> The most important takeaway is to avoid new tokens that haven’t undergone a code audit. Code audits are a process by which a third-party firm analyzes the code of the smart contract behind a new token or other DeFi project, and publicly confirms that the contract’s governance rules are iron clad and contain no mechanisms that would allow for the developers to make off with investors’ funds.

But how do you know which third party auditors to trust?

What DeFi projects are laying bare is that it’s an absolute marvel that we have functional societies at the scale we do today (USA, EU). Most people can live their lives intuitively knowing which instructions to trust (financial, groceries, restaurants, medical, you name it). All of it is ultimately backed by laws, systems, real people who can be held accountable, and government monopoly of force. Furthermore we rarely have to see that stuff for the system to work and that monopoly on force is rarely abused.

It could be a meaningful technological shift if a lot of the financial infrastructure goes decentralized, digitized/programmatic, and open source. But I’m dubious the mainstream person’s day to day experience will change much, the stability and peace of mind afforded by the structures of our current society are pretty amazing and I don’t see them being replicated in a purely digital and decentralized form.

> It could be a meaningful technological shift if a lot of the financial infrastructure goes decentralized

It's important to note that “DeFi” is more centralised than our existing financial infrastructure. (Also, our existing infrastructure mostly uses open, public, well-known standards with many implementations; most DeFi stuff… documents how it currently works, I guess? Though it's hard to find that documentation.)

A lot of DeFi scams claim that an auditing company has audited their code. There's also scam auditing companies too that work with these DeFi scams to add to the false legitimacy.

Although smart contract audits are pretty much security theatre where the auditor charges $10k-$30k to run your code through a program, rug pulls are way more common just through simple methods.

A few common ways:

1. Use your admin privilege to withdraw or upgrade the smart contract to drain the funds

2. Withdraw all liquidity for your token and disappear

3. Sell the entire token supply all at once, which is functionally equivalent to (2)

4. Pretend to get "hacked" and lose your private key

5. Program a backdoor into the smart contract (the least common way). Some of these are economic in nature (e.g. frontrunning), which can't necessarily be found in an audit

I've seen projects go as far to claim to have their code audited by simply hosting it on a public github repo.

Can you provide a source or two for these claims?

What are the scam auditing companies?

In the US:

financial -> 2008 subprime loan crisis, recent inflation

groceries -> couldn't buy toilet paper at the start of the pandemic, still some lingering supply issues, prices going up

restaurants -> many not open reliable hours anymore, many closing

medical -> costs way too high and continue to rise, hospitals oversaturated with patients from time to time, nurses quitting

All of it is ultimately backed by laws, systems, real people who can be held accountable -> maybe if you are rich

I can't fault the average-income (or slightly higher/lower) person for having the point of view that these are starting to fall apart and aspects of DeFi becoming attractive, even though the practicalities have a long way to go before they would become anywhere near as foundational.

What aspects of DeFi look attractive exactly? Yield of some digital coin which only has value relative to a fiat currency?

Your local bank at least complies with regulations that cap transaction fees for your chequing account. Meanwhile, ETH gas fees are completely unpredictable, and can easily be higher than the amount you're transferring.

I mean more like, you can generally eat food from grocery stores and restaurants and trust it'll be pretty safe. You can get medical operations and pharmaceuticals, and generally trust them. There are actually extremely large problems here, e.g. Purdue and fentanyl, but even there Purdue has been fined to death by the government. Still, there are huge problems for sure. The problems need to be addressed, but I think if you look to narrowly at some of the problems, you think the whole system needs to be overthrown. Sure that sentiment is increasing, but more pushed by well-off elites than a genuine grassroots uprising. This is one of the biggest problems we face today IMO.

I don't think DeFi helps with most of the problems you're talking about. Supply chain issues, COVID-related business restrictions, health care prices and the role of insurance providers, none of these are caused by centralized financial systems.

The “I have no sympathy for the victims” comments are crass. But there is a legitimate question of how much law enforcement these crimes deserve.

Arizona has a stupid motorists law [1]. If a car “becomes stranded after driving around barricades to enter a flooded stretch of roadway,” the driver “may be charged for the cost of their rescue.” A similar concept for crypto may be necessary. Law enforcement will pursue. But if they catch the crooks, the cost of enforcement is deducted from the proceeds and flows straight to the Treasury.

[1] https://en.m.wikipedia.org/wiki/Stupid_motorist_law

It’s easy not to have sympathy because these folks are the ones railing against the banks and the government and the establishment and police - confident they don’t need them because they’re all in on a system the vast majority doesn’t understand the first thing about. But they’ll demean and criticize anyone who suggests their magic free money machine might not be all it’s cracked up to be. They’ve been warned so many times. Like the anti-vaxxers turning to ivermectin. It’s honestly just an episode of r/WinStupidPrizes.

Even now they’re rationalizing - US banks offer 0% interest and took $12B in overdraft! See how much worse that is? Well except the $12B is out of $18T in assets so DeFi hacks cost 1400X as much per user.

In fact 10% of all TVL in DeFi was stolen this year. That means if you’re not making a 7% return for inflation and a 10% return for risk loss, you’re losing money in real risk adjusted dollar terms invested in DeFi. 17% APR in DeFi is equal to 0% in real dollar terms.

"have fun staying poor," he said, clicking on the coin roulette, eyes never leaving his plugged in android tablet, physically hot to the touch from the max CPU load.

"i am going to retire in 5 years. have you heard of prove-your-steaks? its gonna change crypto. you can get 20% back, just lock up your starving kids Earned Income Tax Credit for a year, and you'll make $500!"

"have you heard of this new shitcoin? probably not - i know you retired from crypto! haha...anyway, it exposes you to upside leveraged of @PISSCOIN and is tethered to the stable-genius coin. its basically free Unisex-swapped tokens."

"hey. some guy on discord was helping me install a chrome plugin to manage my coins and now my $400 in life savings is gone...are you still good with computers?"

"Hey I just invested $2000 in options a few days ago, what's a margin call?"

"Turns out my pension fund was investing in BBB- CDOs, now they've gone BBBust"

The argument that you can't (or don't) get burned in non-crypto markets is made in bad faith.

You cannot get margin called on a cash account, because you cannot make positions that are not 100% collateral covered, unless you have 25k. Then you can do that, and trade more than 3 times a week (and don't have to wait til settlement)

Pension funds don't deserve to go bust, but shouldn't be bailed out if they fail to diversify their portfolio.

There are a lot more safe-gaurds in investing, because all these games have been played before.

But those require consent too - with crypto, someone can, and will, irrevocably steal your funds without possible recourse.

.. and indeed the UK and other countries have banned the OTC sale of particularly bad ones, such as binary options. There is some effort to prevent people selling overly fraudulent or risky products to the general public, even if it's leaky.

That wasn't the argument being made, like at all. Your argument is actually the one being made in bad faith.

Is that really a fact, that 10% of the value locked into DeFi was stolen this year? I would think that most of the TVL would accrue to the more blue chip protocols (Aave, Uniswap, Compound, etc.) and to my knowledge these haven't been affected much by these big hacks.

DeFi Pulse says there's just under $100B in TVL. [1] About $10B was lost and stolen this past year depending on where you look - $7.7B according to this article, but I saw $10B circulating too.

[1] https://defipulse.com/

I don't think DefiPulse has everything. Here's a few more off the top of my head, though I'm sure there is more: - $5.5 billion (TVL on Eth L2s via L2Beat) - $4 billion (ETH 2.0 staking contract) - $17 billion (Polkadot staking) - $16.5 billion (Cardano staking) - $36 billion (Solana staking)

The article's figures include the centralized Turkish exchange which made off with ~2.6B , so I don't think it's fair to consider it the same kind of thing.

Yeah I agree.

> Rug pulls have emerged as the go-to scam of the DeFi ecosystem, accounting for 37% of all cryptocurrency scam revenue in 2021

So 37% of $7.7 billion is $2.849 billion.

> All in all, rug pulls took in more than $2.8 billion worth of cryptocurrency from victims in 2021.

> It’s important to remember that not all rug pulls start as DeFi projects. In fact, the biggest rug pull of the year centered on Thodex... In all, users lost over $2 billion worth of cryptocurrency, which represents nearly 90% of all value stolen in rug pulls. However, all the other rug pulls in 2021 began as DeFi projects.

The graph shows $2.6 billion was lost with Thodex. So that leaves $0.249 billion that was lost in projects that were rug pulls that began as DeFi projects.

I like your take on it. But 7% inflation? Got a source you could cite?

I do believe the medium-term inflation goal of 2% will be reached, and that this is simply a function of supply chain disruptions. I was using the most recent CPI data. You can also get a 7% yield on treasury Series I bonds. [1]

[1] https://www.treasurydirect.gov/indiv/products/prod_ibonds_gl...

Thanks (TIL)

The current annualized US consumer price inflation rate is 6.8%.

https://www.cnbc.com/2021/12/10/consumer-price-index-novembe...

Thanks (TIL)

The exact value of inflation this year is controversial and depends a lot on how you measure it, but you can replace it with 6 or 8 or whatever you think the correct value is without altering their point.

Agreed. Thanks for your response. I'd thought it was closer to half that, glad to have a bit of of ignorance remedied. :)

Technical hacks against the protocol and implementations are fair game, and is the implicit incentive that balances the market.

Social engineering and financial hacks are not fair game, and are "illicit" in the sense that crypto is obviously an international martial zone.

Exhaustively brute forcing a keyspace is valid, making your username an XSS to steal funds from an insecure page/downstream app is not valid.

Finding and leveraging an exploit in a contract is valid, both a paper/legal contract and a literal codified Eutherem contract. Flashing incorrect token prices on CoinMarketCap.com to take advantage of (unauthorized? grey) downstream screenscrapers and rugpulling affected tokens is NOT valid, but, admittedly murkier.

Fair game and valid according to whom? You cannot legally rob a bank just because they left it unlocked and unmanned. It might be possible to take crypto due to a bug in a protocol, and arguably justifiable, but that doesn’t mean it would hold up in court if you were identified as the one using the exploit.

> You cannot legally rob a bank just because they left it unlocked and unmanned

Nobody suggested making crypto crimes legal. Just metering the degree to which law enforcement, a public good, is put to use pursuing it. Why should a law-abiding saver bail out what in many cases looks like a gambler’s foray?

> Why should a law-abiding saver bail out what in many cases looks like a gambler’s foray?

Because having an idea about how these frauds are committed are helpful for society as a whole. Law enforcement investigating such crimes is the first step towards meaningful laws and regulations.

Acting as though these crimes never happened because they're not enshrined somewhere in the criminal code is cutting off one's nose to spite the face. The negative externalities will still be there, and they will land squarely at society's doorstep. We will all have to foot the bill one way or another.

Everyone's a rugged individualist until they get rugpulled.

I am not sure what you mean by “bail out”. When something gets stolen from you, the government doesn’t repay you for the actual amount. They do pay to litigate/make litigation possible. That is part of the societal contract - if you own something and someone takes it from you, the court system exists so you have legal means of restitution. I don’t really care about whether that’s good or not to apply to crypto, I am merely pointing out that it does.

Socially acceptable. Because I am not going to acknowledge or respect a Turkish summons. Although I would expect a Turkish hit squad.

>You cannot legally rob a bank just because they left it unlocked and unmanned.

Exactly - because it isn't a bank, it is a bunch of cash on the street, if it was unlocked and unmanned.

And even if there was a clear Sticky Note with foreboding text, you would be in the clear to pocket a stack of cash sitting on the sidewalk, left unattended, guarded only with a sticky note.

The steelman and strawman are nearly identical - a bugged contract or implementation isn't a bank, it is a bunch of cash on the street. It stopped being a bank once a bug was found.

> And even if there was a clear Sticky Note with foreboding text, you would be in the clear to pocket a stack of cash sitting on the sidewalk, left unattended, guarded only with a sticky note.

That's not true, and not true globally. Unattended valuables being taken is still theft. Though prosecution is rare, it still happens [0].

[0] https://www.macaupostdaily.com/article12506.html

It's not a matter of whether it's theft. Of course it is.

But if you leave your valuables in the street unattended and then come back shocked to discover that they aren't where you left them, this is not a problem that requires new legislation to solve. The solution to preventing this from happening to you in the future is quite obvious and doesn't involve the government.

And if the government manages to catch the thieves, great. But if they don't, c'est la vie.

I suspect that your belief about found things is at odds with the law.

Theft-by-taking has a wholly different level of legal magnitude gravitas than robbing a bank, tho.

I found someone's car keys in the street this morning. I'm pretty sure that didn't entitle me to their car.

No, because keys for a car and keys for a wallet are wholly different, and even then, picking a lock (bruteforcing a keyspace) isn't comparable, because the value, intent, and purpose of a car is not in its properties of being able to be transferred, transmitted, and it's future value increasing (although that last one is true incidentally), but it is primarily used to get from A to B.

If you found a gift card with the PIN in the street, it would entitle you to a moral inhibition. If you went through a stack of discarded gift cards and found ones with change, you would be less morally wrong, but just as legally right.

Finding a debit card in the street with the PIN is akin to finding someone's wallet.dat file on their github. That is stealing, so no comparison.

Thanks for these analogies. People unfortunately want the new technologies to be an exact replacement of the status quo. There’s no reason for it to be the case and the way these technologies work may make it infeasible to enforce the rules of the status quo.

In New York in the 90s I picked up $150 in small bills off the street. Just strewn around in the middle of the day.

It still gives me delight to remember that. I needed the money, but the continuing pleasure in recalling has been worth far more.

It's a bit unfair to make that comparison. Most technical hacks are always present until somebody abuses it, to make a fair comparison the bank would have to _always_ be left unlocked and unmanned

The guarantee that a bank gives is not the same guarantee that a smart contract gives you. the bank guarantees the safety of your money, the smart contract guarantees that it will as stated in the code.

It's on the the contract dev to write the correct thing and on the contract user to determine if the does what is "says on the thin"

You obviously don't understand basic contract law. US Civil courts routinely apply the principle of equity when interpreting written contracts. Loopholes and errors are disregarded when they violate the clear intent of the agreement.

Nothing annoys me more than arrogant ignorance. It's like, pick one! You speak as if these are handled as federal matters, and they are not. Contract disputes are handed as local matters, usually in a local district court.

Furthermore, when you talk about the court you're talking about a Judge. The Judge gets final say and they can take their sweet time, regard or disregard anything they want. In local matters, Judge's act without restraint. Appellate court, the state bar, the judicial qualification board, federal court, all gets involved so rarely they can be ignored. Additionally, these Judges are no stars of the legal profession: cohorts of lawyers will often rig elections and appointments to favor a well-connected but bad lawyer, because being a judge is actually really easy.

So, yeah, it mostly depends on who the judge likes better, and whether society is better or worse if this dispute is decided this way or the other way. I can't stress enough the arbitrariness, and supreme unaccountably, of a local judge's decisions.

You'll have to back this up with evidence. You can file complaints about local judges to judiciary committees, administrative judges, you can appeal their decisions, and if you actually go to trial you get a jury unless you specifically waive it (along with all other parties).

I don't see how they're unaccountable, or how contract disputes mostly depend on a judges disposition.

> I can't stress enough the arbitrariness, and supreme, unaccountably, of a local judge's decisions.

Exactly. Code-contract signers hate this, and go out of their way to avoid the possibility of this interference.

Judges should tell crypto cases to get rightfully fucked.

If I appear and sue a drug dealer for giving me fake 100's, I'd get laughed at.

Considering crypto is just an massive abstraction layer to hide the online drug trade, the courts should similarly laugh at these _technical_ exploits, in the context of Euth-shit code. Because it's sole explicit purpose of existence is to conduct business without arbitration.

> If I appear and sue a drug dealer for giving me fake 100's, I'd get laughed at.

Is that actually true? On the criminal side, I served on a grand jury, and a lot of the cases we saw were criminal-on-criminal crime. I guess the idea driving the crime was that criminals make easier targets as they're less likely to go to the police. But some did.

Fine, make crypto outside the legal system. Gains can't be taxed and failure to apply AML/KYC can't be prosecuted, but you get no protection from the courts for theft. I'd take that bargain.

If that were true, it would not be possible to run a sustainable business in any industry. Legal systems need to generate consistent results with respect to contract law in order for commerce to be successful and efficient.

Cite? No, the way it works is that you pay lawyers who know enough to play it out in their heads and determine who has to pay whom to make it go away. If one side is stubborn and ignorant, then they pull the trigger and the years-long, extremely expensive lottery play has begun.

Your assumptions about the law, about judges, and about rationality, rhetoric, and the justice system in general are about to be destroyed. The lawyers know the high variance of court and generally want to avoid court like the plague.

(The justice system is badly broken, obviously. The core issue is that it takes far too long to judge a case, and a big reason for that is a) the rules are too complicated and b) not adopting better tech. We should have trials that start a week after filing, with online juries, online judges, and real-time access to data. The attorneys can finally earn their ridiculous wages by learning how to fly through information and present it in a compelling way.)

The median lawyer salary is $122K. Whether that's ridiculous is a matter of opinion, but it's only a little higher than software developers. And the average lawyer has more education.

Some civil court hearings are already conducted online.

No that's not how it works. The same basic rules of contract law apply in federal, state, and local courts with only minor variations.

That comment is just deranged. I assume you had a bad experience with legal system at some point but you clearly don't understand how it actually operates, especially at the appeals levels.

>routinely

And they routinely admit that some cases are not clear cut. But crypto has no grey zones, by design - you either have the keys, or you don't. And that is the explicit agreement code-contract signers agree to when they go out of their way to DeFi their agreements.

Obviously legal precedents and statutes are not fitted for this purpose yet, because they are reactive, not proactive.

The flipside of that is that the effective capital markets we have depend on a level of trust which could easily be eroded. There were weeks this year where I saw advertisements all over London for DeFi products and cryptocurrency trading portals. I don't think the majority of people putting money in there had any idea whatsoever what they were doing.

That's a bit circular though. I mean, to be clear I don't agree with the upthread point that we should deemphasize crypto crimes. But that said... the trust in the DeFi economy is being eroded right now, and for some very rational reasons.

It's certainly not the government's job to jump in and prop up financial systems in which it's not involved. Its interest is in protecting its own citizens from criminality, not in the level of "trust" in "DeFi".

> trust in the DeFi economy

I thought the whole point was to be trustless?

It is, and I've had a nagging suspicion for a while now that this is the flaw at the heart of cryptocurrency and related phenomena. It's all built on the premise that the answer to "we can't trust existing institutions" is to try and design systems that don't require us to have trust in any actor, but as Sharlin noted, it's difficult to impossible to do anything transactional that doesn't require some level of trust. Perhaps "trust no one" is not actually the right solution to the problem.

It's the same as open source software, most people don't personally look at the source code of the Linux Kernel, but they trust it more than Windows because they know many thousands of others have looked at it and haven't found issues.

Open systems lead to less trust required, because anyone can verify and report issues. Open finance leads to less trust required because anyone can verify and report issues with the smart contracts.

> haven't found issues

No, they have.

https://www.cvedetails.com/vulnerability-list.php?vendor_id=...

That's just less important than running free software to some people. For better or worse.

> anyone can verify and report issues with the smart contracts.

.. anyone who finds an issue in a smart contract can just steal it. Potentially all of it. Pseudonymously.

Don't the smart contract systems not allow patching, so there's no point in reporting issues?

Many are upgradeable, though it's the common libraries that people use that matter. The Ethereum ones have been battle hardened over years of exploits so you can use them just like you can build on common Unix primitives to avoid mistakes in new projects.

The real problem is that if you don't trust the existing system, the normal solution is to patronize a different one. Go trust a bank in Japan or Switzerland or India or Brazil, which has a decent enough reputation but does things differently.

But the existing system latches onto any point of centralization in any kind of alternative and uses it to impose the same problematic constraints of the existing system that the alternative was intended to redress. Hence the desire for decentralization. The lack of those pressure points.

It would work well enough if we would just have multiple banking systems and let them compete with each other without international pressure to conform to a uniform set of defects, but that isn't what we have. So how do we fix that, if not with this?

That's the core semantic confusion at the heart of this issue. Cryptocurrency protocols eliminated the need for trust for cryptocurrency transactions. So you can exchange BTC or ETH all day and night and always know who you're paying and no one can get in the middle and mess that up.

But it does nothing for transactions outside of that world. The core idea behind the "DeFi economy" is making things happen in the real world (by financing business ideas, buying 230 year old documents, etc...). And that part requires that the crypto resources be given to some kind of real actor in the real world who's going to do something real with them.

And those actors are people, and they cheat. Hence the new term of art "rugging". You can cheat people in the crypto world, in some sense, more easily than you can regular consumers precisely because they got fooled into thinking they didn't need to trust you.

> I thought the whole point was to be trustless?

No, it is not trustless, it simply shifts trust from central authorities to more nebulous entities such as anonymous developers, shady mining cartels, unregulated exchanges, and even yourself to not lose your private keys. Which you consider to be better is essentially a political decision.

The obvious solution is to have both and then make sure that people understand what they're getting into.

Traditional banks should exist and be regulated and insured etc. People with a low risk tolerance should be encouraged to use them.

People with a higher risk tolerance or who are trying to do something innovative or disruptive should have a system that works for them too. People with a low risk tolerance are not required to use it. People with a high risk tolerance will be exposed to a high risk, as requested.

This is a really gloomy look on "distributed".

Having trust in a system is different from trusting individual actors. You have to trust something, there’s no way around it.

It may be technically different, but it’s no different at all for the average consumer who hasn’t done a threat analysis.

In general, one shouldn't "invest" in things one doesn't understand very well.

A fairly meaningless statement in reality, since it’s not how most people behave.

Well, what is there to do about it? A fool and their money are soon parted. Must we coddle them at the expense of everyone else?

Just like with any kind of criminal, stopping deceptive crypto scammers isn’t ‘coddling’ people at the expense of everyone else.

Society relies on trust. The crypto dream that it can be trustless is just a way to cheat people.

> Just like with any kind of criminal, stopping deceptive crypto scammers isn’t ‘coddling’ people at the expense of everyone else.

It is if you're trying to stop these scams by putting greater constraints on, say, the fiat on- and off-ramps.

I mean, how exactly are you going to stop the average investor in doing something dumb like dumping their money into a shady project, without placing additional hurdles on everyone else? The whole point is that you're allowed to move, manage, and spend your assets as you see fit, without any government's ability to freeze your assets or block you from accessing financial services via sanctions -- for better or for worse, of course. And yes, the freedom to manage your assets as you see fit includes the freedom to make stupid financial decisions -- as you see fit.

> The whole point is that you're allowed to move, manage, and spend your assets as you see fit, without any government's ability to freeze your assets or block you from accessing financial services via sanctions

That’s a selling point advanced by crypto advocates.

Frankly, it’s ok to make that point. What is not ok is pretending that crypto isn’t also a high risk environment full of scams.

I’m not trying to police anything. I can’t stop crypto advocates claiming it’s a good place for regular people to invest.

> What is not ok is pretending that crypto isn’t also a high risk environment full of scams.

I don't pretend that at all. Like I've said elsewhere in this thread, "caveat emptor." I am sorry if others have told you that is not the case about crypto. Unfortunately, I cannot do anything about them.

> I’m not trying to police anything. I can’t stop crypto advocates claiming it’s a good place for regular people to invest.

Then we are in full agreement. As I said elsewhere, the average Joe who cannot remember their own passwords should not be using crypto, IMO. With freedom comes the freedom to shoot yourself in the foot, and unless you understand basic digital safety procedures, you are best off not shooting yourself in the foot.

> As I said elsewhere, the average Joe who cannot remember their own passwords should not be using crypto

Yes, I agree with you on this.

However this is far from the dominant narrative coming from crypto advocates. That is all I am objecting to.

Darwin called for you.

Yes let's keep making weird incentives for law enforcement like asset forfeiture. I want police to be like an American ambulance and run my credit card before saving my life.

> let's keep making weird incentives for law enforcement like asset forfeiture

I hate civil forfeiture. That’s why I specifically suggested the proceeds flow to the Treasury. Not the law enforcer’s budget.

There is also a world of difference between taking something you legally possess, and taking a cut of things returned to you at the expense of the public purse.

The shouldn’t flow to the treasury. They should go directly back to the public.

Where do you think the budget comes from?

Probably even "instead" instead of "before": dead people don't complain (their relatives might though)

If you loose you crypto in a dex hack you have my sympathy, if you got rugged with a "double your crypto" kind of scheme or some mooncoin, there is no sympathy for you. The same applies for fiat. This does not make you a victim, it make you a greedy target.

a large majority of those people fall into the greedy category not the victim

These sorts of rug-pulls blur the line between legal and illegal though. Take the "Save the Kids" token [1]. In this case, they hyped up this token, their audience bought into it thus jacking up the liquidity, and right around the top all the folks that were hyping the token sell off and everyone is left with a token that's basically worthless.

When we talk about law enforcement stepping in, I struggle to see what they could possibly help with in scenarios like this. TBH the FTC or SEC needs to step in and investigate these instances.

[1]: https://www.youtube.com/watch?v=3Xw9rWmTQfc

This is a form of asset forfeiture which would be absolutely ripe for abuse. It is truly an awful idea.

That would likely create a perverse incentive.

Any funds allocated to crypto law enforcement should be allocated to punishing tax cheats first

Make it a business decision.

Find out how much money we can get policing crypto. We can even charge a greater percentage of potential funds recovered to extract an amount that would make it worth our while. At any rate, with that data we could determine if the money is better spent policing tax cheats.

In short if we're going to get paid well, we should help. If not? Well, sorry crypto bros. Sucks to be you.

I mean, why not both? There's an entertaining subgenre of police blotter reports where people report their illegal drugs stolen. If people report crypto assets stolen (which they very rarely do), maybe have a look at how they acquired them and whether it was reported to the revenue first.

What's the incentive to spending tax money to help protect a system who's focus is to undermine the state's control over its currency?

> The “I have no sympathy for the victims” comments are crass.

No, they're not. They're entirely reasonable. Stop trying to shame people for expressing a common, reasonable and fair opinion that you don't like.

> They're entirely reasonable

I agree. They are not unreasonable. They are crass. If a child is told not to touch a stove and then burns herself, I may consider them stupid, but I can still have sympathy for the pain they are experiencing.

Since when scamming is something we should be ok with?

I think that’s unfair.

They may be in search of outsized returns, but I think people can absolutely be victims of the ‘have fun staying poor’ meme. The implication is that if you don’t buy into crypto your assets will be decimated by inflation. I think it’s reasonable to consider that it’s not ‘greed’ but rather fear of being left behind that is driving many victims.

These rug-pull scams rely on the developers having tons of tokens to sell to investors, which is mostly confined to use of Proof of Stake.

So your environmental criticism of Proof of Work is not applicable here. A PoW coin with no premine doesn't allow for a rug pull.

What are some notable proof-of-work tokens that didn't have a premine?

>Stop trying to shame people for expressing a common, reasonable and fair opinion that you don't like.

I realize the dangers of posting something remotely pro-crypto on HN, but I have to say this is a pretty rich comment. Shame is all that is doled out to the many people who have reasonable and fair opinions about cryptocurrency that you don't like (such as thinking some cryptocurrencies are reasonable or worth speculating over).

Really? I see a lot of pro-crypto statements on here as well.

If anything, I'd say the corner is turning and the previously pro-crypto HN is just now becoming more anti-crypto.

yes i'll be sure to have no sympathy for your grandmother the next time she gets robbed by scammers

But shaming victims is acceptable?

> The “I have no sympathy for the victims” comments are crass.

There are exactly two types of people in the crypto space:

- scammers, who know exactly what they are doing

- fools, who have very little understanding of how the world works

And yes. Fool and his money are easily parted.

So, are the comments crass? No. Not in the least.

Scams that will collapse in 2022:

* Axie Infinity. That's a Ponzi in the collapse phase. Their Smooth Love Potion token is down 90% and in a screaming dive, and their Axie token is down 37% from peak. That one is going to hurt a lot of poor people in the Philippines. Many quit their jobs to play Axie's play-to-earn game. All the money comes from later entrants, so it's a Ponzi by definition.

* OpenSea. The NFT market is in worse shape than it looks. People are minting crap art like crazy, and people are buying it at inflated prices, hoping to flip it to a greater fool. If you look at actual resales on OpenSea, they're not happening much. The supply of greater fools is running out. As I've pointed out before, this works just like Beanie Babies on eBay. Asking prices around US$5000, actual sales around $50, most items show zero bids. NFT markets don't visibly crash, they just quietly stall. Most NFT markets don't show statistics which expose that.

Sometime around 2018, not having a clue about popular culture shifted from making you seem lame at parties to insulating you from pyramid schemes.

2018 was the year the SEC brought the hammer down on ICOs. First, they had a few of the outright scams prosecuted, like the one that supposedly owned gold and real estate but didn't own either. Then they just sent out letters to every ICO they could find: "Please explain why your investment offering to the US public doesn't need to be registered as a public offering?" Suddenly a lot of ICOs were cancelled.

> All the money comes from later entrants, so it's a Ponzi by definition.

Axie is not a Ponzi scheme, but is definitely a pyramid scheme (via their scholarships).

Pyramid is money flows up a hierarchy, Ponzi is money flows from new participants to old participants, in practice there is barely a distinction.

The price of the Axie coin is only supported by new buyers (by definition) and coins being sold are nothing more than early adopters cashing out. Any crypto "going to the moon" has this dynamic, coins being sold at 10,000% ROI is ponzi, early adopter paid by a late adopter, the person who bought at the top has already lost their money.

I guess Axie may be both, since there is also a multi-level dynamic.

Watching the gameplay trailer, I was flabbergasted when they were straight-up said "you can rent out your ingame items to make money!" meanwhile barely expressing the hook for the gameplay. People talk about power fantasies in games, but I never thought that would extend to being a landlord.

Victim-blaming comments like this make me see red.

"The fact that I am able to exploit these people means that I am entitled to" is everything wrong with Silicon Valley.

> Casinos are still legal.

Casinos are not pyramid schemes, Axie is.

Well there's always SafeMoon, a name you can trust.

> Casinos are still legal.

Depends where you are in the world...

Agreed on Axie. Disagree on NFT.

NFT is art (VERY LOOSE COMPARISON). If you believe that then of course there is TONS of art that not only has zero bids but also never gets sold. I think NFTs are overhyped now but there is clearly a market for them. Speculating on them is similar to art collecting, all speculative. So I don’t see anything inherently wrong with it (something being puffed up isn’t illegal)

It's not "NFT" as a tech, it's the ability for the OpenSea ecosystem to maintain real value throughout time. That's very dubious, it's a house of cards balancing an elephant on top imho.

Natural entropy and new novelty will erode the foundation of that specific ecosystem for something that provides a wider opportunity for more new users to create/retain value.

Memecoins can at least be tracked in value, the dynamics of these UGC meme driven communities, especially ones like doge, shiba uni, and now dogebonk, the exponential community growth effects are what matter most.

In related news, Tether has minted $3B USDT in the last month: https://beincrypto.com/tether-mints-three-billion-usdt-past-...

Yes, and although likely a scam, here's another datapoint:

Coinbase, an Y combinator unicorn, is behind Centre/Circle and the USDC stable coin. And there are now $41.5 bn USDC circulating.

At one point it was billion of USDT circulating and USDC didn't exist yet.

Then USDC began to took off and there were, out of memory, $5 bn USDC and $23 bn USDT.

But, overall, the trajectory is clear: USDC is growing faster than USDT.

It's $41.5 bn vs $76 bn today.

Maybe in a few months USDC shall catch up, then maybe even surpass USDT.

Do we all believe Coinbase and its Centre/USDC stable coin is a scam? It's an american company, with real people behind it. It's not some scammy thing in the Bahamas.

Now here's an intriguing question: if we believe Coinbase isn't a scam and that these $41.5 bn USDC are really mostly or all backed, does tether's $76 bn really look that unthinkable?

Issuing stablecoins isn't a scam by itself. The whole crypto ecosystem cashflow is the real scam. There is no liquidity. All it takes is a few people that panic and the whole thing falls apart, UNLESS there is someone ready to print money and prop up the market when panic sets in. That is why people need to understand what is going on with Tether. Bernie Madoff got shutdown because a whistle blower got the SEC to look at his books. If tether gets shutdown and no one is propibg up the market, it will crash hard.

China has banned Bitcoin several times, there’s been hacks, there’s been central banks going after crypto - yet it’s still here. Why do you believe the whole thing might fall apart?

What you’re missing is that whenever there’s panic selling there’s always someone on the other side finding a great discount.

That is what they said about housing in 2007. I'm not saying that crypto is going to go away and never exist. I'm saying it could go down by 80% during a liquidity crisis induced panic.

Yeah, also bitcoin isn't a stablecoin, there were never any guarantees.

> It's an american company, with real people behind it. It's not some scammy thing in the Bahamas.

All scammers are real companies with real people behind them. Until they aren't. Location of a company doesn't matter.

"Ponzi Scheme" literally comes from a man who was scamming his victims in the US and Canada.

> It's an american company, with real people behind it. It's not some scammy thing in the Bahamas.

Enron would like a word!

> It's an american company, with real people behind it. It's not some scammy thing in the Bahamas.

Oh yes I forgot Americans can't be scammers.

Americans who are under the watchful eye of a hostile SEC and face serious prison time if they get caught are much less likely to be scammers than some anonymous group from the Bahamas.

That's a pretty uncharitable interpretation.

Another datapoint: USDC minted 7b in the last 30 days. Does 3b tether in the same time period seem unreasonable?

The problem with tether is not the amount minted/in circulation. The problem is that they definitely lied previously about their backing and are probably lying now. If you claim to be one of the worlds largest commercial paper holders yet no one knows whose commercial paper you are holding then that is suspicious. It’s unimaginable that a new large player entered the market and nobody noticed.

Its also being used as the currency for now ousted Myanmar govt https://www.aljazeera.com/economy/2021/12/14/myanmar-shadow-...

Right, they minted $3B, taking the circulating supply from $73B to $76B.

Do you have any evidence of that other than the parent link which looks kind of scammy? Everywhere else I have read that the minted $3B is not circulating yet, it's waiting for new purchasers of Tether. Not saying you are wrong by any means, I'm genuinely curious.

Tether mints the tokens upon deposit of fiat on Bitfinex exchange OR when the Tether peg increases above $1 too far. Users are incentivized to do this as well (deposit dollars onto bitfinex, get new tether for that 1:1, sell new tethers above the peg on the open market, pushing the peg down)

Circle/Coinbase use the exact same mechanism.

These kinds of stablecoins are destroyed only upon explicit redemption. Not when sold to someone else on the open market.

It’s not that different from a brokerage account’s deposits. People don’t actually withdraw that much because they don’t need that much cash. They keep their cash in those ecosystems waiting for other trading opportunities and add more from other sources into the exchange.

I know it’s absurd to assume tether functions as described, 99% of the time for 99% of the value. But the market is showing the same thing with stablecoins that are better governed.

For the decentralized/permissionless/uncensorable minded people, The best bet is for other kinds of stablecoins to grow faster

What does "minted" but not circulating Tether even look like?

Tether minting coins and holding them until someone comes along and exchanges dollars for them.

Literally nobody claimed otherwise.

I think "rug pulls" is not defined well.

One example of a "rug pull" is that the team provided liquidity to the AMM liquidity pool, and then removed it, leaving people with no where to trade the token. Its honestly hard for me to call that a scam, although I understand the community expectation being undermined.

First: the SEC exacerbates this reality. Tokens that don't want to be considered a security have to consider NOT providing an expectation of liquidity. The team has to avoid expectations of providing secondary market liquidity just to stay out of the crosshairs of the SEC. And even in SEC registered land, If you look at the "risk factors" section of public equities, they frequently say "there may be no market for these securities, a secondary market may never form, there is no guarantee that it will always be there", which is true in all markets!

Second: with the advent of AMMs, ANYONE can provide assets into the liquidity pool. (even the acronym of AMM don't tell you much about what this is, its just a different model of exchange that is very popular). So even if token traders had been relying on the team under an unspoken symbiosis of the team providing liquidity, the token traders now can do it themselves. This is also very common. The token traders typically follow incentives to actually do it, but they CAN without those incentives.

Third: Token traders are the community and can take over any project to try to make their investment more profitable, it just requires more risk. It happens, but the times it doesn't happen the token traders just stop engaging with the project as well.

How can this be distinguished from other "rug pulls"? I don't think it is possible.

(OK, who went and made Hacker News text uncopyable?)

I think "rug pulls" is not defined well.

It's a standard type of investment scam, "take the money and run". The SEC even has a video for the clueless.[1] And a web site on ICOs.[2]

This scam long predates cryptocurrency, or the Internet. Newspapers made mass-marketing a scam possible. That started about two centuries ago. Most scam types, like this one, are old. They just keep coming around in shiny new wrapping paper. This isn't innovation.

[1] https://www.youtube.com/watch?v=FSBMSSnZ4Ro

[2] https://www.howeycoins.com/index.html

The "innovation" here would be the ease in which communities can take over projects if they coordinate.

But upon a second reading, I don't think you get my point that there are categories of things called "rug pulls" and the chainanalysis article does not distinguish well. I also think distinguishing is not possible to reach consensus, right now, but attempts should be made.

I just copied text out of your comment and pasted it here:

> It's a standard type of investment scam

> One example of a "rug pull" is that the team provided liquidity to the AMM liquidity pool, and then removed it, leaving people with no where to trade the token. Its honestly hard for me to call that a scam

If the team went through all of these steps with the intention of pumping the value of the coin, hyping others into buying it, and then extracting as much money from them as possible with no intentions of helping the coin succeed long-term, that seems like a scam to me.

The victim-blaming mentality runs deep in the cryptocurrency world. It's fascinating how many people in the cryptocurrency space are reluctant to call a spade a spade only because the underlying blockchain or algorithmic rules weren't violated.

If the original team made promises with no intention of fulfilling them, and didn't, it's a scam. If on the other hand the community could do the same thing .. why did they need to pay the organizers (and their premine) in the first place?

team allocations aren't always the case. if chainanalysis is looking at the rug pulls that I'm talking about, then much of the time there was no upfront capital to the team with a separate premined allocation. many issuers are currently putting all the tokens created directly into a liquidity pool paired against capital they already had, bots and individuals buy into the liquidity pool and receive the new token, pushing up the price in the process, and then the issuer unbundles the liquidity pool, leaving no pool, (while acquiring the liquid capital added to the pool by purchases. AMMs function by then having less of the issuer's tokens and more of the tokens that were used to purchase the issuer's token)

these are colloquially called rug pulls, because the liquidity pool was the rug. these happen so fast these days. These things can play out completely within 20 minutes, as bots and individuals are scanning the blockchain mempool for erc20 token creation transactions and liquidity pool creation transactions, just to get into a potential big project before anyone else.

here, the traders are at no disadvantage to the issuer, from a community perspective, to continue the project and attempt making their investment valuable, specifically by adding to a liquidity pool themselves.

again, my main point is that things that are very common are not being distinguished from whatever you or others want to argue about. its an article about this year, not 2017, not 2018, or some other year dominated by an antiquated style of ICOs.

there is something to debate, but the vocabulary itself doesn't allow it, perpetuated by an organization that gets no benefit from distinguishing as all they want is technology contracts from governments.

Dogebonk is a good example of a community taking over a token, renouncing contract, locking liq etc. fascinating to see a true community meme engine revving up.

Great, yeah, a lot of people aren't inspired enough to consider doing that, and others don't know it happens. The more examples the better. People really aren't as helpless in the crypto space as they act, or prompt onlookers to think.

This is my biggest complaint against cryptocurrencies in general.

I'm happy with my bank's fraud protection. How can crypto users protect themselves without recreating traditional banking?

Bitcoin was released ~13 years ago, and wallet/transaction security has been one of the most important requirements since then (along with scalability, but let's not go there). If trillion dollar market caps and god-knows-how-many billions of investment couldn't figure out how to protect consumers after 13 years...

>How can crypto users protect themselves without recreating traditional banking?

They could just invest in well-established projects with proven technology instead of obvious scams in hopes of a "moon shot". This has very little to do with Bitcoin and other legitimate projects, which are a far cry from useless fly-by-night ERC-20 tokens with stupid animal names

Bitcoin/Ethereum is what allowed these scams to be executed, not be reverted, and to go unpunished.

If you want to push for those technologies, you have to explain how to give consumers a minimum level of protection.

There are plenty of ways and tools for the scammers to be tracked on a public blockchain. Tokens are not worth much until they are exchanged for fiat currency. The authorities do not want to chase after them, yet, but anyone engaging in such fraud is leaving plenty of evidence on public, cryptographically protected blockchains to provide evidence that's difficult to repudiate. Sooner of later those responsible will be brought to justice.

I am working with people in the banking industry to add a layer of protection without compromising core values of crypto (permissionless, trustless), but funnily enough they do not want to do anything against the regulators. Retail banks have become very cautious after 2008 and won't do anything unless they are told to do it by the regulators. And the regulators are a bit clueless, tbh.

This is my favorite story about crypto fraud protection:

The Winklevosses came up with an elaborate system to store and secure their own private keys. They cut up printouts of their private keys into pieces and then distributed them in envelopes to safe deposit boxes around the country, so if one envelope were stolen the thief would not have the entire key.

https://www.nytimes.com/2017/12/19/technology/bitcoin-winkle...

It's quite crazy to think that these guys not only were basically behind FB (they won the lawsuits, with an 's', proving it) but also saw Bitcoin early on. They bought at less than ten and were billionaires when it hit $10 K.

So these dudes both "saw" FB and cryptocurrencies.

Hate as much as you want on FB and cryptocurrencies, it's still quite a feat to have foreseen both.

Regarding storing parts of the secret here and there: it's basically and "m out of n" scheme AFAICT. There are many variations of this but the overall idea is that you can afford to lose (n - m) parts and yet you'll be able to recover the secret. And if a thief were to steal parts, he'd need m parts to be able to recover the secret.

> Regarding storing parts of the secret here and there: it's basically and "m out of n" scheme AFAICT. There are many variations of this but the overall idea is that you can afford to lose (n - m) parts and yet you'll be able to recover the secret. And if a thief were to steal parts, he'd need m parts to be able to recover the secret.

The difference between a Shamir scheme and a true multi-signature scheme is that the former requires combining the m-of-n pieces to reveal the single private key to sign a transaction, which is a huge vulnerability and single point of failure.

Bitcoin script allows the m-of-n signatures to remain geographically dispersed, each signing the transaction with only their own key, so no single party ever needs to possess the full private key.

This key storage system is a now very common and (ostensibly) very secure model that has been iterated on and is in wide use, especially for hardware wallets like Trezor. The model they use is called the "Shamir Backup," here's more info: https://wiki.trezor.io/Shamir_backup

A cool feature of Shamir Secret Sharing Scheme is that it has information-theoretic security[1], just like one-time pads.

In a exaggerated 100-out-of-1000 scheme, even if you steal 99 out of the 100 required shares, you still have zero information. You are better off trying to brute force the value from scratch than trying to use the 99 shares you have.

It's also very simple to implement, making it my favorite algorithm.

[1] https://en.wikipedia.org/wiki/Information-theoretic_security

Agreed, and where I think is one of the bigger failings of blockchain. We don't actually want a system where mistakes, fraud, or theft are irreversible.

Some will say that you can still prosecute the crimes even if you can't initially reverse the transaction, but you can see how well that is working with hackers from adversary nations. Basically no prosecution and risk free ability to move on to the next victim.

"Friction is a feature with money transfer"

My experience is that moving money between countries where there is a high likelihood of collaborative justice against scams and thefts, ends up being pretty simple. It gets harder to transfer money to places where it is easier for thefts and scammers to get away with it.

I think we want it this way. How many people get taken in by the romance scams[1] where they wire their money to a country with 0 chance of recovery. The money transfer system has been specifically making it more difficult to send money to countries where this is commonplace as that is the only effective way to stop the crime. There is no viable criminal process only friction to make it less profitable and more difficult for the scammers.

[1] https://www.fbi.gov/scams-and-safety/common-scams-and-crimes...

your bank fraud protection doesn't prevent the bank from losing money. banks lose a lot of money to fraud and nobody is prosecuted.

from my perspective, you are comparing a user experience that has nothing to do with the technology.

a bank is a third party service providing custody to bearer instruments.

a future financial institution will be a third party service providing custody or other protections to your crypto bearer instruments.

> If trillion dollar market caps and god-knows-how-many billions of investment couldn't figure out how to protect consumers after 13 years...

there are DeFi insurance protocols, many people get paid back after being scammed, rug pulled, exploited. Look at the source, it is convenient for this to not be mentioned as all chainanalysis does is sell fear to governments to land contracts.

> banks lose a lot of money to fraud and nobody is prosecuted.

That's true some times, but then it works like an insurance policy to me. I like insurance, especially when it's about my life savings.

> a future financial institution will be a third party service providing custody or other protections to your crypto bearer instruments.

As you mentioned, that's a bank. There's no reason to believe that crypto-based banks will be any better than traditional ones, especially if you compare to newer fintechs.

> many people get paid back after being scammed, rug pulled, exploited

I was not aware of that, thank you. But it's still too few compare to the whole.

There is also defi insurance. And wallets like Argent are working on fraud detection layers within L2 account abstraction (as well as social recovery and ditching seed phrases).

Many people think it will be Fintech in the front, DeFi in the back version of crypto that services mass adoption. The big difference is there is global, permissionless infrastructure for anyone to build tools/apps/services on. No more walled financial system, some kid in India can make a new banking app and it can be as useful as hsbc. They can use the same lending protocols, currency conversion, insurance protocols, and then choose what services they want on top. Maybe someone wants their banking app to be hentai death metal themed and all their moeny to be in picutres of dogs(rather than pictures of the queen or a president). Those who want self ownership and to code their own things, or arent liked by the banks (e.g. sex workers, immigrants, travellers) have just as much access to the system. To me it will be kinda like how lots of people are happy with Windows, but a smaller group like the freedom of Linux.

> There's no reason to believe that crypto-based banks will be any better than traditional ones

That wasn't the supposition. Who cares? Wait I know people that do care, you thought I was one of those? I view blockchains as a platform to launch projects, and crypto as the necessary fuel to use those platforms, I like the censorship resistance but I don't care about the ideologies, I would like to seamlessly move unlimited sums in and out of them and thats that. I care about fulfilling market needs and niches, I don't care about the accuracy of those needs.

Regarding Defi insurance protocols, there is a lot of education necessary and some ease of use improvements necessary.

Cryptocoins are deliberately based on the concept of money reduced to "cash". There is no banking, there is no fraud protection. It is supposed to work that way.

The whole at least somewhat civilized world has moved to a more advanced versions of money, but cryptocoins are a step backwards and it is entirely intentional.

No, cryptocurrencies are reduced to "mailing cash to an anonymous postbox", which has a lot fewer guarantees. I'm happy giving cold hard cash to buy something from a brick-and-mortar store to be delivered in the future.

I'd never mail cash for that purpose.

Bingo!

There are <0.0001% of the population who understand transaction risk.

If I pay $Cash for Goods, In a trustless network, both side of the exchange have to be instantaneous. I can never pay cryptocurrency for any item that are not verifiable by the network itself, unless there is another trusted 3rd party (cough cough, Credit Card Processors/Banks).

If someone uses your credit card or other account info to withdraw cash then the bank cannot reverse that, similarly to crypto transactions. The protection is having an insurance fund to reimburse affected clients. Crypto projects can do the same thing but they rarely do it yet. There are projects like nexusmutual.io where you can get covered against smart contract failure & exchange hacks. But even if you would be more protected against frauds in crypto, it has a lot to improve to get closer to it's promises because it's still far from it.

That's a really cool project with its democratic claim assessment, and I admire their transparency. But as with everything related to safety in crypto, today it's still based on optimism.

For example, today the 5-member Advisory Board has unilateral power to change the contract as they see fit[1], and only the smart contracts have been audited, not the organization itself[2].

The only information about this all-powerful Advisory Board is on the home page, and I'm forced to take that at face value. What happens if I put my money there, the board runs away with it, and I try to sue them only to find out that these five people don't exist, or are not related to the project? This is far from the basic security level of any traditional financial institution.

Again, I have major respect for this team. The service is useful, and the documentation is honest and comprehensive. But a blockchain plus this insurance does not make a safe consumer space.

[1] https://nexusmutual.gitbook.io/docs/users/understanding-nexu... [2] https://nexusmutual.gitbook.io/docs/welcome/audits-and-secur...

There's plenty of situations where traditional banking system does nothing. A social engineering scam led to a 6-figure USD theft, it was a down payment meant to be wired as part of a real estate transaction. The money was already out of the country; they got nothing back. There was a local news article about it.

> 6-figure USD theft

Traditional banking is not perfect by any means, but if 6-figure frauds are making the news, it means they are uncommon. Meanwhile, cryptocurrencies regularly have scams and hacks in the hundred-million dollar range.

Just don't play the shitcoin casino.

Well, in Germany perhaps soon some banks will hold cryptos for their clients [0]. I would imagine these banks would offer some kind of fraud protection for the crypto assets they will hold, likely at some cost.

I believe in the USA there was already some legislation passed some time ago that would allow banks to be custodians of crypto-currencies?

---

[0]: https://bitcoinethereumnews.com/crypto/two-german-banks-comm...

This probably is the solution - as cryptocurrency advocates like to say, "not your keys, not your coins", but for certain people an IOU from a bank saying that the bank owes them some coins is preferable to having the actual coins and the benefits+risks associated with that.

It's similar to stocks and bonds - you could own them yourself, but for not-huge private investment it's often simpler to have a financial institution hold them on your behalf.

Normal individual transactions are secure. I can send money to Bob without worry that someone is going to somehow use the data in that transaction to steal my entire wallet.

The "rug pulls" you see are from contracts written maliciously. DeFi is a ponzi scheme written into a Smart Contract, but some of them have an extra function that allows the creator to instantly steal all the money out of it.

> Normal individual transactions are secure.

For a very narrow definition. You still need a way to get Bob's wallet address, and to secure your own wallet. Just look around and you'll see plenty of experts failing to do that correctly.

> The "rug pulls" you see are from contracts written maliciously.

And the contracts, being from DeFi land, are immune from chargebacks or legal prosecution. Regular old fraud, made exponentially more damaging because of cryptocurrencies.

> For a very narrow definition. You still need a way to get Bob's wallet address, and to secure your own wallet. Just look around and you'll see plenty of experts failing to do that correctly.

Fair enough. A transaction is secure, but the wallets might not be. If you rely on a 3rd party to host your wallet (ie, Coinbase), then you risk your money being stolen when they get hacked. If you host it yourself, then you risk losing the keys unless you make a backup, and the backup could get lost, or if you store it in cloud storage, it could get stolen there.

Credit cards are harder to secure than wallets IMO, but at least with CCs, you have recourse in the case of fraud.

I think the way you protect yourself is the same way people protected themselves before credit cards were widely used. By not spending your cash on things that are scams. Somehow people managed to survive before banks offered their rent seeking / fraud protection and I think they'd be OK without them if push came to shove.

In the US, banking scams and crashes were very common before the various reforms enacted in the early 20th century. Wildcat banks in the west printed money with reckless abandon, which quickly became completely worthless. Bank runs were pretty common, due to a low overall confidence in the banking system. And a worker in 19th century America was lucky if they were paid in actual money, instead of a company scrip.

Thats not what he was talking about.

Commercial banking is four centuries old. https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien... ; the modern world is built around banking as much as it is around the limited liability corporation. The basic borrow short/lend long business of a bank is not going anywhere.

Mind you, it's worth noting that MPS had four centuries of independence before listing itself on the stockmarket and losing its independence comparatively shortly afterwards in the 2008 crisis.

Nope, because cryptocurrencies also removed all other protections.

- The scams are online, so I cannot knock on the scammer's door with an angry mob and ask for our money back.

- Pseudonymous identities means scammers have strong protections against being sued or prosecuted.

- Digital wallets, as opposed to cash in bank vaults, means that you can lose all your savings in one mistake.

- Complete lack of trusted third parties means there's no one to appeal to, or to raise alarms in suspicious cases.

The old protections were already pretty bad (scams and thievery very much did exist), and cryptocurrencies are lacking even those basic protections.

>- The scams are online, so I cannot knock on the scammer's door with an angry mob and ask for our money back.

>- Pseudonymous identities means scammers have strong protections against being sued or prosecuted.

>- Complete lack of trusted third parties means there's no one to appeal to, or to raise alarms in suspicious cases.

I think that all these things are not fundamental aspects of crypto, but rather how the user chooses to use crypto. If I wanted to I could use crypto only for buying eggs from the local market, or paying a plumber to do some work for me, etc. Scams have existed for decades that involve essentially mailing cash to people that fit the criteria you listed - it's not an issue with cash, but an issue with how people are transacting (with remote unidentified people).

>- Digital wallets, as opposed to cash in bank vaults, means that you can lose all your savings in one mistake.

This is no longer strictly true, at least for loss of wallet keys. There are all sorts of solutions out there (Argent, for example) that allow you to have 'fallback' key methods for if your main key is lost. Yes, if you mistakenly send all your money to the wrong address in crypto you lose it, but that was true of cash as well. Once you spend it it's gone.

One could, for example, create a smart contract that has protection mechanisms in place. At the end of the day, smart contracts are programmable, so you could code your own which has appeal mechanisms as consumers are used to. For example, one could create a highly insecure website for payments on the Internet. The problem is not the Internet, it is the insecure website.

> Somehow people managed to survive before banks offered their rent seeking / fraud protection and I think they'd be OK without them if push came to shove.

People routinely fell victim to fraud. Why else would the government have introduced bans for ponzi schemes or regulatory requirements to go public with stocks, if not to reduce the amount of fraud?

Just because an entity uses "crypto" instead of "US dollars" it should not be absolved from the requirements of established players, they were instantiated for damn good reasons.

There are other ways to protect payments than just (rent seeking) CCs. For eg, in India UPI equates to irreversible zero-cost instant bank transfers (and the irreversible part incentivizes scams) - the KYC/AML regulations make getting your money back a possibility (while not impossible, it's usually improbable, and depends on the amount)

> By not spending your cash on things that are scams.

So...by staying out of cryptocurrencies entirely, then?

Sounds good to me.

"I would simply protect myself by not spending cash on things that are scams"

Even professional investors have a hard time telling scams apart from legit operations. Just look at the Madoff scandal.

And when even the professionals fail to see scams, how is the general public supposed to do so?

Bernie Madoff's victims were mostly high net worth individuals (dumb money), not professional investors. While professional investors do occasionally get scammed that's much less common.

The list of Madoff investors is mostly institutions.

And sadly a lot of charities.

https://en.wikipedia.org/wiki/List_of_investors_in_Bernard_L...

Apparently I didn't make it clear enough that I wholeheartedly agree

Granted, but every new technology goes through this and the tools and best practices are improving. The code is open source too. I don't know why people, technologists especially, aren't recognizing this.

It's also worth examining the current system. How happy are you with your bank's 0.01% interest rate? Which is actually negative when you factor in inflation that's eroding the value of our dollars faster than ever, and increasingly transferring wealth to the top 1%? How happy are you about bank CEO compensation and bailouts? No one in crypto is asking for a bailout, even when it crashes 80%. And what about the fact that bank's charge poor people the most or flat out deny service? Or the fact that it's all closed source and behind closed doors.

Okay, invest in a top 40 crypto. Defi scams usually involve outrageous APR and reward claims from a sketchy Telegram channel actively trying to recruit ignorant or vulnerable individuals. Same as every other scammer, but with the new and improved hype words

I don't want to speculate in cryptocurrencies, I want to use them for their intended purpose, financial transactions. The problem is that I can't do that at anywhere near the safety of my traditional banking institution.

Of course, a lot of cryptocurrencies aren't really meant to be used as currencies. So here is that. Also there are companies that offer insurance on your crypto.

DeFi is 2 years old at most. Still very early days and lots of newbies that get exploited.

Wait, Ethereum tokens don't count as DeFi ? Those are older than that...

> Use a trusted exchange if you are worried about that.

This doesn't protect against your credentials being compromised, and it's not useful advice unless you can explain your criteria for declaring an exchange trustworthy and how that would have excluded all of the exchanges which have lost their customers' money.

> No bank in the world will care if someone steals your wallet.

Yes, this is why most people use regulated banks which have the fraud handling and reversal processes which cryptocurrencies lack. It's not just that you don't have to carry it with you, it's that there are things like verification and reversal processes which mean that individual people are both less likely to lose money in the first place and more likely to get it back. If you've ever bought a house, the process of verifying a large amount of money being transferred is very different from writing a small check whereas all you need is a typo to lose cryptocurrencies without recourse.

Everyone should be worried about that, and if your suggestion is to use exchanges, that just makes them de-facto banks. Now you have a traditional banking system on top of a slow and expensive settlement layer.

Slow and expensive is relative… try transferring money internationally.

Is that really that true any more? From my podunk credit union I have used SWIFT to send overseas and it took under a minute and cost me $20. That's both faster and cheaper than Ethereum transactions. It's costlier than Bitcoin but not that much, and still faster. And that's wire transfer, the expensive bank to bank option... Western Union has been faster than Bitcoin for decades and cheaper for probably a decade now.

The huge popularity of crypto is really eroding the tx capacity advantage.

And even in the backwards US, ACH can now settle later same day and it's free. That makes BTC a lot less attractive.

An ethereum transaction takes under a minute and costs a few dollars.

Transferring funds uses an extremely small amount of gas. You clearly have never used the chain so stop making things up.

Here I sent 11K USD to another wallet for a fee of $10. It was confirmed within 5 minutes. There is no other service outside of crypto that is that fast and that cheap. https://etherscan.io/tx/0x3edc74a15742f65d166dfc9ddb567afabf...

I'm definitely not that familiar with Ethereum, my thesis research was on Bitcoin but I have been fairly tuned out since then.

But wouldn't confirmations take, as you said, five minutes on a good day? I see people saying 5-20 minutes typical for Ethereum to reach 30 confirmations. And sure you can accept fewer but 30 seems a pretty widely accepted convention. That's still slower than wire transfers which are functionally instantaneous (in practice of course it takes a minute or so). And right when I looked now the base TX fee is $19.10, which is a few dollars lower than I thought, but I see that it fluctuates by a few dollars pretty quickly so it would depend on the moment. I don't know the Ethereum situation with regards to EIP-1559 in very much depth so if I misunderstand how fees currently work please correct me.

This seems to put Ethereum basically right on par with what my credit union charges for wire transfers. Now $20 is on the lower end for wire transfers on a consumer account (I think $25 is common), but you can also get lower on commercial accounts. It just seems like they're fairly on par with each other from a fee perspective, and Ethereum is at least a few minutes slower.

Even within the US, ACH settlement times are 3 business days. The settlement period for stock trades is 2 business days and there's a big push to reduce it to 1. Relative to that, bitcoin's 10 minute settlement time isn't so long.

ACH settlement is same day if you know the sender won't reverse it - that's why banks have been depositing paychecks 2 days early starting this year. It'll be faster next year with FedWire.

I do, regularly, and it takes a few dollars and a few days to arrive. That sucks. But this comes from following regulations, and fees for the useful service (e.g. protection).

Right now international cryptocurrency transfers are a legally gray area, and have the aforementioned lack of protections. So the expensive and slow, but legal and safe, international transfers are a service that cryptocurrencies don't offer at all. No reason to think it'll be faster and cheaper when it's offered.

Have you heard of Paypal?

Right. I did that. And got scammed. I had my BTC in a trusted exchange at the time. Then they dissappeared on me. Then I was told it was my own fault for using an exchange. You just can't win this game can you..

ding ding! If you keep it in exchange and it gets stolen, it's your fault for daring to trust your fellow human. If you keep it yourself and it gets stolen, it's your fault for not having a multisignature hardware wallet stored in 5 different countries with armed guards.

Ok i'm exaggerating of course, it just seems like some people are not willing to admit that cryptocurrency does not address certain things that people want out of a money/payments system.

What "trusted exchange" will make you whole if their wallet gets emptied? There is nothing like FDIC or SIPC covering your assets.

yeah, but then you recreated traditional banking, just as they said. It's almost like there are reasons, as to why things are like they are right now.

True, but you can’t hold a billion dollars in the wallet in your back pocket.

We've seen oppressive regimes shut down cryptocurrencies when threatened by them. The remaining argument in favor of crypto boils down to "the problem with traditional currencies is that people who aren't me have too much of them"

Unless something changes dramatically, DeFi will remain a haven for scams. It tries to mimic an actual economy which has loans to businesses to pay returns (etc), but DeFi actually is a giant circular digital economy which doesn't create real world wealth.

> but DeFi actually is a giant circular digital economy which doesn't create real world wealth.

Isn't this true of the entire cryptocurrency cult though?

I've used DeFi and haven't been scammed. Fees being what they are now aside, I liked the experience.

As not being scammed goes, I just avoided everything that was super new (like a project 3 days old that already has $3b in TVL), avoided things that sounded super scammy (Most recent one coming to mind being SQUID token. I mean, come on), avoided things that had no real reason to be, avoided things that I didn't really understand despite research.

My most successful investments are those made in crypto winters, during "see? crypto's over".

The problem is that the advocates think crypto is cash, it’s really more like silver - highly volatile, highly attractive to scammers.

We've been identifying and reporting on a ton of crypto fraud. Any popular site that uses a "wallet connection" is ideal for scamming, and unfortunately, these scams are widely successful. The scam asks users to enter their wallet secrets to connect their wallets. The general crypto community consensus is that if you fall for these scams, you deserve it. There are a lot of newcomers to crypto, and unfortunately, many people are falling for these scams. These phishing sites are combined with other avenues that make the scam more successful.

Right now, there's an active google ads phishing campaign targeting the "Biswap" crypto exchange, so if you google "Biswap," there's a good chance you'll see fake Google ads. If the very first thing you see on Google is what you're looking for, and it leads you to a site that looks just like the site you expect to be on - why would you think twice?

We've also seen cases where scammers create fake support accounts to impersonate legitimate organizations, such as Opensea, and use Twitter to trick victims onto counterfeit sites. The sites may seem obvious on their own, but when you combine these additional steps scammers take, it's clear to see why the scammers are having so much success.

Here's our Twitter feed where we post some of what we find on our day-to-day. https://twitter.com/GuardYourDomain

So, the question is, what's the scalability of this like?

- is there exponential growth still to go, so that we might expect $70bn lost in 2022?

- or is there a finite amount of victims to be scammed, after they've lost all their money the rate of scam will decline?

- or is it more likely that there will be some kind of intervention?

It’s not a problem. Once we switch to using sidechains for most of the book keeping we expect to be able to handle 1000x more scams without affecting the main scam.

We’re also looking at theft-of-stake instead of theft-of-work to reduce energy usage, allowing scammers to be much more efficient and green.

To the moon!

Indeed, but I don't think we're anywhere near the limit yet. I don't know about exponential growth, but I would predict at least double or triple the amount lost to scams in 2022.

(Barring some massive SEC/DoJ crackdown, or something. And even then, that'd only put a dent in it and would just scare away some US scammers. Most of the big ones are outside the US's reach.)

Crypto went global while facing zero regulations - that is what let it become the longest running ponzi (?)

The $7.7B part is a bit hyperbolic right?

A lot of value of crypto is based on a small volume of transactions to cash which give a number to the entire asset.

If I create 1B secret numbers, sell one for $1, and someone steals the rest, is anyone really out a billion dollars?

it's not hyperbolic, there is a lot of liquidity in this multi trillion dollar market and also enough recipients don't want dollars.