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You are aware that the vast majority of financial market trading is run by algorithms that govern not advise vast amounts of capital in an irreversible way. So

You are aware that the vast majority of financial market trading is run by algorithms that govern not advise vast amounts of capital in an irreversible way. Sometime these algorithms break or are exploited. Often in spectacular disasters. Knight lost half a billion dollars in 30 seconds. Nobody reversed though, even though it was clear error. If you have a 401k I guarantee you that a significant amount of your money was traded by an algorithm that if broken would have lost everything. If the question is whether people would ever trust capital to irreversible algorithms, the answer is they already do. It’s called the stock market.

holoduke 5y ago
The world is more than just automated trading systems
- remolacha 5y ago
  The matching engine on the exchange is also automated. The settlement system is electronic. Etc. etc.
  - umanwizard 5y ago
    Yes and if any of those make mistakes, the trades can be rolled back with human intervention.
jgalt212 5y ago
> Sometime these algorithms break or are exploited. Often in spectacular disasters. Knight lost half a billion dollars in 30 seconds. Nobody reversed though, even though it was clear error. This actually blew my mind. The exchanges bust trades all the time. I don't why they didn't do it in this case.
Applejinx 5y ago
I think quite a few people who find crypto objectionable will also consider many, even most of the weirder technological outgrowths of the stock market to be every bit as objectionable. As we've repeatedly learned, to the detriment of most people in the world.
tptacek 5y ago
In a previous lifetime not so long ago, I was paid to find vulnerabilities in exchange infrastructure --- order routers, match engines, FIX gateways, all that stuff. When I was getting started, any interesting finding was super exciting. "This is a billion-dollar vulnerability! Suck it, Mark Dowd!" Then I learned about out-trades. In reality, these heavily automated markets screw up (or, rather, customers of these markets screw up) somewhat regularly. Surprise: one of the reasons lots of humans work both at the exchanges and at companies that program directly to them is that mistakes happen, and are often resolved not by code but by hashing things out between cooperating blobs of electrified fat tissue. Gross, I know! Obviously, there are big screwups where the rules coded into the algorithm are the last word. But those rules aren't always the final word, and, more importantly, the rules themselves are easily changed when the electric meat blobs want them to.
xyzelement 5y ago
// Knight lost half a billion dollars in 30 seconds. Nobody reversed though, even though it was clear error. You cited Knight twice in this thread, and it's just not the same concept. I think your point is that people should accept irreversible transactions in whole because there are some edge cases where they exist today, and that just doesn't make sense. First, there's a difference between an average person and Knight in the degree of sophistication of tools that they can wield. So the fact that Knight is allowed to operate like this is in no way connected to whether this mode should be the default for an average person. Second, the Knight example can be interpreted as an exception that proves the rule. They had an unforced error that (from what I recall) looked to the rest of the world like real trading. But there's a whole other slew of issues (clearly bad prices, exchange-errors, etc) that cause trades to be unwound. Some exciting reading if you care: https://www.investopedia.com/terms/e/erroneous-trade.asp https://www.investopedia.com/terms/e/erroneous-trade.asp You have a point that yes to some extent we're all subject to underlying risk of irreversible activity but the bigger point is that we as society try to minimize it where possible. So moving the system in the other direction, especially where it makes it easy for Joe-Blow to fuck it up, is not the way.
- dcolkitt 5y ago
  There’s no categorical difference between Knight and Vanguard. If Vanguard fucks up its trading, the exchange is not under any obligation to make it right. The only difference is that Knight was a lot more aggressive in terms of pushing the envelope on its algorithms to reap excess profit. I’m sure Vanguard is a lot more politically sympathetic, but I’d trust that “guarantee” a hell of a lot less than I’d trust battle tested software. Say the fund managers running your 401k decided to say “fuck it, turn off all the circuit breakers.” Would you just shrug your shoulders and say “no worries, I’m sure FINRA’s got my back if anything goes wrong. Blindly trusting the people running institutions to keep you safe is as misguided as assuming that all software is infallible .
  - xyzelement 5y ago
    I agree with the individual bits of data but I don't agree with your ultimate conclusion. The point is - do you aim to make the system fixable by human judgement or not? This thread is full of examples we like: the credit card protecting us from fraudulent charges, FDIC insurance, etc. Are there places in our life that society is forced to operate without such backstops? Yes. But we want to minimize, not maximize those - especially when it comes to consumer-facing capabilities.
umanwizard 5y ago
> If you have a 401k I guarantee you that a significant amount of your money was traded by an algorithm that if broken would have lost everything How so? My 401k is invested in a fund that just owns a broad index of stocks, not an algorithmic trading hedge fund.
- mason55 5y ago
  Even that has an "algorithm" behind it - they have to manage inflows & outflows, the heartbeat trades if it's an ETF, etc. Vanguard doesn't have a person sitting there buying a little bit of AAPL every time someone invests in VTSAX. OP is trying to say that even something as simple as VTSAX could have a problem and, I don't know, accidentally sell all its AAPL and so it's proof that even for the current market there are rules that govern. Except, of course, if VTSAX dumped all their AAPL somehow the trade would be unwound, as trades occasionally are. Selling stock on the market is not nearly as irreversible as it may seem.
kasey_junk 5y ago
Knight took closer to an hour to melt down than 30 seconds. NYSE and the SEC _chose_ not to reverse those trades but they could have. There are plenty of ways the exchange can undo those and also trade busts happen daily on every exchange. Almost certainly if a large index etf or fund lost everything to a software glitch the trades would be reversed and even if for policy reasons they weren’t they could be. The facility exists.

holoduke 5y ago

The world is more than just automated trading systems

remolacha 5y ago
The matching engine on the exchange is also automated. The settlement system is electronic. Etc. etc.
- umanwizard 5y ago
  Yes and if any of those make mistakes, the trades can be rolled back with human intervention.

jgalt212 5y ago

> Sometime these algorithms break or are exploited. Often in spectacular disasters. Knight lost half a billion dollars in 30 seconds. Nobody reversed though, even though it was clear error. This actually blew my mind. The exchanges bust trades all the time. I don't why they didn't do it in this case.

Applejinx 5y ago

I think quite a few people who find crypto objectionable will also consider many, even most of the weirder technological outgrowths of the stock market to be every bit as objectionable. As we've repeatedly learned, to the detriment of most people in the world.

tptacek 5y ago

In a previous lifetime not so long ago, I was paid to find vulnerabilities in exchange infrastructure --- order routers, match engines, FIX gateways, all that stuff. When I was getting started, any interesting finding was super exciting. "This is a billion-dollar vulnerability! Suck it, Mark Dowd!" Then I learned about out-trades. In reality, these heavily automated markets screw up (or, rather, customers of these markets screw up) somewhat regularly. Surprise: one of the reasons lots of humans work both at the exchanges and at companies that program directly to them is that mistakes happen, and are often resolved not by code but by hashing things out between cooperating blobs of electrified fat tissue. Gross, I know! Obviously, there are big screwups where the rules coded into the algorithm are the last word. But those rules aren't always the final word, and, more importantly, the rules themselves are easily changed when the electric meat blobs want them to.

xyzelement 5y ago

// Knight lost half a billion dollars in 30 seconds. Nobody reversed though, even though it was clear error. You cited Knight twice in this thread, and it's just not the same concept. I think your point is that people should accept irreversible transactions in whole because there are some edge cases where they exist today, and that just doesn't make sense. First, there's a difference between an average person and Knight in the degree of sophistication of tools that they can wield. So the fact that Knight is allowed to operate like this is in no way connected to whether this mode should be the default for an average person. Second, the Knight example can be interpreted as an exception that proves the rule. They had an unforced error that (from what I recall) looked to the rest of the world like real trading. But there's a whole other slew of issues (clearly bad prices, exchange-errors, etc) that cause trades to be unwound. Some exciting reading if you care: https://www.investopedia.com/terms/e/erroneous-trade.asp https://www.investopedia.com/terms/e/erroneous-trade.asp You have a point that yes to some extent we're all subject to underlying risk of irreversible activity but the bigger point is that we as society try to minimize it where possible. So moving the system in the other direction, especially where it makes it easy for Joe-Blow to fuck it up, is not the way.

dcolkitt 5y ago
There’s no categorical difference between Knight and Vanguard. If Vanguard fucks up its trading, the exchange is not under any obligation to make it right. The only difference is that Knight was a lot more aggressive in terms of pushing the envelope on its algorithms to reap excess profit. I’m sure Vanguard is a lot more politically sympathetic, but I’d trust that “guarantee” a hell of a lot less than I’d trust battle tested software. Say the fund managers running your 401k decided to say “fuck it, turn off all the circuit breakers.” Would you just shrug your shoulders and say “no worries, I’m sure FINRA’s got my back if anything goes wrong. Blindly trusting the people running institutions to keep you safe is as misguided as assuming that all software is infallible .
- xyzelement 5y ago
  I agree with the individual bits of data but I don't agree with your ultimate conclusion. The point is - do you aim to make the system fixable by human judgement or not? This thread is full of examples we like: the credit card protecting us from fraudulent charges, FDIC insurance, etc. Are there places in our life that society is forced to operate without such backstops? Yes. But we want to minimize, not maximize those - especially when it comes to consumer-facing capabilities.

umanwizard 5y ago

> If you have a 401k I guarantee you that a significant amount of your money was traded by an algorithm that if broken would have lost everything How so? My 401k is invested in a fund that just owns a broad index of stocks, not an algorithmic trading hedge fund.

mason55 5y ago
Even that has an "algorithm" behind it - they have to manage inflows & outflows, the heartbeat trades if it's an ETF, etc. Vanguard doesn't have a person sitting there buying a little bit of AAPL every time someone invests in VTSAX. OP is trying to say that even something as simple as VTSAX could have a problem and, I don't know, accidentally sell all its AAPL and so it's proof that even for the current market there are rules that govern. Except, of course, if VTSAX dumped all their AAPL somehow the trade would be unwound, as trades occasionally are. Selling stock on the market is not nearly as irreversible as it may seem.

kasey_junk 5y ago

Knight took closer to an hour to melt down than 30 seconds. NYSE and the SEC _chose_ not to reverse those trades but they could have. There are plenty of ways the exchange can undo those and also trade busts happen daily on every exchange. Almost certainly if a large index etf or fund lost everything to a software glitch the trades would be reversed and even if for policy reasons they weren’t they could be. The facility exists.