The Evolution of Crypto: From Revolution to Deception
How the ideals of Bitcoin gave way to the grifts and scams that now define the market
I. Where We Are
Squid Game is a popular South Korean Netflix series where people play deadly children’s games for a prize of millions of dollars.
After the show’s success, a group unaffiliated with the show created a cryptocurrency called Squid Coin. The group was developing a Squid Game-inspired online game, and they said Squid Coin owners would be given the right to play it. A wave of hype exploded the price of Squid Coin to $2861, implying a fully diluted market cap of $2.168 trillion. You might think it’s unreasonable for a not-yet-created online game to have a market cap greater than Google. Squid Coin’s developers agreed, selling all the coins they had, crashing Squid Coin’s price by 99.99%, and vanishing with the millions they had made.
In the end, thousands of people bought to the death to create a prize of millions of dollars for the supposed game developers. Though they would never see the Squid Game-inspired online game they were promised, they had been playing a deadly game of their own this entire time.
II. How We Got Here
Bitcoin, the first decentralized cryptocurrency, was created by Satoshi Nakamoto in 2009. Satoshi’s code let anyone send Bitcoin to anyone else, without regard to geographic barriers or bureaucratic intermediaries.
In July 2010, a German programmer going by the name ArtForz discovered a bug in Satoshi’s code which could enable ArtForz to spend anyone’s Bitcoins without their consent. If he had kept this to himself, he could eventually have exploited this to steal millions of dollars from other Bitcoin users, potentially destroying confidence in crypto forever. Instead, ArtForz reported the bug to Satoshi, and it was fixed in Bitcoin’s next release without incident. ArtForz acted with integrity because he believed in Bitcoin’s mission.
Crypto’s original believers were a motley crew united by disillusionment with the 2008 financial crisis. Libertarians, anarchists, conservative big-government skeptics, and progressive anti-corporatists believed Bitcoin’s decentralization could end the excesses of greedy executives and untrustworthy governments.
Over the years, the concept of decentralization has extended beyond Bitcoin. In 2015, programmer Vitalik Buterin released Ethereum, the first decentralized computer where anyone could create their own program or interact with anyone else’s. Today, all of decentralized finance runs on Ethereum or its competitors.
A. Judging the Believers’ Cause
After much thought, I’ve become something of a crypto believer myself.
Many of the world’s most disadvantaged people wish their economic problems were as bad as the 2008 financial crisis. I recently visited my girlfriend’s family in Venezuela. Every Venezuelan checkout counter has a card displaying the day’s exchange rate between Venezuelan Bolivars and US dollars. Since the Bolivar inflates at an incredible 1% per day, every store changes that card every day to reflect the new exchange rate. I asked locals where they keep their savings. Their savings would quickly become worthless in a Bolivar-denominated bank account, and USD-denominated accounts are hard to come by due to sanctions against Venezuela. The locals told me they keep their savings in crypto.
Read Matt Lakeman’s engaging essays on his travels through sub-Saharan Africa. Most of these countries’ citizens live through a military coup every few years, the current dictator transparently enriching himself off of the backs of the poor, and economic policy being set at the dictator’s whim when he never even graduated high school. Many residents use crypto apps and local crypto-to-cash money changers to receive rebates from their family members abroad. Crypto materially helps the world’s poorest people rely less on their countries’ broken financial systems.
This is not just something I’ve read about online. I live in Panama, and I myself have been asked by several people whether I’d do a cash-to-crypto transfer for them.
You might not be a libertarian or an anarchist. You might think your country’s economic policy is great and be happy keeping your savings in your local bank. (Or better, index funds!) But there are many people in the world who don’t have that, and for them, I think the existence of crypto as an option is a genuine good.
B. Counters to Common Crypto Critiques
Environmental impact: If you’re worried about the environmental impact of Bitcoin mining, use Ethereum. Ethereum’s proof-of-stake consensus mechanism has negligible environmental impact.
Volatility: If you’re worried about volatility, you can hold stablecoins pegged to the US dollar like USDC and USDT.
Lack of fraud protections: If you’re worried about losing your crypto due to fraud, you can hold your crypto in reputable centralized exchanges or ETFs which may have more traditional fraud protections.
Lack of scalability: If you’ve heard crypto isn’t scalable enough for the world to use, Ethereum’s developers are actively working on this. If you don’t trust them, check out Solana, a decentralized computer which was built to avoid this issue.
Illicit use: Yes, crypto does make illicit transactions easier, and I think crypto believers should concede that this is often plainly bad. It is bad to make the efforts of arms dealers for terrorists or child sex traffickers easier. I currently think the benefits of crypto outweigh this harm, but I could be persuaded otherwise if shown evidence of concrete extremely harmful transactions which wouldn’t have happened without crypto.
III. The Grifter’s Playbook
Over the years, cryptocurrency prices have had enormous gains, and speculators have taken notice. There are many more people in the world looking to make a quick buck than anarchists or libertarians, and these speculators have overwhelmed the community. Where the speculators go, the grifters follow close behind.
A. The Goal
The grifter’s goal is to make money for himself. His plan is to create a cryptocurrency called DogWithStache (DWS). (I was originally going to call it DogWithSunglasses, but it turns out there are already two cryptocurrencies called that. And please don’t mistake DogWithStache for DogWifHat, a popular cryptocurrency with a 2 billion dollar market cap.)
The grifter’s plan is to get speculators to buy up DWS to a high price and then dump his own DWS holdings to make money for himself. However, you can’t just go on Twitter and shout at people to buy DWS. You need a project to back the cryptocurrency.
B. The Project
The project’s purpose is to create a veneer of credibility behind DWS, and hopefully provide some juicy marketing material. The specifics of the project are not important. Maybe it has a plan for profitability (sell mustache NFTs?) or maybe not (an online game where you get points for putting mustaches on dogs).
C. The Investors
The grifter needs to raise money to hire software developers to complete the project, so he asks a venture capital firm to invest. Instead of negotiating on valuation, the firm negotiates based upon how early they’ll be able to dump their own allocation of DWS onto the speculators.
The grifter also goes to a cryptocurrency launchpad to crowdfund additional capital. This launchpad enjoys advertising its historical return of 200x from the most profitable grifts projects it has previously launched. Launchpad members buy the right to receive their own allocation of DWS and negotiate with the grifter to be able to dump it on later speculators as soon as possible.
D. The Launch
After weeks of intense marketing, the DWS cryptocurrency is created, and excited speculators bid it up. The project’s Discord and Telegram channels are alight with insightful comments such as “TO THE MOON!” and “DIAMOND HANDS!” No comments on the project’s fundamentals are to be found.
For the next few months, the software developers the grifter hired work on the project. Finally, the grifter receives his own allocation of DWS and immediately dumps it onto the speculators who pumped the price up. Maybe the developers will finish the project; maybe they won’t. Either way, DWS’s market cap is orders of magnitude higher than any reasonable valuation the project could have. The winners are the grifter and the early speculators, and the losers are everyone else.
E. Disclaimer
DogWithStache is a made-up cryptocurrency. It is in no way related to real cryptocurrencies, such as Shiba Inu, Pepe, or Bonk. Those top 50 cryptocurrencies with market caps in the billions of dollars have honest value propositions.
IV. Conclusion
Although grifters and speculators make up most of crypto today, a few believers remain. When Ethereum’s founder Vitalik Buterin was sent half of the Shiba Inu cryptocurrency supply, he promptly sold it and donated the $100 million he received to COVID relief in India. (If you find that inspiring, you should check out effective altruism!)
Thanks to crypto, some of the world’s most economically disadvantaged people have an option to work around their broken financial systems. I don’t know whether or not that good is outweighed by the harms of the grifting and speculation today. The future of crypto hinges on whether it can transcend speculation and truly serve those who need it most.
As a crypto noob, one thing I find confusing at a glance is what value the meme coins propose versus the more established assets like bitcoin. So basically it comes down to making a project that only accepts payment in the form of a specific meme coin? So speculation on the meme coin is basically speculation on the value of being able to interact with the project? Is it also just collectorship where people just like the culture and fundamentally want to own those things (regardless of any benefits the technology/usage of the coins have as a store of value)? Do these grift (or not grift) projects typically accept any payments through other methods? Outside of the projects, are people able to use meme coins for arbitrary use cases if they wanted to create a community around it? Sorry if these thoughts are a bit scattered.