Why I have zero faith in crypto venture capitalists(bennettftomlin.com)
bennettftomlin.com
Why I have zero faith in crypto venture capitalists
https://bennettftomlin.com/2021/06/12/why-i-have-zero-faith-in-crypto-venture-capitalists/
239 comments
> there really are not a lot of real world use cases.
It's effectively just one. To make illegal transactions. That's a long list of things: drugs, hiding wealth, evading currency controls, extortion, and so on. Otherwise, existing currency and transfer mechanisms are more or less available and convenient.
It's effectively just one. To make illegal transactions. That's a long list of things: drugs, hiding wealth, evading currency controls, extortion, and so on. Otherwise, existing currency and transfer mechanisms are more or less available and convenient.
You've missed speculation and gambling. Not to say it's a great use case but it's the biggest. Most people buy them because the number goes up, not to buy drugs etc. Which is perhaps a bad idea but not actually illegal.
Yes, I think this is the 99% use case. A strong indication of this is the fact that they are very volatile and all tend to move in tandem.
Normal, real G7 currencies moving full percentage points in a day is a big deal, 10% moves in a day are very rare, 20% is a once in a lifetime event.
You would expect the different cryptocurrencies to move in different directions and speeds depending on their relative prospects. Instead you have these crazy days where they all go up 5-10% or down 5-10%, over and over. I hold about 8 of them in my wallet and yet still see pretty normal 10% daily moves.
The closest thing this reminds me to is trading bank stocks in 07-08 when everyone was gambling on which would go out of business.
A currency that regularly moves this violently is not an inflation hedge as a savings instrument store of value, nor is it a useful medium of exchange as how do you agree on a price when its moving by the hour.
It is clearly not a unit of measure either given that all the crypto apps report the value of your portfolio in.. fiat. Even these crypto give aways as exchange sign up bonuses or conference prizes are always worded as "$5 of ETH" or "$500 of bitcoin", haha.
A currency that can move 5% on a Sunday afternoon (again) because of an Elon Musk tweet (again) is not something to be taken too seriously (still).
Consider that by comparison, when the UK voted to Brexit, which was not what polls indicated.. a huge economic change with profound generational implications for both GBP & EUR ... GBP-EUR only moved 7%!!
Normal, real G7 currencies moving full percentage points in a day is a big deal, 10% moves in a day are very rare, 20% is a once in a lifetime event.
You would expect the different cryptocurrencies to move in different directions and speeds depending on their relative prospects. Instead you have these crazy days where they all go up 5-10% or down 5-10%, over and over. I hold about 8 of them in my wallet and yet still see pretty normal 10% daily moves.
The closest thing this reminds me to is trading bank stocks in 07-08 when everyone was gambling on which would go out of business.
A currency that regularly moves this violently is not an inflation hedge as a savings instrument store of value, nor is it a useful medium of exchange as how do you agree on a price when its moving by the hour.
It is clearly not a unit of measure either given that all the crypto apps report the value of your portfolio in.. fiat. Even these crypto give aways as exchange sign up bonuses or conference prizes are always worded as "$5 of ETH" or "$500 of bitcoin", haha.
A currency that can move 5% on a Sunday afternoon (again) because of an Elon Musk tweet (again) is not something to be taken too seriously (still).
Consider that by comparison, when the UK voted to Brexit, which was not what polls indicated.. a huge economic change with profound generational implications for both GBP & EUR ... GBP-EUR only moved 7%!!
I dislike crypto too, but let's give them the benefit of the doubt: it's also presented/sold as a sort of easy stock, pure of anything other than an inflation prevention.
It's as electronic as a stock, as purely abstract as a piece of gold, as resistant to inflation (theoretically) as anything having an intrinsic value that won't depend on currency.
Ofc, criminal transactions are also supposed to be eased but you know what, I think a bank made entirely to dodge annoying regulators will have a bit more success than an amateurish exchange: they'll give all your info, and therefore all your public transactions at the first little threat, while a big bank like Credit Suisse, would try to leverage lobbying power at first.
It's as electronic as a stock, as purely abstract as a piece of gold, as resistant to inflation (theoretically) as anything having an intrinsic value that won't depend on currency.
Ofc, criminal transactions are also supposed to be eased but you know what, I think a bank made entirely to dodge annoying regulators will have a bit more success than an amateurish exchange: they'll give all your info, and therefore all your public transactions at the first little threat, while a big bank like Credit Suisse, would try to leverage lobbying power at first.
I would say it's quite wrong to think of crypto as some sort of stock.
Stocks are ultimately anchored in a company, and it's ability to pay dividends to it's owners. The historical average of the value creation for S&P 500 for dividends are about 40% so it's not an amount that can be disregarded.
Since crypto doesn't have any similar mechanism, and all of the value is instead tied to what other persons want to buy it for, I argue that it's better to compare it to an online casino rather than an stock market. That would be more fair for those that are new to investing.
Stocks are ultimately anchored in a company, and it's ability to pay dividends to it's owners. The historical average of the value creation for S&P 500 for dividends are about 40% so it's not an amount that can be disregarded.
Since crypto doesn't have any similar mechanism, and all of the value is instead tied to what other persons want to buy it for, I argue that it's better to compare it to an online casino rather than an stock market. That would be more fair for those that are new to investing.
I can't believe intelligent people still hold this view.
I can’t believe intelligent people don’t see crypto for the ponzi scheme that it is
So a consumer startup by a 20yo founder with no experience, business model or an iota of revenue is a ponzi scheme too?
Edit: Wait! It is so and Bay Area has been selling this pyramid scheme for years. lol.
Edit: Wait! It is so and Bay Area has been selling this pyramid scheme for years. lol.
Not sure if this is from intelligent person.
Huh - so lets see...
NewEgg accepts(1): Doge, Bitcoin, Ethereum, Bitcoin cash, etc. Telsa may or may not accept Bitcoin depending on Elon's mood. And El Salvador just made bitcoin legal tender.
Yep - those are all illegal transactions.
Your argument boils down to "Only criminals use Tor"... Not very useful.
1) https://kb.newegg.com/knowledge-base/using-crypto-on-newegg/
Your argument boils down to "Only criminals use Tor"... Not very useful.
1) https://kb.newegg.com/knowledge-base/using-crypto-on-newegg/
Purchasing items on NewEgg with USD is simple, easy, and very fast. If you are using a credit card, you get additional benefits and protections. Additionally, per the link you provided, there are a number of restrictions on using crypto on NewEgg. What is the benefit to using crypto vs using a credit card?
One of the biggest disappointments to me about where we are with crypto is how the arc of the space supports the conventional wisdom about financial systems in general.
There was this idea, back at the start, that crypto would bring a new era of low-fee finex (especially for people in countries suffering under exploitative currency manipulation). The dream was that you'd be able to freely and cheaply transfer digital currencies and avoid the hardship of happening to live in a country that's experiencing high inflation. However, it seems like every time a crypto currency gets enough support and utilization that it might really be an alternative to the local currency, that popularization also pushes up transaction costs or exchange rates above the fiat finex rates. So we get the world we have now where all the big currencies have high costs and aren't even practical for transactions in the wealthy world, much less the developing world.
To me, it really feels like a repeat of the system that crypto folks critique: the banks. They too are uninterested in providing low-fee transactions, despite their energy costs per tx being far, far lower. The general idea is that they are greedy (and obviously banks are) but I'm very sad that crypto hasn't produced many real world examples to demonstrate that the banks are obviously greedy in this way.
There was this idea, back at the start, that crypto would bring a new era of low-fee finex (especially for people in countries suffering under exploitative currency manipulation). The dream was that you'd be able to freely and cheaply transfer digital currencies and avoid the hardship of happening to live in a country that's experiencing high inflation. However, it seems like every time a crypto currency gets enough support and utilization that it might really be an alternative to the local currency, that popularization also pushes up transaction costs or exchange rates above the fiat finex rates. So we get the world we have now where all the big currencies have high costs and aren't even practical for transactions in the wealthy world, much less the developing world.
To me, it really feels like a repeat of the system that crypto folks critique: the banks. They too are uninterested in providing low-fee transactions, despite their energy costs per tx being far, far lower. The general idea is that they are greedy (and obviously banks are) but I'm very sad that crypto hasn't produced many real world examples to demonstrate that the banks are obviously greedy in this way.
Yeah - both Bitcoin and Ethereum have issues with transfer prices. I'm getting a lil worried about Cardano/ADA as well, as it appears its a 1 ADA fee for transfer.
There is also the problem of transaction volume. No coin can currently handle anything close to the number of transactions the visa network can.
Sadly, as much as I hate how its being pumped, that was one thing doge got right - cheap and fast. And for years the price was stable. This made it really nice for transfers between exchanges.
There is also the problem of transaction volume. No coin can currently handle anything close to the number of transactions the visa network can.
Sadly, as much as I hate how its being pumped, that was one thing doge got right - cheap and fast. And for years the price was stable. This made it really nice for transfers between exchanges.
Actually on Cardano the 1ada thing is just a minimum to utxo size. Currently tx costs for pure Ada transactions are 0.187 and they will be going down significantly in the future.
Hmm - not sure I follow - the transfers were for more then 1 ADA, so wouldn't the utxo already be over 1 ADA? (and this was wallet to wallet, so I'd assume that would be a 'pure ada' transaction?
Anyway - glad to hear its going down. The Eth gas prices are really showing how much of a killer transaction costs can be. (On top of all the places that stopped taking Bitcoin when the xfers got so expensive)
Anyway - glad to hear its going down. The Eth gas prices are really showing how much of a killer transaction costs can be. (On top of all the places that stopped taking Bitcoin when the xfers got so expensive)
Assuming you have USD (you might not be a US citizen, exchange rates, yada yada), assuming you have a credit card, etc. etc. Proof of payment is basically instant, is globally accessible and I don't have to jump thru the 'verified by visa' bullshit. Also, no spending limits - I've ordered equipment from newegg and payed for next day delivery, only to have the equipment show up late because my visa 'helpfully' twigged an 'unusual purchase'. I've also had banks tell me there are daily spending limits on debit card that are too low to buy a high end system. All these 'features' you tout have NEVER been anything except a pain in my ass.
Bottom line is - one size doesn't fit all...
Bottom line is - one size doesn't fit all...
Assuming you have USD
I was assuming US persons doing a transaction in the US. If you are in another country, there will be other retailers that offer services in your currency. Also NewEgg supports transactions in many currencies.
you might not be a US citizen
Citizenship is not relevant to purchasing items for online retailers.
assuming you have a credit card
Debit cards can be used just as easily. Fewer protections, but it works just fine. Also PayPal, etc.
Proof of payment is basically instant, is globally accessible
This is true with credit card, debit card, paypal, etc.
I don't have to jump thru the 'verified by visa' bullshit
This is hardly an issue. Takes a few seconds, a total non-issue for 99% of people who just want to purchase something.
Also, no spending limits - I've ordered equipment from newegg and payed for next day delivery, only to have the equipment show up late because my visa 'helpfully' twigged an 'unusual purchase'
Yes, there are fraud detection features for credit cards. I'm pretty sure this occurs very rarely. If you don't like this, use a debit card or paypal with a bank account.
I've also had banks tell me there are daily spending limits on debit card that are too low to buy a high end system
I have never run into this because I never use my debit card, ever. However, it seems this be fixed by calling your bank and raising your limit permanently.
Bottom line is - one size doesn't fit all...
That's right. Crypto might be right for you. But 99% of consumers who want fast, easy, and simple mechanism for purchasing items at any retailer, credit or debit will be the best choice.
I was assuming US persons doing a transaction in the US. If you are in another country, there will be other retailers that offer services in your currency. Also NewEgg supports transactions in many currencies.
you might not be a US citizen
Citizenship is not relevant to purchasing items for online retailers.
assuming you have a credit card
Debit cards can be used just as easily. Fewer protections, but it works just fine. Also PayPal, etc.
Proof of payment is basically instant, is globally accessible
This is true with credit card, debit card, paypal, etc.
I don't have to jump thru the 'verified by visa' bullshit
This is hardly an issue. Takes a few seconds, a total non-issue for 99% of people who just want to purchase something.
Also, no spending limits - I've ordered equipment from newegg and payed for next day delivery, only to have the equipment show up late because my visa 'helpfully' twigged an 'unusual purchase'
Yes, there are fraud detection features for credit cards. I'm pretty sure this occurs very rarely. If you don't like this, use a debit card or paypal with a bank account.
I've also had banks tell me there are daily spending limits on debit card that are too low to buy a high end system
I have never run into this because I never use my debit card, ever. However, it seems this be fixed by calling your bank and raising your limit permanently.
Bottom line is - one size doesn't fit all...
That's right. Crypto might be right for you. But 99% of consumers who want fast, easy, and simple mechanism for purchasing items at any retailer, credit or debit will be the best choice.
you spend a lot of time and verbage to try and justify the issues with the existing system. You want to appeal to authority ("99% of people..." and "I'm pretty sure..") Not to mention trying to claim since you never had any issues, no one else should...
and in the end, you walk it back to "Crypto might be right for you". Which is what I've been saying all along. I don't claim crypto is right for everyone/everything. Just that there may be times when it is right for somepeople/somethings.
and in the end, you walk it back to "Crypto might be right for you". Which is what I've been saying all along. I don't claim crypto is right for everyone/everything. Just that there may be times when it is right for somepeople/somethings.
Fraud detection is a feature, not an issue. Default spending limits on debit cards are a feature, not an issue. It's a very good idea that debit cards have default maximum spends, as long as it is simple to raise them permanently.
>>Fraud detection is a feature, not an issue.
Says who? And if its a 'feature' - why can't I opt out? Default limits on debit cards are non-intuitive to say the least.."you have $10 in the bank, but can only spend $5"
I'm glad you get to decide whats good and bad..really, it must be such a burden having to make that decision for everyone.
Says who? And if its a 'feature' - why can't I opt out? Default limits on debit cards are non-intuitive to say the least.."you have $10 in the bank, but can only spend $5"
I'm glad you get to decide whats good and bad..really, it must be such a burden having to make that decision for everyone.
OP was talking about real world use case. Why does crypto have to be more beneficial than credit cards to count as a real world use case? There are people in the US who cannot get a credit card easily.
It's reasonable to ask just how useful a use case is. Credit cards seem, on balance, to be demonstrably better than crypto for payments; to my mind, by a very large margin. Crypto brings nothing for me as an upside, and is a bigger hassle otherwise.
>>It's reasonable to ask just how useful
It's totally reasonable to ask how useful something is for you. However, other people might have other answers to that question. For instance, if existing solutions suited everyone - why are zelle and venmo so popular? Hell, I zelle money between MY OWN accounts at different banks just cause its faster, cheaper and easier then the alternative ACH/Wire transfers.
Edit: Hmm - if I could zelle to my brokerage account I probably wouldn't have missed out on that AMAT I'm salty about. :-P
It's totally reasonable to ask how useful something is for you. However, other people might have other answers to that question. For instance, if existing solutions suited everyone - why are zelle and venmo so popular? Hell, I zelle money between MY OWN accounts at different banks just cause its faster, cheaper and easier then the alternative ACH/Wire transfers.
Edit: Hmm - if I could zelle to my brokerage account I probably wouldn't have missed out on that AMAT I'm salty about. :-P
My focus was payments (newegg was the original example), and I was comparing credit cards to crypto.
But let me ask: why use zelle to move money between accounts? Why not crypto? Or let's say you're sending money to a friend to split a check or something; would you use crypto vs any of the other "cash" transfer mechanisms?
I don't think that existing financial systems can't and shouldn't be replaced with something better, but so far cryptocurrency ain't it. I should also say that I'm not particularly susceptible to the ideological arguments on its behalf, which seem to be a big bonus for many. Maybe it's just not for me.
But let me ask: why use zelle to move money between accounts? Why not crypto? Or let's say you're sending money to a friend to split a check or something; would you use crypto vs any of the other "cash" transfer mechanisms?
I don't think that existing financial systems can't and shouldn't be replaced with something better, but so far cryptocurrency ain't it. I should also say that I'm not particularly susceptible to the ideological arguments on its behalf, which seem to be a big bonus for many. Maybe it's just not for me.
Fair enough...
My bank/brokerage doesn't take crypto. So Zelle is the next best thing given how slow and expensive wiretransfer/ACH is. (Wasn't wire transfer supposed to be 'fast', it generally seems slower then ACH?). And yes, I do use crypto to send 'cash' to friends.
I do agree wholeheartedly with your statement crypto isn't ready 'for the masses' yet. For one thing, no coin can handle anywhere near the transactions Visa can. But I don't see that as a reason to vilify it, shut it down, or pretend that only criminals use it.
In HN vernacular, I see crypto's as 'startups' - some will pan out, the vast majority won't. Hopefully, each generation of coin will improve on the ones before it.
as for "just not for me" - I'm only putting beer money in. I think most of us that have been in it for a while are in that position. Certainly none of us are out mortgaging our houses. Being skeptical of the hype is a good thing. Maybe in a few years/generations crypto will be in a place that's more useful to you :-)
edit: formating s/any/and/
My bank/brokerage doesn't take crypto. So Zelle is the next best thing given how slow and expensive wiretransfer/ACH is. (Wasn't wire transfer supposed to be 'fast', it generally seems slower then ACH?). And yes, I do use crypto to send 'cash' to friends.
I do agree wholeheartedly with your statement crypto isn't ready 'for the masses' yet. For one thing, no coin can handle anywhere near the transactions Visa can. But I don't see that as a reason to vilify it, shut it down, or pretend that only criminals use it.
In HN vernacular, I see crypto's as 'startups' - some will pan out, the vast majority won't. Hopefully, each generation of coin will improve on the ones before it.
as for "just not for me" - I'm only putting beer money in. I think most of us that have been in it for a while are in that position. Certainly none of us are out mortgaging our houses. Being skeptical of the hype is a good thing. Maybe in a few years/generations crypto will be in a place that's more useful to you :-)
edit: formating s/any/and/
Why does crypto have to be more beneficial than credit cards to count as a real world use case?
Because if you want people to switch from credit/debit/paypal to crypto, the idea is that it needs to offer some tangible benefit.
There are people in the US who cannot get a credit card easily.
Yes. Debit or Paypal can be used then. The only clear benefit I see from crypto are people who are completely unable to get ANY bank account. But still with crypto, you need a way to purchase it. Not easy without a bank account, but possible if you can find a way to buy it with cash.
Because if you want people to switch from credit/debit/paypal to crypto, the idea is that it needs to offer some tangible benefit.
There are people in the US who cannot get a credit card easily.
Yes. Debit or Paypal can be used then. The only clear benefit I see from crypto are people who are completely unable to get ANY bank account. But still with crypto, you need a way to purchase it. Not easy without a bank account, but possible if you can find a way to buy it with cash.
>>Because if you want people to switch from credit/debit/paypal to crypto,
This seems to be the crux of our conversation. I _don't_ want people to switch unless they're ready to take the risks. Crypto is still in its infancy, is definitely not ready for mass market. But I don't think that means we should totally give up on it either.
I see it sorta like the stock market. Picking stocks is (more)risky, so I stick to index funds. Sometimes I'll throw some beer money at a 'pick' I like, but that's the extent of it. (still salty I missed AMAT at $110 because 'wire transfer')
Crypto is the same way - sometimes I throw some beer money at it. I'm not claiming it's right for everyone, or the be-all-end-all. Just that its worth exploring.
P.S. - I was a Paypal 'early adopter', worst experience of my life. They still have $200 of my money, because at the time they had no way of dealing if your email account went away. I guess its gotten better since then.
This seems to be the crux of our conversation. I _don't_ want people to switch unless they're ready to take the risks. Crypto is still in its infancy, is definitely not ready for mass market. But I don't think that means we should totally give up on it either.
I see it sorta like the stock market. Picking stocks is (more)risky, so I stick to index funds. Sometimes I'll throw some beer money at a 'pick' I like, but that's the extent of it. (still salty I missed AMAT at $110 because 'wire transfer')
Crypto is the same way - sometimes I throw some beer money at it. I'm not claiming it's right for everyone, or the be-all-end-all. Just that its worth exploring.
P.S. - I was a Paypal 'early adopter', worst experience of my life. They still have $200 of my money, because at the time they had no way of dealing if your email account went away. I guess its gotten better since then.
Ok, but I said effectively. Not that it was 100% absolutely the only use.
> It's effectively just one. To make illegal transactions.
Your perspective is limited. Check out my general intro [1] and other articles [2].
TL;DR: at least one legitimate use case is to keep up with inflation.
[1] - https://danuker.go.ro/intro-to-cryptocurrencies.html
[2] - https://danuker.go.ro/tag/cryptocurrencies.html
Your perspective is limited. Check out my general intro [1] and other articles [2].
TL;DR: at least one legitimate use case is to keep up with inflation.
[1] - https://danuker.go.ro/intro-to-cryptocurrencies.html
[2] - https://danuker.go.ro/tag/cryptocurrencies.html
Yet BTC is trailing inflation by over 30% the last month alone?
Admittedly, there is high volatility due to demand. But as more get-rich-quick people get bored of it, that should stabilize.
> But as more get-rich-quick people get bored of it, that should stabilize.
Why do you think that will happen?
The "get-rich-quick, evade-taxes, and evade-scrutiny" thing is front and center of the whole intent of cryptocurrency. How long has it been going now, 10 years? How much longer?
It would be nice to have a crypto-currency where real people can use it like real currency. However, to be able to do that would mean eliminating the danger that a mere typo or some unintended consequence of "code-as-law" would wipe someone out and give another an insane windfall-- all in a millisecond.
I think the cryptocurrency can work, but it has to have sane and civilized features. These have to be designed-in from the beginning. Otherwise, it's just an endless libertarian circle jerk.
Why do you think that will happen?
The "get-rich-quick, evade-taxes, and evade-scrutiny" thing is front and center of the whole intent of cryptocurrency. How long has it been going now, 10 years? How much longer?
It would be nice to have a crypto-currency where real people can use it like real currency. However, to be able to do that would mean eliminating the danger that a mere typo or some unintended consequence of "code-as-law" would wipe someone out and give another an insane windfall-- all in a millisecond.
I think the cryptocurrency can work, but it has to have sane and civilized features. These have to be designed-in from the beginning. Otherwise, it's just an endless libertarian circle jerk.
Speculative mania is also driven by cheap credit, low interest rates and easy money in the form of direct stimulus.
I think of it like this. Various tokens give you certain types of exposures with different risk profiles. Yields are so high because of the risk.
This really isn't so different from the centralized financial system where we have built complex structures (exotic derivatives, structured products, etc) to give you certain types of exposures. The difference is that DeFi is globally accessible and permissionless.
Even if DeFi never moves beyond these "financial speculation" use cases, if it replaces what's currently centralized in government-regulated financial markets, that's a multi-trillion dollar opportunity.
I'm doubtful we'll see any retail use cases or mass option beyond speculation soon, just like your average retail user does not buy exotic derivatives. That doesn't mean it's not useful.
This really isn't so different from the centralized financial system where we have built complex structures (exotic derivatives, structured products, etc) to give you certain types of exposures. The difference is that DeFi is globally accessible and permissionless.
Even if DeFi never moves beyond these "financial speculation" use cases, if it replaces what's currently centralized in government-regulated financial markets, that's a multi-trillion dollar opportunity.
I'm doubtful we'll see any retail use cases or mass option beyond speculation soon, just like your average retail user does not buy exotic derivatives. That doesn't mean it's not useful.
Except those "exotic derivatives, structured products, etc" do have real investments at the heart of them. What is at the heart of those "DeFi" investments? It seems to mostly be criminal and criminal-like behavior (this includes transferring money in ways the local government doesn't approve of which can admittedly be great if the local government is oppressive).
I think it's arguable what real investments are. How "real" is the stock price of Gamestop? Aren't most prices just driven by imaginary narratives? Investors rarely care about dividends.
There are also DeFi projects that are based what you call "real investments" such as stablecoins, synthetic assets for stocks and commodities, etc. When the backing/staking mechanism for these works as intended, they are just as real as any derivatives on these assets in the traditional financial markets.
There are also DeFi projects that are based what you call "real investments" such as stablecoins, synthetic assets for stocks and commodities, etc. When the backing/staking mechanism for these works as intended, they are just as real as any derivatives on these assets in the traditional financial markets.
Let's say Gamestop is shutdown tomorrow. There is real estate, there is IP, and there are physical products that could all be sold to recoup losses. There is intrinsic value there regardless of whether the current stock price has greatly exceeded those values. The overwhelming majority of cryptocurrency investments have no intrinsic value.
And crypto projects that are derivatives on real world assets, like fiat currencies (stablecoins) or stocks (synthetic tokens), have equivalent backing. If the project were to dissolve, there would be assets backing that. Not suggesting this is the case here, but I keep seeing this worrisome trend where people are stuck in the Bitcoin and ICO world from 5 years ago and think nothing has changed and they don't really understand the technical details of how DeFi protocols work today.
In the case where tokens are not backed by anything they are often governance tokens, which are kind of like startup equity. Startups without much IP or real estate are commonly valued at millions of dollars. This is no different in that anyone is a VC investing in e.g. future governance rights.
In the case where tokens are not backed by anything they are often governance tokens, which are kind of like startup equity. Startups without much IP or real estate are commonly valued at millions of dollars. This is no different in that anyone is a VC investing in e.g. future governance rights.
What percentage of cryptocurrencies are backed by real world assets? Who ensures that this backing is actually baked into the cryptocurrency and isn't just some marketing speak? For example there is Tether which claimed to be backed by USD. "[I]t turns out that the stablecoin that used to say it was 100 per cent backed by cash reserves is in fact . . . 2.9 per cent backed by cash reserves".[1]
[1] - https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b...
[1] - https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b...
And Theranos claimed to have working machines...
Risk is risk - in stock, crypto, or life in general.
Risk is risk - in stock, crypto, or life in general.
That's a false equivalence. Literally every share of a business is supposed to be backed by a business. Zero coins entitle the bearer to any right or interest whatsoever. Even those stable coins don't give you any claim on the backing instruments. Certainly not in Tether town. Says so right in their T&Cs.
The key word there is 'supposed'...
Theranos, B. Madoff, and others seemed to feel that was just a suggestion :-P
Also, businesses are not required to buy their stock back from you, so they are not 'backed' any more then crypto is.
If a company goes broke, and you hold common stock - you get nothing
edit:s/there/their/
Theranos, B. Madoff, and others seemed to feel that was just a suggestion :-P
Also, businesses are not required to buy their stock back from you, so they are not 'backed' any more then crypto is.
If a company goes broke, and you hold common stock - you get nothing
edit:s/there/their/
In this thread, you're comparing crypto to Madoff and Theranos, and you think this is an argument in its favour.
A startup equity consists of the startup's net assets, so the owners have a claim on these assets. In the case of these "governance rights" what assets do the holders have a claim on?
Governance tokens are just a glorified twitter poll.
> Investors rarely care about dividends.
This one statement reveals that you have zero idea what you’re talking about and are just presenting yourself as knowledgeable. Why do that?
This one statement reveals that you have zero idea what you’re talking about and are just presenting yourself as knowledgeable. Why do that?
I can see this being true in the stocks world. A lot of companies have IPOed without a plan for dividend payouts because their main business plan is investment in expansion. People who jumped onto amazon and tesla may have made fortunes but have gotten exactly 0 dividends.
Yet. Companies pay dividends when they no longer believe that they can provide a better ROI by investing it in themselves. Like AAPL. All it signals is there remains a growth story to be had.
However, any money the company invests in itself raises the intrinsic and shareholder value of outstanding equity, just like share buybacks, and dividends.
However, any money the company invests in itself raises the intrinsic and shareholder value of outstanding equity, just like share buybacks, and dividends.
Companies have intrinsic value in their balance sheets and are also subject to accounting rules that give confidence (and value) to their cashflows. So, ultimately, a share in a company does map to something material that could theoretically be used for something other than speculation.
In the short term prices are driven by liquidity, but the fundamental value of a company's stock is the net present value of its future free cash flows. Anyone believing otherwise will, in the long term, lose money.
> There are also DeFi projects that are based what you call "real investments" such as stablecoins, synthetic assets for stocks and commodities, etc.
All these are examples of DeFi parasitising conventional finance products. Also none of these are decentralised or "trustless". Notice how all the main stablecoin issuers have to provide regular third-party attestations assuring that the coins have appropriate backing.
All these are examples of DeFi parasitising conventional finance products. Also none of these are decentralised or "trustless". Notice how all the main stablecoin issuers have to provide regular third-party attestations assuring that the coins have appropriate backing.
The GME stock price is a derivative.
GME stock is a valid contract with a proportional ownership share of all GME tangible and intangible assets.
What crypto has the rights to any tangible assets? Even stablecoins are unaudited.
GME stock is a valid contract with a proportional ownership share of all GME tangible and intangible assets.
What crypto has the rights to any tangible assets? Even stablecoins are unaudited.
Stablecoins do not offer claim on the backing assets anyways, if and when they exist.
The difference is that GameStop actually has a way to receive cash outside of an investor. They're a real business with revenue. GameStop is using the inflated valuation to raise money to pay off debt and expand its business. While it's unlikely, it's possible that they will eventually make enough profit to justify it's valuation.
True, a good chunk of trading and wall street in general is not doing anything real. But just like the dotcom bubble, the music stops eventually, and you don't want to be stuck holding worthless stocks or coins when that happens.
> (this includes transferring money in ways the local government doesn't approve of which can admittedly be great if the local government is oppressive).
That is a very weird take. It assumes that privacy is somehow always linked to illicite activities. Even if I'm buying candy, the government doesn't have any right to track it. Hiding my life from the government should not be automatically labeled criminal.
That is a very weird take. It assumes that privacy is somehow always linked to illicite activities. Even if I'm buying candy, the government doesn't have any right to track it. Hiding my life from the government should not be automatically labeled criminal.
I think it is more your interpretation of my take is weird because I never said anything approaching what you are suggesting.
You want privacy, buy in cash. Most cryptocurrencies don't provide added privacy and they usually end up decreasing privacy since all transactions are on the public ledger.
The type of thing I am talking about is people transferring money out of an economy in ways that are forbidden by the government. Governments can want to prevent this for legitimate reasons like trying to stop money laundering and tax evasion. They can also do it for illegitimate reasons like the government trying to retain authoritarian control over its citizens or to prop up a failing currency. Either way it would mean the transfers are illegal, but not all of them are necessarily immoral. That is why I dubbed it "criminal-like behavior".
You want privacy, buy in cash. Most cryptocurrencies don't provide added privacy and they usually end up decreasing privacy since all transactions are on the public ledger.
The type of thing I am talking about is people transferring money out of an economy in ways that are forbidden by the government. Governments can want to prevent this for legitimate reasons like trying to stop money laundering and tax evasion. They can also do it for illegitimate reasons like the government trying to retain authoritarian control over its citizens or to prop up a failing currency. Either way it would mean the transfers are illegal, but not all of them are necessarily immoral. That is why I dubbed it "criminal-like behavior".
Government bonds are already on the way there. There are multiple alternatives live today for getting exposure to stocks of major companies as well as commodities.
It is a matter of regulatory clarity, and processes and infrastructure (of which some of these projects fill) until we get hard non-crypto-related security tokens etc.
Things are starting to fall in place but things have to prove themselves in the current market before
It is a matter of regulatory clarity, and processes and infrastructure (of which some of these projects fill) until we get hard non-crypto-related security tokens etc.
Things are starting to fall in place but things have to prove themselves in the current market before
>>Except those "exotic derivatives, structured products, etc" do have real investments at the heart of them.
Hmm...2008 housing crash and the recession that followed beg to differ.
Hmm...2008 housing crash and the recession that followed beg to differ.
I'm not sure how you think they differ. They are exactly what I am talking about. They had a real investment at the heart of them. The problem in 2008 was that the investments were bad. People were given mortgages that exceeded their ability to pay them back. But that is still a real investment with the intrinsic value of the real estate properties that were foreclosed on.
The mortgages were known to be essentially valueless, packaged up and resold anyway..
that's not what I'd consider having a 'real investment' at the heart of them. And the value of the real estate didn't cover the losses on the loans, prompting bailouts.
that's not what I'd consider having a 'real investment' at the heart of them. And the value of the real estate didn't cover the losses on the loans, prompting bailouts.
The mortgages didn't have positive value, but they had the actual homes as collateral which provided intrinsic value. A mortgage goes under and you have a house to short sell and recoup your losses. A cryptocurrency goes bust and you have nothing. It is the difference between losing 20% of your investment and losing 100% of your investment.
They literally threw the country into a recession? Also, the average person isn't writing mortgages.
A better example might be the average investor in a company. The average investor loses everything if a company goes under. Some creditors might get paid, and if they're lucky some 'preferred stock' holders might get something. But the average person (common stock) loses everything they put in..
I'm not really seeing much of a difference ? There is risk in everything...If you can't afford to lose, then don't bet?
A better example might be the average investor in a company. The average investor loses everything if a company goes under. Some creditors might get paid, and if they're lucky some 'preferred stock' holders might get something. But the average person (common stock) loses everything they put in..
I'm not really seeing much of a difference ? There is risk in everything...If you can't afford to lose, then don't bet?
>I'm not really seeing much of a difference ? There is risk in everything...If you can't afford to lose, then don't bet?
The difference is that intrinsic value provides a floor for potential losses and therefore reduces risk. If you can't understand why a worst case scenario of losing 20% of your investment is better than a worst case scenario of losing 100% of your investment, then I don't think you and I are going to have any constructive discussions about investing.
The difference is that intrinsic value provides a floor for potential losses and therefore reduces risk. If you can't understand why a worst case scenario of losing 20% of your investment is better than a worst case scenario of losing 100% of your investment, then I don't think you and I are going to have any constructive discussions about investing.
Wow - I specifically called out that most people don't write mortgages, presented what I thought was a relevant scenario for the 'average person' ...
And you specifically go out of your way to pretend you didn't see it/understand it? Yeah - 'constructive' doesn't seem to be likely
And you specifically go out of your way to pretend you didn't see it/understand it? Yeah - 'constructive' doesn't seem to be likely
Regulatory capture is still a possible problem on the other end of the spectrum that needs to be countered with effort.
so we should expend the effort to fix the issues with the existing system..
But we should just throw out new systems like crypto because they still have issues that need "to be countered with effort" ?
I'm not claiming any system is perfect, but it seems odd to shrug at the issues in one system and demonize another system for having issues...
But we should just throw out new systems like crypto because they still have issues that need "to be countered with effort" ?
I'm not claiming any system is perfect, but it seems odd to shrug at the issues in one system and demonize another system for having issues...
You injecting a straw man argument doesn't help.
We need to fix the existing system, yes, and it requires real work - real relationship building, real trust networks of competent critical thinkers - a meritocracy, hierarchy of competent to form and be strengthened; regulatory capture is a multi-industry, multi-institutional issue.
Certain issues inherently to Bitcoin's issues are unavoidable pitfall and not fixable. The issues with government are fixable, and arguably the US government, democracy and capitalism has been highly successful for getting innovation to where it is today. Next step is making sure people/businesses are paying their fair share into the system and then redistributing a UBI to the largest segment or largest cog in the machinery - consumers, so then the machine has the fuel to run.
We need to fix the existing system, yes, and it requires real work - real relationship building, real trust networks of competent critical thinkers - a meritocracy, hierarchy of competent to form and be strengthened; regulatory capture is a multi-industry, multi-institutional issue.
Certain issues inherently to Bitcoin's issues are unavoidable pitfall and not fixable. The issues with government are fixable, and arguably the US government, democracy and capitalism has been highly successful for getting innovation to where it is today. Next step is making sure people/businesses are paying their fair share into the system and then redistributing a UBI to the largest segment or largest cog in the machinery - consumers, so then the machine has the fuel to run.
What strawman would that be?
BTW - I agree Bitcoin has issues (speed/cost being the 2 biggest). It was literally the first generation coin. Other coins are trying to solve those problems. Personally I like Cardano/ADA for that reason - its trying to fix some of the issues with first gen. coins.
Also, if you think you can get people/businesses to pay their fair share...I think your dreaming. I really hope you can, but I don't see it happening in the next 20 years.
I agree about consumers. Its annoying so much energy is spent talking about the 'minimum wage', when we really need people with a 'middle class wage' to drive the economy. Seems like we're more interested in keeping people at the bottom then actually increasing the numbers of people with disposable income to drive the economy.
BTW - I agree Bitcoin has issues (speed/cost being the 2 biggest). It was literally the first generation coin. Other coins are trying to solve those problems. Personally I like Cardano/ADA for that reason - its trying to fix some of the issues with first gen. coins.
Also, if you think you can get people/businesses to pay their fair share...I think your dreaming. I really hope you can, but I don't see it happening in the next 20 years.
I agree about consumers. Its annoying so much energy is spent talking about the 'minimum wage', when we really need people with a 'middle class wage' to drive the economy. Seems like we're more interested in keeping people at the bottom then actually increasing the numbers of people with disposable income to drive the economy.
Just one method of collecting more tax money and it's happening:
"Biden Wants to Hire 87,000 Additional IRS Agents to Go After Wealthy Tax Dodgers" - https://www.reddit.com/r/politics/comments/nibk03/biden_want...
"Biden's $80 billion plan to beef up IRS audits may target wealthy small business owners" - https://www.cnbc.com/2021/05/05/bidens-80-billion-plan-to-be...
"Biden Wants to Hire 87,000 Additional IRS Agents to Go After Wealthy Tax Dodgers" - https://www.reddit.com/r/politics/comments/nibk03/biden_want...
"Biden's $80 billion plan to beef up IRS audits may target wealthy small business owners" - https://www.cnbc.com/2021/05/05/bidens-80-billion-plan-to-be...
That sounded great until the 'wealthy small business owners' part..
So the mega rich get off again...
Aannd of course, govt's are already trying to carve out provisions for their local pet industries in the G7 15% corporate tax talks..
So the mega rich get off again...
Aannd of course, govt's are already trying to carve out provisions for their local pet industries in the G7 15% corporate tax talks..
'That sounded great until the 'wealthy small business owners' part..'
That would be wealthy small business owners who aren't paying their taxes, I presume. And you're making an assumption "so the mega rich get off again..."
That would be wealthy small business owners who aren't paying their taxes, I presume. And you're making an assumption "so the mega rich get off again..."
DeFi can't do much financing at all since smart contracts can only replicate a small subset of financial products which aren't very useful to begin with. Even calling it "finance" is a bit of a stretch.
> smart contracts can only replicate a small subset of financial products
Why?
Why?
One of the reasons is that many financial contracts have provisions to seize assets under certain circumstances. This is not possible with DeFi because DeFi is built around "unconfiscatable" digital assets.
I believe it is possible to write in provisions for some actor or set of actors to seize assets in a smart contract. This doesn't seem common either because of immaturity or just culture, but I don't think it is impossible.
No, that's not it. An actor must be able to seize assets from another actor, under certain circumstances. That can't be done with smart contracts because of the security model of blockchains.
It can if it is written into the contract. I suspect pretty much all contracts will have provisions for this in the future.
There's still the issue of what kinds of trigger circumstances you can commit to code.
No, a smart contract cannot seize assets from another wallet. A key feature of distributed ledgers is that only the person who has the private key to a wallet can move assets from that wallet. If you don't understand this there's no point continuing this conversation.
I think you are thinking too narrowly. It is true that a simple transfer from one wallet to another can't be reversed through technical means (though I'm interested in seeing how the law on this develops, for instance whether the legal system will compel wallet owners to pay back assets under threat of real-world non-crypto consequences if they don't), but you certainly can set up an escrow system where the keys to the escrow account are held by a "court" which can come to consensus on one participant retrieving funds from another participant under some set of rules and circumstances. This is more complex and fraught to get right than just direct wallet transfers, which I'm sure is why it isn't common (or maybe doesn't exist at all, I'm not sure), but it's also not impossible.
Sure, but that's not a smart contract, it's a "court system" (except much worse, because it's unaccountable), whereas the whole purpose of smart contracts was to replace courts. The other problem is the assets still need be deposited somewhere in advance, which defeats the purpose of a whole lot of financial operations including most types of loans.
I'm talking about implementing a "court" inside a smart contract. That is, the "court" is just one or more entities that control the private keys necessary to govern the funds locked in the contract.
I'm not sure I understand your last sentence, escrow is a common mechanism in traditional finance, which seems to work for financial operations including loans. But you may well be right on this point, I just don't really understand what you mean.
I'm not sure I understand your last sentence, escrow is a common mechanism in traditional finance, which seems to work for financial operations including loans. But you may well be right on this point, I just don't really understand what you mean.
But governments regulate because before regulation, it was a scammers paradise.
I don't think you're wrong conceptually. But in practical terms:
1) the traditional options with varying risk profiles are mostly legitimate. The ratio of scam to authentic project is much higher in crypto. Or if not "scam", products where the creators (as pointed out in this article) might be perfectly happy if the product turned out to be successful, but mostly don't care because they make their money up front: reward with very little risk. Retail customers take all the risk. Traditional financial products align incentives better because if no one want is, no one is making transaction or management fees either. They're (mostly) only successful if customers are successful
2) Financial products based on crypto have no real-world assets backing them, making their prices much more volatile. If you're investing in traditional high risk product that ultimately relies on a real-world commodity like oil, you can make reasoned predictions on where oil demand might be headed. Your might make a high risk bet that oil prices are going to bottom out from their current peak due to decreased demand after the Summer and a minor resurgence in COVID as more and more people go back to work and then kids stop distance learning and mostly go back to school in the fall, etc. You might be wrong, but you can see an actual underlying asset with real-world utility to make better reasoned decisions. It is much harder to do that with crypto when a tweet by some high profile billionaire (Elon comes to mind) or rumors of regulatory scrutiny could send prices soaring or plummeting. This is very rare in traditional financial products.
I also don't think crypto will ever ever ever replace government regulated markets. It may become part of them, but not replace. The government (at least in the US) is already regulating crypto. CTR's are already required, the SEC has stepped in pretty heavily to classify most crypto as securities, complete with the requirements that comes with that, etc. It can be decentralized but still regulated, and governments are simply not going to allow crypto to take away their ability to control their own monetary policy. Plenty of governments may wish to move on from the USD being the default world reserve currency, but that's because they want it to be something they have more control over. Crypto doesn't fill that role.
All the US would have to do is regulate how every US bank works with crypto, and require that US banks only work with foreign banks that follow similar requirements. Any foreign bank wanting to do business even remotely related to the US-- which is nearly all of them, would have no choice but to follow. Or the US could regulate how businesses are able to accept crypto as a currency. Businesses don't operate in a decentralized abstraction layer: They operate in physical locations. It might be difficult to seize their crypto assets if they violate the law (though not impossible) but still very easy to seize & shutdown their physical assets, throw people in jail, etc.
Sure, if crypto could somehow avoid all of that until it became the de facto medium of exchange, governments would have a much harder time doing this. But it's not like governments aren't aware of what's going on, and as I said the regulation has already begun.
1) the traditional options with varying risk profiles are mostly legitimate. The ratio of scam to authentic project is much higher in crypto. Or if not "scam", products where the creators (as pointed out in this article) might be perfectly happy if the product turned out to be successful, but mostly don't care because they make their money up front: reward with very little risk. Retail customers take all the risk. Traditional financial products align incentives better because if no one want is, no one is making transaction or management fees either. They're (mostly) only successful if customers are successful
2) Financial products based on crypto have no real-world assets backing them, making their prices much more volatile. If you're investing in traditional high risk product that ultimately relies on a real-world commodity like oil, you can make reasoned predictions on where oil demand might be headed. Your might make a high risk bet that oil prices are going to bottom out from their current peak due to decreased demand after the Summer and a minor resurgence in COVID as more and more people go back to work and then kids stop distance learning and mostly go back to school in the fall, etc. You might be wrong, but you can see an actual underlying asset with real-world utility to make better reasoned decisions. It is much harder to do that with crypto when a tweet by some high profile billionaire (Elon comes to mind) or rumors of regulatory scrutiny could send prices soaring or plummeting. This is very rare in traditional financial products.
I also don't think crypto will ever ever ever replace government regulated markets. It may become part of them, but not replace. The government (at least in the US) is already regulating crypto. CTR's are already required, the SEC has stepped in pretty heavily to classify most crypto as securities, complete with the requirements that comes with that, etc. It can be decentralized but still regulated, and governments are simply not going to allow crypto to take away their ability to control their own monetary policy. Plenty of governments may wish to move on from the USD being the default world reserve currency, but that's because they want it to be something they have more control over. Crypto doesn't fill that role.
All the US would have to do is regulate how every US bank works with crypto, and require that US banks only work with foreign banks that follow similar requirements. Any foreign bank wanting to do business even remotely related to the US-- which is nearly all of them, would have no choice but to follow. Or the US could regulate how businesses are able to accept crypto as a currency. Businesses don't operate in a decentralized abstraction layer: They operate in physical locations. It might be difficult to seize their crypto assets if they violate the law (though not impossible) but still very easy to seize & shutdown their physical assets, throw people in jail, etc.
Sure, if crypto could somehow avoid all of that until it became the de facto medium of exchange, governments would have a much harder time doing this. But it's not like governments aren't aware of what's going on, and as I said the regulation has already begun.
I agree with most of this, but: "SEC has stepped in pretty heavily to classify most crypto as securities" is pretty much not true. The SEC has been pretty heavy handed with ICO's, but most cryptocurrencies are not currently regulated as securities. If they were, all existent US based exchanges would be illegal.
Good point-- You're right, it's mainly ICOs that the SEC has cracked down on. But then very few coins have been given "currency" status, leaving most in regulatory limbo. And the CRT requirement along with suspicious activity requirements already means the government has knowledge of anything but minor transactions if they touch US institutions.
I think governments will be perfectly fine with crypto becoming just another part of the financial infrastructure. And I think the countries dominant in the financial industry will squash anything that looks like a threat to their ability to control their own monetary policy.
I think governments will be perfectly fine with crypto becoming just another part of the financial infrastructure. And I think the countries dominant in the financial industry will squash anything that looks like a threat to their ability to control their own monetary policy.
This opinion is really common, I used to have it but what changed my mind was realizing there are not really any "real world" use cases. I look at crypto as actual money, with the same definition: "money is a verifiable record that is generally accepted". Money in of itself does not have any "real world" use cases, money is money. Money facilitates economic velocity and growth in the same way crypto does, except crypto has the potential to be more efficient and secure. One of the key reasons money exists is "currency velocity", crypto improves upon this a lot. Banks make money with money, they don't make money with real use cases. Good crypto projects act like decentralized banks, nothing more.
In other words ignore all the bullshit projects and look at the ones who are structured like banks, financial instruments, or risk management. Then the use cases of cypto become very clear.
In other words ignore all the bullshit projects and look at the ones who are structured like banks, financial instruments, or risk management. Then the use cases of cypto become very clear.
> except crypto has the potential to be more efficient and secure
Except that's not clear at all.
It's currently less efficient than electronic bank ledgers by many orders of magnitude, in any way you measure -- energy consumption, cost, speed, etc.
And it's paradoxically less secure, as tons of successful hacks/thefts have proven. If my bank gets hacked, I'm still FDIC-insured. The courts will make me whole. Crypto is exactly the opposite.
And there is no indication any of this is changing. Crypto is inherently inefficient because of the need for proof, and for the average person it's far riskier so your money is far less secure in that sense -- and that's inherent too because illegal transactions like hacking and theft can't be undone, by design.
So the use cases of crypto are... not at all clear, except, really, for illegal transactions. Which is why the main real-world use cases, so far, have been... ransom payments, online recreational drug sales, and cross-border transactions. Not even remotely the "banks, financial instruments, and risk management" you're suggesting.
Except that's not clear at all.
It's currently less efficient than electronic bank ledgers by many orders of magnitude, in any way you measure -- energy consumption, cost, speed, etc.
And it's paradoxically less secure, as tons of successful hacks/thefts have proven. If my bank gets hacked, I'm still FDIC-insured. The courts will make me whole. Crypto is exactly the opposite.
And there is no indication any of this is changing. Crypto is inherently inefficient because of the need for proof, and for the average person it's far riskier so your money is far less secure in that sense -- and that's inherent too because illegal transactions like hacking and theft can't be undone, by design.
So the use cases of crypto are... not at all clear, except, really, for illegal transactions. Which is why the main real-world use cases, so far, have been... ransom payments, online recreational drug sales, and cross-border transactions. Not even remotely the "banks, financial instruments, and risk management" you're suggesting.
Agreed on the FDIC (although not everyone banks in the US) part but “speed” is not an area where traditional banks beat the right crypto solutions.
My wife and I just had a major fiasco trying to transfer mortgage payments from one major bank to another. Our credit score was damaged severely. I’ll spare you the details but the diagnosis was eventually determined to be “not enough time for clearance” as in I need to have the money transfer start a full week before it needs to be in the second account. This allows for the typical BS 1970’s SWIFT transaction clearance time, including of course that these transactions “can’t” process on the weekends.
If I could pay with USDC on either the Ethereum or Solana networks, my transaction would clear a few orders of magnitude faster (irreversibly buried in the blockchain within an hr). A friend who works in real estate foreclosures told me that everyone he works with is using stable coins now for this very reason.
My wife and I just had a major fiasco trying to transfer mortgage payments from one major bank to another. Our credit score was damaged severely. I’ll spare you the details but the diagnosis was eventually determined to be “not enough time for clearance” as in I need to have the money transfer start a full week before it needs to be in the second account. This allows for the typical BS 1970’s SWIFT transaction clearance time, including of course that these transactions “can’t” process on the weekends.
If I could pay with USDC on either the Ethereum or Solana networks, my transaction would clear a few orders of magnitude faster (irreversibly buried in the blockchain within an hr). A friend who works in real estate foreclosures told me that everyone he works with is using stable coins now for this very reason.
Cash is instant. Venmo is instant. You can pay for goods with a credit card and know it was approved instantly.
In the very rare case you need to make a domestic wire transfer, yes it's currently slow, but that's not a technological problem, it's a political/institutional one. Plenty of countries have instant bank transfers as well.
AND -- instant bank transfers should be coming to the US in 2023, when FedACH is supplemented with FedNow (settles in seconds) [1].
So the slowness of wire transfers is just a temporary problem that's already been solved or is being solved. Crypto isn't necessary here at all.
[1] https://en.wikipedia.org/wiki/FedACH
In the very rare case you need to make a domestic wire transfer, yes it's currently slow, but that's not a technological problem, it's a political/institutional one. Plenty of countries have instant bank transfers as well.
AND -- instant bank transfers should be coming to the US in 2023, when FedACH is supplemented with FedNow (settles in seconds) [1].
So the slowness of wire transfers is just a temporary problem that's already been solved or is being solved. Crypto isn't necessary here at all.
[1] https://en.wikipedia.org/wiki/FedACH
Venmo isn't instant in the same way that USDC is though. When a USDC transaction settles, I know the money is mine, when a venmo transfer settles, or an ach transfer settles, there is an opportunity for the money to be clawed back for quite a bit of time [0]. We can argue if this is a good or a bad feature, but it does mean that the transfer really isn't instant as I don't have guarantees behind the money being mine.
Wire transfers are a bit better in this regard (my understanding is that "clawbacks" are quite difficult / impossible), but they tend to be expensive for consumers, and take a few hours domestically, days internationally. My employer regularly has to deal with overseas wire transfers, we would hands down use USDC instead if it were an option.
To me the fundamental difference between crypto and legacy finance is that my crypto is mine. I can move it when and how I want. With legacy finance, I am effectively asking a custodian to move the funds for me, and I'm tied to whatever antiquated system they use.
[0] https://twitter.com/bweidlich/status/1403084816665354241
Wire transfers are a bit better in this regard (my understanding is that "clawbacks" are quite difficult / impossible), but they tend to be expensive for consumers, and take a few hours domestically, days internationally. My employer regularly has to deal with overseas wire transfers, we would hands down use USDC instead if it were an option.
To me the fundamental difference between crypto and legacy finance is that my crypto is mine. I can move it when and how I want. With legacy finance, I am effectively asking a custodian to move the funds for me, and I'm tied to whatever antiquated system they use.
[0] https://twitter.com/bweidlich/status/1403084816665354241
Venmo is instant.
Clawbacks are an entirely different matter.
And while yes, the absence of clawbacks means your money is then "yours", it also means that if you're hacked or defrauded, there's no way to recover funds because it's now "theirs".
For people who aren't engaged in illegal activity, the ability for banks and courts to retrieve illegally (or even accidentally) transferred funds is widely seen as a feature. Most people prefer the legal system to be able to ultimately determine who owns money (or real estate or shares of a company), instead of something anonymous and irreversible. After all, enforcement of property and contracts is the main reason government even exists, if you're a libertarian -- which means restoring property in case of theft and fraud and breach. (If you're a regular liberal or conservative, then it's one of the main reasons.) Are you suggesting it's beneficial for cryptocurrencies to be outside the realm of property rights and the legal system?
Your concerns about your funds being "yours" are really only worth worrying about if you live in a failed/anarchic/warlord/etc state... which fortunately isn't the case for most HN'ers, or most people generally.
Clawbacks are an entirely different matter.
And while yes, the absence of clawbacks means your money is then "yours", it also means that if you're hacked or defrauded, there's no way to recover funds because it's now "theirs".
For people who aren't engaged in illegal activity, the ability for banks and courts to retrieve illegally (or even accidentally) transferred funds is widely seen as a feature. Most people prefer the legal system to be able to ultimately determine who owns money (or real estate or shares of a company), instead of something anonymous and irreversible. After all, enforcement of property and contracts is the main reason government even exists, if you're a libertarian -- which means restoring property in case of theft and fraud and breach. (If you're a regular liberal or conservative, then it's one of the main reasons.) Are you suggesting it's beneficial for cryptocurrencies to be outside the realm of property rights and the legal system?
Your concerns about your funds being "yours" are really only worth worrying about if you live in a failed/anarchic/warlord/etc state... which fortunately isn't the case for most HN'ers, or most people generally.
Venmo isn't instant. Send yourself more than 15k. If that goes through, try to send it back.
Sure, the row in the database is instant though.
I agree it is a feature for a bank to be able to undo mistakes. The problem happens when a bank commits the mistakes and refuses to acknowledge it.
This is akin to all of us submitting to google and gmail, its great unless our account gets flagged by an algorithm by mistake. No mistake, i would be screwed.
Sure, the row in the database is instant though.
I agree it is a feature for a bank to be able to undo mistakes. The problem happens when a bank commits the mistakes and refuses to acknowledge it.
This is akin to all of us submitting to google and gmail, its great unless our account gets flagged by an algorithm by mistake. No mistake, i would be screwed.
It's exactly as instant as Strike.
Further, both will be totally instant vis-a-vis your actual bank account in a few years as RTP rolls out. No crypto needed. [1] I'm led to believe the delays in implementation were ensuring small community banks had a risk model.
> This is akin to all of us submitting to google and gmail, its great unless our account gets flagged by an algorithm by mistake. No mistake, i would be screwed.
Have you met typos?
[1] https://www.theclearinghouse.org/payment-systems/rtp
Further, both will be totally instant vis-a-vis your actual bank account in a few years as RTP rolls out. No crypto needed. [1] I'm led to believe the delays in implementation were ensuring small community banks had a risk model.
> This is akin to all of us submitting to google and gmail, its great unless our account gets flagged by an algorithm by mistake. No mistake, i would be screwed.
Have you met typos?
[1] https://www.theclearinghouse.org/payment-systems/rtp
I'm not arguing that crypto is necessary. I'm telling you that I can use it to settle a transaction in the US right now in minutes that currently takes days to settle through bank transfer. I'm glad to hear that instant bank transfers are coming and I'll use that tech happily when / if it arrives.
Are you being purposely disingenuous here?
Perhaps crypto is an improvement over some archaic US banking standards but in the UK transactions will clear basically immediately and cost nothing. A money transfer is asymptotically just updating a couple of database records in a transaction. Execution speed is a technical problem, and one that is not solved efficiently by cryptos.
Finally, most western countries offer an analogue of FDIC for bank accounts. Countries which don't have such a scheme in place need to install one, again its not something that cryptos solve in any (novel) way.
Same goes for half a dozen countries in Europe that I had the fortune to live in.
Perhaps crypto is an improvement over some archaic US banking standards but in the UK transactions will clear basically immediately and cost nothing. A money transfer is asymptotically just updating a couple of database records in a transaction. Execution speed is a technical problem, and one that is not solved efficiently by cryptos.
Finally, most western countries offer an analogue of FDIC for bank accounts. Countries which don't have such a scheme in place need to install one, again its not something that cryptos solve in any (novel) way.
Same goes for half a dozen countries in Europe that I had the fortune to live in.
Ironically, the only times I've wired money internationally was so I could deposit fiat to a crypto exchange.
Canada to Japan, Canada to Poland. Each time it takes more than 2 weeks to arrive or be accessible in my account.
Whenever I "wire" crypto, it shows up in my account and is accessible in hours.
Canada to Japan, Canada to Poland. Each time it takes more than 2 weeks to arrive or be accessible in my account.
Whenever I "wire" crypto, it shows up in my account and is accessible in hours.
This is due to AML/KYC. The only reason you can do that with crypto is it's got the safety off.
No, I'm not being disingenuous. I'm telling you that it can take a number of days (4 if a weekend is involved) for retail transfers between American bank accounts to clear. I'm very aware that this is a matter of updating a simple database record--that's why it's so frustrating and why many people are bypassing this system entirely with stablecoins.
They are being serious.
Crypto financial services are a huge step forward in environments with broken banking systems. The US is one such place.
You're living in comfort and wealth in a civilized nation with modern regulated banks, so your perspective is narrow.
Crypto financial services are a huge step forward in environments with broken banking systems. The US is one such place.
You're living in comfort and wealth in a civilized nation with modern regulated banks, so your perspective is narrow.
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> A friend who works in real estate foreclosures told me that everyone he works with is using stable coins now for this very reason.
How exactly does that work? Have trustees started accepting stablecoins for deposits? Are there auctions where you can pay with stablecoins? Or is it just for payments from foreclosure buyers to their representatives who make bids on the buyers' behalf?
How exactly does that work? Have trustees started accepting stablecoins for deposits? Are there auctions where you can pay with stablecoins? Or is it just for payments from foreclosure buyers to their representatives who make bids on the buyers' behalf?
I believe they were just using it as a method to prove available funds while waiting on the traditional banks / lawyers to do their thing. The more interesting part to me was that he said it was guys in their late 50's / early 60's with backgrounds in construction learning how to use crypto for these foreclosure auctions.
> I believe they were just using it as a method to prove available funds while waiting on the traditional banks / lawyers to do their thing.
That sounds really vague. A proof of funds letter has nothing to do with money transfers. You can walk into a bank branch and get a signed proof of funds letter right there. The people actually selling the property that require a proof of funds letter are going to be either a trustee or court auction (foreclosure), or when making an offer to a bank for an REO/bank-owned property (what some people mistakenly call foreclosures).
It would be really interesting if those parties started accepting stablecoin signed messages as proof of funds letters, but I do not know of any that do. The real interesting part in that scenario would have nothing to do with cryptocurrencies - it would mean the widespread acceptance of public key cryptography for legal and financial documents and transactions. Once that happens there would be even less reason for the really shitty distributed database part of cryptocurrencies anymore. Not a popular opinion, but one I have held for a long time, and if you think the system through it is hard not to arrive at the same conclusion. "You mean this all could be done with PGP in the 1990s?"
What it sounds like is happening is that third-party companies involved in foreclosure buying are accepting stablecoin signed messages to act as financing intermediaries. That really does not mean a lot - there are even financing companies out there specializing in supplying "instant" proof of funds letters to house flippers that are really conditional loan offers.
That sounds really vague. A proof of funds letter has nothing to do with money transfers. You can walk into a bank branch and get a signed proof of funds letter right there. The people actually selling the property that require a proof of funds letter are going to be either a trustee or court auction (foreclosure), or when making an offer to a bank for an REO/bank-owned property (what some people mistakenly call foreclosures).
It would be really interesting if those parties started accepting stablecoin signed messages as proof of funds letters, but I do not know of any that do. The real interesting part in that scenario would have nothing to do with cryptocurrencies - it would mean the widespread acceptance of public key cryptography for legal and financial documents and transactions. Once that happens there would be even less reason for the really shitty distributed database part of cryptocurrencies anymore. Not a popular opinion, but one I have held for a long time, and if you think the system through it is hard not to arrive at the same conclusion. "You mean this all could be done with PGP in the 1990s?"
What it sounds like is happening is that third-party companies involved in foreclosure buying are accepting stablecoin signed messages to act as financing intermediaries. That really does not mean a lot - there are even financing companies out there specializing in supplying "instant" proof of funds letters to house flippers that are really conditional loan offers.
> Except that's not clear at all.
Well it is when you realize the main feature of crypto is a decentralized bank and not a centralized one. A concept which makes it truly revolutionary in the time scale of humans using banks, but also very challenging as a technology.
The speed and security is constantly being worked on, there are other protocols like Solana which has a peak of 65k transactions per second.
Crypto is still a baby, saying it's slow short sighted to say the least.
Well it is when you realize the main feature of crypto is a decentralized bank and not a centralized one. A concept which makes it truly revolutionary in the time scale of humans using banks, but also very challenging as a technology.
The speed and security is constantly being worked on, there are other protocols like Solana which has a peak of 65k transactions per second.
Crypto is still a baby, saying it's slow short sighted to say the least.
Money classically has three use cases: a unit of account (I have X dollars in my bank account, Y dollars in my 401(k), etc.); a medium of exchange (I trade my labor for dollars and trade those dollars for rent, food, etc.); and a store of value (I save up for a house, car, engagement ring in dollars because I expect them to be fairly stable).
Nobody in the real economy uses crypto as a unit of account. Most tokens are too volatile to be very useful as media of exchange, and this use case has traditionally been limited to goods (drugs) and services (hitmen) you can’t legally buy in the dollar system. “Store of value” is in the eye of the beholder, of course, but generally speaking you don’t want your store of value to be something that can depreciate 40% against the dollar in two days.
Nobody in the real economy uses crypto as a unit of account. Most tokens are too volatile to be very useful as media of exchange, and this use case has traditionally been limited to goods (drugs) and services (hitmen) you can’t legally buy in the dollar system. “Store of value” is in the eye of the beholder, of course, but generally speaking you don’t want your store of value to be something that can depreciate 40% against the dollar in two days.
> Most tokens are too volatile to be very useful as media of exchange
I wonder if this was half of the motivation behind Tesla no longer accepting Bitcoin.
I wonder if this was half of the motivation behind Tesla no longer accepting Bitcoin.
But we already have banks. Seems like nobody is aware of exactly what problems they're trying to solve here.
"crypto has the potential to be more efficient and secure" Sounds charmingly vague.
"crypto has the potential to be more efficient and secure" Sounds charmingly vague.
> Banks make money with money, they don't make money with real use cases.
Banks make money with money + effort. They provide loans and vet the recipients of those loans, because the banks are exposed to the risk of default (at least, ideally, obviously this failed in 2008). If you want a small business loan, then you typically have to have not only a good credit rating, but a business plan. Sounds like a real use case to me.
Banks make money with money + effort. They provide loans and vet the recipients of those loans, because the banks are exposed to the risk of default (at least, ideally, obviously this failed in 2008). If you want a small business loan, then you typically have to have not only a good credit rating, but a business plan. Sounds like a real use case to me.
Exactly - banks make money with money, but it's the money that real people use in the real world for real goods & services!!
Want to buy a house? (Mortgage) Want to spread out the cost of a large purchase (car/boat/appliance)? (Credit card, consumer loan) Want to borrow money to pay contractors for home improvements? (HELOC) Want to pay for a coffee with a payment that is accepted in seconds? (Credit/Debit card or you know.. paper money) Want to save excess income in an interest-bearing account? (Savings, Money markets, etc) Want to invest excess income in partial ownership of income producing businesses? (IPOs, stock market) If banks don't make money with real use cases, please close all your accounts and attempt to live a week or a month without any interaction with the banking system.
The banking system matches borrowers and savers of different risk profiles & durations so that people can go about their lives in a more convenient fashion.
Right now DeFi is replicating some aspects of this in a fraud-laced decentralized manner except with an alphabet soup of crypto "money" which you can't do anything with other than trade it for more/other crypto "money" or the dirty-word "fiat".
Want to buy a house? (Mortgage) Want to spread out the cost of a large purchase (car/boat/appliance)? (Credit card, consumer loan) Want to borrow money to pay contractors for home improvements? (HELOC) Want to pay for a coffee with a payment that is accepted in seconds? (Credit/Debit card or you know.. paper money) Want to save excess income in an interest-bearing account? (Savings, Money markets, etc) Want to invest excess income in partial ownership of income producing businesses? (IPOs, stock market) If banks don't make money with real use cases, please close all your accounts and attempt to live a week or a month without any interaction with the banking system.
The banking system matches borrowers and savers of different risk profiles & durations so that people can go about their lives in a more convenient fashion.
Right now DeFi is replicating some aspects of this in a fraud-laced decentralized manner except with an alphabet soup of crypto "money" which you can't do anything with other than trade it for more/other crypto "money" or the dirty-word "fiat".
> Money facilitates economic velocity and growth in the same way crypto does, except crypto has the potential to be more efficient and secure.
Does crypto do that? I highly doubt that. Real-world economies based on crypto are none existent, or so small they are insignificant. I feel like what you are saying is a huge simplification and may not be true at all.
Does crypto do that? I highly doubt that. Real-world economies based on crypto are none existent, or so small they are insignificant. I feel like what you are saying is a huge simplification and may not be true at all.
The potential future use cases become clear in some future world where you can pay for real goods & services in said crypto. Then all the DeFi stuff replicating the existing dollar financial services industry in decentralized form makes sense. In the current world, its just circular references with a lot of fraud.
Use cases of blockchain maybe. What part of that requires a separate "crypto currency"? Not any legal ones that I can think of.
If you think legal is good, and you agree with the law, congratulations, you live in a developed country with a mature law system, AND you are probably at least middle class or higher in that society.
There are a lot of people in the world for which the law itself is unethical.
There are a lot of people in the world for which the law itself is unethical.
Well yes the developed world has a tendency to go after terrorists and criminals who use crypto.
+1 - crypto-based lending is an incredibly smooth digital process vs legacy dollar-based lending, which is frankly a nightmare of "wire cutoff deadlines," entering the same info 40 times for 6 people, "security theatre" like call-to-confirm and notary public with people who don't know you and are trusting pieces of paper, etc etc etc
What you call bugs I call features. See e.g. https://news.ycombinator.com/item?id=25443212
Examples?
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One real world use case I’ve seen is in sending money to basketcase countries. For example I pay a woman in Venezuela with Bitcoin and Amazon gift cards for digital content because her government would get their hands on the money otherwise.
Unfortunately this comment, which has nothing to do with the article linked, has been voted to the top. HN seems to take every article having anything to do crypto as an opportunity to share their unrelated and repetitive opinions about how crypto is bad. Why not just flag the article instead to get it off the front page? That would at least be less boring.
I agree, but this doesn't happen with just crypto. Some people post meta commentary about a submission's topic — often without reading the article itself. Then, others who also don't want to read the article read that meta commentary instead, and upvote it.
I don't know the root cause exactly, but it is a pretty annoying trend.
I don't know the root cause exactly, but it is a pretty annoying trend.
> It doesn't feel like we are any closer to normal people using it for normal real world transactions/finance.
Crypto was always just a way for nerds to legally get rich quick. (When before that opportunity was limited to various finance types.)
Whether that's good or bad is up to you. (It's not like the various non-digital "financial instruments" we've had for a long time before crypto were doing much good for normal real world transactions.)
Crypto was always just a way for nerds to legally get rich quick. (When before that opportunity was limited to various finance types.)
Whether that's good or bad is up to you. (It's not like the various non-digital "financial instruments" we've had for a long time before crypto were doing much good for normal real world transactions.)
The vast majority of top projects are essentially scams and the real projects are not in the rankings. Even promising projects seem to turn into scams once they get into the top 200 or so. It's as if some wealthy investors buy up a lot tokens from top projects and then threaten the founders to crash the price unless they stop development and start wasting time. I've worked in the blockchain industry for several years and I've seen founders who used to constantly make great decisions start making one terrible decisions after another - It feels like they switched from being productive to being counter-productive from one day to the next. It's as if they're getting paid to NOT innovate.
I'm 100% sure that there is some manipulation going on but I can't figure out why (though I have some wild theories).
I'm 100% sure that there is some manipulation going on but I can't figure out why (though I have some wild theories).
Don't go and claim the vast majority of top projects are essentially scams, that's just spreading false information.
Name any major project and I can tell you why it's a scam.
Bitcoin: Uses the electricity of a country to process 2 transactions per second. Layer 2 solutions such as Lightning Network have some significant drawbacks which make them unpractical and vulnerable to multiple attacks. They've been trying and talking it up for years - No results.
Ethereum: Doesn't scale. The entire ecosystem (including all ERC20 tokens) together cannot process more than 30 transactions per second. New ERC20 tokens have to pay the same HUGE (e.g. $20 per transaction) fees as the mainchain; all tokens slow each other down (compete for resources from each other and drive up each other's transaction fees). They said that sharding was essentially ready years ago but now they've basically canceled it (or 'put it on the backburner' as they like to call it) in favor of extremely complex and vulnerable layer-2 ZK-Rollups solutions which are completely unproven (we don't know what will happen when many projects start adopting rollups; expensive on-chain interactions still need to happen).
Polkadot: They claim everywhere to have 'Parachains'. The reality is that this feature doesn't exist yet. The way it's designed is extremely complex and the scalability benefits are limited because there can only be a limited number of parachains.
Also, one thing which almost all the projects have in common is that they're mostly targeted at developers... Yet as a developer, there is almost always a MASSIVE amount of friction involved in setting up and integrating the blockchains with other systems. For example, Ethereum requires minimum 300GB of disk space to run a node (you need to run a node to do any serious integration testing). Also, the Ethereum node doesn't even provide a basic search feature; you need to use CENTRALIZED third-party services in order to search the blockchain data (that's because the node writes to a file instead of a proper database)... OMG. I could go on and on and on. There is just so much money behind these projects that the entire community will constantly twist the facts and present a severely distorted view of reality.
There is no limit to the amount of deception and self-deception when there is money involved.
Bitcoin: Uses the electricity of a country to process 2 transactions per second. Layer 2 solutions such as Lightning Network have some significant drawbacks which make them unpractical and vulnerable to multiple attacks. They've been trying and talking it up for years - No results.
Ethereum: Doesn't scale. The entire ecosystem (including all ERC20 tokens) together cannot process more than 30 transactions per second. New ERC20 tokens have to pay the same HUGE (e.g. $20 per transaction) fees as the mainchain; all tokens slow each other down (compete for resources from each other and drive up each other's transaction fees). They said that sharding was essentially ready years ago but now they've basically canceled it (or 'put it on the backburner' as they like to call it) in favor of extremely complex and vulnerable layer-2 ZK-Rollups solutions which are completely unproven (we don't know what will happen when many projects start adopting rollups; expensive on-chain interactions still need to happen).
Polkadot: They claim everywhere to have 'Parachains'. The reality is that this feature doesn't exist yet. The way it's designed is extremely complex and the scalability benefits are limited because there can only be a limited number of parachains.
Also, one thing which almost all the projects have in common is that they're mostly targeted at developers... Yet as a developer, there is almost always a MASSIVE amount of friction involved in setting up and integrating the blockchains with other systems. For example, Ethereum requires minimum 300GB of disk space to run a node (you need to run a node to do any serious integration testing). Also, the Ethereum node doesn't even provide a basic search feature; you need to use CENTRALIZED third-party services in order to search the blockchain data (that's because the node writes to a file instead of a proper database)... OMG. I could go on and on and on. There is just so much money behind these projects that the entire community will constantly twist the facts and present a severely distorted view of reality.
There is no limit to the amount of deception and self-deception when there is money involved.
These are all great criticisms, but I struggle to agree with you that they make these projects "scams".
By way of analogy, I remember the ruby on rails really struggled with scalability for a long time, and it was a big problem that lots of people, both proponents and opponents, talked about a lot. Nonetheless it turned out to be quite useful and definitely not a scam. I saw similar dynamics in both AngularJS and React. I'm trying to think of a good example on the other side, something that was hyped but criticized and didn't really succeed due to its criticisms being right ... maybe something like Meteor, it seemed promising but flawed and never really overcame its flaws. But none of these were "scams", just different flawed projects that succeeded or failed despite or because of their flaws.
By my lights, the top two you mentioned (I don't know enough about the third to say) fit very much into this same mould, I think they are flawed projects that will succeed or fail despite or because of widely recognized flaws which are or aren't eventually overcome. But not scams.
I think scams have to have a component of intentionality, that all effort at appearing legitimate and promising is conscientiously only for show. Contra that, I think lots of people are making a good faith effort to make bitcoin and ethereum useful. They may very well fail, but I don't think most people involved are conscientiously doing the work just for show.
By way of analogy, I remember the ruby on rails really struggled with scalability for a long time, and it was a big problem that lots of people, both proponents and opponents, talked about a lot. Nonetheless it turned out to be quite useful and definitely not a scam. I saw similar dynamics in both AngularJS and React. I'm trying to think of a good example on the other side, something that was hyped but criticized and didn't really succeed due to its criticisms being right ... maybe something like Meteor, it seemed promising but flawed and never really overcame its flaws. But none of these were "scams", just different flawed projects that succeeded or failed despite or because of their flaws.
By my lights, the top two you mentioned (I don't know enough about the third to say) fit very much into this same mould, I think they are flawed projects that will succeed or fail despite or because of widely recognized flaws which are or aren't eventually overcome. But not scams.
I think scams have to have a component of intentionality, that all effort at appearing legitimate and promising is conscientiously only for show. Contra that, I think lots of people are making a good faith effort to make bitcoin and ethereum useful. They may very well fail, but I don't think most people involved are conscientiously doing the work just for show.
I think making promises and taking money from people based on promises you very likely can't fulfill is enough to label something as a scam, and that seems to be the case with all of the points mentioned above.
Is this also true of all startups that take funding and then fail? That would be one reasonable definition of "scam" I think, but personally I think it is more useful to have different terminology for speculative high risk ventures that make a good faith effort but fail vs. malicious schemes designed only to take money and run. I think there are lots of both things in this cryptocurrency space, but I think it's reductive to throw your hands up and say they're all the same.
Debating myself a bit: the reason startups tend to attract fewer scams is that only accredited investors can invest in them. There is definitely something to be said for that!
Generally you're only going to get decent money from bigger names (or at least one leading the round) - and a bad reputation will make it quite unlikely you'll get to play again. This helps avoid many straight-up scams like Dentacoin (lol).
Then, your future rounds of investment are conditional on demonstrated success. Your A can be a bridge round based on traction or a materialized idea. However, your B is generally based on hard numbers.
ICOs tend to get series F/G money up front on a hope and a prayer.
Circle CI raised $100M in a Series F. Check out this whose-who of token failure that all raised the same amount or much more on day 1 (https://decrypt.co/53950/the-10-biggest-icos-heres-where-the...).
Then, your future rounds of investment are conditional on demonstrated success. Your A can be a bridge round based on traction or a materialized idea. However, your B is generally based on hard numbers.
ICOs tend to get series F/G money up front on a hope and a prayer.
Circle CI raised $100M in a Series F. Check out this whose-who of token failure that all raised the same amount or much more on day 1 (https://decrypt.co/53950/the-10-biggest-icos-heres-where-the...).
Maybe not completely, but they all profit from having an element of deception. They are drawing attention away from better projects by hoarding all the top spots on all the exchanges and ranking websites. They are destroying the industry and hurting people IMO.
It is not clear to me where the "deception" is, even if the rest of what you said is right. The things mentioned in this thread are common knowledge and widely discussed.
And I can respond to your "scam" claims:
> Bitcoin: Uses the electricity of a country to process 2 transactions per second. Layer 2 solutions such as Lightning Network have some significant drawbacks which make them unpractical and vulnerable to multiple attacks. They've been trying and talking it up for years - No results.
Can you be more specific about the drawbacks with layer 2 solutions such as lightning network? I use lightning from both the business and the consumer side, and from my perspective, it works just fine. I am able to make payments with negligible fees that settle instantly, and people are able to pay me (business) without any real problems. At this point, the vast majority of Bitcoin transactions I do settle on a layer 2. Frankly, it just kinda "works".
> Ethereum: Doesn't scale. The entire ecosystem (including all ERC20 tokens) together cannot process more than 30 transactions per second. New ERC20 tokens have to pay the same HUGE (e.g. $20 per transaction) fees as the mainchain; all tokens slow each other down (compete for resources from each other and drive up each other's transaction fees). They said that sharding was essentially ready years ago but now they've basically canceled it (or 'put it on the backburner' as they like to call it) in favor of extremely complex and vulnerable layer-2 ZK-Rollups solutions which are completely unproven (we don't know what will happen when many projects start adopting rollups; expensive on-chain interactions still need to happen).
What makes ZK-rollups "extremely complex and vulnerable"? And perhaps touch on optimistic rollups as well (since these are about to launch and will have dramatic increases in throughput as well)?
It seems to me that you are making grandiose claims of problems without any real evidence.
> Bitcoin: Uses the electricity of a country to process 2 transactions per second. Layer 2 solutions such as Lightning Network have some significant drawbacks which make them unpractical and vulnerable to multiple attacks. They've been trying and talking it up for years - No results.
Can you be more specific about the drawbacks with layer 2 solutions such as lightning network? I use lightning from both the business and the consumer side, and from my perspective, it works just fine. I am able to make payments with negligible fees that settle instantly, and people are able to pay me (business) without any real problems. At this point, the vast majority of Bitcoin transactions I do settle on a layer 2. Frankly, it just kinda "works".
> Ethereum: Doesn't scale. The entire ecosystem (including all ERC20 tokens) together cannot process more than 30 transactions per second. New ERC20 tokens have to pay the same HUGE (e.g. $20 per transaction) fees as the mainchain; all tokens slow each other down (compete for resources from each other and drive up each other's transaction fees). They said that sharding was essentially ready years ago but now they've basically canceled it (or 'put it on the backburner' as they like to call it) in favor of extremely complex and vulnerable layer-2 ZK-Rollups solutions which are completely unproven (we don't know what will happen when many projects start adopting rollups; expensive on-chain interactions still need to happen).
What makes ZK-rollups "extremely complex and vulnerable"? And perhaps touch on optimistic rollups as well (since these are about to launch and will have dramatic increases in throughput as well)?
It seems to me that you are making grandiose claims of problems without any real evidence.
So Stellar, Cardano and XRP are all scams?
> Polkadot: They claim everywhere to have 'Parachains'. The reality is that this feature doesn't exist yet.
So it's a scam because it doesn't exist yet and it's planned on the roadmap?
That's like saying Ethereum 2.0 is a scam because it doesn't exist yet.
It's extremely easy to call projects scams when you're not the one doing the work.
> Polkadot: They claim everywhere to have 'Parachains'. The reality is that this feature doesn't exist yet.
So it's a scam because it doesn't exist yet and it's planned on the roadmap?
That's like saying Ethereum 2.0 is a scam because it doesn't exist yet.
It's extremely easy to call projects scams when you're not the one doing the work.
>> So Stellar, Cardano and XRP are all scams?
When Stellar started, they were all about 'Quorums'; trying to imply that this was the secret sauce which would allow it to scale unlike any other blockchain. I initially thought that quorums were like separate shards but after asking around years ago, I found out that it was not the case; all transactions pass through all nodes; exactly the same as a plain old blockchain. These days they barely even mention the concept of a 'quorum' because it was never anything more than a scammy marketing tool.
I don't know too much about Cardano so I won't criticize too much but when I skim-read their whitepaper about 1 year ago, it sounded over-complicated. This is a red flag for me. Also, they are yet to implement smart contracts; so there is a long way ahead. I don't like that they keep bragging about their all-PhD team. In my experience, PhDs aren't good at delivering good developer experiences or limiting the amount of complexity.
I wouldn't say that XRP/Ripple is a scam; but only because they don't make it a secret that they are essentially a centralized crytocurrency with multiple nodes for redundancy. But some could argue that they are a scam based on the fact that they don't solve any of the problems that a cryptocurrency is meant to solve (this critique pretty much applies to all top cryptocurrencies BTW; they don't solve any significant economic problem aside from upholding the status quo; the opposite of what they claim to do).
>> So it's a scam because it doesn't exist yet and it's planned on the roadmap?
It's scammy because they sell it as if it already exists, but it doesn't.
When Stellar started, they were all about 'Quorums'; trying to imply that this was the secret sauce which would allow it to scale unlike any other blockchain. I initially thought that quorums were like separate shards but after asking around years ago, I found out that it was not the case; all transactions pass through all nodes; exactly the same as a plain old blockchain. These days they barely even mention the concept of a 'quorum' because it was never anything more than a scammy marketing tool.
I don't know too much about Cardano so I won't criticize too much but when I skim-read their whitepaper about 1 year ago, it sounded over-complicated. This is a red flag for me. Also, they are yet to implement smart contracts; so there is a long way ahead. I don't like that they keep bragging about their all-PhD team. In my experience, PhDs aren't good at delivering good developer experiences or limiting the amount of complexity.
I wouldn't say that XRP/Ripple is a scam; but only because they don't make it a secret that they are essentially a centralized crytocurrency with multiple nodes for redundancy. But some could argue that they are a scam based on the fact that they don't solve any of the problems that a cryptocurrency is meant to solve (this critique pretty much applies to all top cryptocurrencies BTW; they don't solve any significant economic problem aside from upholding the status quo; the opposite of what they claim to do).
>> So it's a scam because it doesn't exist yet and it's planned on the roadmap?
It's scammy because they sell it as if it already exists, but it doesn't.
What's funny is I think that Ripple is the only one of the bunch who had legal action taken against them.
https://www.sec.gov/news/press-release/2020-338
Ripple likening themselves to other cryptocurrencies when they are centralized is scammy in my book. There is a reason that video game currencies or Magic Cards aren't listed on exchanges.
https://www.sec.gov/news/press-release/2020-338
Ripple likening themselves to other cryptocurrencies when they are centralized is scammy in my book. There is a reason that video game currencies or Magic Cards aren't listed on exchanges.
I'm sure these are great criticisms but you didn't describe scams and I'm surprised you didn't start with something obvious like NFTs.
"Ponzi scheme" is a better way to put it.
this was also the case with the internet. the world wide web was just an experiment for a long time. applications and their base layers take time to develop. can't rule it out yet.
tokens and shitcoins as get rich quick schemes are detracting from the true innovation imo
tokens and shitcoins as get rich quick schemes are detracting from the true innovation imo
The World Wide Web was not "just an experiment for a long time". It was released outside CERN in 1991.
By the mid 1990s we had a graphic version ordinary people used to browse content which (other than screen resolution) would be familiar today and mainstream corporate participation. After a decade we were past the first bubble and had Amazon and Google.
Not true at all. It almost immediately took off and transformed economies within a decade. The same can't be said for crypto. Crypto is older than the internet was _after_ the dotcom bubble.
> tokens and shitcoins as get rich quick schemes are detracting from the true innovation imo
What are the true innovations in blockchain technology?
What are the true innovations in blockchain technology?
monero is the only one that's actually worth a damn as a...y'know, currency, except because it's inflationary nobody talks about it because it's harder to make a profit.
it's actually private, has fast and cheap transactions and is pretty stable. only problem imo is that it's POW (and mined on the cpu which means it makes crypto mining malware more common)
it's actually private, has fast and cheap transactions and is pretty stable. only problem imo is that it's POW (and mined on the cpu which means it makes crypto mining malware more common)
It’s always hilarious to me how so many crypto/blockchain startups have words like “trust” and “transparency” written all over their landing pages.
In reality you have an insane amount of fraud and shadiness going in order to increase some arbitrary token value.
In reality you have an insane amount of fraud and shadiness going in order to increase some arbitrary token value.
I’ve always considered unregulated advertising claims to be a reflection of the weakness of the product: A food with “Quality” in the brand name is almost always the low-shelf cheap version. “Comfort” in a motel means you’ll have a cheap bed and noisy, rattling air conditioning. Etc.
The unbridled crypto space is chock full of these signals.
The unbridled crypto space is chock full of these signals.
It's like how many dictatorships have the word "Democratic" in their official country name.
Wait so you’re saying the coin “safeMoon” is neither safe or going to the moon?
and of course the "united" states
That's an interesting one because when it began, it was much closer to the 'loosely affiliated states' but over time, it has become more tight-knit under regulatory and leadership frameworks. That's not to say there isn't a bunch of internal disagreements. IMO.
Indeed, many felt that it could provide a framework that might allow unlimited number of states around the world joining. A union of somewhat independent states.
I never thought about it that way
Just went to the homepage of McDonalds and guess what their title says:
Burgers Fries & More. Quality Ingredients.
…
Just went to the homepage of McDonalds and guess what their title says:
Burgers Fries & More. Quality Ingredients.
…
The author has faith in their ability to make money
He has no faith in seeing their presence as validation in the project
That’s an accurate view and he shouldn’t limit that to crypto VCs, its the same in other venture capital. Crypto just helped lower the distortion field, while non-crypto VCs just still have better marketing unbeknownst to him
They all get discounted and preferential liquidity if they’re any good at deal making. That’s what you hire a VC to do
The crypto VCs are absolutely crushing it in deal flow, some of the things they negotiate are phenomenal such as perpetual block rewards that never get diluted, while node operates are all competing amongst each other for their own share. Fund performance decks are way below reality as it is very dependent on the limited partner’s time in the fund, unlike in a liquid fund strategy a private equity investor only has exposure to the positions and contracts they got exposure to from after they joined the fund and exited the fund.
He has no faith in seeing their presence as validation in the project
That’s an accurate view and he shouldn’t limit that to crypto VCs, its the same in other venture capital. Crypto just helped lower the distortion field, while non-crypto VCs just still have better marketing unbeknownst to him
They all get discounted and preferential liquidity if they’re any good at deal making. That’s what you hire a VC to do
The crypto VCs are absolutely crushing it in deal flow, some of the things they negotiate are phenomenal such as perpetual block rewards that never get diluted, while node operates are all competing amongst each other for their own share. Fund performance decks are way below reality as it is very dependent on the limited partner’s time in the fund, unlike in a liquid fund strategy a private equity investor only has exposure to the positions and contracts they got exposure to from after they joined the fund and exited the fund.
I think that’s a very good comment.
I don’t understand all parts of it though.
What do you mean by
- discounted and preferential liquidity?
- perpetual block?
- the entire last sentence?
I’d love to get a deeper understanding
I don’t understand all parts of it though.
What do you mean by
- discounted and preferential liquidity?
- perpetual block?
- the entire last sentence?
I’d love to get a deeper understanding
> - discounted and preferential liquidity?
Private Equity (PE) investors, of which Venture Capital (VC) firms are a subset, typically buy stakes in organizations that are different and better than what anyone else is able to own. Founders and employees in startups typically get common stock, VC firms typically get preferred stock, a completely separate class of shares that has more privileges than common stock. Even investors in the public markets after a stock market listing only get access to common stock. Not only do PE/VC get preferred stock, they often wind up with this exposure (whether it is via preferred stock or another instrument) at a price much lower than the current agreed upon or price derived valuation. Preferred stock further mitigate almost all risk by having covenants (contractual conditions) such "liquidity preferences", meaning that there are many events where a preferred stock holder gets paid first, meeting the amount of their initial investment or several multiples of their initial investment.
Even if exposure via preferred stock is not initially arranged, similar outcomes are entered into via convertible notes. This is a form of lending to an organization, giving them capital with no initial change to the cap table or share structure, which then converts at a later date to shares at almost any price. This is a way to circumvent buying in at market price as the convertible note acts like an options contract negotiated sometimes years in advance.
Analogous to a loan shark, almost any arrangement can be pledged and it can be very lucrative such that the loan shark almost never loses.
Now, these same concepts translate into the crypto market. The speculators are taking up all the spotlight but are playing a very different game, just like in the equities and bond markets the speculators are only providing liquidity for the funds to dump on them. And occasionally complaining the few times they notice, such as when a founder sells. The founder takes all the heat, while the VC/PE and Hedge funds get none and only profits. (None of them should get any heat or attention, or it should be evenly applied or the speculators should have considered the possibility of that and chosen not to trade that asset)
> - perpetual block [rewards]?
This is a concept somewhat unique to crypto currencies. Although it exists in currencies and equities under different names. It mostly means perpetual issuance, where more of the asset is created and this is exchangeable for cash as long as the market continues to post liquidity - or as long as the market keeps putting up cash to buy more of the asset.
But for a concrete example lets look at Helium. Google Ventures invested in crypto asset project Helium. Their private equity deal gives them the right to the block reward.
Like the Bitcoin network, the Helium network is a blockchain that appends new blocks to the chain, not dissimilar to additional nodes in a linked list. Like, Bitcoin, new Helium network uses the addition of blocks to also distribute new Helium tokens to the people that helped validate the existence of the new block. This is called the block reward. Like Bitcoin, Helium network participants are competing for the block reward and this competitive process decreases how much of the block reward any single participant receives.
Unlike Bitcoin, the block reward is also split with the private equity investors. The organization needed capital after pivoting several times before creating the Helium blockchain network, and nobody else would give them the time of day. So there are two portions of the block reward, one that people compete for and split amongst themselves, and a separate portion that is simply given to the private equity investors who maintain the same split forever (well till the year 2070 in this specific case), as there are no more private equity investors. Deals like this exist across the entire space.
> - the entire last sentence?
This was hard for me to articulate. But let's say you run across a VC / PE firm pitch deck, it might say "we've returned 500% in capital over X years" with a nice line chart showing how it beats the S&P500 and even Bitcoin price over the same time period. This might be their only way of showing broad relative accounting across the whole fund, but any particular investor in the fund actually might have much higher returns. 8,000% perhaps? This is due to the nature of the accounting. If a fund invested in Facebook in 2010, and you knew their IPO was going to happen in 2012 and make the fund billions of dollars, there is no way for you to invest into the fund in 2011 and earn that appreciation. If you invested in 2011 you would only get exposure to things the fund invested into after 2011, you wouldn't have exposure to the 2010 positions. The fund itself will have your capital and report a greater amount of assets under management (AUM), and by 2013, after the Facebook IPO, this greater AUM reduces what the whole fund can report as "performance". So you really need to understand the nature of the deal flow to determine if it is a good place to park your capital. You are more so hiring people to make deals, which is very different than hoping for some "trading genius" to analyze publicly traded markets full time. In a liquid fund, all the money is pooled into the same strategy that is ultimately priced at the whim of the market, so in those kinds of funds the performance is more easily seen in a pitch deck.
Private Equity (PE) investors, of which Venture Capital (VC) firms are a subset, typically buy stakes in organizations that are different and better than what anyone else is able to own. Founders and employees in startups typically get common stock, VC firms typically get preferred stock, a completely separate class of shares that has more privileges than common stock. Even investors in the public markets after a stock market listing only get access to common stock. Not only do PE/VC get preferred stock, they often wind up with this exposure (whether it is via preferred stock or another instrument) at a price much lower than the current agreed upon or price derived valuation. Preferred stock further mitigate almost all risk by having covenants (contractual conditions) such "liquidity preferences", meaning that there are many events where a preferred stock holder gets paid first, meeting the amount of their initial investment or several multiples of their initial investment.
Even if exposure via preferred stock is not initially arranged, similar outcomes are entered into via convertible notes. This is a form of lending to an organization, giving them capital with no initial change to the cap table or share structure, which then converts at a later date to shares at almost any price. This is a way to circumvent buying in at market price as the convertible note acts like an options contract negotiated sometimes years in advance.
Analogous to a loan shark, almost any arrangement can be pledged and it can be very lucrative such that the loan shark almost never loses.
Now, these same concepts translate into the crypto market. The speculators are taking up all the spotlight but are playing a very different game, just like in the equities and bond markets the speculators are only providing liquidity for the funds to dump on them. And occasionally complaining the few times they notice, such as when a founder sells. The founder takes all the heat, while the VC/PE and Hedge funds get none and only profits. (None of them should get any heat or attention, or it should be evenly applied or the speculators should have considered the possibility of that and chosen not to trade that asset)
> - perpetual block [rewards]?
This is a concept somewhat unique to crypto currencies. Although it exists in currencies and equities under different names. It mostly means perpetual issuance, where more of the asset is created and this is exchangeable for cash as long as the market continues to post liquidity - or as long as the market keeps putting up cash to buy more of the asset.
But for a concrete example lets look at Helium. Google Ventures invested in crypto asset project Helium. Their private equity deal gives them the right to the block reward.
Like the Bitcoin network, the Helium network is a blockchain that appends new blocks to the chain, not dissimilar to additional nodes in a linked list. Like, Bitcoin, new Helium network uses the addition of blocks to also distribute new Helium tokens to the people that helped validate the existence of the new block. This is called the block reward. Like Bitcoin, Helium network participants are competing for the block reward and this competitive process decreases how much of the block reward any single participant receives.
Unlike Bitcoin, the block reward is also split with the private equity investors. The organization needed capital after pivoting several times before creating the Helium blockchain network, and nobody else would give them the time of day. So there are two portions of the block reward, one that people compete for and split amongst themselves, and a separate portion that is simply given to the private equity investors who maintain the same split forever (well till the year 2070 in this specific case), as there are no more private equity investors. Deals like this exist across the entire space.
> - the entire last sentence?
This was hard for me to articulate. But let's say you run across a VC / PE firm pitch deck, it might say "we've returned 500% in capital over X years" with a nice line chart showing how it beats the S&P500 and even Bitcoin price over the same time period. This might be their only way of showing broad relative accounting across the whole fund, but any particular investor in the fund actually might have much higher returns. 8,000% perhaps? This is due to the nature of the accounting. If a fund invested in Facebook in 2010, and you knew their IPO was going to happen in 2012 and make the fund billions of dollars, there is no way for you to invest into the fund in 2011 and earn that appreciation. If you invested in 2011 you would only get exposure to things the fund invested into after 2011, you wouldn't have exposure to the 2010 positions. The fund itself will have your capital and report a greater amount of assets under management (AUM), and by 2013, after the Facebook IPO, this greater AUM reduces what the whole fund can report as "performance". So you really need to understand the nature of the deal flow to determine if it is a good place to park your capital. You are more so hiring people to make deals, which is very different than hoping for some "trading genius" to analyze publicly traded markets full time. In a liquid fund, all the money is pooled into the same strategy that is ultimately priced at the whim of the market, so in those kinds of funds the performance is more easily seen in a pitch deck.
Wow. That’s a lot of deep insight. Thanks for sharing!
Ad point 1): didn’t that change a bit over the last 1-2 years? I have heard from founders that they have increasingly the upper hand due to the massive capital inflow. This had also led to the fact that founders can now cash out much earlier than let’s say 5-10 years ago, through so called secondaries (?).
Ad point 3) I thought a fund first raises x dollars and then starts investing? There is no more joining in after that, until the next funds starts?
Ad point 1): didn’t that change a bit over the last 1-2 years? I have heard from founders that they have increasingly the upper hand due to the massive capital inflow. This had also led to the fact that founders can now cash out much earlier than let’s say 5-10 years ago, through so called secondaries (?).
Ad point 3) I thought a fund first raises x dollars and then starts investing? There is no more joining in after that, until the next funds starts?
1) changes constantly. crypto was in a deep bear market till the 9 months ago, despite tech and SPACs going through the roof, capital would have been expensive because there was no competition for the deal. Yes, know the rules to understand where you can bend them.
3) depends on the fund. Both are concepts. Its really up to the manager and if they want to deal with another investors emotions, money talks bullshit walks.
3) depends on the fund. Both are concepts. Its really up to the manager and if they want to deal with another investors emotions, money talks bullshit walks.
The VC model has always flirted with being a Ponzi scheme, but ultimately some startups _do_ make money somewhat consistently, so the model is risky but fair to retail investors.
But a crypto project is not a traditional scalable company. It does not make money as platforms traditionally do. It's open source and distributed.
I truly cannot understand how it differs from a huge Ponzi scheme.
I agree with you, but looking at what comes out of Silicon Valley these days, there is a fine line between "ponzi scheme" (in the broad sense) and "re-invest everything in growth and hope to get acquired". I'd push back that many traditional startups, most of which end up never being profitable but still exit in one way or another due to hype and investor relationships, are just as close to pump and dump schemes as many crypto projects are. It just isn't as obvious because the time scale is usually a bit longer.
> But a crypto project is not a traditional scalable company
Why is that true? There are DeFi crypto projects that are scalable companies with big revenue streams. Sure, the space is driven by speculation, but you can argue the same about Robinhood.
> But a crypto project is not a traditional scalable company
Why is that true? There are DeFi crypto projects that are scalable companies with big revenue streams. Sure, the space is driven by speculation, but you can argue the same about Robinhood.
Cryptocurrencies, DeFi, and retail trading are all areas where more skilled traders take money from less skilled traders.
These venues can be distinguished from a Ponzi scheme because the participants are traders in a market, not investors in a company or managed financial product.
These venues can be distinguished from a Ponzi scheme because the participants are traders in a market, not investors in a company or managed financial product.
I agree with you generally and consider stock-picking to be gambling.
But retail traders can use the markets to make bets on overall economic growth. Buying a stake in hundreds or thousands of public companies is a clear bet, and you actually do own something in a legal sense.
With crypto trading, it's unclear what your bet is -- other than the continuation of the Ponzi scheme. You don't own anything, and the coin has no value as soon as people stop believing in it.
If retail investors understood that nature of crypto, I'd be fine with them gambling on it. But most of them are tricked into believing there is underlying value in the coin when there actually isn't (see also: NFTs).
But retail traders can use the markets to make bets on overall economic growth. Buying a stake in hundreds or thousands of public companies is a clear bet, and you actually do own something in a legal sense.
With crypto trading, it's unclear what your bet is -- other than the continuation of the Ponzi scheme. You don't own anything, and the coin has no value as soon as people stop believing in it.
If retail investors understood that nature of crypto, I'd be fine with them gambling on it. But most of them are tricked into believing there is underlying value in the coin when there actually isn't (see also: NFTs).
I agree; cryptocurrencies are a scam. But in general they're not Ponzis, with some exceptions e.g. the situation the parent poster describes where VC investors get "early coins" which are sold to later buyers.
To be clear, you're saying that you believe that every last cryptocurrency is a scam with no exclusions? To me it seems absurd that none are non-scams, and makes me think you're just making baseless claims.
It's been 14 years and if the whole space disappeared overnight what would change? The news cycle would be less entertaining I guess. So much so China was able to nuke the whole space from orbit and what? Crickets.
But I am referring to investing into a DeFi project as a VC (= receiving tokens), not trading in Defi. Why is that not equivalent to investing in Robinhood as a startup?
With that clarification I agree that it would be a Ponzi scheme. If the project is mainly accepting money from new buyers and routing it to early participants who are selling, then it's a Ponzi.
The reality is that we need a new term than ponzi scheme to determine if we are willing to respect a financial model or not
The state (us government) has made it clear that there is no distinction it can stand behind anymore
sometimes earlier investors get paid out by newer investors
whether it’s a high yield investment program, a poorly run hedge fund, or the entire corporate bond market, or social security, or herbalife, or defi
The debate over the name of the payout system is no longer productive, as ponzi scheme - as a pejorative term - doesn’t tell you anything
The state (us government) has made it clear that there is no distinction it can stand behind anymore
sometimes earlier investors get paid out by newer investors
whether it’s a high yield investment program, a poorly run hedge fund, or the entire corporate bond market, or social security, or herbalife, or defi
The debate over the name of the payout system is no longer productive, as ponzi scheme - as a pejorative term - doesn’t tell you anything
> need a new term than ponzi scheme
"Fraud" works for me.
All nascent markets are wildcat melees. https://en.wikipedia.org/wiki/Wildcatter
Useful markets are eventually regulated. To save the market from itself, to calm down the townsfolk brandishing pitchforks and torches, to assert central control over a proven grift.
Time will tell if all these crypto kittens prove useful for more than fraud.
"Fraud" works for me.
All nascent markets are wildcat melees. https://en.wikipedia.org/wiki/Wildcatter
Useful markets are eventually regulated. To save the market from itself, to calm down the townsfolk brandishing pitchforks and torches, to assert central control over a proven grift.
Time will tell if all these crypto kittens prove useful for more than fraud.
It doesn’t work for me because it has a legal meaning applied retroactively
Your proposal of using it would at best case simply dilute that word until it was no longer useful, and worst case open its users up to libel due to being a legal term
Your proposal of using it would at best case simply dilute that word until it was no longer useful, and worst case open its users up to libel due to being a legal term
In theory, a crypto project could provide value (not money, they're different things) to its users. For instance, there are experiments with distributed games where assets are NFTs. In theory, this provides the basis for independent games sharing unique assets among themselves.
In practice, nobody's doing this (even those game devs who are minting assets as NFTs are keeping the assets to one game, making the whole exercise pointless) and it seems probable that nobody really wants it.
But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful. I just have yet to see an example in the wild (or even to imagine a concrete thing I could make where this would really be the case).
In practice, nobody's doing this (even those game devs who are minting assets as NFTs are keeping the assets to one game, making the whole exercise pointless) and it seems probable that nobody really wants it.
But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful. I just have yet to see an example in the wild (or even to imagine a concrete thing I could make where this would really be the case).
There is still no value over a trusted third party, keeping all this in a central database. These games you are talking about just agree on this third party and that's it.
And they already do that. The third party is states backing traditional banking systems.
And they already do that. The third party is states backing traditional banking systems.
> There is still no value over a trusted third party, keeping all this in a central database. These games you are talking about just agree on this third party and that's it.
There is value - with a trusted third party, you are "trusting" that the third party will stick around, won't block you, and won't arbitrarily change the rules on you.
There is value - with a trusted third party, you are "trusting" that the third party will stick around, won't block you, and won't arbitrarily change the rules on you.
Same goes for all makers of those "independent games". If just one of those goes rogue, th system is void. You need trust in all of them, not just those that you are playing.
Worse, if your game currency is a decentraliced ledger, then it's much harder to do something about the rogue participant. That's by design. If it's instead a central entity, they can kick out that party on a whim.
Worse, if your game currency is a decentraliced ledger, then it's much harder to do something about the rogue participant. That's by design. If it's instead a central entity, they can kick out that party on a whim.
And who hosts those assets? How does this not apply to them?
An NFT is simply a signed URL to an image. That the assets are NFTs are meaningless, because (a) they're only relevant in the context of that game and (b) there's no guarantee the hosting will remain (c) they don't come with a license to use or display the asset. No other game developer could create a game leveraging these NFT assets without being on the receiving end of a DMCA claim.
[edit] Just try and leverage some NBA Top Shots on your own website and let me know how that goes.
> But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful.
It's been 14 years, it's not still early, there's just no "there" there.
[edit] Just try and leverage some NBA Top Shots on your own website and let me know how that goes.
> But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful.
It's been 14 years, it's not still early, there's just no "there" there.
> It's been 14 years, it's not still early, there's just no "there" there.
Although I agree with everything else you wrote, I don't think this follows.
As a counterexample, Secure Scuttlebutt was created for a specific problem, which was that the creator was a sailor and wanted an offline-friendly social media platform. By using a blockchain, users would have a copy of the database locally that they could interact with and then synchronize when they either cross paths with other sailors (because as long as there's a local network, they can synchronize with peers without the need for internet access) or reconnect to the internet. In this case, the blockchain is relevant in that it enables the network to work independently of internet access and provides decentralized eventual consistency guarantees. A centralized solution would unavoidably require internet access.
It's not a million-dollar idea, and further development is fragmented due to there deliberately being no centralized leadership of the project, but it seems to fit its intended niche use case.
Although I agree with everything else you wrote, I don't think this follows.
As a counterexample, Secure Scuttlebutt was created for a specific problem, which was that the creator was a sailor and wanted an offline-friendly social media platform. By using a blockchain, users would have a copy of the database locally that they could interact with and then synchronize when they either cross paths with other sailors (because as long as there's a local network, they can synchronize with peers without the need for internet access) or reconnect to the internet. In this case, the blockchain is relevant in that it enables the network to work independently of internet access and provides decentralized eventual consistency guarantees. A centralized solution would unavoidably require internet access.
It's not a million-dollar idea, and further development is fragmented due to there deliberately being no centralized leadership of the project, but it seems to fit its intended niche use case.
I think why people treat them differently comes down to informed consent. With a true Ponzi scheme, the managing investor makes you believe that they're doing something that they're not. You think you're investing in some underlying asset, but you're just buying out they previous wave of investors.
With crypto/VC/normal stocks all having many characteristics in common with Ponzi schemes, at least the game is relatively well understood. For all of them, there are institutional investors capable of market manipulation, as well as the information and know-how so as to typically adjust their positions so that the majority of the people left holding the bag are retail investors.
With crypto/VC/normal stocks all having many characteristics in common with Ponzi schemes, at least the game is relatively well understood. For all of them, there are institutional investors capable of market manipulation, as well as the information and know-how so as to typically adjust their positions so that the majority of the people left holding the bag are retail investors.
I challenge the notion that people who invest in crypto "understand the system". There is no regulation in this market to protect the fools from themselves and it shows.
I’m not sure this article understands how VCs in general often operate. I’ve met many VCs who will invest in a team with barely an idea, or where they have a lot of scepticism about the idea, because they believe the team have a sufficiently high chance of figuring it out, or executing and scaling, and generating the outsized returns they need — whether with the original idea, a heavily evolved or refined version of it, or a complete “pivot”.
The lack of rigour around the specifics of the idea, the tech or maths behind it, etc. is not new or unique to crypto VCs (look at some of the nonsense that gets funded!). What’s more unusual is that anyone can often read the same papers and look at the code and decide the idea is dumb/illegal/won’t work. We can’t usually see what it is that made the VC invest, though.
But sure, if you’re looking for VC funding as a signal of great tech or an obvious market need or problem being solved, you have to at least be really picky about which VCs you follow and how much you read into their pronouncements (some are surely better than others, though).
Also, those projects that do have good tech and a viable product/solution will almost certainly benefit from the support of top quality VCs.
The lack of rigour around the specifics of the idea, the tech or maths behind it, etc. is not new or unique to crypto VCs (look at some of the nonsense that gets funded!). What’s more unusual is that anyone can often read the same papers and look at the code and decide the idea is dumb/illegal/won’t work. We can’t usually see what it is that made the VC invest, though.
But sure, if you’re looking for VC funding as a signal of great tech or an obvious market need or problem being solved, you have to at least be really picky about which VCs you follow and how much you read into their pronouncements (some are surely better than others, though).
Also, those projects that do have good tech and a viable product/solution will almost certainly benefit from the support of top quality VCs.
At a per-investment level, you have a point, but in aggregate, none of the crypto startups have done much beyond creating digital trading cards for speculation and illegal transactions, and most have failed to even do that. It's the premise of the fund, so it's not like they have a choice, but it's almost a meta bet on the space. Despite the space having produced so little, there are smart people who will figure out something for the space, and then the team you bet on will execute on it.
Everyone wants to talk about the future of crypto in terms of how it can be used. Not enough people are talking about the fact that a single breakthrough in computing could undo the encryption that these currencies are reliant upon, instantly driving the value to zero. This is a vulnerability that does not have an analogue in any other currencies, securities or stores of wealth. Because of that, crypto is and will be an extremely high-risk asset to hold. It’s a time bomb. Like all things of this nature, everyone will ignore it until it happens, which means that crypto will be incorrectly priced by markets until then.
I don’t get this argument especially here in the hackernews;
1. If they can crack the cryptocurrencies then it means that they can easily crack crypto of online banking systems as well, entire world would crash regardless of whichever asset you hold.
2. There are already quantum resistant crypto algorithms, crypto currencies can easily switch to them once it is clear that current crypto algorithms can be cracked. It would mean that people who did transactions between the detection period would probably lose their money but it wouldn’t be the end of crypto currencies.
1. If they can crack the cryptocurrencies then it means that they can easily crack crypto of online banking systems as well, entire world would crash regardless of whichever asset you hold.
2. There are already quantum resistant crypto algorithms, crypto currencies can easily switch to them once it is clear that current crypto algorithms can be cracked. It would mean that people who did transactions between the detection period would probably lose their money but it wouldn’t be the end of crypto currencies.
Well hacking a bank doesn't give legal value to your transfer order, a simple employee could revert by calling the target bank on the phone under threat of pursuit if no reversal.
Bank account are not protected by cryptography, they're protected by law. What you want is bitcoin to have the same, not say that since a banks' https website could be hacked, let's do nothing about the main weakness of crypto.
But anyway the point is moot: it's certain developers would upgrade the network with time as new events unfold.
Bank account are not protected by cryptography, they're protected by law. What you want is bitcoin to have the same, not say that since a banks' https website could be hacked, let's do nothing about the main weakness of crypto.
But anyway the point is moot: it's certain developers would upgrade the network with time as new events unfold.
> If they can crack the cryptocurrencies then it means that they can easily crack crypto of online banking systems as well
They're very different because the blockchain is public. Getting access to a bank's database touches a lot more systems and algorithms. Even something less interesting like intercepting web traffic to (or between) banks isn't interesting because you need physical access to the medium and you'd need a hole in TLS. Like Bitcoin, TLS uses SHA-256, but breaking it probably doesn't give you access to any plaintext, and you could force a downgrade to TLS 1.2 to use MD5-SHA-1. This is only per-connection; the Bitcoin ledger is set in stone.
They're very different because the blockchain is public. Getting access to a bank's database touches a lot more systems and algorithms. Even something less interesting like intercepting web traffic to (or between) banks isn't interesting because you need physical access to the medium and you'd need a hole in TLS. Like Bitcoin, TLS uses SHA-256, but breaking it probably doesn't give you access to any plaintext, and you could force a downgrade to TLS 1.2 to use MD5-SHA-1. This is only per-connection; the Bitcoin ledger is set in stone.
I’m extremely bearish on Crypto, but I don’t think this is a fair criticism of it. If someone manages to break the crypto underpinning say, Bitcoin, then the crash in Bitcoin prices would be the least of our problems as a society.
The sudden, catastrophic collapse of all online commerce would probably be a bigger problem, as would the immediate halting of electronic interbank communication.
The sudden, catastrophic collapse of all online commerce would probably be a bigger problem, as would the immediate halting of electronic interbank communication.
I mean we survived before online commerce, I remember it vividly even. Can bitcoin survive without crypto ?
There was even a time, believe it or not, where electricity didn't exist and people/society still kinda worked...
When classical crypto is reverse (when, not if), then we'll simply have all our past secrets revealed. What you want is gradual increase in complexity so that the decyphered past only impact dead people.
Crypto currency will ofc do that too, don't forget bitcoin can change everything, even its 21M limit, as long as the majority of the network follows.
There was even a time, believe it or not, where electricity didn't exist and people/society still kinda worked...
When classical crypto is reverse (when, not if), then we'll simply have all our past secrets revealed. What you want is gradual increase in complexity so that the decyphered past only impact dead people.
Crypto currency will ofc do that too, don't forget bitcoin can change everything, even its 21M limit, as long as the majority of the network follows.
There is a big, big difference between “we survived before online commerce” and “you’re going back to a pre 1990s economy tomorrow”.
lmao wtf? The same argument applies to the entire Internet. The cryptography used in most reputable blockchains (eg Bitcoin, Ethereum, etc) is not significantly different from cryptography used in TLS. If you break the cryptography in cryptocurrencies, you're probably also breaking secure web browsing as implemented everywhere today.
At least with Bitcoin, I'd worry more about systemic risks (China controls most of the miners) than risks in particular algorithms. That said, while SHA-256 has a lot of accumulated knowledge about hash functions in it and has had a lot of eyeballs on it over the years, it hasn't had such a big bounty on it, yet.
This is such a fucking lazy criticism for a supposedly technically literate community.
https://en.bitcoin.it/wiki/Quantum_computing_and_Bitcoin#Mit...
https://en.bitcoin.it/wiki/Quantum_computing_and_Bitcoin#Mit...
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For example look at the real price history of a VC funded token called "Internet Computer" [0] by selecting "ALL" on Coinbase. Out of no where on launch, it was listed on Coinbase and Binance already with the top 10 coins of the largest market capitalisations. Only VCs and angel investors with such connections to these exchanges could have made such a listing like that possible.
After that, then came the VC dump with the price now at $59 - $60 for weeks with the bagholders entering at >$200 or >$400 on listing day.
When I see charts like that, that is what you call a VC pump and dump.
[0] https://www.coinbase.com/price/internet-computer
After that, then came the VC dump with the price now at $59 - $60 for weeks with the bagholders entering at >$200 or >$400 on listing day.
When I see charts like that, that is what you call a VC pump and dump.
[0] https://www.coinbase.com/price/internet-computer
Was just talking with friends yesterday about this - Internet Computer getting absolutely dumped by the VCs who pumped it so hard from the beginning. Once I saw that they were headquartered in the Bay, had their entire team in the Bay, and wanted to be the “everything for everyone” computer, that was kinda my sign that this was a scam.
Internet Computer aka DFINITY is not a scam. The price action is fishy, but when you investigate the project’s vision, the technical architecture, the team behind it, and the community building on it, you’ll discover that it’s perhaps the most serious, innovative, and ambitious system out there.
I agree that people often use scam to mean “it’s not worth what people think it is”, “this is going to be vaporware”, “this doesn’t have much real world use”. I expect that the folks at DFINITY are actually trying to build something.
But it’s a little beside the point. I’ve seen some of how the sausage was made in creating and listing new crypto projects, and it’s pretty ugly. There’s a lot of focus on pumping, shilling each other (all while putting in a facade of independence), “tokenomics” which is 50% euphemism for Ponzi scheme. There are likely scam-like qualities to the way that this was listed, who was involved in providing early liquidity / pricing (the initial listing price/pump matters a lot in keeping the price stable above a certain value), and a suite of lesser benefits the inner crowd get.
I left before ICP so I don’t have any facts, but what I saw with projects before that make me confident the exact same thing happened.
But it’s a little beside the point. I’ve seen some of how the sausage was made in creating and listing new crypto projects, and it’s pretty ugly. There’s a lot of focus on pumping, shilling each other (all while putting in a facade of independence), “tokenomics” which is 50% euphemism for Ponzi scheme. There are likely scam-like qualities to the way that this was listed, who was involved in providing early liquidity / pricing (the initial listing price/pump matters a lot in keeping the price stable above a certain value), and a suite of lesser benefits the inner crowd get.
I left before ICP so I don’t have any facts, but what I saw with projects before that make me confident the exact same thing happened.
I chuckled at the analogy with sausage-making. Thank you for getting your point across!
How large are those bags you’re holding I wonder?
Dfinity is a typical example of shady behavior in crypto space. Private VCs got in on 0.02$/token, then presale was 4 $/token and then on launch day there was probably lots of wash trading to lure the suckers into buying it at 300 $ - 650 $ /token.... A classic premeditated pump & dump. Nothing unusual, many crypto projects have done it and exchanges are in on it. Welcome to crypto 2.0. This is how it's done now. I think the projects has some merit, but the way that funding is done is just pure exploitation on unregulated markets. I'm wondering what crypto 3.0 will bring when the next bull cycle emerges.
To anyone familiar with these matters, is this likely going to be investigated by SEC? If this is not investment scam I don’t know what is.
It’s not different than a direct listing for $100B and dumping shares on everyone as fast as you can
Which was obvious Coinbase was going to do and did in their own stock market listing, to me
You sell into liquidity, liquidity comes from people wanting financial exposure, people wanting financial exposure comes from buzz and marketing
When things are actually under SEC purview, the only difference between fraud and not fraud is disclosure. If you tell people and they only watch youtubers instead of reading, you are fine
No, tokens typically are not under SEC purview and they’ve gotten better at ensuring that
Which was obvious Coinbase was going to do and did in their own stock market listing, to me
You sell into liquidity, liquidity comes from people wanting financial exposure, people wanting financial exposure comes from buzz and marketing
When things are actually under SEC purview, the only difference between fraud and not fraud is disclosure. If you tell people and they only watch youtubers instead of reading, you are fine
No, tokens typically are not under SEC purview and they’ve gotten better at ensuring that
I concur with this article quite a bit, but let's also talk about solutions instead of just problems. Projects need to get funded to pay people salaries. The current VC alternative solution to this is to form a DAO.
Recent example of a fairly successful DeFi DAO:
https://medium.com/badgerdao/badgers-in-the-sett-a-dao-treas...
Recent example of a fairly successful DeFi DAO:
https://medium.com/badgerdao/badgers-in-the-sett-a-dao-treas...
Maybe if the SEC came down on every VC who "unintentionally" pump-and-dumps crypto...
The same author also has an article on Tether.[1] Tether remains scary. Tether has a market cap of US $62 billion. They're approaching the market cap of General Motors, and are up there with big mutual funds. And nobody has any idea where the money is being stored.
The "commercial paper" story does not hold water. If Tether really had that much commercial paper, Tether would be the 7th largest buyer of it. Since commercial paper is short-term, a few months at most, they'd have to have a busy trading desk rolling over their commercial paper.
They don't. The big players in commercial paper are not seeing any Tether activity.[2] Uh oh.
Their "commercial paper" is probably just notes from other crypto companies. Or their own crypto company.
[1] https://bennettftomlin.com/2021/06/10/how-big-is-tether/
[2] https://www.ft.com/content/342966af-98dc-4b48-b997-38c008042...
The "commercial paper" story does not hold water. If Tether really had that much commercial paper, Tether would be the 7th largest buyer of it. Since commercial paper is short-term, a few months at most, they'd have to have a busy trading desk rolling over their commercial paper.
They don't. The big players in commercial paper are not seeing any Tether activity.[2] Uh oh.
Their "commercial paper" is probably just notes from other crypto companies. Or their own crypto company.
[1] https://bennettftomlin.com/2021/06/10/how-big-is-tether/
[2] https://www.ft.com/content/342966af-98dc-4b48-b997-38c008042...
So basically the first example is of a coin that was never launched and the chart is from some wildcat clone someone else launched. The second one took 3 weeks to reach peg but then did.
IDK, I DO think there's too much money flowing into crypto startups lately, but the article is about as poor as the dd of some in the space.
IDK, I DO think there's too much money flowing into crypto startups lately, but the article is about as poor as the dd of some in the space.
VC for crypto by definition is a pre-mine, so yeah...
It’s usually a convertible security that can convert to claims of tokens and/or equity
Sometimes it is an investment directly for a premine
Other time it is a secondary offering of the issuing organizations tokens
Your statement is reductive only because most everything in the market involves pre generated stakes in the network. The market tolerates that because it has since the 1600s joint stock company. Crypto ideology can just be dropped, there is no standard that makes a crypto better just because it can’t be purchased to launch.
Sometimes it is an investment directly for a premine
Other time it is a secondary offering of the issuing organizations tokens
Your statement is reductive only because most everything in the market involves pre generated stakes in the network. The market tolerates that because it has since the 1600s joint stock company. Crypto ideology can just be dropped, there is no standard that makes a crypto better just because it can’t be purchased to launch.
Just wait until he sees how much BS is baked into startups that don’t have to expose their entire codebase to the world, get independently audited, etc.
Honestly, all these cryptos have to do is bake themselves into in-game currency for any video game. Fortnite crypto could be a multi billion dollar market.
I would love to just buy an army in Starcraft, pillage your base and take your crypto, then sell it on Coinbase. If we are truly to live in a job-less world with basic income, I’m gonna need shit to do.
I would love to just buy an army in Starcraft, pillage your base and take your crypto, then sell it on Coinbase. If we are truly to live in a job-less world with basic income, I’m gonna need shit to do.
Why would Epic want to build Fortnite dollars as a slow distributed ledger instead of keeping it centralized? And why would they want to let you redeem for dollars?
There is no reason the purchase of a purple bazooka in a video game needs to be confirmed by thousands of nodes so someone like Epic would keep the crypto centralized and therefore fast. They wouldn't need to "let you redeem the bazooka for dollars" since there will be people who want the bazooka and would be willing to purchase it from you. Epic would then have the power to mint new bazooka's in order to raise funds for their development. The issue at hand is how does Epic do any of this without going to jail for breaking securities regulations.
Centralized crypto is functionally identical to a MySQL store.
re: SEC scrutiny, have you met Robux?
re: SEC scrutiny, have you met Robux?
There are games that are thinking in this direction or are already implemented this way. For example: https://www.kotaku.com.au/2021/05/how-a-philippines-communit...
But it's financially just like poker. Even at best, value isn't being generated, it's just being funneled from suckers to sharks (and the house).
But it's financially just like poker. Even at best, value isn't being generated, it's just being funneled from suckers to sharks (and the house).
Why does that require crypto though? Why not Euros, Dollars, Pounds? Or even XBox Live Points?
Sounds like you want to play Eve Online
Or skip the middleman and awards BTC directly. This is what Zebedee has done with Infuse:
https://zebedee.io/infuse
They had an esports arena at the Bitcoin Conference in Miami last week. It was a lot of fun, and a successful proof of concept. I think we’ll start seeing a lot more events like this, and also see it expanded to other mainstream games in addition to CS:GO.
https://zebedee.io/infuse
They had an esports arena at the Bitcoin Conference in Miami last week. It was a lot of fun, and a successful proof of concept. I think we’ll start seeing a lot more events like this, and also see it expanded to other mainstream games in addition to CS:GO.
“Pay-to-win” is generally not considered to be a recipe for fun games, as far as I know. Having a sudden flood of rich assholes coming in and crushing people because all the best guns are a trivial real-money purchase for them sounds like a good way to kill a game.
People value cosmetics and will pay through the teeth to have the only gun that shoots blue fireballs instead of orange - especially if said gun was introduced to the public through a partnership with Ninja or PewDiePie.
Oh yeah, I know. The person I was responding to was talking about "buying an army" to smash other people's bases, though.
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Wonderful blog by Bennett!
What's also very fascinating is how fast the scammers have caught up.
https://reddit.com/r/cryptomoonshots
Enjoy the read
What's also very fascinating is how fast the scammers have caught up.
https://reddit.com/r/cryptomoonshots
Enjoy the read
All marketing is a scam to sell something. The only cryptocurrency that exists is Bitcoin. All else below it, including Ethereum are scams. They are not decentralized, and anything using Proof of Stake is just as bad as a fiat currency. Every banker here commenting as usual about how Bitcoin is boiling the oceans and only for criminals will feel free to censor me and downvote my post but should also realize they are a fake individual who parrots for an oppressive state. There is no future without Bitcoin. The US is now at 5% inflation and rising. Keep saving those paper IOU's and we'll talk again in a few years.
Would you say that the relation is... trustless?
Exactly! I suspect most of the folks complaining about crypto space in general are 'brick and mortar' investors of a centralized web. These people invest only in their closed network, in people they meet face to face and "like" in general. I wouldn't put much weight on this whining really.
Edit: Looks like I touched a raw nerve of some bay area folks. lol.
Edit: Looks like I touched a raw nerve of some bay area folks. lol.
Venture capitalists in general are pretty clueless...
Crypto is the next reframing of the repo market regular cycle of failures. Virtual money is not new, it's what the eurodollar system is (US dollars outside of the US also called shadow bank system that know one knows the value of). The offer on hand will be that blockchain will help keep track of the liquidity and rehypothecation; in reality it is yet another patching of an economic system that more closely resembles feudalism than capitalism. (Perry Anderson, Jeffrey P. Snider, Yanis Varofakis).
Venture capitalists are in the “buy low, sell high” business.
Their motivation is not “is this thing I’m buying going to be useful to someone?” (although that’s a nice side effect that gives them something to talk about at parties.)
Rather it’s: “Can I offload this thing I bought with exclusive access to someone else in a reasonable time horizon?”
Tokens and other crypto investments have been attractive to VCs because there was a steadily rising level of interest and a regular cycle of hype booms that make for great exit opportunities. (See the timing of Coinbase IPO.)
If there’s a good chance of exit in 3-5 years, it makes absolutely no difference if the project never ships anything.
Their motivation is not “is this thing I’m buying going to be useful to someone?” (although that’s a nice side effect that gives them something to talk about at parties.)
Rather it’s: “Can I offload this thing I bought with exclusive access to someone else in a reasonable time horizon?”
Tokens and other crypto investments have been attractive to VCs because there was a steadily rising level of interest and a regular cycle of hype booms that make for great exit opportunities. (See the timing of Coinbase IPO.)
If there’s a good chance of exit in 3-5 years, it makes absolutely no difference if the project never ships anything.
I think you may have confused venture capital with hedge funds.
The overwhelming majority of VC funds are set up with a 10y time horizon and option to extend to 15y. They make their investments in the first 2-3y of the fund and then hope to earn their carry by "returning the fund". For a typical mid-sized $200m fund this means turning one of their $5-10m Series A checks into a liquidity event far above $200m (valuing the company in turn at over a billion to return this amount to the firm), in other words counting on a >>20-40x return for the lucky breakout in their portfolio and taking the others mostly as a (relative) loss. While some secondary activity exists, it is rare for a regular fund to manage to achieve these kinds of multiples in a secondary sale versus an IPO or acquisition. And an acquisition that exits after 3-5 years is extremely unlikely to have this kind of multiple -- and consequently those are not deals in which the partners will earn carry. (And going from Series A to IPO in 3-5 years is extremely unusual - median time to IPO is 9-11 years, though SPACs may have at least temporarily changed some of the calculus on this.)
So no, I don't know of any VCs who target companies that hope to be bought in 3-5 years and don't care if the company ships anything.
The overwhelming majority of VC funds are set up with a 10y time horizon and option to extend to 15y. They make their investments in the first 2-3y of the fund and then hope to earn their carry by "returning the fund". For a typical mid-sized $200m fund this means turning one of their $5-10m Series A checks into a liquidity event far above $200m (valuing the company in turn at over a billion to return this amount to the firm), in other words counting on a >>20-40x return for the lucky breakout in their portfolio and taking the others mostly as a (relative) loss. While some secondary activity exists, it is rare for a regular fund to manage to achieve these kinds of multiples in a secondary sale versus an IPO or acquisition. And an acquisition that exits after 3-5 years is extremely unlikely to have this kind of multiple -- and consequently those are not deals in which the partners will earn carry. (And going from Series A to IPO in 3-5 years is extremely unusual - median time to IPO is 9-11 years, though SPACs may have at least temporarily changed some of the calculus on this.)
So no, I don't know of any VCs who target companies that hope to be bought in 3-5 years and don't care if the company ships anything.
> Tokens and other crypto investments have been attractive to VCs because there was a steadily rising level of interest and a regular cycle of hype booms that make for great exit opportunities. (See the timing of Coinbase IPO.)
It was not really an IPO, its was actually a direct listing and it was planned when BTC price action was breaking another all time high. Upon listing day, it is the same cycle of the VCs selling at the top with the retail investors bag holding $375 - $425 which I continuously warned against buying into the hype. [0] It has never recovered over those prices and is sitting at around $225 - $228.
When everyone and their goldfishes and the media are hyping everything at the same time during the build up to an angel or VC funded project they will unload a large amount of their investment onto the retail trader at expensive prices. You lose nothing by ignoring the hype.
This is how the VCs always keep winning.
[0] https://news.ycombinator.com/item?id=26826826
It was not really an IPO, its was actually a direct listing and it was planned when BTC price action was breaking another all time high. Upon listing day, it is the same cycle of the VCs selling at the top with the retail investors bag holding $375 - $425 which I continuously warned against buying into the hype. [0] It has never recovered over those prices and is sitting at around $225 - $228.
When everyone and their goldfishes and the media are hyping everything at the same time during the build up to an angel or VC funded project they will unload a large amount of their investment onto the retail trader at expensive prices. You lose nothing by ignoring the hype.
This is how the VCs always keep winning.
[0] https://news.ycombinator.com/item?id=26826826
That said, so far, almost 10 years in, there really are not a lot of real world use cases. Sure there are glorified POCs of things that could potentially lead in the direction of real world use cases.
But most of these products/tokens are just extremely meta. Tokens you get paid/pay for when you trade/borrow/lend/invest/stake your other tokens. Derivative tokens which allow you to get exposure to underlying tokenX on chainY.
The transactions are slow, or fast.. cheap or expensive, good luck understanding which in advance.
It doesn't feel like we are any closer to normal people using it for normal real world transactions/finance.
Right now it just feels like pump&dump/frontrunning/private placement games on each new token before it hits mainstream, completely nothing to do with what the alleged business behind that token is supposed to be doing or its prospects of success. It's just a game of getting hold of difficult to acquire tokens before they hit the more normie venues like Binance, Coinbase, etc.