My take on this is that they probably were insolvent for a long time already due to previous hacks/theft. The CEO just decided to lie about the supposedly 137M in funds 'safely' stored on his laptop.
This is also what happened at MtGox, except that at MtGox they 'lost' wel over a million BTC.
And this is the problem. These guys are not regulated. There is no transparency. There are no external auditors. There is no control. When we find out, it is always too late. Every "cryptocurrency bank" is a potential Enron. I fear both the involvement of Central Banks and at the same time the lack of it.
If EY (or anyone else serious about this) 'follows the money' then that would be a very interesting report to read.
> These guys are not regulated. There is no transparency. There are no external auditors. There is no control.
But that's a feature, not a bug, at least according to the crypto people. But, so far, all they have managed to do is rediscover lessons about the need for regulation, oversight and accountability that the financial industry has learnt decades or even centuries ago.
> > These guys are not regulated. There is no transparency. There are no external auditors. There is no control.
> But that's a feature, not a bug, at least according to the crypto people. But, so far, all they have managed to do is rediscover lessons about the need for regulation, oversight and accountability that the financial industry has learnt decades or even centuries ago.
I feel this is only true for people who have not truly embraced the decentralized aspect of cryptocurrency. For example, many people leave all of their money in one wallet. Centralization. Many people use only one exchange for converting fiat to crypto. Centralization. The harder you look, the more you will find that the only people upset about the state of cryptocurrencies are those that did not diversify and instead reverted to a concept squarely against the cryptocurrency ethos.
Thus is human nature. Who wants to manage 30,000 wallets each containing only a few dollars? The supporting tooling is not there (or is not easy enough to use) and thus we see this recurrent user pattern.
Yes, cryptocurrency can't fail, it can only be failed.
If 99.9% of people are using a technology "wrong", then I would suggest it's bad technology. If we aren't making a technology with actual users in mind, then we're just doing some sort of high-concept performance art.
I think this and the chain that follows is the conversation to be had.
It can be done but there is a meeting in the middle from many sides.
I believe it centers around the simple laws of thermodynamics, the path of least resistance will be taken.
Tools are coming out to make development easier, tools are coming out to make consumption easier.
Think about computing and how much has changed, been misunderstood, and misstated, and flipped on its head in the past thirty years. The ease and accessibility is still being pushed.
So you can truly gain the benefits of crypto if you make your life as inconvenient as a drug dealer stashing wads of bills in random locations to dodge taxes?
I hope people who do this have either a great memory or a great filing system.
The spreadsheets, math tables, the manual toil...you aren't looking at it realistically. Things don't just pop into existence perfectly but iterate into a local and idealistically global minimum from the reality of what people want and need, not what devs and larger organizations think they want and need.
30,000 wallets using 30,000 independent methods of encryption, else you crack one, you cracked many. It's clearly not practical or achievable for any human being.
Yeah, if only there was a tool for managing 30,000 wallets in a centralized way, then it would be more obvious why decentralization makes the need for regulation moot.
You think you're safe with your 30,000 tools -- yet all of your crypto funds are in bitcoin? Centraliser. I spread my wealth across 30,000 different currencies.
You're forgetting. All these are cryptocurrencies. You need to have more than that. I own 30,000 different kinds of assets. Stocks, bonds, crypto, I even own all of the funds. You're suffering from way too much centralization.
Because blockchain is a slow append/overwrite-only consensus database. It does nothing to provide trust. It's also too mechanical for how humans actual deal with each other.
I'm not sure. I'd say the banking crisis was catalyzed by the lack of regulation, but it was going to happen anyways. The whole thing was largely a result of political pressure to create incentives for a home ownership society, and, if you go deeper, a result of political pressure fostering a growth-at-all-costs economic system that will periodically hit societal resource and efficiency limits, regulations be damned.
Not really. The GFC was a financial/banking crisis
There is nothing in "growth at any cost" style "capitalism" that means banks must all collapse together in a coordinated swan dive, like in 2008.
That sort of system will collapse, but not necessarily the banks.
There is no law of nature that says we have to use free to fuck anybody capitalism run rampant over all. It is a choice.
The current brand of capitalism is not "free to fuck anybody", it's actually worse, it's "target the poor". Neoliberal economists specifically call for stealing from workers:
> even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis.
Shorter: we create an economic policy to cheat workers out of the take home value of their earnings to make management easier and post favorable employment metrics for political leaders.
That "growth at all costs" policy, which, by the way is not inherently a free market policy, exists to short shrift the labor class by means of a compounding treadmill that most will fall off.
The point is that relative wages need to be adjusted as the value of jobs changes over time. Some work that was very valuable in the past might have low demand now. If wages are sticky then jobs where value drops faster than inflation will simply go away. That's not necessarily the best outcome if the employee could have coped with a pay cut.
High inflation does not imply that real wages shrink on average.
>High inflation does not imply that real wages shrink on average.
Certainly not! Inflation is great for the privileged, because it forces the hoi polloi into investment schemes to protect their assets from inflation, which disproportionately help finance the business adventures of the privileged (e.g. stocks, bonds).
Thus the average real wage will get higher as a few select individuals get huge astronomical wages.
I wonder if this isn't the US trying to solve its inability to work with Labor using inadequate macro tools. In workplaces where workers have a voice in management, like my country's Volkswagen plant, pay cuts seem possible to implement.
I’ve seen several people in the industry claim that Basel encouraged many of the problems. I don’t know enough about banking to say whether that’s true or not.
These guys are not regulated. There is no transparency. There are no external auditors. There is no control. When we find out, it is always too late. Every "cryptocurrency bank" is a potential Enron.
I think Enron actually had more transparency, and did more good in the world than the failed cryptocurrency companies. I've worked on two pieces of software that originated in Enron, which I believe are still used in production today. I think Enron participated in the invention of weather derivatives.
This would seem to be a private problem. If people choose to park their money with a non-transparent, unaudited random crypto startup, that's their decision and their problem. I'm not interested in paying for "regulators" in such cases.
Not really. It's a private problem only if it stays within the confines of the participants. But when it reaches a scale like this, the harm is wider.
I think the most important societal issue is that it damages investor and consumer confidence.
As a parallel, consider food regulation. When I go into a store or restaurant, the food I buy is very likely to be safe, because there are a lot of regulators making sure it happens. If they weren't operating, then I'd have to exert a lot more effort to make sure that each thing I eat is safe. Not only would this be a giant waste of effort, but it would significantly reduce the opportunity for innovation and cost reduction, because people would be reluctant to try new products and new restaurants.
Market confidence is even more important for finance, because it's much harder for individuals to know if a given company is really working. It would be a huge problem for society if everybody went back to keeping their money in mattresses and physically moving it everywhere.
And this is why cryoto is unlikely to go mainstream. Because the market for people who are willing to put up with the risks of unregulated banking are too small a minority to be worth it.
For the "invisible hand of the market" to lead to optimal outcomes, decisions need to be made by "rational actors" using "perfect information." It's right there, in the original text!
We can't legislate about "rational actors," but we CAN and SHOULD legislate about "perfect information." Any information hiding is essentially fraud or theft from the rest of the market, because it creates an information asymmetry distortion.
We could for example say that registered companies don't get company benefits (protection of owners from bankruptcy and protection of board from personal liability and such) unless they continually and regularly publish the full (even unaudited) books, not just the occasional brief filings we require now. That would benefit everybody in the market, except those who thrive on fraud and information asymmetry.
You don’t need to pay regulators, you just need to make people able to sue for damages or charge crypto purveyors with fraud. It’s manifestly clear that the majority of these are just pyramid scams.
"Sue later" is not a solution when the money is already gone. That might be ok when facing an industrial company that has plenty of physical assets that could be sold off under bankruptcy, but finance leaves nothing if it fails.
If they published the wallets everyone would be able to audit how much they have in trust. Its a lot more detail than you'd ever have with your traditional broker.
The risks of not using your own cold storage is real. The ability to store your own is outlined by numerous tutorials, explanations.
Nobody is crying for those who sent money to the nigerian prince, I don't think we should cry for anyone here either.
These player are smart enough to know most folks are uneducated on the topic and can be readily swindled by players looking and talking the part.
This happens every day in so many realms outside of blockchain; the opportunity for transparency, the lack of sympathy or control to help those with a lack of understanding, there are certain elements here that can change an environment that is so aggressively finance driven. This is the hope, something different.
The regulation, the trickery, etc it all gets sorted in time to a level we choose to accept. The question is if the potential for change is worth putting up with it until then.
Though if crypto funds are stolen from cold storage due to hack ortheft, there is nothing to do, even if you are regulated. When crypto transfer is done, there is no way to reverse it. Regulation might help to enforce best practices to prevent theft, but it wouldn't help to recover funds if theft happens.
There are decent ways for exchanges to prove they are solvent without revealing details [1]. It's just that very few of them take the effort to set up the system.
If you want decent privacy, it also depends on creditors checking their credit was properly committed.
The Central Bank isn't regulated, isn't transparent and certainly doesn't have any external auditors either. I don't think you understand how cryptocurrencies, central banks and regulations work. Also, regulations doesn't protect against hacks or theft or shady practices.
Do you have a source for any of this? Because my career as a securities regulation & banking attorney tells me the truth is actually the exact opposite of literally everything you’ve asserted.
> Every "cryptocurrency bank" is a potential Enron.
Yeah, these institutions are antithetical to the whole cryptocurrency model. Regulation isn't necessary, education would suffice. The public is not yet ready for this paradigm, and perhaps never will be, but I'm hopeful.
It's scary that with crypto such things can make it so hard to get your money back. I know there was talk of fixing it with a fork to the Ethereum chain one day. Not sure what happened there.
Before/after the 850k/650k hack there were numerous other hacks, the total number of stolen BTC is still not clear, new proof of other hacks is still being discovered.
Apparently Karpeles also found a 'forgotten' wallet of 200k BTC, which he still seems to own. It's a mess.
No, the found wallet is under the control of the trustee overseeing the bankruptcy of MtGox. We know this for certain because he sold 35,000BTC when BTC was around 10,000USD, ensuring the creditors will get their full investment back.
What a beautiful swindle. People who got creamed in the MtGox pyramid collapse where made almost whole by a next generation of suckers who lost 65% of their BTC's value in the bubble.
Did you miss the second claim window as well? We got the trustee to change the bankruptcy format, and it reopened the claim window until I think November.
Did you not get any emails about the claims?
Everything I used to buy the BTC was anonymized (cash deposit, throwaway email address). I have all my MtGox login information but can't access the email address I used to verify anything. Any way I can still file a claim?
Yes, insolvent meaning owned more than their cash on hand.
That didn't mean there wasn't some funds left over. But when someone is the position where they've taken someone's money and only have some left, leaving with the rest inherently looks better than staying and being broke and guilty.
Insolvent sounds right, but wouldn't you have, say $10M or so, reserved for the getaway? Once it's that low, the jig is up, so you may as well abscond with the last bit.
This is also what happened at MtGox, except that at MtGox they 'lost' wel over a million BTC.
Edit: relevant listening: https://darknetdiaries.com/episode/9/