Crypto exchanges certainly seem to be geared towards fraudulent activities, and they've lured investors in with promises of high returns. The whole so-called 'decentralized finance' world (DeFi) seems to be full of shady actors and money-launderers, but cryptocurrencies themselves - when no used in the way, say, that subprime mortgages were - as vehicles for gambling - don't seem to be inherently corrupt.
FTX/Alameda is now the poster child for Defi, isn't it? Good overview here:
The poster child for DeFi was never a CEX. The obvious poster child for decentralized finance would be the biggest decentralized exchange in the world , Uniswap.
I recognize there are tons of fraudsters who latch onto the vocabulary of cryptocurrency and twist it to trick naive consumers who don’t know the difference. Another example would be “staking” where the original intent meant earning proof of stake rewards without giving up your keys, but was frequently used as a marketing term for things like Blockfi where you literally transferred ownership if your coins.
Despite the manipulation around the terms, it’s unfortunate how a fairly technical audience like Hacker News refuses to have good faith discussions around this.
This crowd should know better than to call FTX DeFi.
This crowd should know better than to call fractional reserve interest programs staking.
I think this crowd does know the difference but chooses to ignore it in bad faith because of a general dislike of cryptocurrencies.
By all means call out the swindlers but a site called hacker news deserves better when it comes to using technical terms accurate and in good faith. And by calling FTX DeFi you’re doing neither.
I think the point is that what happened with FTX couldn't plausibly happen with a real DeFi protocol like Uniswap. FTX might have had ties to some real DeFi protocols, but that seems unrelated to what happened. FTX's collapse doesn't make them bad by association, just as SBF's shenannigans don't make veganism bad by association.
Serum seems like a special case - it was branded as a DeFi protocol, but wasn't really decentralized, since FTX had sole upgrade authority. Because of that Serum collapsed when FTX did. That couldn't happen with something like Uniswap, where governance is actually decentralized.
I think my point is, don't blame us for getting the nomenclature wrong, when it's clear that the crypto people were smearing the nomenclature around too like a cheap maple syrup, letting it stick to anything that looked "defi-ish"
Now only after FTX failed people are saying, "Oh that wasn't really defi, and you're being dishonest if you call it that."
Point taken. It depends who you listen to though. In the right circles, there are plenty of thoughtful discussions about the (de)centralization of protocols (that haven't imploded). See [1] just as an example.
But yes, in other circles, there are "crypto personalities" who cater to an audience that's just hoping to get rich quick. Such people usually don't know or don't care about things like contract upgrade mechanisms.
There does not exist a morality detector that can measure people's true intentions in crypto. SBF may have had a true heart of gold but is just an idiot. Or he's the smartest con-man in the room and squirreled the money away in a series of numbered bank accounts.
Either way, the crypto press gave him very little skepticism, and lauded his venture -- celebrating him as the next financial genius.
In the traditional banking world, I don't need a morality detector. I just need an FDIC bank.
You don't need a morality detector, just a couple rules of thumb:
- Not your keys, not your crypto. I.e. don't trust a random foreign company like FTX to custody your funds. If you really don't want to self-custody, there are reputable, insured custodians like Anchorage or Coinbase Custody.
- Don't use niche DeFi protocols if you don't know much about them; stick to widely-used protoocls like Uniswap, Curve, Aave, etc.
It's not foolproof, but neither is traditional finance. There are plenty of ways to lose your money there, particularly if you're looking to get rich quick with exotic investments.
In fact FTX was getting into equities, so it's not just crypto investors who will probably lose money (pending bankruptcy proceedings). It's anyone who decided to trust a questionable Bahamian company with their assets, crypto or not.
This actually gets into "regulated" vs "buyer beware" banking markets. And crypto is still a "buyer beware" market where reputation can be bought with super bowl ads. And then getting "glowing" reviews from the crypto press on their sudden "success".
True custodial banks could in fact be fraudulent for allow e know. But they don't buy super bowl ads to buy reputation -- they've earned it over the course of decades.
They did have a fairly clean brand, but I wouldn't compare them to say Anchorage, which is a US-based bank and qualified custodian. There are more regulatory as well as technical protections with a firm like Anchorage.
I would compare FTX to say Tastyworks. Clean brand, but they're not a bank, not insured, and not focused on custody, so it wouldn't really be prudent to store idle cash or crypto with them.
These intellectual contortions are great for creating clever arguments, but the entirety of the thefts that were done could only have happened due to centralization. Being a centralization of crypto, FTX was absolutely not and could not have been DeFi. No exchange that centralizes actions, tokens, and crypto is DeFi - even though protocols may appear decentralized.
> but cryptocurrencies themselves - when no used in the way, say, that subprime mortgages were - as vehicles for gambling - don't seem to be inherently corrupt.
If you take away gambling and speculation, cryptocurrencies lack a compelling use case when compared to competing technologies.
This is a very dishonest or ignorant response. Good luck sending somebody shells or gold to make a payment. And good luck with shell inflation. And good luck with every store needing to be able to test that gold is real, store it in vaults, etc
Don't be obtuse. Using crypto for payments isn't common.
Maybe you can make 1 on 1 payments to other people who are also convinced to use the same crypto as you. People who don't use that crypto (almost everyone in the world) or your grocery store (most in the world) won't take your payment in crypto.
It's absurd but increasingly common to see such bad, ignorant metaphors of technologies used by people with en emotional vitriol on a site like HN.
The mafia is a emphatically criminal organization made up of people whose unique and specific purpose is to extort, rob, threaten, kill and steal as their core activities.
Crypto is a bundle of interrelated technologies and cryptographic protocols that can be used for bad, good or neutral purposes by humans with all kinds of agendas. In the case of decentralized cryptocurrencies like bitcoin, nobody's even in specific control and claiming they're evil is like claiming a random algorithm is evil, or that encryption is evil because alongside dissidents and social activists, pedophiles and con men also use it to keep their communication private. Ridiculous.
Judging the entire Crypto based on SBF / Luna is like judging the entire Silicon Valley based on a handful of big-name adtech scums. Sure, they dominate the zeitgeist but there is a lot more to those ecosystems.
What does this have at all to do with crypto as a whole? SBF is a single individual. This was a centralized exchange. I'd say CeFI is not really crypto at all. After 2008 was every single U.S. bank corrupt? Downvote.
Uh what? How could it do that. Fraud isn't even a technical layer issue. It's an identity issue and identity is pretty much entirely abstracted out of the crypto ecosystem. So, if you think about it that way, it's actually impossible for crypto to "mathematically prevent fraud". That you even said something so ridiculous without any reflection speaks to your intuitions in this space.
So what? FTX was a crypto company in the crypto economy, trading crypto products. this is some sort of no true scottsman crypto bullshit. the crypto economy clearly exists well beyond DEX's and its also pretty clear that the vast majority of the money is on CEX's so what's your point??
Okay we can use whatever language you wanna use, buddy.
The point is, if you self-custody your funds, no one can take them from you except by threatening you.
Everyone had their funds taken from them because they did NOT self-custody.
Everyone could have gotten all the utility of FTX (trading spot and derivatives) via a self-custody solution (a DEX).
Stop blaming self-custody solutions and stop trying to make self-custody solutions illegal. They literally mathematically prevent this type of theft and fraud.
If you are the one with a password aka private key to an address that holds the coins on whatever reputable chain, then you are the sole owner of said coins. It's that simple. Things get complicated, ironically for the sake of being less complicated, when there is a centralized authority in the middle who holds control of those addresses and their respective private keys.
I use centralized exchanges plenty, and I am also aware that it defeats a large portion of the whole trustless money thing. Therefore, I also keep crypto offline in cold storage. Those addresses and the coins involved will go with me to the grave or until someone threatens me with a hammer.
People really think "cryptocurrencies are based on code" means no fraud can happen with them.
The decentralized nature of most cryptocurrencies makes it difficult for a single entity to manipulate the market or falsify transactions, but it does not completely eliminate the possibility of fraud. In addition, the anonymity of many cryptocurrencies can make it difficult to trace the source of fraudulent activity, which can make it harder to prevent or prosecute.
No, people think that if self-custody your private keys carefully, nobody can steal your coins.
If you participate in actual DeFi where you keep your keys and participate via smart contracts, nobody can steal your coins.
All of this was true and is true. What happened is that corporations adopted the language of cryptocurrency to mean something totally different to trick consumers, like calling FTX a DeFi platform.
You want a villain, it ain’t the maxis who kept repeating “not your keys, not your coin”. It’s VCs like a16z, sequoias, and paradigm who lended credibility to centralized exchanges that defrauded people who ignored the cryptocurrency advocates.
The FTX story only strengthens the facts and narratives the cryptocurrency advocates have been saying. The real fraud is happening in venture capital which is rotten to the core.
And by the way, bitcoin is down this year but not nearly as much as VC darlings like Carvana and Affirm.
VC is the scam. VC is the engine of pump and dumps in both TradFi and crypto centralized exchanges. The real voices of cryptocurrency have been vindicated.
It has to do with FTX because people are taking the FTX situation and using it to blame crypto.
SBF stole users' deposits. Fact.
SBF could not have done this had FTX been a self-custody DEX. Fact.
Crypto's sole purpose is to prevent the theft that occurred. Fact.
The theft happened because crypto was not used. The theft happened because users did not self-custody (which they could have, as is demonstrated by the billions of dollars custodied in numerous DEXs today). Fact.
The fact that this happened in the crypto space is prima facie evidence that "Crypto's sole purpose is to prevent the theft that occurred. Fact." is wrong. Full stop.
You're conflating the entire crypto space (rife with theft and fraud) with funds self-custodied on a blockchain (never once has seen theft because it is mathematically prevented).
I'm not conflating anything. This is the crypto space. The crypto space isn't only DEXs, it's full of CEXs and its where the vast majority of money is.
And you don’t have the culture of controls that exist at real financial institutions. Often you hear a story of some firm like Amaranth or M.F. Global that blew up and what you always find is that the basic controls that prevent an organization from taking on disasterous positions are not in place.
It’s a simple truth that an investment fund that is getting more deposits from withdrawals can vaporize the money and not have any problems until people ask for the money back. That is why financial institutions need strict controls.
Theft and fraud aren't the same thing. Obviously, one can commit theft by the means of fraud. Fraud is a personal representation and trust relationship, and cannot be solved by a mathematical equation. A DEX might preclude the need for trust relationships in order to prevent the circumstances that make fraud possible, but it doesn't solve for fraud and, as FTX proved, crypto itself (using the commonly understood term, as opposed to the one you invented where the only things that are crypto are DEX) doesn't solve for fraud.
I've not at any point contested the differences between DEX and CEXs with you and you should really work on your reading comprehension so you can realize that.
??? Genuinely at a loss. You're conflating CEXs and DEXs to make a point about how "crypto does not prevent fraud". I said sure, if you want to include CEXs in "crypto" then "crypto" does not prevent fraud, but self-custody solutions like DEXs still do.
Because CEX's are undoubtedly part of crypto and nobody could say otherwise without being completely disingenuous. Which is exactly what our debate has been over.
I’m a crypto skeptic so I may be missing something. This sounds impossible. If users deposit to a wallet SBF has control of, he can fraud all he likes. It’s mathematically his money now. If users deposit but retain control of the wallet, it axiomatically isn’t a deposit.
* A contract (a piece of software) hosted on the network
* This contract is immutable (its code cannot be changed)
* This contract defines rules such as allowing deposits, withdrawals, and trades, and those functions of withdrawing deposits or enacting trades require transactions signed by the depositor
In that scenario, it is a deposit, is controlled (and thus owned, both legally and cryptographically) by the users.
In real life, these contracts are generally mutable, so there is the possibility that users can still get fucked over.
Contracts and law being mutable and open to interpretation by squishy brained humans is a feature not a bug. Yeah too much mutability you get room for corruption and selective enforcement/application, too little you have a contract that might do what it says or it might accidentally empty your bank account with no recourse because a flawed human implemented it and the world is complicated.
Sure he could have, it just might have been spotted sooner. How many pump-and-dump shitcoins have there been to date?
If "Crypto" has proven anything over the last few years the only thing it mathematically prevents is reversing transactions, which is really useful when you want to steal money.
There's no rugpulling possible if you don't give someone else your private keys. What is everyone missing about this? That's the entire glory of crypto. No one owns your coins but you... unless you use an intermediary. I'm guessing by far most transactions are done via centralized exchanges so that autonomy is lost both in practice and in headlines.
I'm fine with highly regulated exchanges despite that being counter to that glory of crypto. Also, move your large bags to cold storage.
