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| Screenshot of the original: Bloomberg |
This article is is an op-ed republished from Team Vogue. Read the original here.
What’s Wrong With Crypto? It’s Unreliable, Wasteful, and Downright Sketchy
By Hadas Thier
On the main stage of the Bitcoin 2022 conference last month, billionaire tech investor Peter Thiel told the crowd of crypto enthusiasts that Warren Buffet was a “sociopathic grandpa.” Buffet and others of his ilk are part of a financial gerontocracy on the Bitcoin “enemies list,” Thiel explained, and are standing in the way of a “revolutionary youth movement.” They must be pushed aside for Bitcoin adoption to grow and its value to increase. “Go out from this conference and take over the world!” Thiel, the 54-year-old cofounder of PayPal, declared to rousing applause.
But that “revolutionary” movement is looking more dubious by the day after the crypto crash earlier this month. Over the course of a week, Bitcoin lost 30% of its value, and it has lost more than 50% of its value over the last six months. Hundreds of other cryptocurrencies took a beating too, including the collapse of so-called stablecoin TerraUSD and its linked Luna tokens. A lot of ordinary people who were conned into believing crypto was their path to financial security are now left holding the bag. The Terra-Luna subreddit is full of devastating stories about losing everything; moderators have pinned national helpline numbers to the forum.
Cryptocurrencies use decentralized public ledgers known as blockchains to facilitate peer-to-peer financial transactions outside the control of states or banks. Bitcoin, the earliest and most widely held cryptocurrency, promises a futuristic money system, which lives on the blockchain free of state regulation and intervention — intervention, Bitcoiners claim, that is frittering away our savings through inflation-inducing policies.
Last month, during the still heady days of the Bitcoin 2022 conference, over 25,000 people gathered in Miami Beach to listen to talks, to buy bitcoin merch, and party. Among the speakers at the conference were tennis star Serena Williams and Super Bowl champion Odell Beckham Jr., who have joined the growing ranks of celebrities hawking cryptocurrencies and other crypto assets like NFTs, or nonfungible tokens.
Everyone from Kim Kardashian and Paris Hilton to Matt Damon and Spike Lee have gotten in on the crypto game, and they want you in on the game too. Young adults (young men, in particular) are the primary targets of the sell game. A Pew Research Center survey found that as of November, 31% of people ages 18 to 29 have used, traded, or invested in cryptocurrencies, compared with 21% of people ages 30 to 49; 8% of people ages 50 to 64; and 3% of people age 65 or over.
Libertarian Trump supporter Peter Thiel and filmmaker Spike Lee, whose films revolve around racial justice, may seem like strange bedfellows as crypto hype men. But that’s because the appeal of cryptocurrency has straddled an awkward fence: one part get-rich-quick scheme, one part utopian solution to our plutocratic economic system. “Old money is out. New money is in,” Lee said in his crypto ad. "Old money's not going to pick us up. It pushes us down — exploits, systematically oppresses. But new money — new money is positive, inclusive, fluid, strong, culturally rich.” But there are good reasons to be skeptical of all these claims, and the recent crypto crash is just the beginning of the story.
For starters: Distrust the messengers. Because cryptocurrencies are not backed by states, their value is tied almost entirely to perceptions of future growth. The more new blood enters the market, the greater the demand for cryptocurrencies and assets, the further the price of the tokens will rise. So when billionaire venture capitalists and millionaire celebrities hype investment in crypto, they’re also pumping up their own crypto wallets.
And when crypto prices tank, as they did recently, leave it to the billionaires with massive social media accounts to chastise anyone who wants to sell. As actor Ben McKenzie — yes, that’s Ryan from The O.C. — and journalist Jacob Silverman have pointed out, encouraging fans who “have far less money to lose… to gamble on speculative, unproven investments” has been shown to be a moral and financial disaster.
Number Go Up. Or, Um, Way, Way Down.
Investing in crypto is often hawked as a get-rich-quick plan, but many argue that it’s an unsustainable pyramid scheme.
The popular Bitcoin meme “number go up” and rocket ship emojis that declare cryptocurrency prices will go “to the moon” define the crypto ethos. Before last week, this may have seemed like an understandable sentiment, at least for the two largest cryptocurrencies, Bitcoin and Ethereum; less so for the thousands of other digital currencies, many of which have collapsed or are essentially worthless. After all, Bitcoin was worth nothing when it was invented in 2008; the tokens climbed to selling for nine cents in 2010, and now a single bitcoin is worth tens of thousands of dollars (just how many thousands depends on when you read this article).
The story of Laszlo Hanyecz, who bought two pizzas for 10,000 bitcoins in 2010, has become legend. If he had held on to those bitcoins (or “HODLed” them, as bitcoiners say), he would now have several hundred million dollars’ worth of crypto wealth. But for every Laszlo, there are those who spent everything they had when bitcoin was riding high and have seen their savings halved. Who knows how much lower their holdings will go, and how fast?
Crypto skeptics maintain that even after the May crash, crypto assets — which are completely unmoored from physical reality — are still wildly overvalued. This should be cause for concern, not celebration. Cryptocurrencies share plenty of characteristics with bubbles and Ponzi schemes: Their value comes from other people being willing to buy them — until they’re not.
The most accurate comparison may be the basic “pump-and-dump” scam, where traders acquire worthless investments, drive up prices through hype and by trading among themselves, and then unload the assets before the prices tank, leaving a lot of newcomers holding an empty bag. Pump-and-dumps are rife in the crypto world (and often openly promoted as such). And, as others have argued, the premise of cryptocurrencies is rooted in this con. Like any successful pump-and-dump, people who get in early and get out before it collapses will make a lot of money. Those that come in too late and leave too late will take a beating.
Freedom Go Up. But It Hasn’t.
Lastly, some crypto promoters argue that there’s more to crypto than “number go up.” Alex Gladstein, chief strategy officer of the bitcoin-pushing Human Rights Foundation, explained to Bitcoin 2022 attendees, “I know that for a lot of you, bitcoin is about ‘number go up,’… But bitcoin’s also about ‘freedom go up.’ It’s about how a new monetary technology can help liberate people around the world who are stuck in horrible, horrible situations.”
Never mind that cryptocurrencies have not been proven to do this: The future promised to us by proponents of cryptocurrencies is, in fact, a deeply dystopian one. The underlying philosophy of crypto faithfuls is a libertarian distrust of states and public institutions. Suspicion of traditional finance and government is an understandable sentiment to arrive at given our deeply unequal economic system, but the medicine proposed by crypto devotees is worse than the disease.
The world that has been erected around blockchain technology is characterized by an increased concentration of wealth and power, with the top 10,000 bitcoin investors holding about a third of cryptocurrency in circulation. That’s an almost hundredfold increase in inequality as it compares to the U.S. dollar economy. The concentration of bitcoin miners — who mint new tokens by solving complex mathematical questions — is even more dramatic. About 50 miners (0.1%) control half of mining capacity.
The cost of this deeply unequal and barely regulated digital con game is massive environmental stress. The technology used to power most cryptocurrencies, known as “proof of work,” requires warehouses full of computers working 24/7 around the globe. (“Proof of stake,” an alternative blockchain consensus mechanism that is less damaging to the environment, is used by a much smaller portion of digital currencies.) Bitcoin processes alone exhaust more energy than the entire country of Thailand, home to nearly 70 million people. Our fuel-addicted economic system is on track for climate disaster, so why would we put extra strain on it with assets that produce no tangible goods and no social value?
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