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If you think that JPMorgan is equally likely to steal your money as some small scale local bank, I think we're just going to have to agree to disagree here. I t

by darawk 5y ago

If you think that JPMorgan is equally likely to steal your money as some small scale local bank, I think we're just going to have to agree to disagree here. I think the historical evidence is super clear on this point, not to mention the incentives. The probability of any counter-party in any context choosing to screw you over is proportional, all else equal, to the size of the assets of yours they can steal, relative to the size of their stake in continuing to operate in the community. If a bank has $1mm in assets and you have 100k deposited with them, it's much more worth their while to steal from you than if they have $1bn in assets. Now, those are not the only factors that impact the probability that you get stolen from. The institutions of the society in which they are embedded matter as well. But holding those institutions constant, i'd argue this is the primary factor that matters.

lottin 5y ago
Here in Europe the possibility that a bank could steal money from its clients is not a concern that people have, because it's not something that happens or that people think could happen. There's no way a bank can steal your money and get away with it. Therefore the idea that a bank of this or that size is more or less likely to steal your money is quite strange. Maybe it's different in other parts of the world, although I don't think it is.
- darawk 5y ago
  I believe what you mean is that it's something that doesn't happen frequently. But do you know why that is? It's not because banks are unable to steal customer's deposits. It's because of the capital investment these banks have made in their reputations. That capital investment is in the form of fixed infrastructure, real estate, licenses, and reputations. It's that capital investment, and the threat of losing it if they break the law, that keeps your money safe. That all works pretty well at keeping money safe, as you noted. But it has another effect. It makes it extremely expensive to start a bank, or other financial service. This is what crypto democratizes. It makes it possible to start a financial service without massive capital investment in things like this.
  - lottin 5y ago
    Sorry, that doesn't make any sense. We don't live in a society where crime is prevented by reputation. Laws and law enforcement prevent crime, not reputation. Second, a bank's reputation comes from its past behaviour, not from the amount of capital it has invested. Banks invest in capital because providing financial services requires large amounts of capital. Crypto is not going to magically let you provide financial services without investing similar amounts of capital.
    - darawk 5y ago
      > Laws and law enforcement prevent crime, not reputation Enforcement, by definition, does not prevent crime. It may deter crime. But a bank cannot be put in prison. The damage to a bank from stealing its clients money is reputational, the loss of their business. > Second, a bank's reputation comes from its past behaviour, not from the amount of capital it has invested It comes from both. Past behavior, and the amount of capital invested. If a bank has $1mm in assets, would you deposit $10mm? I wouldn't. > Crypto is not going to magically let you provide financial services without investing similar amounts of capital. Yes, it will. In fact, it already has. DeFi provides many of the same services banks do, for a miniscule fraction of the capital investment. You can deploy a contract right now that provides services like margin lending for a few dollars. Building the infrastructure and trust to do that at a bank would take you decades, and tens of millions of dollars in capital expense.
      - lottin 5y ago
        No, a bank can't go to prison, but its executives can. Further, a bank is a registered corporation and a legal holder assets which can be seized by courts. This means it can't escape legal action. The courts would seize the stolen money and return it to the rightful owner, while the bank would be fined and/or stripped of its license. The size of the bank is irrelevant, as far as the rule of law is concerned, because a key principle behind the rule of law is equality before the law. Therefore, no, nobody thinks that because a bank is small it's more likely to steal their money. That's a bizarre idea. The size of banks, and firms in general, is explained entirely by economies of scale. It has nothing to do with reputation, or the fear that they will steal your money. (No offence, but you sound like someone from a communist country who is unfamiliar with how the capitalist system work.) Lastly, deploying a contract is not the same thing as providing financial services. You can deploy a contract in conventional finance too without investing any capital at all. This is not what banks do. The problem with DeFi is that it's crippled because of its intrinsic limitations, namely the fact that smart contracts lack coercive power. As a result, most real-life contracts (such as a simple signature loan agreement) are unenforceable in DeFi, and therefore not possible at all.

by darawk 5y ago

lottin 5y ago

Here in Europe the possibility that a bank could steal money from its clients is not a concern that people have, because it's not something that happens or that people think could happen. There's no way a bank can steal your money and get away with it. Therefore the idea that a bank of this or that size is more or less likely to steal your money is quite strange. Maybe it's different in other parts of the world, although I don't think it is.

darawk 5y ago
I believe what you mean is that it's something that doesn't happen frequently. But do you know why that is? It's not because banks are unable to steal customer's deposits. It's because of the capital investment these banks have made in their reputations. That capital investment is in the form of fixed infrastructure, real estate, licenses, and reputations. It's that capital investment, and the threat of losing it if they break the law, that keeps your money safe. That all works pretty well at keeping money safe, as you noted. But it has another effect. It makes it extremely expensive to start a bank, or other financial service. This is what crypto democratizes. It makes it possible to start a financial service without massive capital investment in things like this.
- lottin 5y ago
  Sorry, that doesn't make any sense. We don't live in a society where crime is prevented by reputation. Laws and law enforcement prevent crime, not reputation. Second, a bank's reputation comes from its past behaviour, not from the amount of capital it has invested. Banks invest in capital because providing financial services requires large amounts of capital. Crypto is not going to magically let you provide financial services without investing similar amounts of capital.
  - darawk 5y ago
    > Laws and law enforcement prevent crime, not reputation Enforcement, by definition, does not prevent crime. It may deter crime. But a bank cannot be put in prison. The damage to a bank from stealing its clients money is reputational, the loss of their business. > Second, a bank's reputation comes from its past behaviour, not from the amount of capital it has invested It comes from both. Past behavior, and the amount of capital invested. If a bank has $1mm in assets, would you deposit $10mm? I wouldn't. > Crypto is not going to magically let you provide financial services without investing similar amounts of capital. Yes, it will. In fact, it already has. DeFi provides many of the same services banks do, for a miniscule fraction of the capital investment. You can deploy a contract right now that provides services like margin lending for a few dollars. Building the infrastructure and trust to do that at a bank would take you decades, and tens of millions of dollars in capital expense.
    - lottin 5y ago
      No, a bank can't go to prison, but its executives can. Further, a bank is a registered corporation and a legal holder assets which can be seized by courts. This means it can't escape legal action. The courts would seize the stolen money and return it to the rightful owner, while the bank would be fined and/or stripped of its license. The size of the bank is irrelevant, as far as the rule of law is concerned, because a key principle behind the rule of law is equality before the law. Therefore, no, nobody thinks that because a bank is small it's more likely to steal their money. That's a bizarre idea. The size of banks, and firms in general, is explained entirely by economies of scale. It has nothing to do with reputation, or the fear that they will steal your money. (No offence, but you sound like someone from a communist country who is unfamiliar with how the capitalist system work.) Lastly, deploying a contract is not the same thing as providing financial services. You can deploy a contract in conventional finance too without investing any capital at all. This is not what banks do. The problem with DeFi is that it's crippled because of its intrinsic limitations, namely the fact that smart contracts lack coercive power. As a result, most real-life contracts (such as a simple signature loan agreement) are unenforceable in DeFi, and therefore not possible at all.