Crypto Is Making Everything Worse

There’s lots of breathless chatter out there about how cryptocurrency will reshape the world. But the truth about crypto is simple: capitalists are using it to get rich and screw the rest of us.

A commuter passes a digital display of cryptocurrency Bitcoin. (Paul Yeung / Bloomberg via Getty Images)

Interview by
Daniel Denvir

Are you sick of hearing about cryptocurrency yet? Don’t worry, we are too. But it’s important to set the record straight about what exactly crypto does and does not do, given the endless stream of overblown claims about its liberating power — and the immense amounts of money involved. Strip away the hype, and it’s clear that crypto is just another speculative asset that means big profits for a few and pain for the many.

In a recent interview on The Dig, a Jacobin Radio podcast, host Daniel Denvir spoke with Edward Ongweso Jr, a tech reporter at Vice Motherboard and a cohost of the podcast This Machine Kills, and Jacob Silverman, a staff writer at the New Republic. Together, they answer the question of why cryptocurrency holds so much appeal despite its crassly profiteering nature. The transcript has been edited for length and clarity. Listen to the full interview here.


DD

Before we get started, let’s cover some basic things. What is cryptocurrency, and is it actually currency?

EO

A simple way to look at cryptocurrency is as a digital token that is in some cases just a storehouse of value and in some other cases used in some really complicated schemes surrounding digital assets or projects. But, essentially is it just a digital token that in one way or another is supposed to have value somehow.

JS

Is it actually a currency? I would say no, because most cryptocurrencies cannot be readily exchanged for goods and services, and their values do fluctuate so much that it is hard to ascribe to them the relative stability of most currencies. Now, if we follow that line of argument, you will have crypto people saying, “Well, what about Lebanon or some other country with hyperinflation? Their currency isn’t always stable.” But ideally, of course, you want currency to be readily spendable, tradable, and to have a steady value. Crypto is not that.

DD

So if it is not a currency, what is it, and why does it have value? Sometimes quite a bit of value.

JS

It’s mostly a tool of speculation. Here is where we get ideas of irrational exuberance and what defines value and even collective hallucinations. But I think the main use case for cryptocurrency is for market speculation, and creating complex and potentially economically dangerous financial instruments that are not that different from credit default swaps.

In terms of productive value, I would say there is none. The main value of cryptocurrency is as a tool for speculation. People are trying to get rich.

EO

I agree. There are interesting projects that come as a result of the things that people believe they have to do when they are organizing off of a cryptocurrency or cryptocurrency-backed platforms. But cryptocurrency in itself, I can’t see it as a currency. Even in a generous framing, it is for speculators, and it is used largely to speculate or to facilitate the movement of funds from one pocket to another — whether that is increasingly just to pump up self-dealing assets or exchanges, or whether that’s to pump and dump various coins and tokens.

I have been surprised, from the beginning of getting involved in reporting on crypto and joining crypto groups and chats, about how regular the invites to pump and dump groups are, and how many different types of pump and dump groups exist. There are ones that seem like functional schemes where it’s like, “We are transparent about when we are going to pump and when we are going to dump and how much money everyone gets out of it. Here’s a nice little spreadsheet for us to figure it all out.” There are others that are chaotic.

But generally speaking, it is speculative with really extravagant and complex ways to be so.

JS

I think people who are more pro-Web3 or pro-crypto would say that all the cryptocurrencies and the pump and dump schemes are a kind of distraction. The things that are really interesting are the new types of governance created using tokens — such as using how many you have as a way to vote on certain things — and new types of organizations. I tend to think that those are the sideshows. For people who are interested in that stuff, they see new ways to store and secure data and new ways to govern organizations. Some of those folks have good intentions but are overlooking where most of the money and the fraud is.

Also, a “rug pull” is when the leader of a project just disappears and runs off with all the money, which happens pretty frequently, especially with non-fungible tokens (NFTs) or anything styled as a community that needs an initial investment from people.

The pump and dump schemes are an interesting and constant feature of the crypto landscape. One of my pet issues is the market manipulation on the exchanges. Here is an example. I am in a Telegram group with more than three million people. Almost every Sunday, they do a pump and dump on the cryptocurrency exchange Binance. And they call it a pump and dump. They hype up the group and then don’t announce the coin until right when the pump and dump is initiated. They say, “We’re going to get good returns. We have all these people participating. We have whales [people who are holding particularly large amounts of the coin in question] who are going to help drive the market.”

Then, they announce the coin and it is usually some altcoin, or “shitcoin,” as they’re also called. Sometimes some people make it out okay. But if you look at all under the hood at the trading data, you can see that someone started trading a lot of the coin a few minutes before the official announcement. This means that the people running the pump and dump bought in early and the price went down afterward. At the end of it, they spin it and say, “We got 400 percent returns and all these people got in. See you next week.”

That is fraud and manipulation. These are features of the landscape. There are people who think that you can clean up the industry and make it more reputable, which is possible. But right now, pump and dump schemes are standard features. They happen on Binance, the exchange that I subscribe to and the biggest exchange in the world. Binance must know this is happening every week, but it is just part of the system.

DD

Before we get any further, what is a blockchain and how does it work?

JS

A blockchain is basically a distributed database or ledger. Their history as a technology goes back about thirty years. One thing that critics will say is that blockchain as a technology has been around for quite a while and has not necessarily found an adequate use case. For example, bitcoin is a distributed ledger. It is a blockchain. It is immutable, so pieces get added onto the blockchain but things do not get deleted.

To oversee governance, people are running the bitcoin software on computers all over the world. When a transaction happens, it is appended to the blockchain. For all these distributed computers running the block, the bitcoin software helps ensure the security of the blockchain and that it is all recorded.

EO

Blockchain also gets a lot of focus because even if you are a skeptic on every other element of crypto or every other element of things connected to crypto, like decentralized financing schemes, blockchain technology is an interesting development that we can now apply to all sorts of things unrelated to crypto to facilitate more transparency or privacy.

DD

Transparency because every transaction is recorded privately, because the entities or individuals making those transactions are anonymous?

EO

Yes. There’s one example which would be pretty interesting if it got developed, but I don’t think it would because it is against a lot of people’s interests. I saw a proposal by Decode EU to try to develop a system using a blockchain that would allow for anonymous whistleblowing anywhere in the world by any government bureaucrat and, by extension, corporate workers. One way or another, you would be able to verify that it came from the place where it came from, but you would not have to worry about that person having their identity exposed, revealed, and cracked down on.

There are still some issues, though. For example, if it is a document that only a few people have a handle on, you would still be able to crack down a little bit and get a sense of who might have been responsible. It is an interesting proposal that could be developed, but something like that is also not going to be developed because some of these use cases are against the interest of a corporation.

DD

Do you think blockchain could potentially be used in any sort of socially beneficial way? I know there’s some debate about this on the Left.

JS

I am dubious. This is not to say that I think that technology is inherently evil, bad, or malicious, but I think we have had a fair amount of time to see blockchain be applied in more socially useful ways, and we have not seen those ways develop. Right now, we do have systems that exist like SecureDrop, which lets people blow the whistle. It may not be as effective, public, or permanent and censorship-resistant as something like a blockchain whistleblowing system, but I think some people are looking for a revolutionary possibility with blockchain, especially people in the industry who stand to make a lot of money. That is not necessarily apparent to a lot of folks who do not have a financial interest in the stuff. I am sympathetic and open to arguments from the Left. But, I don’t really see it yet.

Also, there are these first-order issues that we do not always talk about when we are critiquing cryptocurrency. Frankly, I think that currency needs to be tied to the state or to some kind of political governance. As much as I have a problem with the state and state control over things, I think private money becomes a real problem. We certainly had a lot of it in the nineteenth century, with Confederate bonds and rich people printing their own private forms of money. So there are ways in which some of the initial conditions of this technology and how it is deployed are almost a nonstarter.

I am open to specific use cases, but on the currency side of things I don’t see that being as emancipatory or economically liberating as even some people on the Left seem to think it could be.

DD

Given how obviously and crassly profiteering the reality of cryptocurrency is, why is it all wrapped up in such intensely utopian rhetoric?

EO

Part of it is this belief that it could provide a revolutionary break. The Left’s cases for blockchain that I am really familiar with come largely from The Blockchain Socialist, which proposes interesting use cases but usually from thought experiments or from positions where the Left has seized power, a control of housing, or a control of some large block of property and wants to then start figuring out schemes to create permanent public ownership, decentralization, or public governance that survives long after the parties may lose in an election.

DD

That reminds me of ambitions for cybernetic socialist management that we have seen throughout history.

EO

I think that is a good way to put it. There is a technocratic thread running through it. There is some of this debate about central planning, returning, as a lot of the debates do, to the calculation debate about whether or not you can actually sit down and plan an economy if you have enough information, real time inputs, and ways to organize and distribute resources after input and after production.

But all of this assumes that the momentum the Right and capitalists have with blockchain can be stopped or overcome, and I don’t think it can. At this point, it is firmly embedded inside of financialization. Most of the ways that technology is developed, the ways that it is applied, and the use cases are used solely to advance really esoteric forms of commodification, privatization, and ways to money launder, to speculate, or to financialize. I do not think the task of rolling all of that back and then trying to reapply it for leftist purposes makes much sense.

I would much rather get rid of it altogether and then figure out as we are developing a new society what can stay and what cannot. Part of the revolutionary logic understands and recognizes that it is captured almost exclusively by capitalist logic, applications, and use cases, and if we could liberate it from all that, then we would have the world before us.

JS

We have also had decades of right-wing and Republican-led attacks on government and a hollowing out of government. Many things don’t work or are ineffective. Our institutions are corrupt. So part of that utopian mission that people apply to crypto, especially on the Right, is using it as the escape from our mangled politics and our broken institutions that we have been waiting for.

Of course, that same right-wing is largely responsible for getting us to this place. I am puzzled about why people see the big fortunes being made by some really ridiculous characters as inspiring or liberating.

Bitcoin culture is pretty crass and hypermasculine. It is mostly dudes. It is very classist. One of the most common memes is, “Have fun staying poor.” You can find people who do believe in the community or some form of economic liberation or emancipation, but there are a lot of people who are just trying to get rich and ride the latest coin to the moon, and think Elon Musk or all the bitcoin influencers like Michael Saylor are great.

You can talk about the utopian stuff in a couple of different ways. There is some fairly ugly, libertarian, anarcho-capitalist, far-right stuff, and then there are people who do not want to pay taxes and want to be left alone by the state. One of the principal appeals that people make for crypto, especially for things like NFTs or DAOs, is that you are joining a community.

I think crypto is the opposite of a lot of things that it claims to be. A big thing for me is this argument about decentralization. It is rhetorically powerful for people, but it is rather limited. Once you drill down, you realize that any sense of decentralization is specious, because crypto, especially bitcoin, is very concentrated in a small number of accounts. Wealth inequality in bitcoin is even more extreme than it is in the fiat general dollar society.

All of these gestures toward egalitarianism, decentralizing power, and redistributing power are facetious. What we are really doing is reshuffling power relations. You are not going to necessarily get rid of power from a system. Instead, you are going to redistribute it, and redistribute who has authority and who can take advantage of the rules. That is a problem you see throughout, especially decentralized finance (DeFi), where there has been a lot of rug pulls and a lot of people stealing money. People put trust in the code there — if we just code the right, if we have smart contracts, we won’t need people or institutions. But, what you realize is that this idea of decentralization and diffusing power, even getting rid of human decision makers, is actually quite ineffective and can make whole new kinds of complications.

DD

There is all this utopian rhetoric about creating a new world of decentralized power free of arbitrary government authority. But there is also this day-to-day discourse on Reddit or Telegram with memes making fun of poor people. Does the crypto bro world as it actually exists bother drawing much on the sort of libertarian, cyberpunk godfathers of cryptocurrency, or has the day-to-day crypto discourse dispensed with a lot of that pretense? How do those two things fit together?

JS

Crypto entered the influencer, celebrity, cult of personality, and, arguably, religious realms. You see a lot of people on Twitter and other places who are just pumping up the latest crypto influencers and love their really dumb, inspirational sayings. Everyone is rising and grinding every day, and hustling and watching their bag go up and stacking sats, which is the term for buying Satoshis or the smaller increments of bitcoin. It has become this bro-tastic, Miami, rise-and-grind, get-your-bag culture based around these influencers — some of whom have sketchy histories, but that is a whole other matter.

This has displaced many of the original cyberpunk, libertarian, freedom-through-technology tendencies, which themselves were maybe tired lines of intellectual inquiry. I think by now we know that computers are not going to free us.

This market has just become so valuable. I cannot tell you the market cap of bitcoin off my head — I think it is over a trillion. The overall market cap of crypto is over a trillion. And there is a lot of venture capital money going into some of these companies, so it is not just people at home using their stimulus checks to buy some Ethereum and hoping it goes up. There is serious money there. There are hedge funds and other firms who are doing high-frequency trading on the exchanges. That all trends toward both the professionalization and celebrification of crypto.

EO

There is a projection of politics onto decentralization and onto key parts of this technology when, in reality, it’s not really decentralized at all. Whether it’s the amount of people that can actually implement or develop these projects, whether it’s the coins where you can actually go to build a platform, whether it’s the type of communities or the investors or the money that gets poured into it — it is not this cornucopia of decentralization.

Every person is a cowboy in this imagined settler frontier of the Wild West, staking out land they stole from someone.

DD

I think of it like the Homestead Act, but in the metaverse, right?

EO

Funnily enough, that imagination underpins some of the legislation and the rhetoric behind it. When people are passing laws, for example, in Puerto Rico, to incentivize the migration of people with large crypto holdings, they are partially doing it because they do not really imagine Puerto Rico as a real place. They imagine it as fresh ground to be settled by real businessmen and by real wealthy individuals who can really develop the country.

But if you spend any time talking to people who have moved there, they are going because they don’t pay taxes. They don’t have any interest in paying into Puerto Rico at all. They just want to go there because they made $3 million on crypto in one year and they really don’t want to pay a million dollars in taxes.

People are engaging with a false conception of what crypto, bitcoin, decentralized finance, or all these things actually represent, because of the constant battle over politics, or the arguments about what the politics actually are and the insistence that it is a liberatory technology. This is something that will disrupt to the benefit of everyone and every institution, so long as they integrate it into themselves some way or somehow. That gives a lot of room for grifters, influencers, ideologues, venture capitalists, and all these people who have all these interests that are contrary to anything that resembles you and people that you know having a better life.

DD

Jacob, you write that cryptocurrency operates a lot like a multilevel marketing (MLM) scheme. Indeed, the internet in general — and maybe TikTok in particular — is full of promotions for companies like Herbalife and Avon. You write, “As with an MLM, coiners recommend addressing adversity, or a decline in bitcoin’s value, by recommitting to the program. ‘Buy the dip’ goes a common piece of advice, which serves as a half-ironic rallying cry when the market turns bare. Many coiners claim they are ‘HODLing,’ or holding onto Bitcoin for the long term, meaning years or even decades, but treating the asset with this kind of generational reverence is another way of attempting to artificially infuse it with meaning and value. If you project the asset as rising in value into the endless future, then the only risk is not buying in soon enough.”

How does this internet culture around cryptocurrency take shape and nurture this collective commitment to “hodling”? What does that culture look like? How do people participate in it, and what do you think it offers people in socio-emotional terms?

JS

For some people, it really provides the kind of meaning they are seeking in bitcoin. I am not joking when I say that there are aspects of it that resemble a religion or a cult. It has sacred texts. It has overarching figures. It has a hidden messiah in Satoshi Nakamoto. It has the potential for revolution or liberation if one only abides by the program for some kind of salvation. There are people who are true believers in that way, who some people would call “bitcoin maximalists.” That is a term that even people who really believe in bitcoin won’t use to describe themselves, but to varying degrees, it provides a community, a social purpose as a binding agent that brings people together.

A big part of bitcoin, which is also a meme, is “number go up,” which means that bitcoiners will tell you why bitcoin has inherent value. They’ll say, “It’s scarce. It’s secured by the blockchain and the software.” There are all these reasons that they propose why a bitcoin is not worth zero. But really, a lot of it is just about this shared delusion that “number go up,” that as people gain interest, build a culture around it, and, most importantly, build attention around it on social media with fake accounts, then the value goes up.

In a lot of ways, that is like an MLM, including the sense of ownership and belonging. There is something called the “greater fool” theory in economics, which is basically that some assets do not have inherent value. You simply have to find someone who is a bigger fool than you who thinks it is worth more than you do, and then you sell it. That is what happens with bitcoin. Greater fool all the way. It’s just about finding someone who thinks it’s more valuable than you do and selling it on to them.

In terms of the generational thing, I think there are a couple of ways of looking at that. Some HODLers really want to believe, “I’m investing in an asset that my grandkids will derive yield from or be able to sell.” Some of them would just want to believe that they are not just buying digital snake oil or something. Then, there are people who say that to juice the market.

For example, Michael Saylor, who is the head of this company called MicroStrategy, was one of the biggest bitcoin whales and has basically converted his enterprise software company into a vehicle for raising debt and buying bitcoin. He keeps talking about how they are never going to sell. It’s possible… but I also wouldn’t be surprised if they had already sold through some subsidiary. But, they say that because they want to hype this up as a truly revolutionary asset that everyone needs to have.

EO

Saylor likes to say, “Buy, borrow, or steal to buy.”

JS

I don’t know that saying from him because he’s blocked me, but he’s ridiculous. He’s one of the high priests of bitcoin. He shouldn’t be taken very seriously, but he does have a big following, especially among these rise-and-grind influencer types.

There is also this company called Grayscale, which is basically an investment vehicle that buys tons of bitcoin. What you hear from these institutional entities that are buying lots of bitcoin and preaching the whole mindset is, “This is how you create generational wealth in a new way.” I have my doubts, and I also have my doubts that some of the people who are the loudest HODLers are actually holding.

EO

Some of them may because you can verify with their wallets and, to an extent, look at their transactions. But, there are others who are not going to offer that up, and there are others who have a vested interest in hyping or buying for a specific time. MicroStrategy has been behind some of the key price booms of bitcoin by being such a large holder of it. Jacob did a great profile of Michael Saylor and highlighted this.

If you really look closely, a lot of whales and a lot of influencers in one way or another speak the way that they do less so because they believe in it and more so because they have a vested interest in pushing it.

DD

Edward, you wrote about Spike Lee recently starring in this commercial promoting Queen Cloud, which is a company that runs cryptocurrency ATMs, whatever those are:

Our currency is not current. Old money, as rich as it looks, is flat out broke. Don’t believe me? I got the receipts. They call it green, but it’s only white, whereas the women, the black folks, and the people of color, Native Americans got a nickel. A nickel! People don’t even stop to pick up a nickel off the sidewalk. Seven million Americans have no bank account. Twenty million underbanked! Old money is not going to pick us up. It pushes us down, exploits, and systematically oppresses us. But new money? New money is positive, inclusive, fluid, strong, culturally rich. Where status is anything but status quo.

What’s going on here? Is this just the ordinary spirit of capitalism, of this moment where any and every corporation adopts a superficial identity politics to legitimate their plunder and exploitation? Or does this reflect something more particular about the ideology surrounding crypto?

EO

There are a few things here. Part of this is that Spike Lee has gone to bat for shady enterprises. In late 2018, he made a series of short films for Uber that basically painted gig work as liberatory and emancipatory. A lot of people were shocked when he did the commercials, but if you follow what he does in public life and the collaborations that he does with a corporation like Uber, then you see what is going on here.

There is both a deceptive move and a misunderstanding move. There is this genuine belief that crypto can bridge the gap for those who are unbanked or underbanked and don’t have access to the financial services they need, specifically black and brown people. Then there are other people who see that, want to take advantage of it, want to bring these people into it, and want to inflate the numbers or the amount of liquid capital that is flowing around in crypto. The more people that are using it, the better — it doesn’t really even matter if the people who are using it can get wiped out. What matters is that they go to the altar and pray and then offer up sacrifice. Then it is more or less fine with them.

But, when you actually look at the numbers — let’s say that the people who cannot afford a bank account need some sort of financial service and that a lot of people, specifically minorities, are underbanked and unbanked. Why would it make sense for you to give them a volatile asset? Why would it make sense, especially when most Americans don’t have retirement savings, don’t have any sort of stocks, don’t have any sort of connection to financial markets, and don’t have the money for emergencies? Why do you think that it makes sense for you to expose them to a speculative, risky enterprise which eats the lunches of many of the people that get into it — especially when these are people whose households have less wealth to begin with?

It also does not make sense unless you then link it to some of the ideologies that are working around here — this idea that crypto, financial apps, and fintech are going to democratize finance, as if you could democratize one of the engines of capitalism and its attempt to eat every single thing in this world. You are not going to democratize finance any more than you are going to democratize Goldman Sachs or JP Morgan. The idea that giving people access to an app, some coins, fractions of a coin, or a wallet will do any of this is PR. It’s bullshit, and it’s constructed to touch the right places and pressure points and buttons so that people don’t actually step back and think about how this is not what that is doing at all.

JS

There is some interesting reporting about how members of minority groups, especially black and brown folks, are overrepresented in crypto because a lot of people feel shut out of the traditional banking system. This is where you get into a strange kind of dialectic with crypto people. Every day I get accused of being a shill for fiat, central banking, and the existing banks. And I’m like, “No, I hate those people!” That does not mean that crypto is the answer to financial liberation. Postal banking would probably do a lot more good for poor people and unbanked people than any crypto measure would. The Spike Lee commercial is a reflection of how crypto would like to itself be seen.

I think there’s also this idea that democratizing finance is a good thing, but crypto turns you into a form of Homo economicus or crypto-nomicus. You are a purely economic, crypto-oriented being. These markets run 24-7. They are totally unregulated. Your bag, as your account is called, could be fluctuating all day and all night long. There are reasons to check it all the time, because it is volatile and you are always thinking in terms of the value of things around you and what leverage or arbitrage situations you can take advantage of.

That is a terrible way to think about money. Crypto makes you think about money even more. It makes it even more of a presence in your life. Now, if you’re struggling for money, if you’re poor, it’s hard not to think about money. But you don’t want to financialize everything and turn everything into an opportunity to tokenize, financialize, securitize, and turn physical assets into virtual assets when you don’t need to.

DD

But Jacob, this is the same reason that Bush wanted to privatize Social Security — so that you have the so-called “freedom” to invest in the stock market or school vouchers, or anything that shapes one’s subjectivity into a neoliberal one and makes that the rational way for one to approach one’s mode of being and survival in the world: to financialize it.

JS

A British computer scientist named Stephen Diehl recently wrote about the fact that the real innovation in a lot of crypto is the ability to tokenize and financialize things, or turn things into financial assets that previously were not. In a lot of ways, the technological innovation is secondary or unimpressive compared to this ability to create markets and create digital assets around things that previously had no value or were not necessarily enmeshed in an economic exchange.

DD

In terms of those Republic of Brooklyn Uber promotion films, is the mystification surrounding the gig economy similar or even identical to the forms of mystification that legitimate cryptocurrency? In both cases, there is this notion that the technology is what is special about Uber and about bitcoin, when in fact the tech is a sideshow. It is the mystification, ostensibly the technological liberation embodied by the gig economy.

There are these ideas that it will make you a successful entrepreneur, or cryptocurrency’s technology will reward ordinary people for being savvy. Yet in both cases, it is mostly just rich people getting richer through capitalist exploitation and plunder as usual, but with a new spirit for the times to justify it all. Is that the key thing linking the gig economy and cryptocurrency?

EO

A lot of times when people talk about tech, they are really talking about digitization, or privatization through digital means. They develop technologies that do that very thing and foreclose the possibility of socially productive technology that actually solves a political problem in a way that helps as many people as possible without commodifying the thing.

When we talk about this or that exciting form of technology, what we are really talking about is this or that exciting phase of enclosure. In the gig economy, that exciting phase was the venture capitalists subsidizing the widespread use of a taxi dispatch application. They developed it so that you would be trapped using it, and then they could cut the wages for the drivers, cut the subsidies themselves, and extract more monopoly prices from everybody. Here it feels like the exciting part of the enclosure is the early returns that everyone would get.

JS

In the case of bitcoin, the technology is arguably actively harmful. We haven’t even gotten to the number one critique of bitcoin, which is that the environmental and electrical requirements are huge and only growing. Some people do not want to debate these first-order issues, like, “Should money be bound to the state?” For me, that has become a fairly clear answer. Another one of these first-order issues with bitcoin is, “Is it worth the environmental toll?” It simply is not, especially as it is increasing over time and rivaling whole countries. It does not produce enough productive value to justify that environmental toll.

That technology, whether we are talking about bitcoin or a taxi app, is secondary and a gloss that tries to mystify and impress people. What you really have is the worker or the investor or the person holding the bag put on the front lines without any support — it is a driver with very little professional, social, or financial support, or an individual investor in crypto with almost no support. If your account goes under or you are stolen from, you do not have any FDIC insurance and you are totally out of luck. It is supposed to be liberation, but without any of the governing institutions, laws, or supporting mechanisms that would ostensibly help people when trouble strikes.

DD

In the coin cloud commercial, Spike Lee tells viewers to do your own research. Incidentally, that is exactly the same phrase that conspiracists pushing things like QAnon instruct sheeple to do. What does the identical phrasing reveal?

EO

Yeah, it’s like, “this is not financial advice” — and then it proceeds to give you really extensive financial advice. These obligatory disclaimers are being directed at people who are usually atomized, desperate, and seeking an authoritative answer to questions. To say “do your own research” while presenting a glitzy, pre-packaged, reviewed, edited, and scripted ad is a bit disingenuous.

Conspiracy theories are slightly different in that they may hold an even larger theory of the world for people. You get presented a completely self-referential, explains-everything, causal framework or explanation for how the world works. Crypto is analogous to that. You are going down the rabbit hole. This person is telling you to do your own research, but there are bright neon signs behind them saying, “Here is why you should keep coming down the rabbit hole with me.”

JS

There is also this assumption, and it is actually stated often, that if you spend enough time in the crypto world, you will have your moment of epiphany. Keep going down the rabbit hole, do your own research. Eventually, you are going to realize — whether you have been reading enough Jack Dorsey tweets or you read some Murray Rothbard or you learn about going off the gold standard — and have your transformation.

For some people, it is also a technical thing. They realize that bitcoin is somehow perfectly designed. I mean, Steve Wozniak, the cofounder of Apple, has talked about how he thinks the bitcoin code is basically perfect. There is a technical worship of it.

There is also this ideological stuff and a butchering of history in which people decide that bitcoin is what you need. It is the great response to inflation. Coincidentally, coiners are constantly pushing this idea that we are going through terrible inflation. This is not to deny that some inflation is occurring, but rather it points out how this is adapted to the circumstances of what is going on in public life.

DD

It’s like the Protestant Reformation. Fuck the intermediation of the priests. You are supposed to find the truth through your own personal relationship with God — but you are going to find a truth that is the same one that I found or you are a heretic.

EO

Yeah, that is precisely right. I just do not fundamentally agree with a lot of defenses of crypto and a lot of the proposals or the use cases that are offered up. They are interesting, intellectually stimulating, and things to think through, but I do not think that they are applicable. We are not in that world. We are fighting against forces of capital and financiers who have taken hold of how people think about this thing and how it is deployed. They are also the ones that are driving the development of it.

When I see interesting use cases, I think, “In another world that would be nice. It would be nice if we could somehow figure out a way to use blockchain, for example, to solve housing prices.” But it is not in the cards.

DD

But rent control and social ownership of housing would probably be a more straightforward way to solve our housing problems. And that, of course, requires solving the problem of how the Left wins political power.

Jacob, you write, “Coiners like to say that Bitcoin doesn’t have a marketing department, but that’s not exactly true. Bitcoin has no centralized authority to promote it, but it does have cryptocurrency exchanges, venture capitalists, industry influencers, tech moguls, blockchain startups, sycophantic media outlets, and all sorts of other parties whose moneyed interests lie in boosting the reputation, the ubiquity, and consequently the value of Bitcoin. The hype found its way to mainstream banks like JP Morgan.”

Bitcoin, though lacking a marketing department, resembles a multilevel marketing scheme. You have mentioned all of these social media influencers and major figures like Mark Cuban and Kim Kardashian that have promoted crypto, but no one has promoted it more feverishly than Elon Musk. But in May, Musk suddenly announced on Twitter that Tesla would no longer accept bitcoin anymore. He announced this after being Bitcoin and Dogecoin’s most prominent hype man alive. What impact did Musk’s promotion have on cryptocurrency, and what do you make of the sudden change in tack?

JS

We have to keep in mind that this is an influencer, media, and attention-driven market. To use a recent term about meme stocks, basically everything is a meme coin. The price of Bitcoin does fluctuate according to some market fundamentals or when the SEC is talking about doing something, but really the number moves when the richest man in the world is talking about Dogecoin on Twitter.

This gets to one of my pet issues. Besides not being liberatory or emancipatory in any way because they are not equal or fair markets, they are also totally unregulated except for a couple of US space exchanges. The markets run 24-7. There are very few mechanisms to deal with crashes or sudden swings in prices. The exchanges are basically vertically integrated, where the different sort of responsibilities that Nasdaq or the New York Stock Exchange would farm out between different entities and companies are instead all done on Binance or FedEx or whatever.

On Musk and some of these other people, it is hard to prove, but I think the crypto markets are really run by a small number of people. That is not to say that it is all a cabal, but the people who run X, Binance, Tether, and some of these other big firms all know each other. They talk to each other, invest in each other’s companies, and trade on each other’s platforms. Crypto is an oligarchy heavily influenced by both the behind-the-scenes executives at these big exchanges and other companies, and the celebrity executives or influencers like Musk.

As to why he turned against bitcoin: sometimes with Musk, the answers are not always logical, or they are more mercurial, or more like he thought he was being funny that day.

I think sometimes Musk gets stoned and thinks that he is being funny on Twitter, and then his lawyers come and say, “Actually, you can’t do that — you have an agreement with the SEC.”

DD

To not announce job market moving information on Twitter.

JS

Exactly. Or not to announce that you are going to take the company private at $420 a share because the Saudis are going to let you.

DD

Jacob, you mentioned your obsession with stable coins, which is a type of cryptocurrency pegged one to one to the US dollar. What does it mean for a crypto coin to be pegged to a national currency — in this case, a national currency that is also the global reserve currency? What sort of financial risk does that potentially pose given that Tether, which you mentioned earlier, the leading stablecoin, does not possess a Fort Knox worth of US dollars with which to redeem every possible claim on stablecoins? This is becoming a really big market. Over the last year, the total value of stablecoins has increased from around $20 billion to around $50 billion today. That’s a lot of money. What happens if faith in stablecoins plummets and people call in their dollar claims all at once?

JS

I actually think that the overall value may even be higher because I think Tether is over $70 billion in stablecoins. Tether is worth one dollar. We joked about this on Twitter. It’s sort of like Disney bucks or house money. You go onto the exchange and use dollars to buy Tethers. You don’t have to do this, but this makes it easier to get in and out of crypto assets and sometimes to move money between exchanges and things like that. Tether service is the coin of the realm.

There are other ones, like USDC. Some people think that Paxos is the most legitimate stablecoin because it is fairly regulated and cooperates with regulators, but Tether is really the main market mover, and it’s about 70 percent of bitcoin. Daily transactions are done in Tether, meaning that the prices of bitcoin are listed in terms of USDC, which are worth a dollar each.

The problem with Tether is that you have this offshore company that has its own money printer. Say I want to buy $100 million worth of Tethers on some big trading firm and I want to do a lot of trading on Binance. So I’ll go to Tether and buy $100 million worth of Tethers. The idea is that I give them 100 million fiat dollars and they give me a hundred million Tethers and then I go use that. It is put on a certain blockchain. I go use it to do all kinds of crazy financial arbitrage and transactions.

The big issue with Tether, besides the shadiness of its leadership, is that for a long time Tether claimed that for every dollar or Tether they gave out, they had one dollar in the bank. Several years ago, Tether basically said that they were changing that, but they didn’t really announce the change. They just changed their terms of service on their website. And they claim that Tethers were fully backed by assets in general, not necessarily one-to-one by a dollar.

DD

So that includes corporate debt now, commercial paper?

JS

Yes, now they have a lot of commercial debt and other forms of assets. I think they are counting crypto among those backing assets. You could see the problem if Tether is giving out their own private currency and people are using that to buy Bitcoin, but maybe people are also using Bitcoin to pay for Tether. It becomes a sort of circular Ponzi scheme.

There is also a question of whether these debts really get resolved. We know that Tether does not have nearly the one-to-one backing of fiat that it once claimed it did. The question is, how much do they really have?

They have all kinds of agreements with the New York attorney general, which mandate that they’re supposed to disclose the stuff. For years they have been talking about doing an audit, but Tether has been saying that the audits are around the corner when they won’t even say who’s doing the audit.

So a lot of people like me think that Tether is basically a Ponzi scheme at the heart of the crypto economy, and that Tether is going to go down in some form. It is being investigated, according to Bloomberg, by the Department of Justice for criminal bank fraud. There are lots of other things that we do know for sure about Tether as well. According to a CFTC [Commodity Futures Trading Commission] investigation, they had more than twenty-nine banking relationships with no paper trail. It’s insane.

DD

Edward?

EO

I think it’s a systemic risk — the currency controller for the US in September was saying that stablecoins could be a systemic risk, partly because their dollar reserves are not one-to-one, so they are printing money. Also, if at any point some actual audit or review of it shakes in confidence, there will be a run. People use Tether as a waypoint in a lot of transactions, and it is indirectly responsible or directly responsible in some instances for huge price booms of crypto when the price has declined over the past few years. It has been used multiple times in key moments to keep crypto afloat.

If you’re telling me that the third-largest coin — the coin that is often used by people as an intermediary for trading for other coins — is actually just a massive bubble, accounting black hole, or Ponzi scheme, what does that say about every single other coin? Even if the other ones, like Bitcoin and Ethereum, are not? If the stablecoin, the one thing that is supposed to be the most ostensibly trustworthy one because it’s pegged to a real world asset, is, then I think that would destroy confidence completely.

The Tether success has encouraged other attempts to get into crypto through stablecoin as well. About three years ago, Facebook was going to try to overthrow the global monetary system by creating their own stablecoin, Libra, and thought that they had the backing of dozens of companies or financial vendors.

DD

Then the second it was reported, all these companies started pulling out.

EO

Yeah, because they were like, “What the fuck are you talking about?” Come to a congressional hearing right now. What is this? What are you talking about? They had a hearing and everyone was like, “We will not let you do this. This is insane. What are you talking about? You want to create a currency that is pegged to the dollar? This is nonsense.” So they closed it down and then they downsized and they tried to introduce another stablecoin, Diem. That also got killed.

But these attempts to roll out stablecoins are also bids by other companies to try to put their foot into the water safely, right? And again, Tether itself is scandalous. It is hard to imagine that if Tether is the most-used one, that other ones are going to be allowed to happen if it ends up being revealed as a fraud, which is likely. Stablecoins are offered as a safer alternative because they’re pegged to a real world asset, but if the largest one is just a fraudulent scheme, then why should you bother with any of them?

DD

Returning to the regulatory question — in September, China banned all cryptocurrency mining and transactions. The Indian Parliament is considering a bill to ban all private cryptocurrency. What motivates these crackdowns and what sort of impact might they have on the global cryptocurrency market? It does seem like it could be a big problem being banned in the second-largest economy, China, and in India, the sixth-largest.

EO

I am not sure. There are a few things going on. There’s a group of people who understand most of China’s technological policy moves as censorious or as looking to centralize state control. To an extent, they are. But I also think there is a slight misunderstanding in that. For example, it depends on how you see the Great Firewall. The Great Firewall is a great way to censor the internet. There’s a certain type of understanding of what they’ll do in crypto that you’ll have. But also, the Great Firewall is an industrial policy thing that they did to keep out all Silicon Valley firms, create their own competitors, take information and patterns and technology from them, and then start to compete with them on a global scale — protect the country, steal from them, then compete with them.

That confers an alternative view where, probably in the short-term, they want to get that shit out of there as part of the overhaul that they are doing of some firms in the digital economy, whether it’s a crackdown on antitrust, crackdown on social media addiction, or whether it’s crackdown on the ability of private capital just to flourish and be as profligate as it was in some instances.

Also, part of it is preemptive recognition that letting crypto technology flourish is going to lead to new forms of financialization that they don’t really want. They’re already struggling with containing the forms of financialization that are brought on by these digital platforms. Now they have to throw in crypto. That would likely be a mess. Also, the energy constraints are a large concern. Some of these countries, like Kazakhstan, India, and China, have significant energy demands already. They do not need a speculative enterprise that goes against central planning initiatives or industrial policy initiatives that they have and interferes with their ability to provide energy when they already have the monumental task to provide it for a billion or more people. So I view it as both a “get out of here” move and also an attempt to figure out what they can do instead of having private individuals do it.

JS

It is definitely in some ways seen as a challenge to state sovereignty. Even Trump said that he does not like bitcoin because it competes with the dollar. That says something about how certain decision makers think. If you’re an official in almost any government, you want some influence over the monetary supply, how money is spent, and financial planning, whether it’s an authoritarian, dictatorial government like China, or a messy, oligarchic democracy.

But the power issue is also very real. That was an issue in China. You can point to larger issues too, like the semiconductor shortage that affects hundreds of industries and has something to do with the hunger for the equipment that can mine crypto. And miners got kicked out of China and went to places like Kyrgyzstan, Kazakhstan, or Iran, and all those places have had electricity issues. For some governments, there is a major question of how they want to spend their resources. What kind of laws do you want to have governing this stuff? If you just leave it to its own devices, it’s going to consume your electrical grid.

EO

Semiconductors’ importance is largely just thought of in terms of how central they are to electronics, but they are also developing and will develop into a geopolitical front because they unlock the ability to design and foreclose avenues of technological development. There are struggles between the US and China over the standardization of how certain technologies will communicate with one another, what type of inputs they’ll be able to have, who’s going to have a supply chain that’s independent from the other actor or that can resist attempts by the other actor to sanction it, shock it, to disrupt it, to undermine it.

That is a pretty big struggle, and you cannot really handle that if you have millions of people with warehouses or these huge operations that do nothing except mine and burn out chip after chip or processing unit after processing unit. You cannot really deal with that as a factor if you are also trying to deal with and plan for what is going to be a pretty hard fought geopolitical… I don’t know if conflict is the right word, so a geopolitical tango. How do you create an infrastructure and a supply system that is both global and insulated from the US and other actors that might try to disrupt it. You can’t do that with them mining in your country.

JS

The mining issue just really reflects bitcoin and crypto in general. Not all cryptos are mined in the same way. There are less energy intensive versions, but a lot work on a similar method called Proof of Work, which secures bitcoin and basically is responsible for the ever escalating energy usage as the network expands.

DD

Bitcoin requires as much energy as Sweden.

JS

Yeah, we’re getting up there into the same energy usage as the smaller, advanced western countries, or economically developed Western countries. They pass Argentina and the Netherlands. Now it’s good old social democratic Sweden. So these are major questions, not just of how you want to control the monetary supply, but industrial policy, how you want resources apportioned.

There are all kinds of disingenuous corner arguments about how the energy expenditure of bitcoin is actually a good thing or how it shows value of the network. There is also a lot of bullshit about how bitcoin incentivizes green energy, or it uses what’s called stranded energy that comes from renewable sources that would not normally be put back into the grid or used.

DD

This is part of what Nayib Bukele, the Salvadoran crypto bro president, is trying to do and say. He’s saying it’s going to be volcanically powered.

JS

It’s bullshit. El Salvador imports a lot of their energy, and they burn oil for energy. They are not overflowing with green energy from volcanoes or anywhere else. Acting like you can just take bitcoin and stick it on a volcano or some old power plant and say it’s green is ridiculous. Not to mention the fact that you’re literally burning through equipment.

I think that the reason why El Salvador is doing all this is partly because there’s not much difference between him and one of these guys — these people like Anthony Pompliano, Winklevoss, Michael Saylor, and Brock Pierce, who all want to get rich. If you took one of these Twitter crypto influencers and just made him the authoritarian president of a Central American country, it would be very bizarre. But that is why it’s developing there. When he did his recent song and dance, he brought in all these American crypto influencers and had them be there to tweet about it.

DD

El Salvador is very revealing of the fact that the techno utopian dream of escaping the confines of the nation-states is really just setting up shop under the protection of a neocolonial state on the periphery of the world system that will not tax you.

EO

It is just a colonial enterprise. The settler-colonial mindset encourages homesteading and staking a claim to the land while masking the violence that is going on, like the fact that you have to steal someone else’s lunch to get anything in crypto space because they are not actually generating value. They are just transferring it or draining it to one place or another. Then, these places like Puerto Rico and El Salvador are saying, “We’re using this law where we’re going to buy some land here. We’re going to build a business here. We’re going to do transactions here and those will generate revenues that can be taxed. But, our crypto gains will not be.”

But I’ve talked to each of them, and they really are just using these as incubators to generate more money and more crypto so that then they can do what they really want, which is start a business in some other country, become a landlord in some other country, or maybe return to the United States with enough money to hire lawyers to actually not pay taxes. It is the training stage in some hero’s journey for them. It is not actually a desire to go in and say, “I’m going to do some good with crypto.” They’re like, “I’m going to figure out how I’m going to game this. I can make as much money as possible and minimize any sort of draining of my capital while maximizing the draining of other people’s.”

DD

I want to close by briefly talking about the metaverse. Recently, according to Reuters, a patch of virtual real estate in the online world, Decentraland, sold for a record 2.4 million dollars worth of cryptocurrency. Decentraland is a specific type of metaverse that uses blockchain. Land and other items in Decentraland are sold in the form of non-fungible tokens (NFTs), a kind of crypto asset.

Is the metaverse, this alternative digital reality to which Facebook has now dedicated its new name Meta, at the end of the day just a virtual real estate market? And, if so, why buy virtual real estate instead of an NFT image of a weird monkey, given that both things are just a unique set of numbers on a blockchain that create an artificial sense of scarcity and lay the groundwork for the appreciation of new assets?

JS

Yeah, this actually gets at a real issue that I think has been hovering over all of this. The digital world created infinite abundance in some ways. You can reproduce anything with perfect fidelity. Suddenly, what’s happened across crypto and the metaverse is the emergence of this idea that we need to reintroduce scarcity and make things scarce and valuable again. This is a real concern, a fully articulated one by bitcoin people. They love it that there will be only 21 million bitcoin because they think that the enforced scarcity helps create and preserve value and provide a hedge against inflation.

That is a theme we have to keep in mind when we look at this idea of intangible digital assets. A lot of it goes against what you think about in the digital world, which is that you are going to have abundance. But now we are trying to enforce scarcity through software and artificial means.

It is also what I find contradictory, paradoxical, and unproductive about all of this. If we have potential abundance, why not make use of that? Why would someone buy a digital patch of real estate versus an NFT? I am not really sure. Maybe the real estate is more enticing. It belongs in a world that you can enter, walk around in, and socialize with people. But there is this idea that somehow we are going to be able to recreate digital scarcity and people are going to want to buy this stuff. Someone the other day told me that young people like Zoomers actually ascribe more value to digital assets and intangible assets than older people do.

DD

Older people like millennials?

JS

Yes, older millennials, us elders. But the idea that you’re going to make someone want to pay as much for a house in a virtual world or in the new Second Life, which already did this stuff ten years ago, seems dubious. I think we’ll see a lot of big sales that get a lot of reporting and coverage that are stunt-like. But, the notion that we’re going to serve in a mass conversion to virtual property holders when it does nothing for most of us beyond enmeshing us in a speculative economy is troubling and hopefully wrong.

DD

Real estate markets developing in the metaverse, as perverse and bizarre as they seem, don’t appear so different from today’s real estate markets, because they are nearly totally indifferent to the role played by homes in housing human beings. What is the difference again between the artificiality of Bitcoin’s market cap and Tesla’s market cap, or the trajectory of an entire stock market propped up entirely by central bank–issued liquidity? It is another case of all of this seeming so weird, but also then so weird, fake, and unfair in a way that’s perfectly suited for this moment.

EO

We are in a massive asset bubble. Over the past thirty years, it feels like almost every single major policy regarding the economy has been oriented to sustain that bubble. What better way to cap off the last few years of that bubble than to have it charged by what can be summed up as video game rewards and trading cards that are somehow going to revolutionize the system?

Maybe they will revolutionize the system and then they’ll bring it all down. That would be nice.

DD

Heighten the contradictions.

EO

Exactly. There is a real risk that the systemic risk that many stablecoins and cryptocurrencies pose is not really just to the crypto space, but also to the asset bubble. We have all kind of accepted there is a massive asset bubble, and maybe you deflate one part at a time. But you do not actually deflate the whole thing, because there would be hundreds of billions of dollars to trillions of dollars lost in the worst case.

But it’s getting to the point where I don’t really see what else you would do. The United States is clearly not going to go down the path of China, for example, and do a controlled demolition of certain firms and certain industries. It is also not going to go down the route that I would like to see as a first step, which is listening to the reformists who are offering you an alternative to the guillotine. The alternative is to pare back some of the largest speculators and agents of discord in this bubble. It is likely that it is going to burst at some point; whether it bursts because of crypto or something else is uncertain.

JS

Yeah, what some economics people call “contagion” is a real risk. The crypto bubble is a real risk, and then you have contagion to other markets and other industries. Recently, China kicked out all the [Bitcoin] miners, and then this huge, physical world real estate developer called Evergrande started to collapse in slow motion. It is as if Berkshire Hathaway started to collapse.

One concern is that Tether in particular actually has exposure to a lot of toxic Chinese corporate debt. There is debate about whether they actually hold Evergrande debt, but they won’t say. China seems like it is in some early stage of an economic crisis. Whether it gets really bad remains to be seen.

Then, in the US and globally, we have a crypto bubble worth over 2 trillion dollars. That is a lot of money. It may not go down to zero, but it could. Houses are actually worth something at the end of the day. They were even able to recover $17 billion from Bernie Madoff to return to his victims. With crypto, some of the stuff is going to go down to zero. The questions are, what’s the exposure, how severe and dramatically does that happen, and what other industries, countries, and markets does that flow into?