5 ms·

Sounds like you've never heard of Enron and Arthur Andersen. https://en.wikipedia.org/wiki/Arthur_Andersen#Enron_scandal https://en.wikipedia.org/wiki/Arthur_A

Sounds like you've never heard of Enron and Arthur Andersen. https://en.wikipedia.org/wiki/Arthur_Andersen#Enron_scandal https://en.wikipedia.org/wiki/Arthur_Andersen#Enron_scandal Or the S&L crisis, where most big failures had clean audits from the top audit firms.

Eisenstein 4y ago
Did we have 5 Enrons within 6 months of each other though? These things are an exception in traditional finance, but they seem to be the norm with crypto.
- pa7x1 4y ago
  These failures are in traditional finance, there was nothing related to blockchains or cryptography in the FTX internal operations or accounting books, nor in DCG/Grayscale, nor in BlockFi or Celsius. These are the failings of traditional finance in an unregulated or poorly regulated sector. Traditional finance as is conducted is insanely brittle and prone to manipulation/fraud. To avoid this, it needs to be strongly regulated and supervised. As the same error seems to be being made in HN again and again, here is an analogy that hopefully will make the point clear. Traditional finance is like a dynamically typed programming language. You can certainly be productive with it, but it's much easier to slip through programming errors. To compensate you need to build a large set of unit tests to re-do much of what a strongly typed language gives you out of the box. A blockchain is the strongly typed version of traditional finance. Harder to use, to a large extent much of the ecosystem is nascent and still being built but it prevents large swaths of fraud and manipulation because it provides the checks built-in. The DeFi ecosystem is coming unscathed from all this fallout; Uniswap, Aave, Curve, MakerDAO, RocketPool, GMX, dYdX...
  - Eisenstein 4y ago
    However, the linked article is about solving these problems with algorithms. The 'DeFi' systems you mention are not in control of vast sums of money, like the exchanges are. People want to use the exchanges and solving the problem by telling people to do other things isn't effective. The retort to 'these crypto problems could be solved with regulations' is that traditional finance has these problems already and is regulated. This is a problem with society and not with technology, and trying to apply technological solutions to problems that have existed and will exist as long as people exist, seems to be arrogant and ineffective. By trying to 'solve' these issues with technology, we appear to be opening new avenues up for gaming the system because there is no technology that emerges completely solved. Since we have been iteratively working on financial systems for a lot longer, it may be practical to work to progress that way instead of wiping everything and starting from scratch, where we are reinventing the wheel and getting all of the tragic consequences along with that.
    - pa7x1 4y ago
      > The 'DeFi' systems you mention are not in control of vast sums of money, like the exchanges are. People want to use the exchanges and solving the problem by telling people to do other things isn't effective. Uniswap alone has settled over a trillion USD. The current DeFi ecosystem on Ethereum (even now in the current market) has tens of billions of in value locked. I do not know what would be vast sums of money, it's still small in comparison with traditional finance but the technology is a few years old. > This seems to me to be a problem with society and not with technology, and trying to apply technological solutions to problems that have existed and will exist as long as people exist, seems to be arrogant and ineffective. Indeed, the fundamental problems are societal and human in nature. The point is minimizing the surface area where that human intervention can cause damage. If your argument held any merit we might as well get rid of double entry accounting. After all, it's just trying to apply a technological solution to human problems. https://en.wikipedia.org/wiki/Double-entry_bookkeeping https://en.wikipedia.org/wiki/Double-entry_bookkeeping > Since we have been iteratively working on financial systems for a lot longer, it seems practical to work to progress that way instead of wiping everything and starting from scratch, where we are reinventing the wheel and all of the tragic consequences along with that. It's not reinventing the wheel. It's building a stronger foundation. I'm going to assume your field of expertise is CS, if it's not, hopefully it will be useful for someone else. Imagine the same argument brought to progress in programming language design. What's the point of Rust? We are just reinventing the wheel, considering how much has been built in unsafe languages like C or C++ we might as well keep iteratively building on them. Humans are still making programming mistakes. We don't need no memory safety in programming languages.
- oldgradstudent 4y ago
  During the S&L crisis in the 1980s there were many bank failures with clean auditor opinions that turned out to be massively insolvent. During the early 2000s you had quite a few, including Enron, WorldCom, Tyco, Parmalat and other accounting scandals. During the 2008 crisis it turned out that large parts of the financial system was insolvent, but all had clean auditor opinions. As William K. Black says it, in control frauds (where the fraudsters are the the persons in control of the institution), accounting fraud is the weapon of choice. The problem with Crypto is there's nothing but frauds and Ponzis.

Eisenstein 4y ago

Did we have 5 Enrons within 6 months of each other though? These things are an exception in traditional finance, but they seem to be the norm with crypto.

pa7x1 4y ago
These failures are in traditional finance, there was nothing related to blockchains or cryptography in the FTX internal operations or accounting books, nor in DCG/Grayscale, nor in BlockFi or Celsius. These are the failings of traditional finance in an unregulated or poorly regulated sector. Traditional finance as is conducted is insanely brittle and prone to manipulation/fraud. To avoid this, it needs to be strongly regulated and supervised. As the same error seems to be being made in HN again and again, here is an analogy that hopefully will make the point clear. Traditional finance is like a dynamically typed programming language. You can certainly be productive with it, but it's much easier to slip through programming errors. To compensate you need to build a large set of unit tests to re-do much of what a strongly typed language gives you out of the box. A blockchain is the strongly typed version of traditional finance. Harder to use, to a large extent much of the ecosystem is nascent and still being built but it prevents large swaths of fraud and manipulation because it provides the checks built-in. The DeFi ecosystem is coming unscathed from all this fallout; Uniswap, Aave, Curve, MakerDAO, RocketPool, GMX, dYdX...
- Eisenstein 4y ago
  However, the linked article is about solving these problems with algorithms. The 'DeFi' systems you mention are not in control of vast sums of money, like the exchanges are. People want to use the exchanges and solving the problem by telling people to do other things isn't effective. The retort to 'these crypto problems could be solved with regulations' is that traditional finance has these problems already and is regulated. This is a problem with society and not with technology, and trying to apply technological solutions to problems that have existed and will exist as long as people exist, seems to be arrogant and ineffective. By trying to 'solve' these issues with technology, we appear to be opening new avenues up for gaming the system because there is no technology that emerges completely solved. Since we have been iteratively working on financial systems for a lot longer, it may be practical to work to progress that way instead of wiping everything and starting from scratch, where we are reinventing the wheel and getting all of the tragic consequences along with that.
  - pa7x1 4y ago
    > The 'DeFi' systems you mention are not in control of vast sums of money, like the exchanges are. People want to use the exchanges and solving the problem by telling people to do other things isn't effective. Uniswap alone has settled over a trillion USD. The current DeFi ecosystem on Ethereum (even now in the current market) has tens of billions of in value locked. I do not know what would be vast sums of money, it's still small in comparison with traditional finance but the technology is a few years old. > This seems to me to be a problem with society and not with technology, and trying to apply technological solutions to problems that have existed and will exist as long as people exist, seems to be arrogant and ineffective. Indeed, the fundamental problems are societal and human in nature. The point is minimizing the surface area where that human intervention can cause damage. If your argument held any merit we might as well get rid of double entry accounting. After all, it's just trying to apply a technological solution to human problems. https://en.wikipedia.org/wiki/Double-entry_bookkeeping https://en.wikipedia.org/wiki/Double-entry_bookkeeping > Since we have been iteratively working on financial systems for a lot longer, it seems practical to work to progress that way instead of wiping everything and starting from scratch, where we are reinventing the wheel and all of the tragic consequences along with that. It's not reinventing the wheel. It's building a stronger foundation. I'm going to assume your field of expertise is CS, if it's not, hopefully it will be useful for someone else. Imagine the same argument brought to progress in programming language design. What's the point of Rust? We are just reinventing the wheel, considering how much has been built in unsafe languages like C or C++ we might as well keep iteratively building on them. Humans are still making programming mistakes. We don't need no memory safety in programming languages.
oldgradstudent 4y ago
During the S&L crisis in the 1980s there were many bank failures with clean auditor opinions that turned out to be massively insolvent. During the early 2000s you had quite a few, including Enron, WorldCom, Tyco, Parmalat and other accounting scandals. During the 2008 crisis it turned out that large parts of the financial system was insolvent, but all had clean auditor opinions. As William K. Black says it, in control frauds (where the fraudsters are the the persons in control of the institution), accounting fraud is the weapon of choice. The problem with Crypto is there's nothing but frauds and Ponzis.