Cryptocurrencies - intelligent commentary

[Rich Beaudoin]

This is an intelligent crowd and I’m wondering what you think of cryptocurrency in general and the future of banking.
It appears financial institutions are publicly discouraging crypto, while at the same time privately encouraging their wealthier investors to get in.
Any thoughtful insight and wisdom?

[Mabouya]

I tend to be against anything who's two main purposes are

1) Avoiding scrutiny and tracing of shady, or worse, downright illegal, transactions

2) Pure speculation

Other than that, blockchain does seem to have useful applications.

[theflashunc]

It's more speculative than Dutch tulips, it consumes more energy than a small star, and has less utility than the very thing it purports to replace. The blockchain tech that underpins it has real value in terms of the future of ledger commerce, but Bitcoin itself?

Some have made good, but bottom will fall out sooner or later.

[sk_tle]

bitcoins and some other cryptoconcurrencies are crap from an environmental point of view because of proof of work which is a huge power consumption. I think bitcoin only itself was consuming more energy than Denmark only and it was only a few years ago. Not all cryptos are the same and for example Ethereum is in the process of moving from proof of work to proof of stake.

I "invested" a really small bit out of curiosity. Cryptoconcurrencies are really highly volatile. When China started doing a crackdown on miners all of them dropped dramaticall this spring. Also mining is so difficult these days now you can practically only enter the market through a broker which makes them lose a lot of appeal. For example you can't have a totally anonym wallet as all transactions are public with bitcoins.

But it is a good way to shake up a bit the banking and payment sector. There is no reason we should have to pay paypal/google/apple fees to transfer money quickly while you could do the same with community and opensource based tools.

[vertical_doug]

It appears financial institutions are publicly discouraging crypto, while at the same time privately encouraging their wealthier investors to get in.

Without a more substantial regulatory framework, they will discourage broad adoption. When I make a payment, the payment is not at risk of disappearing.

As an investor, you can speculate with the amount of money you can afford to lose. The line is generally drawn at the accredited investor level. (earn 200-300k and net worth +1mm in financial assets excluding your home)

But it is a good way to shake up a bit the banking and payment sector. There is no reason we should have to pay paypal/google/apple fees to transfer money quickly while you could do the same with community and opensource based tools

You can argue cost should be lower but there are regulatory and compliance costs involved for the firms. If it is free, it just means you don't know who is making how much money off you. I'd argue the 'costs' involved with anything crypto is much higher than current standard financial offerings.


From a philosophical point, I really doubt it solves any problems. Since people are involved, the same problems will exist, the only differences are the actors involved.
(In general, stablecoins are purely scams which appear to introduce leverage into the cryptosystem)

[smontanaro]

In addition to the other comments, if you want to gain some exposure, you might consider adding stock of companies who are starting to handle crypto trading to your portfolio. That includes (for example, not a recommendation) PayPal or Square. (Online payments ETFs might be even better.) This is, in some sense, like investing in Levi Strauss during the California Gold Rush instead of staking a miner who told you he was going to "hit it big."

[theflashunc]

bitcoins and some other cryptoconcurrencies are crap from an environmental point of view because of proof of work which is a huge power consumption. I think bitcoin only itself was consuming more energy than Denmark only and it was only a few years ago. Not all cryptos are the same and for example Ethereum is in the process of moving from proof of work to proof of stake.

I "invested" a really small bit out of curiosity. Cryptoconcurrencies are really highly volatile. When China started doing a crackdown on miners all of them dropped dramaticall this spring. Also mining is so difficult these days now you can practically only enter the market through a broker which makes them lose a lot of appeal. For example you can't have a totally anonym wallet as all transactions are public with bitcoins.

But it is a good way to shake up a bit the banking and payment sector. There is no reason we should have to pay paypal/google/apple fees to transfer money quickly while you could do the same with community and opensource based tools.

Facilitating the payment has long since been commoditized and is a race to the bottom on pricing. The costs -- other than companies wanting to make a buck -- are built into the IT upkeep, and enormous regulatory infrastructure behind domestic and cross-border payments. Anti-money laundering, terrorist financing, the list goes on and on about what's being done to try to keep folks from washing money or doing things they're not supposed to be doing.

That ain't cheap unfortunately as crooks get smarter and smarter. The ledger and blockchain would help, but there are ways even around that sort of thing. Moving money is never going to be free as long as people will want to move money for nefarious purposes.

[Scott G.]

[snip]
That ain't cheap unfortunately as crooks get smarter and smarter. The ledger and blockchain would help, but there are ways even around that sort of thing. Moving money is never going to be free as long as people will want to move money for nefarious purposes.

"Moneyland" is a good overview of money moving.

https://www.theguardian.com/books/20...tion-oligarchs

[gt6267a]

I tend to be against anything who's two main purposes are

1) Avoiding scrutiny and tracing of shady, or worse, downright illegal, transactions

A few thoughts about the tracing and the shady:

1) Every transaction is public and available on the blockchain. Its possible to reverse engineer and know quite a bit about transactions including linking multiple transactions and wallets. There is software that interrogates blockchains and links every wallet via transactions. There are companies and government agencies using the software. Its extremely detailed and virtually impossible to avoid because there is a public paper trail … the blockchain itself.
2) Every transaction has a source and destination wallet. This is what makes the reverse engineering possible. While its possible to have bitcoin in an unknown wallet and transfer to another unknown wallet, transactions link the unknown wallets and anonymity can only be maintained as long as you don’t touch a wallet of known origin either directly or indirectly.
3) To acquire or cash out coins typically requires touching an exchange, exchanges require accounts, and accounts are tied to a real identity requiring KYC. Buy something from a company with coins and the receiving wallet is tied to something within a company, presumably an account or record of purchase.
4) Basically, its much harder to be anonymous than most people think.

[Mabouya]

A few thoughts about the tracing and the shady

In that case, someone needs to warn the criminals out there, because they sure think it will help shield them:

https://en.wikipedia.org/wiki/Bitcoi...l_transactions

Use in illegal transactions
Further information: Cryptocurrency and crime and Bitcoin network § Alleged criminal activity

Bitcoin held at exchanges are vulnerable to theft through phishing, scamming, and hacking. As of December 2017, around 980,000 bitcoins have been stolen from cryptocurrency exchanges.[130]

The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.[284] Bitcoin gained early notoriety for its use on the Silk Road. The U.S. Senate held a hearing on virtual currencies in November 2013.[285] The U.S. government claimed that bitcoin was used to facilitate payments related to Russian interference in the 2016 United States elections.[286] However, a 2021 study led by former CIA director Michael Morell showed that broad generalizations about the use of bitcoin in illicit finance are significantly overstated and that blockchain analysis is an effective crime fighting and intelligence gathering tool.[287]

Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods.[179][288] Nobel-prize winning economist Joseph Stiglitz says that bitcoin's anonymity encourages money laundering and other crimes.[289][290]

In 2014, researchers at the University of Kentucky found "robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives".[178] Australian researchers have estimated that 25% of all bitcoin users and 44% of all bitcoin transactions are associated with illegal activity as of April 2017. There were an estimated 24 million bitcoin users primarily using bitcoin for illegal activity. They held $8 billion worth of bitcoin, and made 36 million transactions valued at $72 billion.[291][292]

[gt6267a]

In that case, someone needs to warn the criminals out there, because they sure think it will help shield them:

Do you also review how much USD Currency is used for illegal transactions? What the amount of money outside US and not traceable or known? I do not believe the USD will come out so well in that evaluation. Not that I am promoting illegal actions. Merely pointing out that all currencies are used in illegal transactions.

In terms of trying to steal Bitcoin, once again, do you really want to get into a discussion about people stealing fiat currency, gold, diamonds, etc. Theft is not new. When was the first bank robbery?

One thing is true, fiat currency, especially in its paper form, does not have nearly the traceability of Bitcoin / Etherium / Etc. Take the Colonial Pipeline cluster fcuk earlier this year. There are pros and cons to how this works. Take a payment in gold or paper. Maybe you get lucky with catching someone picking up goods during a transfer or with tracking techniques. If not, the dollars are gone. With the Bitcoin transfer, there is tracking info during the transfer and then with forensics of the blockchain, wallets, and affiliated data. Both have pros and cons. In this case, the govt was able to recover substantial loses.

Again, not promoting illegal activity, but if that is a disqualifier, then you disqualify all fiat currency.

[Mabouya]

Do you also review how much USD Currency is used for illegal transactions?

So I guess that means huge percentages of bitcoin transactions being used for criminal activity are OK then.

Just about every time the issue comes up this justification is used, but I don't see how it helps crypto's case. Currency is the primary means of trade so of course that's what will be used by crooks. They then see something that better meets their needs and begin to switch over to it. That tells me all I need to know.

[j44ke]

From that video, it sounds like a 30 year old whiz kid panicked and made some bad moves that allowed his primary competitor who was also a large investor to withdraw the investment and sink the company relatively easily. I expect that missing $370bill never existed.

[j44ke]

again, what they thought and what they signed may be too very different things. It all comes down to documentation.

since MF Global and Lehman, the rules for client segregation in developed markets became much more robust. This is not the world Crypto operates in.
It goes back to my original point, once you try to make crypto useful, it turns into finance. If it is not regulated like finance, bad stuff will happen.

The darkside of finance always moves to the least regulated jurisdictions. That is why global regulators are trying to blackball BVI, Cayman, etc. . . PO Box finance is not a good look.
Digital PO Box is even worse which is essentially what crypto is.

Thanks for this explanation Doug. I think I can see the puzzle pieces on the table now if not quite how they all fit together.

[72gmc]

+1, thanks for the explanation. Is there a crypto portmanteau for caveat emptor yet?

[vertical_doug]

There is so much irony inside crypto. It started because people said you can't trust governments and central banks not to debase their currencies. But the issuance of unaudited stablecoins used to facilitate transactions is debasement. (You are creating money which may or may not be backed)

You have El Salvador which adopted bitcoin as its currency and see if it works out any better for them..... answer- it is not.

We already know from the 1830-1850 Free Banking Era, that private companies issuing their own scrip backed by assets with little to no oversight doesn't work.






From WSJ:
Bankruptcy courts had made limited progress reorganizing crypto firms before FTX filed for chapter 11



The U.S. bankruptcy system will hash out the largest-ever collapse of a cryptocurrency exchange through a legal process that has barely begun to answer how holders of digital currencies will fare in an insolvency.

Bankruptcy courts haven’t had the chance to decide complex legal questions around crypto ownership when an exchange or lender goes bust. As FTX’s chapter 11 case gets under way, the question of who even owns digital currencies—the exchanges or the customers who made the deposit—remains unsettled.

FTX collapsed into chapter 11 Friday with no strategy for restructuring and without including basic disclosures about its customers, assets and liabilities. The exchange, led by new management after the sudden resignation of founder Sam Bankman-Fried, also lacks a clear precedent to follow for finding out how much customers are owed and settling those debts.

While chapter 11 is an established process, it has never successfully reorganized a major U.S. crypto firm. Celsius Network LLC and Voyager Digital Inc. tumbled into bankruptcy earlier this year and have yet to unfreeze their customers’ money or secure a restructuring that would unlock users’ assets.




and from another WSJ article,

Securities regulators in the Bahamas are seeking to control FTX bankruptcy proceedings through the crypto exchange’s locally based subsidiary, challenging the company’s chapter 11 filing in Delaware and setting the stage for a possible venue dispute with its new U.S. management.

FTX Digital Markets Ltd., the crypto company’s subsidiary based in the Bahamas, filed for chapter 15 in New York bankruptcy court on Tuesday to seek U.S. recognition of Bahamian liquidation proceedings. The action, if successful, could move at least a portion of the legal proceedings over the collapse of FTX from the U.S. bankruptcy courts to local courts in the Bahamas.

FTX’s management is likely to fight to keep the case in the U.S., according to people with knowledge of the matter.

[72gmc]

FTX collapsed into chapter 11 Friday with no strategy for restructuring and without including basic disclosures about its customers, assets and liabilities.

[fastupslowdown]

Bankman-Fried still thinks he can raise $8,000,000,000 and fix this thing. He's both inexperienced and delusional

[j44ke]

There are so many moving pieces in this.

With all these questions about actual value, is this going to have repercussions on the general global economy? What, for example, would be the impact on Tether and their secured bitcoin in the above scenarios? Anything?

[fastupslowdown]

There are so many moving pieces in this.

With all these questions about actual value, is this going to have repercussions on the general global economy? What, for example, would be the impact on Tether and their secured bitcoin in the above scenarios? Anything?

I suspect FTX was not alone in such behavior and the contagion seems to be spreading. As a society we never seem to learn. When the market's rise we say don't regulate because nobody has gotten hurt, after when the market is dead nobody wants to regulate because the worst behavior is no longer occurring. Companies involved in the same business are seeing similar runs.