Well, we're about to find out if the Bitcoin exchanges in China have all the assets they should. The PBOC told them to stop trading, turn over copies of their records to the PBOC, and refund the balances of their customers. We should know within days which exchanges were stealing customer assets.
The exchange executives were told not to try to leave China.
(Remember Big Vern? Paul Vernon, CEO of Cryptsy. Took the money and fled to Liaoning, China. Started a Bitcoin exchange in China. Wanted in the US. Might be a good time to push through diplomatic channels for the government of China to find and return him. The PBOC investigators may have found him by now.)
People actually knowledgable in the crypto community would have told you literally years ago that the Chinese exchanges were shit. ChangPeng Zhao who now runs binance out of Hong Kong, made a reddit post (now deleted) stating exactly what was going on. The issue of exchanges "investing" client funds was known two years ago, and most people stayed away from these exchanges.
The exchanges investing client money does not surprise me at all. I worked in UK finance for 6 years or so where you have mandatory "CASS" training to warn you what is and is not OK to do with client money. I remember when I first started I was like "well obviously you keep client money and assets separate from the corporate accounts..." and EVERY year in the "refresher course" our Compliance dept gave they had new cases of banks fucking this up and getting insane fines for it [0].
If these supposedly respectable banks managed to repeatedly do this (this is after the financial crisis btw) then it's anyone's guess what goes on in the Wild West that is Bitcoin exchanges. That said, the stupidity and lack of common sense in UK financial industry continues blows my mind.
Yes, we will see what the situation is in terms of exchange liquidity. With that said, the reports were of exchanges investing customer-deposited RMB funds, not selling customer-deposited crypto for fiat and then investing that fiat for profit.
Well investing the client deposits is pretty much exactly the situation I described. Probably could be seen as less directly scammy or intentional than selling their assets and investing it in <pick-a-product>, but certainly still a pretty standard client money breach
This such an annoying pattern. Something unflattering comes to light(for some greater measure of coming to light) and the predictable response always, "Geez... Everybody already knows this. It's in the wiki!"
Not to mention the richness of implying chinese exchanges are somehow uniquely bad! Exchange shenanigans on the english speaking web are a central part of the bitcoin story to this point.
"You didn't know that was a scam? Don't you subscribe to Offshore Alert?"
There are still people putting money into MMM, which is a long-running scam with its own Wikipedia article.[1]
The binary option industry, run out of Ramat Gan in Israel, was a whole industry of bucket shops pretending to be brokers. It got so big it was 40% of Israel's financial sector. About 95% of binary option investors lose their entire investment. Turns out it's legal in Israel to scam non-Israelis. Once that came out, it became a political embarrassment.[2] “Binary options is causing anti-Semitism around the world.” - a member of the Knesset.
I think this is exactly the point the author is making. There exist regulatory entities to protect people from exactly the kind of logic you are using. If I don't know anything about cryptocurrency, and want to start trading, it would be nice to have entities that I can go to to find out the status of various players in the industry. If I'm new to the scene, what would make me inclined to believe 1337_haxor on some crypto-forum? Excluding everyone without deep knowledge is bad for the industry; including everyone without regulation leads to theft. Somewhere in the middle is probably better than either
Bitcoin and all of the other alt-coins are numbers on a screen. Few people pay taxes on them, and few places treat them as a real asset or fungible currency.
Why then, do the authorities in the US and China aggressively pursue those people who ("steal", "lose") the coins of their depositors?
Big Vern, Karpeles, Pirate@40, just to name a few.
Sure, these guys lost people's coins. But I was there back then. It was all wild west stuff. Buyer beware.
How can the government arrest someone for stealing an asset that doesn't really exist?
Would they arrest someone who stole water from my pool?
Edit: I don't know why I bother commenting here.
A downvote without counterpoint? What do you gain from that?
Grapple with my assertions with evidence. If you don't, it will just become even more of an echo chamber.
> Few people pay taxes on [their Bitcoin holdings]
This is tax fraud.
> How can the government arrest someone for stealing an asset that doesn't really exist?
“Buyer beware” doesn’t exempt someone from fraud statutes. Honest services fraud is broadly defined in most jurisdictions to include any economic activity.
> Would they arrest someone who stole water from my pool?
Yes. At the very least, the perpetrator would have trespassed.
Disclaimer: I am not a lawyer. This is not legal nor tax advice. Don’t commit fraud.
> Few people pay taxes on [their Bitcoin holdings]
>>This is tax fraud.
It is not; you only have a tax liability when you cash out, not when you hold, you could cash out and have a gain or have a loss and you need to reflect that on your income tax for that year.
> It is not; you only have a tax liability when you cash out, not when you hold
It depends [1]. If you receive the Bitcoins for goods or services, they are taxed as income. If you hold them as capital assets, the IRS won't tax you for holding, though your state or local jurisdiction may. Either way, not reporting those holdings is tax fraud.
You are mistaken, and your advice has the potential to severely harm people who take it. The IRS has been very explicit that, as with all barter, they want their slice and are entitled to it under law. The details are in their 2014 guidance, which you should read carefully if you're messing with cryptocurrency without
competent legal or tax advice. https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Have I committed fraud when I steal your World of Warcraft gold? Yes.
Should I pay tax on that gold when I sell it for cash? Yes.
Will the police help you when you call them to report it? I highly, HIGHLY doubt it.
It's easy to put your head in the sand and just say "yeah that guy committed a crime", but in reality, enforcement is really a lot more nuanced than that.
So like forgive me if I think it's a waste of tax money for Bharara and the courts and the police to go after Big Vern, while the Equifax guys are not pre-emptively detained while a fine is calculated.
> Will the police help you when you call them to report it? I highly, HIGHLY doubt it
With honest-services and securities fraud, the police are generally there to document, not enforce. If someone stole your WoW gold and you sued, you'd almost certainly have a case. If I were your lawyer (I'm not a lawyer), I'd send a letter to the relevant tax authorities and attorneys general, as a point of leverage during settlement talks. (This is not uncommon in lawsuits--
TL; DR No, one does not always get caught. I won't say I've always been faithful to every city's open-carry alcohol laws. But when you break such laws (a) it's still breaking the law which (b) exposes you to more than just the government.
> So like forgive me if I think it's a waste of tax money for Bharara and the courts and the police to go after Big Vern, while the Equifax guys are not pre-emptively detained while a fine is calculated
You're forgiven for having an opinion? I still disagree. We know there was criminal conduct on behalf of Big Vern. Not yet Equifax. Though on a higher level I agree, since ordinary people were harmed by Equifax. My sympathies for people who lose money in Bitcoin fraud is less, though I think that's a function of familiarity with the system.
I did some Googling. WoW gold theft results in Blizzard suggesting you open a support ticket, despite the fact that WoW gold, like bitcoin, has unofficial street value.
I will do more digging but I don't know if anyone has gone to the police for WoW gold theft. I'm not sure why WoW gold is treated differently from Bitcoin, which is apparently an honest to god bonafide US security in the eyes of the law.
Re: your point about not always getting caught, then it sounds like we have an unequal application of the law/enforcement problem. Which I suppose is the crux of my entire argument.
Why are we going after Big Vern when there are more pressing crimes to deeply investigate? I even used his exchange and I literally don't care. The coins were numbers to me, not dollars.
Re: Equifax, plenty of suspected criminals are detained for years before any criminality is proven. Just look at all the pre-trial detentions on Rikers Island in NYC.
You have young kids being accused of marijuana possession or etc, suspected trespassing, and then they don't go before a judge for many many months.
Whereas with Equifax, you basically have smoking gun stock trade proof and admissions of guilt.
It can therefore only be true that the reason an interrogation of these Equifax officials has not occured, is because the law/enforcement is being applied unequally.
> Why are we going after Big Vern when there are more pressing crimes to deeply investigate?
This is a silly argument, it's not an either or situation, law enforcement can and should pursue all crimes. By your logic, why go after any financial crimes where there are still unsolved murder cases? Do you see how absurd you're being?
> The coins were numbers to me, not dollars.
What your feels tell you has no bearing on the law; bitcoin is a commodity of value and like all commodities of value it's subject to law.
Bitcoin is a commodity of value, but WoW gold is not? Subjectively applying the law. I don't understand how you can't see this.
Law enforcement and governments don't have unlimited resources. Frivolous crimes should not be pursued as vigorously as crimes of violence and physical/financial/corporate victimhood.
Equifax executives are chilling in their house right now. Big Vern is wanted by the feds for loss of fictional assets. Come on, apply the law equally.
53% of prisoners are there for possession of marijuana. Surely you don't want your tax money spent on this victimless crime?
Well, it currently is being spent that way, while many murders go uninvestigated.
> Bitcoin is a commodity of value, but WoW gold is not? Subjectively applying the law.
They're both commodities. People get away with not reporting WoW gold because the mean holder probably holds less than the mean holder of Bitcoin. As you observe, law enforcement resources are limited. That said, counting on flying under the radar is a horrible tax policy.
(It does not help that there is a (a) history of successful prosecutions surrounding Bitcoin, (b) a vocal group of Bitcoin enthusiasts arguing they aren't subject to tax and (c) a veritable black market around Bitcoin.)
> Equifax executives are chilling in their house right now. Big Vern is wanted by the feds for loss of fictional assets
Due process, my friend. The Equifax executives are being investigated; they have not yet been found guilty or even charged. One might argue they should be. But that's a discussion about what the law should be, not what it is. (That said, the insider trading charges look promising.)
As others have repeatedly mentioned, any delineation between "fictional" and "non-fictional" assets is itself a fiction. Arguing that something shouldn't be prosecuted because it isn't as illegal as murder is ridiculous. Better strategy: understand it's illegal, follow the law and organize to lobby to amend it.
Disclaimer: I am not a lawyer nor a certified accountant. This is not tax, accounting, legal or any other sort of advice.
Bitcoin is a 63 billion dollar market, you are being dishonest when you call these things frivolous crimes; people have lost their life savings playing in crypto, there's nothing frivolous about it. If you can't see the diffence between WoW gold and Bitcoin, then I suggest you look more into how many people have been financially devastated and robbed in each, because that's why the government cares more about crypto than WoW gold.
You're using the word subjectively incorrectly; the word you seek is selectively.
Bitcoin assets are not fictional, they translate to real dollars, Big Vern stole tens of millions of dollars of other people's assets. You are minimizing this for some reason that you don't make clear.
Equifax didn't commit a crime, having lax security is not illegal, getting hacked is not illegal. They may be been unethical about not disclosing shit soon enough, but there's no obvious crime to charge anyone with, yet; that may change after an investigation. Big Vern however stole people's money, that's a clear crime.
It's correct it's just numbers in the screen. But this is not to say we can't abstract anything form it, or it's worthless. After all, the internet and yourself are "just stuff flying around".
Child porn is a crime committed via Internet. It is vigorously prosecuted.
Identity theft is a crime committed via Internet. It is lazily prosecuted.
Stock fraud ("securities" fraud) is a crime that is also vigorously prosecuted.
Bitcoin and alt coins, just like WoW gold, are not stocks. Therefore how can the state say Big Vern is committing securities fraud, and that we should spend millions of dollars attempting to "bring him to justice"?
EDIT:
Correct, I agree, but this occured in 2014 and would therefore be retroactive application of the law.
From what I remember, we were operating in a complete and total vacuum.
Big Vern's only mistake was being born a US citizen. If he was Russian, he would be a free man.
> Bitcoin and alt coins, just like WoW gold, are not stocks.
Not relevant, securities doesn't mean stocks. A security is basically any financial instrument of value, and crytpo's are most certainly securities and obviously always have been.
You need to get over this notion that "new" things are somehow not subject to existing laws. Slapping a new name like bitcoin on a financial security doesn't suddenly make it not a security; the law is not so trivially circumvented, the law doesn't need to mention a thing by name for it to apply to said thing.
Bitcoin was a security the second it came into existence. The law doesn't need to retroactively be applied, it always applied. New things aren't somehow immune from existing law because they haven't been explicitly named by the law. The law doesn't need to say "crypto's are securities" for crytpo's to be securities. Don't confuse regulators clarifying how they're going to enforce the law with changes in the law. Those clarifications come out to make it clear to "magical thinkers" that existing laws do apply and will be enforced as X.
> The law doesn't need to retroactively be applied, it always applied. New things aren't somehow immune from existing law because they haven't been explicitly named by the law. The law doesn't need to say "crypto's are securities" for crytpo's to be securities.
How about.. when a law is wrong? or if it's not just? or is changed, for this matter? since you think it's retroactively applied, which way or which one of 2 or more conflicting law are/is 'applied' retroactively?
The law isn't wrong, bitcoin is obviously a financial security and always was from its inception. Nothing is being retroactively applied here. The only issue here is cryto fans odd beliefs thinking crypto is somehow immune to existing regulations.
As I understand it the SEC has begun to classify crypto-coins as an official asset class based on various criteria[0]. This means that while bitcoin and other alt-coins may not be a "Stock" they are being considered a "Security" under U.S. regulation and thus saying Big Vern commited securities fraud is not inconsistent with U.S. regulation.
I didn't comment exactly on THAT, only on your first points.
Anyway, I actually believe Bitcoin is not private property to begin with. But I still think contracts are legally enforçable.
I apologize, that's tunnel vision on my part from other comments XD
I don't really understand what contract there is to legally enforce. Say I send some bits to Big Vern's site. One day, the bits aren't there anymore. If it was a legally incorporated real bank, and my bits represented real dollars or Euros or etc, then I would be fuming pissed and would be suing.
But Big Vern did not run a site with any express guarantees, and I did not send him any legal tender. So we were effectively operating in a legal vacuum.
One time I left my car at a repair shop. All the cars they had in the lot were stolen. The police didn't arrest the shop owner for negligence. They just went and tried to find the thieves.
I think that the cryptocurrency/blockchain space is the next big thing in the world on-par with the internet. But it still has a long way to go. In the late 90s you could say "X on the internet" and get tons of investment. Now it's the same but with "X on the blockchain". We are going through growing pains now, and there definitely needs to be some regulation introduced to curb the many scams. My personal hope though is that the regulators work, not to try to stop this industry, but rather to shape it. I mean, why do I need to make $1M/year in order to prove to the US government that I'm worthy of investing into a startup. This is why ICOs are such a big thing right now for westerners, it circumvents that (and internationally, it allows people that would have otherwise not had any route to do such a thing). But there definitely needs to be some regulation behind that, because it's ridiculously easy to make a sleek marketing page that says "buy now and the price will go up later"... and people will buy into it.
Also, this quote:
> using cryptocurrency networks are cheaper to send money overseas than Western Union. No, it probably is not
Uhh, maybe not in some narrow cases (especially as pointed out in the source, for people that need to use cash agents or are unbankable), but for many people I know including myself, it is significantly cheaper to use bitcoin rather than Western Union (source: I receive my salary in bitcoin based on spot price tied to USD)
> why do I need to make $1M/year in order to prove to the US government that I'm worthy of investing into a startup
Bernie Madoff lost tens of billions of dollars of investors’ money [1] in a clear fraud. This is terrible, but nobody ended up destitute [2]. The systemic risk was contained.
Contrast that with the savings and loan crisis [3]. This lost retail investors’ money. People ended up destitute. That, and lots of retail investors (i.e. non-accredited investors) doing zero diligence allowing the problem to metastasise, turned a prosecution problem into a political problem. When masses are turned on the street, nobody cares that they should have done their diligence. They become a political problem.
The government's rationale for regulating retail investors more strictly than accredited investors is that a laissez-faire attitude towards the former's activity has, historically, resulted in massive fraud that then creates political problems. I believe there is a middle ground between our total-ban regulations and Bitcoin's laissez faire. Finding that, however, will require both sides understand why we have the regulations we do.
Weren't the institutions FDIC insured? The wiki page you cited mentions some institutions receiving FDIC insurance. In that case, how did the victims end up destitute?
Boy, is it me, or is the writing absolutely awful in that 'Savings and Loan Crisis' wikipedia article? I can barely make it through a sentence without getting confused and re-reading.
I mean, why do I need to make $1M/year in order to prove to the US government that I'm worthy of investing into a startup
Accredited investor is defined as either of $1m assets exclusive of positive home equity or income north of $200k for two years ($300k if you need to include a sompouse) and reasonable expectation of the same.
I sympathize with the general complaint but as this is a thing that many HNers will confront at some point I thought I'd correct the record.
Did it though? Sure, the base protocol (TCP/IP) has mostly been unchanged up until IPv6, but the early implementations had plenty of bugs and limitations. And the goals solved were less clear back then as well, especially when BBS etc somewhat directly solved the problem of "get some data from another party without leaving your house" quite simply. Remember, there was once a time where there was no standardized image format on the internet. Hence, why Gopher was a contender to replace HTTP. It really took until the late 90s that most people realized how much it could be used for.. and it took until the late 2000s before most of those radical uses could be realized into something practical (ie, online shopping once seemed like a strange thing you'd only want for niche items... but now Amazon exists).
And beyond that, when the internet first became a real thing outside of researchers, it required pretty intimate knowledge of the technology to properly connect to it and get it to work. Remember that operating systems use to not include a TCP/IP stack for instance. It would be a long complicated process to get your computer to actually connect to the internet... but now, in 2017, for the most part all you do is say "connect to <accesspoint> with password XXXX" and it magically works. Right now I think this is parallel to blockchains. It takes a lot of technical knowledge to really use smart contracts and blockchain tech right now, but I imagine a future where it is no more difficult than logging into your bank account, or writing an Excel macro.
You can transfer money to Coinbase for free with a SEPA transfer. Transfer from Coinbase to GDAX for free. Buy crypto currency without fees by placing maker orders on GDAX.
Then transfer the crypto coins into your own wallet without a fee.
Wow, that sounds insanely complex not to mention risky due to all the hacks cryptocurrencies have suffered.
I'll take my safe and free direct deposit. I actually had a case where a bank teller gave me the wrong state's routing number because she thought my account should be based in the one she lived and not the one that was set up. My entire month's pay went to the wrong account and I freaked out when i figured out what happened. I went to a chase bank and explained the problem, they found the money in the other account and were able to send it into mine.
Screw up the bitcoin address in any one of those transactions and your money is permanently gone.
People should take responsibility for their own actions. A lot of ICOs are fluff and high risk. People should be aware of that before they invest. If they don't do their research, they shouldn't blame lack of regulation for their laziness. How would regulation fix this?
Who would enforce regulations? You would necessarily have to centralize things and hand over power to an authority. This would defeat the purpose of a dencentralized blockchain.
1) Require documentation ahead of time that will make prosecution harder after the fact. Without documentation scammers can just say "oops, we lost our client database" or "oops, we never recorded a document for that investor". You can still commit fraud while submitting heavy documentation, but it gets harder not to paint yourself into a lie.
2) Firewalls between parts of an ecosystem. Maybe it's problematic for and exchange to trade a security it itself issued. You make that illegal, and then colluding entities need to communicate across corporate boundaries, which is harder to keep hidden.
I sort of agree with you that this runs counter to decentralization. But the decentralization community has yet to implement voluntary versions of these things. Where's the crypto SEC that I can opt into which maintains strict reporting and audit requirements tied to the issuer's financial stake? Until we have credible versions of that I don't see how we can say we don't need the SEC.
I'm very interested to see how far things can be decentralised.
I have no real ideas what this would look like but I wonder if there are decentralised approaches to regulation that would work (community decides together who the bad actors are?)
I'm very interested to see how far things can be decentralised.
The problem is that crypto people seem overly keen on decentralising without thinking whether or not there is an actual advantage in doing so, or whether the advantages might outweigh the disadvantages. There is an unfortunate viewpoint that decentralisation is just always a "good thing".
> There is an unfortunate viewpoint that decentralisation is just always a "good thing".
Well, to put cryptocurrency in its historical context, the design-decision to make the architecture of the internet(/darpanet) decentralized was because of the very real and persistent possibility of global thermonuclear war. If you want your computer networks to stay up after NY, DC and SF have all been wiped off the map, decentralization is fairly key.
So I would say yeah, the world has changed, and decentralization is now always a good thing. It's not just "crypto people", it's "people"[0] carrying on in "software"[1] what is already a decades-old trend in computer networking.
[0,1] scare quotes because people and software are both scary
That isn't a a very popular opinion to hold on HN, as you may have noticed. I think that there is a strong faith in decentralisation and removing rules by many who frequent HN, that have yet to be proven to work well, if the goal is a higher living standard for as many people as possible as well as limiting damaging externalities.
I think there's many outright lies about decentralisation told in crypto circles. So many ethereum contracts turn out to have a central override that one party can control. 'Decentralised' systems often turn out to have a company in charge so that they can make money off of an app. Even blockchains are allegedly decentralised, and yet all it takes is a couple of mining pool owners to collaborate to gain overall control of the thing.
Are there any real decentralised systems out there that couldn't be controlled or overruled by a few well-placed individuals working together?
The internet is a great example. I look forward to any cryptocurrency project getting anywhere close to such a thing. (And calling yourself 'web 3.0', like ethereum, does not count :)
As for decentralisation 'goals', the difference is not clear. Decentralisation is the buzzword that the sector loves, but I haven't seen much in the way of progress towards it.
Most cryptos are definitely pump and dump ponzis designed to eat your money, there is definitely a technocracy-like barrier for entry if you want to join the crypto bandwagon. Focus your time and energy on BTC, ETH and an anonymous coin like XMR. Any other offering should be met with skepticism.
>Focus your time and energy on BTC, ETH and an anonymous coin like XMR. Any other offering should be met with skepticism.
To elaborate/explain on this point for those less familiar: those three cryptocurrencies actually are based on real technical innovation, and have developer communities producing more technical innovation. There are many other cryptocurrencies that have zero technical innovation (or completely nonsense innovation) and are merely clones of previous cryptocurrencies with some identifiers tweaked, made purely so investors can pump and dump.
The article in part 5 ("The decline of Maximalism") seems to be criticizing the idea that people would prefer some cryptocurrencies to others, which is completely ridiculous. There are real differences / issues with many.
Technical innovation is not the only type of innovation happening in the crypto space. There are tokens being developed whose innovations are financial, social, political, and economic. Don't assume technical innovation is the end all be all, Ethereum's technical innovation allows for the other types of innovation to occur, for example.
To strengthen my argument, you wouldn't expect every startup on the Internet to develop their own Apache server, HTTP protocol, and all the other technical innovations that allow for their business to exist, would you?
I don't exactly disagree; I think there are some ICOs that are promising. (And I'm happy that many are being built on top of a pre-existing blockchain like Ethereum's rather than pretending they're secure without a large group of miners securing their blockchain.)
Maybe I should drop the word "technical": There are many projects out there with no real innovation whatsoever that were created only to facilitate pump-and-dumps rather than to enable some kind of innovation.
> Technical innovation is not the only type of innovation happening in the crypto space.
It's the only kind that matters; all other innovation should be built on top of those using the technically innovative base as a building block. Launching "new" coins that are merely clones are simply going to lead to failure. Bitcoin is not like Apache, you can't just grab its code and use it and think you've got what bitcoin has. Bitcoin is not its code, Bitcoin is its network, Bitcoin is like Facebook, network effects dominate, and you must use actual Bitcoin, not just launch a Bitcoin clone, to benefit from it.
> To strengthen my argument, you wouldn't expect every startup on the Internet to develop their own Apache server, HTTP protocol, and all the other technical innovations that allow for their business to exist, would you?
I don't want them making their own Apache server in the exact same way I don't want them making their own coin. They should use an existing standardized setup. A smart contract can be useful. A "coin in support of X charitable effort, come mine today" is pretty much nonsense.
What functional technical innovation is there in ETH that is currently available for use? Some real, usable product that people actively utilize today that's unique and has tangible value?
Ethereum itself is just a building block. It only appeared few years ago, and applications using it are being built right now.
You can see applications built on it -- decentralized exchanges, prediction markets, derivates/derivative markets, gambling sites and so on.
It's kinda ridiculous to demand "actively utilize today", although some apps are in active use, but they are pretty niche.
At this point we talk about what _can_ be built, not what _was_ built.
As for 'tangible value', tangibility is very subjective. There are still people who claim that Bitcoin has no tangible value, but I bet if you were living in a country with an unstable banking system, ridiculous capital controls and high crime rate, you'd see Bitcoin's value
There are many ICOs and tokens on other platforms, including Bitcoin. E.g. [see here](https://coinmarketcap.com/tokens/). #3 and #4 are on Omni, which is Bitcoin-based.
Ethereum is actually technically inferior as a platform for tokens, but it has a fantastic community which is very much into tokens, so that's why it is much bigger than what you see on other platforms (BitShares, Nxt, Omni, Counterparty, WAVES...)
Ethereum-based tokens have grown to 85% of the total token market cap. Most if not all of the applications built around Ethereum's ERC20 standard, like Etherdelta and 0x, are possible because the EVM enables Turing Completeness. That makes Ethereum far superior to the other platforms mentioned as a token platform.
I've seen some you could argue are a pump and dump, an actual Ponzi Scheme on a blockchain would be nearly impossible, it relies on a central ledger so the bad actor can disproportionately transfer the new investors' assets to old.
There's been a recent example of someone running a Ponzi using BTC, but that's not an example of a currency being a Ponzi, which is a thing more specific than "scam."
Development moves faster and with far less bureaucratic hurdles than with Bitcoin. No contentious forks (thus far), they had SegWit first and chances are they will have working, beyond proof-of-concept Lightning first.
Err... Development is actually just rebasing from bitcoin. I've not seen anything go the other way.
In particular, as coauthor of the lightning spec, I assure you that we're all working on bitcoin. Litecoin happened because it was trivial; interestingly, we've deferred Bitcoin mainnet because it's likely to attract real users, who'll risk real money.
Just to affirm what this guy said, these reasons are pretty much why LTC should be on your radar. The heretic in me actually things that LTC could potentially have more value than BTC these days just because they seem to have their shit together development-wise.
More decentralization because you don't essentially need a special purpose FPGA (or whatever is popular these days) specifically meant for mining coins, as these special purpose machines are typically more centralized in larger farms.
I'm not familiar enough with LTC to say if this will continue for the future, but thats the standard argument in favor.
If this is your main reasoning argument for Litecoin, then I have bad news for you, as you're completely wrong. Litecoin's PoW algorithm uses Scrypt and is second only to Bitcoin's SHA256 as far as ASIC-based mining goes. This has been the case for 3 years now and at this point Scrypt ASICs are hashing between 100-200X more efficient both on a $/H and W/H basis vs GPUs.
(Anyone with a passing familiarity w/ CCs would know this, but still, it feels like statements that are so blatantly counterfactual should probably be noted.)
Would love to add Blocknet to this. They are the only project that currently has the capability of enabling cross-chain atomic swaps and creates interoperability by allowing data to be passed with these swaps as well.
«Bitfinex has provided no details about how it was hacked, who hacked it, or to where those funds were drained to.»
Actually, Zane Tackett, Director of Community & Product Development at Bitfinex, has provided information, including the complete list of Bitcoin addresses where the stolen funds went: http://blog.zorinaq.com/bitfinex-hack-2016/
Sadly I believe the ideals of cryptocurrency/blockchain technologies have been currently hijacked by those solely driven by a profit motive and greed. Altruism in the pursuit of a better way is for dummies I guess.
I think that Satoshi's main thoughts at the moment would be bemusement about how the cryptocurrency mania seen today so well illustrates human behavior.
I'm not sure what the author wants bitcoin to be. They are correct in pointing out the various scams that litter bitcoin, but they also seem to want to shut out crime (silkroad et al) with better analysis tools and centralization. Without the various scams pumping the price criminals are the only ones who would be using bitcoin, as they are locked out of the much simpler & easier to use alternatives that any normal person will use.
While he may be correct, he's trying to shove bitcoin into one a few predefined ideas about what a currency needs to be.
And most, if not all, of his complaints revolve around bitcoin's design of being untethered from judicial systems or purview. No one has figured out, even theoretically, how to have our cake and eat it too. It seems pretty clear that his wish is a fundamental contradiction and one must choose between the two.
The 'bad' actors he talked about can all be investigated in the same way a bank heist or computer hack can be, and if successful, the perpetraters punished (as have some of them).
It's like saying 'people who use dollars aren't going to tell you how the Federal Reserve invents millions or billions of dollars of currency out of thin air every year.' No, they won't, but as of now we consider that a feature not a bug (not all do, but most mainstream do). Even though it means the dollar you 'buy' today will be worth slightly less tomorrow.
Actually there are quite a few legal applications that are well-served by irreversible internet cash.
Things like porn, sex toys, gambling in many jurisdictions, selling expensive items like gold bars or cash online, selling cross-border to sketchy areas like Nigeria or Romania, etc.
Traditional reversible payment methods are very expensive or unavailable for these applications because the chargeback rates are off the charts.
> selling expensive items like gold bars or cash online
So as a consumer I finally have the opportunity to buy an expensive item over the Internet, get swindled by an unscrupulous seller sending me an empty box (if anything), and have absolutely no recourse? Is that the value proposition here?
Not the commenter you're replying to, but I have to add this.
I'm sure there's been a lot of analysis done with regards to the actual amount of fraud on Silk Road (and it's various incarnations and similar services), right?
There's no way that criminals with even lower oversight behave better.
The idea that you could have an environment where you lack the fraud protections you have in other environments leads to lower fraud rates is absurd, and would require a lot of evidence to demonstrate. An appeal to reputation systems doesn't cut it.
> There's no way that criminals with even lower oversight behave better.
There are no bigger criminals with lower oversight than anonymous drug sellers on silk road, and yet most people did get their orders. That was my point.
> The idea that you could have an environment where you lack the fraud protections you have in other environments leads to lower fraud rates is absurd
It's not absurd at all. For example, if you are a legitimate gold seller and you accept credit cards orders with shipping addresses in Romania you will get destroyed by fraud from buyers.
An alternate system where payments are made in Bitcoin results in zero buyer fraud and a reputation system a la Silk Road (plus the ability to sue the non-anonymous seller in court) can reduce the potential for seller fraud to a point where it's worth taking the risk to save X% on the price of your gold.
> The empirical data and stories above do not mean that investors should stop trading all cryptocurrencies or pass on investing in blockchain-related products and services.
> To the contrary, the goal of this article is to elevate awareness that this industry lacks even the most basic safeguards and independent voices that would typically act as a counterbalance against bad actors. In this FOMO atmosphere investors need to be on full alert of the inherent risks of a less than transparent market with less than accurate information from companies and even news specialists.
> Cryptocurrencies aren’t inherently good or bad. In a single block, they can be used as a means to reward an entity for securing transactions and also a payment for holding data hostage.
> they also seem to want to shut out crime (silkroad et al)
Is there much actual crime being facilitated by Bitcoin? I mean apart from the "things that are illegal now but they're going to be legal in a few years because one country started a misguided effort that everyone else blindly followed" crime.
Ransomware seemly pretty solidly illegal. It existed before bitcoin (mainly using ucash/paysafe/greendot codes) but bitcoin is what enabled it to scale.
Well, there is undeniably spoofing and wash trading in these markets, I see both happen all the time- I'm not sure though why they are considered a bad thing: They obfuscate the order books, making it easier for other buyers/sellers to make trades without broadcasting their overall position to other traders.
I'd love to hear a good argument why these things are a "bad thing" besides just the argument that "it's wrong to lie". I don't really have a strong opinion either way and could probably be swayed- Any takers?
Disclaimer - this is using equities markets as the example.
Spoofing is bad for a lot of reasons. It's bad for retail investors who buy(sell) into a position when it's been spoofed high(low) believing the order book is real. It's bad for market makers who must widen their spread and/or add less liquidity since information in the order book isn't real. It's bad when a spoofed price wrongly activates a bunch of stop orders. It's bad when somebody exits a position wrongly believing that a different party has an informational advantage over them. It's just blatant market manipulation that benefits only the spoofers.
If a company released false earnings reports or somebody released fake information about a company to change the price, people would be up in arms, you would never hear anybody making your argument. I don't see how manipulating an order book is that different. The book is a fundamental part of how companies are valued since it's how people speculate on future value, act on informational advantages, hedge, and it's how that information itself is disseminated).
Maybe the bitcoin markets are different enough from equities that the effects of spoofing aren't that bad (already super volatile, no outside information other than price speculation, no latency arbitrage). But I would need to see some really strong arguments to that effect to convince me of that.
Most of the author's points are silly. I was a customer of Bitfinex, and I lost a significant sum of money in the hack, but they paid me back. I couldn't be happier with their handling of it. I'm upset that their poor security practices led them to get hacked in the first place, but once it happened, their handling was pretty ideal. I don't know anyone who was a customer of theirs and doesn't approve of how they handled it, and I know several others that were impacted by the hack.
So you think the author's very intricately written, detailed arguments are "silly" and all you can offer in retort is an anecdote about how you weren't effected by the Bitfinex hack (which was a tiny part of the author's argument).
I started writing a detailed rebuttal and debunking of the author's points, but then I noticed others had done it already, so I didn't waste my time. Suffice it to say that many of the things he says simply aren't true, and for the rest, his reasoning is poor. For details, you can read other posts in this comment thread.
There are a lot of lies in the article, and the rest is an intricate hit piece on privacy rights, with the false equivalence between privacy and anarchy/criminality (e.g. the idea that 'only criminals have something to hide'). Ironically the author protects the privacy of his contributors at the end of the article.
Some of my funds are, some i've moved to other exchanges. Not because I don't have confidence in them, just because there were opportunities on those exchanges that weren't on Bitfinex. But I have absolute confidence in my ability to withdraw however much I please from my BFX account whenever I want.
As someone who has followed the crypto-currency scene for the past several years I don't disagree with a lot of the broad points presented about fraud being a problem but he is presenting some flat out false information to support his thesis.
To take one example, his claim that historically Coinbase has kept traction stats close to the vest is completely false. He says that the only accurate user numbers come from a filing in the IRS lawsuit. The IRS lawsuit was initially filed in November 2016 and has been ongoing. Coinbase has published user stats on their about page[0] since November of 2014 two full years before the IRS took Coinbase to court, you can go look in the wayback archive. So the claim that the lawsuit provides the only glimpse at the number of Coinbase users is categorically false.
Phenomenally detailed article and interesting subject matter. Thanks for sharing. Of particular concern to the community should be the issuance and solvency of Tether. An audit is long overdue.
As mentioned, our CEO, Arthur Hayes, wrote on Chinese exchanges running their customers' deposits in local bonds & stocks back in 2015 [1]. It's worth a read. We at BitMEX have brought a full-time writer into our employ just to bring more of these stories to the fore and help create the facts-first, inquisitive atmosphere crypto desperately needs. [2]
Great article (less the typos, but I feel that's understandable for something so lengthy in which the author did clearly put forth lots of effort to do his research).
I'm in the camp of people interested in cryptocurrencies due to their libertarian qualities and largely motivated by what I perceive to be repeated irresponsible behavior by governments in how they administer their currency (most recently notable in the years surrounding 2008 - just before Bitcoin was activated). In fact, I find it curious that the article did note even allude to the setting in which Bitcoin was born, as its roots go very much against regulation by governments.
The whole idea behind blockchains is distributed consensus. One of the greatest values behind bitcoin is its lack of centralization and a sort of distributed governance surrounding it (more so with some other cryptocurrencies, but bitcoin does have primitive mechanisms for users to vote towards such things as protocol evolution). It has some other advantages that government-operated currencies could make use of, such as being difficult to forge, but the real innovations are centered around the user not needing to trust third parties (govt included) to behave in the user's interest. If you embrace regulations to the extent that they exist in traditional currencies - if transactions/addresses are ever forced to be blacklisted (and thereby reversible), or funds made to be seizable by design, for example - then what value do cryptocurrencies provide that couldn't be replicated by a non-cryptographic/centrally operated digital currency, and why then _wouldn't_ they be superseded by something easier to use/control?
It seems to me that the lack of regulation is a large part of the value behind bitcoin. So when the article quotes:
> The cryptocurrency world is basically rediscovering a vast framework of securities and consumer protection laws that already exist; and now they know why they exist.
I'm skeptical. If consumers want regulation, they'd use the established currencies. Bitcoin exists to be unregulated.
----
On a less political note, this article was full of useful information and thoughts, so thanks to the author. I popped out of the cryptocurrency world in 2013 and fell back into it two months ago, and it's disappointingly difficult to find articles like this that actually have some depth to them. There's too much get-rich-quick hype and not enough interest in understanding the social or technical developments associated with cryptocurrencies most places I visit.
All these articles make it sound like anyone can launch a successful ICO and make millions on the spot but it's not true at all. Doing a successful ICO is very difficult and requires deep connections within the industry... It's probably only marginally easier than raising funding from a VC.
> The cryptocurrency world is basically rediscovering a vast framework of securities and consumer protection laws that already exist; and now they know why they exist.
Can this framework be re-invented, perhaps on the blockchain, to be more efficient (less friction), more comprehensible, and machine checkable?
In my opinion, the regulators should focus on exchanges applying KYC and make the exchanges function the same a stock exchanges. If I buy a stock in the US through a brokerage house, they have my info and every year they send me a 1099 with my profit/loss for the year that I give my accountant to add to my income tax report.
Once the exchanges are regulated like that it would be very difficult to launder money or avoid paying taxes on profits.
The point of cryptocurrency is to restore privacy in financial matters, not become part of the new centralized financial establishment. The OP doesn't believe in financial privacy, so there is no way cryptocurrency will ever be acceptable to him. He believes in mass surveillance of currency transfers, something which is anathema to a significant segment of the population.
Decentralized exchanges can make regulation easy. When you cash out, you have to provide the transaction on the blockchain where you purchased those coins, and at what cost basis. If the transaction was private, you have to provide the means for the government to view the private details.
You can choose not to do that, and if you do, the IRS will assume the cost basis was $0.
I'm have been buying crypto for years, and I'm perfectly happy with that - it gives me the option for privacy, but at a cost.
> In other words, the ICO rackets have recreated many aspects of the financial services industry (underwriters, broker/dealers)
This is all you need to know, end of article.
Of course, the tone of this article is "racket", "boiler room" etc. I call it price discovery, efficient, economic growth.
The article's only objectiveness is by saying that they don't have transparency and financial controls that the securities industry does. But makes no mistake in calling it controversial that one fund or one ICO is investing their proceeds in other ICOs, news flash this is how all economies work. But here it is controversial because "shareholders" don't know, except there are no shareholders, BUT WAIT THEY SHOULD BE SHAREHOLDERS as if these are equity securities!
It is hard to debate this article because each aspect has to be taken individually.
But this author consistently describes an aspect of cryptocurrency as controversial, while inadvertently describing how all capital markets work, but holding bitcoin at a different non-existent standard.
I think cryptocurrency has reached or has perhaps just passed the peak of inflated expectations on the hype cycle chart and is now decending into the trough of dissolutionment. There are some pretty wild claims out there - it does seem like lots of the rhetoric out there is that cryptocurrency and blockchain technology will solve ALL of the problems. But i think blockchain has a ways to go before we see which problems it is particularly good at solving. People will learn, overtime as companies fail in their attempt to apply blockchain to every aspect of life. When a few of these companies to succeed, which im certain at least one will, we will see the real, unhyped value of the blockchain.
Edit(spelling)
Thinking 'blockchain', which is just a linked-list with hashes, is going to solve anything is silly. It's even sillier than thinking internal intranets or TCP/IP would create huge value, when really the Internet, something much more than internal intranets and TCP/IP, was the innovation.
Bitcoin is an open, borderless distributed network with an economic and social system built on top of a data structure called a blockchain. The real innovation has very little to do with the 'blockchain' hype corporations are pushing.
There are also some philosophical issues that add to the hype.
- BTC or some other cryptocurrency as taking over local currencies in long term. There is such things as optimal currency region. Global single currency would not work well.
- Money as good long term store of value. That's hoarders dream, but it would be harmful for economy as a whole. It's the idea that you work hour in 2017, store the value as a money and take that hour out 2027 and it's value has retained value or increased while the work done in 2017 is less valuable than work done in 2027 due to productivity increases. This kind of imbalance leads to deflationary spiral.
work in 2027 is more valuable? so instead of just buying a coffe, you should pay it NOW and tell the seller you will back in 2027 to get it. They will love it!
Especially if doing the work includes using technology.
Buying your computer, phone or car now and getting it 10 years from now would be ideal for the seller.
I got confused by your previous claim. This doesn't "hurt the economy". Yes, 2027 tends to be more productive than 2017, but this requires an increase of investment, that implies savings.
Holding money allows others to use their money to invest, so you actually facilitate productivity to increase.
This is "in general", since you allow more good and services to be available to be consumed by others.
>Holding money allows others to use their money to invest,
That's not holding money in this context.
Hoarding money is keeping cash in your house or bitcoin in your purse. The money is separated from the economy.
Holding money normally means keeping it in the bank account or in cash like instruments. That's fine. Bank loans it to others who use it. You receive interest for contributing capital.
Right, it's not exactly the same kind of "holding". But in this case also (burying the money), the economy (a free one) is not hurt.
To get a view of it: what if I have chests full of gold, then before dying I take tons of them, burn and bury so no one else ever put their hands on it? Nobody is hurt. Nobody is getting less food than they would, nobody is getting less anything than they would, because even if I bury the money I have, I didn't bury any other of the goods and services that are available in the economy in any time.
Because money is just a resources "coordinator's" power. If I burn mine, I'm just letting go of that power and letting someone else do it instead.
Sure, saying I had all that money not stealing or anything of the sort implies ppl I'm involved with (in/directly) are so much better that I "was allowed to coordinate more"/"received a lot of money". But still, in the end, the economy is not hurt.
What they really won't tell you about is; if you sign your account with a weak password, someone will brute-force it open and transfer your coins. Which is considerably more interesting and exciting than this article.
This article should be the README before getting into Crypto world.
First article to point out 21.co. What is their product ???
Read on twitter - A guy asked MA a question for 100$ on 21.co platform, got "NO" as answer.
100$ for a NO...So a guy spent his hard earned 100$ on a question to a VC.
VC made money, Donated that to charity to show off and gather "philanthropy" point in his smug circle, got tax savings maybe, his invested firm 21.co made money, 21.co vanity metric of donating to charity increased further.
But 21.co has a legitimate business model. They should have some sort of 3rd party metric guaranteeing a quality answer but I definitely like the premise.
"Don't trust exchanges" is something most cryptocurrency enthusiasts will tell you. Make a paper wallet or get a Ledger. If you have a lot of funds, a safe deposit box is also a good idea.
There is still no legitimate use of bitcoin beyond niche markets and speculation. Besides maybe a very risky (as in unpredictable value on delivery) method of money transfer. It is and has always been a criminal and launderer toy.
I am very excited by progress in Ethereum and see it as a model for a better way forward. Though I do not trust its maintainers and community to build a secure and reliable system. There have been far to many preventable losses due to their amateur efforts.
The future of crypto is exciting. The present currencies are the Diamond Rios and Creative Nomads of crytocurrency.
> There is still no legitimate use of bitcoin beyond niche markets and speculation
You are making me laugh about your ignorance, sorry for my pedantry but... if my company in Argentina receives an international wire transfer from a customer in my HSBC account, it will be less money than if I receive the Bitcoins and exchange it via https://bitex.la/ , and deposit it to the same HSBC account. Both process follow all the tax regulations and are legal.
Currency pairs have the same counterparty and volatility risk - it is solved with hedges and other derivatives
There is nothing inherent in bitcoin to differentiate it from other currencies that doesn’t allow the same derivative infrastructure to be built out and offered (it already is)
I've done this all personally many times and it is the cheapest way to exchange a couple thousand dollars worth of fiat cross-border (I usually made a profit, even).
You have to hold bitcoin on the destination exchange and then buy and sell in the US and on the foreign exchange simultaneously. If you're worried about the price risk for the bitcoin you're holding, you can open a corresponding short position to hedge.
It's also useful for cheaper & faster cross border remittances for the common person. For the common person paypal's %3+ currency exchange fees is more expensive than the equivalent %0.5-%1 in fees you get from a 2 bitcoin exchanges. And it's far faster since everything moves at the speed of local deposits & withdraws.
Transferwise is pretty friendly and uses real exchange rate + reasonable fees Usually around 1% or less. With Bitcoin, I can send the same transfer for 0.03% - which puts Transferwise to shame and makes PayPal look like an absurd joke. Granted there's much more involved with current volatility of bitcoin but once that gets more stable all of the other options will be a total joke. People who cant't understand the future of bitcoin as remittence are in for a rude awakening.
This is based on the assumption that bitcoin will stabilize.
I think bitcoin is a flawed first mover. The winner (and future stable cryptocurrency) likely hasn't been invented yet.
But I imagine it's mathematic properties will allows for a sustainable transaction rate (i.e.: thousands per second), short (as in sub 2-3 second) final confirmation times, and the ability to execute Ethereum like smart contracts without major security flaws and naive language implementation choices.
If you had traded BTC cross border at the wrong time last week, you could have lost 5-15% in value based on the prevailing market price during the time it took the transfer to settle and the coins to move onto an exchange and sell.
BTC is in practice a speculative security. Not a currency.
protip: Ethereum can be used by criminals too, not just Bitcoin. Though, I'm curious (not trolling), why is Ethereum's model a better way forward? Are you talking about smart contracts or what?
The smart contract model makes it useful beyond just "purchasing things" (as the unimaginative would say. Yes that's a dig at you senatorobama). The EVM (despite it's implementation flaws) makes it's uses practically limitless.
Bitcoin...is an impractical, user-unfriendly first mover. Ethereum is the flawed second mover (ok, I'm discounting all the silly coins in between). I'm honestly not sure who the ultimate winner is.
Unless the Bitcoin or Ethereum community fundamentally changes, it likely won't be them.
I'm involved, in this space and agree. Though to play devil's advocate, smart contracts (especially since Ethereum is soon adding zk-snarks) also allow for more sophisticated ways to commit crimes. But yes, I definitely think that smart contracts are the next move forward for this space. Dumb money transfer is a really awesome thing, but it's also quite small. Bitcoin does have some smart contract-ish functionality, but it's incredibly difficult to use, and so is for the most part useless outside of niche applications.
Bitcoin was the crypto of choice due to the network effect, although for now it is probably better to skip ethereum and skip right into somthings like XMR and Zcash.
Reiterating an argument that most HNers have heard, and already either agree or disagree with, does not advance the discussion. It would be more constructive to present a novel argument, or novel evidence for a usual argument.
Bitcoin is basically useless for buying legal things. And especially useless for high dollar transactions without escrow agreements, since the value can fluctuate rapidly before transactions settle and can be liquidated to fiat (funny how moving it to fiat always seems to matter to people selling physical items.).
The exchange executives were told not to try to leave China.
(Remember Big Vern? Paul Vernon, CEO of Cryptsy. Took the money and fled to Liaoning, China. Started a Bitcoin exchange in China. Wanted in the US. Might be a good time to push through diplomatic channels for the government of China to find and return him. The PBOC investigators may have found him by now.)