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If this is a grand jury subpoena, things could get ugly fast in the crypto space. Despite all talk of decentralization, the major exchanges pose a systemic risk

If this is a grand jury subpoena, things could get ugly fast in the crypto space. Despite all talk of decentralization, the major exchanges pose a systemic risk.

politician 9y ago
The achilles' heel with these systems is their integration points with fiat. Always has been.
- brokensegue 9y ago
  For a different perspective, I would say their problem is integration with the "real world" with constrains that bitcoin wasn't designed for.
  - jandrese 9y ago
    What use is a currency (or commodity!) that you can't convert into a good or service? It seems like a fundamental problem if the theoretical advantages of a currency are lost the instant you try to use it to buy something. Otherwise we're just wasting gigawatts of electricity to print Monopoly money.
    - deadmetheny 9y ago
      >Otherwise we're just wasting gigawatts of electricity to print Monopoly money. The sooner people realize this is exactly what is happening, the better.
    - krapp 9y ago
      The assumption has always been that cryptocurrency driven markets would emerge completely decoupled from states and their systems of financial regulation, and so conversion would be neither necessary, nor desired. Everything you could possibly want to buy, legal or illegal, would be payable through the crypto market. Cryptocurrencies were supposed to undermine fiat, or at least render it unnecessary, barring taxes, not cooperate with it.
      - jandrese 9y ago
        It took a serious tin hat warrior to actually believe that line. "If everybody in the world instantly switches over to my new currency overnight everything will be awesome!" That's so far divorced from reality only pure mathematicians could love it. Not to mention it would never work, the blockchain has way too much overhead (many many orders of magnitude) to support an entire world's worth of exchanges every day. There literally isn't enough electricity in the world. People would have to do all of their transfers on third party exchanges that undermine all of the crypto guarantees of the currency in the first place. They're no better than putting your fiat currency in a bank run by criminals that have no respect for laws. And I'm not talking euphemistically about regular bankers here, I'm talking about full up scam artists. I mean why not, it's not like the law is going to get you. There are no pesky regulations to get in the way. No annoying insurance adjusters breathing down your neck. You have total freedom to scam everybody all day long.
        0wing 9y ago
        Also consider nearly all of Bitcoin and other cryptocurrencies are "premined" in the sense that only a few early adopters control more then half the supply due to how the work readjustment algorithms are skewed to generate all the coins very easy for a few users but later new users don't have equal access to produce coins as easily or cheaply as those other users.
        gruez 9y ago
        Also consider nearly all corporations are "premined" in the sense that only a few early founders/early investors control more then half the shares and new investors don't have equal access to buy shares as easyly (sic) or cheaply as those other investors.
        andymal 9y ago
        Curious what you mean by "There literally isn't enough electricity in the world."? BTC uses the same amount of energy to produce an empty block as it uses to produce a full block.
- 21 9y ago
  If you don't integrate with fiat, all you have is "mobile game gems" or "WoW gold". Fiat is and always will be tightly monitored and controlled. If cryptos want to replace fiat, they will have to do the same.
  - Crespyl 9y ago
    That's assuming you can't find anyone to trade goods and services for crypto directly.
    - M2Ys4U 9y ago
      At which point _they_ will have to interface with the world of fiat, if for nothing else than to pay tax.
    - simias 9y ago
      Which just pushes the problem a little further away since eventually somebody will have to pay taxes in fiat so if your cryptocurrency is not convertible it's going to be a problem.
      - rocqua 9y ago
        Originally, 'fiat' had the same link to gold as crypto has to fiat. True, for taxes fiat is needed, but it is possible to have a thriving economy without needing access to fiat. The moment people can start to pay rent and groceries in crypto, it makes sense to accept crypto even if you can't turn it into fiat. As long as taxes are paid in fiat, you need some of it, but that wouldn't make crypto useless.
        realusername 9y ago
        You would also need crypto value to be much more stable for that to happen but I also agree with the idea.
gressquel 9y ago
market already starting to dip. Down another 6% right after this news go out
SirensOfTitan 9y ago
How is this related? USDT is effectively a centralized currency. Bitfinex has always been shady. Are you saying that exchanges that accept USDT will get hit hard by this?
- JumpCrisscross 9y ago
  > Are you saying that exchanges that accept USDT will get hit hard by this? If they sold a single USDT to an American, possibly. At the very least, they may be liable for American USDT investors’ losses plus fines. Disclaimer: I am not a lawyer. This is not legal nor securities-related advice. Do not buy or sell anything based on my Internet comments.
- machinecontrol 9y ago
  If USDT goes to zero, every exchange that trades it becomes immediately insolvent.
  - gojomo 9y ago
    Only an exchange that is somehow on-the-hook to redeem USDT for actual USD at parity would have problems. An exchange could offer USDT trading but still have negligible exposure to its value itself. And then if USDT goes to zero – radically breaking the intended parity-with-USD – direct losses should be confined to USDT holders, not exchanges.
  - dragonwriter 9y ago
    > If USDT goes to zero, every exchange that trades it becomes immediately insolvent. Nope. They'd only be insolvent if they had a legal binding commitment to redeem USDT 1:1 in dollars, and only if they didn't have sufficient other USD reserves to do so.
    - ThrustVectoring 9y ago
      The exchanges get sued by the Tether bagholders, and everyone else gets spooked and attempts to exit. So not insolvent, but no active business activities and a bunch of lawsuits incoming, and might as well be insolvent.
product50 9y ago
Well, Bitfinex and Tether is how legacy exchanges operate. Bitfinex is completely centralized and issues Tether (a stable coin) as a feature to enable traders to do "cash out" from the volatility of crypto when they feel like. Going forward though there will be dexes and decentralized stable coins (such as Basecoin). Those would be extremely difficult to track down and have strong incentive structures to maintain their value.
- deleted 9y ago
  [deleted]
mtgx 9y ago
There are a bunch of decentralized cryptocurrency exchange projects coming. My favorite so far are https://loopring.org https://loopring.org and https://0xproject.com https://0xproject.com, but there are like a dozen out there. This is just the beginning. As centralized exchanges start having all sorts of problems (CoinCheck, Bitfinex, maybe Bittrex and Poloniex soon), more people will start looking into decentralized exchanges and thus increase their liquidity. Even Binance, one of the biggest centralized exchanges right now, said that it wants to become a decentralized exchange. All of this probably won't happen within the next year, but it will happen. It's just a matter of all the pieces falling into place for people to switch. Probably the #1 thing that could help their adoption is being able to integrate new cryptocurrencies faster than any centralized exchange can, especially if this integration is "permissionless", by simply allowing the cryptocurrency developers to support its protocol and then have the cryptcurrency automatically appear on the exchange.
- tobltobs 9y ago
  > especially if this integration is "permissionless", by simply allowing the cryptocurrency developers to support its protocol and then have the cryptcurrency automatically appear on the exchange. A shortage of shitcoins isn't the biggest problem currently for the cryptospace.
  - mtgx 9y ago
    Whether you like it or not, people want to get their "shitcoins" early. It's also what I believe may be the #1 reason why crypto-exchanges aren't way more centralized right now, and why Coinbase doesn't own 80% of the market, as Mt.Gox used to. No single exchange can keep up with every new cryptocurrency, so people start creating accounts with all the exchanges, and then start preferring the new ones if they also bring overall site improvements over the incumbents, and eventually dump the incumbents. This is healthy for the cryptocurrency market. If this wouldn't have happened, things could have been a lot worse with centralized exchanges. I don't know what the "final form" of this ecosystem will be, but I hope it will be something like the internet. Decentralized exchanges essentially being "protocols" like TCP, which link all the cryptocurrencies (servers) and users (clients) with each other, and everyone can "exchange" (connect) one cryptocurrency to another. But unlike the internet, I hope there will be a much bigger emphasis on P2P connections/transactions, and that we won't sacrifice that just to get a little more performance or more convenience. There will be such more centralized cryptocurrencies, too, just like today's internet continues to have huge walled gardens like Facebook, but hopefully it won't be the majority of them.
pwaai 9y ago
any specific reason why that would accelerate the downfall? how long until we find out about the outcome after the subpoena sent out last week?
alistproducer2 9y ago
I agree. I have a comment somewhere in my history saying the same thing. No matter how decentralized we like to imagine crypto to be, the fiat on and off ramps are highly centralized and can bring the whole thing crashing down in a hurry.

If this is a grand jury subpoena, things could get ugly fast in the crypto space. Despite all talk of decentralization, the major exchanges pose a systemic risk.

politician 9y ago

The achilles' heel with these systems is their integration points with fiat. Always has been.

brokensegue 9y ago
For a different perspective, I would say their problem is integration with the "real world" with constrains that bitcoin wasn't designed for.
- jandrese 9y ago
  What use is a currency (or commodity!) that you can't convert into a good or service? It seems like a fundamental problem if the theoretical advantages of a currency are lost the instant you try to use it to buy something. Otherwise we're just wasting gigawatts of electricity to print Monopoly money.
  - deadmetheny 9y ago
    >Otherwise we're just wasting gigawatts of electricity to print Monopoly money. The sooner people realize this is exactly what is happening, the better.
  - krapp 9y ago
    The assumption has always been that cryptocurrency driven markets would emerge completely decoupled from states and their systems of financial regulation, and so conversion would be neither necessary, nor desired. Everything you could possibly want to buy, legal or illegal, would be payable through the crypto market. Cryptocurrencies were supposed to undermine fiat, or at least render it unnecessary, barring taxes, not cooperate with it.
    - jandrese 9y ago
      It took a serious tin hat warrior to actually believe that line. "If everybody in the world instantly switches over to my new currency overnight everything will be awesome!" That's so far divorced from reality only pure mathematicians could love it. Not to mention it would never work, the blockchain has way too much overhead (many many orders of magnitude) to support an entire world's worth of exchanges every day. There literally isn't enough electricity in the world. People would have to do all of their transfers on third party exchanges that undermine all of the crypto guarantees of the currency in the first place. They're no better than putting your fiat currency in a bank run by criminals that have no respect for laws. And I'm not talking euphemistically about regular bankers here, I'm talking about full up scam artists. I mean why not, it's not like the law is going to get you. There are no pesky regulations to get in the way. No annoying insurance adjusters breathing down your neck. You have total freedom to scam everybody all day long.
      - 0wing 9y ago
        Also consider nearly all of Bitcoin and other cryptocurrencies are "premined" in the sense that only a few early adopters control more then half the supply due to how the work readjustment algorithms are skewed to generate all the coins very easy for a few users but later new users don't have equal access to produce coins as easily or cheaply as those other users.
        gruez 9y ago
        Also consider nearly all corporations are "premined" in the sense that only a few early founders/early investors control more then half the shares and new investors don't have equal access to buy shares as easyly (sic) or cheaply as those other investors.
      - andymal 9y ago
        Curious what you mean by "There literally isn't enough electricity in the world."? BTC uses the same amount of energy to produce an empty block as it uses to produce a full block.
21 9y ago
If you don't integrate with fiat, all you have is "mobile game gems" or "WoW gold". Fiat is and always will be tightly monitored and controlled. If cryptos want to replace fiat, they will have to do the same.
- Crespyl 9y ago
  That's assuming you can't find anyone to trade goods and services for crypto directly.
  - M2Ys4U 9y ago
    At which point _they_ will have to interface with the world of fiat, if for nothing else than to pay tax.
  - simias 9y ago
    Which just pushes the problem a little further away since eventually somebody will have to pay taxes in fiat so if your cryptocurrency is not convertible it's going to be a problem.
    - rocqua 9y ago
      Originally, 'fiat' had the same link to gold as crypto has to fiat. True, for taxes fiat is needed, but it is possible to have a thriving economy without needing access to fiat. The moment people can start to pay rent and groceries in crypto, it makes sense to accept crypto even if you can't turn it into fiat. As long as taxes are paid in fiat, you need some of it, but that wouldn't make crypto useless.
      - realusername 9y ago
        You would also need crypto value to be much more stable for that to happen but I also agree with the idea.

gressquel 9y ago

market already starting to dip. Down another 6% right after this news go out

SirensOfTitan 9y ago

How is this related? USDT is effectively a centralized currency. Bitfinex has always been shady. Are you saying that exchanges that accept USDT will get hit hard by this?

JumpCrisscross 9y ago
> Are you saying that exchanges that accept USDT will get hit hard by this? If they sold a single USDT to an American, possibly. At the very least, they may be liable for American USDT investors’ losses plus fines. Disclaimer: I am not a lawyer. This is not legal nor securities-related advice. Do not buy or sell anything based on my Internet comments.
machinecontrol 9y ago
If USDT goes to zero, every exchange that trades it becomes immediately insolvent.
- gojomo 9y ago
  Only an exchange that is somehow on-the-hook to redeem USDT for actual USD at parity would have problems. An exchange could offer USDT trading but still have negligible exposure to its value itself. And then if USDT goes to zero – radically breaking the intended parity-with-USD – direct losses should be confined to USDT holders, not exchanges.
- dragonwriter 9y ago
  > If USDT goes to zero, every exchange that trades it becomes immediately insolvent. Nope. They'd only be insolvent if they had a legal binding commitment to redeem USDT 1:1 in dollars, and only if they didn't have sufficient other USD reserves to do so.
  - ThrustVectoring 9y ago
    The exchanges get sued by the Tether bagholders, and everyone else gets spooked and attempts to exit. So not insolvent, but no active business activities and a bunch of lawsuits incoming, and might as well be insolvent.

product50 9y ago

Well, Bitfinex and Tether is how legacy exchanges operate. Bitfinex is completely centralized and issues Tether (a stable coin) as a feature to enable traders to do "cash out" from the volatility of crypto when they feel like. Going forward though there will be dexes and decentralized stable coins (such as Basecoin). Those would be extremely difficult to track down and have strong incentive structures to maintain their value.

deleted 9y ago
[deleted]

mtgx 9y ago

There are a bunch of decentralized cryptocurrency exchange projects coming. My favorite so far are https://loopring.org https://loopring.org and https://0xproject.com https://0xproject.com, but there are like a dozen out there. This is just the beginning. As centralized exchanges start having all sorts of problems (CoinCheck, Bitfinex, maybe Bittrex and Poloniex soon), more people will start looking into decentralized exchanges and thus increase their liquidity. Even Binance, one of the biggest centralized exchanges right now, said that it wants to become a decentralized exchange. All of this probably won't happen within the next year, but it will happen. It's just a matter of all the pieces falling into place for people to switch. Probably the #1 thing that could help their adoption is being able to integrate new cryptocurrencies faster than any centralized exchange can, especially if this integration is "permissionless", by simply allowing the cryptocurrency developers to support its protocol and then have the cryptcurrency automatically appear on the exchange.

tobltobs 9y ago
> especially if this integration is "permissionless", by simply allowing the cryptocurrency developers to support its protocol and then have the cryptcurrency automatically appear on the exchange. A shortage of shitcoins isn't the biggest problem currently for the cryptospace.
- mtgx 9y ago
  Whether you like it or not, people want to get their "shitcoins" early. It's also what I believe may be the #1 reason why crypto-exchanges aren't way more centralized right now, and why Coinbase doesn't own 80% of the market, as Mt.Gox used to. No single exchange can keep up with every new cryptocurrency, so people start creating accounts with all the exchanges, and then start preferring the new ones if they also bring overall site improvements over the incumbents, and eventually dump the incumbents. This is healthy for the cryptocurrency market. If this wouldn't have happened, things could have been a lot worse with centralized exchanges. I don't know what the "final form" of this ecosystem will be, but I hope it will be something like the internet. Decentralized exchanges essentially being "protocols" like TCP, which link all the cryptocurrencies (servers) and users (clients) with each other, and everyone can "exchange" (connect) one cryptocurrency to another. But unlike the internet, I hope there will be a much bigger emphasis on P2P connections/transactions, and that we won't sacrifice that just to get a little more performance or more convenience. There will be such more centralized cryptocurrencies, too, just like today's internet continues to have huge walled gardens like Facebook, but hopefully it won't be the majority of them.

pwaai 9y ago

any specific reason why that would accelerate the downfall? how long until we find out about the outcome after the subpoena sent out last week?

alistproducer2 9y ago

I agree. I have a comment somewhere in my history saying the same thing. No matter how decentralized we like to imagine crypto to be, the fiat on and off ramps are highly centralized and can bring the whole thing crashing down in a hurry.