Beanstalk loses $182m in huge flash-loan crypto heist Beanstalk Farms, a decentralized finance (DeFi) platform, said it lost all of its $180 million collateral over the weekend. Someone managed to game Beanstalk by investing enough funds to gain control of the system and promptly drained its holdings. Beanstalk works by letting people buy beans, which are pegged at about $1 each …
I'm thrilled that you have enough vocabulary to know the word "fiat", but do you know what it means and what that implies ?
It means that the State (or Country) guarantees the money and its value. It also means that the State will track down thieves and bring them to justice.
<sarc>Except when the thieves are operating in Wall Street. Those guys can steal all they want, it's legal.</sarc>
DeFi cannot turn to the State to recover anything. DeFi has no case because nothing was hacked, some smart ass just gamed the system. He actually followed the rules and used them to his advantage. There is no judge in the civilized world that will blame that guy for anything.
One more thing about fiat currency : it has two thousand years of experience being attacked, taken at gunpoint, broken into and stolen in various ways, and the sum of its rules are designed to thwart all possible attacks.
Funny money is relearning all the lessons - the hard way.
I'm thrilled that you have enough vocabulary to know the word "fiat", but do you know what it means and what that implies ?
Cryptobsessives think they only have to say "fiat money" with a curl of the lip to win any argument. Of course you are entirely correct about the strength and resilience of real money.
I just had a family "discussion" about the unbreakable security of crypto as money. While the math has not been broken security has many facets.
Presumably this was a 51% attack, shows how much better a single trusted authority can be.
Volitiliy a security problem for the value of your wealth.
All crypto transactions need a computer (while far from 100% secure) your bare hand with a bundle of notes is usually more secure than your computer.
Durability facet of security have been found to be lacking by the many people who have lost their wealth to a hard drive crash or an online wallet heist.
Liquidity is dependant on the cloud infrastructure it runs on and finding Muppets who want your coin.
Even heard it said that adding a tx to the block chain with a consensus algo was "more efficient" than a normal electronic bank tx.
The cost of cash argument is laughable in the face of the CO2 cost of coin mining compared to say the stroke of a pen by a central bank.
And of course the long term value of crypto coins as a medium of exchange is in doubt when whole coins (or forks of existing chains) go up in virtual smoke and as yet you can't buy a can of coke with them.
If crypto coins are not fiat, but are investments, they are interesting in that they have absolutely bugger all worth outside their perceived value as tulips, you cant even put the in a vase and look at them.
I'll be keeping my money in pounds, euros and property for the moment.
-> It means that the State (or Country) guarantees the money and its value.
You are almost right but also 100% wrong. How does the state guarantee the value of its currency? In its own currency. £1 or $1 today is not worth what it was 100 years ago, so where has that value gone? I have seen this even within my relatively short life - the price of a Mars bar has gone up. If I ignore for a moment that the size of a Mars bar has also shrunk, that means either the value of a Mars bar is more or the value of the currency is less.
"I have seen this even within my relatively short life - the price of a Mars bar has gone up. If I ignore for a moment that the size of a Mars bar has also shrunk, that means either the value of a Mars bar is more or the value of the currency is less."
The value of the currency hasn't changed, the value of the denomination has changed. Or are you saying you are paid the same as you were when the mars bar was cheaper and everyone 100 years ago was paid the same as everyone it now (everyone was rich back then hey)?
That is called inflation, that happens prices go up, when prices go up, people want more pay, so pay ends up going up, so the value hasn't changed, unless you are paid proportionally less now than you were before the price increases. If so, you need to find a better employer.
It can also be due to market demand, the 'free market' if people are willing to pay more, they then see that item has a greater value, if no one bought the item at a higher price, it would either need to come down or the company no longer sell the item / go out of business. People tend to just buy it anyway, or enough people, why, because they have enough free cash to do so, unlike in the past (100 years ago), where their were far fewer luxuries bought as they cost far more relative to their wage.
-> That is called inflation, that happens prices go up,
No. Inflation means the value of a currency goes down. I chose the example of a Mars Bar because that has not changed its form in years (ignoring the shrinking size for a moment). If a Mars Bar 25 years ago was 30 pence and today it is 55 pence, the value of the currency has gone down.
Are you really trying to tell me that £1 today is worth the same as it was 100 years ago? That prices have gone up and the currency has somehow stayed stable? You are off your rocker...
No, he's trying to tell you that the total value of all the £s in circulation now is worth what the total value of all the £s in circulation 100 years ago were worth 100 years ago. He is of course wrong, because the total value of all the £s in circulation now is actually worth considerably more, not because they are worth less.
Inflation has many causes, some external, but some internal, and it serves a useful purpose. Too much inflation is a bad thing, it causes real hardship. But too little inflation is also a bad thing, deflation is worse. All crypto-currencies are inherently deflationary by design. This makes them, on it's own, ignoring everything else wrong with them, unsuitable to be used as a functional currency. Currencies need to be used to be functional, and one of the effects of inflation is to stimulate the use of the currency, so one of the ways the government guarantees the value of it's fiat currency is by guaranteeing that inflation will be kept somewhat under control, and as close as is feasible given outside factors, to a small positive number.
Economics is complicated, crypto-bros don't appear to understand this, either through ignorance, or deliberate obtuseness. But when the value of their crypto-investment depends on other people not understanding how economics works I suppose it's not in their interests to display astute awareness of how economics actually works.
I disagree - I think the cryptobros are very clear on economics. They devised a product and convinced a lot of people that they needed it, and are now rich from selling said product. Econ 101. Where it became Advanced Econ 404 was how they convinced those people that they needed something that doesn't really exist - money in the form of an algorithm. In other words, they got something for nothing (and the chicks aren't free.)
Hey cryptomoron, a Mars bar is made of other things - they don't grow on trees. The cost of those other things has gone up, in part due to rising employment costs and so the price of your sodding Mars bar has to increase.
Meanwhile in the decentralised crypto world not only have they invented the easiest way to scam people out of millions but they also invented flash loans (a new one on me) to enable their scams so much easier. And what is their cry when they fuck up? Help us centralised exchanges, you're our only hope!
If a Mars Bar 25 years ago was 30 pence and today it is 55 pence, the value of the currency has gone down.
When I first bought RAM for a desktop computer it cost me £200 for 1MB. Last time I bought RAM for a desktop computer it cost me £60 for 8GB, which is 0.75p per MB, so be your reasoning the value of sterling has gone up by a factor of twenty seven thousand. since 1991.
You are almost right but also 100% wrong. How does the state guarantee the value of its currency?
If I hold my money in a UK bank, should that bank go bust, get robbed, hacked or whatever then up to £85,000 of my money in that bank is guaranteed by the financial services compensation scheme (FSCS). I will get that money back because Her Majesty’s Government will give it to me whilst searching for the thieves and the loot.
What protection do I have if I hold a load of virtual coins and the exchange is hacked or a flaw is found in the coin, system etc?
Also what if that coin becomes unusable because nobody wants it? You can have loads of something but if nobody will convert it or accept it then what value does it hold?
A fictional example here
It's "universal" value was because it was the only naturally occuring shiny object in the world for most of history. That made it so people were attracted to it despite it having zero practical value. You could not eat it or make tools or weapons that worked with it, you could not feed it to animals nor make shelters from it. Over time as humans learned to smelt copper, tin, and iron, those metals had intrensic value as you could make weapons and tools that greatly increased human efficiency with them. Gold remained just a shiny object. Even today where gold does have some industrial uses, the bulk of it's "value" iderives from it being a shiny object whose shine does not degrade. It's the universal training we all recieve our entire lives that possession of gold is worth dying for that makes it desirable. It's the ultimate fiat money.
Well, truth be told, gold does have intrinsic value in specific areas, namely space (satellites/telescopes) and medical (I'm thinking dentures, but surely there are other applications). Also, sometimes gold can be used in computing for, again, very specific cases.
So gold is shiny, but not only.
The latest episode of the No Dumb Questions[0] podcast (# 131 - Why Is a Silver Coin Worth Something?") discusses this very topic. How a monetary unit's Value is built based on both the intrinsic value of the actual atoms it's made of, about supply and demand, about common agreements on what something is worth in everyday life, governments, blockchains and many other aspects of Value. Interesting discussion, I thought.
[0] Hosted by Destin Sandlin from Smarter Every Day and Matt Whitman from The Ten Minute Bible Hour. If you're not into rambling, chatty podcasts that go off on tangents, don't always provide answers and is full of self-referential in-humour, this might not be the podcast from you. If you're a fellow Winged Hussar, then Hi!
I was expecting some sort of hack but this seems like Beanstalk deliberately set up the system that was its own undoing.
They forgot the conclusion of the fairy tale when Jack stole the giant's gold and chopped down the beanstalk, killing the giant.
The moral - don't put your trust in magic beans - even DeFi ones.
Actually, the reality has shown that Bitcoin itself, based on Proof of Work, is judged secure by those invested in it - which now includes institutional investors.
Just as the reality shows that the thefts, hacks and scams have occurs at the exchanges or with alt coins - in this case a project based upon Proof of Stake. A bad actor was able to acquire enough stake to let them change the code to their profit.
( I don't own any crypto currency. Don't play unless you understand it. If you think you understand it, think some more. Talk with friends. Read about human psychology, bias and frailities as they relate to yourself - and how they might affect your judgement. If you feel you've missed out on a big thing, that's probably a sign to pause and examine your thinking. )
You've obviously never read the little known sequel, where Jack buys a premier league football club with his gold, gets slapped with an unexplained wealth order, then finally gets his comeuppance whilst trying to flee on his superyacht when the crew mutiny because he's paying them below the minimum wage.
And Jack says "Crypto gains and sone gambling, Mr Gummit Man, here's what I owe in taxes on those gains, have a nice day." All legal and aboveboard. Remember, Al Capone wasn't caught by the FBI, he was caught by the IRS. As long as you pay the tax man, you can get away with it.
I am _shocked_ to discover a system established on anarcho-capitalist principles was entirely destroyed for the purposes of personal profit by an individual who apparently rejects the concepts of group authority and common purpose in favour of their own enrichment.
Who could have predicted such an outcome?
At first read there is a whiff of 'playing by the letter of the rules but not by the spirit of the rules' to this, since all stakeholders had effectively agreed that the 'rules' were whatever the system allowed them to do.
It's just that that big pot of money evidently motivated some people to think really hard, and lo, they had an idea and implemented a plan.
There was no 'referee' because the whole point of this system, being a decentralised finance project, was that it would not require one.
Quite how one does codify the spirit of something into the letter of something, I don't know. Maybe the poets might take a stab it. Proof is not Beauty, Beauty is not Love, Love is not Music, to paraphrase Zappa.
Because using normal currency in an FSCS-backed and fraud-protected bank and being able to transact essentially instantly via credit card/NFC around the globe with 0% FX fees (Halifax Clarity) is not good enough because....centralisation?
Get with the times d00d.
Relational database = bad.
Blockchain powered by graphics cards pointlessly sucking energy out of the planet = good.
AFAIK, the idea is that everything happens in one single, atomic transaction.
The borrowing, the interest payment and the principal repayment. All in one transaction. In fact, to start the loan you have to "pre-pay" the interest. Therefore, the "people" lending do not incur any risk of non-payment, and for this reason the need to have any kind of credit check is none or almost none (maybe some crypto collateral?).
In fact, the lenders did get repaid, in full, and for them, everything is fine.
IMO, the system worked as intended. The "voting" system was not hacked, all that was done was buying a majority stake and then "replacing the board" with "people" that would approve of any proposed change. This is not even a case of a bug in the smart contract, or some malicious code surreptiously inserted in it.
I don't think the original "owners" of the project have any claims over the diverted (not stolen) crypto. They designed the system, it worked. Unfortunately for them, not in their favour. Convincing exchanges to block transactions from the destination addresses would be criminal since there was no theft.
For them, code is law, so... live by the sword, die by the sword.
Not shedding any resemblance of tears for them.
Hang on.
You can borrow a billion dollars, and return it (less interest) in the same transaction.
And yet... during the lifetime of this transaction, you can go and *use* the money somewhere else. This money, that you've already committed to returning, you can spend - if only briefly. Sounds like the money is committed to two places at once.
What happens if you actually spent it, say on booze and hookers, and don't return it?
When I bought my first house I borrowed the £35k (suck it up, kids) from the bank and promised to repay it after 25 years. The loan in this case seems to be basically the same principle, just over a rather shorter period ... about seven orders of magnitude shorter.
AFAIK, the "buy tokens for X" and the "sell same tokens for ~X" are all encapsulated in the same loan-repay transaction.
So it is one transaction: Loan, Buy Tokens, Do Something, Sell Tokens, Repay Loan (with interest and fees)
Interest and fees came from the funds diverted from the project after majority of tokens was gained.
Somehow if any of those steps failed, nothing would be commited. Seems like magic to me, to be honest. But it worked for them.
Help me understand how the premise of Defi and smart contracts shall work reliably.
My understanding is that this is just code.. That can be executed in a flash.. No human oversight... Sounds lovely... BUT.. I have NEVER seen code that is bug free.. that is useful.
And rules.. made by humans.. are never clearly thought out.. there are always 'loopholes'... It is not like nature's laws... Where the physics affecting each object large or small are the same...
So why surprise that some rules.. not thought out for all cases.. and / or buggy code can lead to losses...
In a bank.. the process is inefficient but.. humans can flag odd things... and it is not often that funds vanish in a flash...
Waiting to be educated by the great Register readers.....
That it has bugs is not the main problem. As you say, most code has bugs.
The problem with smart contracts is that they are more or less immutable. If you discover a bug once it’s in force you can’t easily fix it. That is the main difference with bugs in other situations, they can, and usually will be, fixed. Smart contracts cannot.
There was no bug. The smart contract worked as intended. You buy governance tokens, you get voting rights. If you have a majority of them, anything you propose is automatically approved.
The cleverness is that the "attacker" encapsulated everything... taking the loan, buying the tokens, proposing changes, approving them, draining the funds and repaying the loan (with intereset) into a single transaction.
There was no theft. The system worked as designed!
Yup. This scam is also simple to do in the real world. The title of a famous book is "The Best Way To Rob A Bank Is To Own One" about the 1980s S&L fiasco in the US. Buy a bank with $10 billion of assets for $1 billion and take the assets for yourself through self-dealing loans and the like. It works similarly for any financial entity with control over a large pot of assets that can be purchased for less than face value (e.g., large pension funds controlled by a company).
The only problem is that regulators will show up and clap you in irons for fraud. You might be able to wriggle out of bank fraud with sufficiently adept lawyers and political cover, but that's a risk and cost that provides a significant deterrent.
The legal and financial system has evolved to be relatively robust against the sort of fraud. To be able to create any sort of large financial entity, DeFi rules need to be defined to create similar restrictions with watertight logic that can never be breached by persistent, intelligent and well-funded attacks. If you believe that sort of sophistication is easy to code, I've got a stablecoin I'd like you to invest in...
As you say, there is plenty of regulation around banks and pension funds and the like which is designed to prevent this. But that's grown up because of decades of abuse.
In this case, what was needed was enough delay in the system so that humans could recognise what was about to happen.
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