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To those saying "if it's backed by dollars - isn't this an arbitrage opportunity" you are right. But the key word there is "IF". The crypto-world is essential

To those saying "if it's backed by dollars - isn't this an arbitrage opportunity" you are right. But the key word there is "IF". The crypto-world is essentially mass scale "creative-accounting". At the end of the day the MAXIMUM amount of money that can come out, is what went in. And "money out" includes not just the operating costs, mining fees, and other real-world resources used, but also the staggering number of thefts, rug-pulls, etc.

bluelightning2k 4y ago
Also - if you're tempted to point to stocks, etc. and say investing generates a return. That's correct. Because ultimately that capital is being deployed in a resource-generating activity. E.g. you're financing a factory, that takes a thing and turns it into a more valuable thing. Or a software company which ultimately saves people time. Dig deeply enough into it and you see an actual rersource-generating activity at some level of abstraction. The net resource-consumption of crypto AND the cash outflows (rugpulls, exchanges, VCs, phishing) is truly staggering. It doesn't matter if you convert that real-world loss into casino chips, then 17 credit cards, then chocolate-coated Monopoly money. Those abstractions aren't serving a purpose. They're there purely to obscure that clear underlying resource-loss as long as possible.
danuker 4y ago
> mass scale "creative-accounting" Indeed, and these schemes tend to fall apart when money is no longer free (i.e. there exists a non-zero interest rate). Also, in the process of the interest rate becoming non-zero, existing bonds fall in price (because investors would prefer the newer, higher-yield coupons). The mistake (and also the reason for existence) of Tether was the ability to invest the money. Fractional reserve. When your business model counts on investments always going up, you might go out of business.
- bluelightning2k 4y ago
  There is actually a mechanism for creating money. It's debt. The mechanism here is facilitating commerce. A simple analogy is: You're selling oranges. I'm selling apples. Bartering is inefficient so we invented currency. I don't have any money right now. I buy your orange with debt, you buy my apple, the fruit is used instead of rotting, etc. Essentially we only make a deal because we want what we're getting more than what we have. So we're getting something worth (to us) e.g. 130% of what we're giving. So every trade multiplies the effective resource by e.g. 30%. Debt facilitates the trade, while simultaneously creating the value. Up. to. a. point. Without spoiling the ending that everyone knows is coming... crypto is not this. Crypto is not facilitating any (legal) economic activity. Nobody is taking this and buying machinery with a resource-generating payback period.
  - danuker 4y ago
    On the contrary, Tether DID take investor money (in the form of USD), provided them with an IOU, and proceeded to buy hopefully-productive "real"-economy bonds with it. Debt only creates value if it can be repaid. If Tether can not maintain the peg, it represents insolvency, and a net loss for the investors (rather than a win-win as a loan is supposed to be). Seeing they also own non-USD-denominated bonds, it is not guaranteed that the principal returned will be the same dollar amount, even if held until maturity. https://www.cnbc.com/2022/05/19/tether-claims-usdt-stablecoin-is-backed-by-non-us-bonds.html https://www.cnbc.com/2022/05/19/tether-claims-usdt-stablecoi...
  - gitfan86 4y ago
    Great Example. Imagine if you gave me your oranges and I gave you a picture I drew of an orange and told you that this picture gives you the exclusive rights to all pictures of oranges in the world. That is a NFT.
gitfan86 4y ago
The pro crypto people will say "Banks are the same, they don't actually have a vault full of dollars to honor all deposits". And that part is true. If everyone went to Bank of America right now and asked for all their money in cash the bank would say no. But, what the crypto people are not telling you is that the US Government would step in and take ownership of the bank and give everyone their deposits back in checks within a few months or weeks. And because this feature of US Government regulation exists there is not going to be a bank run on Bank of America. Tether does not have this protection, so, people can panic, for good reason.
- jqpabc123 4y ago
  Crypto set out on a bold mission to prove that government shouldn't be involved in the money supply --- and ended up demonstrating just the opposite.
World177 4y ago
It’s too early to believe they’re going to collapse. They managed to shrink the market capitalization by 15~ billion USDT after the LUNA collapse [1] while intermittently losing the peg by about as much right now for a month. I wouldn’t store money with them though [1] https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/
jqpabc123 4y ago
The crypto-world is essentially mass scale "creative-accounting". Surprise! This is inevitable without something (government perhaps?) to force transparency and accountability. Blockchain certainly can't do it. Lacking this, everyone is essentially flying blind. It's impossible to read events in the "marketplace" without reliable data --- conditions tailor made for scams. As it currently stands, the crypto "marketplace" was built by scammers for scammers. Swimming with sharks, it may be possible to pick up an easy meal --- but it's equally possible that you will *be* the meal.
yuvadam 4y ago
If you think crypto is creative accounting, wait till you hear about fiat money.
- jqpabc123 4y ago
  Crypto is built around trust --- just like fiat. Who do you trust more --- Binance/Bitfinex or Government? The part you're missing is that individual and public interests arguably coincide with those of government more so than crypto exchanges.

bluelightning2k 4y ago

Also - if you're tempted to point to stocks, etc. and say investing generates a return. That's correct. Because ultimately that capital is being deployed in a resource-generating activity. E.g. you're financing a factory, that takes a thing and turns it into a more valuable thing. Or a software company which ultimately saves people time. Dig deeply enough into it and you see an actual rersource-generating activity at some level of abstraction. The net resource-consumption of crypto AND the cash outflows (rugpulls, exchanges, VCs, phishing) is truly staggering. It doesn't matter if you convert that real-world loss into casino chips, then 17 credit cards, then chocolate-coated Monopoly money. Those abstractions aren't serving a purpose. They're there purely to obscure that clear underlying resource-loss as long as possible.

danuker 4y ago

> mass scale "creative-accounting" Indeed, and these schemes tend to fall apart when money is no longer free (i.e. there exists a non-zero interest rate). Also, in the process of the interest rate becoming non-zero, existing bonds fall in price (because investors would prefer the newer, higher-yield coupons). The mistake (and also the reason for existence) of Tether was the ability to invest the money. Fractional reserve. When your business model counts on investments always going up, you might go out of business.

bluelightning2k 4y ago
There is actually a mechanism for creating money. It's debt. The mechanism here is facilitating commerce. A simple analogy is: You're selling oranges. I'm selling apples. Bartering is inefficient so we invented currency. I don't have any money right now. I buy your orange with debt, you buy my apple, the fruit is used instead of rotting, etc. Essentially we only make a deal because we want what we're getting more than what we have. So we're getting something worth (to us) e.g. 130% of what we're giving. So every trade multiplies the effective resource by e.g. 30%. Debt facilitates the trade, while simultaneously creating the value. Up. to. a. point. Without spoiling the ending that everyone knows is coming... crypto is not this. Crypto is not facilitating any (legal) economic activity. Nobody is taking this and buying machinery with a resource-generating payback period.
- danuker 4y ago
  On the contrary, Tether DID take investor money (in the form of USD), provided them with an IOU, and proceeded to buy hopefully-productive "real"-economy bonds with it. Debt only creates value if it can be repaid. If Tether can not maintain the peg, it represents insolvency, and a net loss for the investors (rather than a win-win as a loan is supposed to be). Seeing they also own non-USD-denominated bonds, it is not guaranteed that the principal returned will be the same dollar amount, even if held until maturity. https://www.cnbc.com/2022/05/19/tether-claims-usdt-stablecoin-is-backed-by-non-us-bonds.html https://www.cnbc.com/2022/05/19/tether-claims-usdt-stablecoi...
- gitfan86 4y ago
  Great Example. Imagine if you gave me your oranges and I gave you a picture I drew of an orange and told you that this picture gives you the exclusive rights to all pictures of oranges in the world. That is a NFT.

gitfan86 4y ago

The pro crypto people will say "Banks are the same, they don't actually have a vault full of dollars to honor all deposits". And that part is true. If everyone went to Bank of America right now and asked for all their money in cash the bank would say no. But, what the crypto people are not telling you is that the US Government would step in and take ownership of the bank and give everyone their deposits back in checks within a few months or weeks. And because this feature of US Government regulation exists there is not going to be a bank run on Bank of America. Tether does not have this protection, so, people can panic, for good reason.

jqpabc123 4y ago
Crypto set out on a bold mission to prove that government shouldn't be involved in the money supply --- and ended up demonstrating just the opposite.

World177 4y ago

It’s too early to believe they’re going to collapse. They managed to shrink the market capitalization by 15~ billion USDT after the LUNA collapse [1] while intermittently losing the peg by about as much right now for a month. I wouldn’t store money with them though [1] https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/

jqpabc123 4y ago

The crypto-world is essentially mass scale "creative-accounting". Surprise! This is inevitable without something (government perhaps?) to force transparency and accountability. Blockchain certainly can't do it. Lacking this, everyone is essentially flying blind. It's impossible to read events in the "marketplace" without reliable data --- conditions tailor made for scams. As it currently stands, the crypto "marketplace" was built by scammers for scammers. Swimming with sharks, it may be possible to pick up an easy meal --- but it's equally possible that you will *be* the meal.

yuvadam 4y ago

If you think crypto is creative accounting, wait till you hear about fiat money.

jqpabc123 4y ago
Crypto is built around trust --- just like fiat. Who do you trust more --- Binance/Bitfinex or Government? The part you're missing is that individual and public interests arguably coincide with those of government more so than crypto exchanges.