Disclaimer: I’m a crypto blogger and I’m obviously bullish on the space as a whole. But there are some things I absolutely can’t stand, and I’ll be calling those out in this post. It’s ok to hold conflicting thoughts at the same time- if you’re able to, you’ll see the world much more clearly.
TL;DR- The cryptocurrency space is fraught with fraud, scams, market manipulation, and speculation. Crypto enthusiasts are incapable of shutting the f*** up and being mindful of other’s decisions not to invest. The market valuation is far too high for the intrinsic value Web3 & decentralization provide.
I also have given some good reasons to hate NFTs, if you’re up for some more bitching and moaning.
I want to start with the narrative of the problem cryptocurrency is aiming to solve. Then I’ll go through the hypocrisy in this argument.
The narrative for cryptocurrency and Web3
Web3 is a decentralized version of the internet in which individuals create and own platforms and apps. Web3 will leverage blockchain, crypto, and NFTs to return power to the internet community. This opposes web2 (the existing web), which belongs to the likes of centralized platforms like as Google, Apple, and Facebook.
Think of a streaming service like Netflix, but controlled through decentralized governance. A community that determines what’s on the platform, and runs it.
That sounds promising. Most of us believe the anti-Facebook and anti-Google narrative. We all benefit if we cut out the middlemen, especially small folks. There are still billions in this world that are unbanked, and it’s tyranny. With the spread of theaters, doctors’ offices, and bank branches to our homes, there’s huge opportunity to deliver basic services with less friction. Smart contracts have the potential to cut agency costs and remove systematic biases from the process, among other things. Decentralization holds this promise. Is the music in sync with the words, though?
Reality is a little shittier than this narrative
The promoted decentralization of power away from the few has instead resulted in a re-centralization of power into the hands of even fewer. On the Ethereum blockchain, the top 9% of accounts control 80% of the $41 billion market value of NFTs. The process of “whitelisting” preserves the vast majority of NFT revenues in the hands of a small group of insiders. Those who mint the NFTs win big, and the rest of us pick up the scraps. Bitcoin is much more centralized: the top 2% of accounts control 95% of the $800 billion supply. 0.1 percent of Bitcoin miners produce half of the total mining output. Bitcoin, if it were a country, would have the world’s most unequal distribution of wealth.
It’s getting worse. The crypto market is growing more centralized as time goes on, with insiders holding a larger percentage of the tokens. Insiders held 15% of Ethereum when upon release seven years ago. Decent, I guess.
The bullshit level increases from there. Some Web3 initiatives have emerged with 30% to 40% insider ownership. This is what bugs me most. “Buy our native token, help us get funding to solve the world’s centralization problems!” the founding team screams as they sell off their insider holdings when the price pumps.
The fees and performance still suck
Every time I make trades with tokens on Coinbase, I’m paying huge fees and often waiting (in the case of Bitcoin) an hour or so to have my transaction confirmed. If I send my crypto to the incorrect address, it ‘disappears’ and is gone forever. What the fuck? How can we expect mass adoption if little mistakes like this have such severe consequences? At least traditional banks have FDIC insurance of up to $250,000 on each account. The only crypto exchange that does this right now is Gemini.
As an investor, I want to know that if there’s a hack or something goes awry and I lose my Bitcoin (a store of value crypto), there’s contingency.
With Ethereum- why would I buy a $100 NFT on OpenSea if the ‘gas fee’ awarded to miners I have to pay on the transaction is $80? The closest transaction fee rip-off scam I can think of here is TicketMaster with their $30 ‘convenience fee’ on a $70 NHL ticket.
Then there’s the time for the transaction to be confirmed by network nodes. Bitcoin can take an hour- Ethereum up to 30 minutes. Meanwhile, we’re sitting here nervously fidgeting hoping our crypto wasn’t lost. Jesus. Even The Dalai Lama would need anti-anxiety medication for this experience.
dApps & manipulation
With dApps- do people really want to run and govern their own decentralized service? Most people don’t care the way something works- they just care that it works. Behemoths like Amazon and Apple have brilliant product managers that build things we love- like the iPhone or Amazon Prime. As long as an excellent user experience is brought to people, they won’t care how it’s done.
The market is manipulated constantly by whales. Large financial bodies like investment banks are incentivized to peddle fear and doubt to get prices down so they can scoop up crypto at bargain prices. The crypto market is smaller and more primitive than the stock market, so it’s extra sensitive to a bad headline or an Elon Musk tweet.
Sadly, regulation has not caught up with this malfeasance.
The flip side
There’s definitely some light here.
Crypto wouldn’t be a $1T+ asset class if it didn’t have a solution to some real problems. Bill Gates called cryptocurrency a “technological tour de force.” Other top minds have plenty of praise, too.
There are Stellar Lumens (XLM) and Avalanche (AVAX) can execute transactions in seconds with low cost. Compare this to Western Union, who charges Filipino immigrants in the US 10% or more for them to send wire transfers back home to their families. These networks need no proof of ID, and are cheap and fast.
There’s the 500 year-old institution of central banks being tied to governments and using money as a political tool over their constituents. Fiat currency gets inflated away day after day. You could say that we’re all working 40 hour weeks to mine a ‘shitcoin’- the US dollar, the GBP, the AUD or CAD. Countries mishandling monetary policy has led to economic collapse (Argentina) or even war (Weimar Republic Germany). A self-sustaining, decentralized immutable ledger could solve some of these problems.
There are the two billion unbanked people in this world who have no access to financing. If I think about all the things in my life financing has helped me get- from student loans to my parents taking out a mortgage for the home I grew up in, it’s tough to think about all the people worldwide that have to pay for everything up front. Financing greases the wheels of any economy and fuels innovation. You shouldn’t have to show ID to have a bank account, or pass certain muster. Finance ought to be an independent market.
There’s promise in the future for crypto, NFTs, and Web3. I believe this promise outweighs the headaches we’re experiencing now. Here’s the thing though- it’s not going to be a revolution. It’s not going to change everything all at once. Like most technologies, it will play out over a much longer period and likely be a lot more boring. Like Charles Hoskinson says- “It will be like WiFi. Someday, it will just all work seamlessly.” Blockchain tech will make things better, faster and cheaper- but it will do so slowly and in unexpected ways.