Is Crypto Bullshit?
I regret to inform you that it's totally legit and crypto/blockchain networks really might be technologically, economically, and politically transformative. Ugh.
As you may have gathered from my previous post, I’ve become interested in cryptocurrency and blockchain regulation. I’ve honestly been a little hesitant to write about this stuff because opinions on the subject are oddly polarized. I know I’ve got crypto-skeptical readers, followers and friends who would be exasperated if I suddenly started spouting off about it all the time. Last week, Venkatesh Rao noted the hostile reaction after tweeting about minting his first NFT (non-fungible token):
If you click through to the results of Rao’s Twitter poll, you’ll see that it shows far more hostility than participation in “Web3” blockchain stuff. This obviously isn’t in any sense scientific, but it accords with my vague impression, which is why I was braced for some “polite but hostile” feedback, which was duly received. In the comments, subscriber Trevor Austin, a software engineer who surely knows more about this than I do, writes:
I did some dabbling in Solidity two years ago when my company explored a crypto moonshot slash ICO cash grab, and I came away thinking there's mostly no there there… If anything I've become even more bearish since about smart contracts and web3 watching the NFT hype cycle blossom. Are there *any* problems solved by blockchains that aren't better handled by a nonprofit org with a good charter and a mysql database?
I’ve heard endless versions of the “What problem does this solve!?” plaint ever since delving into this world of mystery and wonder. Similarly, Tom Lee, a long-time mutual follow and super-tech savvy IRL friendly acquaintance, tweeted:
Tom’s point seems to me to assume that something important is gained but nothing of offsetting importance is lost if burdensome-to-impossible reporting requirements hamper the use and development of blockchain tech and herd people back into the mediated and surveilled status quo ante. This is a very common sentiment. Indeed, within my social/intellectual circles, the dominant view seems to be that Bitcoin amounts to climate terrorism in the service of tulip mania, that NFTs are a pyramid scheme, and the main crypto use case is crime-enabling asset concealment and money laundering. The prevalence of this view spells trouble for the prospects of apposite regulatory forbearance and care. Which is a problem if it turns out that there’s a there there.
Now, I’m sensitive and sympathetic to the “right-clicker” view because, well, I’m sure there’s more than a little money laundering, uninternalized climate externalities, greater-fool pyramid scheming, and frothy speculation in cryptoland. It’s not great, and it’s totally worth taking seriously. Until recently, I was skeptical of the whole deal, too.
However, a few of my best and smartest friends are deeply into crypto stuff and know more about it than I do. One of my personal epistemic precepts is that if I disagree with somebody who is (a) at least smart as I am, (b) has generally sound judgment and (c) is better informed on a subject, then I ought to concede that I’m probably wrong and revise my opinion in their direction. The trouble is, I also know plenty of people who satisfy all these conditions but think crypto is unmitigated bullshit. That is to say, we’ve got a rare instance of not-obviously-political intra-smart polarization on our hands! Or, as I tweeted a while back:
What’s a virtuous Bayesian to do? I figure you either adopt the Pyrrhonian skeptical stance, suspend judgment, set your p at .5 and go Swiss… or you get more information. For my part, I want to know whether I’m a doofus for putting a modest amount of money into Ether. At one level, I'd like to just shrug and say “guess we’ll find out” sooner or later. At another level, I’d really like to know whether I ought to buy, sell or hold. Rational agnosticism isn’t much help in balancing your portfolio. So I went with get more information and started bingeing crypto podcasts.
Right away I noticed something essential about polarized attitudes about crypto: it’s driven to a large extent by vexed will-to-obliviousness on one side and self-dealing, book-talking, investment-pumping, hand-waving performative optimism on the other.
Once you get up to speed on the basics (which honestly takes a fair amount of work) it’s plain that a lot of crypto skepticism is little more than annoyance over the constant encroachment of baffling, unwanted crypto news into the ambit of one’s awareness. Michael Chabon’s reply (happens all the time, nbd) to a recent tweet of mine about mainstream under-coverage of the weirdness of the NFT craze captures something central to crypto discourse:
I mean, it’s hard to beat “NFTs seem to repel attention, as if coated in oil of tedium.” No wonder the man’s got a Pulitzer! Now, I don’t know if Chabon’s crypto-skeptical or -hostile or anything like that. But the idea that crypto topics repel attention, but seem to keep demanding it from us nevertheless, gets at something essential about the mood of widespread exasperation and antagonism around crypto. A lot of us just don’t understand it, don’t want to understand it, and wish people would just shut up about it. That’s sort of how I felt before diving in head-first — though, like Chabon, I was a bit ashamed about not wanting to understand it.
Anyway, if that’s your attitude, and you encounter what looks to you to like relatively informed anti-crypto commentary, you’ll be tempted to latch on to it uncritically to justify resistance to learning anything about it. The urge to rationalize tuning out is surely amplified by the fact that laser-eyed online crypto bros are insufferable dicks. But it’s not simply that they’re insufferable. It’s also that a bunch of them are getting ridiculously rich, which is insufferably insufferable, and raises the anxious specter of FOMO to boot. There’s real comfort in the idea that crypto’s nothing but a faddish planet-wrecking house-of-cards scam; it’s a buffer against nagging FOMO, regret, or a sense of obligation to learn something — a fate which might beset us were we to suspect that this stuff could be legit, genuinely innovative, and part of a transformative technological, financial, and cultural paradigm-shift.
On the pro-crypto side, however, we’ve got totally deranged confidence that the future will be built on the blockchain and run on cryptocurrency. The first thing you learn when you start listening to crypto podcasts is that people don’t do them because they’re duly skeptical and rigorously neutral about Bitcoin. They do them because they’ve bought in and are super-excited about the torrid growth of their crypto investments. They’re all, in one way or another, talking their book.
So where does this leave an honest dealer keen to cash in on the future but not so keen on getting duped? Well, you obviously can’t trust the negative Nancies dug into derisive ignorance as defense against FOMO. I mean, they proudly admit that they don’t know what they’re talking about. But you also can’t trust the exhausting monorail-salesman WAGMI hype.
My general rule about subject in which I haven’t developed significant independent knowledge is simply to believe whatever the consensus of credible experts happens to be. That’s easier said than done in this case, because it’s tough to say what expertise or credibility looks like when there’s a hot dispute about the legitimacy of the entire domain. When the conditions for non-question-begging expert identification break down, there’s not a lot you can do other than to “do my own research,” fully aware of the pitfalls, and try to come to some reasonable conclusions on your own steam. It’s always disorienting to push into unfamiliar territory without a map, but that’s okay. Embracing the vertigo of not-knowing is how we learn.
What I try to do in this sort of situation is steer into the confusion, horse around, experiment, and see if a gestalt of comprehension begins to coalesce. Because his monster thread below exploring all this stuff embodies the open-minded, spitballing, tinkering attitude this kind of task requires, I’ve adopted Venkatesh Rao as my spirit guide in this quest.
This thread is really great and really long. You should browse through it. I promise you’ll learn something.
Anyway, what I did to get started was learn to use Metamask and buy some NFTs. Not some silly jpg cartoon avatar, mind you, but stuff that seemed to me more useful and functional. I bought an Ethereum Name Service domain, willwilkinson.eth. It makes it super-easy for people to send me money without knowing my public address. (You should try it!) It also makes it easy for anybody to see every transaction involving the connected wallet. So, for example, you can see that I bought some shitty Axies in Axie Infinity , which I used to get my ass kicked repeatedly by semi-pro Filipinos. You know what? It doesn’t feel like bullshit.
This is when it really started to click to me. I’m not actually interested in fighting and breeding cute virtual creatures. But experiencing an in-game economy built to integrate with the real economy was eye-opening. Felix plays Roblox and loves to customize his avatar, collect pets, and special items his dude can carry around. He’d love to be able to literally own these things, buy and sell them, and cash out at the click of a button. But that kind of game application is just the most obvious type of thing blockchains makes easier.
Presently, the dominant blockchain/Web 3.0 application is decentralized finance, but I think it’s easier to see the value of where things are heading, and to allay worries about hype cycles, pyramid schemes and speculative bubbles, if we look past the purely financial stuff. Once you start to dig into some of the applications that venture capitalists have been plowing truckloads of old-fashioned American dollars into, you run into various kinds of decentralized networks built out and maintained by tokenized incentives. When you read about them, the value proposition makes a lot of sense.
So, for example, you have things like Filecoin, which describes itself as “an open-source cloud storage marketplace, protocol, and incentive layer.” What does that mean? It means you can set up a data center in your garage and get paid in the network currency for reliably storing and serving data. Or consider Render, which does “distributed GPU rending on the blockchain.” That is to say, it incentivizes people to rent out GPU processing for graphics rendering. Or take Helium, which seeks to create a wireless network for IoT/Internet of Things sensors and smart devices by incentivizing people to install certain types of radio transmitters and keeping them running.
Obviously, things like Amazon Web Services and wireless networks already exist. But blockchain incentives, consensus mechanisms, and smart contracts can do it all in a fundamentally different, more decentralized way. Once I saw that this decentralization has a variety of technical, economic, and political advantages, it became started to become clear to me that there’s definitely a there there. More than that, I started to see that it’s probably pretty good there— that we should want to go to there, as TV’s Liz Lemon liked to say.
In particular, I find the diffuse capitalization, ownership, and control of these kinds of networks extremely appealing. It’s this — not stupid ape avatars or hype about Bitcoin as “digital gold” — that gets me charged up about crypto/blockchain stuff. It’s also why think we need to be careful about regulation that could strangle the baby in the crib. It’s not bullshit. It looks to me like it could be a way back to the beautifully decentralized freedom of Web 1.0.
Think about who owns the Bitcoin or Ethereum networks. Nobody does. Nobody owns them. These networks are made up of many thousands of machines whose computational power has been allocated to the network because the network’s constitutive code pays the people who own the machines to keep them connected and churning away — and on super-reliable, coded-in terms that can’t be whimsically revised.
Replicating everything AWS or Azure or Google Cloud can do on a blockchain isn’t redundant because the decentralized collective “ownership” and governance of blockchain networks supports security, privacy, stability, and scalability features that Web 2.0 applications running on centralized corporate clouds can’t replicate because they are centralized and control is concentrated.
This kind of decentralization has pretty radical distributive implications. When there is nobody at the top, nobody at the top can hoard the value generated by the network. The economic surplus generated by this kind of network is necessarily distributed to the community of miners, stakers, and users because that’s what brings them into existence, keeps them going and lends them value. The diffusion of economic surplus is part of the basic architecture of the system. Market structure, distributive principles, and defenses against network domination are all baked into the code.
In my opinion, a technological/economic/institutional architecture that can coordinate economic activity in a way that makes the firm superfluous, deconcentrates ownership and control over vital networks, and broadly distributes economic surplus to network participants according to transparent, fair and relatively fixed rules, is the killer app. This can hard to see because the principal value of the underlying technical innovation is economic, organizational, and, ultimately, political. The consumer-facing technology that can be built on top of is genuinely exciting, but secondary. Naturally enough, this was all impossible for me to see before I started to seriously dabble, which made me genuinely curious about how it all works and finally drove me to read a number of extremely dry but profoundly informative white papers.
For now, I’m sold. I think there’s a there there. I honestly think blockchain can change the world — and for the better. Which, I’m sorry to say, makes it pretty hard to shut up about it. My sincerest apologies to all for whom the entire subject is “coated in oil of tedium,” especially my beloved and longsuffering wife.
You certainly might be right! But this is not a very convincing piece because you don't actually address the damning technical problems that well-informed critics of blockchain technology point to, perhaps because- as you candidly admit- this is a subject that's well outside your own area of expertise.
But the technical details are kind of the point. If you start from the assumption that "blockchain incentives, consensus mechanisms, and smart contracts can do it all in a fundamentally different, more decentralized way" then yes, obviously that's a big deal. But the question is whether that's true! And there's very good reason to think it isn't.
If we take the example of Bitcoin specifically, people have been making all of the exact same promises about radical decentralization and mass adoption for more than a decade now, but- at least in the narrow case of Bitcoin- it's all complete horseshit.
Economies of scale meant that mining became extremely centralized early on, and a handful of men (I believe they're all men) now control the overwhelming majority of all mining power, meaning that Bitcoin is not actually "trustless" in any real sense. So, uh, why not just have those same guys run a database that keeps track of who owns which Bitcoins and save us all ~180TWh of electricity every year?
Meanwhile mass adoption is a practical impossibility because the whole system has a *hard theoretical limit* of ten transactions per second (it's about half that in actual practice). For comparison, the Visa network does about 1,700 transactions per second and could hypothetically do many more. Bitcoin boosters are generally either not aware of this inconvenient fact, or will gesture wildly in the direction of some piece of vaporware (like the much-hyped and utterly harebrained Lightning Network) that's always just a few years away. And this is not some hypothetical future problem! The network *already* ground to halt in 2017, with hundreds of thousands of unconfirmed transactions getting stuck in limbo, and has largely ceased to function as an actual payment system since then.
And the truly wild thing is that none of this mattered for the price of Bitcoin! The price just kept going up even as it became clear that the network is fundamentally broken! It was almost as though the technology was never really the point, anymore than the specific qualities of the tulips or the Beanie Babies were the point in past speculative manias.
So I don't know, maybe some of these Ethereum apps are actually different, and not just efforts to spark their own little bubbles. (After all, the Ethereum network can handle a whopping 30 transactions per second. Look out VISA!) But this stuff sounds *exactly* like the hype I've been hearing from Bitcoiners for a decade now, so you'll have to forgive me for being skeptical.
Like Will I have dabbled a little bit in crypto (I'm "frankhecker.eth"), and like Will I have thoughts:
1. Cryptocurrencies, along with the “metaverse” and half of the present-day TV line-up, can be thought of as one aspect of a general yearning for magic to (re)enter our ordinary lives: wave a wand and change the world or build a new one (like in Minecraft), conjure riches from base elements like earth and fire (use electricity and silicon to mint currencies), bind others to your will through spells that cannot be broken (smart contracts). And as with traditional magic there's a catch: like a wizard or demon you have a “true name” (your private key) which if discovered by others will enable them to seize all your powers and possessions.
2. The whole space is obviously soaked in libertarian ideas and ideals, not just distrust of fiat money and centralized governments, but the dream of a world in which rationality rules and from which “force and fraud” are banished, the former by moving to the digital realm, the latter by building that realm upon supposedly fool-proof algorithms designed to promote cooperation and deter defection.
3. Like other innovations before it (liberal democracy, limited liability corporations and the stock market, the Internet and the free software/open source movement), the promise of decentralization, individual empowerment, and shared prosperity is real but only partial, and elites will still rule, albeit refreshed with some new blood. As noted by others, “proof of work” schemes (Bitcoin, current Ethereum) are dominated by those able to deploy vast amounts of computing power. More efficient “proof of stake” schemes (proposed future Ethereum) and DAOs, like public companies, essentially run on the principle of “one dollar, one vote”, with influence disproportionately wielded by the rich and those who bought in early (often the same people). Power law dynamics will ensure that almost all participants in the NFT/crypto-driven “creator economy” will earn little or nothing, that only a few will earn middle class incomes (with chances much better for those in developing countries where the price of middle class status is lower, like the Filipinos who kicked Will's ass), and that the vast majority of economic rewards will be captured by the 0.1%. In the worst-case scenario an increasing fraction of global wealth held in deliberately deflationary cryptocurrencies will concentrate control of the world’s economy in the 0.0001% (10,000 people out of almost 8 billion hold one-third of all BTC), and a future William Jennings Bryan will decry the “cross of crypto”. (Recall that Bryan lost that election.)
4. In the end crypto will probably take its place along the other innovations I mentioned above: As with the early stock market, “pump and dump” schemes, other scams, and crypto-related criminality in general will be reduced (but not eliminated) over time (in large part through government regulations), with any dubiously-acquired fortunes becoming respectable as they pass down through inheritance and their origins are forgotten. As with the free software/open source movement, hierarchies will (re)establish themselves, albeit on a more inclusive basis, with most people participating in governance only on a cursory basis. And as with liberal democracy and limited liability corporations, new possibilities may arise for humanity to organize its affairs for the improvement of all, but realizing those possibilities will require more than unalloyed boosterism and a laissez-faire approach on the one hand, or a visceral refusal to engage with the topic on the other.