Crypto-currency: Failed Ayn-Rand Utopia, terrorist financial support, Ponzi scheme

[welch]

About fifteen years ago, I looked into crypto-currency. Then it seemed like part of an Ayn Rand utopia: a new gold standard, global currency that no government could "dilute" by deficit spending, a way to obliterate government banking regulations, and banks and then governments. That "utopia" seemed unlikely, and even silly, but we could see that crypto might be useful to terrorists financiers and global drug gangs, and anyone else that needed to move money secretly.

Since then, crypto has, clearly, become an investment with nothing tangible. At base, a crypto coin is a very long number, a number that someone claims in unique. The value, crypto-fans tell us, is that someone else might want to buy a unit of crypto for more than we paid. That is, crypto is a Ponzi scheme.

A year ago, FTX collapsed when a competing crypto exchange, called "Binance", dumped all of the "coins" that FTX had created. We read details in the trial of the FTX founder, and in the latest book by Michael Lewis. When FTX collapsed, crypto-fans told us that crypto was a "technology" and that, like other technologies, needed to clear out some bugs. The US Justice Department has investigated, finding that the Binance Crypto exchange had used its technology to "enhance" the operations of terrorist financiers and drug gangs. Shock!! Today, the US Justice Department stepped, hard, on Binance.

https://www.theguardian.com/business...rypto-exchange

[welch]

This person, Molly White, has never been fooled by the horse-manure spread high and wide by crypto advertising.

https://web3isgoinggreat.com/

[Bold2013]

Thanks for the post.

[TSherbs]

This stuff is crazy to me.

So, that's two-for-two: the two largest exchange systems based on criminal fraud and other crimes.

Alrighty.

[TSherbs]

On the other point: Ayn Rand's ideas were fraudulent, also. She was a capable propagandist, for sure.

[dneal]

This Guardian piece is an epilogue, at best. If you want to "look into" crypto, Balaji Srinivasan is the place to start.

FTX was a Democrat dark-money conduit.

[welch]

This Guardian piece is an epilogue, at best. If you want to "look into" crypto, Balaji Srinivasan is the place to start.

FTX was a DemocratIC dark-money conduit.

I don't know what Srinivasan can tell us about Crypto, other than it failed as a currency but succeeded as an investment as long as prices rose. Molly White explains the collapse of each crypto currency as it happens. I hope that the reports in The Guardian, the NY Times, and the Washington Post are an "epilogue". Crypto should be illegal, and, finally, the SEC has moved against crypto "exchanges" that want to operate in the US. Yesterday, I read several comments in the Post arguing that crypto-currency is the same as the Diffie-Hellman math, and, someone claimed, crypto is part of the all-time greatest advance in technology.

The crypto "industry" continues to promise that an ordinary people can make millions by investing in a bitcoin. A city in Florida (Miami, I think) tried to make crypto-currency "legal tender", as an encouragement for the crypto fans to make Miami the crypto capital of the world. A Latin country, maybe Costa Rica, has tried doing the same, and has failed as badly. Yet PayPal tries to sell me some crypto-currency every time I buy something on EBay.

Crypto is not as dead as it should be. At least not yet.

(We know that Sam Bankman-Fried used FTX to pay Democratic campaigns.)

[dneal]

If you're speaking of Crypto as "it", and "it failed"; you don't understand crypto.

Balaji was the CTO at Coinbase - a crypto exchange platform. He has a lot to tell you. You shouldn't be so dismissive.

FTX was a crypto startup. While a sensational story, it's hardly representative.

Bitcoin is crypto. It hasn't failed. Dogecoin and Etherium haven't failed yet.

Here are 50+ other cryptocurrencies being traded.

https://coinmarketcap.com

[dneal]

In the interest of conversation, I don't own or invest in crypto. It caught my attention because of video-card shortages (and exorbitant prices). The GPUs can apparently "mine" more efficiently.

I listened to Balaji's 8 hour interview with (MIT Graduate) Lex Fridman. 2 hour bites when I took my son to the airport and picked him up later - within the last year perhaps.

That was my introduction to him. Really smart guy who is an out of the box thinker. Some is way out there, but networked banking and "virtual states" using a common-agreed currency among the nations of the greater Indian subcontinent isn't so far-fetched.

How do diverse people in a grouping of china sea countries hedge against currency volatility and trade more easily (and without govt taxing or even having record?). crypto. Singapore, Malaysia, phillipines, Viet nam, etc...

The New York bank or stock exchange rules don't apply. The internet is experimenting with Adam Smith fundamentals or principles.

Balaji can explain it to you.

[welch]

Let's start with Tim O'Reilly. I read his books, and the books he published, starting in the mid-80s when I was teaching myself the C Programming Language. He continues to publish, and I respect him. Here is O'Reilly's opinion of Web 3.0, something that now is supposed to depend on "blockchain" and crypto-currency:

https://www.oreilly.com/radar/why-it...ed-about-web3/

[welch]

Here is a long presentation about crypto made to an electrical engineering class at Stanford. It covers, among many other things, the electrical cost of bitcoin mining, as well as the waste of disk drives and such. It is by David Rosenthal.

Here is the video of the talk:

https://www.youtube.com/watch?v=twrduL8aNGE

Here is a transcript: https://blog.dshr.org/2022/02/ee380-talk.html

[welch]

And here is a presentation at Berkeley by a tech professor who is also a law professor:

https://www.youtube.com/watch?v=xCHab0dNnj4

[calamus]

I've read arguments pro and con regarding cryptocurrency, and don't know what to think about it. My gut feeling is to beware of it, because at bottom it seems like nothing more than a fiat currency without even a government to (somewhat) back it up. Also, as fast as computer technology keeps changing, what is rock solid secure one day is as vulnerable as a baby with a lollipop the next. I like gold and silver.

As for Ayn Rand, I haven't read anything by her since college (more than 50 years ago), but the only "fraud" I can recall was her endorsement of egotism. But more fraudulent is the left's love affair with the state trampling individual rights. The left fails to appreciate that society is made up of individuals. Individual liberty shouldn't become license, in which someone is hurting someone else, but the deification of "society" as the greatest good is a serious mistake, especially when it's used to curtail individual liberties.

[welch]

I've read arguments pro and con regarding cryptocurrency, and don't know what to think about it. My gut feeling is to beware of it, because at bottom it seems like nothing more than a fiat currency without even a government to (somewhat) back it up. Also, as fast as computer technology keeps changing, what is rock solid secure one day is as vulnerable as a baby with a lollipop the next. I like gold and silver.

As for Ayn Rand, I haven't read anything by her since college (more than 50 years ago), but the only "fraud" I can recall was her endorsement of egotism. But more fraudulent is the left's love affair with the state trampling individual rights. The left fails to appreciate that society is made up of individuals. Individual liberty shouldn't become license, in which someone is hurting someone else, but the deification of "society" as the greatest good is a serious mistake, especially when it's used to curtail individual liberties.

Ultimately, a crypto-coin is made from electricity driving a computer...many computers in a huge data-center. At bottom, it is based on nothing. The UK pound is based on the economic strength of the UK, just as all currencies have been. Likewise, the USD is based on the full faith and credit of the USA, the strongest economy in the world. That's why the USD is the world's global currency. A crypto-coin is based on nothing but demand; it is based on nothing tangible. Nothing touchable. While futures exchanges might seem to be run by speculators chasing prices, eventually someone who needs coffee beans or hog bellies will take delivery of something. What do you own when you own a bit-coin?

I mentioned an Ayn Rand Utopia because the initial crypto fans all hoped it would demolish currencies, banks, banking laws, bank regulators, and governments. Money would be transferred secretly around the world. I looked at it because I was a "software engineer" at SWIFT, the Society for Interbank Financial Telecommunications. SWIFT operates the messaging system by which that banks move money across international borders. (See swift.com) The company was being attacked in the European Parliament because it had just been revealed that SWIFT had agreed to a court order by which the US Justice Department tracked down the payments that had supported the 9/11 terrorist high-jackers. The crypto idea seemed perfect for terrorists and international drug gangs, but useless for anything else.

In 2021, El Salvador adopted bitcoin as one of its two national currencies. It has flopped. See https://en.wikipedia.org/wiki/Bitcoin_in_El_Salvador

Instead,

(1) crypto currency has become a get-rich-quick investment, one that is marketed to people who don't know much about it. FTX, for instance, hired Tom Brady to appear in TV commercials that told unsuspecting people to "be bold". That's where the fraud comes in.

(2) the crypto money transfer mechanism is being used to fund terrorists, as the Binance case reveals.

Finally, one of the speakers I mentioned above, suggested that crypto should be burned down. Or, he said, they regulated the same way any other exchange or exchange traded product. If a bitcoin exchange wants to pretend to be the NY Stock Exchange, then let it be regulated like the NYSE. He predicted that crypto would fall apart if regulated as part of the financial industry. Here is what the crypto industry thinks of regulations and the current financial regulator:

https://www.coindesk.com/consensus-m...NzA3My4wLjAuMA..

[dneal]

Respectfully, your banking expertise seems to be an impediment to thinking about larger principle.

There is an island in the Pacific called Yap that uses circular stones as currency. The stones are too large to move so the ownership of the stones is passed by word of mouth to transact business.

Economists love the tiny island called Yap located in the Pacific Ocean, because it helps answer this really basic question: what is money?

There's no gold or silver on Yap. But hundreds of years ago, explorers from the island found limestone deposits on another island hundreds of miles away. And they carved this limestone into huge stone discs, which they brought back across the sea on their small bamboo boats.

It is not clear if these stones began a currently immediately, but at some point in time the people on Yap realized what most societies realize. They needed something that everyone agrees you can use to pay for stuff.

Like every society, the people of Yap took the thing they considered precious — their version of gold — and decided that was money.

There was just one key thing about this money: it was really heavy. A big piece could weigh more than a car.

They ended up talkimg about the stones themselves not changing hands at all. One person gives it to another person. But the stone doesn't move. It's just that everybody in the village knows the stone now has a new owner.

The stone doesn't even need to be on the island to count as money.

One time, according to the island's oral tradition, a crew was bringing a stone coin back to Yap on a boat. Due to a storm, the stone sank. The crew made it back to Yap and told everybody what happened.

And everybody decided that the piece of stone at the bottom of the ocean was still good.

This system, in the end, feels really familiar. If you go online to pay your electric bill, what's the difference with the stones?

GAMBqupXUAE12WJ.jpeg

[welch]

dneal, I don't have that much banking expertise...I just worked for a company that belonged to banks, and before that I was in a tech group that developed systems for banks. The guy in your photo, and the explanation, reminds me of how gold and silver are traded. About thirty years ago, my team at GE Information Services did a system by which bullion customers of JP Morgan transferred gold. "Physical metals" sit (mostly) in vaults in London; other firms trade gold and ultimately settle by telling the vault to credit or debit their accounts. If Morgan received a matching credit or debit instruction from the counter party, Morgan's internal system "moves" the gold from one account to another. Of course, gold bars never move around the vault...just entries on an electronic account book. That's pretty much a modern and computerized version of the elders who remember who owns Yap currency stones.

Of course, someone could ask Morgan or another "depository" bank to pick up a few thousand ounces of gold and move the bars to some separated part of the vault, but that slows trading. There is even a provision to take physical delivery outside a vault, say, at a warehouse or even at someone's house, but an instruction to, say, deliver gold bars to dneal's back yard would set off alarms in the "depo" bank.

Way back then, silver bars were nearly worthless. Nelson Bunker ("Bunkie") Hunt had tried to corner the silver market about 1980, causing silver mines to open up and dump silver onto the market, and driving down the price. (See "Silver Thursday" at Wikipedia: https://en.wikipedia.org/wiki/Silver_Thursday).

For details of the entire precious metals industry, see the London Bullion Market Association (LBMA), which has always operated the London Fixing,
https://www.lbma.org.uk/market-stand...bullion-market

(Yes, I loved the anarchy of open outcry financial markets.)

[dneal]

In 2021, El Salvador adopted bitcoin as one of its two national currencies. It has flopped. See https://en.wikipedia.org/wiki/Bitcoin_in_El_Salvador

Today El Salvador is $3M in the black with their Bitcoin investment.

[welch]

In 2021, El Salvador adopted bitcoin as one of its two national currencies. It has flopped. See https://en.wikipedia.org/wiki/Bitcoin_in_El_Salvador

Today El Salvador is $3M in the black with their Bitcoin investment.

What is your reference? Here is Marketplace:

El Salvador has lost an estimated $40 million of its total investment in bitcoin since 2021 due to a decline in the value of the cryptocurrency. Carlos Acevedo, an economist and former president of El Salvador’s Central Reserve Bank, doesn’t think bitcoin is suitable as legal tender.

“It’s like playing Monopoly in the casino. You can win, you can lose — and we have had bad luck so far — but for people who are poor, they cannot afford to take a drop in 5%, 10% in one day.”

But the government is continuing to push bitcoin. It recently announced that bitcoin education would be compulsory in schools starting next year. People from other countries are also moving to El Salvador to use the cryptocurrency.

The article includes examples of a shop-owner who accepts Bitcoin and one who doesn't, and why.

It says that the Salvadoran government hopes its people can receive "workers remittances" through Bitcoin. If Bitcoin was a stable global currency, then maybe. A "workers' remittance" is money that a guest worker sends to a family back home, and it could be a big business. However, last I work on it, banks were reluctant to touch a payment to "the un-banked" for fear that the foreign worker might be sending money home to a drug cartel. For a legitimate bank, that would be "reputational risk".

But in the first six months of 2023, according to El Salvador’s central bank, only around 1% of received remittances were in bitcoin.

Full story at: https://www.marketplace.org/2023/11/...mble-paid-off/

[welch]

On October 15, CoinDesk, a crypto-industry news site, says that El Salvador is probably "sitting on a loss of about $16 million in its Bitcoin holdings". They base that on President Nayib Bukele's claim that he would have El Salvador buy one Bitcoin (BTC) per day, and the overall loss in BTC price since he began his policy in 2021.

Remember that CoinDesk exists to promote crypto-currency.

https://www.coindesk.com/markets/202...are-narrowing/

[karmachanic]

Can't see it. Can't smell it. Can't taste it. Can't touch it. Can't hold it. But you can own it and it's worth £35,000.