I really don't understand why people don't get the idea of "digital native".
Just because verbal agreements worked for thousands of years doesn't make written contracts pointless.
Similarly the banking industry technically does "online banking" but they still have to process each transaction through archaic practices that mimic physical transactions.
Let me take a crack at interpreting it: your comment of "crypto is meant for decentralization, lots of people use exchanges, exchanges are centralized like banks, ergo crypto is just as bad as the legacy financial system" presents a false dichotomy.
Crypto adoption does not need to be a binary decision, and crypto enthusiasts are not hypocrites if they still have a bank account or if they still use exchanges when it suits them.
The important thing about crypto is optionality. Crypto/web3 gives us the option (but not the obligation) of managing our own wealth. This is something that "digital natives" understand better than old timers.
> Crypto/web3 gives us the option (but not the obligation) of managing our own wealth. This is something that "digital natives" understand better than old timers.
Before crypto/web3 one couldn't manage one's own wealth? C'mon.
Simple exercise: go to your bank today and try to withdraw $100k.
Alternatively: go apply for a mortgage if you have 80% for a down payment, a way to prove the legitimacy of the funds, but little-to-no credit history.
We're talking about taking out a loan where you don't have 100% of the amount in advance.
You could lose your job, your business could go south, you could ditch for another country and never use whatever bank account or wallet you had your downpayment in again, all those things that are basically currency-independent. Breaking a contract is a people issue, turning paperwork into "smart" code doesn't actually tie a chain around someone's ankle, and it certainly doesn't guarantee their future income.
> where you don't have 100% of the amount in advance.
This is not what I said. Willing to put 80% on down payment does not mean not having ways to pay things in full.
- You might have the cash, but not interested in becoming totally illiquid.
- You might be interested in getting a mortgage for the tax deductions.
- You might have only the cash the downpayment, but use another property that you already own as collateral.
- You might have only the cash for the downpayment, but you are going to buy the house to rent it.
Point is, with "traditional" finance, you can only do these things if you are negotiating the whole package with the same bank, and this is how they "get" you. If people could actually manage their own wealth, there would be no strings attached.
And let's not even get into the other kinds of issues such as bank's "rules" that seem totally reasonable but end up making the life of marginalized groups more difficult.
Ok, so a secured loan? Those exist, sure. What does crypto get you in most of those cases?
In the "all I've got is a million bucks in gold I stole from a vault and can't show a paper trail" case: I don't care. Not a valuable use case for me. That reason alone doesn't move the needle on crypto for me.
In other cases: seems like you're gonna have an easy time getting a loan. lending to people who don't need it is the easiest sort of loan to make.
(In most of these cases, e.g. multiple properties or non-liquid assets, I'm not sure why I want to put down more collateral anyway...)
Edit: you added something about how with traditional banks you have to do it all-or-nothing with a single bank and that's how they "get" you. I'm not sure how anyone's being "gotten," especially in recent times where rate competition has resulted in cheaper money than ever before. But it's also not true in most of the cases you outlined. If you have multiple sorts of assets that you want to borrow against instead of securing the loan with the property itself, you can take out a bunch of other loans on those other assets and pay cash for the property.
Then you bring up historically marginalized communities and such... If you could sell me on the benefits for most of the folks in the world, people who may only have 5% down compared to a traditional bank... that would be a different convo, but "additional ways for people with assets to borrow money" doesn't sound so interesting, as it is.
Sorry, I was in the middle in the edit and I think I ended up sort-of responding to this comment.
> What does crypto get you in most of those cases?
Speed and reduced operational costs, for one. If I wanted, I could get a collaterized loan on DeFI and have the money on my bank account faster than it would take me to fill the bank load application form.
Most importantly, it gets disintermediation: a bank might be interested in selling a loan if it has some level of profitability. In DeFI, anyone can be a bank, so the market tends to be a lot more open and competitive.
> In most of these cases, e.g. multiple properties or non-liquid assets, I'm not sure why I want to put down more collateral anyway...
Because, e.g, you've done the math and you realized that you don't want to pay more interested that is needed?
> If you could sell me on the benefits for most of the folks in the world, people who may only have 5% down compared to a traditional bank
Sure: https://trustlines.network/ TL;DR: it's a system where people can create distributed credit lines, local currencies (for use in impoverished communities that have no money but still need to have a credit rating mechanism) and so on. People could do this with community banks and credit co-ops, but it would be extremely difficult to have, e.g, such a system being capitalized by someone outside of the community. With Trustlines, you can have people in rich countries contributing for the system without middlemen like in a standard micro-credit alternative.
So the main difference seems to be just claims about speed and cost. E.g. trading down payment/secured-vs-unsecured/etc for different rates is all perfectly possible by bank-shopping today in the US. Perhaps systems elsewhere are less open, I wouldn't know, but happy to say there could be value in developing countries with less infra, though the ceiling for the valuation of such a system seems much lower. But I'm skeptical that speed would hold up for a lot of these scenarios. Things like inspecting the property you claim to have that will be part of your collateral. The actual transfer of funds has never been the slow part of any loan I've gotten - even a bank wire in the US, slow as the US banking system is compared to what I've read about Europe, can go through in a day. All the due diligence to make sure I'm who I say I am and have what I say I am takes a lot longer. I don't see blockchains really changing that for the simple reason that whether or not a blockchain says I own a piece of property or the state government says I own a piece of property, neither of those guarantee that in the real world it's in good condition, currently possessed by me (vs trying to borrow against a stolen car, say), etc.
Re: the Trustlines thing - from a scan of the website, what does crypto bring that one of the non-crypto implementations of "help do microlending in developing countries" from 10 years ago couldn't do? When I looked at that back then, reading people's stories, what they said they wanted to do with the money, etc, was all manual and, of course.
It's not just the time to get the loan. It's also the time to settle disputes. Say that you wanted to lend money to someone who gives a collateral, and they default. How long would it take to go to the courts to make sure you can get what it is owed? On the blockchain, this is instant.
Setting aside the potential values of the human element (e.g. the ability of a court to void a contract deemed illegal or done under duress), isn't that only true for digital assets?
If you secured it against artwork, for instance, that might've already been shipped to another country.
(As an aside, I would be all in favor of expanding the court system so stall tactics are less effective.)
Currently, yes. But even if we stayed only in the digital realm, isn't that already a huge improvement over the status quo? I can borrow and lend money quickly, without leaving my home. If someone has artwork to use as collateral, they can go to a pawn shop (or call it whatever fancier term there is for it), get the cash and use that to buy crypto tokens. No banks involved.
Ser, there is really no such thing as a under-collateralized loan in crypto.
The “ease of access” of crypto loans is not really as big as you think - any lender will happily give you an instant “loan” if you front 150% of the collateral.
Its, infact, a wildly inefficient use of capital. Imagine if the rest of the lending industry worked on that premise - would you get a loan for your house if you had to first front 150% of the price of the house to your bank?
Who said anything about undercollaterized loans? I'm well aware of how it works.
Currently, we have only "capital-for-capital" collateral, but there is nothing stopping to have some other types of products in the future. One can envision smart contracts that control future revenue (e.g, a blockchain-based subscription service) and we could put that for collateral.
The point is that for the loans that are possible to do on the blockchain, they can be done without middlemen. We can take a blockchain-based systems and work to make them more efficient. We can not take traditional finance systems and make them more open or without middlemen.
How do you settle pricing in this system? Its easy enough if your asset has enough liquidity and distribution to arrive at a fair market price, but what if the price isn’t transparently obvious - as it is for most assets.
In your example of a blockchain based subscription service used as a collateral, revenues would likely accrue in some native token. Which will likely be volatile. So you have to first settle on a volatility range. Then you have to settle on a fair market multiple for the asset. Do you go with 30x MRR? And is this MRR on the token’s current price, twap?
I’ve seen so many projects try to get loans against NFTs right and even most of them struggle to do it with the “blue chip” NFTs.
At some point, you have to ask if the middlemen in the current system exist for a reason. Perhaps the system organizes itself in this fashion - repeatedly throughout history - because offers some efficiencies and safeguards that are not worth completely discarding.
Its a flawed system of course. But the crypto system is arguably even worse for 95% of assets on the planet.
I've repeated my argument already in multiple points of this thread and it's getting tiring. This will be my last attempt at clarifying the view, ok?
> the system organizes itself (...) because it offers some efficiencies and safeguards that are not worth completely discarding.
NO SANE PERSON WANTS TO COMPLETELY DISCARD THE EXISTING SYSTEM!
When the existing system works, it is great. They offer the best balance of cost/efficiency we have. They are not perfect but they are still around for a reason. The fact that established, tried-and-true institutions exist is not the problem. The problem is when the existing systems don't work. When we are dealing with corrupt institutions, or when the system was designed to serve the 95% of the cases and leave the remaining 5% out of it.
Crypto/Web3 is about optionality. It's about creating an alternative that can work without the institutions (even if not as efficiently) because at one point or another the institutions will fail, and we will wish to have something else, even if not as efficient.
You can stay all day talking about all the alternatives that have failed already, and I'd very likely agree with you. This does not mean that the pursuit is futile. Sometimes I think it's akin to the history of flight. 150 years ago, most people would say that flying was impossible. It took decades of varied attempts and approaches until we got to something that resembled the airplane. Today flying is a mundane experience, yet, no one (reasonably) expects to substitute flying for all the other existing methods of transportation.
Look man I understand your frustration. Check my comment history - I thought this space was revolutionary at first too.
But after 2 years deep in the crypto hole, its very clear to me that there are some serious flaws in the current crypto system that is going to severely limit its growth.
The first is crypto's complete inability to self-regulate itself. You can launch a scam, wait a week, then launch another and people will still ape into it.
The second is the wildly unequal distribution of resources. Latecomers to any party are penalized, but in crypto's case, the penalty is too vast. People who bought Ethereum at $2 or Bitcoin at $10 are going to relentless dump on you when the market unwinds.
No knock on these people who bought early, but if you're going to try and create a newer, fairer system, you can't start with a foundation that's even more unequal than our current one. Anyone who buys into the crypto system in 2022 is already at a massive disadvantage and the system fails to take off. The collapse in prices in bear markets is good indication.
The third is speculators. Again, that's the nature of the market but speculators kill any crypto project. GameFi, for instance, doesn't work because speculators pump up token prices without actually participating in the game, putting actual players at a massive disadvantage. The initial cost for even playing the game become so high that you literally need "scholarships" to play it. And you're forced to play much more than you would just to recoup your initial costs (like with StepN currently - starting capital is like $1k just to buy digital shoes to play).
Crypto works beautifully well if all assets are on-chain. I would love a world where I can fractionalize my home and offer a yield to token holders based on the rental my home generates. But for that to happen, there will have to be some form of "trust on-ramp", and that requires a) regulation, and b) a fairer distribution of starting resources so that new participants aren't penalized that heavily.
Personally, I've also seen very little innovation and actual usage in DeFi. The biggest protocols by TVL are several years old (AAVE, MKR, CRV, COMP). And most of them offer plain vanilla overcollateralized loans. And in bear markets, usage drops drastsically
This is a very promising space but with huge, huge flaws that are killing adoption.
> I thought this space was revolutionary at first too.
Seems like you don't understand my frustration at all.
I don't care about revolutions. I don't want disruptions. I want alternatives that can (at least) be viable for the current global systems. I want people to have the option to adopt something that can work for their situation without forcing them into a Procrustean Bed. I want to have more tools at the disposal of societies that can help them establish effective checks and balances.
> Personally, I've also seen very little innovation and actual usage.
You know what is funny? The same thing can be said about the Free Software movement. Detractors of FOSS love to point out that most open source projects are just copycats of the then-established projects. Plenty of people (even here very highly skilled people on Hacker News) will say that they have no interest in using Linux on the Desktop because it is not "convenient" for them.
Still, I don't care about the "lack of adoption". I don't need to convert the majority of people in order to have FOSS working for me.
There are two separate things here: one is the ability to manage your own assets, the other the ability to enter in a contract.
I am talking about only the first one. The problems with banks is that they are intermediaries between you and your money.
> Try to get a loan in crypto with 80% collateral and then we can talk
First: a mortgage is overcollaterized. A bank will take the whole house from you if you default, not just what is due. They are taking your downpayment and effectively keeping control over the property.
Second: that is not even the point. The point is that a bank will not give you a mortgage even if you are good for it. Why, because they don't have proper systems in place to assess risk?
Yeah, sure, undercollaterized loans require a system that both parties can agree on and that can solved in case of breach of aggreement. IOW, it is not a trustless system. So it would not happen on the blockchain.
But you know what could happen on the blockchain? I could make a loan with someone I know using the current institutions, add that to my funds to get a overcollaterized loan and then I still don't need a bank. To go back to my first comment on this thread, adoption of crypto does not imply an all-or-nothing approach.
I can be a "web3 enthusiast" and still make use of the current institutions when they suit me. It's the increased optionality that interests me.
> First: a mortgage is overcollaterized. A bank will take the whole house from you if you default, not just what is due. They are taking your downpayment and effectively keeping control over the property.
Uh, no. They are required by law to sell the property at a balance between timeliness and recovery of owed monies. And they are required to return to the mortgagee funds in excess of what was owed.
You will have no problem withdrawing 100K, and substantially more, depending on branch you might need to call ahead of time, a many years ago there was poker night somewhere on wall street with 600K cash bonus, yep actual cash in office on table.
At least most banks across the world have liquidity requirements, and most have some insurance for limited amounts, for example if you want to open your own bank in Cayman's you need to have 30-50 million in liquid assets such bonds and gold deposits, it is similar for US banks, if recall correctly.
You might be able to transfer bitcoins from valet to valet, but they will be effectively useless, if banks stop releasing cash, cash will be the most valuable commodity, not digital bits. Furthermore, during the 90's (the really crazy times) in Russia many were doing bond trading just fine without any issues and without internet, this not some story, it happens so I met a few survivors from that time.
On another hand, the only useful thing I find for bitcoin that is "legal" is contributing to sci-hub projects, nothing else, for this reason and other reasons such as drugs and money laundering, bitcoin is here to stay.
Things might have changed since I bought property a few years ago, but back then I just took a screenshot of my bank account and tried to keep a straight face when giving it to my realtor.
Gotcha. You have the option to manage your own NFT-s or BTC, but if 99% of the users are accessing the ecosystem thru centralized actors, then sooner than later you'll have issues interacting with those users. Think running your own mail server and trying to send an email to a friend on Gmail. Coinbase might put a hold on the BTC you send to a friend because it was coming from an untrusted source. We are back to web2.
No, you missed the point. There is no divide between "those using an exchange" and "those using their own wallet". No one is forced to exclusively use one or other.
The divide is along the line of "how much of each individual's portfolio is on a CEX?". I can have 10% of my crypto holdings (for occasional trading or on/off ramping) on an exchange and the rest on my own wallet (for DeFI).
You can not do that on a bank. If you think a bank is in trouble, you can only move your funds to another bank. If one exchange starts acting up, its users will learn how to move more to their own wallet. It is not a random example: go to /r/loopringorg and see all the screenshots of the people who finally learn how to use the Loopring protocol/wallet and taking their holdings from Coinbase. Now imagine if there were rumors that an exchange would start unilaterally trying to control what users could do? They would lose their customers. They are centralized, but the balance of power is in favor of the us users because we have options.
"If you think a bank is in trouble, you can only move your funds to another bank."
or to land, or to gold, or to stocks, or to bonds, or to foreign assets, or to cash, or to guns, or to Pokemon cards... all sorts of "not in a bank" options are available. Banks have competition with not just other banks but the whole financial ecosystem. And if a government is after you, some of those are actually harder to trace than crypto.
Just because verbal agreements worked for thousands of years doesn't make written contracts pointless.
Similarly the banking industry technically does "online banking" but they still have to process each transaction through archaic practices that mimic physical transactions.