5 ms·

This all seems like less a problem of crypto as such, and more that exchanges are making a virtual fractional reserve currency by leveraging customer deposits f

This all seems like less a problem of crypto as such, and more that exchanges are making a virtual fractional reserve currency by leveraging customer deposits for loans/investments. ie it's a 'banking' problem, specifically a 'fractional reserve banking' problem, not a crypto problem. This is exactly why fractional reserve banking is heavily regulated.

p0pcult 4y ago
This is the correct take, and why American regulators need to address crypto sooner rather than later.
- gitfan86 4y ago
  But the WHOLE point of crypto was to avoid governmental control. If the government is regulating it that means they can control it. And it becomes completely worthless. If you want digital gold as an inflation hedge you can literally buy a GLD ETF. It gives you digital shares in actual GOLD.
  - jacknews 4y ago
    There's nothing to stop people using crypto to buy/sell goods directly, or to trade directly between themselves, completely outside of government control. And crypto itself can't be inflated away, or obsoleted, or otherwise really controlled by government, except by attacking it; making it illegal to own or trade, to operate nodes, to write code, or use CIA shenanigans, etc. But if an exchange claims that they hold your crypto 'frozen' and completely separate from their trading activities, and especially if the exchange also deal in government currency, then I think it's quite right for government to regulate, and ensure the exchanges are compliant.
    - gitfan86 4y ago
      Vendors of goods and services have virtually no interest in self custody. They want deposits going to a bank/exchange. So you are not going to be able to buy many goods or services directly. How many businesses are CASH only today? That is best case scenario for buy/sell crypto directly.
  - p0pcult 4y ago
    No, that was the whole point of Bitcoin. Crypto > Bitcoin.
  - chasd00 4y ago
    > But the WHOLE point of crypto was to avoid governmental control I think from a purist perspective that is true. I said this upthread but what people really want is more USD in their checking account. These exchanges are a place where they can roll the dice and maybe make that happen. As I said before, i bet 95% of the people burned couldn't care less about the philosophical aims of crypto currencies and just want a chance to get rich (in USD).
  - epgui 4y ago
    There's nothing you can invent which can be beyond government control. If government cares to control something, it will.
  - netheril96 4y ago
    Not really. The purists care about independence from government but they also don’t like centralized exchanges so they don’t care if they are regulated. The other people are in for the gamble rather than the fundamentals of crypto. A certified casino is probably more trustworthy to them. As long as the government doesn’t try to regulate the chain, both groups are satisfied.
- papito 4y ago
  That may actually be counterproductive. If you start regulating crypto, then you are IN. You can't do it half way. Now you have yet another banking sector to regulate. Maybe what's better and cheaper is to let this wild west "enjoy being poor" nonsense flame out until everyone shoots themselves and it's curtains. It will sort of be like Usenet - it didn't go anywhere but you have to know how to find it.
knorker 4y ago
Sure, without the safeguards. No FDIC. No lessons learned from the history of banking. I agree it's a banking problem in that they're trying to streamline a new economy by not doing what "legacy banking" does. Which is like streamlining airlines by starting the rule book from scratch. But the rules and regulation of the airlines have been paid for in blood. Discard them at your own peril. Or, in the case of cryptocurrencies, at the peril of the finances of anyone investing in your experiment.
bobro 4y ago
Of all the problems listed in critiques of fiat currency, what percent is just banking? Seems hard to try to disentangle money and how money gets managed at scale.
amalcon 4y ago
None of these collapses have been due to fractional reserve banking, because fractional reserve banking requires being open about what you're doing. These collapses have been about fraud. There are lots of other kinds of fraud; getting rid of this type would barely make an impact. While there's nothing intrinsic about cryptocurrency that would make it more prone to fraud than anything else, the culture around it seems highly susceptible to it.
- fundad 4y ago
  I crypto fans call it the "five-finger-fractional-reserve, have fun being poor" if you ask them.
- cortesoft 4y ago
  > While there's nothing intrinsic about cryptocurrency that would make it more prone to fraud than anything else There are absolutely intrinsic things that make cryptocurrency more prone to fraud. The inability to reverse transactions, quasi-anonymity, and lack of any central authority to resolve disputes. To limit fraud to the levels you see in traditional finance, you would need the regulations and oversight by centralized organizations that you have in the traditional space. The entire purpose of cryptocurrencies are to avoid those things, so while you technically could have them with a cryptocurrency, you would end up with no good reason to have a cryptocurrency at all.
  - sweetbitter 4y ago
    > The entire purpose of cryptocurrencies are to avoid those things, so while you technically could have them with a cryptocurrency, you would end up with no good reason to have a cryptocurrency at all. I will substitute a word from your post that will help you understand this easier: "The entire purpose of cash is to avoid those things, so while you technically could have them with cash, you would end up with no good reason to have cash at all." Cryptocurrency is not antithetical to banks just like cash and gold are not. It is a digital version of cash, not credit.
    - 4y ago

p0pcult 4y ago

This is the correct take, and why American regulators need to address crypto sooner rather than later.

gitfan86 4y ago
But the WHOLE point of crypto was to avoid governmental control. If the government is regulating it that means they can control it. And it becomes completely worthless. If you want digital gold as an inflation hedge you can literally buy a GLD ETF. It gives you digital shares in actual GOLD.
- jacknews 4y ago
  There's nothing to stop people using crypto to buy/sell goods directly, or to trade directly between themselves, completely outside of government control. And crypto itself can't be inflated away, or obsoleted, or otherwise really controlled by government, except by attacking it; making it illegal to own or trade, to operate nodes, to write code, or use CIA shenanigans, etc. But if an exchange claims that they hold your crypto 'frozen' and completely separate from their trading activities, and especially if the exchange also deal in government currency, then I think it's quite right for government to regulate, and ensure the exchanges are compliant.
  - gitfan86 4y ago
    Vendors of goods and services have virtually no interest in self custody. They want deposits going to a bank/exchange. So you are not going to be able to buy many goods or services directly. How many businesses are CASH only today? That is best case scenario for buy/sell crypto directly.
- p0pcult 4y ago
  No, that was the whole point of Bitcoin. Crypto > Bitcoin.
- chasd00 4y ago
  > But the WHOLE point of crypto was to avoid governmental control I think from a purist perspective that is true. I said this upthread but what people really want is more USD in their checking account. These exchanges are a place where they can roll the dice and maybe make that happen. As I said before, i bet 95% of the people burned couldn't care less about the philosophical aims of crypto currencies and just want a chance to get rich (in USD).
- epgui 4y ago
  There's nothing you can invent which can be beyond government control. If government cares to control something, it will.
- netheril96 4y ago
  Not really. The purists care about independence from government but they also don’t like centralized exchanges so they don’t care if they are regulated. The other people are in for the gamble rather than the fundamentals of crypto. A certified casino is probably more trustworthy to them. As long as the government doesn’t try to regulate the chain, both groups are satisfied.
papito 4y ago
That may actually be counterproductive. If you start regulating crypto, then you are IN. You can't do it half way. Now you have yet another banking sector to regulate. Maybe what's better and cheaper is to let this wild west "enjoy being poor" nonsense flame out until everyone shoots themselves and it's curtains. It will sort of be like Usenet - it didn't go anywhere but you have to know how to find it.

knorker 4y ago

Sure, without the safeguards. No FDIC. No lessons learned from the history of banking. I agree it's a banking problem in that they're trying to streamline a new economy by not doing what "legacy banking" does. Which is like streamlining airlines by starting the rule book from scratch. But the rules and regulation of the airlines have been paid for in blood. Discard them at your own peril. Or, in the case of cryptocurrencies, at the peril of the finances of anyone investing in your experiment.

bobro 4y ago

Of all the problems listed in critiques of fiat currency, what percent is just banking? Seems hard to try to disentangle money and how money gets managed at scale.

amalcon 4y ago

None of these collapses have been due to fractional reserve banking, because fractional reserve banking requires being open about what you're doing. These collapses have been about fraud. There are lots of other kinds of fraud; getting rid of this type would barely make an impact. While there's nothing intrinsic about cryptocurrency that would make it more prone to fraud than anything else, the culture around it seems highly susceptible to it.

fundad 4y ago
I crypto fans call it the "five-finger-fractional-reserve, have fun being poor" if you ask them.
cortesoft 4y ago
> While there's nothing intrinsic about cryptocurrency that would make it more prone to fraud than anything else There are absolutely intrinsic things that make cryptocurrency more prone to fraud. The inability to reverse transactions, quasi-anonymity, and lack of any central authority to resolve disputes. To limit fraud to the levels you see in traditional finance, you would need the regulations and oversight by centralized organizations that you have in the traditional space. The entire purpose of cryptocurrencies are to avoid those things, so while you technically could have them with a cryptocurrency, you would end up with no good reason to have a cryptocurrency at all.
- sweetbitter 4y ago
  > The entire purpose of cryptocurrencies are to avoid those things, so while you technically could have them with a cryptocurrency, you would end up with no good reason to have a cryptocurrency at all. I will substitute a word from your post that will help you understand this easier: "The entire purpose of cash is to avoid those things, so while you technically could have them with cash, you would end up with no good reason to have cash at all." Cryptocurrency is not antithetical to banks just like cash and gold are not. It is a digital version of cash, not credit.
  - 4y ago