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Always and everywhere banking has faced precisely this problem, which is the original reason for bank regulation and deposit insurance-type backup. If you enco

Always and everywhere banking has faced precisely this problem, which is the original reason for bank regulation and deposit insurance-type backup. If you encounter an unregulated or irregular market participant doing anything that looks like banking, buyer beware-- on average, over time, you're not getting your money back.

elliekelly 5y ago
I feel like cryptocurrency markets and investors are painfully “re-learning” the lessons of a hundred years ago.
- eloff 5y ago
  It seems that reinventing finance works out about the same a rewriting a big software project. You think you'll get rid of a lot of nasty code, but then you realize all that ugliness was there for a reason and you're just rediscovering all the edge cases again the hard way.
  - gradys 5y ago
    But in doing so, you bring that latent knowledge back into the minds of living people who can rethink the solutions in the face of the modern ecosystem and clean out the cruft that truly has no modern purpose.
    - elliekelly 5y ago
      Do you think no one in finance has thought about financial regulations until crypto came around? I can assure you there were (and are!) many people paid quite a lot of money to “rethink the solutions in the face of the modern regulatory ecosystem and clean out the cruft that truly has no modern purpose”. One of the reasons securities regulations are “expensive” to comply with is because they’re constantly changing. Why are they constantly changing? Because we’re rethinking how, when, and whether the various regulations ought to be implemented. The regulations implementing Federal securities laws are perhaps the most nimble, iterative, and “listen to your users” driven regulations in the US.
      - billytetrud 5y ago
        Certainly no one in finance ever thought about programmatic regulation of a currency. But your comment is of the type that has the premise "everything that could ever be thought of has been thought of before". Well obviously that isn't true. And it also isn't true that everything that has been thought of and not done is not doable.
        vkou 5y ago
        Certainly? How certain are you of this? I am not so certain.
      - gradys 5y ago
        I don't think that, no. Still, different people with different toolboxes will come up with different solutions.
  - ArkanExplorer 5y ago
    Except that now its even worse, because we are throwing a whole lot of electricity and advanced manufactured goods (computer chips) into it, which currently has large negative impacts on the rest of civilization.
    - anunnymouse 5y ago
      This is an interesting point, what does it mean when it is gray?
      - deleted 5y ago
        [deleted]
      - clintonb 5y ago
        Comments get grayer as they are further downvoted.
  - CyberDildonics 5y ago
    I think the problem is that people think they are reinventing finance when the only thing that changed is the currency.
  - HeadsUpHigh 5y ago
    There exist algo stablecoins too though.
  - jbverschoor 5y ago
    Highly underrated comment
- Animats 5y ago
  "Extraordinary Popular Delusions and the Madness of Crowds" (1841) is still worth reading. You get to see the first versions of the classic large-scale scams. John Law's bank, the South Sea bubble, tulipomania. Scams go much further back, but mass-market scams had to wait for mass communications. Newspapers powered the first round of large-scale scams. Most scams today are very similar to some classic scam mentioned in that book. There's not that much innovation. Kids should be taught the classics in school - the short con, the long con, the big store, the pigeon drop, the badger game, the protection racket, the bait and switch, the Ponzi scheme... The list is not that long.
  - duskwuff 5y ago
    Personal finance should be a subject in schools, and scam awareness should be one of the topics covered. The long-term economic benefits would be huge.
skybrian 5y ago
At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this. If a liar can make financial statements and be believed, and nobody checks, they can do anything. It’s odd that cryptocurrency was designed to work without trust and yet many people are so trusting.
- ska 5y ago
  This is why substantial organizations have 3rd party audits and reviews. All of this stuff has known solutions, but people don't like what the solutions would show.
- jmharvey 5y ago
  > At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this This is not a problem unique to stablecoin providers. Every company with a large number of stakeholders (e.g. public companies, bond issuers, companies that manage assets on behalf of their clients, etc.) faces the same problem. The traditional solution to this is to have a widely-trusted third party, like a big four CPA firm, examine the company's books and operations and provide an audit. It's still possible to defraud auditors (there used to be a "big five CPA firms" before Enron blew up and brought down Arthur Andersen, and more recently Wirecard made EY look pretty bad), but it's a lot harder than defrauding people who don't get a detailed look at your operations. The reason to go with a big four accounting firm is that the firm's reputation with the public is substantially more valuable than any particular client relationship.
- ikt 5y ago
  > At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this. USDC seems to be doing it just fine? https://www.centre.io/usdc-transparency https://www.centre.io/usdc-transparency > Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar reserves that back the USDC tokens in circulation.
  - nieve 5y ago
wpietri 5y ago
Yup. If one can make money now by pushing off problems for the future, oversight is vital. Otherwise we guarantee problems in the future. Banks are a great example. As are investment companies; Ponzi schemes are one easy way for those to go wrong. One non-governmental way to do that is audits. Which is why Tether's lack of serious audits is so concerning. They claimed to be cash-backed for a long time but wouldn't prove it. Once the NYAG force them to open up, it's clear they were lying.

elliekelly 5y ago

I feel like cryptocurrency markets and investors are painfully “re-learning” the lessons of a hundred years ago.

eloff 5y ago
It seems that reinventing finance works out about the same a rewriting a big software project. You think you'll get rid of a lot of nasty code, but then you realize all that ugliness was there for a reason and you're just rediscovering all the edge cases again the hard way.
- gradys 5y ago
  But in doing so, you bring that latent knowledge back into the minds of living people who can rethink the solutions in the face of the modern ecosystem and clean out the cruft that truly has no modern purpose.
  - elliekelly 5y ago
    Do you think no one in finance has thought about financial regulations until crypto came around? I can assure you there were (and are!) many people paid quite a lot of money to “rethink the solutions in the face of the modern regulatory ecosystem and clean out the cruft that truly has no modern purpose”. One of the reasons securities regulations are “expensive” to comply with is because they’re constantly changing. Why are they constantly changing? Because we’re rethinking how, when, and whether the various regulations ought to be implemented. The regulations implementing Federal securities laws are perhaps the most nimble, iterative, and “listen to your users” driven regulations in the US.
    - billytetrud 5y ago
      Certainly no one in finance ever thought about programmatic regulation of a currency. But your comment is of the type that has the premise "everything that could ever be thought of has been thought of before". Well obviously that isn't true. And it also isn't true that everything that has been thought of and not done is not doable.
      - vkou 5y ago
        Certainly? How certain are you of this? I am not so certain.
    - gradys 5y ago
      I don't think that, no. Still, different people with different toolboxes will come up with different solutions.
- ArkanExplorer 5y ago
  Except that now its even worse, because we are throwing a whole lot of electricity and advanced manufactured goods (computer chips) into it, which currently has large negative impacts on the rest of civilization.
  - anunnymouse 5y ago
    This is an interesting point, what does it mean when it is gray?
    - deleted 5y ago
      [deleted]
    - clintonb 5y ago
      Comments get grayer as they are further downvoted.
- CyberDildonics 5y ago
  I think the problem is that people think they are reinventing finance when the only thing that changed is the currency.
- HeadsUpHigh 5y ago
  There exist algo stablecoins too though.
- jbverschoor 5y ago
  Highly underrated comment
Animats 5y ago
"Extraordinary Popular Delusions and the Madness of Crowds" (1841) is still worth reading. You get to see the first versions of the classic large-scale scams. John Law's bank, the South Sea bubble, tulipomania. Scams go much further back, but mass-market scams had to wait for mass communications. Newspapers powered the first round of large-scale scams. Most scams today are very similar to some classic scam mentioned in that book. There's not that much innovation. Kids should be taught the classics in school - the short con, the long con, the big store, the pigeon drop, the badger game, the protection racket, the bait and switch, the Ponzi scheme... The list is not that long.
- duskwuff 5y ago
  Personal finance should be a subject in schools, and scam awareness should be one of the topics covered. The long-term economic benefits would be huge.

skybrian 5y ago

At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this. If a liar can make financial statements and be believed, and nobody checks, they can do anything. It’s odd that cryptocurrency was designed to work without trust and yet many people are so trusting.

ska 5y ago
This is why substantial organizations have 3rd party audits and reviews. All of this stuff has known solutions, but people don't like what the solutions would show.
jmharvey 5y ago
> At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this This is not a problem unique to stablecoin providers. Every company with a large number of stakeholders (e.g. public companies, bond issuers, companies that manage assets on behalf of their clients, etc.) faces the same problem. The traditional solution to this is to have a widely-trusted third party, like a big four CPA firm, examine the company's books and operations and provide an audit. It's still possible to defraud auditors (there used to be a "big five CPA firms" before Enron blew up and brought down Arthur Andersen, and more recently Wirecard made EY look pretty bad), but it's a lot harder than defrauding people who don't get a detailed look at your operations. The reason to go with a big four accounting firm is that the firm's reputation with the public is substantially more valuable than any particular client relationship.
ikt 5y ago
> At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this. USDC seems to be doing it just fine? https://www.centre.io/usdc-transparency https://www.centre.io/usdc-transparency > Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar reserves that back the USDC tokens in circulation.
- nieve 5y ago

wpietri 5y ago

Yup. If one can make money now by pushing off problems for the future, oversight is vital. Otherwise we guarantee problems in the future. Banks are a great example. As are investment companies; Ponzi schemes are one easy way for those to go wrong. One non-governmental way to do that is audits. Which is why Tether's lack of serious audits is so concerning. They claimed to be cash-backed for a long time but wouldn't prove it. Once the NYAG force them to open up, it's clear they were lying.