Why bother?

When I first started publicly expressing my crypto skepticism, a good friend of mine asked, “why don’t you just leave people alone?” He was genuinely curious why I would put so much effort into combating the misinformation of a movement I thought was silly and doomed to inevitable failure. 

My response in the moment was some combination of fascination and frustration. Is anybody still surprised that drivers are captivated by car wrecks on the side of the road? Regardless of how compelling a disaster do we question the sincerity of those who look for ways to have prevented it? I have lived through many bubbles, both economic and technological, and have seen the destruction they can leave in their wake.  We all have a responsibility to contribute what we can to society and on this topic I have something to say.

I try to avoid taking absolute positions about anything and I make an effort to avoid using words like “never” or “definitely”. Most things are neither good nor bad, true nor false, but actually some combination of both coupled with often subtle externalities and tradeoffs — crypto is no different. 

People waste a lot of time arguing about minor technicalities in the definition of a Ponzi scheme so I have started avoiding such distractions by simply adopting the term “Ponzi-like” — it’s close enough. The only reason people buy crypto is to sell it to someone else, so it’s the equivalent of a receipt to a promise of future value rather than value in of itself, you don’t actually get what you paid for until you sell it. The problem is that most people will sell it for nothing, so their money was taken to fund an earlier promise made to someone else in exchange for a new promise that wasn’t fulfilled — Peter was robbed to pay Paul. 

Crypto did not originate as an attempt to build a more sophisticated de-centralized Ponzi-like scheme and many true believers have always had good intentions, but we all know how the road to hell is paved. 

Although crypto is a particularly severe disaster, the desire to have prevented it is not an indictment of every person caught up in it. The magnitude of a disaster isn’t necessarily correlated to the malice of those responsible, just as the severity of a car wreck is not necessarily correlated to the immorality of each driver.

My history with crypto is long, but I have mostly been sitting on the sidelines watching with great interest. At first, with admiration and hope, but later with disillusionment and disappointment. What seems to have started as a good faith effort to liberate ordinary people from the subjugation of corrupt politicians and bankers evolved into a materialistic faith fueled by silly fantasies, extremist dogma and sinister inexcusable rationalizations.

More balance must be brought to this discussion because one of the primary reasons people trust crypto is social proof. Most people aren’t equipped with the technical knowledge to validate any claims made by crypto apologists but they see them repeated in the media by trusted personalities and professionals. 

They assume if it’s all built on lies and nonsense the government would have intervened. Surely, somebody must be doing the work of ensuring these ideas aren’t a collection of flimsy indefensible technobabbles before proselytizing the revolution?

Of course, I must point out the irony of using government inaction as an excuse to justify participating in a scheme originally created explicitly to circumvent government, but the more important point is that governments are also just people. People can be lazy, slow or unprepared. People can be subject to influence. People can lack courage to take a public stance. People can be insecure about their ignorance and intimidated by fancy billionaires lauded as brilliant tech revolutionaries. People don’t want to be the one responsible for snuffing out a fledgling tech revolution or pushing an industry and its tsunami of profits overseas. People often don’t want to be the one who got it wrong and suffer from merciless mockery the rest of their lives.

Crypto in particular is tricky because it sits at a delicate intersection of two fields that don’t often interact with each other, technology and economics. 

On one hand, engineers have spent their entire careers applying new ideas to solve problems and are conditioned to believe they can do anything. It is the ethos of technology startup culture to try crazy things and see what happens without necessarily thinking from first principles or considering the most probable outcomes and externalities. Many engineers, in particular those working on internet-based startups, have a bias towards action.

On the other hand, economists are not trained to understand complex technical jargon. Economists often understand the present by looking at the past, which isn’t helpful when crypto claims to be something different and new. Economists have a bias towards waiting for data.

The combination of energetic engineers moving fast and ill-equipped economists moving slow could help explain the imbalance of firm expert opinions in this domain. But sitting around waiting for the inevitable to unfold is not the best course of action when the fallout could be so severe. Financial schemes can survive much longer that some may expect.

In the 1990’s the Albanian economy was dominated by pyramid schemes. At their peak, the total value of all accounts reached almost half the country’s GDP and about two-thirds of the entire population invested in at least one scheme. Crypto at its peak so far has only reached about 13% of US GDP or 3% of global GDP.

The Albanian experience should teach us that even unsustainable financial schemes left unchecked can grow to dominate an entire economy, yet despite their size, never become too big to fail. The size of the crypto industry should never be considered a vote of confidence. Relative to the size of their economy, the Albanian pyramid schemes were much larger than crypto and when they collapsed people rioted in the streets, overthrew the government, and the country descended into anarchy and a near civil war in which thousands died. When the stakes are that high, it’s worth sticking your neck out to make skepticism heard. 

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