I think you have to want or need decentralization in order to buy into most of the use-cases of the technology, either because you don't trust institutions or because you're in a part of the world where either the institutions aren't safe or the currency isn't.
Assuming you do believe that decentralization is nice to have, applications like decentralized banking (ie. lending, borrowing, exchange of assets) become valuable.
There are also emergent culture sources of "value" in the industry, such as medium native artforms in on-chain generative artworks, distributed multiplayer "runtime" systems artworks, on-chain gaming and metagaming, etc.
I understand that for many people, even if you grant that _some_ people might find the above legitimately valuable or useful you may still believe that it doesn't justify the energy costs. To that my response would be that all of the above are serviced by networks like ethereum and its various layer two solutions, none of which utilize proof of work, and the sum of which have a fairly modest carbon footprint, as with other computationally inexpensive digital technologies.
If you take issue with Bitcoin specifically I can't really offer an argument with conviction. BTC is what got me into the industry, and I think the BTC whitepaper is a brilliant example of human ingenuity, but more recent advancements in the technology leave me skeptical about the societal ROI on large scale PoW operations.
I do not see any need in my life for the combination of high finance and decentralization. Centralized and highly regulated high finance is bad enough, and already something I try to avoid except when absolutely necessary. My economic life is highly decentralized, but with extremely high trust and very little financialization, so no need for what crypto people mean when they say "decentralization". DeFi, in my life, means the neighbor down the street leaves a you-owe-me note when she drops off eggs, a debt instrument that I can settle using any number of currencies recognized by the local economy; I most often opt to pay in HomeBrewCoin.
> I think the BTC whitepaper is a brilliant example of human ingenuity
I largely have the same problem as hinkley (sibling comment): I had seen most or all of these ideas prior to the emergence of BTC. I first countered Merkle trees... gosh, forever ago. Got really into cryptography in the 90s. Etc. The idea of creating a currency backed by PoW didn't seem ingenious; it seemed like a particularly silly application of otherwise quite useful technologies. AFAICT it still is mostly useless, except that it made some people very wealthy.
Anyways, I'll go back to yelling at kids to stop picking my tulips.
The silly thing is that FTX was a money printing machine. There was no reason to start gambling with user funds, aside from greed, hubris, and stupidity.
Similarly, Sam's fund Alameda was delta-neutral until some time in 2021, which is something that also could have profitably continued in perpetuity, but they got greedy and started making directional bets with leverage.
There’s a Bloomberg article that goes over why this is a bit more nuanced than “gambling with customers funds”. In short, it’s either one or both of poor risk management ( margin traders can’t post collateral and the collateral they had was FTT which went to zero ) and black swan bank runs ( Binance CEO tweets about risky FTT causing bank run causing further drops ). In fact “gambling with customer funds” was by design. Coinbase, to their credit, lost business to the cexes and FTXs for not allowing derivative and defi lending / margin trading. So the customers should have known the fatalistic game they played.
>In fact “gambling with customer funds” was by design.
This is not accurate. The ToS for FTX explicitly said that customer funds would not be used for investment purposes. While it didn't explicitly say it wouldn't be used for lending, it was a broad assumption in the industry that the exchange was solvent and could back user assets on a 1:1 basis.
It is widely believed now that Alameda went deep underwater during the collapse of the Luna ponzi (this one was quite literally structured like a ponzi) and borrowed a large amount from FTX to bail themselves out of it. In the wake of this, FTX had a shortage of hard assets and a fat bag of FTT that the loan was issued against, which is what exposed them acutely to a bank run and/or price decrease in FTT.
Right so they didn’t invest customer assets, they just loaned them to themselves in exchange for their own token so that they could invest the customer assets.
Folks who have been in the industry for 10 years, many very publicly cynical, had assets on FTX. It was viewed by many as the safest CEX in the industry.
I'm a bit more paranoid, so I maintain self-custody 100% of the time unless I'm using an on/off-ramp, but some very bright, very oldschool folks got caught up in this one.
The issue wasn't the bank run. FTX could just have halted withdrawals, CEX do it all the time. The issue was FTT collaterized loans or equivalent, because they gambled too hard. And I doubt their users were aware of the risks, sBF himself guaranteed on Twitter the day before.
Bank runs are wrong for exchanges. They never should have fractional reserves.
And derivative trading shouldn’t be based on lending out customer funds. The exchange should lend out their own funds. They charge a lot of interest for the leverage, and they don’t even take the risk on their own money?
FWIW you can subscribe to Matt Levine’s column as email newsletter without being a Bloomberg subscriber. (That doesn’t help for reading already-published columns, but of course there are other ways around paywalls.)
No, FTX was making bank in fees. They just got greedy and loaned customer funds the SBF’s hedge fund to gamble with. Hedge fund went bust and now the loans default and the collateral which was just funny money to begin with is worthless.
If you believe FTX at all. These companies are riddled with fraud. Nothing they say or have said can be trusted (including reported earnings), and Tether and Binance will be next to collapse, at which point the ecosystem around Bitcoin will implode.
>The silly thing is that FTX was a money printing machine. There was no reason to start gambling with user funds, aside from greed, hubris, and stupidity.
Where were their profits derived? Was it from taking their slice of every transaction? Or selling their freshly minted coins? If it was the latter, that only works for so long, just ask the Fed.
They started AS Alameda and THEN made an exchange to facilitate their trades. They did not exist for any other purpose than doing the good old Tether + Bitfinex = iFinex.
What always surprises me why does anyone feel the need to steal from users when you are literally "the house" - you are taking a fee on every transaction. Just like in poker - if you are the house, you don't need to take risk by playing at the tables.
FTX was probably hugely profitable before they started stealing.
I’m not sure what you mean by this exactly. Many of the things they said to the public are not true, but these currencies use permanent, public ledgers, so you can see where the money goes if you look carefully.
How is that particularly relevant? Data isn't knowledge. Just because some assets have public records doesn't really tell you anything about liabilities or underlying ownership.
Exchanges could practice provable solvency ( https://eprint.iacr.org/2015/1008.pdf ), but they aggressively do not-- in part because they don't want to bring customers attention to the potential issue (and they rightfully reason that once customers are concerned no amount of technical solution will likely satisfy them).
But FTX wasn't really an exchange-- it was a scamcoin casino primarily trading in highly leveraged proxy assets ("perpetuals") as a bucketshop.
How can the provable solvency scheme possible prove solvency for fiat holdings? For example, I deposit $100 into the exchange. How can the exchange prove to me that it hasn't gone and gambled that $100? I think this could only be handled with human auditors going in and checking the actual amounts held in the exchange's bank accounts.
Can't, except as you note. Best trade your fiat for something actually auditable through cryptographic means ASAP. :)
(for a less quippy answer: they could show their fiat liabilities through these means and have a third party bank attest to their fiat account assets (or an encryption of their fiat assets). At least then you'd be trusting some established bank and not just some sketchy cryptocurrency industry company)
LTCM actually was doing a lot of the risk management people later said they should do. Their problem was the trades they were doing were more crowded than the realized and they couldn't unwind them cheaply because everyone else was doing the same thing. Plus once people realized they were struggling other market participants started betting against them. There have been other similar situations since then. In August 2007 most of the big quant funds lost double digit percentages in a few days when someone had to unwind a portfolio and statarb strategies stopped working.
That's the point. Their models showed their strategies to be safe, while in reality, their strategy was risky enough to bankrupt the fund, and scare the entire financial system.
> In August 2007 most of the big quant funds lost double digit percentages in a few days when someone had to unwind a portfolio and statarb strategies stopped working.
If your strategy works for years and then a single event erases all the historical profits and puts you in the red, your strategy always sucked because it ignored tail events.
legends say they could have been saved by Warren Buffet, who was interested to buy them at a certain price, but the deal never went on bcs he was in vacation where satellite phone wasnt working.
wikipedia says he turned it down due to risks involved
They held a huge supply of an illiquid asset that they made the market on. No surprise that they would offer a high price and then say "these are worth a lot." This happened with beanie baby sellers: they would corner the market on one model and the jack the price. The problem is that nobody else thought they were worth that much.
Then, FTX made it worse by allowing people to borrow against them at the valuation of "a lot," and borrowing against them at the same valuation.
The core of the issue here was not ponzinomics, it was the exchange gambling directly with user funds, by way of unsecured loans to a hedge fund controlled by the founders.
Fraud? Yes. But users weren’t buying into a ponzi, they were using a centralized exchange product with the understanding that reserves were whole, when in reality they were secretly fractional reserves.
No, not at all like the stock market, which has real mechanisms for getting real cash paid by real consumers in real life for real products into the hands of stockholders.
Do people speculate on it more than they probably should? Sure. But at the heart of the stock market is a system of "I just sold a physical thing for $1000, and since you own the stock you get $0.00001 of that". At the heart of crypto is "my computer did some math, so... money".
At the heart of crypto is the desire for decentralized banking infrastructure and currency, which has non-zero cost to operate and thus requires some degree of compensation for operating the network or protocol.
Just like in the equities market, speculation and gambling dominates market values of these things to varying degrees (to a comical extent in growth tech recently, for example).
> At the heart of crypto is the desire for decentralized banking infrastructure and currency, which has non-zero cost to operate and thus requires some degree of compensation for operating the network or protocol.
But where's the value being delivered by that "decentralized banking infrastructure and currency"? Actual usefulness of crypto for genuinely decentralised (i.e. L1) transactions has been going down not up (fees are higher than ever, fewer and fewer stores allow direct payment with cryptocurrency...).
Regardless of how you feel about bitcoin, there are plenty of revenue generating products and services in the industry, serving both B2B and B2C clientele.
Oracle (READ: aggregated/decentralized APIs feed) services and other infrastructure that supports decentralized protocols (network graph, etc.)
Decentralized lending, borrowing, trading.
SaaS products in on-chain analytics, portfolio management, commerce aggreggation.
Gaming
Fine Art (a tiny minority of the art scene in crypto is pretty interesting, ex. distributed multiplayer run-time art, something that can't really exist outside of the medium)
Digital Collectibles as an end consumer product or in service of the construction of lifestyle brand / gaming / etc startups. (A lot of the most boring use cases land here, imo)
When I take a loan from a bank, I may use it for education, a vacation, medical emergency, a car or invest in a business which will generate revenue and employment.
What do people do with tokens they borrow in "DeFi"? Given that the tokens can't be used for paying college tuition or a hospital bills or rent or buying a machine?
On-chain financial stuff is just more speculation, and the vast majority of the gaming/art/collectible/advertising/content use cases are just stapling crypto onto something where it brings no benefit and often actually makes it worse.
There's a tiny sliver of cases where crypto brings real value by enabling something that you couldn't do without it (e.g. cryptokitties was genuinely novel and interesting). But it's just such a vanishingly small proportion of the ecosystem.
The topic at hand, per the comment I responded to, is imagined value. Imagined value was the subject of my comparison.
Regarding ownership, however, you can explicitly own things- or parts of things- on the basis of token ownership, but you’re right that this isn’t the way that bitcoin and many other technologies are structured.
The average tech share is a non-voting share in a loss making company selling bits on the internet with the promise of a bright future. Barely any difference with crypto
No. Stock market may look like a ponzi where one buys stocks in companies only in the hope of selling them to higher value to someone else at a later date, the value itself doesn't come from that. The value comes from future prospects of a company's actual business. A company's shares can't go on rising infinitely if it has no solid business. Why is Meta sinking? The fundamentals of its core business are looking vulnerable. Why do companies like Apple/Microsoft/Google/Amazon eventually rise? Because they are market leaders, have strong profits and they keep innovating.
Even if a company is loss making and doesn't pay dividend, there will be someone who would be interested in acquiring the company to actually run it and not just just to flip it to a bigger buyer at a later date. That is why Musk paid $44B for Twitter. Because after all is said and done, it is still the most influential social network amongst the people who matter. Owning it has a value for someone like Musk. That value comes from the activity that Twitter conducts and not the demand for its shares.
In crypto value comes only from the demand. In stock, demand comes from the value being generated by the company.
No, not at all like the stock market. Shares of stock grant you partial ownership of a corporation with assets and income. Tokens give you partial ownership of fuck-all.
Asset and income denominated in some currency which is also an imaginary concept that we decided to all agree on was worth something. Not much different if you ask me
This is not entirely accurate. The "crypto" industry is not a monolithic piece of technology or implementation. Some tokens provide governance, which is a proxy for legal ownership. Some tokens provide ownership directly or contain trustless, immutable access to assets.
I personally find decentralized programmable networks like ethereum- where it's sort of choose your own adventure in regard to utility, ownership, implementation, et cetera- to be more interesting than bitcoin.
If just 10% of the "1:1 USD stablecoins" where cashed out today their price would fall 99%. And bitcoin and ethereum are also just at a "value" that's inflated 10 to 100 times due to crypto internal leverage.
We've already seen more than 10% of USDT cashed out in a previous exciting time a few months ago and the traded price value went down a few cents for a few hours. Nothing remotely like 99%.
It was a maximum of around 1% in a single day and this made Tether fall 2 or 3 percent during LUNA crash. The problem is the selling pressure does not interact linear with price but exponential
USDT is backed by over $8billion in commercial paper, a lot of which seems to be in Chinese real estate companies that are very unlikely to be worth their claimed value.
And note that this was true in May - global markets are WAY down since then.
Moreover, it was only a spot verification - they could have moved money into treasuries for a day and then moved it back again. The auditors explicitly avoided commenting on this.
Yes, it looks like 12% of their assets are in commercial paper.
I'm not claiming to be an omniscient source of truth, but USDT is supposed to be backed 1:1, is audited regularly, and has survived extreme volatility events and bank runs for the better part of a decade.
Maybe it will collapse some day. I personally have more trust in USDC and Circle, so I use that if I need a stablecoin.
That's not an audit, it's an attestation. The article says:
>The company does release quarterly attestations, separate from a thorough audit, as required by a 2021 legal settlement with the New York Attorney General’s Office. Following the hiring of its new accounting firm, BDO Italia, earlier this month, Tether said it intends to release them on a monthly basis, beginning early next year.
Roughly 20% of Tether's "cash equivalent" investments are with grade A-1 and A-2 parties. It's effectively stable, until it's not. We'll see it in our lifetimes.
BDO is a legit company, though not a "Big-4", I think most would consider them top-10 for audit without any qualms. It's much more reputable than some of the firms that Tether had been trotting out in the past.
you can read the texts of them yourself and make up your own mind
DYOR or "don't trust, verify" are common mantras in the industry for a reason, and similarly are the reason that I hold custody of my own assets rather than relying on centralized entities like FTX.
This is beside the point, but unless you're using your fiat onramp provider to actively trade you should strongly consider being personally responsible for the custody of your crypto assets.
This is clearly not the solution, unless it is accompanied by changes to speed limits in North America- which itself introduces a bunch of complexity and negative side-effects.
It won't solve speed limits as a civic policy issue, but it does solve the specific thing the question was posed to ask: the morass of trouble created by trying to write discrete rules for continuous phenomena.
As someone who has used most of the mainstream and mainstream-alternative browsers since Netscape, I'm not sure I understand the position of Firefox in the marketplace.
If I want to minimize friction, I use Chrome.
If I want to use ancient web apps, I use an ancient version of IE.
I don't even think 'Your network' is quite it. You can have virtually no network to speak of and still have 'it'. It's rare, but some founders just have the right combination of personality, intelligence, and conviction, regardless of who they know (from my experiences).
You must be a strong and special founder. In general, I think its pretty hard to raise vc$ (Seed to Series....) just with the right combination of personality, intelligence, and conviction.
As a pretty avid finder of answers on SO, it's not surprising how much money people are willing to throw at this. It's one of the most useful resources on the internet, from my experiences.
Not sure that's the best example: Uber is profitable in mature markets, but has high fixed costs from legal battles and SDC adventures.
My question is, why can't SO make a profit? All the substantive content is given for free by the community, and it's a widely known, relied-upon site. How is it so hard to cover operating costs from ads and whatever related sources come from that?
Uber is only “profitable” if you ignore a lot of expenses.
I’m purposefully not choosing the latest quarter that looks worse. I don’t think it’s fair to judge whether a company has a sound business model based on the effects of Covid.
Adjusted EBITDA. We define Adjusted EBITDA as net income (loss), excluding (i) income (loss) from discontinued operations, net of income taxes, (ii) net income (loss) attributable to non-controlling interests, net of tax, (iii) provision for (benefit from) income taxes, (iv) income (loss) from equity method investment, net of tax, (v) interest expense, (vi) other income (expense), net, (vii) depreciation and amortization, (viii) stock-based compensation expense, (ix) certain legal, tax, and regulatory reserve changes and settlements, (x) asset impairment/loss on sale of assets, (xi) acquisition and financing related expenses, (xii) restructuring charges and (xiii) other items not indicative of our ongoing operating performance.
Assuming you do believe that decentralization is nice to have, applications like decentralized banking (ie. lending, borrowing, exchange of assets) become valuable.
There are also emergent culture sources of "value" in the industry, such as medium native artforms in on-chain generative artworks, distributed multiplayer "runtime" systems artworks, on-chain gaming and metagaming, etc.
I understand that for many people, even if you grant that _some_ people might find the above legitimately valuable or useful you may still believe that it doesn't justify the energy costs. To that my response would be that all of the above are serviced by networks like ethereum and its various layer two solutions, none of which utilize proof of work, and the sum of which have a fairly modest carbon footprint, as with other computationally inexpensive digital technologies.
If you take issue with Bitcoin specifically I can't really offer an argument with conviction. BTC is what got me into the industry, and I think the BTC whitepaper is a brilliant example of human ingenuity, but more recent advancements in the technology leave me skeptical about the societal ROI on large scale PoW operations.