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Please explain how they can use the money from other people account to cover the losses. If i had a account there, i wouldn't allow them to use my money to cove

Please explain how they can use the money from other people account to cover the losses. If i had a account there, i wouldn't allow them to use my money to cover this.

secondaryacct 5y ago
Easy: imagine one of the poor sobs decides to withdraw, hop a bit of creative accounting and your money is borrowed to pay for the withdrawal. It s not each of the user individually seeing their balance go down, it s the company lying even more about its ability to liquidate all accounts. Your number on their html page they graciously present to you will go unchanged. It s not a new phenomenon, every bank does it, except crypto.com does it to pay losses for a theft while banks would do it to lend to a baker buying a bakery on mortgage. If said baker screws up and cant repay, and many more others as well, clients cant all withdraw the pretty number. Another interesting difference is that a bank pays you for lending to them with your savings account, at market rate (very low these days), while I dont think crypto ponzis do because you re suppose to just wait and moon.
- ashtonkem 5y ago
  Also, banks are insured by the government (FDIC) and heavily regulated to reduce the risk of failure. Crypto exchanges are not, which is why they seem to fail about as often as a 19th century bank would.
  - secondaryacct 5y ago
    Being insured by the gov for up to a certain amount will not solve the default issue (this is what crypto.com is pretending with their eerily similar worldwide protection thing), it was made to save poor people from complete ruin, not protect your savings. If you re retiring and expect the bank to be good on a million $ worth of some sort of instrument, you're fucked minus 250k. And this is totally fine: you re compensated for a low risk of default when you lend to your "savings account" and must accept this could happen. There s no way to make money waiting doing nothing risklessly. Creeptards know that well, they all in on wind, there s no worse risk.
Scoundreller 5y ago
Banks pay out losses from the profits generated by other account holders all the time. Just gotta hope their losses never exceed their profits.
wpietri 5y ago
That's touchingly innocent. As an example, take Bernie Madoff. He took in people's cash and then sent them regular statements about how much money they had. But they were just statements doctored to look good. When some people withdrew money, he just gave them money that was handy. At some point, the difference between the numbers on the statements and the actual assets was over $50 billion. More details here: https://en.wikipedia.org/wiki/Madoff_investment_scandal https://en.wikipedia.org/wiki/Madoff_investment_scandal None of the Madoff investors "allowed" it. I don't know anything about Crypto.com, but the same thing is surely happening with other "crypto" companies. It doesn't even have to be malice; often a failure starts out with some event like a sudden loss to theft. Insiders believe they can make the money back, so they just keep on operating and hope nobody notices. This opportunity for divergence between reported and actual funds is one of the big reasons US banks are highly regulated. The FDIC is on the hook for large sums in the event of failures, so they're quite vigorous in making making sure that doesn't happen too often.
- dustymcp 5y ago
  Like tether swears All the money is in their accounts..
oefrha 5y ago
Ever heard of Mt. Gox?
arcticbull 5y ago
This is exactly what Bitfinex did back in 2016. They were 'hacked' for $72M, or about 36% of their assets at the time. They logged in, and removed 36% of everyone's account balances and replaced them with IOU tokens. [1] In fact it was believed that Coinbase was a Bitfinex customer at that time - and that they were one of the few accounts not actually given a haircut because I assume their lawyers mumbled something about 'fraudulent conversion.' [2] [1] https://www.reuters.com/article/us-bitfinex-hacked-hongkong/bitfinex-exchange-customers-to-get-36-percent-haircut-debt-token-idUSKCN10I06H https://www.reuters.com/article/us-bitfinex-hacked-hongkong/... [2] https://definitions.uslegal.com/f/fraudulent-conversion https://definitions.uslegal.com/f/fraudulent-conversion
alar44 5y ago
This... Is literally how banks work.
- arcticbull 5y ago
  Banks do not work this way. Banks have insurance policies, both private and federal, that would cover the losses.
  - dragonwriter 5y ago
    > Banks do not work this way Yes, they do. > Banks have insurance policies, both private and federal, that would cover the losses. The federal insurance policy covers you if, after operating this way (or for some other reason) the bank ends up without money to cover your account (and, the regulation that comes with the insurance means that it's more likely that the Federal government will force the sale of your bank to one that does have extra money to cover your account even before that happens.) But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.)
    - arcticbull 5y ago
      Banks do not take money from other accounts to cover operating losses, lol, thats almost certainly several crimes. [citation needed]. > But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.) It's really not. Customer deposits are segregated from the operating accounts in accordance with applicable law. You're not suggesting they're taking payroll out of customer deposits are you?
      - dragonwriter 5y ago
ncallaway 5y ago
> If i had a account there, i wouldn't allow them to use my money to cover this. They're...not going to ask your permission? If you have an account there, they have a large central pile of assets, and a database row saying that you are entitled to X amount of those assets. Someone else has a database row saying that they are entitled to Y amount of those assets. If someone breaks into the other account, and makes an illicit transfer, then Y goes down and the central pile of assets goes down. If crypto.com makes the other account whole, they simply increase Y back to the original amount. But the central pile of assets hasn't gone up accordingly. They just used "your money" to cover this, and they don't ask you for permission. When you go to them later and say: "I want to withdraw my X somewhere else", they might say: "I'm sorry, we don't have X right now". That's a run on the bank. Fortunately, we have protections around specific institutions to prevent these kinds of situations. Capitalization requirements, FDIC, etc. Unfortunately, if you have an account with crypto.com, none of those protections exist for you. You're banking on them having the funds when you ask to withdraw them.
- GrumpyNl 5y ago
  Ok, i get it now.
dragonwriter 5y ago
> Please explain how they can use the money from other people account to cover the losses. Once it enters their hands, the money isn't really “from” a particular account in any tangible way. > If i had a account there, i wouldn't allow them to use my money to cover this. An account is just a record of funds to which you are entitled; there are certain types of relations where someone keeping money for you legally needs to keep it segregated from other funds of theirs, but crypto.com doesn't have that kind of relationship with account holders. If they don't provide you with your funds when you ask, you can try legal action to recover it, but you don't have a veto on whether they update the entry recording someone else's balance to make them whole after a hack, even if that increases the risk that they won't have your money when you want to withdraw it.
swalsh 5y ago
This was the path Mt Gox went after they were hacked. Didn't work out so well for them in the end.
iLoveOncall 5y ago
You're aware your bank (not crypto bank, just Bank of America or whatever competitor) uses your money to invest and doesn't just keep in into a vault, right?

Please explain how they can use the money from other people account to cover the losses. If i had a account there, i wouldn't allow them to use my money to cover this.

secondaryacct 5y ago

Easy: imagine one of the poor sobs decides to withdraw, hop a bit of creative accounting and your money is borrowed to pay for the withdrawal. It s not each of the user individually seeing their balance go down, it s the company lying even more about its ability to liquidate all accounts. Your number on their html page they graciously present to you will go unchanged. It s not a new phenomenon, every bank does it, except crypto.com does it to pay losses for a theft while banks would do it to lend to a baker buying a bakery on mortgage. If said baker screws up and cant repay, and many more others as well, clients cant all withdraw the pretty number. Another interesting difference is that a bank pays you for lending to them with your savings account, at market rate (very low these days), while I dont think crypto ponzis do because you re suppose to just wait and moon.

ashtonkem 5y ago
Also, banks are insured by the government (FDIC) and heavily regulated to reduce the risk of failure. Crypto exchanges are not, which is why they seem to fail about as often as a 19th century bank would.
- secondaryacct 5y ago
  Being insured by the gov for up to a certain amount will not solve the default issue (this is what crypto.com is pretending with their eerily similar worldwide protection thing), it was made to save poor people from complete ruin, not protect your savings. If you re retiring and expect the bank to be good on a million $ worth of some sort of instrument, you're fucked minus 250k. And this is totally fine: you re compensated for a low risk of default when you lend to your "savings account" and must accept this could happen. There s no way to make money waiting doing nothing risklessly. Creeptards know that well, they all in on wind, there s no worse risk.

Scoundreller 5y ago

Banks pay out losses from the profits generated by other account holders all the time. Just gotta hope their losses never exceed their profits.

wpietri 5y ago

That's touchingly innocent. As an example, take Bernie Madoff. He took in people's cash and then sent them regular statements about how much money they had. But they were just statements doctored to look good. When some people withdrew money, he just gave them money that was handy. At some point, the difference between the numbers on the statements and the actual assets was over $50 billion. More details here: https://en.wikipedia.org/wiki/Madoff_investment_scandal https://en.wikipedia.org/wiki/Madoff_investment_scandal None of the Madoff investors "allowed" it. I don't know anything about Crypto.com, but the same thing is surely happening with other "crypto" companies. It doesn't even have to be malice; often a failure starts out with some event like a sudden loss to theft. Insiders believe they can make the money back, so they just keep on operating and hope nobody notices. This opportunity for divergence between reported and actual funds is one of the big reasons US banks are highly regulated. The FDIC is on the hook for large sums in the event of failures, so they're quite vigorous in making making sure that doesn't happen too often.

dustymcp 5y ago
Like tether swears All the money is in their accounts..

oefrha 5y ago

Ever heard of Mt. Gox?

arcticbull 5y ago

This is exactly what Bitfinex did back in 2016. They were 'hacked' for $72M, or about 36% of their assets at the time. They logged in, and removed 36% of everyone's account balances and replaced them with IOU tokens. [1] In fact it was believed that Coinbase was a Bitfinex customer at that time - and that they were one of the few accounts not actually given a haircut because I assume their lawyers mumbled something about 'fraudulent conversion.' [2] [1] https://www.reuters.com/article/us-bitfinex-hacked-hongkong/bitfinex-exchange-customers-to-get-36-percent-haircut-debt-token-idUSKCN10I06H https://www.reuters.com/article/us-bitfinex-hacked-hongkong/... [2] https://definitions.uslegal.com/f/fraudulent-conversion https://definitions.uslegal.com/f/fraudulent-conversion

alar44 5y ago

This... Is literally how banks work.

arcticbull 5y ago
Banks do not work this way. Banks have insurance policies, both private and federal, that would cover the losses.
- dragonwriter 5y ago
  > Banks do not work this way Yes, they do. > Banks have insurance policies, both private and federal, that would cover the losses. The federal insurance policy covers you if, after operating this way (or for some other reason) the bank ends up without money to cover your account (and, the regulation that comes with the insurance means that it's more likely that the Federal government will force the sale of your bank to one that does have extra money to cover your account even before that happens.) But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.)
  - arcticbull 5y ago
    Banks do not take money from other accounts to cover operating losses, lol, thats almost certainly several crimes. [citation needed]. > But banks still operate as described (and using some of their pool of assets to buy private insurance is functionally the same as just adjusting the balances of people it is compensating for losses and increasing risk to others by doing so, except it smooths things a bit over time at the expense of higher average cost.) It's really not. Customer deposits are segregated from the operating accounts in accordance with applicable law. You're not suggesting they're taking payroll out of customer deposits are you?
    - dragonwriter 5y ago

ncallaway 5y ago

> If i had a account there, i wouldn't allow them to use my money to cover this. They're...not going to ask your permission? If you have an account there, they have a large central pile of assets, and a database row saying that you are entitled to X amount of those assets. Someone else has a database row saying that they are entitled to Y amount of those assets. If someone breaks into the other account, and makes an illicit transfer, then Y goes down and the central pile of assets goes down. If crypto.com makes the other account whole, they simply increase Y back to the original amount. But the central pile of assets hasn't gone up accordingly. They just used "your money" to cover this, and they don't ask you for permission. When you go to them later and say: "I want to withdraw my X somewhere else", they might say: "I'm sorry, we don't have X right now". That's a run on the bank. Fortunately, we have protections around specific institutions to prevent these kinds of situations. Capitalization requirements, FDIC, etc. Unfortunately, if you have an account with crypto.com, none of those protections exist for you. You're banking on them having the funds when you ask to withdraw them.

GrumpyNl 5y ago
Ok, i get it now.

dragonwriter 5y ago

> Please explain how they can use the money from other people account to cover the losses. Once it enters their hands, the money isn't really “from” a particular account in any tangible way. > If i had a account there, i wouldn't allow them to use my money to cover this. An account is just a record of funds to which you are entitled; there are certain types of relations where someone keeping money for you legally needs to keep it segregated from other funds of theirs, but crypto.com doesn't have that kind of relationship with account holders. If they don't provide you with your funds when you ask, you can try legal action to recover it, but you don't have a veto on whether they update the entry recording someone else's balance to make them whole after a hack, even if that increases the risk that they won't have your money when you want to withdraw it.

swalsh 5y ago

This was the path Mt Gox went after they were hacked. Didn't work out so well for them in the end.

iLoveOncall 5y ago

You're aware your bank (not crypto bank, just Bank of America or whatever competitor) uses your money to invest and doesn't just keep in into a vault, right?