Veteran Wall Street enforcers are landing new roles in virtual currencies | Hacker News Reader

Veteran Wall Street enforcers are landing new roles in virtual currencies

bloomberg.com

136 pointschollida184 comments

>The drumbeat of hires crescendoed in November when Ripple, [...] added Ben Lawsky to its board. He earned a tough reputation as New York’s top financial watchdog by pushing banks to scrutinize client transactions for illicit dealings. >[...]Lawsky’s jump to Ripple was particularly notable because he helped pioneer regulation of cryptocurrencies. He introduced the BitLicense, a requirement for digital currency companies that wanted to operate in New York.

What a bunch of white washing. Imagine a parallel universe were the DMCA and the Online Copyright Infringement Liability Limitation Act made online service providers responsible for the content that their user's posted and being called a "pioneer".

Lawsky rose the specter of unsubstantiated "terrorism" fears to create onerous, outdated, maladapted Bitcoin regulations. Shortly after that he quit his job as a regulator and then setup a firm to collect fees for helping "guide" firms through the regulations he just created. Corruption / rent seeking / anti-competative behavior. Bank lawyers even told Lawsky to shut bitcoin down[1]

[1]https://twitter.com/MarcHochstein/status/922611866848804864

Well, content providers are responsible for the content they distribute so that's not a good comparison.

They have certain limited responsibilities, but are on the whole not liable. In layman's terms, they're mostly not responsible, otherwise the RIAA could have bankrupted the whole internet years ago.

http://technology.findlaw.com/modern-law-practice/understand...

I think you over estimate the actual power of and financial backing of the riaa..Google/apple could just buy most of the members in cash and call it a day. they are a small dog with a big bark

They are now. The DMCA, which created the safe harbor provisions, is from '96.

Agreed. There's a movie called "Banking on Bitcoin" currently on Netflix that I recently watched, and while it's got plenty of libertarian rhetoric, it showcases well the transition of "Bitcoin's going to fund terrorism" to "Hey, y'know those regulations I wrote to prevent Bitcoin terrorism? I'm the only one that knows them, so hire me for cryptocurrency regulatory guidance".

Can you believe Ripple actually hired Benjamin Lawsky? https://ripple.com/insights/ripple-welcomes-new-board-member...

Wow! He is really want to suck as much profit as possible out of his position. No wonder people like him makes so much money.

Makes sense.

I've stated this a few times, but one of Microsoft's biggest misteps in the 90's, and there weren't that many, was its absolute lack of any political lobbying.

There are alot of very politically connected people who pointed out that if Microsoft had of "played the game" that the chances of their anti trust trial actually happening would have been alot less.

Google and Facebook learned this lesson well and now spend on lobbying at a rate that would make wall street blush and is on par with the heaviest lobbyist out there. it wouldn't be too much of a stretch to say that the new tech elite are the real Washington insiders.

Just look at what Uber and AirBnb spend on lobbing.

Given this, it makes sense that if you were in a new industry with the rules being created all around you, you'd want to control the narrative as much as possible.

I'd argue that Silicon Valley now dominates even wall street in terms of buying political influence in the US nowadays.

To bring an example back to my Canadian roots, The Toronto Maple Leafs hired the man who wrote the NHL's Collective Bargining Agreement with the players to better have an advantage when writing player contracts.

> I'd argue that Silicon Valley now dominates even wall street in terms of buying political influence in the US nowadays.

This opinion doesn't seem to be shared around here. See this thread from yesterday:

https://news.ycombinator.com/item?id=16466064

Silicon Valley's political influence might be a large splash but finance is the pond itself.

The Wall Street bailout probably saved the financial system, ultimately made the government money, but was incredibly unpopular. The bailout of GM lost money, helped some politically connected groups, and was mostly popular and uncontroversial. Jobs are political capital, and neither finance nor tech have that many, so they make it up with cash.

What's the impact on American pensions and mortgages if the banks crash?

But the lack of any major financial reform has left commercial banks open to continue making risky investments. As well as a lack of regulation on subprime lending, leading us to a now-growing subprime auto loan bubble.

The bailouts treated the symptom, not the cause.

I don't have a ton of first hand knowledge on the risk appetite of banks or the effect of banking regulation. But I assert that Matt Levine is very knowledgeable about these things and he disagrees with you. His points are that multiple 10 figure fines, higher capital requirements, and a general culture shift have actually made banks less profitable and less risky, as was intended. EG:

https://www.bloomberg.com/view/articles/2015-02-20/capital-r...

https://www.bloomberg.com/view/articles/2016-09-07/boring-ba...

https://www.bloomberg.com/view/articles/2017-11-16/deregulat...

https://www.bloomberg.com/view/articles/2017-11-20/utilities...

Rather than link dump his blog (which I read) can you quote the specific sections? His weekly opinion posts cover a large variety of non-related topics and nobody knows which one you're referencing.

There also isn't anything there about the subprime auto loans, which even the esteemed Matt Levine acknowledges are an issue:

https://www.bloomberg.com/view/articles/2017-04-19/fraud-sat...

> Here's a story about subprime car loans that actually doesn't lean on the this-is-2008-all-over-again analogy; that was just me being cranky. That said though, it sounds like 2008 all over again!

> the lack of any major financial reform has left commercial banks open to continue making risky investments

>>> Here's a story about subprime car loans

Are the subprime auto loans being issued by commercial banks?

They are both separate examples of the problems persisting. 2008 financial crises was more than just the Glass Steagall reform. Read my comment above.

As I said I don't have a ton of first hand knowledge. The subprime auto loan story sounds bad, but I'm not in a great position to assess how bad it is, and the bank analysts I know don't seem that worked up about it. It could both be true that banks are systematically making bad subprime auto loans that will end poorly, and that banks are better capitalized, safer and more boring overall than they were pre-crisis.

Until you start throwing executives in prison, nothing will change long term. 10 figure fines are nothing compared to how much many Americans lost in the housing market crash. Consider how many people got foreclosed upon improperly. The loss of quality of life (and actual life) due to Wall Street greed is unmeasurable, but surely more than 10 figures.

I acknowledge that I'm in the minority but I find it really hard to understand the idea that "The secured loan you took out and can no longer afford to pay? They're going to take the collateral" isn't the whole fucking point of a mortgage.

This idea that the banks foreclosing is somehow a sign of greed boggles my mind. Now, sure there is a bunch of consumer protection around to help 'honest Joe' out when times are tough - but it isn't going to magically stop a crunch point coming where either you keep paying off the loan or you lose the house.

It's rather that banks foreclosed on houses that weren't in default for long enough to warrant forclosure. And that they skipped due process and didn't actually make sure they were properly forclosing.

There's the famous John Oliver sketch regarding a bank that tried to forclose on a house that didn't even have a mortgage. And then when the people tried to collect their legal fees, the bank wouldn't pay, leading them to foreclose on the bank.

In addition, many of the mortgages that were issued should never have been done so. They deliberately and knowingly issued mortgages that they knew were far more risky than they actually were.

105% mortgages were given out on homes that hadn't finished being built with no money down. The lending was idiotic - but so was the borrowing. There's a distinct implication that banks are entirely responsible for managing credit risk from repayment risk. That's explicitly false _and the whole point of backing the loan with assets_. Take away the right to foreclose and the banks will simply stop lending to basically everyone except those who can trivially afford the repayments.

I'd be surprised if the rate of genuinely illegal foreclosures was > 5%, maybe I'm wrong on that. In essence though I can't help but wonder when people will take responsibility for what they borrowed.

Fines and damages are different things.

Damage payments would be meant to actually compensate for the amount of damage caused, but where exactly is an "unmeasurable" amount of money going to come from? Additionally, if you did make Wall Street pay "unmeasurable" damage and all of it went bankrupt and disappeared, the result would be worse for everyone. Yeah, that's not fair, but such is life.

On the other hand, the point of a fine is to discourage unwanted behaviour. To have that effect, it only needs to be larger than the profit from the unwanted behaviour, and 10 figures is probably large enough for that.

This is definitely the conventional wisdom I see here and on Reddit, but I disagree.

Banking has changed, perhaps permanently. It is less profitable and by many measures less risky than before.

And I disagree with throwing people in prison for losing money and hurting the economy. I want people to go to prison because they have committed crimes. The government could certainly have been more aggressive about charging individuals, but if you look at the cases they actually brought they were against low level people and they had a lot of trouble showing any of them actually broke laws. Most of the actually harmful decisions by high level bankers were not clearly illegal.

>Banking has changed, perhaps permanently. It is less profitable and by many measures less risky than before.

Banking has "changed" many times before. But these incidents keep happening. The dot-com bubble, the Great Depression, and currently the student loan crisis, municipal debt crisis and subprime auto loans.

Kudos for how succinctly that was packaged.

Right. They can pay and maybe get something in return but they don't have their employees running the treasury like Goldman Sachs or picking the president's cabinet like Citigroup. Whole different level.

The scary thing is that the most valuable political asset SV has to trade is its ability to spy on, censor, and manipulate the informational flow of its customers.

> I'd argue that Silicon Valley now dominates even wall street in terms of buying political influence in the US nowadays

Six months ago, yes. Since then a combination of conservatives feeling discriminated against on social media, Peter Thiel being Peter Thiel and Facebook and Twitter bombing their Congressional hearings regarding Russia have changed the mood. Money only buys so much political goodwill.

> Money only buys so much political goodwill.

Yeah, no. I don't buy that at all.

Why don't you buy it?

Nobody is paying him enough to afford buying it.

Centralized solutions are currently much faster, but they may not be in the future. Also, other coins (that offer spare computing power) or commercial enterprises could act as a power nodes (sub-centralized solutions) in a decentralized network, to speed it up for a fee when needed. Decentralized peer2peer content delivery is currently owned by centralized players, like Akamai. I see no reason why it could not work when it is owned by its users. https://cryptonewstrends.com/

Because the software has to operate in a trustless environment, a lot of attention has to be spend in making these systems more secure. Security through obfuscation is not a fall-back anymore. If we had known that LastFM stored password hashes as unsalted MD5, would we have trusted it with our accounts? We will have fuzzing tools and static program analysis to help automate checking the security of a contract.

Forks can be dealt with in a decentralized manner: voting power being assigned by a provable amount of tokens you own. You can run an entire election in this manner, cryptographically voiding any "vote rigging" argument.

You may have so much freedom as to shoot yourself in the foot. Therefore, Cryptocurrency banks may provide support for payment solutions, insurance, lending, for people who don't want to store all their money under their flammable mattress.

I remember reading in a Michael Lewis book (Big Short maybe?) that Wall Street hires from the SEC and Rating Agencies in-order to know the in's and out's better as well as get better treatment.

Hence the implication in the book that those who stay behind at the SEC and Rating Agencies are not wanted by the banks.

Seems like they're copying from those who came before them.

That means working at the SEC is an auditioning process for big money bank jobs. Talk about conflict of interest.

This happens everywhere regulation exists. That doesn't make regulation inherently bad, but before you can come to reasonable conclusions about how to change things, you have to come to terms with the spontaneous order your changes will result in. You can't abolish self-interest.

This is statement is unfortunately true for every regulatory agency in the U.S. government.

- CFPB -> all consumer corporations

- FCC -> tech

- FTC -> corporations spanning many industries

- SEC -> finance

- FDA -> big-pharma

- USDA -> big-agra

...on and on and on...

> - CFPB -> all consumer corporations

CFPB is very new; is there really evidence of revolving door hiring going on there?

I was more so pointing out who would be interested in which agencies for influence. They are young and invigorated. We'll have to see how they recover from their big loss on the CFPB Arbitration Rule after the joint resolution from last fall.

It isn't (always) about some sinister revolving door. It's just that the people who enforce regulations and the people who manage compliance at regulated entities are experts in the same field even when they are not the same people.

Both sides can be doing their jobs entirely honestly, but still they will co-evolve in ways that make the system convenient for existing players.

You can add as many regulations as you want, but it only perpetuates a broken system. And even the reforms that do happen are temporary, and easily undone.

Also allows for favors w/o compensation.

Kind of funny that this "kill the banks, bring down the system" technology is being infiltrated by Wall Street lifers.

Reminds me of this quote from a recent Matt Levine article:

> [Andy] Noto is leaving Twitter to become CEO of Social Finance, the online lender whose mission just a couple of years ago was to "kill banks." Now it will be run by a former Goldman Sachs Group Inc. banker. The banks do not want to be killed, and they play a long game.

This is what fuels the revolving door. Regulations create a class of workers with previous experience in the regulatory and political system, that fetch an access premium.

Another example of this is members of Congress who become lobbyists seeing an average increase of 1,500% in their salary upon the career change.

It should not be allowed.

Safeguards are put in place because people are prone to malice, fraud, violence, and financial fuckups in the past.

Mandate penalties if insiders are abusing their responsibilities and hold people accountable.

>>Safeguards are put in place because people are prone to malice, fraud, violence, and financial fuckups in the past.

There's a difference between lawlessness and not having regulations that limit the range of contracts people are allowed to enter into. I'm not suggesting we should get rid of laws prohibiting violence, fraud, etc. I'm suggesting we should never violate the freedom to contract.

>>Mandate penalties if insiders are abusing their responsibilities and hold people accountable.

Yes we need to create a new regulatory agency that enforces these mandates. But then those who have worked in that agency will fetch a high price in the private sector.

There is rampant exploitation of insider knowledge in Wall Street:

https://www.economist.com/news/finance-and-economics/2173656...

>>The paper examines conduct at 497 financial institutions between 2005 and 2011, paying particular attention to individuals who had previously worked in the federal government, in institutions including the Federal Reserve. In the two years prior to the TARP, these people’s trading gave no evidence of unusual insight. But in the nine months after the TARP was announced, they achieved particularly good results. The paper concludes that “politically connected insiders had a significant information advantage during the crisis and traded to exploit this advantage.”

There is no practical way to police this. The only solution is to avoid measures that centralize control of the economy, chief among them government intervention in the market place.

Consider a different example: someone participates in adding threading to the C++ standard. They then get hired at a development tools company to help implement the standard. Anything unseemly there?

Your characterization rests on the premise that the regulations are a priori negative. If you start from the premise that the regulations are good things, then there isn’t necessarily anything wrong or inconsistent about someone saying “I’m going to help create these rules which I think will be good for the industry” and “now I’m going to help companies implement and follow these rules.”

I’m pretty skeptical of regulation myself so I can see where you’re coming from. I personally think we should let crypto currencies be complete anarchy as an experiment. But crypto currencies are a good illustration of how regulation and regulators arise naturally. Big bad government doesn’t come in and start regulating things people never complained about. First people lose a lot of money. Second, the industry welcomes some level of regulation, in order to reestablish trust with consumers that might otherwise be scared off. Third, regulation gets implemented on the premise that its good for both consumers and for the industry, because it allows the industry to overcome trust barriers.

The typical practice of U.S. regulatory agencies is "I'm going to stall all efforts of change and push to repeal previously instated regulations."

Then they go and get a massive salaried position at a firm they helped make more profitable - this is inherently bad, and this strategy is happening in nearly every regulatory agency under the current administration.

Well that’s the opposite of the scenario we’re talking about here, right? And I don’t think what you’re talking about is “inherently bad” either. Most deregulatory types also genuinely believe that deregulation will benefit consumers and the industry alike. If you participated in airline deregulation decades ago, and then went to go work for FedEx, whose business model was made possible by that deregulation, would that be bad? Even though deregulation massively reduced prices for consumers and helped foster the rise of near instant shipping and companies like Amazon who depend on it?

Yes, the standard strategy was not applicable to an industry lacking regulation. This revolving door strategy seems to have been hinged on enacting a regulation that Ripple desired (in order to protect their lead in their market) for a job on the other side.

Is all regulation good? No. Is all deregulation good? No. It is not a black and white issue. As a citizen and not a corporation, I personally lean on the side of regulating industries and providing consumer protections.

> I don’t think what you’re talking about is “inherently bad” either

deregulating finance and preventing regulation on derivatives. Good or bad?

deregulating BLM restrictions on Indian land for fracking and oil pipelines? Good or bad?

deregulating the Consumer Finance Protections Bureau? Good or bad?

I believe the pattern of deregulating industry while increasing regulation on consumers and workers (forced arbitration, preventing salaried overtime, preventing class action) is inherently bad and while FedEx is a fine example of deregulation coming out the victor, today's two-pronged trends of deregulation and restriction are not so pristine an example.

> Is all regulation good? No. Is all deregulation good? No. It is not a black and white issue.

Right. Likewise, not all regulation is bad, and not all deregulation is bad. Because you offer no actual analysis of whether these regulations are good or bad, your aspersions about the "revolving door" are premised on simply assuming that crypto-currency regulations are bad, while the regulations being targeted by the Trump administration are good.

> (forced arbitration, preventing salaried overtime, preventing class action) is inherently bad

None of those things are "regulation." There is no regulation requiring people to enter into arbitration agreements, or to agree to forego overtime, or waive class-action privileges. The government is simply choosing not to prevent people from entering into those agreements. That's deregulation.

Working on standards doesn’t usually create a conflict of interest.

Unless patents are involved; then I’d say it’s just as bad.

Standard routinely involve companies lobbying to include their own technology even when no patents are involved, because those companies will have a head start in implementing the standard.

>>Consider a different example: someone participates in adding threading to the C++ standard. They then get hired at a development tools company to help implement the standard. Anything unseemly there?

Code is objective and apolitical. Regulatory enforcement is a people business, and having the right people on your team can affect how regulatory agencies treat you, irrespective of your actual conduct vis-à-vis the regulations.

An open standard can also be studied by anyone. The secret rules and customs of regulatory agencies are only privy to those who worked in the agencies.

>>Second, the industry welcomes some level of regulation, in order to reestablish trust with consumers that might otherwise be scared off. Third, regulation gets implemented on the premise that its good for both consumers and for the industry, because it allows the industry to overcome trust barriers.

I suspect that is not the main reason industry players support regulations. I think it's far more likely that their support is motivated by a desire to create regulatory moats to competition.

An example of this would be the "Money Services Round Table":

http://www.aarongreenspan.com/writing/20110510/in-fifty-days...

There is empirical evidence that regulations exacerbate income inequality:

https://www.mercatus.org/system/files/McLaughlin-Regulation-...

This supports the 'lobbying for regulations as an anticompetitive measure' thesis.

> Code is objective and apolitical.

Hardly. Code can be intensely political (competing standards championed by competing companies, etc.).

> An open standard can also be studied by anyone. The secret rules and customs of regulatory agencies are only privy to those who worked in the agencies.

Regulatory agencies are for the most part incredibly transparent organizations. Nobody has any insight into what happens when a Google executive talks to an Apple executive about a web standard. But when an industry executive meets with a federal agency commissioner to discuss a new rule, a detailed notice and summary of the ex parte contact will be published. Agencies conduct their business in intensely public notice-and-comment procedures.

> I suspect that is not the main reason industry players support regulations. I think it's far more likely that their support is motivated by a desire to create regulatory moats to competition.

And your speculation is based on?

> This supports the 'lobbying for regulations as an anticompetitive measure' thesis.

A lot of regulation is bad. E.g. zoning regulations. But for the most part they're bad because regulators and constituents have bad ideas, not because there are shadowy cabals at work.

>>Hardly. Code can be intensely political (competing standards championed by competing companies, etc.).

The decision to make a particular segment of code the standard can be political, but the effective utilization of that code within a project once it has become the standard, has no political element to it.

>>Regulatory agencies are for the most part incredibly transparent organizations.

That is not the impression I get from the many complaints I've seen from those trying to navigate the regulatory framework. Of course I haven't done a comprehensive/rigorous study of this topic so my impression may not be an accurate representation of reality.

I also find it hard to believe that a legalistic (as opposed to programmatic) domain like regulatory enforcement does not have a significant human element that cannot be fully articulated in formal notices and procedures.

>>And your speculation is based on?

On the fact that there is a very large rent-seeking opportunity in enacting regulatory barriers to entry, as demonstrated by the impact regulations have on income inequality (which is a consequence of economic rent accruing to those at the top of the industry ladder).

>Days before Omega One announced his hire, Chilton said he wished he had invested in Bitcoin and its major rivals years earlier -- back when he was warning people as a CFTC commissioner to be careful while calling for more regulation. Generally, the wild price fluctuations are “mellowing out,” he told CNBC on Jan. 11.

Hilarious. Just for note, bitcoin (not even going to mention alts) was swinging 10% a day around January 11th and dropped to half its price in less than a month.

I guess once you're on the bankroll of some of these places, you give up on trying to sound credible.

Meet the new boss, same as the old boss.

Given that this is a thread on regulation of cryptocurrencies, can someone explain to me what is good (for countries, societies, the global economy, etc. and not individuals) about cryptocurrencies? I get that blockchains are useful for recordkeeping. But then I don't see what the appeal is of having a profusion of them co-exsiting as currencies. Am I missing something?

Related question, can I think of the cryptocurrency market as analogous to the FOREX market, but that these currencies don't have attached countries?

If you accept that Blockchain is useful for record keeping (and the innovation is that it's useful for trustless record keeping) then crypto currencies are useful as part of that ecosystem. Smart contracts for example - very useful to have crypto currencies that can be added to a contract or be given to a contract. Also, having a currency/credit is useful to manage economics (e.g. it costs "gas" credit to run smart contracts).

Imagine that you want to hire a woman that is a blog writer on a radical Musulin country (where woman don't have the right to property) how you are going to pay for the services.

Imagine that you want to hire a remote software developer from North Korea.

Imagine that you want to send a donation to Wikileaks or similar organization that is banned from using the financial system.

Imagine you are a Syrian war refugee that wants to cross borders without the fear of your wealth being confiscated.

Imagine that you belong to a small ethnic minority and the government is confiscating your assets.

Imagine that you live in rural Kenya and the nearest bank branch is 50km away.

And how does your Kenyan/North Korean/Syrian person buy gasoline/rice/paper with this asset?

Meanwhile, drug cartels, first world millenials and financial investors are in possession of ~100% of this technology. They are shaping it to further their gains, scamming the naive, and undercutting legitimate sanctions and laws.

> And how does your Kenyan/North Korean/Syrian person buy gasoline/rice/paper with this asset?

Ideally, the seller would accept the cryptocurrency directly, that is what is happening on Venezuela that the country currency is completely worthless. Another not ideal option is to have local gateways that convert to local currency.

> Meanwhile, drug cartels, They are still using dollars maybe Monero, but if the technology is good enough that the goverments can get informations on the transactions or censor it, offcourse bad actors will use it, technology is not inherently good or bad is what people do with it. Personaly I am worried with the 3 Billion that don't have financial services not a small minority bad actors that already does their business using Fiat currencies.

> first world millenials and financial investors are in possession of ~100% of this technology. They are shaping it to further their gains, scamming the naive, and undercutting legitimate sanctions and laws.

That is a really problem and personally I think that the solution will be the creation of new blockchain protocols that have the genesis on developing countries.

Is anyone else bothered by the way media refers to these companies as 'cryptos'?

Always funny to see people in finance call crypto currencies "virtual currencies". Do they mean fiat currency is not virtual? Does it represent a real value or so? IMHO it's even worse, they keep increasing the maximum supply, devalue the worthless paper even more. But at least they have a chic word for it: Quantitive easing.

Central banks increase the supply to keep inflation stable (at a first approximation). Monetary intervention (in the form of quantitative easing) was required to keep the economy from crashing once fiscal policy couldn't. If you think it devalued the dollar you're utterly wrong.

What a strange website experience.

The original headline, both on the article and HN, was "Crypto’s Hottest Hires Aren’t Millennials. They’re Banking Cops".

I have no idea what the term "Banking Cops" means. I press `CMD-F` to find "cop" on the page. The first result is the instance in the headline.

I press enter to find the next occurrence of "cop", the one in the story that will surely explain the title, and I'm immediately shown an all-black website with the headlines of the day:

https://i.imgur.com/ttNHeDM.jpg

This is seemingly an entirely different website from the article I was just reading. The URL has changed from the HN-linked story URL to instead now read `https://www.bloomberg.com/crypto`.

I still have no idea what a Banking Cop is, or why they are interested in Crypto.

IMO "banking cops" is just clickbait. Ah, the vicissitudes of prose: journalists trying to coin a phrase. But it's just confusing, as you point out.

They're just talking about regulators and compliance officers. The former work at the SEC/FINRA, and the latter work in-house for banks, broker-dealers, and investment firms.

Could anyone explain to me a scenario where bitcoin and/or blockchain does not make a huge impact on the world within 5-10 years? There seems to be so much excitement and real action moving in its direction that I have a hard time imagining how exactly this would all just go nowhere.

It doesn't necessarily have to go somewhere good. Collapsing pyramid schemes caused a civil war in Albania.

I suspect all the financial-instrument like coins will end up banned in the West, and one or two of the blockchain apps will survive. Maybe "filecoin". There will also be a lot of things called "blockchain" that are very unlike cryptocurrencies; the X509 PKI of the future.

Why Filecoin? It hasn't launched and it isn't even traded. There are several startups backed by ERC-20 tokens that have been building a product and will launch this year.

One is even a YC startup, Request Network. Another, FunFair, has developed its own state channel technology because of an innovation gap with Ethereum.

I can think of a few reasons why most blockchain technology won't take off.

1) Centralized solutions are cheaper. Consider Amazon vs. Filecoin. Amazon can buy hard drives in bulk and receive large discounts. They can pass those savings onto their customers. The Filecoin users providing storage to customers will have to 1) convince customers that their technology is safe 2) offer cheaper service. There isn't a trust issue with Amazon. So why would customers move to Filecoin?

2) Centralized solutions are much faster. Yes, there is a bunch of work being done now to allow for smaller transactions (lightning networks, plasma). There's no proof this is going to work. High level scaling solutions remain academic.

3) Development takes longer because the software has to operate in a trustless environment. Every update, no matter how minor, requires an independent security audit. There are quite a few examples of why security audits are not optional.

4) Because money is involved forks can be contentious. The default is to do nothing. A centralized solution with a board of directors and CEO can outpace a blockchain community in development speed and time to market.

5) If the private keys are lost or stolen the consumer is screwed. That makes blockchain technology incredibly risky. It's still safer to pay friends with Chase QuickPay. Banks also have insurance. How can a blockchain be insured?

EDIT: Thought of one more.

6) Smart contracts are too rigid to replace the legal system. One option is to use an oracle as a source of information. However, using oracles to pull data from outside the blockchain means most of the logic is centralized.

Why blockchain technology may take off:

1) Centralized solutions are costly to freedom of choice and privacy. Consider a solution where Dropbox, Google Drive, Facebook photos, S3, and YouTube is run through Filecoin. No more "You haven't used DropBox in a year, so we are closing your account". No more "This video has been demonetized for all advertisers in our network.". No more "we ran these nets over all your photos and use the information gathered to make a better advertisement profile for you". This is what happens when users make and own software: Limewire, Bittorent, Popcorn Time, DC++, Napster, Kazaa. Though most of these are now depricated/forced shut down, it was not for having a better alternative available.

2) Centralized solutions are currently much faster, but they may not be in the future. Also, other coins (that offer spare computing power) or commercial enterprises could act as a power nodes (sub-centralized solutions) in a decentralized network, to speed it up for a fee when needed. Decentralized peer2peer content delivery is currently owned by centralized players, like Akamai. I see no reason why it could not work when it is owned by its users.

3) Because the software has to operate in a trustless environment, a lot of attention has to be spend in making these systems more secure. Security through obfuscation is not a fall-back anymore. If we had known that LastFM stored password hashes as unsalted MD5, would we have trusted it with our accounts? We will have fuzzing tools and static program analysis to help automate checking the security of a contract.

4) Forks can be dealt with in a decentralized manner: voting power being assigned by a provable amount of tokens you own. You can run an entire election in this manner, cryptographically voiding any "vote rigging" argument.

5) You may have so much freedom as to shoot yourself in the foot. Therefore, Cryptocurrency banks may provide support for payment solutions, insurance, lending, for people who don't want to store all their money under their flammable mattress.

6) Smart contracts will fully replace the paper notarial system. Criminals will be booked into networked systems where their identity is biometrically verifiable for the duration of their "stay". Trading and lending circle contracts will be heavily vetted and proven standard smart contracts one can select from a library.

1) > "You haven't used DropBox in a year, so we are closing your account".

The cost of storing data long-term is non-zero. How would Filecoin offer free storage?

> No more "This video has been demonetized for all advertisers in our network."

YouTube creators want community guidelines. They don't always like the way that they are interpreted and enforced. I'm sure a small minority wants to build something where they can upload absolutely anything without being censored. For those folks there is Gab.ai. It will never become mainstream though and the advertisers with big budgets will opt out.

> Limewire, Bittorent, Popcorn Time, DC++, Napster, Kazaa

Users chose Netflix and other centralized streaming services because of their ease of use. Also, copyright enforcement may have played a small role. Some users were claiming that they weren't using the above software to download pirated content. That was a bunch of bullshit.

> Decentralized peer2peer content delivery is currently owned by centralized players, like Akamai. I see no reason why it could not work when it is owned by its users.

There's no reason why it couldn't work, but there's also no business need driving it.

Once an account is compromised in a trustless environment there is no way for the owner to take ownership of that account again. Also, in a trustless environment it's always possible for A) a smart contract to be hacked and B) a bug in the virtual machine to be exploited. Both centralized and decentralized face security issues.

They will still be contentious though. Look at Bitcoin. Imagine the last election but applied to software. It's not going to end pretty and unlike a normal company people in the community may not "move on."

There may be services in the future, but that would be anathema to the movement. The cryptocurrency apologists want each individual to manage their private keys. They would argue that 1) if you don't have control of your private keys you do not have control of your cryptocurrency 2) it's centralization.

This didn't address my criticism. There is no proof that anything like this is even remotely possible.

>The cryptocurrency apologists want each individual to manage their private keys.

Actually, a hybrid solution is possible using multisig and secret sharing algorithms. Many crypto enthusiasts are aware of how the "real world" works. People need to be able to recover access to their accounts if they lose their keys. It's not all black and white like you make it out to be.

For example, I implemented a solution for a mobile app that stores a users private key in their phone's keychain. It also splits the key into two parts, and emails the user 1 part, and stores the other part on a centralized server. If a user loses their key, they can get the first recovery part from their email, and by verifying their identity via 2 factor, the centralized server provides them with the second recovery part.

Parity's multisig was hacked. It's a risk.

#5 seems like the deal breaker to me for a lot of use cases. The average user is not nearly savvy enough to be trusted to secure their private keys. I can't count how many of my non-tech friends have been locked out of their email accounts or fallen prey to some kind of password fishing attack. With centralized solutions they still have a reasonable chance of getting their account or data back. With a blockchain they are screwed. For most consumers this will be more than enough to scare them off.

This is merely a made up scenario and not a prediction but..

The bitcoin bubble could burst as all the people who only bought it thinking it would just keep going up panic and sell. Nobody wants cryptocurrencies anymore after this event and the negative connotation of anything related to cryptocurrencies/blockchain is so strong that nobody cares to do anything with it anymore and it just dies.

Yeah. I’ve always thought if there was one thing that might kill it is all the manipulation and Pump and dumps that are happening. It’s not a free market and if people get burned hard, they’ll never come back.

What impact exactly? It's not up to people to disprove that bitcoin won't take over the world, when proponents fail to come up with viable use cases.

I don't suppose you remember the last P2P bubble, which started with Napster in 1999 and effectively ended when Mark Zuckerburg decided Facebook was a better bet than WireHog in 2004?

That also was a period of incredible excitement and real action - within 5 years, we got Napster, Gnutella, FreeNet, Kazaa, Audiogalaxy, Bittorrent, and Skype, along with lots of little programs that nobody's heard of (among them Red Swoosh, Travis Kalanick's first startup, and WireHog, the product that Facebook almost became) and academic research projects like Chord and Kademlia. The recording industry was being eviscerated - it did manage to kill Tower Records - and everyone was saying that movies would be next, and that P2P technology (with no central server, no single point of failure, and nobody to sue or imprison) would lead to the downfall of nation states and dictatorships and a fundamental change in the power balance of the world.

It did change the world, in that Tower Records is still dead, nobody buys albums anymore, and peoples' music tastes have diverged markedly. But the change everyone wanted - where power devolves from government entities and big corporations to ordinary people like you and I - never happened. Instead, the public lost interest. Instead of decentralized systems like IRC and Jabber, they got on Facebook. Instead of censorship-resistant systems like FreeNet, they got the Great Firewall of China. Instead of easy music sharing like Napster and Audiogalaxy, they got streaming services like iTunes and Spotify. Change came, but it just meant replacing one set of overlords with another.

It's very likely the same will happen with Bitcoin & Blockchain. It already is - that's what the article is about.

It might just settle in a tiny corner of the web eventually. This is not the first wave of excitement about decentralisation. I remember there was a similar wave of excitement with torrents and decentralised file storage, but convenience and regulation helped centralised storage to win. If I'm to bet it'll be the same case with cryptocurrency

I mean it's hot and a growing field with exchanges skimming off money 24*7 in billions, so no wonder the ex-govt talent would be willing to work.

Crypto Exchanges and companies are making some real money, so the goal now is to make it more legitimate and prepare to lobby the regulators and government.

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