Coinbase has a Chief People Officer. He’s L.J. Brock. And he’s been managing, acquiring and recruiting people for at least two decades.
This week, Brock sent a memo to the people over whom he chiefs at Coinbase. He shared it publicly with people whose chief he isn’t. The gist of it was that “for the foreseeable future,” the number of people whose chief he is will be, at most, the same as it is today.
The company, Brock said, is extending a pause on the acquisition of new people and, more notably, may rescind offers already accepted by others.
Brock explained why his people flock won’t be expanding. Coinbase is responding to “current market conditions” and is in the process of evaluating its priorities. The company needs to align its hiring needs with its “highest-priority business goals.”
He apologized (without using the word “sorry”) to the people Coinbase provisionally hired. It’s “not a decision we make lightly, but is necessary to ensure we are only growing in the highest-priority areas,” Brock said, adding that instead of the job they thought they had, a number of “highly talented people” will benefit from Coinbase’s “generous severance philosophy” along with “support services” including, but not limited to, “resume review” and access to what Brock described as Coinbase’s “strong industry connections.”
One problem, though, is that the very same “market conditions” which compelled Coinbase to freeze most hiring are compelling other firms in the industry to do the same.
Take Gemini, for example, where Cameron and Tyler Winklevoss regretfully informed “a number” of their “fellow astronauts” that going forward, they’ll be former astronauts.
“We are in the contraction phase that is settling into a period of stasis — what our industry refers to as ‘crypto winter,'” the twins told Gemini employees. “This has all been further compounded by the current macroeconomic and geopolitical turmoil,” they added, before cutting the umbilical cable. “After much thought and consideration, we have made the difficult but necessary decision to part ways with approximately 10% of our workforce.”
Like Coinbase’s Brock, the Winklevosses offered affected employees (“Impacted Astronauts,” as they put it) a separation package along with “compassion”, “respect” and, I’d hope, a few packets of complimentary freeze-dried space food for the long, weightless drift to the unemployment line.
Implicit in the idea of a “crypto winter” is the notion that eventually, spring will come around. I don’t think it will. I think the Luna blowup was a preview of the crypto apocalypse, which I believe will unfold in rapid fashion at some point over the next 12 to 24 months.
Unlike many crypto critics, I don’t necessarily believe that any laws have been broken. You can certainly make the case that some behavior looks and feels like it would constitute violations of securities laws if the relevant entities and assets were something they explicitly aren’t, but… well, they aren’t. And no strictly applicable laws have been written. Or at least none that I’m aware of. But they should be. Written, I mean. Because with each passing week, I’m increasingly convinced that cryptocurrencies, and the entire ecosystem that’s grown up around them, are an empty shell game and a magnet for various types of fraud, ranging from petty to massive. More than that, I think it’s quite possible that all cryptocurrencies, including Bitcoin, are illegal, at least in spirit.
I should note that I don’t think it was all a fraud initially or if it was, its early evolution suggested that, despite itself, Bitcoin might turn into something that wasn’t destined to be dubious. Once it moved beyond Bitcoin, though, fraud (intentional or accidental) became a feature, not a bug.
For example, decentralized finance projects — substantially all of them — rely on dynamics that many people would identify as conceptually similar to Ponzi schemes. When centralized crypto exchanges facilitate trading in the associated coins, they’re participating in those projects.
Let’s be clear, though: It’s not illegal to participate in such projects, as long as nobody proves wrongdoing. According to its many critics, Herbalife shares characteristics with pyramid schemes. It’s not illegal to be an Herbalife distributor. And it’s not illegal to be an Herbalife investor. And you can lose a lot of money trying to prove the company is doing something wrong. Just ask Bill Ackman. Multi-level marketing isn’t illegal. Neither is decentralized finance. In my opinion, both should be strictly regulated, if not banned outright. But that’s just my opinion.
More controversial than the notion that decentralized finance looks like a Ponzi scheme, is the idea that cryptocurrencies are illegal by definition and should be treated as such. It’s illegal to counterfeit US dollars. Crypto adherents would scoff. Ethereum isn’t US dollars, they’d say, adding that in fact, we need crypto precisely because we don’t want US dollars.
But what are we actually saying when we say it’s illegal to counterfeit US dollars? We’re actually saying you can’t print money.
Typically, we don’t have to worry about spelling that out. We don’t need to expend much effort enforcing counterfeiting laws on ordinary citizens, because it’s very difficult for regular people to produce large quantities of fake dollars that are convincing enough to be widely accepted. And we don’t have to loudly proclaim that private money isn’t legal tender because nobody wants private money in the first place. There were periods in history when private money — typically bank bills — was widely circulated. This isn’t one of those periods. You can’t buy a gallon of milk at Kroger with a certificate of deposit, let alone with a piece of construction paper you decorated with glitter and signed with a Sharpie.
With crypto, we’re compelled to worry about something we previously paid little mind: Private money that has enough figurative and literal buy-in to circulate in the economy. If my neighbors and I decide to create a closed-loop, neighborhood-wide economic system based on coffee beans, that’s not problematic. As soon as we leave the neighborhood, coffee beans are just coffee beans. Bitcoin, Ethereum and, now, other coins, have been adopted and integrated in such a way that depending on what it is you’re trying to buy or sell, and who it is you’re trying to buy it from or sell it to, you can make that transaction in cryptocurrency. That, in turn, suggests people are printing money.
Suddenly, it’s incumbent upon governments to make it clear that the distinction between, on one hand, dollars, euros, yen and pounds, and, on the other, the concept of money, is actually a distinction without a difference. In the US, dollars are money. Nothing else is. If a T-bill isn’t money (which it’s not), and genuine gold ingots aren’t money (which they aren’t) then fractions of digital tokens surely aren’t money either.
Crypto was tenable when it was just Bitcoin. If there’s room for gold (not as money, exactly, but as pseudo, backup money that traditionally holds its value) then there was probably room for Bitcoin too. But there’s no room for the rest of it. We can’t have a situation where everyone can theoretically print money, which is what we have when major payment processors and large corporations are opening the door to accepting cryptocurrencies and/or facilitating payments in them.
If the contention isn’t that crypto is money, but that it’s a security, then it needs to be registered. There’s little ambiguity about that, which is why almost no crypto proponents make that claim. If the contention is that crypto is a reliable store of value, then the person making the claim needs to explain why so much of it goes to zero and why even the most prestigious tokens are still 60-vol assets.
But the most damning critique of all is rarely mentioned. I can present it as a question: Who actually wants their money to be “trustless”? My answer: No one.
Everyone, without exception, wants someone to hang (figuratively or, in extreme cases, literally) in the event their money is lost during a transaction, legal, illegal or anywhere in-between. Nobody’s first option for a transaction where their own money is on the line is a system totally devoid of accountability. If I’m a model citizen, and I want to transfer $25,000 from one bank account to another, I want to be able to call the banks or, if push comes to shove, appeal to the government, in the event my money is somehow lost. At the other extreme, if I’m a drug cartel and I want to move $5 million in cash from Chicago to Sinaloa, someone (usually several someones) will be involved in the logistics. Those people (maybe all of them) will be held accountable if my money is somehow lost.
The point in throwing the situation into such stark relief is to underscore the notion that not even criminals will choose a “trustless” system as the first option. They may ultimately resort to such a system if, for example, the logistics of an illicit transaction are simply so daunting as to make it worth the risk of trusting the money to no one (which is what you’re doing when you put your faith on-chain), or, on the other end of the spectrum, if the amount of an illegal transaction is trivial such that no one will be too upset if a wallet address gets entered wrong and $5,000 ends up going to some random person somewhere.
Ultimately, I doubt seriously that people want what proponents claim for crypto. Indeed, I don’t think crypto proponents want it either. Does anyone really believe that all the hundred-millionaires and billionaires who loudly tout blockchain as the future would trust it to move their own personal fortunes around? I know they claim they do. And I know that one way or another, they’re interacting with various chains. But if you think hedge fund managers, institutional investors and venture capitalists who’ve piled into crypto don’t have a long list of people to blame or even sue (e.g., people who’ve been paid to take on custody responsibilities) in the event of misplaced funds, I’ve got a new cryptocurrency project I’d like to sell you.
I’ve come full circle on crypto since December, when I first ventured into Bitcoin on my way to a deep-dive across decentralized finance. I don’t think it’s going to last. In my opinion, the dominoes will start to fall at some point over the next 12 to 24 months, likely beginning with a run on a partially- or even fully-backed stablecoin, which spills over into money markets via liquidations of assets and collateral held against the outstanding stablecoin supply.
If that happens, and it causes any kind of friction in bills or commercial paper (for example), the Fed would have to let the market sort it out. To offer any kind of backstop would be to treat a stablecoin like a money market fund, a precedent the Fed will absolutely not want to set. In a scenario where spreads widen, a mismatch would open up between the (par) value of the outstanding stablecoin supply and the value of the underlying assets. That mismatch would have to resolve itself in a de-peg.
At that point, market participants would likely realize that any other stablecoin which was forced to sell assets to meet redemptions would have to do so at fire-sale prices due to the unfolding turmoil associated with the initial run. Panic would probably ensue, leading to the mass liquidation of most stablecoin treasury assets, from bills to commercial paper to whatever else they’re holding. That liquidation would take place into a falling market, which means that with the exception of T-bills, none of it would be dollar-for-dollar.
As the pegs fell, the entire decentralized finance ecosystem would likely collapse. Every stablecoin liquidity pair would suddenly became vulnerable to impermanent loss as each stablecoin de-pegged at a different rate. Market participants would almost surely rush to unwind their positions, imposing a huge burden across chains, especially Ethereum, where gas fees would likely spike, alongside failed transactions, making it very difficult, if not impossible, for investors to exit.
As news of the unfolding calamity spread on Twitter and Discord, sentiment among crypto retail investors would deteriorate rapidly, leading to a wave of sell orders across the centralized exchanges favored by small-time, unsophisticated market participants. As crypto prices fell, margin calls and forced selling would exacerbate losses.
Because there are few, if any, effective circuit breakers, that process (or something like it) could easily lay waste to the entire crypto universe in a matter of days. That isn’t an exaggeration.
That’s the end game, in my view. Bitcoin would probably survive, but it wouldn’t matter. Lawmakers and regulators would go looking for people to blame, and because there’d be nothing left but smoldering ash, the only way to exact revenge would be to shoot the last man standing. Unaccountable Bitcoin would be held to account that day, by God.
Ironically I re-watched the movie “Margin Call” a few days ago. I can definitely see this is how Crypto ends, with nothing left but a bunch of broke people who have no idea how it all went so wrong.
I guess my question is, what kind of impact would crypto completely folding in two days have on broader markets? Could this cause a similar effect as the GFC?
The answer to that latter question is “no,” but in the event the stablecoins were to liquidate their assets, somebody has to absorb all that stuff. I have no idea whether the street would take it all or not. It’s probably not a matter of “if” but rather “at what price?” And also “how quickly?” Because, I mean, those stablecoins are akin to demand deposits. I don’t pretend to know this with any degree of certainty, but it’s very difficult for me to imagine the street just happily absorbing all that paper overnight without exacting a price. Whatever that price is can be conceptualized as the underlying, unseen discount to par that all of these stablecoins would trade at in a pinch.
I appreciate your overlapping comparison with Herbalife and counterfeiting to explain what can be done and thus why people should be protected. Even if the principle of crypto is how can you regulate something based on deregulation.
It will take a lot of work like how tracing can be done, and at the speed of government. Over the course of failure to accountability I’m sure the captive audience of Super Bowl watchers will wonder why so much of their tax dollars are being spent in unraveling a store of value that wanted emancipating.
The total “market cap” of partially and (allegedly) fully-backed stablecoins is over $120BN, I think.
Some of the stuff allegedly backing stablecoins is not very liquid – e.g. commercial paper, secured loans, corporate bonds, etc.. Even T-bill and T-note markets could, I imagine, be affected by let’s say $70BN liquidation over a very short time period.
It would be very interesting if crypto were the new subprime, in terms of the destabilizing force that turns a retreat into a rout.
https://ledgernomic.com/what-is-tether-backed-by-and-what-would-happen-to-crypto-if-it-collapsed/
H-Man, i was somewhat taken back when you first disclosed your foray into the crypto world. I spent way to much time trying to figure this game out and finally concluded it was nothing more than tulip bulbs. I disagree with your assessment that when this house of cards collapses it may have a minimal effect on the economy. This could be a whopper. Refreshing to see that your inquisitive senses have driven you back to sanity.
So here is a really dumb question: how much of the pandemic stock market boom–and the real estate market boom too for that matter–was a direct result of stimulus checks and the Fed printing money, and how much of it was perhaps indirectly the result of digital assets “printing” money? Initially, I don’t know that anyone outside of the crypto universe would feel too disenchanted if digital assets finally got their Wile E. Coyote moment, but we really cannot afford to go through another 2007-08 style collapse of all asset prices at this particular juncture. It is worse than a Ponzi scheme. In a traditional Ponzi (or pyramid) scheme, the buy-in price does not usually increase exponentially based on the increase in buy-in activity. Ponzi schemes also do not openly trade world-wide 24/7, and they are not typically leveraged or traded as futures either (although Enron may have been).
Re:. we really cannot afford to go through another 2007-08 style collapse of all asset prices at this particular juncture.
One concept missing in the Mr H thesis, is the aspect of the role crypto plays in behind the scenes collateral swaps that are linked to the overnight repo circus, which connects to Treasury settlement fails and various hidden dynamics associated with counterparty risks.
If there are people who have made bad bets in the last year, using crypto in some super leverage casino bets, you can be secure in the knowledge that there will be fire sales on a wide range of assets that are used as collateral.
Even if that dark world doesn’t make sense to anyone today, the unwinding of a crypto winter will play out exactly like the GFC.
H- Your immersion journalism was some of your most insightful and was much appreciated.
An occasional outlier piece that qualifies as gonzo journalism would be awesome- I suspect you have that capability in you.
Amen. H just saved a few of his readers a ton of money.
What happened to S & H Green Stamps and their many competitors? They simply disappeared. You got them from purchasing products from participating sellers and had a large catalog full of items to “buy” with your holdings. The stamps weren’t money but they did, for a time, serve as money in a limited way. My wife and I lived in the St.Louis area for a time. They had stamps circulating there — I disremember the name — that were very cool because you got them for buying anything all over but instead of being stuck in a catalog you could spend them for anything available at any seller that gave out the stamps. Five bucks for a filled book. Gas stations gave them out and you could go to any of those stations and buy gas with your filled stamp books. I still have several items in my house today purchased with these stupid stamps. It had to cost retail participants in the system some fee to use these stamps and in the end the cost was bigger than the benefit and that was it. So what’s the big benefit of crypto? The only thing I can see is the prospect of the restricted coin base growing in value. In this way crypto is like gold, restricted supply with future prospects, although gold has value in industry, crypto does not. The growth in crypto’s value can only happen within the confines of the “greater fool” model, which requires someone to bail you out. No fools, no bailouts. Glad I’m not one of the folks holding $64k bitcoins. Oh, and there is the recent announcement by the governor of NY that crypto mining will be be prohibited, for the time being at least, because of the drain on the state’s electrical grid.
The example of an alternate consumer currency that I was thinking of was frequent flyer miles.
Perhaps we’ll eventually think of these schemes, like S&H, AAdvantage Miles and grocery store “points” as the only safe and durable form of crypto-like asset – so crippled, with a bare subset of currency features, that it barely functions – but still widely popular. Non-transferable, value pegged to a transaction in a “real” currency, limited lifetime, only useful for limited-value transactions, and an “exchange” so trivial that a single company likely ran it on an IBM mini back in the day. Like a post-apocalyptic can of beans. It will be ironic if AAdvantage Miles, which started in 1981, outlasts Bitcoin which began in 2008.
Hi Walt,
as always, I really appreciate your daily work and value your opinion; this site is a delight.
But there are quite a few things you touch upon in this article that I feel are portrayed a bit too simplistic and also that you painted all aspects of crypto with the same brush.
I am also a bit annoyed that the whole comment section is full of people nodding, saying “Tulip bulbs, I knew it all along!”, so I feel like I have to play devils advocate here.
You also don’t traffic (much) in hyperbole and rarely make specific predictions, so I feel like the call for the “crypto apocalypse” is a surprisingly specific and big/bold one to make.
First, the things I absolutely agree with:
DEFI: I never quite understood it either and every time I tried to get a better grasp on it, I wondered who would take the other side of those transactions and why? Where do the returns come from etc…
There are some pockets that make sense (AMM’s for example), but the general smell of ponzi dynamics kept me out of the defi space, too.
The securities question:
Yes, there will be a reckoning for projects violating securities laws. I especially see this hammer coming down on for profit DAO’s like this “decentralized starbucks” “https://www.coindesk.com/business/2022/05/06/web-3-irl-seattles-cafedao-tests-brick-and-mortar-dao-model/”.
For the disagreements:
“Who actually wants their money to be “trustless”? My answer: No one. ”
It is trustless in a sense that you don’t have to trust a third party. The software will always do what it is being told to. The only one you have to trust is yourself; inputting the right wallet address!
“I want to be able to call the banks or, if push comes to shove, appeal to the government, in the event my money is somehow lost.”
Do you ever fear your email (possibly containing medical records or other delicate personal details) being sent to “some random person somewhere”?
Is Google the one to hang if you send your email to the wrong address? Will they assist you to “unsend” your email or are they liable for you inputting a faulty address? No, no and no.
It’s the same thing sending money via crypto channels. You have a set of wallets in an address book, just like email adresses. They don’t just change. With new adresses, 99.9% of the time you just copy and paste them, then double check the first four digits and the last four digits and that’s it.
On chain transactions don’t just get lost! Some transactions being delayed or returned due to network congestion is one thing, but a transaction being “lost” in the proverbial ether is nonsense. Please show me one example of a transaction simply disappearing. You almost make it sound like you’d have to cross your fingers and hope that a transaction actually arrives after hitting the “Send” button.
I started trading bitcoin in the summer of 2013 and I have literally initiated thousands of crypto transactions since then (not buys/sells on an exchange but actual transfers from A to B); over certain timeframes I initiated more crypto transactions than credit/debit/cash transactions in the “real economy”. Besides a few hours delay in the early days I never had any trouble anywhere.
On the other hand I have had plenty of issues with “traditional” institutions.
Visa not allowing me to book a hotel because I booked through the hotel website instead of expedia or hotels.com which for some reason tripped red flags. Banco Santander in London refusing a wire deposit because it was sent from Transferwise’s Belgian bank, forcing me to double-wire it through my Canadian bank. Losing 4% or more on currency conversions when getting paid in euros etc…
Wherever I have the option, I actually pay for things in crypto too, most recently plane tickets for example and had Elon not pulled a 180 on accepting crypto payments, our last car purchase could have been a crypto transaction, too.
You often point out the absurdity of people transacting in crypto and immediately converting it to USD. So what? Crypto doesn’t need to be “new/different money” (I know, a lot of proponents claim/want it that way). Can’t it just be the rail/channel on how to move fiat from one place to another, simply because it is way faster and cheaper?
If fruits and vegetables were as efficient and quick to send around the globe as crypto, I wouldn’t mind paying for things in onions and pears.
Or if there was a liquid market for art, maybe I’d send fractions of the mona lisa instead. I still don’t need to call it money, no?
As long as a merchant can simply hedge/lock in a certain price on the means of payment, he’ll be fine.
He doesn’t need to actually hold the medium, so its price volatility does not undermine its functionality.
For your thesis of how a collapse might unfold:
Given that UST (the Terra stablecoin, not treasuries) had a market cap of 16 billion or so, making it the third largest stablecoin at the time, I am almost surprised how “little” the (immediate) collateral damage in crypto markets was. (Yes, laugh if you will)
Most current stablecoins are well smaller than that and USDC reports reserves on a weekly schedule.
Currently their 50bln consist of 20% plain old cash and 80% short dated treasuries, held at BlackRock and BNY. “https://www.circle.com/en/usdc”
I am absolutely no specialist on treasury liquidity and swap arrangements etc., but do you really suggest they would not be able to convert 10 or 20bln worth of treasuries on a bad day? I can’t see the haircut being that large that they’d be unable to fulfill redemptions?
That leaves USDT as a possible source of turbulence and given recent developments, a lot of participants are making the switch towards USDC anyways. USDT supply already shrunk from roughly 80 to 70bln these past weeks and this trend will likely continue, so in my opinion USDT is actually becoming less and less of a risk for the overall (crypto) market.
Now, one also has to point out the different types of crypto. Not all of them are stablecoins or payment channels, but utility tokens that give acces to giant computing networks and it’s functions.
I recall an article a while back where you mentioned that you started to see the utility of a giant cloud/network/world computer like Ethereum.
Did you turn sour on that assessment too? Would you see those projects survive an apocalypse as you laid out?
I personally view blockchain projects as software and infrastructure to run software, databases and all kinds of digital applications. A giant decentralized productivity tool that will find it’s way into almost every corner of life.
Just anectodally: me and my wife are from two different EU-countries, live in Canada and got married in Hawaii.
You have any idea what a pain it was to verify our marriage everywhere and change the name in her passport?! Getting an apostile involves sending several 1.5 USD and 2 USD money orders (!) and return envelopes (try getting US postage outside of the US) to Hawaii, so that the Governour can put his signature on a piece of paper that gives our marriage legitimacy. The process took months and months and cost way more than it really should.
In a perfect digital world, our marriage would be recorded on a blockchain, making it available on request for any foreign government agency to check and verify it in split seconds, without sending a bunch of papers around the globe.
There must be a staggering number of these inefficient processes out there on every level of government, enterprise and personal life that are just waiting to find a blockchain based solution to it.
Italian banks for example started clearing interbank transactions on a closed enterprise blockchain called R3/Corda in 2020 and never looked back. https://www.coindesk.com/business/2020/07/27/85-of-italian-banks-are-exchanging-interbank-transfer-data-on-corda/
One can point out all the schemes and frauds and failures, but one can’t deny the incredible utility blockchain (or call it decentralized ledger technology) brings to the table.
One last thing I want to point out is the fact that these blockchain projects can adopt quite well to challenges; codes can be altered if there is enough consensus between node-operators and layer 2 solutions can work on top of a blockchain without even touching the original code. The most obvious example would have to be the Bitcoin Lightning Network which dramatically increases it’s transaction capabilities (25 million per second) and brings costs down to about 4 cents a piece.
Just like your Windows has developed since 1995, so too will blockchains.
Sorry for the length of this comment, I am way to busy to comment on the more trivial things and maybe some of those questions and opinions got bottled up until now.
Anyways, thanks for your day-in, day-out work; always happy to read your missives.
Kind regards, BCQuant
—- “DEFI: I never quite understood it”
Then you can’t fully understand this article or why this is going to collapse. I had the same discussion with someone else the other day. You need to understand all of it.
—- ” You almost make it sound like you’d have to cross your fingers and hope that a transaction actually arrives after hitting the ‘Send’ button.”
You do. I realize your comment is well-meaning, but it’s accidentally misleading.
For one thing, the vast majority of humanity doesn’t understand any of this. They want an institution with a name on it and a corporate entity to literally take to court and sue if their money gets lost. Not an unaccountable spreadsheet. The idea that their money is safe because the spreadsheet is infallible will seem ludicrous to the average person. I mean, seriously, give me a break. Take a step back from your own advocacy and imagine telling that to someone in, say, rural Appalachia.
On top of that, there are countless complaints on Reddit and other social media sites of transfers from on-chain, hot wallets getting “lost” on their way back to centralized exchanges. Irrespective of whether it’s user error or just a delay that’s long enough to make someone so nervous that they take it upon themselves to vent on Reddit, it still speaks to distrust in the system. The percentage of such claims as a percentage of total transactions must be orders of magnitude larger than the same figure for regular bank transfers. If it wasn’t, consumer protection agencies in every developed economy would have people protesting on their front lawns.
I have personally transferred thousands upon thousands of dollars back from MetaMask to a centralized exchange and no, it isn’t fast with Ethereum sometimes. It’s fast with Avalanche (for example), but in a few cases, the Ethereum transfer took — I don’t know — 15 to 20 minutes. I was nervous. Why? Well, not because the centralized exchange didn’t tell me the transactions were pending (it did), but because 1) one end of the transfer is totally unaccountable, 2) the other end (the centralized exchange) isn’t a bank, 3) what I was trying to transfer (Ether) isn’t dollars and isn’t protected by anyone, anywhere, and 4) if something were to happen, there’s no one to call.
Finally, and most notably, when Yuga Labs sold land parcels (“deeds”) to their metaverse project, some $250,000 in gas fees were lost to failed transactions. I’m quite sure you know this. You apparently read crypto news sites and this was front-page news on all of them. Yuga returned those gas fees to the users, but they weren’t obligated to do so. At one point, it cost as much as $7,000 in gas to buy a $5,000 digital item. Multiple users lost thousands of dollars for items they weren’t able to buy. The money was returned, but, again, Yuga wasn’t obligated to return it.
That can happen at any time, albeit not at the same scale. You can try to buy something on Ethereum, the transaction can fail and the gas fee can be lost. It’s happened to me, and if you’ve performed as many on-chain transactions as you say you have, it’s either happened to you too or you’re the luckiest person in the history of the world and you should be buying lottery tickets because you’ll surely win.
In the Yuga episode, the notion that your principal wasn’t lost is a distinction without a difference. If I tried to buy one of Yuga’s “Otherdeeds” for $5,000 and I lost $6,000 in gas fees, am I supposed to be comforted in the notion that the $6,000 I lost technically wasn’t the money I was trying to pay for the Otherdeed? That’s ridiculous.
Here’s a question for everybody: If I try to buy a cart full of groceries for $250 and the Visa chip reader does that thing where it beeps and you have to reinsert your card, am I going to be charged $300 for the beep and leave with no groceries? If so, am I supposed to just say, “Oh well, it’s fine. Because technically, the $300 wasn’t ‘lost’ grocery money, it was actually a chip read failure, so it’s totally cool! Just network growing pains, I guess.” Again: Ridiculous. (And please, spare me the “If only you’d used Solana or Avalanche the lost gas would’ve been a tiny fraction” excuse, because that doesn’t address the underlying problem, and if all the ‘good’ stuff is being sold on Ethereum, it doesn’t matter anyway.)
—- “The software will always do what it is being told to”
Oh, really? Software has never malfunctioned? Wow! And here I’ve complained about software glitches a thousand times in my life. Who knew software is infallible. I owe software a big apology! I’m sorry, software!
Sarcasm aside, this won’t work. You can’t do this. You can’t just say “The technology is infallible.” Technology is never infallible.
— “Is Google the one to hang if you send your email to the wrong address?”
This is a false equivalence. An email isn’t an ACH or a wire transfer. If Google ever goes into banking and is regulated, then yes, they’ll be accountable for the transfers they facilitate.
Also, with most bank transfers, the bank doesn’t say “We can’t, under any circumstances, get your money back if you enter the wrong ACH number.” What the bank says is something like this: “Check the number closely. Once the transaction is complete, it will be very difficult for us to recover the money if you send it to the wrong address.” If the Fed or the FDIC or the FBI or the CIA calls up the bank and says something like, “Hey, you know that ACH transfer XYZ625815? Yeah, so you’re going to reverse that. And you’re going to do it today,” the bank will reverse it. Is that option available to average citizens? No. And my point isn’t to suggest that it is. Rather, my point is that on blockchain, the transfers are actually irreversible. No one can reverse them. If I accidentally send money to an OFAC sanctioned network of smugglers assisting the Quds in facilitating oil deliveries to the Assad regime, that Ethereum I meant to send to Ukrainian refugees is lost to the Quds. Forever. Is that what we want? No. We don’t.
—- “Banco Santander in London refusing a wire deposit because it was sent from Transferwise’s Belgian bank, forcing me to double-wire it through my Canadian bank. Losing 4% or more on currency conversions when getting paid in euros etc…”
First, if you’re transferring money in crypto, you’re exposed to much wider swings during the transfer process than you are with fiat currencies. Do me a favor: Pull up a chart of historical vol for Ethereum or Bitcoin and overlay historical vol for the euro and the loonie. The risk of depreciation associated with crypto transfers is huge. If you convert dollars to Ethereum and transfer that Ethereum on a day when overall market sentiment is poor, you could lose 10% in hours. If you convert dollars (or euros) to a dollar-pegged stablecoin on-chain and make the transfer that way, you have to convert the stablecoin back to real dollars at some point. The barber doesn’t want your USDC, after all. Then you need to get those dollars back to your bank account. Fees along the way could easily exceed 4% of principal.
Second, see my remark above about Yuga’s Otherdeeds. What if your wires cost you 100% or more instead of “4% or more” and none of the banks were obligated to give it back to you? Oh, you’d call them up and threaten to sue? Exactly.
—- “…over certain timeframes I initiated more crypto transactions than credit/debit/cash transactions in the ‘real economy'”
Forgive me, but I simply don’t believe you unless by “timeframes” you mean certain days.
— “… a giant decentralized productivity tool that will find its way into almost every corner of life.”
Hmm. It sure is taking a while. Is a 13-year-old startup still a “startup”?
— “One can point out all the schemes and frauds and failures, but one can’t deny the incredible utility blockchain (or call it decentralized ledger technology) brings to the table.”
— Sure I can. I can deny that in three short sentences. It’s 13 years old and doesn’t have widespread adoption. If blockchain were a product or a TV show, it’d have been canceled by now. It’s been 13 years and the vast majority of the public still couldn’t tell you what it is or what it does even if their lives literally depended on it.
Sorry, but that’s a failed project.
Thank you for responding that swift and detailed, I really appreciate you taking time for this and I don’t want to waste more of yours so I’ll just quickly clarify/respond to a few subjects and leave it at that.
I started cross-exchange arbitrage around 2017, which by 2020 had morphed into a full-blown market-making operation across several centralized exchanges. During last years hype I would initiate more than 50 transfers per day, so in response to “Forgive me, but I simply don’t believe you unless by “timeframes” you mean certain days”, is the calendar year 2021 big enough of a timeframe? The past two years combined?
Concerning the wrong destination input/lost transaction issue: if I tell someone in rural Appalachia that he has to make sure to buy his MAGA-hat on Trump’s site because there are malicious sites out there just looking for his credit card information, I’m sure he’ll understand.
If you enter your cc-data into a fake site and someone drains it to the max, there’s no one to complain to either, no? Visa or your bank won’t refund you for your sloppiness. Does that render e-commerce useless? Remember the voices in the 90’s saying no one will feel comfortable entering their card details online? They weren’t completely wrong, there still is a ton of credit card fraud happening as we type, but it doesn’t stop anyone (or most) from buying things online.
Getting nervous on your first few crypto transfers is ok, there were a few long delays in my early years too, it’s mostly a matter of going through it a few times to get comfortable with it. By the tenth time your ETH transfer takes 15-20 minutes you won’t even bother double-checking it again, especially if you send it to a wallet you have sent funds to before. Nowadays the receiving exchange/wallet usually recognizes it’ll receive something as soon as the transfer is posted on chain, even before the first confirmations start trickling in.
And whenever things do take a little longer, you can always copy/paste your TXID into a chain explorer and watch the state of your transaction in real time. Check the address again, does it match your receiving wallet, yes, well all is good, it will arrive.
The Yuga-Labs episode; yes I am fully aware of that debacle, but you really picked the most extreme example ever to make this point about unpredictable gas fees and failed transactions. The most-hyped parcel-sale from the most hyped NFT-creators back in the days when NFT’s were still the hottest corner of crypto… It’s like picking black-friday madness to make a point about retail in general.
“I camped out in front of the store overnight, then stood in line for hours, got trampled and punched on my sprint to the electronics section and I still didn’t get that TV at 50% off… This retail thing is bull*#%t! I’ll never go to Walmart again!”
If you’d value time and dignity in money, then those two examples are pretty darn similar. But none of them are representative of the experience in general.
I guess once the other protocols catch up to Ethereum in “selling the good stuff” and layer-2’s like Polygon get fully integrated, you’ll never really hear about high gas fees again.
“If you’re transferring money in crypto, you’re exposed to much wider swings during the transfer process than you are with fiat currencies”
– Aren’t commodities volatile A-F? Can’t farmers lock in their prices via futures?
If someone wants to send me 2000$ in ETH or BTC, I’d quickly short X-amount of it at current prices and settle that trade in 30 minutes once the tokens actually arrive in my wallet. Prices could crash 80% in the meantime and I couldn’t care less.
And if you are a merchant accepting crypto payments, Bitpay (or whichever processor you use) does the whole locking in and settling for you. That’s what I meant by saying “As long as a merchant can simply hedge/lock in a certain price on the means of payment, he’ll be fine”. Therefor the volatility argument is straight out the window.
“Sure I can. I can deny that in three short sentences. It’s 13 years old and doesn’t have widespread adoption. If blockchain were a product or a TV show, it’d have been canceled by now. It’s been 13 years and the vast majority of the public still couldn’t tell you what it is or what it does even if their lives literally depended on it.
Sorry, but that’s a failed project.”
– Wow, really? With all due respect, this is absolutely ridiculous.
If 13 years since the first proof-of-concept is the cutoff for you, you sure missed out on a lot of opportunities!
IBM is more than a century old.
The first machines that we’d call computers are (depending on your specific definition) at least 50-70 years old.
The first simple version of the internet was invented in 1969 and the current TCP/IP version is up and running since 1983!
Yes, BTC is 13 years old, but Ethereum and it’s smart-contract capabilities only showed up six years ago and adoption and use cases are quite literally growing daily.
And that’s it from me.
Thanks again for providing this platform here and thanks for taking the time and effort to engage in dialogues like this!
Best regards, BCQuant.
— “I started cross-exchange arbitrage around 2017, which by 2020 had morphed into a full-blown market-making operation across several centralized exchanges. During last years hype I would initiate more than 50 transfers per day”
So, you were comparing apples to oranges. You initially made it sound as though at any given time, you made more crypto transactions in the normal course of your daily life than you did credit, debit or fiat transactions. Now we find out you were comparing a crypto market making operation to personal transactions, which of course you can’t compare. That doesn’t make any sense. If I trade CDX for a living, I’m not going to go tell my neighbors “I make more credit derivatives transactions in a week than I do Visa transactions at the grocery store, gas station and bar combined!” That wouldn’t make any sense.
— “Getting nervous on your first few crypto transfers is ok”
Spare me the condescension. I made 37 of them. I was genuinely nervous on the first — I don’t know — let’s call it five or six. After that, it was just homework so I could write about it. Then on the last five (give or take) it was getting totally out of DeFi because I had grown very concerned about the viability of it.
— “Aren’t commodities volatile A-F? Can’t farmers lock in their prices via futures?”
You’re doing it again. You’re comparing apples to oranges. I’m talking about everyday people. You’re talking about farmers and merchants. Everyday people don’t have to hedge the dollars, euros and yen they hold because they know dollars, euros and yen aren’t 60-vol assets. And if they do want to “hedge” they just buy a gold ETF. But that’s a long-term hedge. Nobody gets their paycheck deposited in euros and thinks “Gosh, I better jump on my terminal and check out riskies to get a sense on how the market’s leaning. Maybe I need to hedge my paycheck with FX options!”
— “The Yuga-Labs episode… the most-hyped parcel-sale from the most hyped NFT-creators back in the days when NFT’s were still the hottest corner of crypto”
“Back in the days”?!I It was just a few weeks ago!
— “Ethereum and it’s smart-contract capabilities only showed up six years ago and adoption and use cases are quite literally growing daily.”
A lot of this growth is in Web3 by definition. And DeFi is a sizable chunk of Web3. When you throw in NFTs, you’ve got an even larger chunk. Total Value Locked on DeFi protocols is down around 60% from the highs.
What you can’t escape is this simple fact: After 13 years, the vast majority of people can’t tell you what blockchain is or does.
There’s no way to talk or advocate around that. It just is what it is.
Sorry, there seem to be a few misunderstandings here.
I was not talking of crypto transactions to purchase physical items.
But I am not talking about trades either.
I am talking of on chain transfers.
Wasn’t the subject at hand about network reliabilty? How often we interact with a network, how often we need the network to do it’s job and how often it fails to do it’s job?
If I pay for groceries with my credit card, I interact with the Visa network, I need it to do it’s job to get funds from my account to the grocers account.
If I send a wire to London, I interact with the ACH network, I need it to do it’s job to get my funds from my account to the recipients account.
If I pay for plane tickets with XRP, I interact with the Ripple network, I need it to do it’s job to get funds from my wallet to the Airlines/or Bitpays wallet.
And if I want to transfer a bunch of ETH from Coinbase to Binance, I interact with the Ethereum network, I need it to do it’s job to get my funds from one wallet to another.
How is this apples to oranges?
Why shouldn’t I count the number of interactions with those different networks and compare the amount of failures?
I also didn’t mean to come across as condescending. All I want to say is that the first time of anything can feel sketchy or scary; by the tenth time it’ll start feeling comfortable, by the 100th time it’s routine and by the 1000’s time you don’t even think about it anymore.
“Back in the days” was an (apparently unsuccessful) attempt at tongue-in-cheek humor.
This whole exchange is wildly disingenuous, just like every other exchange I’ve ever had with anyone who’s enamored with this. At the end of the day, nobody wants this and just as importantly, most people don’t need it either. You go to the store to buy an eggplant and you pay with dollars or euros or CAD or AUD or pounds. You buy a plane ticket, same thing. You pay a restaurant bill, same thing. You get a haircut, same thing. The vast majority of humanity doesn’t use crypto, the vast majority of businesses don’t accept crypto and the vast majority of products on the planet aren’t bought and sold in crypto.
The number of ways people try to dance around that simple reality in order to justify (to themselves, because they certainly aren’t fooling anyone outside the bubble) their involvement in this space is absolutely astounding.
Finally, there’s this: Generally speaking, people aren’t responsible for fraudulent purchases on their debit cards or credit cards. If someone breaks into my house and takes my credit cards and debit cards and also a thumb drive with my hot wallet pass phrase on it, I’m not responsible for fraudulent purchases on the cards. I call the bank, inform them, they cancel the cards and reverse the purchases. But if the person gets into my MetaMask wallet and transfers $75,000 in Ethereum out of there to another wallet, who’s going to refund that? Right, nobody. Because there’s nobody to issue a refund. It’s just a spreadsheet.
Folks, I hate to be this way, I really do, but it’s obligatory: Don’t buy into the idea that this stuff is safe. It’s not. It’s just not.
If you want to buy Bitcoin to hold as a second form of “outside money” in addition to your gold allocation, that’s a decision that’s justifiable as long as you understand the risk. All of the rest of it is the wild west. And no, the majority of you won’t be comfortable with it after 10 transactions or 100 transactions or 1,000 transactions or 10,000. I promise you won’t. On that note, I’m closing this comment thread.
Jeffrey money