases making it harder to find solutions for those problems.
> real problems that people do face, such as a vendor not providing you the goods or services that you paid for, are still a problem with blockchain.
Not just still a problem. Far worse off a problem. Chargebacks exist for credit cards and most bank transactions including wired funds. Send the crypto the wrong way at the wrong time or to the wrong place? Poof. Bye bye money.
You ignore the other big benefit which is impossibility of censorship. When was the last time you heard about people complaining that they can't do lawful and legitimate business because Visa or MasterCard (basically a duopoly) don't like them?
This problem is not trivial, and as far as I can see crypto is the only scalable solution to it outside of legislation that isn't ever going to happen.
What about the privacy implications of having nearly every payment on the planet go through 2 megacorporations?
And I can see the response now, while every crypto transaction is public, it's a lot harder to tie identities to wallet addresses than it is to tie a name to a credit card number.
> You ignore the other big benefit which is impossibility of censorship.
That's a silly claim. Ethereum forked because of a hack and enough people wanting to undo it. Tether regularly freezes funds (https://www.coindesk.com/business/2022/11/10/tether-freezes-...). Ownership of a cryptocurrency can be made a crime. Developers can be sanctioned and arrested.
A fork implies 2 diverging lines. Nobody's hand was forced in the ether versus ether classic fork.
Tether is centralized and a scam (and arguably a scam because it is centralized) and irrelevant to the discussion. Anyone can make any token they want and run it according to whoever's rules; this logic would indict the entire internet based on the existence of badly moderated websites.
And cryptography can be made a crime as well. Meanwhile, in the world we inhabit today rather than infinite hypothetical ones, no such thing is happening outside of totalitarian governments, and despite their effort, not one single crypto currency transaction has ever been successfully censored.
Nobody said they were equal, the community as a whole decided to move to the new fork. The old one still exists and still has substantial value, but it's not where any of the mind share is. More to my point, nobody forced anyone to move. This was an organic action.
What is your point? Surely you aren't arguing that the governance of one specific token in the broader crypto ecosystem invalidates the general uncensorability of crypto transactions? Because that would be pretty fucking disingenuous as a false equivalence.
Talk to any business and they will tell you that they don't want to pay %3 to visa or any other credit card. Having a ledger of transactions is how any currency works, it isn't the problem being solved.
Being able to use money electronically without a 3rd party is something that wasn't possible before. Anyone wanting to cut a credit card out of their deal or choose a currency other than their what their country mandates can now do that.
Without a centralized actor of some sort, most 'investors' are not going to be able to get into or out of a crypto position. Vanishingly few people care about using the tokens themselves for anything but gambling.
These institutions can also screw you over by massively inflating the crypto bubble and then crashing spectacularly, tanking your value and poisoning the public perception of cryptocurrency.
The 'point' of cryptocurrency may well be to avoid dependence on centralized institutions, but the effect of cryptocurrency has been to enable all this nonsense. At this point in time you can't say "well it's not crypto's fault!" because it absolutely is. You don't just look at intent when assessing outcomes.
yeah if only a few thousand crypto fanatics trade all these coins there is effectively no ecosystem and thus no upward price pressure to make the nerds rich.
I think most people want a bank that they can trust with their assets. I don't want to store my assets on a hardware wallet that can break or lose and I have to store the backup key in a a safety deposit box. Do you know how hard it is to get a safety deposit box today? Irony is I have to have a bank secure my crypto holdings in case my house burns down.
If you stored your Luna/FTT/whatever on a personal wallet and never touched an exchange, you still lost all your money. The centralized actors run the show whether you interact with them or not.
Crypto has shown that decentralized actors certainly screw you over. All those laws and corporate governance and backup from the govt for banks (which costs something in terms of fees the banks pay) yields people not losing their deposits if banks fail. Occasionally banks still fail today! It doesn't make the news because people don't lose their money.
It's because of these "idiots" choosing to centralize their decentralized crypto, not due to the smart ones holding on to their keys, that the valuation has skyrocketed.
So I'm a nerd interested in this stuff and I have specific ideas -- but I just want to say that I appreciate simply seeing this idea in words in a forum. Lately it's just been positively weird how infrequently I see this very very obvious point of the whole thing.
If it is gibberish, why do many people apparently think it makes sense? Are you using 'gibberish' to disparage something you dislike, rather than to describe something as nonsensical?
A lot of people repeat what they hear without giving things any thought. I say it's gibberish because it doesn't mean anything. Try to explain what characteristics set a decentralised actor apart from a centralised actor. Remember that you can't use the word decentralised/centralised, because that's the words we're trying to define.
According to wikipedia, under 'Central Bank': "a central bank possesses a monopoly on increasing the monetary base. Most central banks also have supervisory and regulatory powers to ensure the stability of member institutions, to prevent bank runs, and to discourage reckless or fraudulent behavior by member banks."
Since the major collapses were by organizations which had a monopoly on creating their own currencies ("tokens") you could call them 'central banks'. Note I am not defending cryptocurrencies -- I am pointing out that you calling something 'gibberish' when people do have an understanding of the meaning is not productive.
Sorry. We were talking about what it means for an "actor" to be "decentralised". Now you're saying that a central bank is someone who has a monopoly on issuing their own currency. So apparently I'm a central bank, you're a central bank, the Chinese restaurant around the corner is a central bank... First of all, none of these people or organisations are central banks. And second, we weren't talking about central banks. I say it again: we were talking about what it means for an "actor" to be "decentralised".
This is one of those 'can't win' situations because no matter how I respond you will find something to pick apart and keep decrying your victory. Good day.
You could give simple, logical, concrete definition of 'decentralised actor' and show the concept isn't gibberish. If you can't come up with anything, maybe you have to concede that it is gibberish.
> ...you only depend on centralized actors if you want to.
How can one tell that with a straight-face when the poster-boys of crypto (like Coinbase, FTX, ConsenSys, Circle, Uniswap, Binance etc) depend on centralized actors like VCs and Stock Exchanges?
> Unbelievable the amount of destruction of value here... it's just total carnage.
I don't see any other replies hypothesizing this in terms that rhyme with the dot com "bust" of 2000.
In late 90s, in addition to whatever product-market-fit from their "blue ocean strategies", the dot coms generally invested in and bought services from each other.
Wall St didn't look at where the dollars came from or went to the second or third step, they treated every company as if its revenue came from the customer marketplace.
Instead, a given VC dollar (or customer dollar) would get spent from that tech firm to its providers, who would give it to their providers, and then their providers, in turn. This way, the same single dollar would show up across a dozen balance sheets, each at 14x growing to 40x and eventually 100x multiples. So the 1 dollar instead of being, say, $40 of "value" for the one firm that got the dollar in from outside the ecosystem, that dollar would show up 12 x 40x or $480 of imagined uncorrelated "value".
By 1999, the public companies had caught on to where they could just give cash from public markets to dot com providers to turn around and purchase the public company's goods or services at a discount (
"strategic relationships"), with their own dollars then driving a 40x - 100x market value boost, generating more public dollars they could use to create more "customers".
Even if all these companies had legitimate products, when you looked under the hood, relatively few dollars were coming in from outside the private and public markets revenue multiple game. If some of these folks misstepped, and folks started having to unwind expected revenues, and in turn unwind their own spend, and letting the air out happens faster than they can keep their footing .... boom, you have a bust.
Today there are multiple sites tracing the actual flow of digital "currency" and seeing the same loops happening, where every agent in the loop is nominally valued as if generating revenue from outside, when instead, they're lock step in a circular flow.
Any interruption and ... dot com Y2K 2.0.
So less value destruction, more a glitch in the illusion big enough for non-experts to notice absence of outside value.
This isn't just crypto, this is a fundamental strategy for most VC funds. The most valuable VC funds select portfolio companies based on whether they will succeed at selling to each other. This shows a growth multiple that is used to position the company for raising funding from the next sucker VC. That VC then "introduces" their portfolio company to their other portfolio companies, in continuum, until exit. Eventually the public market understands that the growth multiple is a house of cards and the stock tanks. But the VC is happy because they took their exit, the government is happy because these companies collectively employ hundreds of thousands if not millions of people who pay above-average tax rates, and even institutional investors are happy so long as the stocks tank individually and not in concert, making little difference to their overall portfolio. So the practice continues.
> Unbelievable the amount of destruction of value here
Destruction of value or destruction of paper wealth? I'm pretty cynical of the whole crypto* space, mainly because I think the people making any money in it are themselves cynical and predatory.
I suppose that billion dollars of investment was actual cash lost.
* Using the new definition, not cryptography, which is what the term really means and will again soon.
Both. If you take 900 reasonably skilled people and direct them towards nonsense for a few years, that is definite value lost to society. It sounds like $1 billion in actual cash was lost this way. And the buildings they were in could have housed useful activity, the computers they bought could have done useful things, etc.
Those people could have been doing useful things. And it sounds like their activities were worse than nonsense, they actually destroyed money they were given.
^Haga, if you can see this, your comment below mine is dead. Went through your history, doesn't look like you've said anything astonishingly objectionable recently. Your comments are all dead
Yeah, noticed that. Figured that warranted downvotes more than being dead, though it is a tough call as the site could become reddit with too much of that
It's a whole societal trend, away from real progress towards virtual gambling. I would trade the whole crypto currency space in for one well financed fusion research project.
Yes imagine how many more ads these 900 people could crank into your feed if they worked at FB. Truly a lost opportunity to put their skills at work for the greater good.
I think “value” is the wrong word here. These businesses created nothing of value, they were only exercises in accumulating capital and speculating on worthless currencies. This collapse was entirely predictable (and predicted). Agree on the term “carnage,” though.
Let's be clear who really destroyed the value - it's the people who took money from pension funds saying they'd invest in cutting edge technology and instead put it into computer meme money startups
The VC money is nothing new. Throw money at a handful of possible game-changers and see what sticks. The customers did not simply buy crypto. They gambled it. That's a gamble on top of a gamble being run by a few people in the Bahamas. What's odd is that those gambles were risky within reason, but the fallout was just pure human corruption and/or incompetence. And putting FTT on balance sheets as actual value is laughable.
I think this will be a major academic topic in economics for the next generation. It's not clear to me that any value was ever created. It was entirely notional. Number go up, number go down. The biggest loser in real terms is the VCs who spent money they possibly earned through real work.
I think the biggest victims are the people who held accounts that got drained. They were aware of the risk but they believed people smarter than them at least checked that the bank vault wasn't build on quicksand. VCs have access and ability to do due diligence and they didn't because they're blinded by their own awesomeness.
People need to understand that the amount of money invested in a company does not mean anything. It is most definitely not a validation of the company in any sense.
These comments lead me to believe that a lot of people don't realize fiat was invested by regular people. It wasn't all crypto bros playing with space cash. If that fact isn't understood, then it's pretty clear many of our HN friends are simply here to bash on crypto and scoff at victims of a poorly managed investment firm. I personally haven't seen the same takes on, say, Theran*s or whatever other failed VC-backed investment.
Taking VC money and spreading it to the winds is the opposite of destruction of value, it's making that money actually useful if it lands in the hands of normal people.
Bless the cryptocurrency community, involuntary Robin Hoods that sucker in both users and VC to redistribute it all when it inevitably fails
I feel sorry for the retail investors caught up in yet another crypto scam. Let me try to articulate my view of what’s actually going on with these seemingly endless scams, in hopes of saving future retail investors some pain:
Prominent venture capital firms like A16Z, Sequoia, etc have discovered a new get rich quick scheme: they raise a fund and invest it in a some shitcoin like FTX, SOL, etc. the shitcoin founders use the cash to market and shill the coin, hiring public figures like famous NFL players. Retail investors FOMO into these tokens, boosting prices and attracting more retail investors. Once the market cap of the shitcoin exceeds the VC/investor cost basis, they cash out and let the rest ride. Eventually the shitcoin implodes, but by this time the firms are already onto their next fund and another token. A16Z is on their 4th fund now and it’s $4.5B[0]. There’s an entire political strategy at play as well, where shitcoins are employing folks in DC and lining pockets to further the scam.
All of this is possible because there is no regulation on crypto tokens. In reality these are unregulated securities and these large VC firms are exploiting a loop hole for profit. This goes for literally every token starting at ETH and below.
In this scheme, VCs are cleverly exploiting the fact that US securities law is designed to protect investors foremost.
They are investors in these web3 shitcoins, so it’s complicated to prosecute them for anything when the law sees them as the victims.
In reality these VCs are co-conspirators in creating these unregulated securities, and hopefully the SEC will eventually make an example out of someone like a16z. Their Coinbase pipeline has been an absolute sham because they’ve had board-level influence on Coinbase which they’ve used to make the crypto exchange list all the shitcoins that a16z just happened to buy six months earlier. This shouldn’t be legal.
Just look at their portfolio on their front page for a list of "future scam revelations" and implosions.
E.g.: Chia coin is down -98% since its inception, -76% just this year and heading downwards. What does it do other than soak up excessive hard drive inventory? I dunno! I doubt anyone has a use for it.
With projects like blockfi, users get all the disadvantages of the centralized traditional financial system without any of the regulatory protections that have built up over centuries. Terrible for the people with assets in blockfi but extremely predictable. The point of defi is that you can use financial services without a centralized counterparty. People who can’t handle their own keys should be using traditional banks, at least until the technology is improved. Compare to Aave and other actually decentralized lending protocols which are not at risk of bankruptcy.
> The endgame is a payments system as originally described in the Bitcoin whitepaper.
This seems to be contradicted by the deflationary design of Bitcoin. The fact that Bitcoin is deflationary probably also exacerbates the speculative interest from investors that makes Bitcoin more volatile and less useful as a currency. It's possible that Bitcoin was technological sound, but economically destined to fail at its stated goals.
I agree. I held Bitcoin Cash since it forked, because it is superior technically. But I am disappointed with its limited adoption.
BCH allows more transactions. BTC would take 18 years for 4B people to perform a single transaction each. And it costs ridiculous amounts of resources for a ridiculous amount of constant security.
BCH is just kicking the can down the road a bit further. If it were to gain massive adoption rapidly, the only way it could scale if they follow their current ideology is by hosting the nodes on bigger and bigger server racks, eventually reaching the point where there is only one or two real nodes hosted in a cloud provider datacenter somewhere. I don't know what the perfect block size is, but quadrupling down on on block size and turning down all alternatives is not a good long term plan.
> I don't know what the perfect block size is, but quadrupling down on on block size and turning down all alternatives is not a good long term plan.
BTC's 1 MB (or a bit more with segwit accounting) is just hopelessly obsolote, we could easily handle multiples without any issue whatsoever, and it would require a massive increase there after to reach the state of "one or two nodes".
Further, BCH isn't "turning down alternatives". It's a permissionless system after all, and it does have malleability fixes if you want to have layer two for it.
It's BTC who is blocking any on-chain scaling and bet everything on the experimental Lightning Network (that's still experimental mind you).
eventually reaching the point where there is only one or two real nodes hosted in a cloud provider datacenter somewhere
Ironically this is what is described in the original bitcoin satoshi whitepaper (not 'one or two' obviously), but the math doesn't work out.
Right now bitcoin has a throughput of about 1 KB/s, which is slower than a 14.4 dialup modem. The entire 13 year chain fits on a $40 thumb drive with room to spare. Even 32MB blocks (53 KB/s) maxed out for another 7 years would fit on single $220 12TB hard drive.
Running a node is only really necessary for miners, exchanges or any other major service but it will be trivial for anyone who can watch a youtube video or stream netflix for at least another decade.
Hopefully we won't end up on the slippery slope of centralization.
But even if there were a reduction in the amount of nodes, and in security vs. 51% attacks (looking at miners' profitability), BCH has shown its willingness to consider tradeoffs and changes.
There will be opportunity to backpedal if the community considers centralization is a bigger risk than adoption difficulty.
I fear BTC's downfall will be caused by its brittleness resulting from the fixed rules.
The endgame is regulation. The US Treasury launches a digital dollar and declares other USD-demoninated stablecoins as illegal, crushing the on and off ramps for most exchanges. Adoption by banks and brokerages removes the need for separate crypto exchanges. KYC/AML requirements crush whatever remains.
... and assuming that is successful: something else emerges.
The emergence of crypto coincided with the final snuffing of bearer bonds and certificates and most anonymous bank accounts. The death of crypto will coincide with something else. The regulators of the world continue to pick and choose where to place their fingers in the cracks of the dam. Money that cannot efficiently or legally pass through KYC/AML will find a way.
On the one hand, I can understand this. On the other: as a US citizen, I use it in my daily life, then I file an 8949 every year listing every single purchase I made that year, along with tracking of cost bases? I realize that this is a legal, rather than fundamental, aspect of cryptocurrency, but it does make the idea of using cryptocurrency as a quotidian currency rather frustrating compared to essentially any other method, like cash or a credit card.
No need to. Luckily every transaction has been recorded for you on a public blockchain that is easily traceable to your RL identity! Makes life a lot easier for the IRS and also means your employer can check whethee you've developed a penchant for donkey porn!
That fact that they can find it out doesn't mean you don't have to report it accurately. Most countries around the world know how much salaried employees make and still require them to declare it in a yearly tax submission and if they do it wrong, they'll get fined. The government knowing has nothing to do with you still needing to accurately report it.
I don’t know if “most countries” is correct. The USA certainly does this, but most European countries will prepare an automatic tax return for everyone based on the data they receive from employers, banks and brokerages.
A savings account is generally a no-risk or low-risk investment vehicle. This usually means that you could withdraw the balance on any given day and not suffer a realized loss. Even if you assume that Bitcoin's value will always recover long-term, having short term volatility in the 50% range might mean that the money in a Bitcoin "savings account" will not be available when you actually need it.
Don't you keep it in cold storage so three generations from now you offspring can bring it back out for significant wealth gains or alternatively a reminder of funny things humans do?
Your doomsday scenario affects all online security equally. The only outcome you are partially vindicated in is one with a quantum miracle in the short term, which even then is not catastrophic for protocols which make the necessary hard forks.
Currently in development is decentralized social recovery systems. A lite version of this already exists with gnosis safes where one wallet has multiple key holders and n/m voting.
The endgame is the same as Beenie Babies (or tulip bulbs). Everyone realises it was just a mania and goes home. No more money goes into the system, so no more money goes out. People forget about it.
What's interesting is it seems they're only putting up a a 3% bond from what I can see [1]. So it looks like people could just take 97% of your money and run.
Whenever a big exchange fails, we see a lot of people say "of course, this is why decentralization is better." But I'm not convinced people are less likely to lose money in decentralized exchanges. It seems like it would actually be easier, it's just that a bunch of small scale scams aren't going to get the same attention as a huge exchange collapsing.
Bisq is a really impressive project. Upon first hearing about it I was a bit skeptical at how a decentralized peer to peer exchange would work in practice, but now that I've used it a few times with no issues, it really does seem like the best way to do fiat <--> crypto exchanges. Really hope that bisq and other similar services get the recognition they deserve now that the trust in cex's has taken a fall.
Blockfi isn’t primarily an exchange, it is a crypto lending platform. Centralized exchanges are a viable target for regulation as the state has the capacity to do so if it chooses to. But these regulated exchanges should never be holding your crypto on your behalf. It should be purely fiat for crypto with minimal custody. However it will be difficult for that regulation to occur as dark hybrid exchange-banks are benefitting key political actors.
it's fascinating how nobody learned from history. Banks and bankers have been heavily regulated as you said, "over centuries".
Still today, we get lured by the same businesses (because all these lenders were just banks/financial operators) but without any of the safety nets we have in place when we work with "old school" banks.
It's really worse than you say the amount of ignorance it takes to store crypto in one of these institutions, when one of its motivating and zeitgeist driving features is that third parties are no longer the most secure method of storage.
The cynic in me thinks they did learn from history, and spotted a way to adapt the old scams to a new playing field. Much easier than coming up with brand new scams.
> BlockFi has said it had “significant exposure” to FTX and its sister company Alameda Research LLC, including taking a $400 million credit line from FTX U.S. that also gave FTX an option to buy the company.
>
> BlockFi was one of several struggling crypto firms that signed deals to be rescued by FTX in the past months. The agreement is now in jeopardy as FTX itself sorts through its financial trouble and is subject to federal and state investigations.
>
> It also holds assets at FTX.com and made loans to crypto trading firm Alameda partly secured by FTX’s FTT tokens.
So FTX lent money to BlockFi, and BlockFi lent money to Alameda, and Alameda owed money back to FTX? And BlockFi's money was stored on FTX and denominated in a "currency" that relied on FTX's performance for value?
This all lends credence to the theory that we instinctively knew was true: SBF was just doling out money to crypto firms in the spring to prop up the system a little longer, but ultimately it all relied on users injecting new money into the system.
My wife and I had about 10% of our life savings in BlockFi. This is a pretty big blow for us, especially while gearing up to start a family. It's easily in the top 5 worst things to happen to me in my life.
Is there any hope of individual creditors getting any of their money back? I'm unfamiliar with how bankruptcy works.
I'm sorry for your hardship. My understanding (which is not a professional or legal opinion) is that individual creditors probably come near last in these kinds of bankruptcy proceedings. It's possible that after a prolonged settlement process you may receive some of your money back, but that's not an outcome that I would place substantial faith in.
I say this without an ounce of judgement, explicit or implied: can you speak to some of your motivations for putting your life savings into these kinds of vehicles?
Not the OP, but... in the abstract, 10% in a high-risk investment seems pretty reasonable? Sounds like they're young. For someone with a multidecade investing horizion, 10% is a minor fluctuation; the S&P500 is down 17% YTD.
To the OP: Why is losing 10% of your investments a pretty big blow? Almost everyone's 401K plunged by more than that this year. If you're young this won't be the last time.
Thanks for the affirmation. My wife and I are 31 so a 10% drop is definitely something we can recover from. We've already lived through this high-risk crypto part of our portfolio falling to half it's value over the last 19 months but the other half completely vanishing overnight has hit me psychologically harder.
Instead of the narrative of "sure the crypto dropped in value but it's done that before and gone back up and it's reasonable to think it could go back up again," "now it's on sale," and "time in the market beats timing the market," the narrative is just "it's completely gone because you got defrauded. Here's a list of the specific people responsible. You shoulda been more diligent in evaluating the risk of giving them your money ya freakin' idiot."
Crypto isn’t a high risk investment though, it’s in a category beyond that. You’re definitely going against traditional portfolio structure by having so much in crypto and are kind of getting what you paid for (risk wise).
I get it, it sucks, and it feels like you could have made better decisions. Hindsight is awesome that way. Don't beat yourself up over it; at least you were smart enough to make it a small percentage!
> can you speak to some of your motivations for putting your life savings into these kinds of vehicles?
For sure. My rationale was that keeping crypto in cold storage was effectively currency speculation and didn't really do anything to add value to the world. By instead keeping it in an interest-earning account it could be earning interest independent of the exchange rate with USD and providing some value to the world in the form of liquidity and loans.
It's the same rationale I use to justify keeping money in VTSAX instead of under my mattress.
> providing some value to the world in the form of liquidity and loans.
I'm trying to avoid coming across as blaming or rubbing salt in the wounds, but I just wanted to say that the rates they were offering during times of such low interest rates in general, were really be a huge red flag.
However you feel about cryptocurrency in general (and it's safe to say I'm a sceptic) you have to look at that and think either that something fishy was going on or they had to have an exceptional business model.
Wouldn't the appropriate analogy to BlockFi be to keeping your money in an interest bearing savings account rather than in VTSAX? Since VTSAX isn't a bank choosing to allocate capital in whatever way they choose
I would build on this and have a frank discussion with your partner about risk tolerance and long term goals around your portfolio. A single exchange failure should not expose you to this much risk.
I'd suggest setting your expectations that you'll get none of it back.
There is a decent chance you'll get a small fraction back in several years, but it all depends on how many assets they have remaining. Keep an eye out for communications from the bankrupcy trustee once there is one - will probably go to the email you used to register your account.
Can I ask why? If you wanted to put money into crypto, why didn't you use a blockchain where you could verify your holdings and nobody could take them from you? BlockFi was just an incredibly shitty bank.
Because they paid high interest rates! That's how all these scams work, one after the other. Pay high interest rates to attract customers (impossible to achieve rates), create tokens of your own, trade them to other places paying high interest rates. Take your bitcoin deposits, use them to make other bets, hope that it will go up somehow.
Your math assumes he lost 0% on the rest of his savings, while "those storing equity in ultra boring indexes" where storing 100% of their savings there. Is that really a fair accounting, in your opinion?
Generally people don't lose all their investments in a stock or index fund. They might go down in price 10% on fund xyz but won't lose all their value. Do you not get that difference with this, this would not happen if he bought stocks with 10% of his money.
If I buy a fund that holds 90% cash and 10% of a BlockFi farming contract, then I only lost 10%. OP said only 10% was in blockfi, so he did not lose all his value.
Obviously you know that, just somewhat of a silly observation to make that he "lost less" when he actually lost 100% of his investment (barring recovery in bankruptcy court)
I think it looks less bad in the weird context of 2020-2022, when breaking even with inflation meant moving money into riskier and riskier investments just to keep up with the money printer. I wouldn't have chosen something like BlockFi, but then again I'm one of the idiots that lost via a mix of inflation and various ultra boring indexes.
I can see where it might look tempting or even rational to see how long you can keep the hand on the oven without getting burned for some of the interest rates being offered on these "exchanges", especially in times of pretty desperately negative real interest rates on USD.
Off-topic, I had some savings in high-risk stuff(not crypto). Now they’re frozen, almost certainly lost. I’m fine since I knew the risks. Did you not anticipate you might loose your investment there?
In traditional bankruptcy proceedings, as you suspected, the little guys are at the extreme back of the line. I would follow the news closely and see if there is any mention of a firm representing individual investors.
Creditors in Voyager’s bankruptcy were looking at about a 60 cents on the dollar return without a buyout and about 75 cents on the dollar return if FTX could have followed through on their business and accounts buyout, IIRC.
Voyager had only 3 creditors so they weren’t well diversified. When one of their creditors eventually went belly-up, they predictably lost about a third of their holdings.
They’re all account holders so everyone is entitled to a proportional slice of the remaining pie. 60% regardless for both the little man and the fat cat.
On the other hand, I don’t know if people who retain a class action lawyer specializing in this case get special treatment or not.
I'm not a specialist in the area, but here's my explanation as a financial professional.
When a company goes bankrupt, it's assets and liabilities are summarized by an administrator who is hired. Typically a well known firm with lots of experience, and they will do things like find out where the assets are, possibly liquidating some of them. You may have seen that FTX has a new CEO. They are in fact empowered to run the company.
There's then something called the capital structure, basically an order in which liabilities are paid to creditors.
First of all, you want the admin to want to bother doing the work. So they come first in the queue of people.
There's then the tax man (actually, which comes first, admin or tax? Might depend on where you are).
Then there are secured creditors. For instance you might have a factory with equipment, and some loan was made against the equipment. Or you have property and a mortgage against it.
Then there are unsecured creditors, like employees owed final payments.
Depending on how complicated the firm is, the whole credit part of the capital can get super complicated, basically tranches where each junior tranche is only paid if senior tranches are fully paid.
It's unusual, but if somehow the assets exceed the liabilities, the equity holders will get the rest. Don't count on that, because it's unusual for such a firm to go bankrupt.
Now with high profile bankruptcies there are sometimes investors who will buy your position in the queue. If you get an offer the gamble is basically that it's worth your while to get out immediately and let the bankruptcy speculator deal with all the BS as well as the waiting time to get the money eventually. A friend of mine got offered this from Lehman, turned it down, got paid pretty reasonably, eventually.
It sounds like as long as there's enough money to pay the admin, the government, secured creditors, and unsecured creditors, anything left over would get split amongst individual investors like me. Is that right?
I think you're among the unsecured creditors. A proper bankruptcy expert would have an authoritative answer because I think it also depends on whether client funds are segregated.
If someone has 10% of their money on a cex they are either
1) Farming it for interest
2) Collateral for trading / other asset
3) Maybe some other corner case I can't think of here
-or-
4) Morons.
My guess above was (1) since it was both a large amount and the losses were unexpected. I do not think it would be 'yours' except in the 4th case which would be morons storing unvested deposits on cex for any purpose but short term exchange.
OP here! #1 was my motivation, though at the moment I'm definitely feeling like #4 played a role.
My rationale was that crypto just sitting in cold storage could only gain value if the underlying asset appreciated which is effectively currency speculation. By storing it in a crypto "bank" my money could be working to generate actual value via. liquidity and loans akin to a real bank.
If the money was earning a modest amount of interest it didn't feel like as wild of a risk. Even if the exchange rate to USD is unstable I can still see the amount of crypto going up each month.
> “generate actual value via liquidity and loans akin to a real bank”
What’s missing from this picture is actual productive economic activity. Banks make loans to real-world businesses who use it to produce goods and services, and assuming those are desirable in the market, part of the margin on those products ends up paying the interest to the bank.
Crypto lenders make loans to crypto traders who ultimately produce cash by extracting it from other traders and from new investors that bring in real cash into the system at the bottom of the pyramid. There’s nothing producing anything in the hermetic crypto bubble. When the retail interest ended, the system started running out of dollars.
Yes, you summarize the entire cycle very well. There's nothing creating wealth other than the next group of people buying some crypto thing, then that is 'invested' by buying other things that are paying interest, but eventually the cycle of new money coming in goes away.
Can someone explain to me this like I am 5 years old. Why would you leave money on the exchange? Why not take it off after you have the coins? I truly am not following. Wont there be a run on all exchanges/indexes?
Sorry but if you put 10% of your net worth into BlockFi you didn't fully understand the risks. I feel bad for anyone who lost money (a few grand here) but this was all akin to a trip to the casino for me and my expectations were set accordingly.
Another "crypto" company that was not actually crypto. These guys just held people's money custodially and promised some dumb overblown interest rate. Sure their theme was "crypto" and they have the bitcoin logo on their website, but the underlying mechanism of trusting someone who has a slick app with your money is the opposite of crypto.
It seems like silicon valley VCs completely missed the boat on crypto by dumping money on any huckster with a Stanford degree. Instead of asking "is this the end of crypto", maybe we should ask "is this the end of silicon valley".
I agree, none of these companies are crypto companies, just centralised scams. In fact, this is not the end of crypto, but is exactly the opposite. This is the "real beginning" of crypto, as now the benefit of decentralisation and transparency are being understood by a larger number of people. So all in all, this is great news for the crypto industry!
smart greedy people who dont yet have enough money have to solve this problem. crypto is an opportunity to convince less-smart greedy people that "centralization" is socialist and bad, and get them to hand over their money.
> I agree, none of these companies are crypto companies, just centralised scams. In fact, this is not the end of crypto, but is exactly the opposite. This is the "real beginning" of crypto, as now the benefit of decentralisation and transparency are being understood by a larger number of people. So all in all, this is great news for the crypto industry!
While I share your enthusiasm, even after countless rugpulls/exitscams/fraud proving centraization is the bane of why this tech was created; I don't share your conclusion as it doesn't reflect reality at all. The 'crypto' market is rife with this and has been sine the Ico mania (and alt boom before that really) so things like NFTs and DeFi are at it's core rely possible of this ignorance which is what most profit from and do so to the detriment to actual viable projects: Bitoin, Monero.
In short, all I'm seeing is a price correction, but real projects keep building muh needed infrastructure and 95% of the 'crypto Industry' are the hype tokens exchanges like FTX, Binance fleece the masses with with promises of short lived DeFi yield farming like scams.
> It seems like silicon valley VCs completely missed the boat on crypto by dumping money on any huckster with a Stanford degree. Instead of asking "is this the end of crypto", maybe we should ask "is this the end of silicon valley".
Agreed, we have been persona non grata in SV for some time; in 2014 I went to the bitcoin job fair in Sunnyvale when I was launching my startup and despite having Standford heavy weights and Vc (like Balaji, Chamath, Dorsey and later Musk) soon realized just how poorly we were received outside of our circles; we represented the uncouth gate-crashers who were supposed to be kept at arm's distance, and only when fortunes were made only then would they even listen to us and even then they hose their own ilk who turn out to be the biggest scammers of all and then blamed us for their failures.
There is still time for a correction, but there is a reason as a Californian with a CSU STEM degree and wit family/roots in SV area I went to Boulder instead and never regretted it.
With that said SBF went to MIT, and his parents are Stanford professors, it was his GF who headed Alameda that is a Stanford grad.
That's what we call the No True Scotsman Fallacy. BlockFi was a crypto bank that promised unlimited returns by investing in crypto. Unregulated, untaxed, unmonitored, secret and opaque. An onramp to a federated market where deposits are tied to the value of the overall market for crypto holders. And it failed because it has no safety net by design. That's like saying Robinhood isn't the stock market.
> That's like saying Robinhood isn't the stock market.
I feel like you're arguing against your own thesis here. If it had turned out that the CEO of Robinhood had YOLO'ed all the customer deposits on GameStop options, would we ask "is this the end of the stock market"?
It looks like everyone in crypto has been doing wild and shady stuff, whilst Coinbase has built a respectable business in an industry that doesn't exist. Coinbase was being looked at as a shrinking fish in a growing pond, moving slowly whilst places like FTX ran rings around them, now it turns out FTX was just a straight up scam and loads of the money was actually wash trading, so Coinbase now looks like an expensive and slow business in an industry that doesn't actually exist.
As far as I know only interest you can earn on Coinbase is from staking coins - and Coinbase actually takes a portion of that profit for themselves.
I remember looking at all of these now defunct businesses wondering just how they could have such high interest rates on your coins. In what should be a surprise to no one it was too good to be true.
If someone offers a risk-free return way above the prevailing risk-free interest rate… there are some risks that aren’t being disclosed. Everybody forgot that for a little while.
Coinbase is probably the most American of all the "American" cryptocurrency exchanges. It's also a publicly traded company on NASDAQ. Not sure where you get the picture that they refuse to tell anyone where the HQ is, it's famously a remote-first company but used to have their HQ in SF.
It's kind of absurd the level of failure in crypto lending. Putting aside anyone with criticisms of all things crypto these should all be based on the very basic and long established business model of taking deposits, making loans, and paying interest. There shouldn't be anything inherently difficult or "scammy" in that and it should be a successful business pillar in the crypto space. Besides the basic business your two other main priorities should be risk mitigation and dealing with liquidity issues. Surely long term some well run company ought to be able to sort this out.
Perhaps it was competition with decentralized stable-coin lending protocols offering decent APR for the risk that drove and legitimized such reckless behavior. At least the decentralized protocols were auditable from day 0.
A) The money never leaves the platform such as with collateralized margin lending for shorting / leveraging.
B) The money is collateralized such as on DeFi with AAVE.
BTCJam gave small, well-diversified loans based on credit scores, reputations, business ideas, and identity verifications. They iterated and tried almost everything but they couldn’t get enough money that left the platform to ever return to the platform.
Scamming the banks seemed to be way more profitable and lucrative than using borrowed money for economic activities more productive than the borrowed interest costs.
Huh? It looks like it was saying the three are Celsius, Voyager, and BlockFi, but it’s missing a much larger one, Genesis. Although that maybe be going bankrupt to if it can’t get support from its parent company DCG.
"We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda"
I feel like the term "exposure" was intended as a euphemism, but it is now so thoroughly overused that I am developing a more negative reaction to the term than the words it was intended to hide from. "We had exposure to X" is starting to sound worse to me than "We invested in X and X lost a lot of our money"! The latter sounds like a reasonable thing that happens even to reasonable people but I'm starting to associate the former with more insane things happening to careless people.
But maybe that's just because of the sort of things I tend to read.
Bitcoiners have been saying this whole time not to keep your crypto with a 3rd party and this is exactly why. Satoshis original message about Bitcoin mentions explicitly you don't need any trusted third party. A whole lot of people think they can make money outsmarting the original concepts of Bitcoin and they get scammed in new ways each cycle.
At the same time, storage of value bitcoiners - the majority that titanically dwarfs medium-of-exchange/currency bitcoiners - have been trying to get the average layman to put money into the system as much as possible. More bag holders at any cost.
And it turned out that that cost was something that would give the illusion of security, and hide away the technical minutiae that would prevent the system from sucking in those non-technical users.
The bitcoin and other crypto communities don't get to have it both ways. You can't pull in average folks with these mechanisms, to increase the value of your holdings, while simultaneously admonishing them for using and trusting the systems set up to bring them into the fold.
That doesn't make a whole lot of sense. For starters you make assumptions about the motivations of all 'Bitcoiners,' even extending your cynical projection to the ones most vocal about using Bitcoin safely.
But let's take the cynical viewpoint. If I, as a hypothetical Bitcoin holder, want the dollar value of my Bitcoin to go and stay up, then the last outcome I desire is for massive volumes of Bitcoin to end up centralized into a few pockets where they will be gambled on and sold when those bets fail. The most cynical Bitcoin holder has it in their interest for all retail holders to custody their own supply.
Considering the educated base of Bitcoiners have been screaming and citing examples of what happened with FTX since the protocol's inception, "Not your keys, not your coins," it's rather dubious to try and blame them. The reason people get into the space and trust their coins to some third party is that those people are chasing the end of a market cycle and never even come across or seek out the wisdom of the people that were they in the beginning.
'Bitcoiners' at large, judging by the on chain metrics for holders through negative price action, would much rather the volatile market cycles played out as a smoothed average with each new user coming in educated rather than speculators rushing in at the end by any means necessary.
The people "investing" in FTX weren't doing it because they wanted cryptocurrency, they wanted a 15% guaranteed return.
Without the exchanges, the USD->cryptocurrency onramp/offramp is a lot more difficult to do, I don't think most people want to only shop at places that do actual on-chain settlement.
I predict we will continue to see large numbers of scams involving cryptocurrency as long as there are essentially unregulated banks and investment firms. Expecting lots of people to be sufficiently interested and educated enough to only use 'cold wallets' or use good secops on their systems is a bit too hopeful. Even after reading about it for years, the overhead of using cryptocurrency vs a debit or credit card just doesn't seem worth it to me, and I have a tech background.
There's a reason no normal human being outside of a small nerd-circle uses PGP for encrypting mails or rsync instead of Dropbox.
Why would any non-techie ever want to deal with safely storing keys to a wallet. Or without having access to a trusted third party to help when issues arise.
This is such a non-starter and one of the many reasons why there will NEVER EVER be mass adoption of Bitcoin outside of speculation.
Just because an unholy alliance of utopian nerds and fraudsters wish this to be true doesn't make it happen.
That's simply not true. I have personally and remotely set up a professed tech-phobe with a hardware wallet. If I were to die they could recover it on their own.
But, taking your point and rolling with it, there is nothing necessarily wrong or futile about using a properly set up and insured bank with crypto if the hardware wallet is still too intimidating. It could even be set up with certain multi-sig schemes such that a fourth party + the client could withdraw without the bank's permission.
The point is that even when custodied, Bitcoin has arguable benefits over normal currency. I'm sure you will disagree with those benefits, but at this point that would be a Red Herring.
People won't run their own mail exchange, because it's too much work and too complicated.
People won't run their own blog, because it's too much work and too complicated.
The downside to doing either of these things poorly is that you can't send email / become a spam email relay / get hacked and lose your blog content.
Now tell those people that they can take on all the downside risk of losing all their money and the only thing they have to do to make sure that doesn't happen is practice perfect operational security, perfect transaction discipline, stay up to date on all known exploits and patches, constantly be on guard for irreversible scams and exploits, and the big benefit is, "you don't have to trust the bank."
Some huge percent of those people are going to look at you like you are crazy. Do all this work, take on this massive risk, and for what, a problem that most people in the western world have never faced. Most people have not faced any issue with transacting with the traditional finance system, definitely not enough to take on all the labor and risk of being their own bank.
If people won't run their own email, they aren't going to run their own financial institution.
I would go much farther than this. It's not since the internet that the answer is no. It's since civilization that people collectively choose not to try to do everything themselves.
No one thinks it's a good idea to be your own bank.
No one thinks they need to make their own
shoes
cars
food
computers
hand tools
...
the list is an enumeration of all the artifacts of civilization.
crypto is an anti-social fantasy at best, it flies in the face of reality.
Self-custody is simple - just download a wallet app and preserve your seed words.
However, it's intimidating and requires a lot of personal responsibility.
I don't get the point of password managers. What's so hard to remember a password? Just use the first name of your eldest child, add your house number, and you're golden. If you're really that dumb, post-it notes exist for a reason.
I've made their passwords incredibly easy to remember. They're just not able to for whatever reason. They're both practicing doctors who I generally believe to be competent but for whatever reason passwords elude them. Maybe crypto just won't work until all the people who grew up pre-internet die.
I'll agree that crypto self-custody isn't really something the vast majority of folks can safely do. That said, self custody of crypto is different than self custody of fiat currencies.
With fiat currency, you have to physically store the cash in 1 location. With crypto I can store multiple keys to my crypto on physical devices that require a pin to unlock (and reset after a few failed attempts). I can store my key across multiple locations in such a way that n of m copies of the key are required to move funds. I can require a waiting period before moving funds. I can require another person to approve the transactions in certain scenarios (ex: moving large amounts of funds).
If you can write down 12 or 24 words on a piece of paper thats all you need for a backup. Hardware wallets make this easier but I agree it needs to be simplified for the masses.
I can barely convince my relatives that a 16 character minimum password and a password manager for their accounts protected by multi-factor authentication will make their life easier by only needing to memorize the 1 long password, that they could also write the password down and keep somewhere safe.
How, practically does this work? Is it a password that you remember? What happens if you forget, or lose the piece of paper or hard drive it's written on? Do you end up like the guy trying to dig through landfill? (https://www.thecitizen.co.tz/tanzania/news/business/the-sear...) Or is the answer, "don't forget"? This doesn't work for most people.
You use a cold wallet, that is, a secure element storing your private key. Those chips are physically isolated from the computer and cannot be tempered with.
If you lose your device (which should NEVER happen, it's a safe, not a purse), your keys are still encrypted with your PIN code and the device will self erase after 3 unsuccessful attempts.
You can retrieve your private key from a 24 word sequence (seed key), which you will usually store on a fire proof and water proof medium like a like a billfodl or stamped washers. For added security, the private key will be derived from the seed plus an additional passphrase only known to you (kind of like a salt), so your key doesn't get compromised if someone gets his hands on your seed.
Cold wallets didn't exist by the time of the incident you mention.
The whole point of keeping your crypto with BlockFi was how much interest they were paying out.
But yeah, this whole debacle with FTX has finally made me realize that if I were to ever keep meaningful quantities of crypto, I would need to do so in a cold wallet.
I was a BlockFi customer. I always had the sense that they wanted to do the right thing. They hired people with risk experience in traditional banking, had real customer support, engaged with regulators to get their interest rate product certified, etc. It is really a bit sad that they got entangled into the FTX situation. (I should also say that I withdrew my funds earlier. Otherwise, I may feel differently.)
It always felt like a facade to me. When 3AC collapsed and they were fined, they didn't really disclose how they 'solved' their liquidity problem. Taking a loan out just kicks the can down the road.
They also were handed an amazing deal that no one else was offering without taking a second to wonder why?
I assumed they received the deal because they were legit. :) But yes, agreed, hard to tell from the outside. We will learn more in the bankruptcy proceedings.
I have never seen such a strong argument for an end to limited liability before. Dozens of investors funded and enabled FTXs fraud. Their level of incompetence, both to their own investors and to the public in general is astounding. Now they fraud they enabled and cheered on is destroying other peoples savings and businesses.
They asked for some basic info on FTXs internal controls and were told to piss off. They asked for some oversight power and we're refused. Then they choose to invest anyway and help this fraud grow. To me, this is like reloading the gun of an armed robber during the robbery.
"He seemed like a nice guy" isn't going to cut it here morally even if they're legally in the clear.
For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue. Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation.
The biggest "adult in the room" by far, whom was pushing for regulation, turned out to be another scammer that was simply trying to regulate away his competitors and enshrine his own fraudulent crypto scheme as the only sanctioned one.
The crypto community's truest Scotsman proved to be just as terrible as everyone outside perceives the crypto space to be. Benefit of the doubt simply can't be given for what "reasonable crypto people" say at this point.
I completely understand the view that crypto should no longer be given the benefit of the doubt and subscribe to it myself, but I think that even without the benefit of hindsight from the FTX implosion, Coinbase is clearly the adult in the room in crypto, and has been for some time.
> biggest "adult in the room" by far, whom was pushing for regulation, turned out to be another scammer
SBF was far from an adult in the room. He got zero policy to even a serious discussion phase. To the degree we see meaningful calls for regulation, it comes from Banking and Financial Services committee members who not involved with crypto pushing draconian rules.
That sounds nice in theory, but of course these companies are free to sit down and hammer out professional standards without the government telling them to. "We really want to be told what to do but nobody will" is code for "I'm not doing anything until the government makes me, and I'll redirect blame to the glacially slow government the whole time."
That’s easy to say, but that’s going to make those companies uncompetitive. Look at how fast FTX overtook Coinbase, a long established player that - as far as anyone can tell - isn’t doing anything shady.
Your example undercuts your thesis. Given that FTX no longer exists while Coinbase does, FTX was not competitive in the long term. Being “competitive” for a couple years is typically not the goal of founders or investors.
> Being “competitive” for a couple years is typically not the goal of founders or investors.
Crypto actually seems like a perfect field to pursue this strategy. Make outrageous promises, find customers willing to believe that ("crypto is different"), cash out.
Some of us find it hard to believe there are any reasonable people in the crypto space. The whole thing seems like a dumb sham. The FTX collapse and contagion is sad but unsurprising.
Not even remotely true. We need regulation to keep the big banks honest but that doesn’t mean nobody knew what was going on. We were living in New Haven at the time and briefly considered buying. I got pre-approved by BofA for a ludicrous amount with almost no diligence, and was quoted half that by a Connecticut state bank which actually checked things. I had a good conversation with the loan officer who said that it was going to be ugly for the big banks but they had kept their foreclosure rates low for decades by sticking with traditional banking practices and weren’t planning to change. A few years later I checked and he was right: their foreclosure rate had gone up a tiny fraction but they were fine.
Correct. That's why finance needs to be regulated up the ass. Repealing Glass–Steagall was a terrible idea and probably eventually led to 2008. Cryptocurrency generally seems to want to go in the opposite direction and have a speculative free-for-all.
> Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation
It's a "damned if you do, damned if you don't" situation. Mainly because of the outsized lobbying power of the wealthy folks backing VC's backing crypto.
Clamp down on crypto with regulations and many, many wealthy political contributors are going to be pissed off by stifling growth. Don't clamp down and you get the situation we're in now where everyone is losing their shirts.
What about the middle ground? I think we can only now talk about it because enough wealthy people also lost big chunks of their investment in these last few months.
BTW, despite whatever implied connections to FTX Gary Gensler has, his series of talks at MIT on blockchain[0] technologies leads me to believe that there are few people better equipped to navigate this from a political perspective.
> For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue.
I'd be very keen to learn what kind of regulation, exactly, anyone is seriously proposing for these crypto products? Namely, the problem I see is that the products in the crypto lending space in my understanding simply can't exist in anything that has any resemblance of current financial regulations. To be honest, I am not sure how they can exist in any regulatory scheme that tries to penalize scamming people. Now, if the regulation said that it is okay to scam people in crypto industry, that might be interesting. But i am not sure if anyone has been proposing that.
The consequences doled out by the market are not distributed equitably. A bunch of late-comers and depositors lost everything, while the people most responsible for the disaster live in multi-million dollar homes in the Bahamas. This seems like a recipe for the same thing happening again and again.
If SBF sees the inside of a prison cell that won't be the free market at work but rather the government.
Not only did the US central bank create the conditions for the stock market crash of 1929, but the interventionist policies of FDR prolonged the economic hardship. Interventionism put the "great" in the "great depression". Not only did they create the bust, but they magnified the blast radius.
if anything collapse of Luna, FTX and BlockFI showed that regulations are not urgent or really needed. Regulations in finance are needed when collapse threaten real economy or regular people (similar to contagion from housing market or Bear Stearns in 2008 financial crisis). With FTX collapsing with zero repercussion on broader economy, why regulate it? If people want to play casino, let them play casino.
Right now crypto is a closed ecosystem with no practical use cases beyond gambling or ponzi. Crypto failed as anti-inflation hedge. If real businesses or people start using crypto for something useful then regulations will be needed but this time is not now.
Regs are needed because people didn't know it was a casino. Look at the poor guy in this discussion who lost 10% of his wealth here. He was surprised at the outcome.
On the lending-side. I just want to give a big customer shoutout to Unchained Capital (https://unchained.com) for making it through this mess. I took out some collateralized loans this past year for my startup and looked at both them and BlockFi.
I've had the long unfortunate history of being burned several times (Mt Gox, Pirate@40, Friedcat/ASICMiner...). BlockFi of course had a significantly lower interest rate, but Unchained designed their product and messaging around trust (primarily using multisig wallets and promise that they don't rehypothecate)--which, after my experiences, sold me. It was a little painful to go with the higher interest rate, but damn am I now glad that I did.
this is bad thing for all depositors who are losing money. but good for overall progress of crypto. centralized custodians should be regulated, and users should be educated about the benefits of choosing self custody and decentralized exchanges over unregulated and opaque services.
contagion will spread more after this, so expect more centralized services to fall.
yes there are dozens of decentralized protocols that claim to offer high yield. but few can really sustain that in reality. safer to not chase such high yield.
My understanding of the "high yield" options don't pay out in stable coins. At best, they are vulnerable to impermanent loss and worse the smart contracts get outsmarted with all the coins gone. Staking crypto has lockin periods, whereas blockfi had no lockin period.
Can you share an example of a decentralized protocol that offers high yield in a stable coin with less risk than blockfi offered?
A buddy of mine had his phone SIM-hacked and his coinbase account drained. He was on the phone with coinbase trying to stop it while it was happening, and said they were beyond useless.
Criminals have lists of everyone with crypto on coinbase. They're cross-referencing this list with people with T-Mobile (usually), then pulling off SIM-hacks by buying off a store manager, or just grabbing the manager's laptop and running out of the store with it. At that point they have 10-15 minutes to take over as many SIMs as they can.
That sounds like fud to me. Coinbase decided my account was left for dead, and contacted my state. It tooks several weeks of back and forth with coinbase, including multiple phone calls with support and sending pics of my id, etc before they let me access my account. I had my password etc, same phone. They wouldn't let me get my money out.
It's not FUD. They used 2FA to reset his coinbase password, then accessed it as him and drained the account.
On top of that they drained his bank account (also using 2FA) into the coinbase account, then drained that too. Coinbase has (or had at the time) elevated levels of trust that they just gave him, which allowed the hacker to immediately buy crypto with transferred funds. Then the hacker just transferred the crypto to another wallet.
so they used sms based 2fa. I had 2fa based on google authenticator (not sms), because of that attack vector. I only had a few thou dollars. But they decided google auth is not accepted anymore and I failed to login and reset it and so the result was locking my account for a year - until recently when I spent multiple days getting it reset. Thus my skepticism.
No one should allow/use text message based 2fa of course.
Correct, text-based 2FA is insecure. But coinbase allows it, and most banks offer it as the only option.
The link I posted basically describes exactly what happened to my buddy and how they pulled it off. T-Mobile + text-2FA + coinbase is a chain of weak links.
Coinbase is a publicly listed company, with all its assets & liabilities shared in quarterly investor updates. They store all customers assets 1:1 (ie does not re-hypothecate any of customer assets)
Enron was also public, so was Lehman Brothers. The idea that public companies can't game their numbers or commit fraud is provably false. Why anyone would have large sums of crypto (5 or 6 figures+) on an exchange is beyond me.
It is not safe, if you have crypto in coinbase they can steal it the exact same way FTX stole their users crypto. You do not own crypto stored on an exchange
No, it should be perfectly clear by now that none of them are safe, no matter what they say. The best time to get your coins out of any exchanges was when the FTX fall began. The second best time is right now.
There's no such thing as "safe" or "unsafe" in an unregulated space (hence people saying "no") but if you're asking about relative safety then Coinbase is probably the safest of the centralised exchanges. The alternative to a custodian (like an exchange), self-custody, is "safe" in that it removes counterparty risk but it's "unsafe" in that you are now entirely responsible for keeping your coins in your control which means dealing with the risks of loss and theft.
A better question to ask is: what are you trying to protect yourself against, and what risks are you willing to take? Without insurance (whether that's government provided through a regulatory scheme (which does not exist in crypto), or personally through an insurance provider) you're exposed to a bunch of risks that can be minimised but not removed.
I don't own any cryptocurrency but if I did, I'd either use a specialist custody service or an exchange I trusted. If I was going to self-custody, it would involve multiple hardware wallets across multiple safe deposit boxes.
No and it doesn't matter if you're right if you're also last. Nearly 50,000 Bitcoin were withdrawn from Coinbase daily between Nov. 23 and Nov. 27 — equating to roughly $3 billion. Move your funds off today just to be safe.
> A representative from BlockFi did not immediately respond to requests for comment.
Well I am sure the "representative from BlockFi" made out just fine working for BlockFi. I wonder if all these failures will finally tag these crypto companies as ponzi schemes ? Then these people will face real consequences.
“Ponzi scheme” is a specific type of financial fraud and isn’t a synonym for overexposure, excessive leverage, poor management, or even fraud in general. I do not think labeling things as Ponzi schemes which are not Ponzi schemes is helpful. Nor do I understand how that would help with effecting “real consequences.” The consequences faced by company personnel should be consequent to any wrongdoing.
In the legal sense, a 'Ponzi Scheme' has a specific meaning. In conversation, the definition is a bit looser. Sorta like how expressive has a different definition when you say 'that is an expressive programming language' and 'that is an expressive face'.
Crypto, as a whole, is about early adopters trying to convince newcomers that crypto has value. If the early adopters can't convince anyone that crypto has value, it's just a bunch of math and wasted electricity.
Early adopters try to convince laymen to 'invest' in crypto (i.e. buy crypto from the early adopters). Then the second generation crypto adopters have to find new marks to buy their crypto. Ad infinitum, until someone is left holding the bag. Then you sprinkle in some jpgs that people purchase despite anyone being able to right click and save it, rug pulls, and overall idiocy that happens when you give people billions of dollars without checking to see if they're observing basic organizational principles (i.e. are they running payroll out of a Slack room?).
Mingle it all together and you get a house of cards that's remarkably similar to a Ponzi scheme, yet doesn't exactly fit the bill. Sort of like how MLMs are legally distinct from Ponzi schemes for... reasons, I guess.
Saying that crypto shouldn't be considered a Ponzi scheme is a bit pedantic when the outcome is the same (i.e. the last person is always holding the bag, so you have to keep trying to convince someone to buy into your idea).
And they hate being told that they're a pyramid scheme. They'll claim that pyramid schemes are illegal. They're not. Pyramid schemes in which the only thing being moved is money are illegal, but as long as you offer a real good or service, you can pyramid it up.
They'll claim "everything is technically a pyramid scheme" trying to conflate a hierarchy with a pyramid scheme. But in a typical corporate hierarchy, money flows downward. I don't buy stock, I don't rent space, I don't etc. I am not responsible for any of the assets. I get paid for the value of my labor (in an ideal world, let's not get into that discussion here). In a pyramid scheme/MLM/network marketing bullshit, money flows up. I have to buy the stock I'm responsible for selling. I need to find/rent space to do so, I have to get customer contacts, etc. And on top of that, I have to recruit, train, and manage people under me. And for this privilege, I owe some percentage of my sales to someone higher up.
Never join a company where the first thing they ask you for is a check.
Technically everything is a ponzi scheme based on the assumption that it correlates with world GDP growth.
Land, Homes, Gold, Stocks are all Ponzi. It's just that the duration of the scheme is longer. If an asteroid hits and kill all humans tomorrow except 100 people, those 100 people can get all the above 'assets' for $0.
E.g The Gold Scheme has lasted over 5,000 years. Who is to say that BTC will not last at least 50. As an investor, it's not whether something is a ponzi or not, but how long the scheme will last.
For something like land, it could well be till the population peaks or Metaverse makes land less valuable or we find another amazing planet where we can all instantly migrate to. But eventually the land that you own will have no value. When is the question, till then you'll keep buying land in the hope of selling it to someone else for a higher value
With the small exception that homes, land and stocks (at least some of them) can pay you rent.
I personally like to think of Gold as of Babylonians Bitcoin, it has very little value of its own - but it has a long history of being a store of value (like 5k years vs Bitcoin's 5k days). So at least in this case we have a lot of track record that Gold works.
Beside Gold, silver was also used for monetary purposes, but with time it lose its role - as more and more silver was produced as e.g. side product of copper mining. Countries that were relying on silver as the store of value (China) where hit very hard by silver inflation.
Time will show if Bitcoin is a bubble, cyber silver or cyber gold. I personally would be interested in having stable coin based on Gold, that would basically mean return of the gold standard. But in that case we have to trust some institution to keep all that gold safe...
I can understand wanting a term for the specific kind of grift we see with crypto.
Making it such that "crypto scheme" or something like that is the new term for this chicanery would be nice. Clean, obvious, and appropriately stigmatory.
Labeling them as Ponzi schemes affords people in the US who lost money special tax benefits. It’s treated more similarly to theft than a bad investment. I am not sure about other countries, but in the US the label has real consequences.
I did not know this. Very interesting thank you. So is there some group responsible for officially determining if something is a Ponzi scheme or not? Perhaps in court?
Offering unrealistic returns paid from the fresh influx of cash based on advertising about the unrealistic returns until the whole house of cards collapses is EXACTLY what a Ponzi scheme is. How *isn't* this a Ponzi scheme?
People conflate ponzi schemes and pyramid schemes as well.
However, I'm having trouble finding where it is not. Money paid out must come from new investors. If I buy crypto for $1, I need someone willing to buy it for $2 to make money. My returns come not from any utility, but from more people investing in it.
If I buy a baseball card for $1, I need someone to buy it for $2 to make money. If I trade lumber on a commodities market, I need someone to buy it at a higher price to make money.
The new entrants condition does not qualify anything as ponzi scheme. Words should have meaning, or else what are we even talking about?
A ponzi is a specific form of fraud where the promoter misrepresents where the profits are coming from. Instead of managing a profitable enterprise, the promoter pays out current investors with the money of new investors.
Collectibles are their own thing. I'll allow that there is some value in the preservation of the item itself. But the reality is that with collectibles, it's the scarcity that's the thing. And with digital goods, scarcity is artificial.
Your lumber comparison is vastly over-simplifying an issue to make it look similar. Lumber is useful. It has value as a building material.
I've yet to see a cryptocurrency/NFT/whatever that has any value outside of its own ecosystem. I also like how you say the "new entrants condition does not qualify anything as a ponzi scheme" before pasting the definition which says "the promoter pays out current investors with the money of new investors".
Which is how crypto works. That's the only source of increased value, new investors. The only quibble is that there's not a single promoter. In which case, fine. Crypto is not a ponzi scheme. Crypto is a vehicle by which people can easily create a whole bunch of ponzi schemes.
For baseball card I basically agree, with the main difference being you won't reliably make money on a given card. Some will go up and make you money, but realistically it's a collectible.
For lumber, there is an end user who wants the lumber to e.g. make a house. There might be some middlemen who buy it and then resell it, but they are also generally providing value in some way: storing it to smooth over demand variance, doing arbitrage to improve pricing, moving it from one location to another, etc. There's never just an infinite chain of middlemen selling it for ever increasing prices.
> For lumber, there is an end user who wants the lumber to e.g. make a house. There might be some middlemen who buy it and then resell it, but they are also generally providing value in some way: storing it to smooth over demand variance, doing arbitrage to improve pricing, moving it from one location to another, etc. There's never just an infinite chain of middlemen selling it for ever increasing prices.
What about something like Ethereum? There is an end user who wants the Ethereum in order to pay network fees so they can register a domain name, move a stable coin, etc. I realize this isn't the primary use, but people are betting that it will be. Is that really any different than speculating on a startup that isn't yet profitable, but could be in the future?
And since something like Bitcoin is fundamentally trying to be a currency.. Why is this any different than something like the Russian Ruble? People want it because other people want it (medium of exchange). The differences are that:
1. You're required to use it to pay taxes, or people with guns will put you in jail
2. A central party can issue unlimited amounts of the currency and give it to whoever they want
Fundamentally, why is it so crazy to have a native digital currency that isn't owned by any one entity, has a set issuance schedule, and can be used as a medium of exchange. Governments have been doing this for centuries, and now we have the technology to make an arguably "better" version. Why not at least try? The real arguments against it seem to be: people are speculating on it.
The additional context here would be that easy money policies and cheap credit create the atmosphere for speculative bubbles. These are the products of financial central planning and regulation. Consumers have negative real rates on their savings accounts. There's nowhere to go, thus they are forced into riskier scenarios to preserve their wealth, much less achieve a yield.
Just as lumber has value as a construction material or baseball cards have value as a collectible, cryptocurrencies have utility for those of us willing to transact or create dapps. This may not be the majority of users, but there are some of us who perceive value here.
While I don't personally value baseball cards, I don't malign those who do. Value is subjective. Even if baseball cards enter into a tulip bubble, nobody is forcing me to buy them. Similarly, if people want regulated financial products there are plenty of options available.
There's no need to malign cryptocurrency or cryptocurrency users with wild generalizations. Different strokes for different folks. Live and let live. Not sure why this should be controversial in a liberal society. The demands for regulation are paternalistic and authoritarian. They are a few steps away from demanding that we, "Think of the children". See the posts elsewhere lamenting the average Joe, who can't be bothered to write a key phrase on a piece of paper. Just too technical for him.
In that context, the ponzi accusations are better understood as scaremongering. Deliberate misrepresentations comparable to "Reefer Madness" hysteria.
There's multiple layers to the bigger picture: the protocol itself, and the systems that use the protocol to provide value to users.
Customers don't actually care about the protocol, they care about receiving value. A protocol is only as valuable as the systems that use it to add value to consumers.
I remain unconvinced that any currently existing decentralized crypto system has a net-positive long-term value proposition, regardless of the underlying protocol.
One lesson of traditional finance that crypto is learning these days is: “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.” For instance:
1. There is a small opaque crypto lending platform that is rumored to be in trouble.
2. Its depositors want their money back.
3. It doesn’t have their money, either because the money is locked up in long-term loans or because it lost the money or some combination or otherwise.
4. There is a “run on the bank.”
5. To solve the problem, the lending platform agrees to take a desperation bailout from some bigger, more stable, better-known crypto exchange. The big exchange agrees to guarantee the lending platform’s customer deposits, or at least gives it an ample line of credit to pay out depositors. In exchange, the exchange gets to take over the lending platform, and its existing owners get more or less nothing.
6. The run on the bank stops. The depositors don’t want their money back, because now instead of being depositors at the small lending platform, they are depositors of the large stable crypto exchange. Their money is safe, backed by the deep pockets of the large exchange, and they can go back to earning crypto interest or whatever.
If you can get a big enough line of credit, you never need to draw on it, because your depositors were worried about your liquidity, and the line of credit resolves those worries.
In some rough sense this describes the bailouts this summer of BlockFi Inc. and Voyager Digital Ltd. by Sam Bankman-Fried’s crypto exchange FTX and its affiliated trading firm Alameda Research. 1 BlockFi and Voyager looked risky after some of their borrowers collapsed, so customers rushed to withdraw their money, and BlockFi and Voyager didn’t have enough to give them.
And then FTX/Alameda showed up and said, well, we’ll take over your customers. In the case of BlockFi, FTX gave it a line of credit to cash out customers, and got an option to buy the company for some nominal amount of money. In the case of Voyager, it filed for bankruptcy, and FTX offered to come in, move Voyager’s customers to FTX, and cash out anyone who wanted out. In either case the basic point was that FTX had enough money to cash out everyone, so no one needed to cash out. These small rickety crypto firms were rescued by a big safe crypto firm, so the customers could let their money ride.
Oops! That was all wrong; FTX had been misplacing tons of its customers money, and did not in fact have enough to bail out everyone else; FTX filed for bankruptcy earlier this month. And today:
BlockFi Inc. filed for bankruptcy, the latest crypto firm to collapse in the wake of crypto exchange FTX’s rapid downfall.
BlockFi said in a statement that it will use the Chapter 11 process to “focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities,” adding that recoveries are likely to be delayed by FTX’s own bankruptcy. Chapter 11 bankruptcy allows a company to continue operating while working out a plan to repay creditors. …
Citing “a lack of clarity” over the status of bankrupt FTX and Alameda Research, the Jersey City, New Jersey-based company earlier halted withdrawals and said it was exploring “all options” with outside advisers.
FTX US is listed in the company’s petition as one of its top unsecured creditors, with a $275 million loan.
The company’s largest unsecured creditor, Ankura Trust Company, is owed about $729 million, according to the petition. Ankura acts as a trustee for BlockFi’s interest-bearing crypto accounts, according to its website.
BlockFi in July received a capital injection from a now-collapsed FTX US, and also had collateralized loans to Sam Bankman-Fried’s trading firm Alameda Research.
It is early yet, and hard to know exactly what happened, but I think it’s something like “as long as people assume you have a bazooka you don’t need to use it, or have it.” When FTX was a $32 billion company that ran a well-regarded crypto exchange, had raised billions of dollars of equity from big investors and was handing out nine-digit credit lines like candy, everyone was like “ah well if FTX is here then everything is fine,” and it was. When FTX was bankrupt and couldn’t fund its credit lines, its beneficiaries quickly collapsed along with it.
Here is the bankruptcy docket, and the bankruptcy petition with the list of top creditors. At the top is Ankura, which is the trustee for BlockFi’s crypto interest accounts; if you put your crypto at BlockFi to earn interest, what you have is an unsecured claim on whatever BlockFi has left. In fourth place, owed $30 million, is the US Securities and Exchange Commission, for what’s left of a $100 million securities settlement from happier times this February. In February, BlockFi thought that it was such a good idea to offer interest-bearing crypto accounts that it agreed to a $100 million settlement with the SEC to find a path to legalizing those accounts. In February, the biggest problem with BlockFi’s interest-bearing crypto accounts was that they were not, technically, legal in the US. Now there are much bigger problems! And yet that problem was not small?
Meanwhile BlockFi owes FTX $275 million, presumably having drawn that much on its line of credit (and being unable to draw the rest). The details are a little unclear, but one weird little detail is that in FTX’s bankruptcy pleadings it has said that FTX US loaned BlockFi $250 million worth of its own FTT token.
We talked about the FTT token a few weeks ago, in tones of horror. Basically the FTT token is a cryptocurrency that is kind of like stock in FTX, a claim on the future cash flows of the exchange. When FTX was a good crypto exchange with a promising future, that claim was very valuable; FTT traded above $50 in March 2022, and was mostly above $25 this summer as BlockFi and Voyager were running into trouble. When FTX was bankrupt, that claim was not worth much; FTT was trading at about $1.29 at noon today.
It turned out that FTX’s balance sheet consisted largely of FTT and other, similar tokens that it had made up and that represented bets on the future of FTX’s businesses. Basically FTX took in a lot of real money and … lost it somehow … and convinced itself that the money was still there because it still had a lot of tokens that it had made up? And those tokens did have a market value; they traded in cryptocurrency markets, and so you could calculate how much FTX’s stash of those tokens were worth at their market prices. Of course if FTX had actually tried to sell all those tokens the price would have cratered, so that market value was not real, and now it has collapsed. FTX is not going to sell its stash of FTT and SRM and MAPS tokens for billions of dollars to make all of its customers whole; those tokens were worth billions of dollars when people had confidence in FTX, and now that confidence is shattered and so are the tokens.
But back over the summer, FTT was totally a thing! And so it is possible that when FTX extended a loan to BlockFi to shore up its customers’ confidence, it loaned BlockFi tokens. “Here, have some magic beans we made up, people really believe in them,” FTX could have said to BlockFi, and over the summer that would have been enough. “Ah, BlockFi has some FTX magic beans, everything is fine,” customers could have said, and the bank run would have halted. Now the beans no longer work, and BlockFi is bankrupt.
Somehow these guys peaked at about 900 employees, according to linkedin (https://www.linkedin.com/company/blockfi)
They've raised about a billion dollars of VC - https://www.crunchbase.com/organization/blockfi-inc/investor...
(note, CB lists $1.4b, of which 400M is debt from FTX, which I imagine they never got)
Unbelievable the amount of destruction of value here... it's just total carnage.
I talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds. So they decided to just start hiring everyone they could from paypal, to move into "blockchain payments". They paid huge sums. The directors there had no experience ever managing huge teams of people. It was a giant mess of unqualified people funded by cheap capital.
She also said the money movements on the blockchain facilitated by BlockFi were done manually by blockfi employees. The software was a facade and wasnt trusted for large sums of money
Here is the model, as I currently understand it:
1) some people are rich and want to get richer
2) Ivy educated VCs invest money for group (1) in start-up companies, while paying themselves handsomely with that same pool of money
3) Ivy educated kids start companies using money from group (2), while paying themselves handsomely with that same pool of money
4) sometimes, through a combo of hard work, skill and luck, things work out and everyone makes more money than was spent
5) sometimes, because they are mostly, actually a bunch of yahoos and/or scammers, things don't work out and group (1) loses their money
There are some oversimplifications here, but in general, this seems to be the way.
This seems to be largely what is going on. I think also, there are a few startup ideas considered to be "the future", and VCs are basically just choosing which horse they will bet on for that idea. So they pick through different founders chasing that market, and invest. Then all the other VCs pile in on those chosen horses, regardless of the due diligence.
As a naive and younger outsider I always thought these people were all very competent. Clearly there is something very different going on here.
> I think also, there are a few startup ideas considered to be "the future"
This. I’m getting annoyed with my jQuery/Spring app with ~million of revenue that I can’t get sexy for employees nor for funding; sometimes I want to throw away ethics and say we’re building “a blockchain of solar-powered AI european-central-bank ledgers”. It would be so much easier. Nah, we’re just storied field data in 7 tables, and customers love it.
But the tide is turning. I have a friend who mentioned the blockchain on his funding papers and he can’t even get an office in my city (France). I’m happy the tide finally turns for the blockchain, to value it for what it’s worth: A good idea for 1% of the present usecases, and bad idea for everything else. Even though not being able to sign an office lease for insurance reasons is quite comical.
99% of the time when someone can’t hire the problem isn’t the tech or the product-space, it’s that they aren’t paying enough. If you pay me a million per year I will build boring crud apps and web integrations for you all day.
This is exactly the answer. I've worked on one very old codebase in my career. I was paid well for doing so.
The graph of investment in software starts high with greenfield projects, drops over time to an all-time low as optimizations take hold, and as the software continues existing will rise to the greenfield (or more) levels of cost. The interesting thing to me is what substantiates the rises; for instance, in greenfield experimentation and iteration is what costs the most. In old software it's usually the employees.
I'd love to actually document this sometime.
You won’t get a million per year from my revenue since I’ve built it and I’ll still be there come hell or fire; but you can get 10% at the beginning and I don’t hesitate to increase employees as they maintain the existing one or contribute to increasing the revenue. In fact I generally give them more than they contribute, and I’ve increased my employees 30% this year in average, unprompted.
But there is always this HN comment with, no matter how much you pay, they put exclamation marks about how little the compensations are in France and how 35hrs is too long or having to be in office a few days a week is the bane of their existence. I’m always wondering whether we’re unionized here, it looks like a systematic complaint, no matter the conditions.
Well, I don’t know, create your own company I guess.
You missed the point. You can't recruit because you aren't paying enough to be competitive.
So what is your salary range?
You're almost there. Make it a "blockchain powered 3D PRINTED solar AI bank ledger" and you'll be funded in no time.
Did you even read the article? Make it "blockchain-free 3D PRINTED solar AI bank ledger".
You forgot to add "to the moon!" at the end /s
1) has several layers of middlemen that all take cuts along with 2) and 3). Typical LPs for VC funds are often institutional investors like university endowments and pension funds, or they are hedge funds that are themselves funded by university endowments and pension funds. So when #5 happens, the loser is oftentimes not an individual rich person (though family offices participate in this ecosystem as well), but a collection of not-very-rich people that have entrusted their money to a professional money manager.
Couldn’t have put it better.
Here’s a true story: a friend and former startup coworker got verbal agreement on funding a startup. His business pitch consisted only of a list of names of people he’d worked with in the past who could execute well.
So where is the due diligence that the VCs talk so much about, especially in the case with FTX, which supposedly didn’t have any appropriate financial management?
Having been through due diligence with several top VC funds (Softbank Vision Fund and others) I would say that due diligence generally focusses in on a few key areas which are crucial to the upside and risk factors in the specific business. For example, is the financial model broadly accurate (ie there’s nothing in the finances that would cause the investment hypothesis not to work out), if they’re a software or saas company, do they own their software or are they exposed to IP litigation risks etc[1], what’s the cyber risk like, etc. Then they will deep dive on anything that gives them a spidey sense tingle during that first phase. It’s not a general seal of approval of all the controls in the company, they know for a startup you’re building the plane while you’re trying to fly it, they don’t expect perfection they just want the plane not to crash into the mountain before they hit their exit.
On that basis, the FTX thing is kind of baffling because the financial controls would seem to be core to the thesis. Having read some of the things sequoia said about their original meetings with SBF it seems they were dazzled by him personally and allowed their greed to overcome basic prudence.
[1] So for example for SVF I had to go through all the transitive dependencies of all our software (which for JS and python is generally a lot), check the licenses and actually track down authors of a few packages in the node ecosystem and ask the authors to explicitly license their software so we knew we had a right to “depend” on it.
The TLDR of the above which I never actually state is you should never think because X investor is in a situation that you don't need to do your own diligence/research. You should always do your own research and satisfy yourself before putting your own money at risk.
Wait. What happened to all the middle class chumps who got tempted by "influencers" and reassured by rich people saying "I'm in!" in your model?
This model of yours suggests that rich people played with fire and rich people got burned.
Is that what is happening? That doesn't seem to be a complete model.
You are missing the key point. It's not hard work, skill and luck.
The Fed has been on a money-printing spree since 2008 [0]. The idea was that it would create jobs and stimulate economic activity. In reality, it lowered the bar for things considered investable, so the Ivy-educated VCs were trying to tap into that stream of cheap money, while paying themselves handsomely. Either get acquired (using cheap debt that will also be used to pay the acquiring execs) or IPOed (using the excess money from the public). Profitability was out of question for at least a decade.
[0] https://tradingeconomics.com/united-states/money-supply-m0
The Fed doesn’t give VCs money.
Not directly, sure. The low interest rates, and the overall increase in money in the system, made VC investing less risky compared to other options. Now that changes.
Interest rates are for banks borrowing from the Fed, affecting interest rates on loans issued by banks, and the rate of bank lending. But I don’t think VCs fund themselves by taking bank loans.
These crypto companies are primarily capitalized by VC and selling crypto.
It's more complicated than that though.
Alternative "assets" like crypto gained more credence when rates were low. Bond returns in such a regime were not attractive, equity markets rallied to elevated levels, and there was little incentive for debt issuers to use free cash to pay down debt that could be rolled out into perpetuity.
The Fed essentially held the cost of money near zero and that had far-reaching effects.
It prints money, that money flows into institutions and chases returns. Much of it flows to VC, guaranteed. That’s what the Fed was literally created to do.
The fed was created to be an intermediary between banks so all banks form a network that in aggregate cannot be insolvent because if one bank is insolvent, another bank has plenty of money to lend to the insolvent bank. When you withdraw into cash, then you are basically banking with the Fed which means banks borrow from the Fed.
New money is created through bank loans, or monetizing government spending, or emergency asset purchases by the Fed – none of which are the typical source of VC funds.
From https://hackernoon.com/the-macroeconomics-of-venture-capital...: "when the Fed engages in quantitative easing, it goes a step further and attempts to keep returns for longer-term bonds down as well. In the United States, this meant the purchasing of mortgage-backed securities and government bonds. (In Japan, central bankers have had to utilize even more extreme measures, going so far as directly buying not only government bonds but also stocks on the public market). By bidding up the prices of long-term bonds through quantitative easing, the Fed forces investors to seek returns in even riskier assets, such as equities.
As investors flow into the equity market, stock prices are bid up to the point at which expected returns for stocks also become unattractive. At this point, the logical next move for global, institutional investors is to move to more risky investment options such as private equity and venture capital. This is exactly what we’ve seen."
Other quick links:
http://jibe-net.com/journals/jibe/Vol_8_No_2_December_2020/1...
https://www.taylorfrancis.com/chapters/edit/10.4324/97810031...
That's pretty much how a lot of "unicorns" felt in the past 2-3 years
I once heard that a well-known gig economy company would open up new cities by giving employees essentially-unlimited credit cards and telling them to buy whatever they thought was needed, with no controls or multi-person approvals.
It'll be interesting to see how VC changes in the modern environment - will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth, or will they begin looking more for experienced operating teams who reach and maintain profitability (or a rapid path to get there at all times)?
> I once heard that a well-known gig economy company would open up new cities by giving employees essentially-unlimited credit cards
That's pretty documented in the history of Uber :-)
Can anyone recommend a reasonably accurate history of Uber?
Super Pumped: The Battle for Uber is the most well-known tell-all book. I think they also made a TV miniseries based on the book but I haven't watched it yet.
Wild Ride: Inside Uber's Quest for World Domination is mostly a summary of the headlines involving the company rather than a tell-all but it's accurate enough if you want to familiarize yourself with the subject.
I don't believe anyone has written a book about the technology team specifically which is sad because they actually made some really great technology, especially in the monitoring space, and I would love to hear the story of how that came to be.
Ubers lie was it would be profitable at scale. They were never profitable at all while growing, but always claimed that if they just had a few more markets they'd finally be profitable.
Turns out unsurprisingly, if your revenue is negative and you multiply it by 1000000 it's really negative.
I don't get what the issue is here.
Option A- you task some employees with buying office furniture and equipment and then waste everyone's time by having some extra meetings and emails and bureaucracy where someone asks "is that a good price for 50 desks? Did you get multiple quotes?" and the employee says "yes" and then they approve the expense.
Option B- the same employees make the same decisions, but without the extra meetings and emails and paperwork.
Being more efficient, giving employees more autonomy and focusing on what actually matters is why startups displace incumbents. These are good things.
Well, yeah as long as you trust the employees and they know what they are doing, sure. Otherwise, those 50 desks are going to be expensive.
> will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth
From some previous experience, outside of crypto - which was DIFFERENT™ - this already started changing in 2019 or so. Softbank was one of the most infamous players, and when they started to pull back, so did some others.
Not that there aren't still some "huh"-inducing things - like the new thing from the WeWork guy - but it seems a bit saner-paced on the ground, and now even crypto will get its reckoning.
This happens because of the boom-bust cycle we see in capitalism. I was a child in the 1990s when the Netherlands went through a boom that looked like the Japanese bubble and lasted 20 years.
I don't expect anything to change because it never does.
With all of the capital they have, you would think they would hire competent people from big tech. Instead they just find some stanford grad with a few years of experience to manage 50 people. It doesnt even make sense
It does if you consider self-selection: the competent person from big tech (i) can see a disaster a mile off (ii) has more to risk
I’ve seen that in practice. A non-crypto fintech I was at was acquired by a traditional lender and a number of staff took off immediately after the acquisition. A bunch went to FAANG (or FAANGish) places and a bunch jumped to crypto shops. In general the ones who jumped to crypto were either pure promoters or were able developers who had no understanding of finance, economics or the payments system.
It's more (iii) the narrative.
Give us your money to invest in this new, fresh face that's going to change the world.
If you're an old face - why haven't you changed the world already?
The story isn't as catchy.
It has nothing to do with what makes sense. For a large subset of VC (obviously not all) - it's more about what you believe you can sell to others than what you believe is actually going to succeed.
Competent people will tell leadership what's wrong which leadership perceives as a threat to their egos/power. Incompetent people will tell them they're doing great while simply cashing their checks.
Incompetent people usually hire equally incompetent people as to not be found out. I have seen it done subconsciously and outright deliberately.
I've seen a couple startups with ~10 people and no market fit paying $500k/y to hire a FAANG VP. That's even more damaging than a fresh grad kid managing 50 people!
Getting the FAANG VP is usually critical to landing the next round of funding. If sending $500K/year [1] out the door brings in $50M for your next round of funding, it's well worth it. Particularly if you recognize that your enterprise is a Ponzi scheme [2] and that getting that next round of investors is how everyone gets paid.
[1] seems ridiculously low BTW, that's a line manager or extremely skilled software engineer at a FAANG, VPs make multiple millions per year.
[2] and anyone running a crypto startup should.
Thinking about it, market fit would be the latest point to hire an experienced adult. Preferably from one to two levels below the role a start-up is hiring for, e.g. director level for a VP position.
Maybe hire earlier, as soon as an adult is needed to set up proper structure, processes and operations. If a company screws this up, e.g. when inexperienced founders hire former COOs and senior VPs from big names for those big names only, things can turn south pretty well.
> They've raised about a billion dollars of VC - https://www.crunchbase.com/organization/blockfi-inc/investor...
> talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds
So was SBF (MIT) and raised from Sequoia and Blackrok and his GF was a Stanford'ite with a Math degree and is responsible for the largest loss of funds from that cluster**.
Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works; as a fintech boot strapped founder with over a decade in the Bitcoin community its been fairly obvious for at least 7 years since Blythe Masters and all her cronies from traditional finance got involved this was the case.
Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
Pretty clear some ivy league degree holders are raising money with no product/no qualified background. While others are slaving away to get "product market fit" before a VC will touch them
> Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
What? Why are we the problem?
> What? Why are we the problem?
This may just be me because I from CA and was inspired to work in tech as kid in the 90s and saw the drastic and detrimental culture changes that have come over the years/decades: many of you keep attributing these scamming events to us when in reality you FAANG/SV/VC insider types likely went to school or worked with them and turned a blind eye to this very obvious behavior that bred this culture; if you worked for or with them you likely even enabled this behavior in order to clout/status chase for a 'disrupter's' reference or network connections for funding. I've seen it far too often, and somehow for calling it out we become 'persona non-grata' in our homes because trnsplants who only came to SV for the money and status rather than make remarkable tools and disrupt legacy gate-keepers 'want to get theirs' all while all playing some odd cosplay to the contrary.
The truth is that the tech that underlies cryptocurrency's like Bitcoin have it's roots in SV and has been advocated by Cypherpunks from the late 80s-90s and many of it's most notable people in this space were around in that time (eg Hal Finney worked for Phil Zimmerman during the Crypto wars and took on the US Government and risked prison). And it's a slap in the face to be told how we're not wanted or just scamming people with our focus and pursuits in tech because of this gross over-generalization that is based on an immense blind spot that who you are talking about is within your side more often than amongst out own--I admit we have had scams but the most notable are due to incompetence and ignorance in dealing with new tech (MTGOX) in real-time rather than an outright desire to scam.
Bad players have existed in Bitcoin, I've seen it plenty of times, but as is the case with the biggest ones like FTX and BlockFi it tends to be from your ilk, not ours.
May want to add Do Kwon (Stanford) and 3AC (Columbia) to further solidify your case.
> May want to add Do Kwon (Stanford) and 3AC (Columbia) to further solidify your case.
But it's more fun when other's help drive the point further for me!
I would also include conbase (not a typo) ties to Goldman Sacs and YC, but unless you've seen its horrible descent over the years you wont know why they should be included.
Pay no attention to the man behind the curtain!
SBF and his girlfriend Caroline Ellison were also both traders at Jane Street after graduating. Being hired as a trader at Jane Street is no easy feat and more impressive than attending MIT/Stanford I would say.
> SBF and his girlfriend Caroline Ellison were also both traders at Jane Street after graduating. Being hired as a trader at Jane Street is no easy feat and more impressive than attending MIT/Stanford I would say.
I guess I have to quote myself here, and re-emphasize that they are all part of the same group of insiders:
>>Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works
I worked at a megacorp pushing 'blockchian not bitcoin' BS and it was only because they realized they couldn't co-op it and instead ran with alts that ended up getting investigated by the SEC.
Let me makes this very clear: I've been on both sides of this equation and I can assure you even though we didn't have much if any money on the BTC side until very recently (most traditional and VC money went to these insiders) those of us that built companies had to knew how this tech worked and often had to built the infrastructure from the ground up.
I personally couldn't even code until I got into BTC despite having several opportunities to do so, because this space demands that you do since it moves so fast and the pace of innovation requires you to know how it all works otherwise you get left behind. And because of this it becomes very clear who knows what they're talking about and who doesn't when you start to hear the merits of a 'private blockchain' and realize what they're describing is essentially just a SQL database with different branding but totally not that bitcoin thing or why the Byzantine General's problem was thought to be unsolvable by Computer Science prior to Bitcoin, let alone how the mempool works or what a UTXO is.
The old “nobody ever got fired for choosing IBM”, seems to have become “nobody ever got fired for hiring a Stanford PhD”.
Only 1 of the BlockFi founders (Flori) has an ivy league degree (from Cornell). Zac is a moron who made his wealth playing poker and through a scam loans startup (Zibby).
>Only 1 of the BlockFi founders (Flori) has an ivy league degree (from Cornell). Zac is a moron who made his wealth playing poker and through a scam loans startup (Zibby).
It's much, much harder to make millions at the poker table than it is to get a degree from an Ivy.
There have been 141 people that have made over a million in 2022 from poker (https://pokerdb.thehendonmob.com/ranking/7339/2) and that doesn't count all of their losses, staking, etc.
The eight Ivies collectively graduate roughly 75,000 people a year.
It's also much harder to make millions from the lottery than it is to get a degree from an Ivy. There might be a few hundred winning the lottery every year.
So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
If you have an open mind, I encourage you to look in to poker theory. It's far deeper than you appear to think, requiring a competent understanding of statistics, good mental maths, and an ability to perform under pressure. There's a reason many consistently successful modern poker players have some math pedigree. Many pro players go on to work at trading firms, Jesse Martin and Vanessa Selbst come to mind.
If you do truly think it's no different to the lottery, I'm interested in your explanation as to why these people (a) come from the background they do (a high schooler with decent maths can tell you why the lottery is -EV) and (b) go on to the careers they go on to.
> So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
Poker is played competitively both online and in the casinos of every country all over the world 24/7. There are a phenomenal number of players compared to Ivy league students.
Unlike the lottery, it is also largely considered to be a game of skill based on a combination of statistics and social manipulation.
GP is generally implying that because the ratio of players to successful players is so small for a game so widespread that is is very difficult and requires a huge amount of skill to make a significant amount of money playing poker.
Many of the same professional players win year after year, strongly implying it's a game of skill rather than luck.
Poker isn't particularly luck-based, especially if you play a large number of hands, as eventually everyone sees the same cards on average.
Also, poker doesn't have legacy admissions - the people that win at poker consistently always deserve their status.
Zac did not at all make millions playing poker
VC wealth redistribution
There are LPs behind a lot of these incompetent VCs dumping money into in crypto, including public workers' pension funds.
Those pension funds have a small part of their portfolio chasing high-yield investments. I don't cry crocodile tears when they overperform the SP500, and I can't say I'll be crying them when they underperform.
... Although given how frequently the Ontario Teachers' Pension fund has made the 'Pension funds invests into an incredibly dumb startup' news cycle, I suppose grifters, thieves, and conmen might consider them to be an easy mark.
Some aren't so small https://www.linkedin.com/feed/update/urn:li:activity:7000201...
This would be between 5 and 10% or so.
VC is a very small component of a pension fund; it's money that's often deliberately invested in weird decorrelated shit, for portfolio-theoretic reasons. There are lots of reasons to have a problem with crypto and defi! But the safety of pension funds vis a vis institutional VC is probably not really one of them.
(You can imagine batshit pension funds that invest directly in crypto/defi stuff; that's extremely problematic.)
My hope is most of the crypto investing was isolated to crypto funds, though I still lost some respect for VCs for even playing the crypto game.
Even big institutional investors were swindled by FTX: https://www.coindesk.com/business/2022/11/18/pension-giant-o...
I mean ... that big fund carves off a tiny slice to make speculative, risky bets, and a small one of those bets failed. Hard to call it swindled.
I regret to inform you that it was not isolated to "crypto funds". A lot of VCs mish-mashed them together with their other investments and slapped a Cathy Wood style name on it like "future innovation fund". VCs are mostly just salespeople, and so are founders. VCs sell to organizations such as pension funds, and founders sell to VCs. Most VCs lose money, especially in an environment full of froth, and most VCs don't know what they are really doing. From what I have observed, a lot of laypeople have a ton of respect when they hear the word "VC".
> VCs are mostly just salespeople
Only halfway. Don't the GPs have skin in the game?
Yes, tiny fractions of basis points worth of their net worth.
Pension funds are investing in VCs?
> Pension funds are investing in VCs?
Yes, commonly [1]. At the portfolio level, VC is about as risky as buyout [2].
[1] https://www.thebusinessofvc.com/blog/lp-universe?format=amp
[2] https://timesofe.com/vc-fund-returns-are-more-skewed-than-yo...
There is a lot of literature on how much pension funds are chasing exotic and high-risk investments due to the unexpected longevity of pensioners and persistence, until recently, of low interest rates
example: https://reason.org/commentary/with-interest-rates-low-us-pen...
Yes? It’s extremely common.
Yeah until today. Now it's customer deposit and VC redistribution.
Don’t they get their money from pension funds?
What Could Possibly Go Wrong™
Crypto just seems like a lesson someone made up to teach kids why the world works the way it does.
Ah the good old "Investment Banking or Consulting Background (Big 4) required"
Implemented the “facade” for a services company a dozen years ago. Request comes in and sales agents manually find a good local in the area. Got it the point where we were ready to scale nation wide.
Leadership decided it was useful to have as something to prove we knew had great tech. But really wanted to do manual sales of other services. They were only looking at next quarter profits. Not seizing the industry.
Finally left in disgust. They gradually faded as manual wasn’t scalable. Was years before I saw comparable competitors.
I think part of it is non technical people not trusting their technical people/not willing to give them the keys to the business. They can "see" the manual parts and control it.
So, Theranos for the blockchain, roughly?
Theranos had all the financial backing they needed, and a coterie of ex-gov, ex-military elites playing defense for them against the FDA for years. Their plan was explicitly to lie, mislead and obsfuscate for as long as they could.
BlockFi is just incompetence without the SBF-like malice.
Theranos was exceptional in its industry, where most actors sell valuable products, have existed for decades if not centuries and will continue to do so for the foreseeable future.
BlockFi is just your typical blockchain company, a complete waste of money if not a scam, see FTX, Terra, BitConnect, MtGox and so on. An exception to the rule would be a company that's not a complete disaster run by ignorant, arrogant scammers.
That is hilarious on every level.
It was a giant mess of unqualified people funded by cheap capital.
Isn’t true for 80% of white collar industries?
Given the amount of handwringing we've seen over the past couple of weeks in re: Twitter's headcount, it astonishes me that we haven't seen anything close to that for these cryptocurrency firms.
Twitter ran one of the world's largest social media networks with around 7000 people; what in the world is Kraken doing with ~3400[1]?
[1]: https://www.linkedin.com/company/krakenfx
> what in the world is Kraken doing with ~3400
Kraken is one of the OG cryptocurrencies exchange. Maybe the oldest still around. They're in the business since 2013 or so.
Since then the Crypsy, Quadriga, Mt Gox, FTX, etc. have all come and gone (with their customers' money) but Kraken is still there. If they are on a scam, it's a really long con: a decade and a half of a con?
They're not "Binance big" but they do nearly as much volume as Coinbase, so 3 400 employees doesn't feel that surprising.
I don't think BlockFi did anywhere near the volume of trades Kraken is doing. As I understand it BlockFi was some kind of a "fire and forget" thing where you'd loan your crypto and get some yield in return. So very little things actually happening there compared to Kraken.
Yes, 900 employees was insanely huge for BlockFi. But I don't think 3 400 employees for Kraken looks that crazy.
> They're in the business since 2013
> If they are on a scam, it's a really long con: a decade and a half of a con?
How is 9 years "a decade and a half"?
Oops my bad. Well at least Kraken started in 2011, so it's more than a decade old, but they only signed up customers starting from 2013.
But yup, I got my math really wrong there!
3400 employees at 1.4B revenue (2021) is not great, it’s lower than twitters per employee ratio which was also not great. Amongst financials that headcount-to-revenue is pretty abysmal.
Why is headcount so important? Especially for internationally run (read: not Silicon Valley expensive) companies and with probably large customer service depts (read: not expensive), is the headcount number that easy to use as a metric?
The CME has ~3400 employees.
Kraken actually handles money so it needs customer service and Twitter is just a bunch of already written code for posting stuff and sometimes (although much less now!) getting ad dollars.
What do (did) 7000 people do at Twitter? I hate to ask the question because it aligns me with Elon whom I despise right now. But what do all the employees do at tech companies? I thought the beauty of tech and why the valuations were so high is that it scales quite easily since it is all code. What do 32,500 employees at Uber do?
Huh what? Do you assume that code just works? Something's always breaking and there's always new features that people want. Editing tweets just barely became a thing. Which, btw, is the exact sort of feature that would be easy peg as trivial, but likely is not when you're running at Twitter scale. Before, a tweet had two states: created or deleted. Now it can have arbitrarily many states and possibly even interleaved ones. In a distributed system that's a lot more complicated.
Twitter runs its own infrastructure too. That takes a bunch of people. Computers don't just run themselves and they certainly don't provision themselves.
Traffic is likely super spiky too because of how Twitter reacts to current events. That probably requires cutting edge load balancing and real time code.
Not to mention all of the work getting everything translated and accessible to the entire globe. And of course moderating a site with millions of people so that literal civil wars do not start. And keeping in contact with various governments who probably contract each other and themselves on a regular basis. These are problems that are not as scalable as writing a bunch of code. You need real, physical people to handle these issues.
And now setting up a creator economy and their Clubhouse competitor.
I’m sorry I just don’t find the ability to edit tweets a groundbreaking new feature that is difficult to implement in 2022.
Having an immutable ordered log + a single bit flag for "deleted" is radically more efficient than an arbitrarily mutable ordered log.
ex: You could store every tweet compressed in S3 with a bitmap for which are deleted (a bit that can be cached forever). That assumes you aren't going to ever have to update the object in S3. Once you have to update it that entire design is horrible, you'll need something completely different.
Consider that there are thousands of tweets per second with significant fan out for reads. There's search, relationship data (did you @ someone? did your edit remove that @?), business analytics, and more.
Add to that deletion flag a tweet redirect ID. Redirect deleted tweets with the ID to new tweets seamlessly. Touch up the old code to account for all this. Now you can edit tweets with immutability intact.
Also has the benefit that retweets and likes point to the old version, which is how it should be.
oh ok so now instead of 1 immutable bit that can be cached forever we have to store an id. Good news, instead of a wonderfully compressable bitmap you now have a bunch of uncompressable 128bit nullable uuids. Only a few thousand times less efficient!
Oh and of course you now have a linked list structure you have to traverse every time you want to resolve a tweet. Cool.
It's almost like this is hard.
I thought this was the site for people who realised that things are always much more difficult at scale.
The value proposition of decentralized finance was supposed to be a replacement for traditional finance: automating away the hundreds of manual roles that banks currently employ as part of their regulatory requirements and customer services.
Do you have a source that shows that a substantial percent of Kraken's headcount is customer service? They've tried recruiting me a handful of times, and each time they highlighted their voracious appetite for engineering talent (and corresponding rapid growth of their engineering teams).
As I said: Twitter was one of the largest social media networks on the planet, one that ran its own datacenters and independent ad business (along with moderation teams, service teams, etc.). I'm not particularly interested in defending a headcount of 7000 people; only that it makes far more sense to me than roughly half that number at a cryptocurrency firm.
To be fair cexes are like a bridge between defi and regular finance and need tech and knowledge in both areas. Ask how larga a headcount dexes like uniswap need, and your argument makes more sense.
> Kraken actually handles money so it needs customer service and Twitter is just a bunch of already written code for posting stuff and sometimes (although much less now!) getting ad dollars.
If you view Twitter as a 'service for posting 140 characters', they don't need 7000 employees.
If you view it as a 'service for supporting five billion dollars worth of ad spend across the entire world', with all the proprietary software, ads front-ends, ads back-ends and reporting services, weird one-off partner integrations, ads account management, sales, advertiser support, moderation and compliance, legal compliance... Well, all that quickly adds up to a lot of headcount.
It’s crazy how I bypass all that with simple adblockers. I don’t think I ever see ads on Twitter. Five billion dollars spent on information asymmetry from users that don’t know how to block ads. I guess I don’t even think about the ad part and workers needed for it.
You (like me) are probably an outlier: over 90% of Twitter users probably use the Twitter apps, which make adblocking much harder (although not impossible -- people maintain mass ignorelists!).
I also feel like people who know of and use adblockers are less likely to be persuaded by ads. So losing that segment is not such a big loss for a platform.
Again, Facebook had this much revenue and much better growth when they went public in 2012.
https://companiesmarketcap.com/facebook/revenue/
But why does it add up to 7000 headcount rather than 3500 headcount or 14000 headcount?
The accumulated events and decisions over the lifespan of the company.
What's done in house, what's done elsewhere? What "bus factor" do you want your engineering teams to have? What events have left scars on the organization? What prejudices and preferences does the executive leadership have? How does the company handle the fiefdom builders who hire just to make their org size increase? How does the company handle attrition?
It's not like there's one "correct" staffing for a large company. There's hundreds of factors, some large some small, that add up over time. The company has goals to reach and problems to solve as each of those decisions are made, and those evolve as the company evolves.
The point is, it’s easy to vomit a laundry list of reason why a company needs more staff. But it doesn’t shed light onto why a 7000 figure is reasonable until it justifies why other figures are too high or too low. Nor does your comment.
Your comment continues to presume that there is a specific correct value or range of values. That's simply not the case. The list of potential reasons is long because there are a lot of contributing reasons.
What are Twitter's goals pre-buyout? Are those the same as Twitter's goals post-buyout? What are the decisions the company makes in pursuing those goals, in each of those contexts?
Analyzing all the decisions that brought Twitter or any other company to a specific count of employees is an extensive undertaking, and would require extraordinary memory and honesty of a huge number of people. And you'll still have a giant pile of decisions that could have gone either way depending on slight changes in conditions.
> Your comment continues to presume that there is a specific correct value or range of values
No, I was replying to a comment that was attempting to justify ~7000 as a reasonable figure for what Twitter’s app needs to do.
Don’t take my word for it! Read the thread history if you don’t believe me!
>No, I was replying to a comment that was attempting to justify ~7000 as a reasonable figure for what Twitter’s app needs to do.
Let's look at the comment you were replying to:
>If you view Twitter as a 'service for posting 140 characters', they don't need 7000 employees.
>If you view it as a 'service for supporting five billion dollars worth of ad spend across the entire world', with all the proprietary software, ads front-ends, ads back-ends and reporting services, weird one-off partner integrations, ads account management, sales, advertiser support, moderation and compliance, legal compliance... Well, all that quickly adds up to a lot of headcount.
You characterize this comment as justifying ~7000 as a reasonable figure "for what Twitter's app needs to do." The comment makes an important distinction between what you might need to run the most essential aspects of a thing that allows Twitter-like social media interactions to occur versus an enterprise that leverages those social media interactions as one part of a larger system. It says outright that you wouldn't likely need 7k just for the essential "let people make tweets" aspect.
TBH you appear to be the one with comprehension issues in this thread.
Its very simple if you think about it. Can you think of other web services with the scale and popularity comparable to Twitter that run on much lower headcounts?
Go ahead and make a Twitter clone this weekend. There are plenty of tutorials. Then let's assume you go viral and now your little service needs to scale. Then the email and issues start to come in. Now you have to balance fixing bugs and tending to customer support. Oh, are you going to outsource all cloud services or hire a 200k+ a year SRE to scale it out? One wont be enough you will soon find out. Did yo do your research on compliance? Are you sure your app is legal in every country it serves? Pretty soon you have a team whose salaries + benefits are costing you several million dollars a year. And you only have 10 people.
I could go on and on. Yes, creating a twitter clone is trivial. Scaling it and tending to real customers is a completely different story.
Telegram has similar size user base, more functionality but less ads business. Last time I read there were 150 employees.
Telegram doesn't have "more functionality". It's significantly less performant and it doesn't have any global search or sophisticated recommendations system. It's also pretty lightly moderated.
Moderation, customer support, sales, and then everyone to support all those people.
You don't think that matters, but it has a real impact on your bottom line. Companies are stopping advertising now, not because Musk took over, but because they can't support for advertising (probably because they were sacked).
It was one of the worlds largest social media platforms!
Couple that with the reality that Twitter needs at LEAST twice as many people to function than it currently has, even after Musk sent everyone packing. How do I know this? Because the remaining people need to work at least twice as much to make up for the people that left.
And this of course ignores all the things that have failed since he took over. The current people are NOT keeping Twitter at 100%. It's already failing.
> You don't think that matters,
I didn’t express an opinion on that, and actually believe the opposite of what you just hastily attributed to me. My point is that, when gauging whether 7000 is a reasonable figure, it’s not enough to vomit a laundry list of work that the company needs to do — because that kind of argument would apply equally well to justifying 3500, 7000, 14000, or a million. To justify a specific figure, you need more rigor than hand waving about general work categories. The parent didn’t.
The parent poster, as an outsider, only makes informed, but speculative guesses about Twitter's business footprint, as does ~anyone who does not have T9 vision of the firm.
I am not going to tell you that their right size is 3500, or 1500, or 7000, or 14000, because I don't know what it is. But I will say that it's very likely to be measured in the thousands. [1]
[1] Although you can always try to shrink the business... A Twitter that doesn't work, and has no revenue could probably be ran by ~0 employees.
> I didn’t express an opinion on that,
Don't be pedantic. It's worthless.
> My point is that, when gauging whether 7000 is a reasonable figure
Evidence shows you need 7324 people, exactly.
Just count the number of employees to get the total headcount.
At lot of that is dealing with large customers(advertisers etc.) who need to be able to talk to someone at those companies to make sure they get their money's worth of services, and isn't left alone to sort out their issues based on bad documentation and internet hearsay.
Another big part of it is simply admin, for twitter a lot of that is babysitting the moderation algorithms as their customers(who is not the people tweeting) can be pretty sensitive about what kind of content they are associated with.
Then there is defensive research i.e. any big company in a particular space wants to have prototypes and technology ready to compete with anything their competitors might come out with especially if they expect a growth in overall sector revenue.
For uber they are also a de-facto employer for a lot of drivers and a provider of real world services so they need the full range of hr and customer support services that those kind of services and driver numbers would require had it not been a tech company.
> What do (did) 7000 people do at Twitter?
I don't know, but Discord has a small fraction of the employees. They have hundreds of millions of active users, handle tons of live audio streams in addition to the text traffic, and their client software has a lot more features than twitter. Why can Discord do more with less?
Uber eng count is about 3500 and given the scope this can be considered as very lean
That's not lean. FB had less than that in total employees before they went public, at which point they were already profitable and had over a billion users.
A large chunk of the 3400 employees are not eng or the like. Most of these people are customer support or customer support adjacent (eg compliance). In this way, Kraken is a little bit different from most other tech companies.
I’m not convinced there’s any destruction of value when the entire value proposition is a lie.
When I tell you my lemonade stand is worth a billion, and you believe it for a while, and then you realize it isn’t really, no value was destroyed.
Where do you start? You start with company that builds a lemonade stand, and they dress it up like a life changing lemonade that's going to replace all other drinks in 38 days or whatever. So let's ignore what it does, let's pretent is does literally nothing, it's just a stand. So what's next. This lemonade stand has some market price, it's probably not zero, right? Let's say it's 20 million dollars market price. Maybe in your world if you create a lemonade stand it's worth 180$. But in my world, when people create lemonade stand and twit about it, people are like "ooh, a Lemonade Stand! Noice!" and it's worth 20 millions. And all these sophisticated games go like "ohh, if there are 100 million dollars in the lemonade stand, then it's going to get 16 million dollars of profits this year. That's pretty good, let's put a little bit more into it.". And maybe that happens with the other 200 million dollars in the stand. So you know, sophisticated traders and cryptards or other similar parties decide to put 200 million dollars in the stand. And other people go like, "oh, this is a pretty cool lemonade stand, it's valuable stand, and who a re we to say it's wrong?". Lemonade stands can be great. I love lemonade as much as the next guy, right? And then people are recalibrating, "20 million dollars for this stand? that's it? it's probably valued at 1.5 billions at least!".
I wonder what it says about me that I instanty recognized what this is referring to
For the uninitiated: https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
To be fair, that is how the entire fractional reserve banking system started. Safe houses for gold handed out slips of paper to make it easier for the guys storing their gold to spend it and said, "hey, we'll actually pay you to let us hand these slips of paper out to people who want to borrow your gold. We just need you to stay quiet and be cool with us committing fraud and handing out WAY more borrow slips than there is gold. Cool? Cool."
We as a society accept large scale fraud all the time and normalize it.
That's the crypto community delusion about how fractional reserve banking works. The way fractional reserve banking actually works is that banks lend out money, and the loans are their major assets. This only works if there's heavy regulation on how sound the loans have to be. Without regulation of loan quality, there's a banking panic every few years.
All the US banking crises since the 1920s have involved some form of deregulation.[1]
[1] https://en.wikipedia.org/wiki/List_of_banking_crises
The same could be said for FTX. There just needs to be regulation about how sound the self-created coin backing your margin needs to be. Without regulation of the soundness of the economic value of your self-created coin you get a crypto crash.
Am I crazy? Are we not describing 2 identical problems and classifying 1 of them as fraud?
The soundness of loans in a deregulated environment is no better than the soundness of a self-invented currency.
Here's a tutorial on how to analyze a bank's balance sheet.[1]
Few of the crypto clowns publish their balance sheet. FTX, we now know, didn't even have a balance sheet.
[1] https://www.wallstreetmojo.com/banks-balance-sheet/
What, the big banks don't have "internal, poorly labeled fiat account" on their spreadsheet tracking their finances?
Thanks for this, so far that's 2 points of difference stated:
1) Regulatory oversight. 2) Relative transparency.
Legit differences between Crypto exchanges and traditional finance. Keep em' coming, I'm learning :)
Your original response was an insinuation that banking systems in general are based on fraud, and that gold should be the basis of monetary value. In fact, the case has been proven that gold is a poor basis of monetary value and that banking systems, when properly regulated, are not fraudulent, or are very rarely fraudulent.
The reply to that was to explain that regulation was the key to maintaining a stable banking system.
You then ignore all that an conflate unregulated banking and regulated banking as equal.
I hope you understand that this makes your argument dishonest, and that you attempt to avoid this in the future.
Please understand I am not trying to be dishonest or make arguments in bad faith. Maybe I need to be further educated.
I understand that the level of fraud committed specifically by FTX goes far beyond simply misleading lenders and regulators about their collateral which consisted mostly of their own crypto. In general, however, this seems to be the root of the issue and the systemic problem across all centralized crypto exchanges.
From the start and well prior to this conversation I have had the belief that Crypto "scams" like this bear a striking resemblance to the world of traditional finance and specifically the securities market and MBS.
I'm not trying to argue in bad faith or use any kind of argumentative tactic or fallacy (at least not intentionally).
these nakedly fraudulent scams are nothing like real finance, its night and day. you need to get educated and then come back with better-informed opinions
The key problem is that crypto only has value in the absence of a regulatory authority. If users have a 3rd party they both trust (the government), all of the waste in crypto is unnecessary. However, it turns out for crypto to be used, it has to be centralized. Without centralization, it's too complicated for the masses.
Soundness of loans can't really be regulated. Everybody who makes loans thinks that they're sound. They just turn out to be wrong sometimes. e.g the mortgages in 2008 we're thought to be solid because they were covered by collateral. But as it turns out that collateral wasn't worth what it was assumed to be.
This is not to say the space shouldn't be regulated, but all regulation on the soundness of loans suffers from this. e.g bank leverage limits rest on the same type of assumptions about the value and liquidity of different types of collateral. And if those assumptions are wrong they will fail no matter how solid the regulatory model says the bank is.
An exchange and a bank are in two completely different businesses. An exchange isn’t supposed to be lending money at all.
There is value, in that a generation of moderately wealthy idiots got convinced that monkey pictures are worth something.
Like a cult brainwashing, they have attached their identities to those worthless pictures and now are trapped in greedy stupidity.
Weren't all those ape NFTs brought with monopoly money anyway?
I mean, buying a $1M ape NFT with real money makes no sense - but if you were Sam Bankman-Fried and you had an unlimited supply of coins you knew to be worthless, you're just swapping something worthless for something maybe-worthless, which is much easier to explain.
No, when you bought an NFT for X Coins, at the same time you could have bought Y dollars.
So, the NFT did really cost Y dollars and if it's trading at Z, you have lost Y-Z dollars
NFTs are collectors items. It's as stupid as collecting anything, including fine art, photography, baseball cards, rocks. I'll admit it seems more strange because it's uninteresting, but claiming collecting is idiotic is pretty short-sighted.
No, I don't collect that crap :)
There is one "small" problem - NFTs are NOT in any way related to the items/files someone is collecting. And collecting NFTs is about as interesting as "collecting" numbers from the random number generator.
NFTs are probably the most interesting and legitimate use of these kinds of computer systems. For example, I could see a lot of value in specialized Yu-Gi-Oh projection card tables installed at game stores that only worked with officially issued NFT virtual cards. Players could rent out their virtual cards to other players and turn their purchases into assets. There are already companies in the MTGO space that rent out virtual cards but the whole trading system is (poorly) managed by Wizards of the Coast and lacks programmability.
I think the biggest problem with crypto is that it was way overhyped for anything outside of having fun online.
It's like meme stocks. It's fun to waste $50 playing some silly online game! It's not fun to waste $50k gambling on something that you think will change the global financial systems.
I also think there's plenty of room for fungible tokens that represent ownership over digital content, eg, buying 4% of the rights to the future profits from the monetization of a digital video, as opposed to the patronage system of platforms like Twitch or Patreon. If we truly are reliving the existing financial system shouldn't we expect to reinvent a marketplace for intellectual property?
I have to repeat myself - your "YuGiOh virtual cards" are in no way related to the NFTs. Sure you can require buyer of a card to also buy NFT, you can even pretend that was a single transaction. But really NFT has zero function in this example, it provides zero value, and if you remove it from the system altogether - NOTHING will change.
It's like saying that clapping with your hands at the gas station is somehow equivalent to the purchasing fuel. Sure, BP for example, can demand all fuel buyers to clap their hands once and claim that hand clap = fuel. But really it's just a dumb addition to the real transaction which does nothing.
NFTs are such hand clap when buying digital (or real) objects. The only difference is that they are served with metric ton of technical and pseudo-technical jargon, to the point when even some people in IT are starting to have doubts. But then you think about NFTs again and the mist of bullshit dissipates leaving only bare facts.
If the projection system in the game store requires NFTs that were issued by the creators of Yu-Gi-Oh then you would need these virtual cards to participate, just like how you need virtual Magic cards in MTGO in order to participate, the difference being that in the former it would be some open standard where people could trade, sell, and lend as they see fit.
I'll try again. Company A (Shueisha) creates digital collectible cards.
They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).
Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.
Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.
User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.
What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.
Some other NFT fans also claim that they allow moving assets between companies or even people. This is simply impossible to do with only blockchain, again, because centralised DB and management systems are required due to technical limitations, and because companies must agree on the cross compatible formats and agree to take revenue cuts, which is a fantasy. And moving assets to the humans is also impossible because NFTs don't transfer any partial or full IP rights, they are technically incapable of doing this. Then again you are dependent on the centralised DBs.
As you can see, NFT is an interesting artificial construct which does literally no useful functionality on it's own. In any proposed system with NFTs, you can cut out NFTs and have exact same functionality remaining.
I wrote a fungible digital asset protocol called Open Publish that uses the Bitcoin protocol. You can see that here:
https://github.com/williamcotton/openpublish
So let's imagine that instead it is a non-fungible token. The only difference between a fungible asset and a non-fungible asset is that a fungible asset can be split up into parts and owned by multiple parties. A non-fungible digital asset has only one owner at a time.
> They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).
You don't need to store anything in the blockchain other than the cryptographic hash of the digital item in question. In fact, you can take the cryptographic hash of many different digital messages and then take the cryptographic hash of those combination of cryptographic hashes and store that data in the blockchain, along with data related to ownership.
> Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.
This is incorrect. Let's say I'm Shueisha. I create a physical device that I install in game stores that comes pre-installed with valid public keys for digital cards issued by Shueisha. Then I issue a number of non-fungible digital assets that are signed with one of the private keys paired with the public keys stored on the physical device in the game stores. This physical device will only work with digital assets that were originally issued by Shueisha, say a virtual pack of 15 virtual cards. These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish.
When someone purchases a pack of digital cards they provide their own public key and Shueisha publishes their own signed transaction that transfers ownership to this person. The physical device in the game store is connected to the internet and can see the valid and confirmed transactions. The physical device in the game store ignores all assets that did not originate from Shueisha but will honor ownership of all future transactions of digital cards that did originate from Shueisha. The physical device in the game store also connects to a database run by Shueisha that when given the cryptographic hash (or the hash-of-hash and the hash) of a digital card will return the details about the card... link to the URL for the digital art, the flavor text, card rules, etc.
> Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.
All that needs to be written to the blockchain is the cryptographic hash and the recipient signed by the original owner. So when you buy a pack of digital cards from Shueisha they write a transaction to the blockchain signed by one of their private keys that says they are transferring ownership to your public key. The public key pairs for Shueisha, again, are stored in the physical device in the game store. If you bring a device with your private key to the game store then the physical device will let you use any cards that are shown to be owned by your matching public key.
> User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.
The only need for a centralized database is for all of the meta information about the card... the art, the name, game details, etc. The only need for a decentralized database is in determining the cards owned by the gamer as proven by their private key on some device they bring to the game store.
The physical device at the game store then makes sure that the players own the virtual cards that they say make up their deck by checking the decentralized data stored on the blockchain. The physical device then gets all of the meta data about those cards from the centralized server.
> What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.
This is incorrect. In the system I am describing the decentralized data stored on the blockchain is only the cryptographic hash of the digital asset. The meta data is stored on a centralized DB owned and operated by Shueisha. This is just like how I can't scribble on a Yu-Gi-Oh card to make it say whatever I want (at least for tournament play) but I can indeed buy and sell and trade Yu-Gi-Oh cards without the involvement of anyone else.
Thank you for the detailed response.
I see you are still making the same error as others - "These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish."
Cards are not tokens, and cards are not on the blockchain. Cards are digital assets, but they can't fit inside a token, they can't fit in the blockchain (for a reasonable price with a reasonable blockchain performance and decentralisation).
You have complicated my example, but it is essentially the same - your physical device is the centralised DB now (or you are using two centrlised DBs - device memory and some corporate cloud server together). Assets (cards) are stored inside it. To access them you need a key. In your example key is the token, but at this point - that's not really mandatory, we have many other ways to sell and store keys. But it's an option, yes.
What you have described is just another way to access assets stored in a centralised way and authenticate yourself as a person having access to them.
And you don't "own" your assets (cards), unless of course there is some agreement, likely on the web site or with purchase of that physical device saying that IP rights are transferred to you Name Surname. You are renting your cards based on the good will of Shueisha, and when you say sell cards - that just means Shueisha gratiously allows transferring of some record in their DB from one of their registered users to another. Just as an example - let's say Shueisha uses Tezos bc, user A is a registered customer of Shueicha and "owns" a digital card from them. Can he sell it to whatever random person with a Tezos wallet? Well, no. Unless Shueisha makes allowance for that, but that would be dumb because it will expose asset to everyone (same as today's NFT pictures work).
Everything is stored on Shueisha servers or DRM'ed devices from them. Everything is managed by Shueisha directly or indirectly via coding some physical device which will do it. Tokens are used to access stuff, but they either insecure, or you will need to have additional parallel authentication with card storage to access them.
NFTs are just layers of technical comlications not really adding anything of substance. They make look like it's easy to buy and sell digital stuff, so very popular for speculation, but in reality they are crippled by inability to actually store medium being sold and to transfer any IP rights by itself, without centralised services.
How do you verify the entity you think is Konami is actually Konami? If you're only going to going to allow their cards then what's the actual benefit of being on whatever chain instead of using Konami's own database where they can implement all the features desired without the complication of byzantine consensus?
Konami makes this really great projection system that keeps track of game state and projects onto a big table and they give/lease/sell these devices to game stores. The device comes installed with trusted public keys of a certificate authority managed by Konami and will only work with virtual cards issued by Konami. The ownership of those virtual cards is handled by a mechanism not managed by Konami.
This is basically how Yi-Gi-Oh physical cards work. They make official cards and they don’t manage the ownership of those cards.
The advantage for Konami is that they don’t need to build much of any infrastructure for a market for trading or selling virtual cards. The advantage for players is they don’t have to rely on Konami for these ownership related features and can buy, sell, lend as they see fit.
The MTGO marketplace is really awful but it’s the only choice that MTG players have if they want to buy, sell or trade virtual MTG cards.
I think the difference is that no one was trying to convince a generation of artists that baseball cards were the future of digital art, and that they should inject their own money into the baseball card market to "support the community".
The real losses are the VC capital (that could have been deployed to more meaningful businesses) and the loss of client capital. Many people put their life savings that may or may not evaporate.
I think this is predicated on the assumption that VCs generally deploy their capital wisely, which I don't necessarily buy. Before cryptocurrencies, the rage seemed to be "Uber but for X." I'm not convinced there was much social or financial benefit in most of those, other than cynical value cycles culminating in offloading junk onto public markets.
Actually value is created when a scam company goes bankrupt. Less value destruction in the marketplace.
VC's had money, i.e. capital. Now the money is gone. What would you describe that as if not destruction of capital.
Money and capital are different things. Capital in a broad sense is any durable good that is employed in the production of goods and services. For example, a road. Money is not capital. Money is simply a good without intrinsic value that is used as a means of exchange. As a result creating and destroying money doesn't create or destroy wealth.
You are using a very non-standard definition of capital.
> As a result creating and destroying money doesn't create or destroy wealth.
I'll give you a MacBook, which is a durable good you can use to produce goods and services, if you go to the bank, withdraw all of your money, and then set it on fire. This is a good deal for you. Your wealth will not change from setting the money on fire, as destroying money does not destroy wealth, and you will have a capital good that will increase the amount of wealth you have.
If you set your own money on fire, the amount of wealth in the economy won't change. However you'll be worse off, because your share of the total wealth is now smaller (and everybody else's share is bigger).
> However you'll be worse off, because your share of the total wealth is now smaller
So you're worse off because your share of the wealth is smaller... if only we had a way to describe that. Perhaps you could say that you're less wealthy and by burning your money, you've destroyed your capital?
Look, I get what you're trying to say. The value of each currency unit is roughly the total amount of economic value divided by the number of units of currency. So the sum of the value of all the currency units doesn't change as you add to or subtract from the money supply. The piece you're missing, though, is that the VCs didn't create the money they invested in BlockFi. The money came from investors and partners. So in a very real sense the capital of those investors and partners was destroyed.
Destroying money doesn't destroy capital. It doesn't matter who created it. Money is not capital. You're mistaking a claim on a good for the good itself. These are completely different things.
Again, you're using a totally non-standard definition of capital. Google "capital definition"
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
So yes, if you redefine the word capital to fit whatever you like, then sure, I agree with you.
I'm not redefining anything. I'm an economist, and I know the terminology of economics well. Capital can refer to two things, either 'capital' (or 'real capital') or 'financial capital'. The definition that you've posted matches (more less) the definition of financial capital. But, either way, this is not complicated. The fact remains that destroying money doesn't destroy wealth. Mistaking money for real wealth is a common mistake.
Ok, so I think we’re in the same page: there is a definition of capital that includes money but is for some reason not applicable to this conversation because you’re an economist and know better. And if you burn your money in your bank account, then you’re less wealthy but that cannot be referred to as destroying [your] wealth or capital.
To help out a little - money is only a signalling protocol for resource allocation. Nothing more. Burning the money in your bank account does not destroy any resources anywhere. It does, however, rather screw with being able to get some of those resources allocated to you.
So now we're redefining "resource?"
Resource. Noun. a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively.
Even if the commonly accepted definition of "resource" didn't explicitly state that money is a resource, the ability to acquire resources is itself a resource.
No, it isn't. Let's say I take a piece of paper and write:
"I will give the bearer of this piece of paper my car."
Do I have created a new car? No. The piece of paper is still a piece of paper, and there aren't any more cars in the economy than there were before. And likewise, if I proceed to destroy the piece of paper no cars will be destroyed in the process.
Have you created value by writing on the piece of paper? No. But if the entire world agrees that your piece of paper has value, then you would lose wealth by giving away the piece of paper and the person you gave it to would gain wealth by receiving it.
When we talked about burning money you said: "[burning your money], however, rather screw with being able to get some of those resources allocated to you." If you burn your "car IOU", does that screw with your ability to have resources allocated to you? No it doesn't. So you can see that your car IOU is not an appropriate analogy to money.
Because this only happens once the IOU has been put in circulation. In my example, the paper money I created was not put in circulation, consequently no redistribution effect took place. The analogy is solid and appropriate.
Ok, so what would be involved in putting it into circulation? In your original analogy, you simply you said you wrote an IOU. Unless putting it into circulation is trivial, then your analogy is neither solid nor appropriate. A substantial amount of work goes into providing a stable currency.
Just being perfectly honest here, I think your position has been shown to be logically inconsistent in multiple ways.
1. We started this discussion by talking about whether or not investment in BlockFi represented a destruction of capital. You said it didn't because money invested is not capital. You then later admitted that there are definitions of capital that include money. I would consider this an uncharitable reading of the initial point regarding investment in BlockFi. If there is a valid definition of the word "capital" in which the original point is true, that it is charitable to assume that was the intended definition.
2. You agree that burning money in your bank account would make you less wealthy, but somehow disagree that you cannot consider this destroying your wealth. That's inconsistent.
3. The "car IOU" analogy has an obvious flaw in that burning it does not reduce your wealth as was the case in the burning money example. Despite this absolutely crucial difference, you maintain it is somehow valid without an explanation of the difference.
You put the IOU in circulation by selling it or by giving it away. (I don't know what's so hard about that.) The point is that the act of writing the IOU doesn't create any new cars. And likewise the act of destroying the IOU, at any point in time, and regardless who's holding it, doesn't destroy any cars either. This simple example shows that no actual resources (i.e. capital) are destroyed as a consequence of IOUs being destroyed. If you still don't understand why this is the case, I don't know what else to say to you.
If you smash your machines, you destroy real capital.
If you burn your money, the financial capital doesn't just go away. It's effectively reallocated to everyone else via deflation. That's why "destroying capital" isn't a good way to describe it.
If you destroy half the machines in the world, evenly distributed, the economy crumbles. If you destroy half the dollars in the world, evenly distributed, nothing really happens.
And back to this case, the VC money wasn't burned at all. It went to paychecks and service providers and customers and scammers. It didn't disappear, it moved.
You’re conflating the money supply with money. The inherent value of the money supply is constant. That’s why you could halve it uniformly without impacting much. But that also necessarily means that each unit of currency does in fact have value. So if you invest it in scams, you can call that destroying wealth.
Also worth nothing that we’re not really talking about money. We’re talking about equity in companies with the statement that billions of capital was destroyed by investing in BlockFi.
> But that also necessarily means that each unit of currency does in fact have value.
I don't dispute that. But the value of each unit can be complicated.
> So if you invest it in scams, you can call that destroying wealth.
Colloquially I might say that, but the wealth isn't actually destroyed, it went to the scammers.
I think there was an implication that the wealth belonged to the investors in BlockFi. Their wealth was destroyed in a very real way.
"Wealth" is getting a double use here, to mean both "the fact that they are wealthy" and "the assets they have that make them wealthy".
The fact was destroyed. The assets were not destroyed; they went to other people.
Capital doesn't have a double meaning like that. Capital is the latter. Capital was not destroyed here.
Capital can mean money. It was mentioned elsewhere in this thread, but Google "capital definition"
> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.
There is even a bank called "Capital One." Originally, Capital One's only product was credit cards, i.e. providing monetary loans. It feels like this entire thread has been arguing about what people "feel" capital should be. In the case of BlockFi, capital has very much been destroyed. Company equity going to 0 is the ultimate capital destruction.
I feel like you didn't follow my argument though.
The status was destroyed, the assets were not destroyed.
Take my last post and replace the word "capital" with "money", and I would say that version is just as true.
You can destroy money, but that's a totally different topic. The money that was invested in this exchange didn't get destroyed. It went to other people.
Remember that the original post wasn't talking about 'wealth'. You can't come in and say "capital=money=wealth, and investor wealth was destroyed, therefore investor capital was destroyed". That's like saying "nothing is better than happiness, and a sandwich is better than nothing, so a sandwich is better than happiness". The meaning of "nothing" changes halfway through, like the meaning of "wealth" changes halfway through.
Whether "capital" includes or excludes "money" is a distraction that doesn't really matter.
It matters, because if you aren't careful you'll jump to the wrong conclusion (such as thinking that capital was destroyed, when in fact no capital was destroyed at all). Resources can be bought with money. Someone who has money can be thought of having resources. However convenient this simplification may be, it's not true that money is itself a resource. And this is especially important to bear in mind when we're assessing the amount of resources in the economy (in order to figure out if any resources were in fact destroyed). Counting money as a resource is an accounting error known as double counting, which occurs when the same thing is counted twice.
Sure it is. If, during that time, I give you $100M for a 10% stake in your lemonade stand, that value is destroyed.
If I gave you dollars in return for magic beans that turned out to be imaginary, that value is destroyed.
The problem happens when someone lets you leverage the $1B lemonade stand. Though not necessarily your problem :-)
Unfortunately, you're also literally describing the fiat money system we use.
Cryptocurrency people seem to think that's an argument for cryptocurrency!
Yeah, I see all my downvotes. I'm not saying it because I strongly favor OR hate either of these systems. I'm not here trying to say "Fiat is dumb and evil and crypto will save us all."
I'm just saying because it's the truth.
We don't do real "fractional reserves," we don't have "gold" etc. Our money is backed up by "America, with the guns, is good for this made up money," which I believe is generally true, and not a terrible system.
For a highly technical and intelligent group that is HN, being blanket negative on crypto is the battle cry, but pointing out how fiat is largely based on fiction as well ("faith" written next to a stone mason eye in a pyramid) is not tolerated.
> but pointing out how fiat is largely based on fiction as well ("faith" written next to a stone mason eye in a pyramid) is not tolerated.
Or maybe it is just not useful, and acts as a distraction. Getting into another 'why fiat backed by the USA works while monopoly money from the boardgame (or cryptocurrencies) does not' is pointless because no one who makes that argument really cares about the difference, they just want to point out that 'everything is made up'.
That's a trash ad-hominem argument.
"Everything is made up" is probably one of the more important arguments to be made, and we'd all be better off if it was taken more seriously. It's difficult to reckon with and it's noisy, but that doesn't make it any less true or valuable.
I think it's especially important when trying to figure out regulation, taxes, and broadly how we deal with rich people in the world.
The belief that money is concrete and real helps cement unworthy powerful people. It's good to chip away at it.
Especially so in an era of inflation and increasing interest rates.
We, somehow, collectively decided to have it this way. It is not a law of nature!
Look, I literally have a degree in economics from an Ivy league university, and I promise you I didn't come close to actually understanding any of it until many years after graduating -- by including the "it's all made up part."
Really, video games and thinking about video game design helped me get it. Because it's a design, and not something like science or nature. It's not that real or unexpected consequences don't happen -- of course they do. But it's exactly like what happens in game dev, because someone tweaks rules.
Yes, exactly. I disagree that it's a distraction. It is to point out that there are a plethora of issues with crypto but pointing out issues with faith-based currency doesn't separate crypto from fiat. As a fan of crypto I see these issues as very glaring:
- one of the main advantages of crypto is lack of centralized regulation, which is also why no one stopped FTX from having back doors to loot the vault
- if one can print their own coins at will (like FTT), its value is at the whim of the printer
- inflation is not necessarily a bad thing. It can be used responsibly.
- a credit card has almost no risk and can crank out transactions as much as necessary
- fiat is accepted all over the place whereas crypto as a transactional currency is more similar to trading gold and cowhides
We have seen how many bad actors control USA fiat and are deemed "too big to fail". That is a failed system and we have seen its ugly face plenty of times. Much of crypto challenges that. How successful it is so far is up for debate.
Is it wrong to assume that this is because the industry is mostly built upon a house of cards or because of bad actors? Objectively asking.
I think the true answer to this question is that it was/is a gold rush with low interest rates that led large amounts of capital to be allocated to less than competent people. In particular, the companies and operators that look the smartest when a bubble is inflating are the ones that genuinely hedge downside risk the least, while pretending to enough to fool people with capital to allocate. This only becomes apparent, of course, when the bubble pops.
As you may notice, this also describes the tech VC bubble of the last decade, too. However, where normal tech has already found its use cases and does real things for real people in the real economy, downside is a little more capped. If you want to be generous to crypto, it's currently tech in 2000, where almost everyone has a total nonsense business model, but that a lot of the vague ideas will eventually find some variant with product-market fit. If you want to be less generous, it's all a house of cards.
EDIT: I'll also add that, of course, thinking very carefully about which narrative is true here and being right is the stuff fortunes and careers are made of. The people that weren't dissuaded by the tech crash in 2000 profited handsomely by thinking carefully for themselves about what was actually true and what information was actually latent in the financial crash. Of course, the tulip true believers in 1638 didn't fare nearly as well.
> normal tech has already found its use cases and does real things for real people in the real economy
For all the problems with gig economy companies, they're not crypto. Uber fell from its high, but it's still facilitating rides and deliveries.
And still loses money, right?
Yup. They're barely profitable in terms of the metrics they made up ;)
> I think the true answer to this question is that it was/is a gold rush with low interest rates that led large amounts of capital to be allocated to less than competent people.
Ironic, given that the narrative during its rise was that the "Best and Brightest" were working in crypto and everyone else was fighting over the "B" level people.
Essentially yes.
Bitcoins scalability issue should have killed off al notions that it could ever gain widespread usage as an alternative to traditional currency for regular payments and after that it became yet another speculative derivative without any real backing in real world assets.
It was never actually going to replace fiat currencies for most people and the industry is absolutely dominated by exotic financial instruments(mostly of the ponzi variant), run by a mixture of fools and scammers.
On the other hand, people chasing the dream of crypto scalability have actually invented a remarkable amount of math and tooling around large scale proof construction, summarization and validation. The Zero Knowledge proof ecosystem (and its relatives in multi-party computation and fully homomorphic encryption) might be the only useful thing that is left after the current incarnation of crypto fully implodes.
And yet their fundamental lack of functional economic theory means that all of that is currently being completely wasted on crypto projects that's often little more then window dressing for what is basically very unimaginative financial scams.
There is probably scenario's where a temporary blockchain can solve some synchronization issues but the idea that a single static blockchain will replace traditional dynamic structures for organizing the economy is basically not viable.
I think you'll see the ZK stuff used increasingly for non-financial applications, it's a legitimately novel and powerful area of mathematical primitives for verifiable computation. FHE is also very cool and just starting to be usable for privacy preserving ML.
> might be the only useful thing that is left
That's a good point. If nothing else, the stupid money caused more practical exploration of ZKP and other exotic math constructs than we'd seen in decades previously.
I'd like to see more "toy" exploration of this stuff as the money drains out. That's where interesting things are going to come from, for a while. Time for a zero-knowledge app to select lunch destinations, a dating matcher that doesn't leak before the reveal, secret agent spy communicators for kids...
I agree that Bitcoin has chosen some trade-offs against mass adoption, like limiting block size. I think this is a bad move, since security is more than enough.
Lightning is not viable, because it requires "watchtowers" to check for early state commit attacks. Not everyone will be able to run such a server.
But, for instance, Bitcoin Cash has larger blocks (the reason for the first fork of Bitcoin). However, in spite of its technical advantages, adoption severely lagged compared to Bitcoin. I wonder why that is.
> I think this is a bad move, since security is more than enough.
Security isn't/wasn't the concern, the trade-offs exist to ensure verifiability in the most trustless way possible (low hardware and bandwidth requirements). This enables a decentralized system which is open to any participant and keeps miners accountable. If running a node is limited to miners and exchanges and requires a renting server racks there is just no point.
> Lightning is not viable, because it requires "watchtowers" to check for early state commit attacks
This is inaccurate. LN has shortcomings currently but this isn't one. Without a watchtower your peer in a channel can force close it while you are offline by publishing an outdated state on-chain and attempt to defraud you, but if at any point before the end of the grace period (usually ~2 weeks) you are online and you produce a more recent state you get the whole balance of this channel back (this is how dishonest peers are punished). This is one channel mechanism (Poon-Dryja), another mechanism (Eltoo) which doesn't require as much monitoring/penalties will eventually come but depends on changes to Bitcoin protocol which are still pending.
Secondly theses optional watchtowers which automate this process minimize trust a lot as they can only publish the most updated state IF and ONLY IF the counterparty in your channel published their outdated state. So they have no real custody of your funds.
Lastly solutions like local federations (Fedi to name one) can address your concern of people not being able to run servers, if the users aren't content with the public offers of existing watchtowers.
> But, for instance, Bitcoin Cash has larger blocks (the reason for the first fork of Bitcoin). However, in spite of its technical advantages, adoption severely lagged compared to Bitcoin. I wonder why that is.
Because having larger blocks is not a technical advantage if your goals are the principles mentioned in the first paragraph. If you intent to compromise on these then just build a centralized database, it will be more efficient and at least you won't lie to people pretending that your system is open/decentralized (like Bcash supporters do).
> This is one channel mechanism (Poon-Dryja), another mechanism (Eltoo)
I can not thank you enough. I was under a wrong impression, and you have provided me with easy-to-search-for terms where I can get more info.
I see now there is a larger-than-I-thought grace period (which I thought was ~3 days) as well as penalty for fraud attempts.
2 weeks is a reasonable time to be away, like going on vacation.
The industry is mostly built by bad actors on a house of cards.
It's a house of cards, all interlinked and interdependent, all 'investing' in each others' black boxes that magically produce returns, suspiciously in tokens they self-issue, swapping 'billions' in imaginary value and claiming billions more in assets which all mysteriously evaporate in the light of day.
And at the bottom of it all, one of the first dominos to tumble, was a company called 3 Arrows Capital, which promised to generate revenue by buying crypto-dickbutt NFTS... and then went on the run. I'm not even kidding.
>And at the bottom of it all, one of the first dominos to tumble, was a company called 3 Arrows Capital, which promised to generate revenue by buying crypto-dickbutt NFTS... and then went on the run. I'm not even kidding.
They lost borrowed funds in a ponzi scheme called Luna. I get that you wanted to poke at nfts, but the last remark may make someone think this is how it actually went down.
It is part of what they were doing, part of their investment strategy to grow the funds that were invested with them was to nfts such as "cryptodickbutt #1462". Look it up if you don't believe me.
Yes, I'm sure that Terra/Luna was a big part of it, and you're right that it's worth calling out, it may even have been the single biggest factor. But it wasn't the only way 3AC squandered invested funds.
Perhaps Terra/Luna should be called out as the first domino to fall, it was indeed spectacular. If it was a ponzi it was a complex one with extra steps, an algorithmic stablecoin that was metastable at best, and IIRC a lending protocol that charged less for loans than it paid for deposits. All sorts of crazy.
But 3AC still invested in dickbutt...
That cryptodickbutt is probably one of their best investments.
I can't see how much they paid for it, it was a transfer. Maybe someone sent it to them as a joke, who knows.
In any case, it was around the time they were created, so easily it 20x to today's price.
I guess they should have invested more in cryptodickbutts.
Look it up if you don't believe me.
I will, but that just makes the whole thing more utterly ridiculous.
rule 37 on bigfoot?
I remember just as the pandemic was kicking off someone at work tried to convince me that they were all going to get rich on a pornography based token (pornies or spermies or something like that. Whatever it was it was the murkiest sounding thing ever.) I haven’t looked it up to see how that worked out in the end, but my guess is he’s still waiting for his riches.
That's the thing, you only depend on centralized actors if you want to. The entire point of cryptocurrencies are to not depend on centralized institutions that can screw you over.
When designing the iPhone, one of Apple's findings was that majority of people struggle with understanding the concept of the file system (and hence, there's no visible file system in iOS). In such world, only a small minority of people will be interested in decentralized cryptocurrencies, as the bar of technical skills required is too high for most people. This is what led to the success of centralized cryptobanks.
Ding ding ding! Crypto isn’t cool to majority, nor do most want to (or need to) care about it. People want to spend money and if crypto makes that happen so be it. Society had been sending money for awhile without crypto and the edge cases crypto addressed are just that, edge cases.
I’m intrigued by crypto but merely because I’m a nerd. I don’t care about crypto when it comes to my day to day life.
This exactly. I recently came across a tweet explaining how Merkle trees in some new crypto would make it better or something. If with a CS degree I find it hard to understand what this remotely has to do with my money, I don't think my 80 year old granddad is going to fare any better. Which is why I believe crypto is fundamentally doomed for anything but the most niche use cases.
I hate how accurate this comment is. Without going too far with examples, PGP exists, but using it is simply harder so most people default to an easier email sending.
Now.. the question remains as to whether it would be the same, if it tech was not made so accessible ( some people would be forced to learn since the bar was high ). I mostly think that battle is already lost.
PGP has horrible user experience for experts. Its CLI is incredibly un-intuitive and needlessly complex and integration with mail clients is poor to non-existent.
>PGP has horrible user experience for experts. Its CLI is incredibly un-intuitive and needlessly complex and integration with mail clients is poor to non-existent.
Thunderbird[0] has pretty good (see what I did there?) PGP integration[1]. The UI is decent and there is discoverability support with various key servers as well.
But that would require folks to break their addiction to web-based email and use an actual email client. As such, I won't hold my breath.
[0] https://www.thunderbird.net/
[1] https://support.mozilla.org/en-US/kb/openpgp-thunderbird-how...
You were never intended to craft your own blockchain transactions any more than to hand-write your network packets or interbank transfers. Wallets are/were expected to advance and handle this for users and mostly have.
The issue is that the problem cryptocurrencies solve is not a real problem.
The blockchain, being a public ledger, ensures that transactions are accurately recorded and can be publicly verified as such.
But it’s been centuries since the actual accurate recording of transactions has been an issue. The real problems are far removed from this. When was the last time you heard about people complaining that they paid off their Visa but it did not credit them for the payment?
Meanwhile, real problems that people do face, such as a vendor not providing you the goods or services that you paid for, are still a problem with blockchain.
The fundamental problem with cryptocurrencies are that they add a whole lot of complexity to solve a problem which is a trivial issue in practice at best, without providing any tools to solve the actual problems people face and in many cases making it harder to find solutions for those problems.
> real problems that people do face, such as a vendor not providing you the goods or services that you paid for, are still a problem with blockchain.
Not just still a problem. Far worse off a problem. Chargebacks exist for credit cards and most bank transactions including wired funds. Send the crypto the wrong way at the wrong time or to the wrong place? Poof. Bye bye money.
You ignore the other big benefit which is impossibility of censorship. When was the last time you heard about people complaining that they can't do lawful and legitimate business because Visa or MasterCard (basically a duopoly) don't like them?
This problem is not trivial, and as far as I can see crypto is the only scalable solution to it outside of legislation that isn't ever going to happen.
What about the privacy implications of having nearly every payment on the planet go through 2 megacorporations?
And I can see the response now, while every crypto transaction is public, it's a lot harder to tie identities to wallet addresses than it is to tie a name to a credit card number.
> You ignore the other big benefit which is impossibility of censorship.
That's a silly claim. Ethereum forked because of a hack and enough people wanting to undo it. Tether regularly freezes funds (https://www.coindesk.com/business/2022/11/10/tether-freezes-...). Ownership of a cryptocurrency can be made a crime. Developers can be sanctioned and arrested.
A fork implies 2 diverging lines. Nobody's hand was forced in the ether versus ether classic fork.
Tether is centralized and a scam (and arguably a scam because it is centralized) and irrelevant to the discussion. Anyone can make any token they want and run it according to whoever's rules; this logic would indict the entire internet based on the existence of badly moderated websites.
And cryptography can be made a crime as well. Meanwhile, in the world we inhabit today rather than infinite hypothetical ones, no such thing is happening outside of totalitarian governments, and despite their effort, not one single crypto currency transaction has ever been successfully censored.
> A fork implies 2 diverging lines. Nobody's hand was forced in the ether versus ether classic fork.
The two diverging lines were very much unequal.
> Tether is centralized and a scam (and arguably a scam because it is centralized) and irrelevant to the discussion.
Arguing Tether is irrelevant to the crypto space is absurd. (I agree it's a scam. That's a major problem for the whole ecosystem.)
> And cryptography can be made a crime as well.
Correct. You can censor cryptography. https://en.wikipedia.org/wiki/Export_of_cryptography_from_th...
Nobody said they were equal, the community as a whole decided to move to the new fork. The old one still exists and still has substantial value, but it's not where any of the mind share is. More to my point, nobody forced anyone to move. This was an organic action.
What is your point? Surely you aren't arguing that the governance of one specific token in the broader crypto ecosystem invalidates the general uncensorability of crypto transactions? Because that would be pretty fucking disingenuous as a false equivalence.
Talk to any business and they will tell you that they don't want to pay %3 to visa or any other credit card. Having a ledger of transactions is how any currency works, it isn't the problem being solved.
Being able to use money electronically without a 3rd party is something that wasn't possible before. Anyone wanting to cut a credit card out of their deal or choose a currency other than their what their country mandates can now do that.
Blockchain -- Solving Imaginary problems that nobody has...and doing a terrible job of it
https://medium.com/@qroshan/block-chain-solving-imaginary-pr...
Without a centralized actor of some sort, most 'investors' are not going to be able to get into or out of a crypto position. Vanishingly few people care about using the tokens themselves for anything but gambling.
These institutions can also screw you over by massively inflating the crypto bubble and then crashing spectacularly, tanking your value and poisoning the public perception of cryptocurrency.
The 'point' of cryptocurrency may well be to avoid dependence on centralized institutions, but the effect of cryptocurrency has been to enable all this nonsense. At this point in time you can't say "well it's not crypto's fault!" because it absolutely is. You don't just look at intent when assessing outcomes.
yeah if only a few thousand crypto fanatics trade all these coins there is effectively no ecosystem and thus no upward price pressure to make the nerds rich.
I think most people want a bank that they can trust with their assets. I don't want to store my assets on a hardware wallet that can break or lose and I have to store the backup key in a a safety deposit box. Do you know how hard it is to get a safety deposit box today? Irony is I have to have a bank secure my crypto holdings in case my house burns down.
If you stored your Luna/FTT/whatever on a personal wallet and never touched an exchange, you still lost all your money. The centralized actors run the show whether you interact with them or not.
If you bought BTC before centralized actors became dominant, you didn't lose money. If you bought BTC after, you should have known that could happen.
Crypto has shown that decentralized actors certainly screw you over. All those laws and corporate governance and backup from the govt for banks (which costs something in terms of fees the banks pay) yields people not losing their deposits if banks fail. Occasionally banks still fail today! It doesn't make the news because people don't lose their money.
It's because of these "idiots" choosing to centralize their decentralized crypto, not due to the smart ones holding on to their keys, that the valuation has skyrocketed.
So I'm a nerd interested in this stuff and I have specific ideas -- but I just want to say that I appreciate simply seeing this idea in words in a forum. Lately it's just been positively weird how infrequently I see this very very obvious point of the whole thing.
What idea? The idea of "centralised actor" isn't even an idea, it's gibberish.
It's shorthand for "a possibly unnecessary/overpowered/arbitrary middleman that handles money on behalf of other people and organizations."
This is pretty well established, almost to the point that it doesn't need to be said.
If it is gibberish, why do many people apparently think it makes sense? Are you using 'gibberish' to disparage something you dislike, rather than to describe something as nonsensical?
A lot of people repeat what they hear without giving things any thought. I say it's gibberish because it doesn't mean anything. Try to explain what characteristics set a decentralised actor apart from a centralised actor. Remember that you can't use the word decentralised/centralised, because that's the words we're trying to define.
According to wikipedia, under 'Central Bank': "a central bank possesses a monopoly on increasing the monetary base. Most central banks also have supervisory and regulatory powers to ensure the stability of member institutions, to prevent bank runs, and to discourage reckless or fraudulent behavior by member banks."
Since the major collapses were by organizations which had a monopoly on creating their own currencies ("tokens") you could call them 'central banks'. Note I am not defending cryptocurrencies -- I am pointing out that you calling something 'gibberish' when people do have an understanding of the meaning is not productive.
Sorry. We were talking about what it means for an "actor" to be "decentralised". Now you're saying that a central bank is someone who has a monopoly on issuing their own currency. So apparently I'm a central bank, you're a central bank, the Chinese restaurant around the corner is a central bank... First of all, none of these people or organisations are central banks. And second, we weren't talking about central banks. I say it again: we were talking about what it means for an "actor" to be "decentralised".
This is one of those 'can't win' situations because no matter how I respond you will find something to pick apart and keep decrying your victory. Good day.
You could give simple, logical, concrete definition of 'decentralised actor' and show the concept isn't gibberish. If you can't come up with anything, maybe you have to concede that it is gibberish.
> ...you only depend on centralized actors if you want to.
How can one tell that with a straight-face when the poster-boys of crypto (like Coinbase, FTX, ConsenSys, Circle, Uniswap, Binance etc) depend on centralized actors like VCs and Stock Exchanges?
> Unbelievable the amount of destruction of value here... it's just total carnage.
I don't see any other replies hypothesizing this in terms that rhyme with the dot com "bust" of 2000.
In late 90s, in addition to whatever product-market-fit from their "blue ocean strategies", the dot coms generally invested in and bought services from each other.
Wall St didn't look at where the dollars came from or went to the second or third step, they treated every company as if its revenue came from the customer marketplace.
Instead, a given VC dollar (or customer dollar) would get spent from that tech firm to its providers, who would give it to their providers, and then their providers, in turn. This way, the same single dollar would show up across a dozen balance sheets, each at 14x growing to 40x and eventually 100x multiples. So the 1 dollar instead of being, say, $40 of "value" for the one firm that got the dollar in from outside the ecosystem, that dollar would show up 12 x 40x or $480 of imagined uncorrelated "value".
By 1999, the public companies had caught on to where they could just give cash from public markets to dot com providers to turn around and purchase the public company's goods or services at a discount ( "strategic relationships"), with their own dollars then driving a 40x - 100x market value boost, generating more public dollars they could use to create more "customers".
Even if all these companies had legitimate products, when you looked under the hood, relatively few dollars were coming in from outside the private and public markets revenue multiple game. If some of these folks misstepped, and folks started having to unwind expected revenues, and in turn unwind their own spend, and letting the air out happens faster than they can keep their footing .... boom, you have a bust.
Today there are multiple sites tracing the actual flow of digital "currency" and seeing the same loops happening, where every agent in the loop is nominally valued as if generating revenue from outside, when instead, they're lock step in a circular flow.
Any interruption and ... dot com Y2K 2.0.
So less value destruction, more a glitch in the illusion big enough for non-experts to notice absence of outside value.
> a circular flow
This isn't just crypto, this is a fundamental strategy for most VC funds. The most valuable VC funds select portfolio companies based on whether they will succeed at selling to each other. This shows a growth multiple that is used to position the company for raising funding from the next sucker VC. That VC then "introduces" their portfolio company to their other portfolio companies, in continuum, until exit. Eventually the public market understands that the growth multiple is a house of cards and the stock tanks. But the VC is happy because they took their exit, the government is happy because these companies collectively employ hundreds of thousands if not millions of people who pay above-average tax rates, and even institutional investors are happy so long as the stocks tank individually and not in concert, making little difference to their overall portfolio. So the practice continues.
this has more in common with the S&L crisis than the .com crash. if you are going to use analogies to past events as a crutch
Less analogy, more "this has been happening" and "explains a lot".
Your example has been happening too.
> Unbelievable the amount of destruction of value here
Destruction of value or destruction of paper wealth? I'm pretty cynical of the whole crypto* space, mainly because I think the people making any money in it are themselves cynical and predatory.
I suppose that billion dollars of investment was actual cash lost.
* Using the new definition, not cryptography, which is what the term really means and will again soon.
Both. If you take 900 reasonably skilled people and direct them towards nonsense for a few years, that is definite value lost to society. It sounds like $1 billion in actual cash was lost this way. And the buildings they were in could have housed useful activity, the computers they bought could have done useful things, etc.
Those people could have been doing useful things. And it sounds like their activities were worse than nonsense, they actually destroyed money they were given.
^Haga, if you can see this, your comment below mine is dead. Went through your history, doesn't look like you've said anything astonishingly objectionable recently. Your comments are all dead
If you think they're good comments, click directly onto them and [vouch] for them.
https://news.ycombinator.com/item?id=11589410
(edit) going back... a there appears to be a period of fairly consistent one liner hot takes that may have been received poorly.
Yeah, noticed that. Figured that warranted downvotes more than being dead, though it is a tough call as the site could become reddit with too much of that
It's a whole societal trend, away from real progress towards virtual gambling. I would trade the whole crypto currency space in for one well financed fusion research project.
Yes imagine how many more ads these 900 people could crank into your feed if they worked at FB. Truly a lost opportunity to put their skills at work for the greater good.
Because these are the only two options that exist for software-capable people. Come on.
I think “value” is the wrong word here. These businesses created nothing of value, they were only exercises in accumulating capital and speculating on worthless currencies. This collapse was entirely predictable (and predicted). Agree on the term “carnage,” though.
Let's be clear who really destroyed the value - it's the people who took money from pension funds saying they'd invest in cutting edge technology and instead put it into computer meme money startups
> Unbelievable the amount of destruction of value here... it's just total carnage.
Impressive to see that both VC money AND customer money is burnt at immense ammounts. How can these founders sleep at night?
The VC money is nothing new. Throw money at a handful of possible game-changers and see what sticks. The customers did not simply buy crypto. They gambled it. That's a gamble on top of a gamble being run by a few people in the Bahamas. What's odd is that those gambles were risky within reason, but the fallout was just pure human corruption and/or incompetence. And putting FTT on balance sheets as actual value is laughable.
I think this will be a major academic topic in economics for the next generation. It's not clear to me that any value was ever created. It was entirely notional. Number go up, number go down. The biggest loser in real terms is the VCs who spent money they possibly earned through real work.
I think the biggest victims are the people who held accounts that got drained. They were aware of the risk but they believed people smarter than them at least checked that the bank vault wasn't build on quicksand. VCs have access and ability to do due diligence and they didn't because they're blinded by their own awesomeness.
Looks like the earliest investors were these folks, so I can’t say I’m particularly surprised. Definitely amused though. https://nymag.com/intelligencer/article/three-arrows-capital...
People need to understand that the amount of money invested in a company does not mean anything. It is most definitely not a validation of the company in any sense.
Was it really value or imagined value though?
Real dollars were invested (by their investors and customers)
These comments lead me to believe that a lot of people don't realize fiat was invested by regular people. It wasn't all crypto bros playing with space cash. If that fact isn't understood, then it's pretty clear many of our HN friends are simply here to bash on crypto and scoff at victims of a poorly managed investment firm. I personally haven't seen the same takes on, say, Theran*s or whatever other failed VC-backed investment.
Nothing was destroyed. Money was just transferred to smarter guys.
Taking VC money and spreading it to the winds is the opposite of destruction of value, it's making that money actually useful if it lands in the hands of normal people.
Bless the cryptocurrency community, involuntary Robin Hoods that sucker in both users and VC to redistribute it all when it inevitably fails
I feel sorry for the retail investors caught up in yet another crypto scam. Let me try to articulate my view of what’s actually going on with these seemingly endless scams, in hopes of saving future retail investors some pain:
Prominent venture capital firms like A16Z, Sequoia, etc have discovered a new get rich quick scheme: they raise a fund and invest it in a some shitcoin like FTX, SOL, etc. the shitcoin founders use the cash to market and shill the coin, hiring public figures like famous NFL players. Retail investors FOMO into these tokens, boosting prices and attracting more retail investors. Once the market cap of the shitcoin exceeds the VC/investor cost basis, they cash out and let the rest ride. Eventually the shitcoin implodes, but by this time the firms are already onto their next fund and another token. A16Z is on their 4th fund now and it’s $4.5B[0]. There’s an entire political strategy at play as well, where shitcoins are employing folks in DC and lining pockets to further the scam.
All of this is possible because there is no regulation on crypto tokens. In reality these are unregulated securities and these large VC firms are exploiting a loop hole for profit. This goes for literally every token starting at ETH and below.
[0]: https://a16zcrypto.com/
In this scheme, VCs are cleverly exploiting the fact that US securities law is designed to protect investors foremost.
They are investors in these web3 shitcoins, so it’s complicated to prosecute them for anything when the law sees them as the victims.
In reality these VCs are co-conspirators in creating these unregulated securities, and hopefully the SEC will eventually make an example out of someone like a16z. Their Coinbase pipeline has been an absolute sham because they’ve had board-level influence on Coinbase which they’ve used to make the crypto exchange list all the shitcoins that a16z just happened to buy six months earlier. This shouldn’t be legal.
This is it. I have not heard this most important argument so clearly and powerfully made before.
The VCs need to be thoroughly investigated. It is clear.
Just look at their portfolio on their front page for a list of "future scam revelations" and implosions.
E.g.: Chia coin is down -98% since its inception, -76% just this year and heading downwards. What does it do other than soak up excessive hard drive inventory? I dunno! I doubt anyone has a use for it.
With projects like blockfi, users get all the disadvantages of the centralized traditional financial system without any of the regulatory protections that have built up over centuries. Terrible for the people with assets in blockfi but extremely predictable. The point of defi is that you can use financial services without a centralized counterparty. People who can’t handle their own keys should be using traditional banks, at least until the technology is improved. Compare to Aave and other actually decentralized lending protocols which are not at risk of bankruptcy.
What's the cryptocurrency endgame? Everyone has keys in cold storage waiting for the day we have the mathematics that destroys them?
> What's the cryptocurrency endgame?
To not be the one stuck holding the bag.
The Greater Fool theory of investing
and Tulip Mainia! (did we cover all the tired crypto takes?)
watching marks get fleeced is never tiring.
The endgame is a payments system as originally described in the Bitcoin whitepaper.
99.9% of all "advances" and developments in the space hasn't moved us towards the endgame, if anything it's taking us further away.
> The endgame is a payments system as originally described in the Bitcoin whitepaper.
This seems to be contradicted by the deflationary design of Bitcoin. The fact that Bitcoin is deflationary probably also exacerbates the speculative interest from investors that makes Bitcoin more volatile and less useful as a currency. It's possible that Bitcoin was technological sound, but economically destined to fail at its stated goals.
I agree. I held Bitcoin Cash since it forked, because it is superior technically. But I am disappointed with its limited adoption.
BCH allows more transactions. BTC would take 18 years for 4B people to perform a single transaction each. And it costs ridiculous amounts of resources for a ridiculous amount of constant security.
BCH is just kicking the can down the road a bit further. If it were to gain massive adoption rapidly, the only way it could scale if they follow their current ideology is by hosting the nodes on bigger and bigger server racks, eventually reaching the point where there is only one or two real nodes hosted in a cloud provider datacenter somewhere. I don't know what the perfect block size is, but quadrupling down on on block size and turning down all alternatives is not a good long term plan.
> I don't know what the perfect block size is, but quadrupling down on on block size and turning down all alternatives is not a good long term plan.
BTC's 1 MB (or a bit more with segwit accounting) is just hopelessly obsolote, we could easily handle multiples without any issue whatsoever, and it would require a massive increase there after to reach the state of "one or two nodes".
Further, BCH isn't "turning down alternatives". It's a permissionless system after all, and it does have malleability fixes if you want to have layer two for it.
It's BTC who is blocking any on-chain scaling and bet everything on the experimental Lightning Network (that's still experimental mind you).
BCH's block size is also hopelessly obsolete. You simply cannot fix the system by making the blocksize bigger, so BCH is a pointless exercise.
It's not pointless, it's necessary although not sufficient on its own.
eventually reaching the point where there is only one or two real nodes hosted in a cloud provider datacenter somewhere
Ironically this is what is described in the original bitcoin satoshi whitepaper (not 'one or two' obviously), but the math doesn't work out.
Right now bitcoin has a throughput of about 1 KB/s, which is slower than a 14.4 dialup modem. The entire 13 year chain fits on a $40 thumb drive with room to spare. Even 32MB blocks (53 KB/s) maxed out for another 7 years would fit on single $220 12TB hard drive.
Running a node is only really necessary for miners, exchanges or any other major service but it will be trivial for anyone who can watch a youtube video or stream netflix for at least another decade.
Hopefully we won't end up on the slippery slope of centralization.
But even if there were a reduction in the amount of nodes, and in security vs. 51% attacks (looking at miners' profitability), BCH has shown its willingness to consider tradeoffs and changes.
There will be opportunity to backpedal if the community considers centralization is a bigger risk than adoption difficulty.
I fear BTC's downfall will be caused by its brittleness resulting from the fixed rules.
BCH had slow block times and slow transfer times just like BTC. ETH and many altcoins were more performant.
The endgame is regulation. The US Treasury launches a digital dollar and declares other USD-demoninated stablecoins as illegal, crushing the on and off ramps for most exchanges. Adoption by banks and brokerages removes the need for separate crypto exchanges. KYC/AML requirements crush whatever remains.
... and assuming that is successful: something else emerges.
The emergence of crypto coincided with the final snuffing of bearer bonds and certificates and most anonymous bank accounts. The death of crypto will coincide with something else. The regulators of the world continue to pick and choose where to place their fingers in the cracks of the dam. Money that cannot efficiently or legally pass through KYC/AML will find a way.
> crushing the on and off ramps for most exchanges
That exchanges don't need help with that
There is no end game. You use it in your daily life to obtain or achieve things then you die.
On the one hand, I can understand this. On the other: as a US citizen, I use it in my daily life, then I file an 8949 every year listing every single purchase I made that year, along with tracking of cost bases? I realize that this is a legal, rather than fundamental, aspect of cryptocurrency, but it does make the idea of using cryptocurrency as a quotidian currency rather frustrating compared to essentially any other method, like cash or a credit card.
No need to. Luckily every transaction has been recorded for you on a public blockchain that is easily traceable to your RL identity! Makes life a lot easier for the IRS and also means your employer can check whethee you've developed a penchant for donkey porn!
That fact that they can find it out doesn't mean you don't have to report it accurately. Most countries around the world know how much salaried employees make and still require them to declare it in a yearly tax submission and if they do it wrong, they'll get fined. The government knowing has nothing to do with you still needing to accurately report it.
I don’t know if “most countries” is correct. The USA certainly does this, but most European countries will prepare an automatic tax return for everyone based on the data they receive from employers, banks and brokerages.
Hold my beer I'll build a tool to track that
Then the end game would be to be something useful that people use in their daily lives.
I think that's what was meant when calling it digital currency.
But now it's heading down a different path.
Having a savings account is not useful in daily life?
A savings account is generally a no-risk or low-risk investment vehicle. This usually means that you could withdraw the balance on any given day and not suffer a realized loss. Even if you assume that Bitcoin's value will always recover long-term, having short term volatility in the 50% range might mean that the money in a Bitcoin "savings account" will not be available when you actually need it.
Cryptocurrencies look to be a particularly bad substitute for a savings account to me. Or even just keeping cash in a shoebox under your bed.
Don't you keep it in cold storage so three generations from now you offspring can bring it back out for significant wealth gains or alternatively a reminder of funny things humans do?
Why crypto v dollars or another existing currency?
There is no real benefit besides instant* cross border settlement.
Your doomsday scenario affects all online security equally. The only outcome you are partially vindicated in is one with a quantum miracle in the short term, which even then is not catastrophic for protocols which make the necessary hard forks.
Currently in development is decentralized social recovery systems. A lite version of this already exists with gnosis safes where one wallet has multiple key holders and n/m voting.
There are already multisig wallets, both Bitcoin and Ethereum. You do not need Gnosis for that.
What's the endgame of a savings account? Are folks just going to sit on their money until it eventually collapses?
The endgame is the same as Beenie Babies (or tulip bulbs). Everyone realises it was just a mania and goes home. No more money goes into the system, so no more money goes out. People forget about it.
Sure, but you can't use DeFi to trade fiat for crypto. You can use DeFi to trade crypto for crypto, or for crypto that pretends to be fiat.
Saying "centralised exchanges bad, DeFi good" misses the point that the main use case of centralised exchanges is not covered by DeFi.
> Sure, but you can't use DeFi to trade fiat for crypto.
Of course you can, both ways.
- https://bisq.network
- https://learn.robosats.com
https://learn.robosats.com/docs/trade-pipeline/
> On a private chat, Bob tells Alice how to send him fiat.
https://learn.robosats.com/docs/payment-methods/
> You can pay with any method that both you and your peer agree on. This includes the higher risk method such as PayPal, Venmo, and Cash apps.
C'mon, that's not trading fiat for crypto. That's "PayPal me some money".
What's interesting is it seems they're only putting up a a 3% bond from what I can see [1]. So it looks like people could just take 97% of your money and run.
Whenever a big exchange fails, we see a lot of people say "of course, this is why decentralization is better." But I'm not convinced people are less likely to lose money in decentralized exchanges. It seems like it would actually be easier, it's just that a bunch of small scale scams aren't going to get the same attention as a huge exchange collapsing.
[1] https://bitcoinmagazine.com/business/robosats-private-bitcoi...
I love crypto! It's Decentralised! It's Trustless! De-fi is the future!
Then it turns out that the promised future involves trusting someone to honour a paypal and pray you're not being scammed.
Neither Robotsat or Bisq is that. The core functionality of these systems is to handle automated escrows.
Bisq is a really impressive project. Upon first hearing about it I was a bit skeptical at how a decentralized peer to peer exchange would work in practice, but now that I've used it a few times with no issues, it really does seem like the best way to do fiat <--> crypto exchanges. Really hope that bisq and other similar services get the recognition they deserve now that the trust in cex's has taken a fall.
Bisq v2 is going to be an interesting release: https://github.com/bisq-network/bisq2/blob/main/docs/aims.md
They're currently a little short on manpower. If you're a Java dev, you might consider giving a hand.
> - https://bisq.network
The last time I looked into this it required a security deposit in BTC.
Blockfi isn’t primarily an exchange, it is a crypto lending platform. Centralized exchanges are a viable target for regulation as the state has the capacity to do so if it chooses to. But these regulated exchanges should never be holding your crypto on your behalf. It should be purely fiat for crypto with minimal custody. However it will be difficult for that regulation to occur as dark hybrid exchange-banks are benefitting key political actors.
You can, using stablecoins like USDC. These also involve counterparty risk, but they are extremely simple to audit and regulate.
> they are extremely simple to audit
Tether's audit has been promised since 2016. Still hasn't happened yet.
Stablecoins are cryptofiat. There's no compelling reason to use a stablecoin over using USD.
But transferring to stablecoins means you don't have a taxable event and thus don't have to pay cap gains /s
it's fascinating how nobody learned from history. Banks and bankers have been heavily regulated as you said, "over centuries".
Still today, we get lured by the same businesses (because all these lenders were just banks/financial operators) but without any of the safety nets we have in place when we work with "old school" banks.
Learning from history typically requires opening a book…
Ah, but reading a book requires taking time away from “changing the world”.
It's really worse than you say the amount of ignorance it takes to store crypto in one of these institutions, when one of its motivating and zeitgeist driving features is that third parties are no longer the most secure method of storage.
The cynic in me thinks they did learn from history, and spotted a way to adapt the old scams to a new playing field. Much easier than coming up with brand new scams.
> BlockFi has said it had “significant exposure” to FTX and its sister company Alameda Research LLC, including taking a $400 million credit line from FTX U.S. that also gave FTX an option to buy the company. > > BlockFi was one of several struggling crypto firms that signed deals to be rescued by FTX in the past months. The agreement is now in jeopardy as FTX itself sorts through its financial trouble and is subject to federal and state investigations. > > It also holds assets at FTX.com and made loans to crypto trading firm Alameda partly secured by FTX’s FTT tokens.
https://www.wsj.com/articles/blockfi-files-for-bankruptcy-as...
So FTX lent money to BlockFi, and BlockFi lent money to Alameda, and Alameda owed money back to FTX? And BlockFi's money was stored on FTX and denominated in a "currency" that relied on FTX's performance for value?
This all lends credence to the theory that we instinctively knew was true: SBF was just doling out money to crypto firms in the spring to prop up the system a little longer, but ultimately it all relied on users injecting new money into the system.
My wife and I had about 10% of our life savings in BlockFi. This is a pretty big blow for us, especially while gearing up to start a family. It's easily in the top 5 worst things to happen to me in my life.
Is there any hope of individual creditors getting any of their money back? I'm unfamiliar with how bankruptcy works.
I'm sorry for your hardship. My understanding (which is not a professional or legal opinion) is that individual creditors probably come near last in these kinds of bankruptcy proceedings. It's possible that after a prolonged settlement process you may receive some of your money back, but that's not an outcome that I would place substantial faith in.
I say this without an ounce of judgement, explicit or implied: can you speak to some of your motivations for putting your life savings into these kinds of vehicles?
Not the OP, but... in the abstract, 10% in a high-risk investment seems pretty reasonable? Sounds like they're young. For someone with a multidecade investing horizion, 10% is a minor fluctuation; the S&P500 is down 17% YTD.
To the OP: Why is losing 10% of your investments a pretty big blow? Almost everyone's 401K plunged by more than that this year. If you're young this won't be the last time.
OP here!
Thanks for the affirmation. My wife and I are 31 so a 10% drop is definitely something we can recover from. We've already lived through this high-risk crypto part of our portfolio falling to half it's value over the last 19 months but the other half completely vanishing overnight has hit me psychologically harder.
Instead of the narrative of "sure the crypto dropped in value but it's done that before and gone back up and it's reasonable to think it could go back up again," "now it's on sale," and "time in the market beats timing the market," the narrative is just "it's completely gone because you got defrauded. Here's a list of the specific people responsible. You shoulda been more diligent in evaluating the risk of giving them your money ya freakin' idiot."
Crypto isn’t a high risk investment though, it’s in a category beyond that. You’re definitely going against traditional portfolio structure by having so much in crypto and are kind of getting what you paid for (risk wise).
I get it, it sucks, and it feels like you could have made better decisions. Hindsight is awesome that way. Don't beat yourself up over it; at least you were smart enough to make it a small percentage!
> can you speak to some of your motivations for putting your life savings into these kinds of vehicles?
For sure. My rationale was that keeping crypto in cold storage was effectively currency speculation and didn't really do anything to add value to the world. By instead keeping it in an interest-earning account it could be earning interest independent of the exchange rate with USD and providing some value to the world in the form of liquidity and loans.
It's the same rationale I use to justify keeping money in VTSAX instead of under my mattress.
> providing some value to the world in the form of liquidity and loans.
I'm trying to avoid coming across as blaming or rubbing salt in the wounds, but I just wanted to say that the rates they were offering during times of such low interest rates in general, were really be a huge red flag.
However you feel about cryptocurrency in general (and it's safe to say I'm a sceptic) you have to look at that and think either that something fishy was going on or they had to have an exceptional business model.
Wouldn't the appropriate analogy to BlockFi be to keeping your money in an interest bearing savings account rather than in VTSAX? Since VTSAX isn't a bank choosing to allocate capital in whatever way they choose
I would build on this and have a frank discussion with your partner about risk tolerance and long term goals around your portfolio. A single exchange failure should not expose you to this much risk.
I'd suggest setting your expectations that you'll get none of it back.
There is a decent chance you'll get a small fraction back in several years, but it all depends on how many assets they have remaining. Keep an eye out for communications from the bankrupcy trustee once there is one - will probably go to the email you used to register your account.
Can I ask why? If you wanted to put money into crypto, why didn't you use a blockchain where you could verify your holdings and nobody could take them from you? BlockFi was just an incredibly shitty bank.
Because they paid high interest rates! That's how all these scams work, one after the other. Pay high interest rates to attract customers (impossible to achieve rates), create tokens of your own, trade them to other places paying high interest rates. Take your bitcoin deposits, use them to make other bets, hope that it will go up somehow.
For sure. "Not your keys not your coins" and all that.
Here's my rationale: https://news.ycombinator.com/item?id=33779052
Even with 10% losses he lost less than those storing equity in ultra boring indexes.
Honestly anybody who only lost 10% in the last year looks like a genius (crypto included).
Your math assumes he lost 0% on the rest of his savings, while "those storing equity in ultra boring indexes" where storing 100% of their savings there. Is that really a fair accounting, in your opinion?
If you assume I assumed the things you assumed then I assume we can assume that would be a fair question.
Generally people don't lose all their investments in a stock or index fund. They might go down in price 10% on fund xyz but won't lose all their value. Do you not get that difference with this, this would not happen if he bought stocks with 10% of his money.
If I buy a fund that holds 90% cash and 10% of a BlockFi farming contract, then I only lost 10%. OP said only 10% was in blockfi, so he did not lose all his value.
100% loss > 25% equity drawdown
Obviously you know that, just somewhat of a silly observation to make that he "lost less" when he actually lost 100% of his investment (barring recovery in bankruptcy court)
A self selected fund that risks 10% of the wealth on BlockFi cannot and did not lose 100%.
The position was a 100% loss, yes. The returns of the other positions are irrelevant to that fact
Not really. There are good reasons to lose money and there are bad reasons to lose money. This was a bad one.
I think it looks less bad in the weird context of 2020-2022, when breaking even with inflation meant moving money into riskier and riskier investments just to keep up with the money printer. I wouldn't have chosen something like BlockFi, but then again I'm one of the idiots that lost via a mix of inflation and various ultra boring indexes.
I can see where it might look tempting or even rational to see how long you can keep the hand on the oven without getting burned for some of the interest rates being offered on these "exchanges", especially in times of pretty desperately negative real interest rates on USD.
I think the lesson is that you can't hide your money from what is going on in the world.
No matter what you invest in war, plague and inflation will get you.
I am up YTD and YOY
Off-topic, I had some savings in high-risk stuff(not crypto). Now they’re frozen, almost certainly lost. I’m fine since I knew the risks. Did you not anticipate you might loose your investment there?
In traditional bankruptcy proceedings, as you suspected, the little guys are at the extreme back of the line. I would follow the news closely and see if there is any mention of a firm representing individual investors.
Creditors in Voyager’s bankruptcy were looking at about a 60 cents on the dollar return without a buyout and about 75 cents on the dollar return if FTX could have followed through on their business and accounts buyout, IIRC.
Voyager had only 3 creditors so they weren’t well diversified. When one of their creditors eventually went belly-up, they predictably lost about a third of their holdings.
Are Voyager's individual creditors getting 60% of their money back or does bankruptcy only pay out to the largest creditors?
They’re all account holders so everyone is entitled to a proportional slice of the remaining pie. 60% regardless for both the little man and the fat cat.
On the other hand, I don’t know if people who retain a class action lawyer specializing in this case get special treatment or not.
> I'm unfamiliar with how bankruptcy works.
I'm not a specialist in the area, but here's my explanation as a financial professional.
When a company goes bankrupt, it's assets and liabilities are summarized by an administrator who is hired. Typically a well known firm with lots of experience, and they will do things like find out where the assets are, possibly liquidating some of them. You may have seen that FTX has a new CEO. They are in fact empowered to run the company.
There's then something called the capital structure, basically an order in which liabilities are paid to creditors.
First of all, you want the admin to want to bother doing the work. So they come first in the queue of people.
There's then the tax man (actually, which comes first, admin or tax? Might depend on where you are).
Then there are secured creditors. For instance you might have a factory with equipment, and some loan was made against the equipment. Or you have property and a mortgage against it.
Then there are unsecured creditors, like employees owed final payments.
Depending on how complicated the firm is, the whole credit part of the capital can get super complicated, basically tranches where each junior tranche is only paid if senior tranches are fully paid.
It's unusual, but if somehow the assets exceed the liabilities, the equity holders will get the rest. Don't count on that, because it's unusual for such a firm to go bankrupt.
Now with high profile bankruptcies there are sometimes investors who will buy your position in the queue. If you get an offer the gamble is basically that it's worth your while to get out immediately and let the bankruptcy speculator deal with all the BS as well as the waiting time to get the money eventually. A friend of mine got offered this from Lehman, turned it down, got paid pretty reasonably, eventually.
This is helpful—thank you.
It sounds like as long as there's enough money to pay the admin, the government, secured creditors, and unsecured creditors, anything left over would get split amongst individual investors like me. Is that right?
I think you're among the unsecured creditors. A proper bankruptcy expert would have an authoritative answer because I think it also depends on whether client funds are segregated.
The blockfi terms said the money was always the client's money and that wallet funds are not lent out.
My not-a-lawyer interpretation is I didn't 'give' the money to Blockfi and thus Blockfi doesn't owe me any money. Am I understanding this wrong?
If someone has 10% of their money on a cex they are either
1) Farming it for interest
2) Collateral for trading / other asset
3) Maybe some other corner case I can't think of here
-or-
4) Morons.
My guess above was (1) since it was both a large amount and the losses were unexpected. I do not think it would be 'yours' except in the 4th case which would be morons storing unvested deposits on cex for any purpose but short term exchange.
OP here! #1 was my motivation, though at the moment I'm definitely feeling like #4 played a role.
My rationale was that crypto just sitting in cold storage could only gain value if the underlying asset appreciated which is effectively currency speculation. By storing it in a crypto "bank" my money could be working to generate actual value via. liquidity and loans akin to a real bank.
If the money was earning a modest amount of interest it didn't feel like as wild of a risk. Even if the exchange rate to USD is unstable I can still see the amount of crypto going up each month.
> “generate actual value via liquidity and loans akin to a real bank”
What’s missing from this picture is actual productive economic activity. Banks make loans to real-world businesses who use it to produce goods and services, and assuming those are desirable in the market, part of the margin on those products ends up paying the interest to the bank.
Crypto lenders make loans to crypto traders who ultimately produce cash by extracting it from other traders and from new investors that bring in real cash into the system at the bottom of the pyramid. There’s nothing producing anything in the hermetic crypto bubble. When the retail interest ended, the system started running out of dollars.
Yes, you summarize the entire cycle very well. There's nothing creating wealth other than the next group of people buying some crypto thing, then that is 'invested' by buying other things that are paying interest, but eventually the cycle of new money coming in goes away.
Can someone explain to me this like I am 5 years old. Why would you leave money on the exchange? Why not take it off after you have the coins? I truly am not following. Wont there be a run on all exchanges/indexes?
> Why would you leave money on the exchange?
Because the exchanges have been promising sky-high interest rates to get you to do that.
Blockfi was promising ~2-4% annual returns for storing your crypto with them—it wasn't an exchange to buy and sell.
You should talk to a lawyer with experience dealing with bankrupt companies.
Let this serve as a reminder to always stick with investments in $VTI and $BND in the future. It'll be a positive.
As long as Vanguard doesn't file for bankruptcy!
Vanguard doesn't hold customer funds, they're held by a separate nominee company. More importantly, it's properly regulated.
Can't get blood from a stone
Sorry but if you put 10% of your net worth into BlockFi you didn't fully understand the risks. I feel bad for anyone who lost money (a few grand here) but this was all akin to a trip to the casino for me and my expectations were set accordingly.
Another "crypto" company that was not actually crypto. These guys just held people's money custodially and promised some dumb overblown interest rate. Sure their theme was "crypto" and they have the bitcoin logo on their website, but the underlying mechanism of trusting someone who has a slick app with your money is the opposite of crypto.
It seems like silicon valley VCs completely missed the boat on crypto by dumping money on any huckster with a Stanford degree. Instead of asking "is this the end of crypto", maybe we should ask "is this the end of silicon valley".
I agree, none of these companies are crypto companies, just centralised scams. In fact, this is not the end of crypto, but is exactly the opposite. This is the "real beginning" of crypto, as now the benefit of decentralisation and transparency are being understood by a larger number of people. So all in all, this is great news for the crypto industry!
A real "this is good for bitcoin" in the wild!
Come on, zubairq must be kidding. This is not good for crypto or bitcoin. What problem were we fixing again with crypto?
smart greedy people who dont yet have enough money have to solve this problem. crypto is an opportunity to convince less-smart greedy people that "centralization" is socialist and bad, and get them to hand over their money.
> I agree, none of these companies are crypto companies, just centralised scams. In fact, this is not the end of crypto, but is exactly the opposite. This is the "real beginning" of crypto, as now the benefit of decentralisation and transparency are being understood by a larger number of people. So all in all, this is great news for the crypto industry!
While I share your enthusiasm, even after countless rugpulls/exitscams/fraud proving centraization is the bane of why this tech was created; I don't share your conclusion as it doesn't reflect reality at all. The 'crypto' market is rife with this and has been sine the Ico mania (and alt boom before that really) so things like NFTs and DeFi are at it's core rely possible of this ignorance which is what most profit from and do so to the detriment to actual viable projects: Bitoin, Monero.
In short, all I'm seeing is a price correction, but real projects keep building muh needed infrastructure and 95% of the 'crypto Industry' are the hype tokens exchanges like FTX, Binance fleece the masses with with promises of short lived DeFi yield farming like scams.
> It seems like silicon valley VCs completely missed the boat on crypto by dumping money on any huckster with a Stanford degree. Instead of asking "is this the end of crypto", maybe we should ask "is this the end of silicon valley".
Agreed, we have been persona non grata in SV for some time; in 2014 I went to the bitcoin job fair in Sunnyvale when I was launching my startup and despite having Standford heavy weights and Vc (like Balaji, Chamath, Dorsey and later Musk) soon realized just how poorly we were received outside of our circles; we represented the uncouth gate-crashers who were supposed to be kept at arm's distance, and only when fortunes were made only then would they even listen to us and even then they hose their own ilk who turn out to be the biggest scammers of all and then blamed us for their failures.
There is still time for a correction, but there is a reason as a Californian with a CSU STEM degree and wit family/roots in SV area I went to Boulder instead and never regretted it.
With that said SBF went to MIT, and his parents are Stanford professors, it was his GF who headed Alameda that is a Stanford grad.
That's what we call the No True Scotsman Fallacy. BlockFi was a crypto bank that promised unlimited returns by investing in crypto. Unregulated, untaxed, unmonitored, secret and opaque. An onramp to a federated market where deposits are tied to the value of the overall market for crypto holders. And it failed because it has no safety net by design. That's like saying Robinhood isn't the stock market.
> That's like saying Robinhood isn't the stock market.
I feel like you're arguing against your own thesis here. If it had turned out that the CEO of Robinhood had YOLO'ed all the customer deposits on GameStop options, would we ask "is this the end of the stock market"?
If it's news to you that there are hucksters with Stanford degrees then instead it should be, "hi, welcome to Silicon Valley."
That's pretty unfair, SBF has an MIT degree.
> At the start of the year, there were three big North American retail crypto lenders. Now all three are bankrupt.
https://twitter.com/kadhim/status/1597250428378705921
To confirm, what makes Coinbase different is that it's not a lender?
It looks like everyone in crypto has been doing wild and shady stuff, whilst Coinbase has built a respectable business in an industry that doesn't exist. Coinbase was being looked at as a shrinking fish in a growing pond, moving slowly whilst places like FTX ran rings around them, now it turns out FTX was just a straight up scam and loads of the money was actually wash trading, so Coinbase now looks like an expensive and slow business in an industry that doesn't actually exist.
As far as I know only interest you can earn on Coinbase is from staking coins - and Coinbase actually takes a portion of that profit for themselves.
I remember looking at all of these now defunct businesses wondering just how they could have such high interest rates on your coins. In what should be a surprise to no one it was too good to be true.
If someone offers a risk-free return way above the prevailing risk-free interest rate… there are some risks that aren’t being disclosed. Everybody forgot that for a little while.
"This Time It's Different"
Yes, Coinbase is an exchange
> Coinbase is an exchange
Not in the conventional sense. It’s a broker with a prop desk.
Coinbase has a prop desk?
> Coinbase has a prop desk?
Maybe [1], possibly not anymore [2].
[1] https://www.wsj.com/articles/coinbase-tested-group-to-specul...
[2] https://news.yahoo.com/coinbase-never-trades-against-custome...
It's not domiciled in North America. In fact, they refuse to tell anyone where their HQ is.
EDIT: sorry, got confused. Ignore me.
Coinbase is probably the most American of all the "American" cryptocurrency exchanges. It's also a publicly traded company on NASDAQ. Not sure where you get the picture that they refuse to tell anyone where the HQ is, it's famously a remote-first company but used to have their HQ in SF.
blockfi was based in jersey city also, it just wasnt public.
Are you thinking of Binance?
It's kind of absurd the level of failure in crypto lending. Putting aside anyone with criticisms of all things crypto these should all be based on the very basic and long established business model of taking deposits, making loans, and paying interest. There shouldn't be anything inherently difficult or "scammy" in that and it should be a successful business pillar in the crypto space. Besides the basic business your two other main priorities should be risk mitigation and dealing with liquidity issues. Surely long term some well run company ought to be able to sort this out.
Perhaps it was competition with decentralized stable-coin lending protocols offering decent APR for the risk that drove and legitimized such reckless behavior. At least the decentralized protocols were auditable from day 0.
I haven’t ever seen a crypto lender stay solvent.
Unless:
A) The money never leaves the platform such as with collateralized margin lending for shorting / leveraging.
B) The money is collateralized such as on DeFi with AAVE.
BTCJam gave small, well-diversified loans based on credit scores, reputations, business ideas, and identity verifications. They iterated and tried almost everything but they couldn’t get enough money that left the platform to ever return to the platform.
Scamming the banks seemed to be way more profitable and lucrative than using borrowed money for economic activities more productive than the borrowed interest costs.
Huh? It looks like it was saying the three are Celsius, Voyager, and BlockFi, but it’s missing a much larger one, Genesis. Although that maybe be going bankrupt to if it can’t get support from its parent company DCG.
Definitely about to go bankrupt. Coffeezilla has a great summary here: https://www.youtube.com/watch?v=TNXYHNdGYfc
"We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda"
I feel like the term "exposure" was intended as a euphemism, but it is now so thoroughly overused that I am developing a more negative reaction to the term than the words it was intended to hide from. "We had exposure to X" is starting to sound worse to me than "We invested in X and X lost a lot of our money"! The latter sounds like a reasonable thing that happens even to reasonable people but I'm starting to associate the former with more insane things happening to careless people.
But maybe that's just because of the sort of things I tend to read.
Yes agree, and I think this is because the more serious the situation, the more euphemisms will be used by the people in the situation to describe it.
Bitcoiners have been saying this whole time not to keep your crypto with a 3rd party and this is exactly why. Satoshis original message about Bitcoin mentions explicitly you don't need any trusted third party. A whole lot of people think they can make money outsmarting the original concepts of Bitcoin and they get scammed in new ways each cycle.
https://nakamotoinstitute.org/trusted-third-parties/
At the same time, storage of value bitcoiners - the majority that titanically dwarfs medium-of-exchange/currency bitcoiners - have been trying to get the average layman to put money into the system as much as possible. More bag holders at any cost.
And it turned out that that cost was something that would give the illusion of security, and hide away the technical minutiae that would prevent the system from sucking in those non-technical users.
The bitcoin and other crypto communities don't get to have it both ways. You can't pull in average folks with these mechanisms, to increase the value of your holdings, while simultaneously admonishing them for using and trusting the systems set up to bring them into the fold.
That doesn't make a whole lot of sense. For starters you make assumptions about the motivations of all 'Bitcoiners,' even extending your cynical projection to the ones most vocal about using Bitcoin safely.
But let's take the cynical viewpoint. If I, as a hypothetical Bitcoin holder, want the dollar value of my Bitcoin to go and stay up, then the last outcome I desire is for massive volumes of Bitcoin to end up centralized into a few pockets where they will be gambled on and sold when those bets fail. The most cynical Bitcoin holder has it in their interest for all retail holders to custody their own supply.
Considering the educated base of Bitcoiners have been screaming and citing examples of what happened with FTX since the protocol's inception, "Not your keys, not your coins," it's rather dubious to try and blame them. The reason people get into the space and trust their coins to some third party is that those people are chasing the end of a market cycle and never even come across or seek out the wisdom of the people that were they in the beginning.
'Bitcoiners' at large, judging by the on chain metrics for holders through negative price action, would much rather the volatile market cycles played out as a smoothed average with each new user coming in educated rather than speculators rushing in at the end by any means necessary.
thank you
The people "investing" in FTX weren't doing it because they wanted cryptocurrency, they wanted a 15% guaranteed return.
Without the exchanges, the USD->cryptocurrency onramp/offramp is a lot more difficult to do, I don't think most people want to only shop at places that do actual on-chain settlement.
I predict we will continue to see large numbers of scams involving cryptocurrency as long as there are essentially unregulated banks and investment firms. Expecting lots of people to be sufficiently interested and educated enough to only use 'cold wallets' or use good secops on their systems is a bit too hopeful. Even after reading about it for years, the overhead of using cryptocurrency vs a debit or credit card just doesn't seem worth it to me, and I have a tech background.
There's a reason no normal human being outside of a small nerd-circle uses PGP for encrypting mails or rsync instead of Dropbox.
Why would any non-techie ever want to deal with safely storing keys to a wallet. Or without having access to a trusted third party to help when issues arise.
This is such a non-starter and one of the many reasons why there will NEVER EVER be mass adoption of Bitcoin outside of speculation.
Just because an unholy alliance of utopian nerds and fraudsters wish this to be true doesn't make it happen.
That's simply not true. I have personally and remotely set up a professed tech-phobe with a hardware wallet. If I were to die they could recover it on their own.
But, taking your point and rolling with it, there is nothing necessarily wrong or futile about using a properly set up and insured bank with crypto if the hardware wallet is still too intimidating. It could even be set up with certain multi-sig schemes such that a fourth party + the client could withdraw without the bank's permission.
The point is that even when custodied, Bitcoin has arguable benefits over normal currency. I'm sure you will disagree with those benefits, but at this point that would be a Red Herring.
Do you think self-custody is simple enough for mass adoption by non-technical users?
The internet at large says no.
People won't run their own mail exchange, because it's too much work and too complicated.
People won't run their own blog, because it's too much work and too complicated.
The downside to doing either of these things poorly is that you can't send email / become a spam email relay / get hacked and lose your blog content.
Now tell those people that they can take on all the downside risk of losing all their money and the only thing they have to do to make sure that doesn't happen is practice perfect operational security, perfect transaction discipline, stay up to date on all known exploits and patches, constantly be on guard for irreversible scams and exploits, and the big benefit is, "you don't have to trust the bank."
Some huge percent of those people are going to look at you like you are crazy. Do all this work, take on this massive risk, and for what, a problem that most people in the western world have never faced. Most people have not faced any issue with transacting with the traditional finance system, definitely not enough to take on all the labor and risk of being their own bank.
If people won't run their own email, they aren't going to run their own financial institution.
I would go much farther than this. It's not since the internet that the answer is no. It's since civilization that people collectively choose not to try to do everything themselves.
No one thinks it's a good idea to be your own bank. No one thinks they need to make their own shoes cars food computers hand tools ... the list is an enumeration of all the artifacts of civilization.
crypto is an anti-social fantasy at best, it flies in the face of reality.
Self-custody is simple - just download a wallet app and preserve your seed words. However, it's intimidating and requires a lot of personal responsibility.
> preserve your seed words
You've already lost most users. My parents call me weekly because I'm their password manager. They're not the only ones.
I don't get the point of password managers. What's so hard to remember a password? Just use the first name of your eldest child, add your house number, and you're golden. If you're really that dumb, post-it notes exist for a reason.
I've made their passwords incredibly easy to remember. They're just not able to for whatever reason. They're both practicing doctors who I generally believe to be competent but for whatever reason passwords elude them. Maybe crypto just won't work until all the people who grew up pre-internet die.
forget simplicity - why is "self-custody" not a thing already with other currencies? let's start there.
I'll agree that crypto self-custody isn't really something the vast majority of folks can safely do. That said, self custody of crypto is different than self custody of fiat currencies.
With fiat currency, you have to physically store the cash in 1 location. With crypto I can store multiple keys to my crypto on physical devices that require a pin to unlock (and reset after a few failed attempts). I can store my key across multiple locations in such a way that n of m copies of the key are required to move funds. I can require a waiting period before moving funds. I can require another person to approve the transactions in certain scenarios (ex: moving large amounts of funds).
I mean, it is - you can put your cash under your mattress. But there is a reason you don't.
If you can write down 12 or 24 words on a piece of paper thats all you need for a backup. Hardware wallets make this easier but I agree it needs to be simplified for the masses.
I can barely convince my relatives that a 16 character minimum password and a password manager for their accounts protected by multi-factor authentication will make their life easier by only needing to memorize the 1 long password, that they could also write the password down and keep somewhere safe.
How, practically does this work? Is it a password that you remember? What happens if you forget, or lose the piece of paper or hard drive it's written on? Do you end up like the guy trying to dig through landfill? (https://www.thecitizen.co.tz/tanzania/news/business/the-sear...) Or is the answer, "don't forget"? This doesn't work for most people.
You use a cold wallet, that is, a secure element storing your private key. Those chips are physically isolated from the computer and cannot be tempered with.
If you lose your device (which should NEVER happen, it's a safe, not a purse), your keys are still encrypted with your PIN code and the device will self erase after 3 unsuccessful attempts.
You can retrieve your private key from a 24 word sequence (seed key), which you will usually store on a fire proof and water proof medium like a like a billfodl or stamped washers. For added security, the private key will be derived from the seed plus an additional passphrase only known to you (kind of like a salt), so your key doesn't get compromised if someone gets his hands on your seed.
Cold wallets didn't exist by the time of the incident you mention.
https://steemit.com/cryptocurrency/@angelol/cryptocurrency-h...
The whole point of keeping your crypto with BlockFi was how much interest they were paying out.
But yeah, this whole debacle with FTX has finally made me realize that if I were to ever keep meaningful quantities of crypto, I would need to do so in a cold wallet.
I was a BlockFi customer. I always had the sense that they wanted to do the right thing. They hired people with risk experience in traditional banking, had real customer support, engaged with regulators to get their interest rate product certified, etc. It is really a bit sad that they got entangled into the FTX situation. (I should also say that I withdrew my funds earlier. Otherwise, I may feel differently.)
It always felt like a facade to me. When 3AC collapsed and they were fined, they didn't really disclose how they 'solved' their liquidity problem. Taking a loan out just kicks the can down the road.
They also were handed an amazing deal that no one else was offering without taking a second to wonder why?
I assumed they received the deal because they were legit. :) But yes, agreed, hard to tell from the outside. We will learn more in the bankruptcy proceedings.
Seems to be in the 1-10 billion USD range for assets and liabilities according to the bankruptcy filings (https://twitter.com/web3isgreat/status/1597256105373073409), so not a small company.
I have never seen such a strong argument for an end to limited liability before. Dozens of investors funded and enabled FTXs fraud. Their level of incompetence, both to their own investors and to the public in general is astounding. Now they fraud they enabled and cheered on is destroying other peoples savings and businesses.
They asked for some basic info on FTXs internal controls and were told to piss off. They asked for some oversight power and we're refused. Then they choose to invest anyway and help this fraud grow. To me, this is like reloading the gun of an armed robber during the robbery.
"He seemed like a nice guy" isn't going to cut it here morally even if they're legally in the clear.
For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue. Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation.
The biggest "adult in the room" by far, whom was pushing for regulation, turned out to be another scammer that was simply trying to regulate away his competitors and enshrine his own fraudulent crypto scheme as the only sanctioned one.
The crypto community's truest Scotsman proved to be just as terrible as everyone outside perceives the crypto space to be. Benefit of the doubt simply can't be given for what "reasonable crypto people" say at this point.
I completely understand the view that crypto should no longer be given the benefit of the doubt and subscribe to it myself, but I think that even without the benefit of hindsight from the FTX implosion, Coinbase is clearly the adult in the room in crypto, and has been for some time.
> biggest "adult in the room" by far, whom was pushing for regulation, turned out to be another scammer
SBF was far from an adult in the room. He got zero policy to even a serious discussion phase. To the degree we see meaningful calls for regulation, it comes from Banking and Financial Services committee members who not involved with crypto pushing draconian rules.
But SBF was pretending to be the adult in the room by pretending he's in for regulation.
That sounds nice in theory, but of course these companies are free to sit down and hammer out professional standards without the government telling them to. "We really want to be told what to do but nobody will" is code for "I'm not doing anything until the government makes me, and I'll redirect blame to the glacially slow government the whole time."
That’s easy to say, but that’s going to make those companies uncompetitive. Look at how fast FTX overtook Coinbase, a long established player that - as far as anyone can tell - isn’t doing anything shady.
There's nothing uncompetitive about not going bankrupt while your competitors do.
There's nothing uncompetitive about publishing 3rd party audits.
These are the trust signals the market rewards. Meanwhile the market is punishing bad actors with insolvency.
Your example undercuts your thesis. Given that FTX no longer exists while Coinbase does, FTX was not competitive in the long term. Being “competitive” for a couple years is typically not the goal of founders or investors.
> Being “competitive” for a couple years is typically not the goal of founders or investors.
Crypto actually seems like a perfect field to pursue this strategy. Make outrageous promises, find customers willing to believe that ("crypto is different"), cash out.
This worked really well for banks in the early 20th century
Some of us find it hard to believe there are any reasonable people in the crypto space. The whole thing seems like a dumb sham. The FTX collapse and contagion is sad but unsurprising.
There is no reasonable people in the traditional finance space either if you look at the 2008 crash.
https://projects.propublica.org/bailout/list
Not even remotely true. We need regulation to keep the big banks honest but that doesn’t mean nobody knew what was going on. We were living in New Haven at the time and briefly considered buying. I got pre-approved by BofA for a ludicrous amount with almost no diligence, and was quoted half that by a Connecticut state bank which actually checked things. I had a good conversation with the loan officer who said that it was going to be ugly for the big banks but they had kept their foreclosure rates low for decades by sticking with traditional banking practices and weren’t planning to change. A few years later I checked and he was right: their foreclosure rate had gone up a tiny fraction but they were fine.
Correct. That's why finance needs to be regulated up the ass. Repealing Glass–Steagall was a terrible idea and probably eventually led to 2008. Cryptocurrency generally seems to want to go in the opposite direction and have a speculative free-for-all.
> Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation
It's a "damned if you do, damned if you don't" situation. Mainly because of the outsized lobbying power of the wealthy folks backing VC's backing crypto.
Clamp down on crypto with regulations and many, many wealthy political contributors are going to be pissed off by stifling growth. Don't clamp down and you get the situation we're in now where everyone is losing their shirts.
What about the middle ground? I think we can only now talk about it because enough wealthy people also lost big chunks of their investment in these last few months.
BTW, despite whatever implied connections to FTX Gary Gensler has, his series of talks at MIT on blockchain[0] technologies leads me to believe that there are few people better equipped to navigate this from a political perspective.
[0] https://youtu.be/EH6vE97qIP4
The "reasonable people" want all the gains that crypto was making without all the poor lending practices and contagion that were fueling said gains.
You don't 'regulate' a ponzi scheme (at least not in the sense that you mean regulation), you prosecute it.
By regulate they mean bail out
Do you also consider fractional reserve banks a ponzi scheme?
We have successfully regulated those.
> For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue.
I'd be very keen to learn what kind of regulation, exactly, anyone is seriously proposing for these crypto products? Namely, the problem I see is that the products in the crypto lending space in my understanding simply can't exist in anything that has any resemblance of current financial regulations. To be honest, I am not sure how they can exist in any regulatory scheme that tries to penalize scamming people. Now, if the regulation said that it is okay to scam people in crypto industry, that might be interesting. But i am not sure if anyone has been proposing that.
> For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue.
With direct regulation can come normalization and a misplaced trust on something that ignores (but doesn't replace) trust.
Perhaps rather than regulate crypto itself, instead we should regulate the regular economy's exposure to it.
The market is punishing bad actors with insolvency. Yet somehow the conclusion is that markets are not effective in self-regulation.
The consequences doled out by the market are not distributed equitably. A bunch of late-comers and depositors lost everything, while the people most responsible for the disaster live in multi-million dollar homes in the Bahamas. This seems like a recipe for the same thing happening again and again.
If SBF sees the inside of a prison cell that won't be the free market at work but rather the government.
When the market punishes bad actors like this there tends to be a lot more fallout.
Government regulations can help limit the blast radius or avoid them altogether.
In 1929 the free market punished the banks for their bad behavior and everyone suffered a decade long depression because of it.
I disagree on all points here.
Not only did the US central bank create the conditions for the stock market crash of 1929, but the interventionist policies of FDR prolonged the economic hardship. Interventionism put the "great" in the "great depression". Not only did they create the bust, but they magnified the blast radius.
https://cdn.mises.org/Americas%20Great%20Depression_3.pdf
https://mises.org/library/did-fdr-make-depression-great
https://mises.org/library/forgotten-depression-1920
https://mises.org/wire/1920-crash-cured-itself
Hmm. all the same source, as if there is an agenda...
And that source is Ron Paul's think tank
Misattributing a source is not the same as engaging in a discussion. It isn't a substantive reply or even tangentially related to the topic.
Furthermore, I have a bridge to sell you if you believe that central bank apologists do not have an "agenda".
Evaluating the argument on the merits solves all of this.
What about all the clients that lost their money? This is a zero sum game, if someone loses $10b, someone is making $10b on the other side.
if anything collapse of Luna, FTX and BlockFI showed that regulations are not urgent or really needed. Regulations in finance are needed when collapse threaten real economy or regular people (similar to contagion from housing market or Bear Stearns in 2008 financial crisis). With FTX collapsing with zero repercussion on broader economy, why regulate it? If people want to play casino, let them play casino.
Right now crypto is a closed ecosystem with no practical use cases beyond gambling or ponzi. Crypto failed as anti-inflation hedge. If real businesses or people start using crypto for something useful then regulations will be needed but this time is not now.
Regs are needed because people didn't know it was a casino. Look at the poor guy in this discussion who lost 10% of his wealth here. He was surprised at the outcome.
Still featured prominently on digg.com’s frontpage listing Money.com’s “The Five Best Crypto Exchanges of 2022”
On the lending-side. I just want to give a big customer shoutout to Unchained Capital (https://unchained.com) for making it through this mess. I took out some collateralized loans this past year for my startup and looked at both them and BlockFi.
I've had the long unfortunate history of being burned several times (Mt Gox, Pirate@40, Friedcat/ASICMiner...). BlockFi of course had a significantly lower interest rate, but Unchained designed their product and messaging around trust (primarily using multisig wallets and promise that they don't rehypothecate)--which, after my experiences, sold me. It was a little painful to go with the higher interest rate, but damn am I now glad that I did.
this is bad thing for all depositors who are losing money. but good for overall progress of crypto. centralized custodians should be regulated, and users should be educated about the benefits of choosing self custody and decentralized exchanges over unregulated and opaque services.
contagion will spread more after this, so expect more centralized services to fall.
disclaimer: i am former BlockFi depositor.
> users should be educated about the benefits of choosing self custody and decentralized exchanges over unregulated and opaque services.
Are there any "self custody" or "decentralized exchanges" that offer 8% interest on deposits? I think you are comparing apples and oranges here.
disclaimer: I am a current 3-figure BlockFi depositor
yes there are dozens of decentralized protocols that claim to offer high yield. but few can really sustain that in reality. safer to not chase such high yield.
My understanding of the "high yield" options don't pay out in stable coins. At best, they are vulnerable to impermanent loss and worse the smart contracts get outsmarted with all the coins gone. Staking crypto has lockin periods, whereas blockfi had no lockin period.
Can you share an example of a decentralized protocol that offers high yield in a stable coin with less risk than blockfi offered?
The balancer USD boosted pool currently gives 2.4 - 4.4% returns at the moment (https://app.balancer.fi/#/ethereum/pool/0xa13a9247ea42d74323...).
Theres another new one on polygon that gives 12% but it will likely drop soon as people discover it: https://app.balancer.fi/#/polygon/pool/0x48e6b98ef6329f8f0a3...
That's about the best you can get in this bear market.
Is Coinbase safe?
A buddy of mine had his phone SIM-hacked and his coinbase account drained. He was on the phone with coinbase trying to stop it while it was happening, and said they were beyond useless.
Criminals have lists of everyone with crypto on coinbase. They're cross-referencing this list with people with T-Mobile (usually), then pulling off SIM-hacks by buying off a store manager, or just grabbing the manager's laptop and running out of the store with it. At that point they have 10-15 minutes to take over as many SIMs as they can.
https://darknetdiaries.com/transcript/118/
That sounds like fud to me. Coinbase decided my account was left for dead, and contacted my state. It tooks several weeks of back and forth with coinbase, including multiple phone calls with support and sending pics of my id, etc before they let me access my account. I had my password etc, same phone. They wouldn't let me get my money out.
It's not FUD. They used 2FA to reset his coinbase password, then accessed it as him and drained the account.
On top of that they drained his bank account (also using 2FA) into the coinbase account, then drained that too. Coinbase has (or had at the time) elevated levels of trust that they just gave him, which allowed the hacker to immediately buy crypto with transferred funds. Then the hacker just transferred the crypto to another wallet.
so they used sms based 2fa. I had 2fa based on google authenticator (not sms), because of that attack vector. I only had a few thou dollars. But they decided google auth is not accepted anymore and I failed to login and reset it and so the result was locking my account for a year - until recently when I spent multiple days getting it reset. Thus my skepticism.
No one should allow/use text message based 2fa of course.
Correct, text-based 2FA is insecure. But coinbase allows it, and most banks offer it as the only option.
The link I posted basically describes exactly what happened to my buddy and how they pulled it off. T-Mobile + text-2FA + coinbase is a chain of weak links.
Coinbase is a publicly listed company, with all its assets & liabilities shared in quarterly investor updates. They store all customers assets 1:1 (ie does not re-hypothecate any of customer assets)
Enron was also public, so was Lehman Brothers. The idea that public companies can't game their numbers or commit fraud is provably false. Why anyone would have large sums of crypto (5 or 6 figures+) on an exchange is beyond me.
Did Lehman commit fraud?
My understanding is no.
It is not safe, if you have crypto in coinbase they can steal it the exact same way FTX stole their users crypto. You do not own crypto stored on an exchange
No, it should be perfectly clear by now that none of them are safe, no matter what they say. The best time to get your coins out of any exchanges was when the FTX fall began. The second best time is right now.
There's no such thing as "safe" or "unsafe" in an unregulated space (hence people saying "no") but if you're asking about relative safety then Coinbase is probably the safest of the centralised exchanges. The alternative to a custodian (like an exchange), self-custody, is "safe" in that it removes counterparty risk but it's "unsafe" in that you are now entirely responsible for keeping your coins in your control which means dealing with the risks of loss and theft.
A better question to ask is: what are you trying to protect yourself against, and what risks are you willing to take? Without insurance (whether that's government provided through a regulatory scheme (which does not exist in crypto), or personally through an insurance provider) you're exposed to a bunch of risks that can be minimised but not removed.
I don't own any cryptocurrency but if I did, I'd either use a specialist custody service or an exchange I trusted. If I was going to self-custody, it would involve multiple hardware wallets across multiple safe deposit boxes.
No and it doesn't matter if you're right if you're also last. Nearly 50,000 Bitcoin were withdrawn from Coinbase daily between Nov. 23 and Nov. 27 — equating to roughly $3 billion. Move your funds off today just to be safe.
No centralized exchange is safe, including coinbase. Some are doing proof of reserves and audits but these can easily be gamed.
No it is not. No exchange or centralized crypto service is. Not your keys, not your coins and also not your NFTs.
No CEX can be safe. Get yourself a cold wallet.
"not my keys, not my money."
> A representative from BlockFi did not immediately respond to requests for comment.
Well I am sure the "representative from BlockFi" made out just fine working for BlockFi. I wonder if all these failures will finally tag these crypto companies as ponzi schemes ? Then these people will face real consequences.
“Ponzi scheme” is a specific type of financial fraud and isn’t a synonym for overexposure, excessive leverage, poor management, or even fraud in general. I do not think labeling things as Ponzi schemes which are not Ponzi schemes is helpful. Nor do I understand how that would help with effecting “real consequences.” The consequences faced by company personnel should be consequent to any wrongdoing.
In the legal sense, a 'Ponzi Scheme' has a specific meaning. In conversation, the definition is a bit looser. Sorta like how expressive has a different definition when you say 'that is an expressive programming language' and 'that is an expressive face'.
Crypto, as a whole, is about early adopters trying to convince newcomers that crypto has value. If the early adopters can't convince anyone that crypto has value, it's just a bunch of math and wasted electricity.
Early adopters try to convince laymen to 'invest' in crypto (i.e. buy crypto from the early adopters). Then the second generation crypto adopters have to find new marks to buy their crypto. Ad infinitum, until someone is left holding the bag. Then you sprinkle in some jpgs that people purchase despite anyone being able to right click and save it, rug pulls, and overall idiocy that happens when you give people billions of dollars without checking to see if they're observing basic organizational principles (i.e. are they running payroll out of a Slack room?).
Mingle it all together and you get a house of cards that's remarkably similar to a Ponzi scheme, yet doesn't exactly fit the bill. Sort of like how MLMs are legally distinct from Ponzi schemes for... reasons, I guess.
Saying that crypto shouldn't be considered a Ponzi scheme is a bit pedantic when the outcome is the same (i.e. the last person is always holding the bag, so you have to keep trying to convince someone to buy into your idea).
MLMs are pyramid schemes, not Ponzi schemes.
And they hate being told that they're a pyramid scheme. They'll claim that pyramid schemes are illegal. They're not. Pyramid schemes in which the only thing being moved is money are illegal, but as long as you offer a real good or service, you can pyramid it up.
They'll claim "everything is technically a pyramid scheme" trying to conflate a hierarchy with a pyramid scheme. But in a typical corporate hierarchy, money flows downward. I don't buy stock, I don't rent space, I don't etc. I am not responsible for any of the assets. I get paid for the value of my labor (in an ideal world, let's not get into that discussion here). In a pyramid scheme/MLM/network marketing bullshit, money flows up. I have to buy the stock I'm responsible for selling. I need to find/rent space to do so, I have to get customer contacts, etc. And on top of that, I have to recruit, train, and manage people under me. And for this privilege, I owe some percentage of my sales to someone higher up.
Never join a company where the first thing they ask you for is a check.
Technically everything is a ponzi scheme based on the assumption that it correlates with world GDP growth.
Land, Homes, Gold, Stocks are all Ponzi. It's just that the duration of the scheme is longer. If an asteroid hits and kill all humans tomorrow except 100 people, those 100 people can get all the above 'assets' for $0.
E.g The Gold Scheme has lasted over 5,000 years. Who is to say that BTC will not last at least 50. As an investor, it's not whether something is a ponzi or not, but how long the scheme will last.
For something like land, it could well be till the population peaks or Metaverse makes land less valuable or we find another amazing planet where we can all instantly migrate to. But eventually the land that you own will have no value. When is the question, till then you'll keep buying land in the hope of selling it to someone else for a higher value
With the small exception that homes, land and stocks (at least some of them) can pay you rent.
I personally like to think of Gold as of Babylonians Bitcoin, it has very little value of its own - but it has a long history of being a store of value (like 5k years vs Bitcoin's 5k days). So at least in this case we have a lot of track record that Gold works.
Beside Gold, silver was also used for monetary purposes, but with time it lose its role - as more and more silver was produced as e.g. side product of copper mining. Countries that were relying on silver as the store of value (China) where hit very hard by silver inflation.
Time will show if Bitcoin is a bubble, cyber silver or cyber gold. I personally would be interested in having stable coin based on Gold, that would basically mean return of the gold standard. But in that case we have to trust some institution to keep all that gold safe...
I can understand wanting a term for the specific kind of grift we see with crypto.
Making it such that "crypto scheme" or something like that is the new term for this chicanery would be nice. Clean, obvious, and appropriately stigmatory.
Labeling them as Ponzi schemes affords people in the US who lost money special tax benefits. It’s treated more similarly to theft than a bad investment. I am not sure about other countries, but in the US the label has real consequences.
https://www.irs.gov/newsroom/help-for-victims-of-ponzi-inves...
I did not know this. Very interesting thank you. So is there some group responsible for officially determining if something is a Ponzi scheme or not? Perhaps in court?
Offering unrealistic returns paid from the fresh influx of cash based on advertising about the unrealistic returns until the whole house of cards collapses is EXACTLY what a Ponzi scheme is. How *isn't* this a Ponzi scheme?
https://en.wikipedia.org/wiki/Ponzi_scheme
Eh. Words are going to word.
People conflate ponzi schemes and pyramid schemes as well.
However, I'm having trouble finding where it is not. Money paid out must come from new investors. If I buy crypto for $1, I need someone willing to buy it for $2 to make money. My returns come not from any utility, but from more people investing in it.
If I buy a baseball card for $1, I need someone to buy it for $2 to make money. If I trade lumber on a commodities market, I need someone to buy it at a higher price to make money.
The new entrants condition does not qualify anything as ponzi scheme. Words should have meaning, or else what are we even talking about?
A ponzi is a specific form of fraud where the promoter misrepresents where the profits are coming from. Instead of managing a profitable enterprise, the promoter pays out current investors with the money of new investors.
Collectibles are their own thing. I'll allow that there is some value in the preservation of the item itself. But the reality is that with collectibles, it's the scarcity that's the thing. And with digital goods, scarcity is artificial.
Your lumber comparison is vastly over-simplifying an issue to make it look similar. Lumber is useful. It has value as a building material.
I've yet to see a cryptocurrency/NFT/whatever that has any value outside of its own ecosystem. I also like how you say the "new entrants condition does not qualify anything as a ponzi scheme" before pasting the definition which says "the promoter pays out current investors with the money of new investors".
Which is how crypto works. That's the only source of increased value, new investors. The only quibble is that there's not a single promoter. In which case, fine. Crypto is not a ponzi scheme. Crypto is a vehicle by which people can easily create a whole bunch of ponzi schemes.
For baseball card I basically agree, with the main difference being you won't reliably make money on a given card. Some will go up and make you money, but realistically it's a collectible.
For lumber, there is an end user who wants the lumber to e.g. make a house. There might be some middlemen who buy it and then resell it, but they are also generally providing value in some way: storing it to smooth over demand variance, doing arbitrage to improve pricing, moving it from one location to another, etc. There's never just an infinite chain of middlemen selling it for ever increasing prices.
> For lumber, there is an end user who wants the lumber to e.g. make a house. There might be some middlemen who buy it and then resell it, but they are also generally providing value in some way: storing it to smooth over demand variance, doing arbitrage to improve pricing, moving it from one location to another, etc. There's never just an infinite chain of middlemen selling it for ever increasing prices.
What about something like Ethereum? There is an end user who wants the Ethereum in order to pay network fees so they can register a domain name, move a stable coin, etc. I realize this isn't the primary use, but people are betting that it will be. Is that really any different than speculating on a startup that isn't yet profitable, but could be in the future?
And since something like Bitcoin is fundamentally trying to be a currency.. Why is this any different than something like the Russian Ruble? People want it because other people want it (medium of exchange). The differences are that:
1. You're required to use it to pay taxes, or people with guns will put you in jail
2. A central party can issue unlimited amounts of the currency and give it to whoever they want
Fundamentally, why is it so crazy to have a native digital currency that isn't owned by any one entity, has a set issuance schedule, and can be used as a medium of exchange. Governments have been doing this for centuries, and now we have the technology to make an arguably "better" version. Why not at least try? The real arguments against it seem to be: people are speculating on it.
The additional context here would be that easy money policies and cheap credit create the atmosphere for speculative bubbles. These are the products of financial central planning and regulation. Consumers have negative real rates on their savings accounts. There's nowhere to go, thus they are forced into riskier scenarios to preserve their wealth, much less achieve a yield.
Just as lumber has value as a construction material or baseball cards have value as a collectible, cryptocurrencies have utility for those of us willing to transact or create dapps. This may not be the majority of users, but there are some of us who perceive value here.
While I don't personally value baseball cards, I don't malign those who do. Value is subjective. Even if baseball cards enter into a tulip bubble, nobody is forcing me to buy them. Similarly, if people want regulated financial products there are plenty of options available.
There's no need to malign cryptocurrency or cryptocurrency users with wild generalizations. Different strokes for different folks. Live and let live. Not sure why this should be controversial in a liberal society. The demands for regulation are paternalistic and authoritarian. They are a few steps away from demanding that we, "Think of the children". See the posts elsewhere lamenting the average Joe, who can't be bothered to write a key phrase on a piece of paper. Just too technical for him.
In that context, the ponzi accusations are better understood as scaremongering. Deliberate misrepresentations comparable to "Reefer Madness" hysteria.
What could be done to make the fallout worse? Who's got adversarial strategies about this?
A sudden drop in the price of certain coins or a lot of depositors causing a bank run.
Nexo is probably next but hopefully that should be the last of the implosions for now.
The pyramid is falling. Get out if you can.
Whatever thrives in the rubble will definitely be neat.
Im really looking forward to this.
It's already happening. The CEX scams are falling one after another. Long live self custody.
Note that none of the truly decentralized protocols failed so far.
What does it mean for a protocol to fail?
There's multiple layers to the bigger picture: the protocol itself, and the systems that use the protocol to provide value to users.
Customers don't actually care about the protocol, they care about receiving value. A protocol is only as valuable as the systems that use it to add value to consumers.
I remain unconvinced that any currently existing decentralized crypto system has a net-positive long-term value proposition, regardless of the underlying protocol.
That's probably because you've never used any of those.
Should we take out all crypto from Coinbase then?
Today's Matt Levine's Money Stuff
https://www.bloomberg.com/opinion/articles/2022-11-28/ftx-s-...
BlockFiles
One lesson of traditional finance that crypto is learning these days is: “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.” For instance:
1. There is a small opaque crypto lending platform that is rumored to be in trouble.
2. Its depositors want their money back.
3. It doesn’t have their money, either because the money is locked up in long-term loans or because it lost the money or some combination or otherwise.
4. There is a “run on the bank.”
5. To solve the problem, the lending platform agrees to take a desperation bailout from some bigger, more stable, better-known crypto exchange. The big exchange agrees to guarantee the lending platform’s customer deposits, or at least gives it an ample line of credit to pay out depositors. In exchange, the exchange gets to take over the lending platform, and its existing owners get more or less nothing.
6. The run on the bank stops. The depositors don’t want their money back, because now instead of being depositors at the small lending platform, they are depositors of the large stable crypto exchange. Their money is safe, backed by the deep pockets of the large exchange, and they can go back to earning crypto interest or whatever.
If you can get a big enough line of credit, you never need to draw on it, because your depositors were worried about your liquidity, and the line of credit resolves those worries.
In some rough sense this describes the bailouts this summer of BlockFi Inc. and Voyager Digital Ltd. by Sam Bankman-Fried’s crypto exchange FTX and its affiliated trading firm Alameda Research. 1 BlockFi and Voyager looked risky after some of their borrowers collapsed, so customers rushed to withdraw their money, and BlockFi and Voyager didn’t have enough to give them.
And then FTX/Alameda showed up and said, well, we’ll take over your customers. In the case of BlockFi, FTX gave it a line of credit to cash out customers, and got an option to buy the company for some nominal amount of money. In the case of Voyager, it filed for bankruptcy, and FTX offered to come in, move Voyager’s customers to FTX, and cash out anyone who wanted out. In either case the basic point was that FTX had enough money to cash out everyone, so no one needed to cash out. These small rickety crypto firms were rescued by a big safe crypto firm, so the customers could let their money ride.
Oops! That was all wrong; FTX had been misplacing tons of its customers money, and did not in fact have enough to bail out everyone else; FTX filed for bankruptcy earlier this month. And today:
It is early yet, and hard to know exactly what happened, but I think it’s something like “as long as people assume you have a bazooka you don’t need to use it, or have it.” When FTX was a $32 billion company that ran a well-regarded crypto exchange, had raised billions of dollars of equity from big investors and was handing out nine-digit credit lines like candy, everyone was like “ah well if FTX is here then everything is fine,” and it was. When FTX was bankrupt and couldn’t fund its credit lines, its beneficiaries quickly collapsed along with it.Here is the bankruptcy docket, and the bankruptcy petition with the list of top creditors. At the top is Ankura, which is the trustee for BlockFi’s crypto interest accounts; if you put your crypto at BlockFi to earn interest, what you have is an unsecured claim on whatever BlockFi has left. In fourth place, owed $30 million, is the US Securities and Exchange Commission, for what’s left of a $100 million securities settlement from happier times this February. In February, BlockFi thought that it was such a good idea to offer interest-bearing crypto accounts that it agreed to a $100 million settlement with the SEC to find a path to legalizing those accounts. In February, the biggest problem with BlockFi’s interest-bearing crypto accounts was that they were not, technically, legal in the US. Now there are much bigger problems! And yet that problem was not small?
Meanwhile BlockFi owes FTX $275 million, presumably having drawn that much on its line of credit (and being unable to draw the rest). The details are a little unclear, but one weird little detail is that in FTX’s bankruptcy pleadings it has said that FTX US loaned BlockFi $250 million worth of its own FTT token.
We talked about the FTT token a few weeks ago, in tones of horror. Basically the FTT token is a cryptocurrency that is kind of like stock in FTX, a claim on the future cash flows of the exchange. When FTX was a good crypto exchange with a promising future, that claim was very valuable; FTT traded above $50 in March 2022, and was mostly above $25 this summer as BlockFi and Voyager were running into trouble. When FTX was bankrupt, that claim was not worth much; FTT was trading at about $1.29 at noon today.
It turned out that FTX’s balance sheet consisted largely of FTT and other, similar tokens that it had made up and that represented bets on the future of FTX’s businesses. Basically FTX took in a lot of real money and … lost it somehow … and convinced itself that the money was still there because it still had a lot of tokens that it had made up? And those tokens did have a market value; they traded in cryptocurrency markets, and so you could calculate how much FTX’s stash of those tokens were worth at their market prices. Of course if FTX had actually tried to sell all those tokens the price would have cratered, so that market value was not real, and now it has collapsed. FTX is not going to sell its stash of FTT and SRM and MAPS tokens for billions of dollars to make all of its customers whole; those tokens were worth billions of dollars when people had confidence in FTX, and now that confidence is shattered and so are the tokens.
But back over the summer, FTT was totally a thing! And so it is possible that when FTX extended a loan to BlockFi to shore up its customers’ confidence, it loaned BlockFi tokens. “Here, have some magic beans we made up, people really believe in them,” FTX could have said to BlockFi, and over the summer that would have been enough. “Ah, BlockFi has some FTX magic beans, everything is fine,” customers could have said, and the bank run would have halted. Now the beans no longer work, and BlockFi is bankrupt.
Coinbase next …
something something house of cards
It is not "fallout" "spreading". It just regular collapse as the supply of bigger fools runs out.