9 ms·

The thing that frustrates me the most about crypto is that we tried to replace the traditional financial system of fractional reserve, predatory lending, excess

The thing that frustrates me the most about crypto is that we tried to replace the traditional financial system of fractional reserve, predatory lending, excessive leverage and we recreated the entire thing again. I just assume this is a natural tendency for human beings at this point.

maxerickson 4y ago
I think your premise is mistaken. The "we" is clearly mistaken. Grifters certainly jumped on a hype cycle, which shouldn't be a surprise. Be interesting to see what is still going when the hype cycle dies.
- coldpie 4y ago
  Yeah once you had millionaires buying superbowl ads selling crypto pump-n-dump schemes, it was pretty clear the hype was at its peak. I'm also curious to see what lies on the other side of the crash. My guess is another hype cycle. Crypto tech has no value beyond finding a bigger sucker to hold the bag.
elliekelly 4y ago
Crypto really is just a giant experiment in re-learning all of the lessons we’ve already learned the hard way.
- roenxi 4y ago
  No, crypto is a giant experiment with making the regulatory response to all those lessons infeasible. Something like Monero is the tipping point - once there is plausible deniability over all aspects of the transaction I really don't see how a regulatory system could be implemented. Did I buy? Did I sell? Did I trade? Do I own any? These are questions that any chump can now cheaply avoid answering in ways that are extremely expensive to resolve for a government bureaucrat. Whether you agree with the regulatory state then colours whether this is probably the dawn or end of civilisation.
  - lucozade 4y ago
    > I really don't see how a regulatory system could be implemented I think that may be more a failure of imagination than a likely failure of the regulatory environment. For example, cash transactions are largely anonymous. Financial regulation seems to cope ok by focusing on the points it interacts with the rest of the financial system and controlling it in the large. I can easily imagine it doing the same with the likes of Monero if it so desired.
    - roenxi 4y ago
      I could send you $10k worth of Monero today. Literally you. I won't but I could. You'd have it by this afternoon. It'd basically be you posting a public key. Safe, secure, we'd still both have plausible deniability that anything had even happened. There'd be a comment on HN, for whatever that was worth in court. I have a hard time seeing, logistically, how I would get $10k worth of cash to you. I'd need to organise planes, couriers, figure out your address (there'd be a paper trail from that too). Assuming I was willing to cover the transport costs there'd still be quite a lot of risk at the endpoints of someone walking off with the money, and a massive paper trail/fingerprint across a couple of third parties. Probably issues at customs and it'd be a slow process. Technically you can argue that this is the same thing, but I don't think it is. The practical differences are big. > I think that may be more a failure of imagination than a likely failure of the regulatory environment. Maybe. I'm quietly confident. Go in to detail here. Say, hypothetically, I just bought a house from my mate Morris for $350k and you think I also gave him an off the books $100k in Monero to avoid paying taxes. You're the regulator, what happens next? How do you police this? How do the costs of policing this compare to traditional measures? I wouldn't think that was feasible with cash, it'd be too obvious I was gathering $100k, the risks of something happening to that cash would be too high & there'd be $100k in cash sitting around for police to find in a raid. But good luck proving that I have a secret 2nd crypto wallet. If I do, which I might not.
  - blackoil 4y ago
    Unless you want to live life in web3..5..n metaverse, you'll have to interact at some point with the real world, which is governed and regulated.
nly 4y ago
Leverage, tranching and other derivatives are how you dial up risk for a potentially higher reward. Neither have anything intrinsically to do with whether you're using fiat currency or cryptocurrency. It was always naive to think that finance wouldnt just absord crypto as yet another asset class.
xnorswap 4y ago
It turns out fiat is useful, and there'll always be a fiat layer on top no matter what theoretical underpinning it has, be that gold, collateralised debt, bitcoin or unobtainium.
oldgradstudent 4y ago
Please explain, using simple words, why would you expect that from a deregulated, non-transparent system?
mmarq 4y ago
It’s worse than that, the crypto-people are learning the lessons of the 1800’s financial crises by reenacting them. Soon they’ll realise why central banks exist and after 10-20 years they’ll learn why the gold standard stopped being cool.
- pibechorro 4y ago
- JohnJamesRambo 4y ago
  You had me at everything except why the gold standard isn’t cool. I actually think the whole world is about to get a lesson in why the gold standard was cool.
  - account-5 4y ago
    Can you elaborate? I'm a complete novice in this area, so genuine question.
    - saalweachter 4y ago
      It's a standard "(hyper-)inflation is coming" line.
    - FabHK 4y ago
      The typical argument is that the value of gold is somehow super stable (often the story is brought up that in biblical times, an amount X of gold would purchase Y loaves of bread, and today it is still the same!). By contrast, the dollar lost 96% or so of its purchasing power over the last century, so clearly gold is much better, and if you tie the value of the currency to gold (=gold standard), you have the best of both worlds. However, that story neglects many things. 1. A worker can buy many more loaves of bread (not to mention other things) with a week of wages than two thousand years ago. So, who cares about the price of gold? 2. Everyone is free to buy gold with their money, anyway, if desired [0]. 3. A moderate amount of inflation is not bad, and in fact what most central banks target for, and what they have achieved for decades. 4. If you have a lot of money lying around, invest it in the markets (or into gold), don't leave it in currency. 5. A gold standard would remove the central bank's ability to control the money supply, and hamstring its ability to conduct monetary policy. Gold standard proponents consider that a feature, but almost all modern economists consider it a bug. An instructive parable is the story of the Babysitting Coop [1]. My overall take is that good fiat > gold standard > bad fiat, and policy should be focused on good fiat, ie keeping the central bank competent and politically independent and with a clear mandate. [0] There have been exceptions, eg in the US in 1933, see https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102 [1] https://slate.com/business/1998/08/baby-sitting-the-economy.html https://slate.com/business/1998/08/baby-sitting-the-economy....
pibechorro 4y ago
Crypto is not tether.
marvin 4y ago
Called it in 2013. It was inevitable. There are reasons those mechanisms are there, from greed to impatience to convenience (to protection, if we get into regulation). And it was super obvious that if only a few rare truly exceptional dreamy philosophers, among the horde that pushed beautiful magic internet money back then had any knowledge of this at all, then of course the same thing would happen again.
throw0101a 4y ago
> traditional financial system of fractional reserve Please stop thinking of what the current system is as "fractional reserve"—re-lending of savings—as it is not accurate. Tobin called it the "Old View" in 1963: * https://elischolar.library.yale.edu/cowles-discussion-paper-series/388/ https://elischolar.library.yale.edu/cowles-discussion-paper-... It and the idea of the money multiplier just confuses things: * https://www.pragcap.com/what-is-fractional-reserve-banking/ https://www.pragcap.com/what-is-fractional-reserve-banking/ * https://www.pragcap.com/r-i-p-the-money-multiplier/ https://www.pragcap.com/r-i-p-the-money-multiplier/ It might useful for a "101" course in high school Econ or first-year university, but it should be moved past ASAP.
- dd36 4y ago
  My bank can loan out 10x its reserves. It only can find enough good risks to loan out 0.5x. I don’t understand your comment.
  - lxgr 4y ago
    The idea of MMT is that money creation is mainly caused by commercial banks willing to lend (due to market considerations), not by central banks issuing reserves. Even some central banks openly take this point of view, these days: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en&hash=9A8788FD44A62D8BB927123544205CE476E01654 https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
    - bidirectional 4y ago
      That's not the idea of MMT, it's a basic fact, hence the BoE publishing it.
      - lxgr 4y ago
        Good point – the ideas of MMT go further than that (and become more controversial as they do), but there is quite some overlap. I also don't think that there is consensus across central banks about how money creation actually works, which is pretty fascinating, considering that they all do more or less the same thing (at least the ones that aren't pegging their currency to another one), but apparently under completely different models...
josefx 4y ago
> I just assume this is a natural tendency for human beings at this point. You have 10 well behaved dog pups running around and a single bloody mouth foaming pit bull on a leash. You decide that leashes are evil and cut the pit bull loose. The pit bull kills half the pubs before you have him back on the leash. You come to the conclusion that it is natural for all dogs to go on bloody killing sprees.
- dd36 4y ago
  Yep. Time for leashes and personal punitive liability.
mizzao 4y ago
Yep, in fact here's a book about that human nature: https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings-ebook/dp/B078WFT5JV https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings...
SMVS 4y ago
You wrote "human beings". I think you misspelled "capitalists"
pjfin123 4y ago
A difference with crypto is that they won't be receiving a taxpayer funded bailout for any excesses so there's less moral hazard in the long run.
MomoXenosaga 4y ago
It took about 200 years to get a somewhat stable financial system that doesn't make your savings account disappear in a bankrun. Unfortunately the crypto tech bros are uninterested in history, sociology and psychology. You don't solve the human condition with computer code.
horsawlarway 4y ago
It's not a natural tendency for human beings, it's a literal requirement for a system that cannot operate with some form of trust. When that trust is violated, there needs to be a meaningful way to resolve disputes. Legal tender (as in government issued) has literally thousands of years of experience with this problem, and it's no mistake that the entity with a monopoly on violence (government) is expected to resolve this kind of dispute - because resolving it may very well require violence. The problem of course is that you're at the mercy of the arbiter resolving the disputes, but moving to crypto doesn't remove the need for an arbiter, it just removed absolutely all the legal safeguards and requirements for that arbiter. Turns out most of the "Source of trust" in crypto are scammers.
dropnerd 4y ago
1. crypto nerds build a system that gives everyone transparent, real-time view into counterparties and leverage 2. opportunists build an opaque system on top and promises retail the world 3. opaque systems collapse, retail gets burned

maxerickson 4y ago

I think your premise is mistaken. The "we" is clearly mistaken. Grifters certainly jumped on a hype cycle, which shouldn't be a surprise. Be interesting to see what is still going when the hype cycle dies.

coldpie 4y ago
Yeah once you had millionaires buying superbowl ads selling crypto pump-n-dump schemes, it was pretty clear the hype was at its peak. I'm also curious to see what lies on the other side of the crash. My guess is another hype cycle. Crypto tech has no value beyond finding a bigger sucker to hold the bag.

elliekelly 4y ago

Crypto really is just a giant experiment in re-learning all of the lessons we’ve already learned the hard way.

roenxi 4y ago
No, crypto is a giant experiment with making the regulatory response to all those lessons infeasible. Something like Monero is the tipping point - once there is plausible deniability over all aspects of the transaction I really don't see how a regulatory system could be implemented. Did I buy? Did I sell? Did I trade? Do I own any? These are questions that any chump can now cheaply avoid answering in ways that are extremely expensive to resolve for a government bureaucrat. Whether you agree with the regulatory state then colours whether this is probably the dawn or end of civilisation.
- lucozade 4y ago
  > I really don't see how a regulatory system could be implemented I think that may be more a failure of imagination than a likely failure of the regulatory environment. For example, cash transactions are largely anonymous. Financial regulation seems to cope ok by focusing on the points it interacts with the rest of the financial system and controlling it in the large. I can easily imagine it doing the same with the likes of Monero if it so desired.
  - roenxi 4y ago
    I could send you $10k worth of Monero today. Literally you. I won't but I could. You'd have it by this afternoon. It'd basically be you posting a public key. Safe, secure, we'd still both have plausible deniability that anything had even happened. There'd be a comment on HN, for whatever that was worth in court. I have a hard time seeing, logistically, how I would get $10k worth of cash to you. I'd need to organise planes, couriers, figure out your address (there'd be a paper trail from that too). Assuming I was willing to cover the transport costs there'd still be quite a lot of risk at the endpoints of someone walking off with the money, and a massive paper trail/fingerprint across a couple of third parties. Probably issues at customs and it'd be a slow process. Technically you can argue that this is the same thing, but I don't think it is. The practical differences are big. > I think that may be more a failure of imagination than a likely failure of the regulatory environment. Maybe. I'm quietly confident. Go in to detail here. Say, hypothetically, I just bought a house from my mate Morris for $350k and you think I also gave him an off the books $100k in Monero to avoid paying taxes. You're the regulator, what happens next? How do you police this? How do the costs of policing this compare to traditional measures? I wouldn't think that was feasible with cash, it'd be too obvious I was gathering $100k, the risks of something happening to that cash would be too high & there'd be $100k in cash sitting around for police to find in a raid. But good luck proving that I have a secret 2nd crypto wallet. If I do, which I might not.
- blackoil 4y ago
  Unless you want to live life in web3..5..n metaverse, you'll have to interact at some point with the real world, which is governed and regulated.

nly 4y ago

Leverage, tranching and other derivatives are how you dial up risk for a potentially higher reward. Neither have anything intrinsically to do with whether you're using fiat currency or cryptocurrency. It was always naive to think that finance wouldnt just absord crypto as yet another asset class.

xnorswap 4y ago

It turns out fiat is useful, and there'll always be a fiat layer on top no matter what theoretical underpinning it has, be that gold, collateralised debt, bitcoin or unobtainium.

oldgradstudent 4y ago

Please explain, using simple words, why would you expect that from a deregulated, non-transparent system?

mmarq 4y ago

It’s worse than that, the crypto-people are learning the lessons of the 1800’s financial crises by reenacting them. Soon they’ll realise why central banks exist and after 10-20 years they’ll learn why the gold standard stopped being cool.

pibechorro 4y ago
JohnJamesRambo 4y ago
You had me at everything except why the gold standard isn’t cool. I actually think the whole world is about to get a lesson in why the gold standard was cool.
- account-5 4y ago
  Can you elaborate? I'm a complete novice in this area, so genuine question.
  - saalweachter 4y ago
    It's a standard "(hyper-)inflation is coming" line.
  - FabHK 4y ago
    The typical argument is that the value of gold is somehow super stable (often the story is brought up that in biblical times, an amount X of gold would purchase Y loaves of bread, and today it is still the same!). By contrast, the dollar lost 96% or so of its purchasing power over the last century, so clearly gold is much better, and if you tie the value of the currency to gold (=gold standard), you have the best of both worlds. However, that story neglects many things. 1. A worker can buy many more loaves of bread (not to mention other things) with a week of wages than two thousand years ago. So, who cares about the price of gold? 2. Everyone is free to buy gold with their money, anyway, if desired [0]. 3. A moderate amount of inflation is not bad, and in fact what most central banks target for, and what they have achieved for decades. 4. If you have a lot of money lying around, invest it in the markets (or into gold), don't leave it in currency. 5. A gold standard would remove the central bank's ability to control the money supply, and hamstring its ability to conduct monetary policy. Gold standard proponents consider that a feature, but almost all modern economists consider it a bug. An instructive parable is the story of the Babysitting Coop [1]. My overall take is that good fiat > gold standard > bad fiat, and policy should be focused on good fiat, ie keeping the central bank competent and politically independent and with a clear mandate. [0] There have been exceptions, eg in the US in 1933, see https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102 [1] https://slate.com/business/1998/08/baby-sitting-the-economy.html https://slate.com/business/1998/08/baby-sitting-the-economy....

pibechorro 4y ago

Crypto is not tether.

marvin 4y ago

Called it in 2013. It was inevitable. There are reasons those mechanisms are there, from greed to impatience to convenience (to protection, if we get into regulation). And it was super obvious that if only a few rare truly exceptional dreamy philosophers, among the horde that pushed beautiful magic internet money back then had any knowledge of this at all, then of course the same thing would happen again.

throw0101a 4y ago

> traditional financial system of fractional reserve Please stop thinking of what the current system is as "fractional reserve"—re-lending of savings—as it is not accurate. Tobin called it the "Old View" in 1963: * https://elischolar.library.yale.edu/cowles-discussion-paper-series/388/ https://elischolar.library.yale.edu/cowles-discussion-paper-... It and the idea of the money multiplier just confuses things: * https://www.pragcap.com/what-is-fractional-reserve-banking/ https://www.pragcap.com/what-is-fractional-reserve-banking/ * https://www.pragcap.com/r-i-p-the-money-multiplier/ https://www.pragcap.com/r-i-p-the-money-multiplier/ It might useful for a "101" course in high school Econ or first-year university, but it should be moved past ASAP.

dd36 4y ago
My bank can loan out 10x its reserves. It only can find enough good risks to loan out 0.5x. I don’t understand your comment.
- lxgr 4y ago
  The idea of MMT is that money creation is mainly caused by commercial banks willing to lend (due to market considerations), not by central banks issuing reserves. Even some central banks openly take this point of view, these days: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en&hash=9A8788FD44A62D8BB927123544205CE476E01654 https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - bidirectional 4y ago
    That's not the idea of MMT, it's a basic fact, hence the BoE publishing it.
    - lxgr 4y ago
      Good point – the ideas of MMT go further than that (and become more controversial as they do), but there is quite some overlap. I also don't think that there is consensus across central banks about how money creation actually works, which is pretty fascinating, considering that they all do more or less the same thing (at least the ones that aren't pegging their currency to another one), but apparently under completely different models...

josefx 4y ago

> I just assume this is a natural tendency for human beings at this point. You have 10 well behaved dog pups running around and a single bloody mouth foaming pit bull on a leash. You decide that leashes are evil and cut the pit bull loose. The pit bull kills half the pubs before you have him back on the leash. You come to the conclusion that it is natural for all dogs to go on bloody killing sprees.

dd36 4y ago
Yep. Time for leashes and personal punitive liability.

mizzao 4y ago

Yep, in fact here's a book about that human nature: https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings-ebook/dp/B078WFT5JV https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings...

SMVS 4y ago

You wrote "human beings". I think you misspelled "capitalists"

pjfin123 4y ago

A difference with crypto is that they won't be receiving a taxpayer funded bailout for any excesses so there's less moral hazard in the long run.

MomoXenosaga 4y ago

It took about 200 years to get a somewhat stable financial system that doesn't make your savings account disappear in a bankrun. Unfortunately the crypto tech bros are uninterested in history, sociology and psychology. You don't solve the human condition with computer code.

horsawlarway 4y ago

It's not a natural tendency for human beings, it's a literal requirement for a system that cannot operate with some form of trust. When that trust is violated, there needs to be a meaningful way to resolve disputes. Legal tender (as in government issued) has literally thousands of years of experience with this problem, and it's no mistake that the entity with a monopoly on violence (government) is expected to resolve this kind of dispute - because resolving it may very well require violence. The problem of course is that you're at the mercy of the arbiter resolving the disputes, but moving to crypto doesn't remove the need for an arbiter, it just removed absolutely all the legal safeguards and requirements for that arbiter. Turns out most of the "Source of trust" in crypto are scammers.

dropnerd 4y ago

1. crypto nerds build a system that gives everyone transparent, real-time view into counterparties and leverage 2. opportunists build an opaque system on top and promises retail the world 3. opaque systems collapse, retail gets burned