What began as a utopian tech experiment following the 2008 financial crisis has transmogrified into a wildly volatile and unregulated trillion-dollar industry.
It took just over one week for the world’s second largest cryptocurrency exchange to collapse.
The downfall of the $US32 billion exchange FTX is a potentially pivotal event for the industry, says cryptocurrency sceptic and author Jacob Silverman, but it’s probably not an isolated event.
Silverman is a contributing editor at The New Republic and co-author of Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud, due out in 2023.
He tells Kim Hill cryptocurrency is an industry with a rotten foundation.
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“Right now, the reason why crypto hasn’t achieved mass adoption really is because there aren’t a lot of use cases, you can’t really spend it as a currency, it’s very volatile, you can’t trust the intermediaries that are involved.”
It’s useful for speculation and illicit activity, he says, “but the utopian promises around crypto just simply haven’t come through” and the boom-and-bust cycle excuse is running thin.
“I think this is not a fatal blow to the crypto markets but it’s going to be a dramatic shift in how this industry develops, if at all.”
People get lost in the mystification, salesmanship and celebrity endorsements in the world of crypto, he says.
“But really, you’ve got to ask what’s in the box, what does it do? What does it do that’s better than what I have now? It’s not a reliable investment, as we’ve certainly seen over the last year, and it doesn’t really do anything better than some comparable product or incumbent.”
It’s an industry where people will talk about Ponzi schemes as if they’re not a bad thing, he says.
“They don’t call them Ponzi schemes, but they talk about things like Ponzi economics, or Ponzinomics, which is basically, you create value by creating hype and attention and growing a network of people who are using, say, Bitcoin or a certain currency, or a certain trading platform.”
Some people will pull out at the right time, but most people won’t, he says. Eventually the scheme will fall apart.
“In the end, the people who are making money off of all of this are the investors, the venture capitalists, the connected traders who are able to sell at the top of the market but like any multi-level market scheme, which this basically is, most people lose.”
Silverman thinks crypto has some of the right diagnosis and criticisms of the existing order of Wall Street, but says the prescriptions are all wrong.
Photo: supplied
It aspires to certain kinds of economic empowerment but in practice it’s often dominated by traditional tech billionaires and a new set of power players, he says.
“It’s not necessarily the more egalitarian playing field that they present it as.”
Crypto markets are free to be manipulated and the average person is just not able to compete, he says.
NFTs, he says, are in a similar ballgame to crypto.
“They’re just a form of what is called digital assets, NFTs pretend to be some sort of an image or digital piece of artwork that you can own but in the end they just trade on these markets that are very much the same as crypto markets.
“The problem also with stuff in this world is that if things go south, the price can go to zero. The price of a stock is very unlikely to drop to zero unless something absolutely catastrophic happens.”
While there are huge flaws in financial governance regarding the traditional banking system, there are laws and ways to sometimes claw back money when you fall victim to a financial scam.
“You’re pretty much out of luck if you’re a victim of a crime in the world of crypto.”
So, is crypto good for the world?
“In my view, crypto is unregulated gambling, it’s a zero-sum game at best.
“Bitcoin mining is bad for the environment, crypto is...not productive use of capital, it’s not good economic activity, it leads to gambling issues and loss of trust and social cohesion. Perhaps there are ways to rescue all of this from this kind of ethical morass I think it really is in but I don’t think if you put it to Sam Bankman-Fried [of FTX] he could honestly tell you that crypto is good for the world.”
