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Things cryptocurrency enthusiasts probably won't tell you

460 points by pfraze 9y ago

wallacoloo 9y ago
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that couldn't be replicated by a non-cryptographic/centrally operated digital currency, and why then _wouldn't_ they be superseded by something easier to use/control?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.
gbacon 9y ago
(9) The Regression Theorem of Mises
TheLilHipster 9y ago
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.
- tradersam 9y ago
  I would add LTC to your list, but besides that I don't know why you're being downvoted.
  - johndevor 9y ago
    What's the main argument for ltc?
    - lojack 9y ago
      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.
      - lhl 9y ago
        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.)
    - kemonocode 9y ago
      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.
goatsi 9y ago
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.
- StavrosK 9y ago
  > 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.
  - throwaway613834 9y ago
    > Is there much actual crime being facilitated by Bitcoin? How about all the ransomware(s?) that spread globally and affect businesses, hospitals, etc.?
  - goatsi 9y ago
    Ransomware seemly pretty solidly illegal. It existed before bitcoin (mainly using ucash/paysafe/greendot codes) but bitcoin is what enabled it to scale.
- wmf 9y ago
  I suspect the author thinks Bitcoin should not exist. If you could "fix" all these complaints there would be nothing left.
  - pfraze 9y ago
    From the article's final remarks section: > 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.
patryn20 9y ago
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. Downvote away.
- jessriedel 9y ago
  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.
  - patryn20 9y ago
    The truth isn't dulled by repetition. It's up to crypto enthusiasts to come up with a use case.
    - jessriedel 9y ago
      You'd probably enjoy running for congress.
    - senatorobama 9y ago
      Yeah, like buying things.
      - patryn20 9y ago
        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.).
verroq 9y ago
What about blantant market manipulation? https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4 https://hackernoon.com/meet-spoofy-how-a-single-entity-domin...
- drcode 9y ago
  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?
  - physguy1123 9y ago
    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.
- tpallarino 9y ago
earlz 9y ago
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) (disclaimer: co-founder of a blockchain project)
- snappyTertle 9y ago
  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.
  - xwvvvvwx 9y ago
    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?)
mrb 9y ago
«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/ http://blog.zorinaq.com/bitfinex-hack-2016/
aryehof 9y ago
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.
- swfsql 9y ago
  I think he hopped this would happen, actually in a non-judging standpoint. I won't judge, but just state it's different from yourself: who apparently thinks egoism or profit-seeking is bad or undesired.
pmorici 9y ago
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. [0] https://www.coinbase.com/about https://www.coinbase.com/about
Animats 9y ago
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.)
- quuquuquu 9y ago
  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.
  - JumpCrisscross 9y ago
    > 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.
    - quuquuquu 9y ago
darawk 9y ago
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.
- calcifer 9y ago
  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).
  - CryptoPunk 9y ago
    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.
  - darawk 9y ago
    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.
- prostoalex 9y ago
  Are your funds still at Bitfinex or did you successfully exit?
  - darawk 9y ago
    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.
memossy 9y ago
I w
jondubois 9y ago
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.
- deleted 9y ago
  [deleted]
trumpisyourdad 9y ago
what a dumb article. these topics are discussed at length regularly.
fckurpropaganda 9y ago
Just absolutely terrible. Mind numbingly retarded.
- jmknoll 9y ago
  What is? The article? Cryptocurrency? Care to elaborate a little bit?
4010dell 9y ago
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. Poor soul who asked question, got scammed.
- RationPhantoms 9y ago
  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.
DennisP 9y ago
"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.
deleted 9y ago
[deleted]
nurettin 9y ago
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.
- PretzelPirate 9y ago
  This really isn't a problem anymore if you don't store coins on an exchange. Just get a hardware wallet and you have incredibly good digital security.
Nokinside 9y ago
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.
- swfsql 9y ago
  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!
  - Nokinside 9y ago
    They would love it. Anyone would 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.
    - swfsql 9y ago
      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. edit: this animation explains this coordination between savers and investors: https://www.youtube.com/watch?v=YaxIPPMR3fI https://www.youtube.com/watch?v=YaxIPPMR3fI
      - deleted 9y ago
        [deleted]
kwelstr 9y ago
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.
- trakout 9y ago
  There is a focus on building decentralized exchanges at the moment. Regulation will become more difficult when these become mainstream.
  - jamiek88 9y ago
    If bitcoin wants to be part of the global financial system avoiding regulation is not the way. That just basically supports the OP. Every thread devolves to how to avoid taxes, kyc etc.
    - CryptoPunk 9y ago
      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.
  - PretzelPirate 9y ago
    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.
deevolution 9y ago
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)
- quantdev 9y ago
  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.
jackfoxy 9y ago
> 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?
STRML 9y ago
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] 1. https://blog.bitmex.com/crypto-trader-digest-nov-30/#shadow-banks https://blog.bitmex.com/crypto-trader-digest-nov-30/#shadow-... 2. https://research.bitmex.com https://research.bitmex.com
ringaroundthetx 9y ago
> 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.
debacle 9y ago
But why is NO ONE talking about the fact that these vehicles aren't even pretending to be currencies anymore?
deleted 9y ago
[deleted]
tstyle 9y ago
"In the real world, “market cap” is based on a claim on a company’s assets and future cash flows." Is that true? I thought even in the real world, market cap simply meant price_per_share * num_shares_in_circulation.

460 points by pfraze 9y ago

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.

gbacon 9y ago

(9) The Regression Theorem of Mises

TheLilHipster 9y ago

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.

tradersam 9y ago
I would add LTC to your list, but besides that I don't know why you're being downvoted.
- johndevor 9y ago
  What's the main argument for ltc?
  - lojack 9y ago
    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.
    - lhl 9y ago
      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.)
  - kemonocode 9y ago
    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.

goatsi 9y ago

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.

StavrosK 9y ago
> 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.
- throwaway613834 9y ago
  > Is there much actual crime being facilitated by Bitcoin? How about all the ransomware(s?) that spread globally and affect businesses, hospitals, etc.?
- goatsi 9y ago
  Ransomware seemly pretty solidly illegal. It existed before bitcoin (mainly using ucash/paysafe/greendot codes) but bitcoin is what enabled it to scale.
wmf 9y ago
I suspect the author thinks Bitcoin should not exist. If you could "fix" all these complaints there would be nothing left.
- pfraze 9y ago
  From the article's final remarks section: > 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.

patryn20 9y ago

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. Downvote away.

jessriedel 9y ago
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.
- patryn20 9y ago
  The truth isn't dulled by repetition. It's up to crypto enthusiasts to come up with a use case.
  - jessriedel 9y ago
    You'd probably enjoy running for congress.
  - senatorobama 9y ago
    Yeah, like buying things.
    - patryn20 9y ago
      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.).

verroq 9y ago

What about blantant market manipulation? https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4 https://hackernoon.com/meet-spoofy-how-a-single-entity-domin...

drcode 9y ago
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?
- physguy1123 9y ago
  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.
tpallarino 9y ago

earlz 9y ago

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) (disclaimer: co-founder of a blockchain project)

snappyTertle 9y ago
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.
- xwvvvvwx 9y ago
  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?)

mrb 9y ago

«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/ http://blog.zorinaq.com/bitfinex-hack-2016/

aryehof 9y ago

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.

swfsql 9y ago
I think he hopped this would happen, actually in a non-judging standpoint. I won't judge, but just state it's different from yourself: who apparently thinks egoism or profit-seeking is bad or undesired.

pmorici 9y ago

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. [0] https://www.coinbase.com/about https://www.coinbase.com/about

Animats 9y ago

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.)

quuquuquu 9y ago
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.
- JumpCrisscross 9y ago
  > 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.
  - quuquuquu 9y ago

darawk 9y ago

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.

calcifer 9y ago
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).
- CryptoPunk 9y ago
  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.
- darawk 9y ago
  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.
prostoalex 9y ago
Are your funds still at Bitfinex or did you successfully exit?
- darawk 9y ago
  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.

memossy 9y ago

I w

jondubois 9y ago

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.

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trumpisyourdad 9y ago

what a dumb article. these topics are discussed at length regularly.

fckurpropaganda 9y ago

Just absolutely terrible. Mind numbingly retarded.

jmknoll 9y ago
What is? The article? Cryptocurrency? Care to elaborate a little bit?

4010dell 9y ago

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. Poor soul who asked question, got scammed.

RationPhantoms 9y ago
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.

DennisP 9y ago

"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.

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nurettin 9y ago

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.

PretzelPirate 9y ago
This really isn't a problem anymore if you don't store coins on an exchange. Just get a hardware wallet and you have incredibly good digital security.

Nokinside 9y ago

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.

swfsql 9y ago
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!
- Nokinside 9y ago
  They would love it. Anyone would 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.
  - swfsql 9y ago
    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. edit: this animation explains this coordination between savers and investors: https://www.youtube.com/watch?v=YaxIPPMR3fI https://www.youtube.com/watch?v=YaxIPPMR3fI
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kwelstr 9y ago

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.

trakout 9y ago
There is a focus on building decentralized exchanges at the moment. Regulation will become more difficult when these become mainstream.
- jamiek88 9y ago
  If bitcoin wants to be part of the global financial system avoiding regulation is not the way. That just basically supports the OP. Every thread devolves to how to avoid taxes, kyc etc.
  - CryptoPunk 9y ago
    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.
- PretzelPirate 9y ago
  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.

deevolution 9y ago

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)

quantdev 9y ago
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.

jackfoxy 9y ago

> 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?

STRML 9y ago

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] 1. https://blog.bitmex.com/crypto-trader-digest-nov-30/#shadow-banks https://blog.bitmex.com/crypto-trader-digest-nov-30/#shadow-... 2. https://research.bitmex.com https://research.bitmex.com

ringaroundthetx 9y ago

> 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.

debacle 9y ago

But why is NO ONE talking about the fact that these vehicles aren't even pretending to be currencies anymore?

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tstyle 9y ago

"In the real world, “market cap” is based on a claim on a company’s assets and future cash flows." Is that true? I thought even in the real world, market cap simply meant price_per_share * num_shares_in_circulation.