alt Hacker NewsCalling All Hackers: How money works (2024)
Comments
From someone who does this for a living - danielmarkbruce is right about the mechanics. When you borrow £100, you book £100 as a liability. The interest doesn't exist yet.
Interest gets recognised as it accrues over time. Each month (or whatever period), you debit interest expense and credit accrued interest payable. The liability grows as time passes.
Recording future interest upfront would violate the matching principle - you can't recognise an expense for something that hasn't happened yet. If you pay off the loan early, you don't owe that interest.
That said, I think the article's bigger point about how money flows still holds. The technical accounting is just one layer of how this stuff actually gets recorded.
This is bad, don't read it. When you borrow $100 you do not create a liability which includes the interest to be paid.
People who don't understand the very basics of finance and accounting shouldn't write about finance and accounting.
Discussed at the time:
Calling All Hackers - https://news.ycombinator.com/item?id=41306128 - Aug 2024 (253 comments)
This is a critique of the VC ecosystem based on a dichotomy of "inflated" versus "fundamental" value, with a CTA to hackers to "do something about it."
Here's one that better suits the title:
"Pricing Money: A beginner's guide to money, bonds, futures and swaps" (866 points)
> In practice, buybacks can be used to create what is effectively a shareholder dividend in a more tax-advantaged way. Whereas with dividends, they are taxed as income, and this is realized immediately. With buybacks, they are taxed as capital gains, but crucially the gains are not realized until the asset is sold. This could be indefinitely far in the future, so it's more capital efficient. It has the added benefit that it helps pump the token, and imo this is kind of cute because it marries both the fundamental and speculative aspects.
This depends a lot on jurisdiction.
Some jurisdictions give you a certain amount of dividend income tax free. Some jurisdictions tax your capital gains even when they aren't realised. Lots of other variants exist.
> A common lament among founders, even successful ones, is: "Sometimes I feel like I'm wasting my twenties".
Interesting perspective, I feel like I see this much more attributed to someone working on a meaningless problem for a paycheck at a large company. I guess it speaks to the difficulty in finding purpose in any endeavor in your twenties.
Nice conclusion on what to truly value.
This smells a lot like a hacker thought because they are exceptional in one field (cybersecurity), they therefore are exceptional in all fields. The result is that information presented in this article is very surface-level, and quite biased.
I can relate to a lot of things said in the article, both practically and philosophical. Thanks for speaking to/for fellow hackers!
PS: Hackers websites don't have to look this ugly. We do take care of attention to detail that the page have to be rendered for mobile devices as well.
The critique of the financial system relies on a misunderstanding of the Discounted Cash Flow (DCF) model.
You conflate 'r' (the discount rate) with 'Rf' (the risk-free interest rate). In reality, for high-risk assets like startups, 'r' is defined by the Weighted Average Cost of Capital (WACC) or CAPM: r = Rf + Beta(Rm - Rf).
Even in a ZIRP environment where Rf -> 0, the Beta (risk/volatility) for a startup is massive. A rational investor would still demand a high 'r', leading to a low valuation. The fact that VCs ignored this and funded "blatantly bad deals" cannot be explained by low interest rates alone. It is better explained by the information asymmetry a.k.a principal-agent problem.
We have a system where capital flows from passive LPs through multiple layers of rent-seeking intermediaries (VCs, LPs, Fund Managers) who are incentivized by management fees rather than carry. The market failure described isn't "financial nihilism" and "financial short-termism". It's a breakdown of feedback loops where intermediaries face no downside risk for misallocation. When there is no market coordination, no real competition, just unrestricted collusion, then things start to not make sense from the old school financial/business perspective. I do not think this is the failure of economic theory or the financial models itself, rather just that nobody knows or tells, that the prerequisite for these things is at least some degree of fair competition, market based economy, informed, rational actors and restricted collusion.
Suggesting that technical founders can fix this by simply "being decent" ignores the systemic reality. This economic structure rewards extraction over value creation, "decency" is an evolutionary disadvantage. The "real hackers" in this story are the financial and business intermediaries who successfully reverse-engineered the economy to extract rent without generating value, similarly to all those entrepreneurs, CEOs, corpo drones in the business sphere who do not provide any meaningful value to society (and shareholders as well.)
For anyone looking for basic information of financial statements in business, the assumptions and estimates that go into it, I recommend Financial Intelligence by Joe Knight and Karen Berman. It helped me understand how much fuzziness happens in financial statements and how they can affect a business operation
How does today's Phrack compare with older Phrack
https://www.textfiles.com/magazines/PHRACK/
Have "hackers" changed
If yes, how
most of the financial systems are just as hackable as computer systems, but most "security" startups just build compliance checkboxes and culturally appropriate hacker ethos for VC money.
I was surprised to learn that I am not even remotely close to being a hacker as I knew about maybe 10% of the references here.
Unpopular opinion, but I don't think banks should be able to loan out money that's not theirs, and printing money is bad.
Gold good, paper bad. But also, gold bad, because clipping.
If only there was a solution.
> but reading indictments to learn from others' mistakes.
Oh oh.
> It's about knowing where to buy estradiol valerate on the internet and how to compound injections
Oh no.
This is 5 paragraphs in, and I already red-flagged out of this, not just because of the time it would take to read this, but because I don't want to go crazy reading this stuff.
In case it isn't clear, it's not healthy to read indictments thinking how to avoid being caught by law enforcement and buying grey market hormones. Politics aside, at least get a prescription, it's not like they are not giving them out.
Hacking is a huge spectrum I know, but if we have to decide on some limits to what is open to be modified and understood by the lay(wo)man, and what is closed and left to professionals, wouldn't we agree that law and medicine would be such fields? (and possibly military?) Trying to hack medicine or law is as extremist as arguing that you don't have the rights to plant the seeds of fruit you buy. As far as rights go, sure people are given the rights to represent themselves pro-se and apparently to buy hormones online, but going beyond what's allowed, are you really willing to ruin your life just to stick it to the man or to exercise your right to do whatever?
real learning- copy paste the content and ask for “critical and constructive feedback and potential false narratives from industry professionals” to get 10x from it
https://chatgpt.com/share/695e125f-1254-800a-8661-d7a046f4c2...
How money works? Well look into fractional reserve banking and do the math. If you’re a bank, you can just loan out 10-100 times what you have in assets and ask say 5% interest. Then 5*10 to 5*100 is your annual interest to the bank. That’s why the Bible and Quran are against usury.
I legitimately thought the description of a 'shitcoin' was supposed to be a euphemism for IPO shares until it turned out there was a separate section for that.
I was disappointed this wasn't about how money itself works - instead it's about various financial arrangements you can use to scam people.
There's a lot of stuff to talk about with how money works! Like, when I use my Visa card issued by a New Zealand branch of an Australian bank to buy something in Europe, there are zillions of moving parts there.
The fact that money doesn't actually move internationally but yet appears to, and the fact that currency exchange can be done despite that. And that 60% of everything is backed by US dollars (rapidly dropping now). How bank transfers work with and without a common central bank; the different mechanisms countries set up to streamline them.
And, the fact that it's not really centrally controlled, and anyone (like Satoshi Nakamoto) can make a currency and there's not really anything a government can do to prevent currencies it doesn't like, and despite that we do mostly have one government-issued currency per country.
This article discusses high quality investors. Where do I meet high quality founders? I’d be willing to bet my time on a good one, but all I come across is the shitcoin equivalent.
This is basically “how water works” from someone who only knows faucets
I think overall, the idea of money is messed up on many levels. What we call 'money' today doesn't even have an identity. It's the most important thing in the world, it's also the most heavily utilized thing in the world but almost nobody knows what it means.
- It's backed by nothing.
- It's not a fair medium of exchange because it physically cannot circulate very far from 'money printers' (not many hops) before it's taxed down to nothing. This means that it's unevenly scarce based on social proximity; unfair by design. Cantillon effects on steroids.
- It doesn't even exist as a single cohesive concept; the US dollar in your bank account is not the same as the US dollar in your friend's bank account and it's not the same as the US dollar which European traders use to buy derivatives (e.g. Eurodollars)... There are literally thousands of different ledgers (banks, institutions, in different countries), each presenting its own interface supposedly showing their holdings of this mythical unit called 'The US dollar' which is actually thousands of different currencies, which happen to share the same name, scattered around the world and held together only by regulators whose only shared interest is to print more units for themselves than the next guy does. Slow and fallible human regulators represent the only layer of 'consensus' which exists for the entire fiat monetary system; they move at snails' pace in a world of high frequency trading.
> Markets are computers; they compute prices, valuations, and the allocation of resources in our society. Hackers are good at computers. Let's learn more about it.
This guy gets it, okay devs, read this article
what about stablecoins
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I'm an ant. I want to tell you how the chemical trails work. Here is how the pheromones work....
Except. The main point of chemical trails, money or other implementations of the messaging bus of a complex adaptive system is THE COMMUNITY it creates. Think the Sapir-Whorf hypothesis, but instead of language determines what you think, expand that to "your messaging bus language determines how your community functions". Yeah there is lots of stuff about money, but how it determines the form and function of the community (as in CAS) is the important part.
The other primary thing to think about money - once you get that it is a messaging bus - is the idea of making money from money. When you understand the function of the system you can then understand that making money from money is not a good idea. This is not a new idea. The concept of throwing the money lenders out of the temple has been around for a long time.
If you understand money, then you will be able to answer this question:
why is making money from money a bad (dysfunctional) idea?
This is my article! I was surprised to see it here again. I hope you all enjoy it, I had a blast writing it. Thanks again everyone for the kind words and valuable feedback.