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Scott Alexander on Sam Bankman-Fried, FTX and Effective Altruism

astralcodexten.substack.com

I made this a top level post because I think people here might want to discuss it but you can remove it if it doesn't meet your standards.

Edit: removed my opinion of Scott from the body

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Many rationalists support crypto because they consider that it will help to avoid government control to buy nootropics, participate in prediction markets etc. My advice is that instead of supporting crypto it is better to lobby politicians to allow to do these things legally and openly. That may take longer time and be harder to achieve but it will be much better because negative externalities from crypto are too severe and damaging that they cancel all the benefits that crypto could give us.

Many of these things are legal in other countries and they are not as great as many rationalists think. I am in Latvia now; piracetam and phenibut are manufactured by a local pharmaceutical company here, they are not only legal but doctors routinely prescribe them. What I think about them is that their effectiveness is very low. Healthcare professionals consider them as low class antidepresants/anxiolytics. They have very few adverse effects but basically they do very little.

If 50% of antidepressant effect is due to placebo effect, then prescribing something to people with moderate depression/anxiety will have 50% improvement rate. Doctors initially select medicines with less side-effects and switch to more serious antidepresants when they are not effective. It would be good if other countries used them as well but in the big scheme, they matter very little that it is not worth to use crypto to illegally buy them.

But FTX is not crypto. FTX was a mixture of the old and the new, which is precisely why it failed.

The whole point of crypto is to be completely detached from old systems, so there's zero surface of attack from government. If you use pure crypto (no exchange), then you are immune to these kinds of failures.

I cannot imagine how crypto could work without exchanges.

Once I wanted to install bitcoin wallet just for interest. At that time the wallet file size was 2 terabytes large. I decided not to waste my resources on this. The same is probably true for most people with the exception of a small number of motivated people.

Without exchanges bitcoin would never get to the usage levels it has now. If you want to buy drugs with bitcoin, the seller needs to be able to use those bitcoins to buy something else. Even today there is not much use for them and most likely one needs to use exchange to get another currency that one can use to buy legal things.

I understand the original idea was that everyone mines bitcoins with their own hardware and then engages in commerce with other people. In reality as soon as exchange was started, professional miners started earning real (fiat) money.

But even if bitcoin community had managed to ban exchanges (not really sure how) and had captured sufficiently large economy to be self-sufficient (I sell pizza for bitcoins that I use to buy drugs or whatever), the government would have controlled it, to collect taxes if not for other reasons. Did you know that you have to pay tax even for barter transactions?

There is nothing special about bitcoin as originally intended. It is nothing more than digital cash. That is not sufficient to avoid government control because the government controls physical things. Not fully, not entirely but sufficiently to make it hard enough to discourage the majority.

I cannot imagine how crypto could work without exchanges.

The exchanges don't need to work like the do now. The exchange could transfer the bitcoin to an external wallet, it doesn't need to be a wallet controlled by the exchange.

It's perfectly doable to buy bitcoins with Binance, and then transfer those to an external wallet you have 100% control of. That way if Binance disappears you still have your bitcoins.