U.S. SEC sees decentralized crypto platforms as exchanges(reuters.com)
reuters.com
U.S. SEC sees decentralized crypto platforms as exchanges
https://www.reuters.com/markets/us/us-sec-weigh-taking-more-feedback-plan-expand-exchange-definition-2023-04-14/
80 comments
Not really, because the major service that exchanges provide is to convert between crypto and cash. The tremendous growth seen in the industry over the last few years was fueled by an influx of cash into the crypto markets by way of exchanges.
Dealing in cash means managing some sort of bank or brokerage account, which falls under federal purview.
Dealing in cash means managing some sort of bank or brokerage account, which falls under federal purview.
Decentralized exchanges are... exactly not that. They only trade on-chain assets for on-chain assets. Fiat ramps are not part of what makes a decentralized exchange.
This.
Which means those exchanges are, until crypto becomes a mainstream payment method for everyday stuff, completely pointless. And, as a result, crypto as well.
> until crypto becomes a mainstream payment method for everyday stuff
It sucks that this hasn't happened already. Monero pretty much just works, the technology is already there. People insist on treating cryptocurrencies like stocks instead.
It sucks that this hasn't happened already. Monero pretty much just works, the technology is already there. People insist on treating cryptocurrencies like stocks instead.
> Which means those exchanges are ... completely pointless.
I wonder what entices people to execute hundreds of thousands of trades totaling USD equivalent billions in daily trading volume on these platforms then. Would you say that everyone using these platforms is basically out to scam others or get rich quick?
I wonder what entices people to execute hundreds of thousands of trades totaling USD equivalent billions in daily trading volume on these platforms then. Would you say that everyone using these platforms is basically out to scam others or get rich quick?
They're commodities. People trade in commodities millions of times a day, thats what you're describing. But unless it's possible to cash out into fiat they are completely worthless.
It's sad to see what has happened to crypto. So many scams and people using it as an investment opportunity. It will obviously never be able to replace fiat in it's current conception.
It's sad to see what has happened to crypto. So many scams and people using it as an investment opportunity. It will obviously never be able to replace fiat in it's current conception.
Yes, though there's also a smaller cadre of naive true believers in there.
DeFi platforms do not deal with cash. Everything has to be on chain.
So how does one get a token on one of these platforms?
I certainly won’t pay cash for a token!
I certainly won’t pay cash for a token!
You get a token by swapping other tokens you already have. If you don't have any tokens and don't wasn't to bup tokens for cash than you can enter give aways, or work for someone willing to pay you with tokens.
SEC can force all the exchanges that have US customers to blacklist any crypto that touches those addresses.
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Meanwhile Hong Kong is rolling out the the red carpet https://www.wsj.com/articles/hong-kong-banks-are-netting-cry...
The crypto industry is extremely adept at moving across borders, and as power politics between nations dictate different priorities, crypto will make its home base where ever the doors open. Right now China and Russia are in a West vs. East struggle, and anything they can do to reduce the power of the US Dollar and banking system will be supported.
The crypto industry is extremely adept at moving across borders, and as power politics between nations dictate different priorities, crypto will make its home base where ever the doors open. Right now China and Russia are in a West vs. East struggle, and anything they can do to reduce the power of the US Dollar and banking system will be supported.
After the collapse of Silvergate and Signature, I say “let them have it”.
The crypto industry may be adept at moving across borders, but so are seasoned criminals. That shouldn’t automatically qualify them to operate with impunity. Millions of people lost savings in the wake of FTX, and we’re all just supposed to pretend that it was some singular, isolated incident?
Their name was on an NBA arena, they spent millions on celebrity endorsements and ads, and were touted among what many consider to be one of the top tier venture firms in the world. The SEC had every right do this.
The crypto industry may be adept at moving across borders, but so are seasoned criminals. That shouldn’t automatically qualify them to operate with impunity. Millions of people lost savings in the wake of FTX, and we’re all just supposed to pretend that it was some singular, isolated incident?
Their name was on an NBA arena, they spent millions on celebrity endorsements and ads, and were touted among what many consider to be one of the top tier venture firms in the world. The SEC had every right do this.
> Millions of people lost savings in the wake of FTX,
FTX...which was a regulated exchange in the US and failed because the SEC wasn't regulating.
The issue with expanding the SEC's reach is that they're refusing to do their job and they're asking for more work that they aren't going to do.
Commissioner Hester Peirce has a great statement on this: https://www.sec.gov/news/statement/peirce-rendering-inovatio...
We also see this statement in the article:
> The officials estimated about dozen crypto firms would fall under the expanded definition, but declined to provide any more specifics about which firms.
Which means that the SEC isn't creating clarity about their proposed changes and the effects that they will have. They need to create clarity before asking the public to comment on something.
If the SEC had been doing their job all this time and regulating the industry which they claim falls under their jurisdiction, people probably would have been saved from a lot of scams and loss of assets while still enabling blockchain products to be built by people who enjoy working on them.
FTX...which was a regulated exchange in the US and failed because the SEC wasn't regulating.
The issue with expanding the SEC's reach is that they're refusing to do their job and they're asking for more work that they aren't going to do.
Commissioner Hester Peirce has a great statement on this: https://www.sec.gov/news/statement/peirce-rendering-inovatio...
We also see this statement in the article:
> The officials estimated about dozen crypto firms would fall under the expanded definition, but declined to provide any more specifics about which firms.
Which means that the SEC isn't creating clarity about their proposed changes and the effects that they will have. They need to create clarity before asking the public to comment on something.
If the SEC had been doing their job all this time and regulating the industry which they claim falls under their jurisdiction, people probably would have been saved from a lot of scams and loss of assets while still enabling blockchain products to be built by people who enjoy working on them.
Pretty sure FTX was not a US corporation and catered to non-US customers. FTX.us, which was a minor branch that catered to US customers, was thought to be relatively solvent but ultimately collapsed like most things associated with FTX. Not saying that the SEC would have prevented anything in the fallout, but blaming them for failing to regulate seems somewhat incorrect.
Though, I am unclear why FTX filed bankruptcy in Delaware. Someone please correct me if I'm wrong.
Though, I am unclear why FTX filed bankruptcy in Delaware. Someone please correct me if I'm wrong.
It's funny you mention FTX, because FTX was exactly the opposite of a decentralized exchange. It was a centralized exchange that was unambiguously under the jurisdiction of the SEC.
One of the major advantages of using a decentralized exchange is to avoid the risk that centralized exchanges like FTX expose you to, namely that it's a single point of failure that when collapses ends up taking a lot of people down with it.
With a decentralized exchange, your transactions happen within a matter of minutes and your only exposure to any potential failure is during those minutes.
One of the major advantages of using a decentralized exchange is to avoid the risk that centralized exchanges like FTX expose you to, namely that it's a single point of failure that when collapses ends up taking a lot of people down with it.
With a decentralized exchange, your transactions happen within a matter of minutes and your only exposure to any potential failure is during those minutes.
> With a decentralized exchange, your transactions happen within a matter of minutes and your only exposure to any potential failure is during those minutes.
I thought many DXes operated by people effectively parking tokens in them for long periods of time so that others can come by and trade for those tokens (otherwise you'd need a way to sync up people who want to trade). The credits received for parked tokens can be redeemed for any token at the exchange, but during the possibly extended period of time you're holding a credit instead of holding a token, you can lose it all if the DX is compromised.
I thought many DXes operated by people effectively parking tokens in them for long periods of time so that others can come by and trade for those tokens (otherwise you'd need a way to sync up people who want to trade). The credits received for parked tokens can be redeemed for any token at the exchange, but during the possibly extended period of time you're holding a credit instead of holding a token, you can lose it all if the DX is compromised.
You are correct, but as I mentioned in my post, transactions happen within a matter of minutes on decentralized exchanges.
> Millions of people lost savings in the wake of FTX, and we’re all just supposed to pretend that it was some singular, isolated incident?
Bail them out then. Why is it OK to bail out the Silicon Valley bank but not this one? These exchanges are literal banks, they even do fractional reserve banking which allows them to offer loans and savings accounts. Might as well bail out Tether too.
Bail them out then. Why is it OK to bail out the Silicon Valley bank but not this one? These exchanges are literal banks, they even do fractional reserve banking which allows them to offer loans and savings accounts. Might as well bail out Tether too.
> Why is it OK to bail out the Silicon Valley bank but not this one?
1) Because SVB paid at least some money into the FDIC insurance fund.
2) Because SVB's deposits are mostly backed with still viable investments, and do not require an extended clawback process that will only ever get a certain fraction of the funds back.
1) Because SVB paid at least some money into the FDIC insurance fund.
2) Because SVB's deposits are mostly backed with still viable investments, and do not require an extended clawback process that will only ever get a certain fraction of the funds back.
Irrelevant. The whole point is to protect the blameless depositors, right? Then bail them out regardless of circumstances. Use taxpayer money to do it if necessary. Nobody cares whether the bank paid the insurance thing or not. What matters is avoiding financial calimity brought by the consequences of people's own choices.
> The whole point is to protect the blameless depositors, right?
No. Otherwise people who lose their belongings to theft would be reimbursed by the government.
> What matters is avoiding financial calimity brought by the consequences of people's own choices.
If FTX depositors can show that their losses mean that businesses will have to shut down, then they can probably twist the arm of politicians to make them whole with taxpayer funds. If they can't, then they're SOL like the rest of us.
No. Otherwise people who lose their belongings to theft would be reimbursed by the government.
> What matters is avoiding financial calimity brought by the consequences of people's own choices.
If FTX depositors can show that their losses mean that businesses will have to shut down, then they can probably twist the arm of politicians to make them whole with taxpayer funds. If they can't, then they're SOL like the rest of us.
Since Russia has lots of energy, maybe they can use it to settle transactions?
Meanwhile Visa keeps on clearing incomparably more (by “several orders of magnitude”) encrypted transactions per second globally for miniscule energy?
Meanwhile Visa keeps on clearing incomparably more (by “several orders of magnitude”) encrypted transactions per second globally for miniscule energy?
I’d be very surprised if Visa can clear transactions with less energy than Ethereum Proof of Stake requires.
https://ethereum.org/en/energy-consumption/
The energy argument is correct for proof of work, not proof of stake.
https://ethereum.org/en/energy-consumption/
The energy argument is correct for proof of work, not proof of stake.
Everything else held equal it will always take more energy to have multiple computers ready to verify transactions, as well as the computational overhead of determining on the fly which computer actually will verify which transaction, than to have one computer verifying transactions.
From your own link, PoS Ethereum is 1/30,000 the energy cost of PoW Ethereum. From this link (https://arxiv.org/pdf/2203.03717.pdf ), back in 2021 PoW Ethereum spent 125.36 kWh per transaction, while VISA spent 0.0015 kWh, an 83 thousand fold difference. Depending on how these numbers all shake out VISA is still superior to PoS Ethereum by about 2-3X per transaction.
From your own link, PoS Ethereum is 1/30,000 the energy cost of PoW Ethereum. From this link (https://arxiv.org/pdf/2203.03717.pdf ), back in 2021 PoW Ethereum spent 125.36 kWh per transaction, while VISA spent 0.0015 kWh, an 83 thousand fold difference. Depending on how these numbers all shake out VISA is still superior to PoS Ethereum by about 2-3X per transaction.
I think you're ignoring the energy spent on physical buildings, cars, and vehicles that power the banking/credit-card complex.
What does this even mean? Visa cards can be used for online purchases just like crypto. However crypto has a minuscule presence when it comes to physical stores. Why are you comparing apples to oranges.
These costs exist for the blockchain networks, too.
What's the average transaction fee for Ethereum versus visa?
Currently it's at about 77 US cents per average transaction, with the fee paid by the sender. A month ago it was briefly above $2.70.
VISA transactions, with the fee paid by the receiver, obviously pull more off the top in excess of electricity costs (for larger transactions), but they also have purchase protection, customer service, and things such as points built it for particular cards. So not a complete apples-to-apples comparison.
VISA transactions, with the fee paid by the receiver, obviously pull more off the top in excess of electricity costs (for larger transactions), but they also have purchase protection, customer service, and things such as points built it for particular cards. So not a complete apples-to-apples comparison.
That's only first layer transactions. Second layer transactions are orders of magnitude cheaper. Think of layer 1 as your checking account and layer 2 as your credit card. You don't use your checking account often.
Everything I've read suggests the Visa network only processes ~5-10k transactions per second, which you could do on a single modest server. It is apparently built to handle up to 75k TPS[0]. Certainly it should be doable with less than 300 kW average.
[0] https://usa.visa.com/dam/VCOM/global/about-visa/documents/vi...
[0] https://usa.visa.com/dam/VCOM/global/about-visa/documents/vi...
Visa the company has over 20,000 employees. Presumably that network wouldn't function without them. Shouldn't the entire company's energy footprint be included in that 300kW?
VISA provides more services than transaction verification. Should the exchanges be included in the Ethereum energy footprint?
No.
There's no world in which a decentralized algorithm is more energy efficient than the equivalent centralized algoritm, all other factors being equal.
Bit odd to see the comparison of ethereum to YouTube and netflix. What is that supposed to show?
It’s supposed to show relative power consumption. Which it does. What would you like to compare it to?
I could also compare it to the power consumption of the lightbulb in my garage. It is apples-to-oranges to compare a payment network to a video streaming platform, the only useful comparison is to another payment network.
Other payment networks? Stripe, square, interac?
One is a streaming service and the other is a payment network. It's like comparing a construction site to a restaurant in terms of fuel consumption.
One is a streaming service and the other is a payment network. It's like comparing a construction site to a restaurant in terms of fuel consumption.
I would be very surprised if it didn't. Ethereum still has to deal with a hugely distribuited database updating all nodes, where VISA only has to update however many copies they keep, which will certainly be order of magnitudes less. Both of course would be much cheaper then Proof of Work systems.
I don't think energy consumption was ever actually a virtue of the people who complained about it. It was just a means to an end for curbing crypto and it's grifts.
Yeah it was: the energy cost (as in electric bill) to settle transactions is so large that all but huge transactions are money losers.
Anyway, that was the concern. It contrasts with the fee set by percentage of transaction size used by Visa.
Anyway, that was the concern. It contrasts with the fee set by percentage of transaction size used by Visa.
And people in locations with big crypto farms can feel the hit in their own energy bills. Even people who never even heard of crypto will start to care when it hits their own pocketbook.
https://www.nytimes.com/2023/04/09/business/bitcoin-mining-e...
> In Texas, where 10 of the 34 mines are connected to the state’s grid, the increased demand has caused electric bills for power customers to rise nearly 5 percent, or $1.8 billion per year
> The program pays miners, and other companies, for promising to stop using electricity upon request. In reality, they are rarely asked to shut down, but are still paid for making the pledge.
> From midnight to nearly 4 p.m. on June 23, Riot earned more than $42,000 from the program while continuing to mine Bitcoin. (Overall in 2022, Riot made nearly $9.3 million from participating in the program nearly 85 percent of the time, the data shows, though the grid operator asked companies to actually lower their use for about 3.5 hours.)
> Around that time, the company switched to the second technique: avoiding fees that Texas charges to maintain and strengthen the power grid. It did so by briefly shutting off almost completely.
> To incentivize big customers to conserve electricity, those fees are based on how much electricity they use during several peak summer moments. Riot reduced its power use by more than 99 percent.
> By 6:30 p.m., the company had resumed mining. If Riot had been fully operating all day, it would have incurred an estimated $5.5 million in fees — costs that are largely made up by other Texans. Over the course of the year, this saved Riot more than $27 million in potential fees.
> One final mechanism lets some companies make extra money when electricity prices spike: They can stop mining and resell electricity to other customers. That earned Riot roughly $18 million last year.
https://www.nytimes.com/2023/04/09/business/bitcoin-mining-e...
> In Texas, where 10 of the 34 mines are connected to the state’s grid, the increased demand has caused electric bills for power customers to rise nearly 5 percent, or $1.8 billion per year
> The program pays miners, and other companies, for promising to stop using electricity upon request. In reality, they are rarely asked to shut down, but are still paid for making the pledge.
> From midnight to nearly 4 p.m. on June 23, Riot earned more than $42,000 from the program while continuing to mine Bitcoin. (Overall in 2022, Riot made nearly $9.3 million from participating in the program nearly 85 percent of the time, the data shows, though the grid operator asked companies to actually lower their use for about 3.5 hours.)
> Around that time, the company switched to the second technique: avoiding fees that Texas charges to maintain and strengthen the power grid. It did so by briefly shutting off almost completely.
> To incentivize big customers to conserve electricity, those fees are based on how much electricity they use during several peak summer moments. Riot reduced its power use by more than 99 percent.
> By 6:30 p.m., the company had resumed mining. If Riot had been fully operating all day, it would have incurred an estimated $5.5 million in fees — costs that are largely made up by other Texans. Over the course of the year, this saved Riot more than $27 million in potential fees.
> One final mechanism lets some companies make extra money when electricity prices spike: They can stop mining and resell electricity to other customers. That earned Riot roughly $18 million last year.
It's why when I first read about crypto back in 2013 or so I thought about getting into Peercoin whenever I had the money to do so. And it's why years later, when I finally had the money to do so, I never bought any crypto, even when FOMO was hitting hard.
It's why I stopped taking late night drives in my car to wind down, instead taking walks. And why I try to drive to maximize fuel efficiency.
It's why I felt guilty every time I flew a plane while a student pilot and never finished a full pilot's license (I never would have started in the first place had I not been pushed to do so by my father).
Yes, some of us care.
It's why I stopped taking late night drives in my car to wind down, instead taking walks. And why I try to drive to maximize fuel efficiency.
It's why I felt guilty every time I flew a plane while a student pilot and never finished a full pilot's license (I never would have started in the first place had I not been pushed to do so by my father).
Yes, some of us care.
I did that too for the first 30 years of my life.
Then I realized that I was compromising my own life, making sacrifices, and effectively giving away my power to the people who don't care.
So I changed tactics, and bought a jeep.
Then I realized that I was compromising my own life, making sacrifices, and effectively giving away my power to the people who don't care.
So I changed tactics, and bought a jeep.
I'm in my 40s. Lawful Good isn't going to change. I like being able to live with myself, thank you very much.
You're right about that. It's hilarious to watch first world citizens posting opinions about BTC energy consumption on their made in china computers. You'd think they'd downgrade their comfortable lifestyles or at least stop trading with china if that was so important to them. No, better focus on cryptocurrency instead which is not even 1% of global energy consumption.
I'd have more respect if they just said "I hate crypto and want it banned".
I'd have more respect if they just said "I hate crypto and want it banned".
You'd think we'd have solved climate change by now, judging from how important energy conservation is to the anti-Bitcoin crowd.
Comparing the security of visa transactions to crypto is laughable. The IRS literally had a bounty out for anyone that could trace monero. Meanwhile, seizing money from traditional bank accounts and tracking credit card transactions is an every day chore for the government.
> tracking credit card transactions is an every day chore for the government.
In what sense? Credit card companies manage their own fraud mitigation per federal law, which makes it easy for consumers to dispute transactions. If someone gets my crypto wallet PK and withdraws everything, who do I dispute that with? No way to reverse transactions in BTC.
In what sense? Credit card companies manage their own fraud mitigation per federal law, which makes it easy for consumers to dispute transactions. If someone gets my crypto wallet PK and withdraws everything, who do I dispute that with? No way to reverse transactions in BTC.
“per federal law” is the sense that I refer to. Federal law includes stopping not only fraud, but political adversaries (ie. Canada), the aforementioned privacy preserving tools, trading activity between consenting parties in the name of investor protections, and various other violations of the force is only justified in response to force rule. It’s interesting how people that normally claim to support privacy will go all patriot act over financial privacy.
Regardless, I’m not sure why it’s relevant to bring up what you like about credit cards. You’re free to use whatever currency you want, we were discussing whether it should be illegal for me to do the same.
Regardless, I’m not sure why it’s relevant to bring up what you like about credit cards. You’re free to use whatever currency you want, we were discussing whether it should be illegal for me to do the same.
Non-reversible transactions are a feature not a bug.
If you want protection against that, get insurance.
If you want protection against that, get insurance.
Are you two agreeing implicitly, in that insurance IS the point of a credit card company?
For about a 63 cent stamp and a 5 cent security envelope you can send about $8000 or so of effectively untraceable hundred dollar bills with the USPS.
For 5 cents you can send any amount of monero anywhere around the world and have it settle in 25 minutes. The transaction is irreversible and obfuscated - sender, receiver and quantity.
Can you send it to the grocery store you're trying to leave with food sooner than 25 minutes?
That sounds like an implied criticism but I genuinely don't know the answer.
That sounds like an implied criticism but I genuinely don't know the answer.
Yeah every transaction has a one-time key you can give them. Settlement in 25 minutes is quicker than the 1–5 days they already deal with.
Nice and private, those transactions
Hong Kong may not be a great place to invest long term given that China has a far more precarious legal system and is willing to override Hong Kong’s on a whim.
For a technology that seeks to replace the legal & financial system, this is the perfect place to invest. It's like how Uber couldn't have gotten started anywhere other than SF, because the transportation system there is so bad that people will hop into cars with strangers instead. You don't found a startup in places where your competition is strong, you found it in places where it's nonexistent.
HK is a fairly mature financial sector (HSBC is literally HongKong and Shanghai Banking Corporation) and is also well integrated into both Chinese and international financial systems, I would hardly call the competition “nonexistent.” HKD is probably the largest dollar peg.
The legal system also exists; it’s British-descended common law unless the CCP decides to use its authoritarian instinct.
The legal system also exists; it’s British-descended common law unless the CCP decides to use its authoritarian instinct.
> hop into cars with strangers instead
I'm pretty sure every city has taxis?
I'm pretty sure every city has taxis?
Hasn't the CCP been pretty adversarial to cryptocurrency?
China has outright banned it at various times. USA has taken legal stances against things like tornado cash, but never anything close to the broad strokes of banning that the Chinese government has done. If anything the slowness and deliberateness of USA regulators to respond has enabled the entire worldwide crypto economy to flourish.
So China is now going to "roll out the red carpets" for crypto exchanges? Yeah right.
So China is now going to "roll out the red carpets" for crypto exchanges? Yeah right.
> So China is now going to "roll out the red carpets" for crypto exchanges? Yeah right.
The "this is good for bitcoin" crowd never ceases to entertain.
The "this is good for bitcoin" crowd never ceases to entertain.
CCP doesn’t want crypto due to risk from capital flight and monetary control in China. Hong Kong has no such risks given its freer capital control. The only thing non-free that CCP care is speech.
Well, HK is also a conduit of money entering and leaving China, so if people start using crypto for that then China will crack down, the same way they cracked down on the Macanese money-laundering via casinos.
Depends on if you mean officially or unofficially, from what I can gather.
When used by their own citizens.
Not sure why the SEC would care if people from other countries are being scammed. As long as the local citizens are protected.
Let alone exchanges that are just a contract on Ethereum and only exchange tokens on the Etherum blockchain. What is the SEC going to do about those?
EthetDelta was exactly this, and they went after the guy that maintained the contract (plus in this case some ancillary order book matching servers).
You need fully decentralized right up to governance. Those aren't viewed as favorably by regulators.
EthetDelta was exactly this, and they went after the guy that maintained the contract (plus in this case some ancillary order book matching servers).
You need fully decentralized right up to governance. Those aren't viewed as favorably by regulators.
What do they mean?
Is Ethereum itself an exchange or would a website like https://app.1inch.io be considered the exchange? Or would 1inch itself be the exchange and holders of 1INCH be responsible for it?
It makes little sense.
Is Ethereum itself an exchange or would a website like https://app.1inch.io be considered the exchange? Or would 1inch itself be the exchange and holders of 1INCH be responsible for it?
It makes little sense.
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I wonder what side effects this decision will bring.
Everything is an exchange a security and rules are for our safety, eat ya bugs, stay in doors and take your vax
If a user sends some ETH to an adress and on some Bitcoin address a balance shows up - how would the SEC want to regulate that?
Let alone exchanges that are just a contract on Ethereum and only exchange tokens on the Etherum blockchain. What is the SEC going to do about those?
And what would happen if some country in the world tokenizes their property. Say a certain token on the Ethereum blockchain means ownership in a company in Sweden. What if a US citizen buys such a token by sending ETH to a smart contract?
So many questions.
Shouldn't these have been kinda answered already in regards to international exchanges? What if a US citizen buys stock on the Euronext Paris, the French stock exchange? Would the Euronext Paris have to be registered with the SEC? What if they are not? Are they committing a crime in the eyes of the SEC?