Unfortunately, you're also literally describing the fiat money system we use.

Cryptocurrency people seem to think that's an argument for cryptocurrency!

Yeah, I see all my downvotes. I'm not saying it because I strongly favor OR hate either of these systems. I'm not here trying to say "Fiat is dumb and evil and crypto will save us all."

I'm just saying because it's the truth.

We don't do real "fractional reserves," we don't have "gold" etc. Our money is backed up by "America, with the guns, is good for this made up money," which I believe is generally true, and not a terrible system.

For a highly technical and intelligent group that is HN, being blanket negative on crypto is the battle cry, but pointing out how fiat is largely based on fiction as well ("faith" written next to a stone mason eye in a pyramid) is not tolerated.

> but pointing out how fiat is largely based on fiction as well ("faith" written next to a stone mason eye in a pyramid) is not tolerated.

Or maybe it is just not useful, and acts as a distraction. Getting into another 'why fiat backed by the USA works while monopoly money from the boardgame (or cryptocurrencies) does not' is pointless because no one who makes that argument really cares about the difference, they just want to point out that 'everything is made up'.

Yes, exactly. I disagree that it's a distraction. It is to point out that there are a plethora of issues with crypto but pointing out issues with faith-based currency doesn't separate crypto from fiat. As a fan of crypto I see these issues as very glaring:

- one of the main advantages of crypto is lack of centralized regulation, which is also why no one stopped FTX from having back doors to loot the vault

- if one can print their own coins at will (like FTT), its value is at the whim of the printer

- inflation is not necessarily a bad thing. It can be used responsibly.

- a credit card has almost no risk and can crank out transactions as much as necessary

- fiat is accepted all over the place whereas crypto as a transactional currency is more similar to trading gold and cowhides

We have seen how many bad actors control USA fiat and are deemed "too big to fail". That is a failed system and we have seen its ugly face plenty of times. Much of crypto challenges that. How successful it is so far is up for debate.

That's a trash ad-hominem argument.

"Everything is made up" is probably one of the more important arguments to be made, and we'd all be better off if it was taken more seriously. It's difficult to reckon with and it's noisy, but that doesn't make it any less true or valuable.

I think it's especially important when trying to figure out regulation, taxes, and broadly how we deal with rich people in the world.

The belief that money is concrete and real helps cement unworthy powerful people. It's good to chip away at it.

Especially so in an era of inflation and increasing interest rates.

We, somehow, collectively decided to have it this way. It is not a law of nature!

Look, I literally have a degree in economics from an Ivy league university, and I promise you I didn't come close to actually understanding any of it until many years after graduating -- by including the "it's all made up part."

Really, video games and thinking about video game design helped me get it. Because it's a design, and not something like science or nature. It's not that real or unexpected consequences don't happen -- of course they do. But it's exactly like what happens in game dev, because someone tweaks rules.

There is value, in that a generation of moderately wealthy idiots got convinced that monkey pictures are worth something.

Like a cult brainwashing, they have attached their identities to those worthless pictures and now are trapped in greedy stupidity.

Weren't all those ape NFTs brought with monopoly money anyway?

I mean, buying a $1M ape NFT with real money makes no sense - but if you were Sam Bankman-Fried and you had an unlimited supply of coins you knew to be worthless, you're just swapping something worthless for something maybe-worthless, which is much easier to explain.

No, when you bought an NFT for X Coins, at the same time you could have bought Y dollars.

So, the NFT did really cost Y dollars and if it's trading at Z, you have lost Y-Z dollars

NFTs are collectors items. It's as stupid as collecting anything, including fine art, photography, baseball cards, rocks. I'll admit it seems more strange because it's uninteresting, but claiming collecting is idiotic is pretty short-sighted.

No, I don't collect that crap :)

There is one "small" problem - NFTs are NOT in any way related to the items/files someone is collecting. And collecting NFTs is about as interesting as "collecting" numbers from the random number generator.

NFTs are probably the most interesting and legitimate use of these kinds of computer systems. For example, I could see a lot of value in specialized Yu-Gi-Oh projection card tables installed at game stores that only worked with officially issued NFT virtual cards. Players could rent out their virtual cards to other players and turn their purchases into assets. There are already companies in the MTGO space that rent out virtual cards but the whole trading system is (poorly) managed by Wizards of the Coast and lacks programmability.

I think the biggest problem with crypto is that it was way overhyped for anything outside of having fun online.

It's like meme stocks. It's fun to waste $50 playing some silly online game! It's not fun to waste $50k gambling on something that you think will change the global financial systems.

I also think there's plenty of room for fungible tokens that represent ownership over digital content, eg, buying 4% of the rights to the future profits from the monetization of a digital video, as opposed to the patronage system of platforms like Twitch or Patreon. If we truly are reliving the existing financial system shouldn't we expect to reinvent a marketplace for intellectual property?

I have to repeat myself - your "YuGiOh virtual cards" are in no way related to the NFTs. Sure you can require buyer of a card to also buy NFT, you can even pretend that was a single transaction. But really NFT has zero function in this example, it provides zero value, and if you remove it from the system altogether - NOTHING will change.

It's like saying that clapping with your hands at the gas station is somehow equivalent to the purchasing fuel. Sure, BP for example, can demand all fuel buyers to clap their hands once and claim that hand clap = fuel. But really it's just a dumb addition to the real transaction which does nothing.

NFTs are such hand clap when buying digital (or real) objects. The only difference is that they are served with metric ton of technical and pseudo-technical jargon, to the point when even some people in IT are starting to have doubts. But then you think about NFTs again and the mist of bullshit dissipates leaving only bare facts.

If the projection system in the game store requires NFTs that were issued by the creators of Yu-Gi-Oh then you would need these virtual cards to participate, just like how you need virtual magic cards in MTGO in order to participate, the difference being that in the former it would be some open standard where people could trade, sell, and lend as they see fit.

How do you verify the entity you think is Konami is actually Konami? If you're only going to going to allow their cards then what's the actual benefit of being on whatever chain instead of using Konami's own database where they can implement all the features desired without the complication of byzantine consensus?

Konami makes this really great projection system that keeps track of game state and projects onto a big table and they give/lease/sell these devices to game stores. The device comes installed with trusted public keys of a certificate authority managed by Konami and will only work with virtual cards issued by Konami. The ownership of those virtual cards is handled by a mechanism not managed by Konami.

This is basically how Yi-Gi-Oh physical cards work. They make official cards and they don’t manage the ownership of those cards.

The advantage for Konami is that they don’t need to build much of any infrastructure for a market for trading or selling virtual cards. The advantage for players is they don’t have to rely on Konami for these ownership related features and can buy, sell, lend as they see fit.

The MTGO marketplace is really awful but it’s the only choice that MTG players have if they want to buy, sell or trade virtual MTG cards.

I'll try again. Company A (Shueisha) creates digital collectible cards.

They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).

Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.

Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.

User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.

What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.

Some other NFT fans also claim that they allow moving assets between companies or even people. This is simply impossible to do with only blockchain, again, because centralised DB and management systems are required due to technical limitations, and because companies must agree on the cross compatible formats and agree to take revenue cuts, which is a fantasy. And moving assets to the humans is also impossible because NFTs don't transfer any partial or full IP rights, they are technically incapable of doing this. Then again you are dependent on the centralised DBs.

As you can see, NFT is an interesting artificial construct which does literally no useful functionality on it's own. In any proposed system with NFTs, you can cut out NFTs and have exact same functionality remaining.

I wrote a fungible digital asset protocol called Open Publish that uses the Bitcoin protocol. You can see that here:

https://github.com/williamcotton/openpublish

So let's imagine that instead it is a non-fungible token. The only difference between a fungible asset and a non-fungible asset is that a fungible asset can be split up into parts and owned by multiple parties. A non-fungible digital asset has only one owner at a time.

> They store them in their private classic centralised DB (not related to blockchain in any way, because private blockchain is idiotic idea). They are not stored in the public blockchain because that is technically impossible both in current and future chains, due to constraints decided collectively (you can't have even barely working blockchain pretending to be decentralised and also be able to store megabytes of data on chain).

You don't need to store anything in the blockchain other than the cryptographic hash of the digital item in question. In fact, you can take the cryptographic hash of many different digital messages and then take the cryptographic hash of those combination of cryptographic hashes and store that data in the blockchain, along with data related to ownership.

> Then company A creates NFTs for these cards. Again, the digital cards are not in any way related or linked or paired with the NFTs. The system storing and managing cards doesn't know about NFTs. NFTs are weakly linked to somewhere on the web, supposedly to the cards, but there is really no requirement for that and what more amazing - no verification to where they are linking.

This is incorrect. Let's say I'm Shueisha. I create a physical device that I install in game stores that comes pre-installed with valid public keys for digital cards issued by Shueisha. Then I issue a number of non-fungible digital assets that are signed with one of the private keys paired with the public keys stored on the physical device in the game stores. This physical device will only work with digital assets that were originally issued by Shueisha, say a virtual pack of 15 virtual cards. These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish.

When someone purchases a pack of digital cards they provide their own public key and Shueisha publishes their own signed transaction that transfers ownership to this person. The physical device in the game store is connected to the internet and can see the valid and confirmed transactions. The physical device in the game store ignores all assets that did not originate from Shueisha but will honor ownership of all future transactions of digital cards that did originate from Shueisha. The physical device in the game store also connects to a database run by Shueisha that when given the cryptographic hash (or the hash-of-hash and the hash) of a digital card will return the details about the card... link to the URL for the digital art, the flavor text, card rules, etc.

> Now what happens when someone is selling or reselling cards. I will split this into MUST and OPTIONAL sections.

All that needs to be written to the blockchain is the cryptographic hash and the recipient signed by the original owner. So when you buy a pack of digital cards from Shueisha they write a transaction to the blockchain signed by one of their private keys that says they are transferring ownership to your public key. The public key pairs for Shueisha, again, are stored in the physical device in the game store. If you bring a device with your private key to the game store then the physical device will let you use any cards that are shown to be owned by your matching public key.

> User MUST create an account on the completely proprietary and centralised server of company A, because system storing and managing cards MUST update who owns what in its centralised DB. And technically that's all, nothing else is needed.

The only need for a centralized database is for all of the meta information about the card... the art, the name, game details, etc. The only need for a decentralized database is in determining the cards owned by the gamer as proven by their private key on some device.

> What it OPTIONAL is that user can also buy NFT which was initially generated by company A, and which stores an URL pointing to the card hosted on the private company A server. But until company A does the MUST step above, NFTs sale is pointless. Centralised DB does not in any way interact with blockchain with NFTs, and it technically can't.

This is incorrect. In the system I am describing the decentralized data stored on the blockchain is only the cryptographic hash of the digital asset. The meta data is stored on a centralized DB owned and operated by Shueisha. This is just like how I can't scribble on a Yu-Gi-Oh card to make it say whatever I want (at least for tournament play) but I can indeed buy and sell and trade Yu-Gi-Oh cards without the involvement of anyone else.

Thank you for the detailed response.

I see you are still making the same error as others - "These virtual cards are non-fungible tokens on a decentralized blockchain similar to Open Publish."

Cards are not tokens, and cards are not on the blockchain. Cards are digital assets, but they can't fit inside a token, they can't fit in the blockchain (for a reasonable price with a reasonable blockchain performance and decentralisation).

You have complicated my example, but it is essentially the same - your physical device is the centralised DB now (or you are using two centrlised DBs - device memory and some corporate cloud server together). Assets (cards) are stored inside it. To access them you need a key. In your example key is the token, but at this point - that's not really mandatory, we have many other ways to sell and store keys. But it's an option, yes.

What you have described is just another way to access assets stored in a centralised way and authenticate yourself as a person having access to them.

And you don't "own" your assets (cards), unless of course there is some agreement, likely on the web site or with purchase of that physical device saying that IP rights are transferred to you Name Surname. You are renting your cards based on the good will of Shueisha, and when you say sell cards - that just means Shueisha gratiously allows transferring of some record in their DB from one of their registered users to another. Just as an example - let's say Shueisha uses Tezos bc, user A is a registered customer of Shueicha and "owns" a digital card from them. Can he sell it to whatever random person with a Tezos wallet? Well, no. Unless Shueisha makes allowance for that, but that would be dumb because it will expose asset to everyone (same as today's NFT pictures work).

Everything is stored on Shueisha servers or DRM'ed devices from them. Everything is managed by Shueisha directly or indirectly via coding some physical device which will do it. Tokens are used to access stuff, but they either insecure, or you will need to have additional parallel authentication with card storage to access them.

NFTs are just layers of technical comlications not really adding anything of substance. They make look like it's easy to buy and sell digital stuff, so very popular for speculation, but in reality they are crippled by inability to actually store medium being sold and to transfer any IP rights by itself, without centralised services.

I think the difference is that no one was trying to convince a generation of artists that baseball cards were the future of digital art, and that they should inject their own money into the baseball card market to "support the community".

The real losses are the VC capital (that could have been deployed to more meaningful businesses) and the loss of client capital. Many people put their life savings that may or may not evaporate.

I think this is predicated on the assumption that VCs generally deploy their capital wisely, which I don't necessarily buy. Before cryptocurrencies, the rage seemed to be "Uber but for X." I'm not convinced there was much social or financial benefit in most of those, other than cynical value cycles culminating in offloading junk onto public markets.

The problem happens when someone lets you leverage the $1B lemonade stand. Though not necessarily your problem :-)

VC's had money, i.e. capital. Now the money is gone. What would you describe that as if not destruction of capital.

Money and capital are different things. Capital in a broad sense is any durable good that is employed in the production of goods and services. For example, a road. Money is not capital. Money is simply a good without intrinsic value that is used as a means of exchange. As a result creating and destroying money doesn't create or destroy wealth.

You are using a very non-standard definition of capital.

> As a result creating and destroying money doesn't create or destroy wealth.

I'll give you a MacBook, which is a durable good you can use to produce goods and services, if you go to the bank, withdraw all of your money, and then set it on fire. This is a good deal for you. Your wealth will not change from setting the money on fire, as destroying money does not destroy wealth, and you will have a capital good that will increase the amount of wealth you have.

If you set your own money on fire, the amount of wealth in the economy won't change. However you'll be worse off, because your share of the total wealth is now smaller (and everybody else's share is bigger).

> However you'll be worse off, because your share of the total wealth is now smaller

So you're worse off because your share of the wealth is smaller... if only we had a way to describe that. Perhaps you could say that you're less wealthy and by burning your money, you've destroyed your capital?

Look, I get what you're trying to say. The value of each currency unit is roughly the total amount of economic value divided by the number of units of currency. So the sum of all the units in currency doesn't change as you add to or subtract from the money supply. The piece you're missing, though, is that the VCs didn't create the money they invested in BlockFi. The money came from investors and partners. So in a very real sense the capital of those investors and partners was destroyed.

Destroying money doesn't destroy capital. It doesn't matter who created it. Money is not capital. You're mistaking a claim on a good for the good itself. These are completely different things.

Again, you're using a totally non-standard definition of capital. Google "capital definition"

> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

So yes, if you redefine the word capital to fit whatever you like, then sure, I agree with you.

I'm not redefining anything. I'm an economist, and I know the terminology of economics well. Capital can refer to two things, either 'capital' (or 'real capital') or 'financial capital'. The definition that you've posted matches (more less) the definition of financial capital. But, either way, this is not complicated. The fact remains that destroying money doesn't destroy wealth. Mistaking money for real wealth is a common mistake.

Ok, so I think we’re in the same page: there is a definition of capital that includes money but is for some reason not applicable to this conversation because you’re an economist and know better. And if you burn your money in your bank account, then you’re less wealthy but that cannot be referred to as destroying [your] wealth or capital.

To help out a little - money is only a signalling protocol for resource allocation. Nothing more. Burning the money in your bank account does not destroy any resources anywhere. It does, however, rather screw with being able to get some of those resources allocated to you.

So now we're redefining "resource?"

Resource. Noun. a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively.

Even if the commonly accepted definition of "resource" didn't explicitly state that money is a resource, the ability to acquire resources is itself a resource.

No, it isn't. Let's say I take a piece of paper and write:

"I will give the bearer of this piece of paper my car."

Do I have created a new car? No. The piece of paper is still a piece of paper, and there aren't any more cars in the economy than there were before. And likewise, if I proceed to destroy the piece of paper no cars will be destroyed in the process.

Have you created value by writing on the piece of paper? No. But if the entire world agrees that your piece of paper has value, then you would lose wealth by giving away the piece of paper and the person you gave it to would gain wealth by receiving it.

When we talked about burning money you said: "[burning your money], however, rather screw with being able to get some of those resources allocated to you." If you burn your "car IOU", does that screw with your ability to have resources allocated to you? No it doesn't. So you can see that your car IOU is not an appropriate analogy to money.

Because this only happens once the IOU has been put in circulation. In my example, the paper money I created was not put in circulation, consequently no redistribution effect took place. The analogy is solid and appropriate.

Ok, so what would be involved in putting it into circulation? In your original analogy, you simply you said you wrote an IOU. Unless putting it into circulation is trivial, then your analogy is neither solid nor appropriate. A substantial amount of work goes into providing a stable currency.

Just being perfectly honest here, I think your position has been shown to be logically inconsistent in multiple ways.

1. We started this discussion by talking about whether or not investment in BlockFi represented a destruction of capital. You said it didn't because money invested is not capital. You then later admitted that there are definitions of capital that include money. I would consider this an uncharitable reading of the initial point regarding investment in BlockFi. If there is a valid definition of the word "capital" in which the original point is true, that it is charitable to assume that was the intended definition.

2. You agree that burning money in your bank account would make you less wealthy, but somehow disagree that you cannot consider this destroying your wealth. That's inconsistent.

3. The "car IOU" analogy has an obvious flaw in that burning it does not reduce your wealth as was the case in the burning money example. Despite this absolutely crucial difference, you maintain it is somehow valid with an explanation of the difference.

You put the IOU in circulation by selling it or by giving it away. (I don't know what's so hard about that.) The point is that the act of writing the IOU doesn't create any new cars. And likewise the act of destroying the IOU, at any point in time, and regardless who's holding it, doesn't destroy any cars either. This simple example shows that claiming that actual resources (i.e. capital) have been destroyed as a consequence of an IOU having been destroyed is clearly wrong. If you still don't understand why this is the case, I don't know what else to say to you.

If you smash your machines, you destroy real capital.

If you burn your money, the financial capital doesn't just go away. It's effectively reallocated to everyone else via deflation. That's why "destroying capital" isn't a good way to describe it.

If you destroy half the machines in the world, evenly distributed, the economy crumbles. If you destroy half the dollars in the world, evenly distributed, nothing really happens.

And back to this case, the VC money wasn't burned at all. It went to paychecks and service providers and customers and scammers. It didn't disappear, it moved.

You’re conflating the money supply with money. The inherent value of the money supply is constant. That’s why you could halve it uniformly without impacting much. But that also necessarily means that each unit of currency does in fact have value. So if you invest it in scams, you can call that destroying wealth.

Also worth nothing that we’re not really talking about money. We’re talking about equity in companies with the statement that billions of capital was destroyed by investing in BlockFi.

> But that also necessarily means that each unit of currency does in fact have value.

I don't dispute that. But the value of each unit can be complicated.

> So if you invest it in scams, you can call that destroying wealth.

Colloquially I might say that, but the wealth isn't actually destroyed, it went to the scammers.

I think there was an implication that the wealth belonged to the investors in BlockFi. Their wealth was destroyed in a very real way.

"Wealth" is getting a double use here, to mean both "the fact that they are wealthy" and "the assets they have that make them wealthy".

The fact was destroyed. The assets were not destroyed; they went to other people.

Capital doesn't have a double meaning like that. Capital is the latter. Capital was not destroyed here.

Capital can mean money. It was mentioned elsewhere in this thread, but Google "capital definition"

> wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

There is even a bank called "Capital One." Originally, Capital One's only product was credit cards, i.e. providing monetary loans. It feels like this entire thread has been arguing about what people "feel" capital should be. In the case of BlockFi, capital has very much been destroyed. Company equity going to 0 is the ultimate capital destruction.

I feel like you didn't follow my argument though.

The status was destroyed, the assets were not destroyed.

Take my last post and replace the word "capital" with "money", and I would say that version is just as true.

You can destroy money, but that's a totally different topic. The money that was invested in this exchange didn't get destroyed. It went to other people.

Remember that the original post wasn't talking about 'wealth'. You can't come in and say "capital=money=wealth, and investor wealth was destroyed, therefore investor capital was destroyed". That's like saying "nothing is better than happiness, and a sandwich is better than nothing, so a sandwich is better than happiness". The meaning of "nothing" changes halfway through, like the meaning of "wealth" changes halfway through.

Whether "capital" includes or excludes "money" is a distraction that doesn't really matter.

It matters, because if you aren't careful you'll jump to the wrong conclusion (such as thinking that capital was destroyed, when in fact no capital was destroyed at all). Resources can be bought with money. Someone who has money can be thought of having resources. However convenient this simplification may be, it's not true that money is itself a resource. And this is especially important to bear in mind when we're assessing the amount of resources in the economy (in order to figure out if any resources were in fact destroyed). Counting money as a resource is an accounting error known as double counting, which occurs when the same thing is counted twice.

Where do you start? You start with company that builds a lemonade stand, and they dress it up like a life changing lemonade that's going to replace all other drinks in 38 days or whatever. So let's ignore what it does, let's pretent is does literally nothing, it's just a stand. So what's next. This lemonade stand has some market price, it's probably not zero, right? Let's say it's 20 million dollars market price. Maybe in your world if you create a lemonade stand it's worth 180$. But in my world, when people create lemonade stand and twit about it, people are like "ooh, a Lemonade Stand! Noice!" and it's worth 20 millions. And all these sophisticated games go like "ohh, if there are 100 million dollars in the lemonade stand, then it's going to get 16 million dollars of profits this year. That's pretty good, let's put a little bit more into it.". And maybe that happens with the other 200 million dollars in the stand. So you know, sophisticated traders and cryptards or other similar parties decide to put 200 million dollars in the stand. And other people go like, "oh, this is a pretty cool lemonade stand, it's valuable stand, and who a re we to say it's wrong?". Lemonade stands can be great. I love lemonade as much as the next guy, right? And then people are recalibrating, "20 million dollars for this stand? that's it? it's probably valued at 1.5 billions at least!".

To be fair, that is how the entire fractional reserve banking system started. Safe houses for gold handed out slips of paper to make it easier for the guys storing their gold to spend it and said, "hey, we'll actually pay you to let us hand these slips of paper out to people who want to borrow your gold. We just need you to stay quiet and be cool with us committing fraud and handing out WAY more borrow slips than there is gold. Cool? Cool."

We as a society accept large scale fraud all the time and normalize it.

That's the crypto community delusion about how fractional reserve banking works. The way fractional reserve banking actually works is that banks lend out money, and the loans are their major assets. This only works if there's heavy regulation on how sound the loans have to be. Without regulation of loan quality, there's a banking panic every few years.

All the US banking crises since the 1920s have involved some form of deregulation.[1]

[1] https://en.wikipedia.org/wiki/List_of_banking_crises

The same could be said for FTX. There just needs to be regulation about how sound the self-created coin backing your margin needs to be. Without regulation of the soundness of the economic value of your self-created coin you get a crypto crash.

Am I crazy? Are we not describing 2 identical problems and classifying 1 of them as fraud?

The soundness of loans in a deregulated environment is no better than the soundness of a self-invented currency.

Here's a tutorial on how to analyze a bank's balance sheet.[1]

Few of the crypto clowns publish their balance sheet. FTX, we now known, didn't even have a balance sheet.

[1] https://www.wallstreetmojo.com/banks-balance-sheet/

Thanks for this, so far that's 2 points of difference stated:

1) Regulatory oversight. 2) Relative transparency.

Legit differences between Crypto exchanges and traditional finance. Keep em' coming, I'm learning :)

What, the big banks don't have "internal, poorly labeled fiat account" on their spreadsheet tracking their finances?

Your original response was an insinuation that banking systems in general are based on fraud, and that gold should be the basis of monetary value. In fact, the case has been proven that gold is a poor basis of monetary value and that banking systems, when properly regulated, are not fraudulent, or are very rarely fraudulent.

The reply to that was to explain that regulation was the key to maintaining a stable banking system.

You then ignore all that an conflate unregulated banking and regulated banking as equal.

I hope you understand that this makes your argument dishonest, and that you attempt to avoid this in the future.

Please understand I am not trying to be dishonest or make arguments in bad faith. Maybe I need to be further educated.

I understand that the level of fraud committed specifically by FTX goes far beyond simply misleading lenders and regulators about their collateral which consisted mostly of their own crypto. In general, however, this seems to be the root of the issue and the systemic problem across all centralized crypto exchanges.

From the start and well prior to this conversation I have had the belief that Crypto "scams" like this bear a striking resemblance to the world of traditional finance and specifically the securities market and MBS.

I'm not trying to argue in bad faith or use any kind of argumentative tactic or fallacy (at least not intentionally).

these nakedly fraudulent scams are nothing like real finance, its night and day. you need to get educated and then come back with better-informed opinions

The key problem is that crypto only has value in the absence of a regulatory authority. If users have a 3rd party they both trust (the government), all of the waste in crypto is unnecessary. However, it turns out for crypto to be used, it has to be centralized. Without centralization, it's too complicated for the masses.

Soundness of loans can't really be regulated. Everybody who makes loans thinks that they're sound. They just turn out to be wrong sometimes. e.g the mortgages in 2008 we're thought to be solid because they were covered by collateral. But as it turns out that collateral wasn't worth what it was assumed to be.

This is not to say the space shouldn't be regulated, but all regulation on the soundness of loans suffers from this. e.g bank leverage limits rest on the same type of assumptions about the value and liquidity of different types of collateral. And if those assumptions are wrong they will fail no matter how solid the regulatory model says the bank is.

An exchange and a bank are in two completely different businesses. An exchange isn’t supposed to be lending money at all.

I wonder what it says about me that I instanty recognized what this is referring to

For the uninitiated: https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

Actually value is created when a scam company goes bankrupt. Less value destruction in the marketplace.

Sure it is. If, during that time, I give you $100M for a 10% stake in your lemonade stand, that value is destroyed.

If I gave you dollars in return for magic beans that turned out to be imaginary, that value is destroyed.