The Future of Money or a Massive Global Scam?
A worker checks the fans on miners, at the cryptocurrency farming operation, Bitfarms, in Farnham, Quebec, Canada on February 2, 2018. [Christinne Muschi/Reuters]
It’s either the future of money or a massive global scam – welcome to the cryptocurrency debates.
When talking about crypto, the buzzy shorthand for decentralized digital currencies that are protected by cryptography, it’s easy to get lost in either the hype or the discussions about its baroque technology. But these approaches miss the big-picture questions: What do cryptocurrencies actually do, what political principles underlie them and what do we really want from them?
The New Republic staff writer Jacob Silverman hopes to address those and more in his forthcoming book on crypto, which he’s co-writing with Ben McKenzie (yes, the former OC actor). I spoke with Jacob about why crypto is an ideal vehicle during this, our “golden age of fraud.”
This interview has been edited for length and clarity.
What originally made you suspicious of crypto?
I didn't really start looking into crypto until the end of 2020. I published a piece on Jan. 1, 2021, about this tech executive, Michael Saylor, who basically turned his company into a vehicle for buying billions of dollars of Bitcoin.
On Twitter, and in YouTube interviews, Saylor presented himself as the high priest of crazy Bitcoin pontification, but he also had a history of having to settle with the Securities and Exchange Commission for accounting irregularities, so I was skeptical.
These markets are very unregulated, and by and large, there's a lot of manipulation and fraud. Academic studies have found that up to 90% of trading on most exchanges is what's called "wash trading," meaning that they're designed to generate fake volume and to influence prices.
Moreover, crypto is basically a very small industry that is profoundly influenced by maybe a dozen or so men.
The more you dig into this stuff, the more you see that it's built on a fraudulent foundation.
So, to put it bluntly, do you think cryptocurrencies are useful for anything other than crime?
I lean towards "no."
We're really trying to find use cases, but the ones we've found don't seem to stand up to scrutiny; they're not solutions to the problems they claim to solve. Remittances, for example, are often cited. But the global remittance system in place isn't broken: Western Union, while not being the world's most admirable company, is pretty simple. People without much technological access or ability can use it, it works in almost every country, the fees are low and standardized, and it has actual buildings that you can walk into and take out money if you're a poor person in the Global South.
One person I spoke with told me that the great use case for Bitcoin was drugs. A lot of people got into this industry because 10 years ago they went on the Silk Road and were able to buy drugs. That is a use case, but I don't really see any others that are more legitimate or less illicit.
I think money should be subject to some form of political governance. And I think it's a problem that a fundamental principle of crypto and Bitcoin is that money shouldn't be subject to political governance.
Now, this is where you get into ideas like censorship-resistant money: What if you live in an authoritarian country and you want to send money to someone without the government interfering? I'm sympathetic to that argument, but I think once you start undermining the political governance of something as fundamental as money, it easily leads to trouble.
Do you think crypto-bro culture reflects something fundamental about the currency itself?
I do. It's not monolithic, of course, and there are people who are into this stuff for different reasons. Having said that, the dominant culture of Bitcoin specifically and crypto more generally is one of toxic masculinity, and there is certainly a lot of right-wing libertarian rhetoric and hype-man influencer types.
One of the most popular memes in Bitcoin culture is "have fun staying poor" – HFSP. So, on the one hand, Bitcoin evangelists want to convince you to buy in because this is supposed to be the future of money, but on the other hand, if you say, "It's not for me," or have some skepticism about it, they will yell at you or insult you.
Who tends to buy crypto, and could a major crypto crash ever compare to, say, the subprime mortgage crisis?
I think the comparison is valid, although there are differences. When the subprime crisis happened and a lot of people lost their homes, at least those houses were still productive assets.
With crypto, there is no underlying value or productive asset. Prices could, in theory, fall to zero. I don't think they will; instead, I think many will become the equivalent of penny stocks.
In terms of demographics, we have seen that minority groups tend to be overrepresented statistically among crypto holders. There are a couple of reasons for that. One, I think, is that cryptocurrencies are presented to people as a reaction against the big banks, which have long histories of malfeasance and discrimination.
People who have not had access to capital, generational wealth or good employment networks – and this often means people from disadvantaged minority groups – are inclined to see crypto as a way to make money and escape their circumstances. In a country where there's very little wage growth, I totally understand why that's appealing.
There's also a lot of what's called "affinity fraud" in crypto. The most prominent examples are Spike Lee making a commercial for Bitcoin in which he basically calls it the new woke progressive money, and LeBron James hyping crypto and even integrating it into the school he runs. That's really inviting people into a very volatile market that resembles a multilevel marketing scheme. I do worry that a lot of everyday people are going to be hurt. My fear is that many people have put in more than they can afford to lose because they don't realize that the system is rigged.
Do you think the government is interested in cracking down on the problems you’ve outlined?
Well, the government knows crypto is a problem, but there hasn't been a real coordinated strategy around it. That's starting to change – the Biden administration has set up new units at the Department of Justice and FBI, and on March 10 the president issued an executive order about crypto.
There are political concerns: The government doesn't really want to be seen popping the crypto bubble. But one thing it could do right now is declare all crypto tokens to be securities, because that's widely believed to be the case, according to what's called the "Howey test."
Is there anything else you'd like to mention?
Well, one thing Ben and I talk about a lot is that the incentives around crypto are all wrong.
There's no incentive to tell the truth, and people get mad when you start asking questions. If you work in mainstream banking – which is, of course, a very flawed industry open to plenty of critique – you have incentives to follow the law, to be honest with the numbers you present your bosses or customers, because if you don't, you might get punished or go to jail.
That kind of framework, those kinds of incentives, don't exist in crypto. None of the numbers are reliable. No one wants to start asking questions, because once you do, you might show that a lot of stuff doesn't have any underlying value. Why would you want to attack someone else's token when yours relies on the same market froth and hype?
I think that this hype has bled into the journalism around the industry. A lot of reporters will give these companies the benefit of the doubt because they either have good stories or because they have a lot of money. There are good investigative journalists working on crypto, but many journalists need to stop treating the industry as a bright, shiny object and start focusing on core questions. Where's money coming from? Where's it going? Who's profiting? Who's losing? What kinds of laws are being broken?
I think once you start framing things that way, you really get to the truth of what crypto is, what it does and what kind of role it's playing in our economic world.
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