Parodies Lost: The 10 Crypto Commandments that don’t make sense
Cryptopia is not a paradise free from the ticket-clippers of the Rentier Society nor safe from the predations of Surveillance Capitalism but the worst of both worlds. It doesn’t invert the business model of the Attention Economy but appends the Attention Marketplace in which everyone can monetise, speculate and profit from it. This article debunks some of the fallacies of the ‘decentralised’ theology.
This is the second part in a series on building regenerative business and monetary models in the Digital Economy. It is a reminder of the pitfalls of industry orthodoxy and the importance of remaining Tech Agnostic. Read part 1 here.
The Book of The Genesis Block
Cryptopia, the promised land of money cultists, is the modern iteration in a long tradition of utopian fables going back to the Garden of Eden.
It is unsurprising the crypto industry is shrouded in impenetrable esoteric jargon and such zealotry given the movement’s philosophy came from an epoch that suffused religion with science.
The Enlightenment movement upon which modern Western civilisation was built was the first to pursue a real Eden, a utopian society built with technology. As early as 1627, Francis Bacon a founding philosopher of the Enlightenment outlined a utopian vision of a science-based society in his book New Atlantis.
Bacon was in turn inspired by John Dee, the famous 14th-15th century British scientist, astrologer and advisor to Queen Elizabeth who later became infamous as an occultist and alchemist.
Author Jason Louv draws interesting symbolic and cultural links between Elizabethan era occult esotericism, alchemy and the ideology driving and designing our technology today, particularly in the ‘metaverse’ of cryptopia. Equal parts prodigious and precocious, aspiring computer scientists and cryptographers are the modern-day Dee’s, the alchemists turning code into gold.
According to the historian Joachim Fest, until the 15th-16th century previous civilisations used ‘utopia’ as a metaphor for an idealised Golden Age in the past, the Paradise now lost that we can only aspire to but never attain. However, since the Enlightenment and the march of technology philosophers and scientists alike conjured utopia as an actual place in the future that will be achieved in time with scientific progress perfecting the defects of nature and humans.
This utopian spirit pervades the pursuits of futurists today, whether it’s seasteading or billionaires building rockets to colonise Mars. The most fervent futurists live in Cryptopia dreamland which, ironically, now lives and dies by the Tweets of space industrialist Elon Musk.
These crypto fundamentalists have simply swapped the orthodoxy of the State and Church for that of right-libertarianism and free-market Austrian economics.
One man’s Cryptopia is another man’s Dystopia
We have an epochal opportunity to rebuild better regenerative business and monetary systems from the rubble of C-19.
But the rebuild is being led by the same narrow demographic that built Finance 1.0 in a myopic ideological vision which sees everything through the prism of price and fixing everything — even the problems caused by markets— with a price mechanism.
I see Cryptopia as the worst case scenario. It is a (Philip K) Dickensian dystopia of digitally-addicted price-obsessed arbitrageurs, capital hoarders, speculators and rent-seeking mercenaries in which our attention is not just captured by social media algorithms but by algorithmic money.
These concerns are often excused as “growing pains in a new industry”. This is absurd. This is not a new industry (nor a new technology) it is the fusion of two perennial industries, finance and technology, which still have “growing pains” that are only getting worse.
If the nexus of finance and technology is a Faustian Pact then crypto is the Moonchild.
I’ll continue to debunk the false premises of 10 Crypto Commandments and pose the question “is this the future of money and business you want?”
1. We can perfect the “science” of economics with “Tokenomics”
This is a baptism of fire.
You really need to push your doublethink abilities to believe that social media algorithms that influence human behaviour with false information is bad, but financially-engineered algorithms to influence people’s decisions with fake money is good.
Tokenomics is jargon for financial engineering, which is synonymous with Wall St investment bank quants creating financial derivatives. In case you’ve never heard of the term tokenomics, this is how the crypto news/research website Decrypt describes it:
Tokenomics is the science of the token economy. It covers all aspects involving a coin’s creation, management, and sometimes removal from a network.
In the same article on the same crypto website it goes on to say:
Although the term tokenomics is used within the industry, it has yet to receive widespread recognition. The Oxford English Dictionary, widely accepted as the main authority on the English language, still doesn’t have an entry on tokenomics.
So, according to Decrypt, Tokenomics is a “science” that is not accepted as a term by the general public let alone by an official arbiter of the English language.
We could really just slam the book closed here.
Game Theory Gone Wrong
What advocates believe sets New Age Tokenomics apart from Ye Olde Economics is the application of game theory. Primarily the prisoner’s dilemma is what they claim to have the solution for (aka tragedy of the digital commons, another delusion that I’ll dive into in an upcoming article).
In short, game theory is the reduction of real world rivalrous situations to a body of mathematical theorems and proofs. It works wonderfully well in controlled environments such as lab tests and games of chess and cards, but the limitation of game theory and even mathematical theorems when applied to the real world is that it is tautological.
That means that one mathematical theorem proves another and one can keep reducing the proofs almost indefinitely but when we apply these theories to the real world of fluid data they often don’t fit.
As mentioned, the one game theoretic situation that almost every crypto (regardless of their consensus algorithm) tries to solve for is a form of prisoner’s dilemma, or the Nash Equilibrium. The most famous prisoner dilemma experiment that proved human decision-making is intrinsically selfishly motivated (even evil) is the 1971 Stanford Prisoner Experiment, which lay the foundation and direction for a field of psychology studies.
However, decades later the Stanford Prisoner Experiment has all but been debunked as a hoax, or at least “as deeply wrong”, as new evidence show the psychology professor who ran it actually orchestrated the outcomes to fit his hypothesis that humans are innately evil and selfish in certain situations.
Financial Quantum Quackery
Given economics is at best a protoscience (its high priests can’t even find a universal theory or falsify its many methods) tokenomics is the financial equivalent of New Age Quantum Quackery of Deepak Chopra in which ‘multiple potential realties exist to the observer’.
Or some shite like that.
Using financial quackery some proponents describe cryptoassets as having “simultaneous properties” of a commodity, security, utility and currency all at once. This borrows from quantum mechanics in which atoms (or bits of 0s and 1s of quantum computing) are in superposition, meaning they can move in multiple directions at the same time and be in two places at once.
“The cost of reliably linking tokens to real assets inevitably drives the market towards consolidation, oligopoly and even monopoly.” — Frances Coppola
Unfortunately in crypto, like other New Age cults, quantum logic is used to skirt regulations, beguile and befuddle newcomers and take their money.
Furthermore, tokenomics is premised on Mill’s theory of ‘Homo Economicus’, the conceptual human whose every incentive and decision is financially based. This is anthropologically and provably wrong. Even the greatest exponent of skin in the game incentives Nassim Taleb has completely denounced and debunked crypto economics.
In closed systems such as machine-to-machine interactions (and stickiness in apps) tokenomics may have a future but not in the fluid complex world of humans.
2. Crypto is “Democratising Finance”
Firstly, when you see any financial product with the buzzword “democratise” — run.
In finance “democratising” usually means the fractionalising of assets, which we have been doing for decades with index funds, ETFs and REITs, and lately with the 8 decimal pricing in crypto. It is often a euphemism for lowering the barrier to entry often exposing one to bigger prey. This is best exemplified by the Fintech deviant, Robinhood the zero-fee exchange which is not zero-fees at all but an extractive business model.
Robinhood is as lovable as the Pharma Bros and their infamous “Payment for Order Flow” business model, which sells its clients’ order flow to market makers, is entirely in opposition to their “democratic” mission statement.
Robinhood was recently fined by the Financial Industry Regulatory Authority for $57 million and ordered to pay customers back $12.6 million plus interest, the highest fine ever issued by FINRA for a slew of customer transgressions.
Furthermore, democratising/fractionalising has never and will never lift all boats because asset prices are not set by the many small participants but by the marginal buyer and seller, the outliers willing and able to pay/sell in excess of/below the market value. This flawed logic and mismarketing may lead to moral hazard for small fractional passive retail investors who are exposed to .
The Tokenisation Delusion
“Tokenisation” is crypto jargon for fractionalisation, the “equation” for which is:
In classical economics this is known as Says Law, ‘that supply creates its own demand’, which of course is not a law at all in any scientific sense as it doesn’t hodl (oops!) constant. Again, this tokenisation/tokenomics liquidity theory is financial quackery and I highly recommend Frances Coppola’s greatly entertaining read The Tokenization Delusion.
“Democratising finance” conflates the tenets of financial capitalism (aka rentier capitalism) with elective democracy as though one segues into the other. It also conflates “financial capitalism” with that of founding father Adam Smith’s original vision of “production capitalism”, the latter subordinated to the unproductive accumulation of financial wealth and rent seeking.
Crypto actually turbocharges financial capitalism and exacerbates the worst dynamics of our current system: hoarding, rent-seeking, speculation, deception etc.
In case you needed any convincing that fractionalising assets (which we’ve been doing since the 70s) does nothing to improve real wealth equality but actually exacerbates inequality, see in the chart above how badly Bitcoin and the rest of crypto fares in wealth distribution compared to nation states.
Most tellingly, ahead of its IPO, Robinhood also wants to amend US law to allow exchanges to fractionalise stocks to four decimal places, ie. $0.0001.
3. DeFi is an alternative finance system
Perhaps the greatest parody is that decentralized finance represents an alternative to the current financial system when it has recreated the exact same system dynamics and feedback loops, just turbocharged them.
It has done so by replacing trusted third parties with smart contracts, allowing anyone to engineer their own derivatives and collateralized debt obligations to take speculative positions on the same asset class that they’ve collateralized.
“[DeFi] The whole thing is just fake — people get fake yields, they get fake balances and then eventually the founders just take everything. A competitor platform is offering 10%, so I say I can get you 20%. You send me your money and then I run”
— Stephane Ouellette, CEO FRNT Financial
Sounds like a good “democratising” idea, right? If anything DeFi is democratising investment banking which will create a new financial class of the 0.0001% who can collate complex code with complex financial engineering and exploit it.
Moreover, crypto generally isn’t an alternative to the USD, but rather a function of its liquidity and Fed machinations.
Any chance that bitcoin had as a ‘safe haven’ asset (my own thesis at one stage) was debunked after its tandem price crash and rise with the stock market. Since the Coinbase IPO and launch of Bitcoin ETFs it is now even more ingrained in the legacy stock market and USD system. In fact the only reason crypto has any value at all is because it’s convertible to fiat.
If/when there’s a real US Dollar shortage DeFi loans and debt will go the same way as high-yield and emerging market bonds.
Ironically, crypto is now a parasite on the fiat system it was meant to subvert.
4. Building communities with “trustless” technology
This tenet falls at the first hurdle because you actually first have to trust that the technology is actually “trustless”, or some recruiter in the crypto pyramid converts you to believing it!
Many techno-solutionists, some with good intentions, propose blockchain and crypto to build communities at global and local level because no one really needs to trust anybody in the network. “Trustless” because it obviates the need for third-parties to be a witness/custodian in a transaction.
The crypto industry is actually expediting the breakdown of trust in business and society with degenerate behaviour and duplicitous business models, then selling its products as a solution to this societal breakdown.
Proposing trustless technology to build communities at a local level is the ultimate paradox. This is because trust is the binding agent in any community: The faith your local shopkeeper puts in you when you say you’ll return later with your wallet to pay for your items or when you take the word of the carpenter to come back and finish the decking after you’ve already paid him.
By shopping at your local-grown grocer instead of at an international supermarket chain you are, by dint, decentralising the economy, far more so than using a cryptocurrency!
I’ve met and worked with some genuinely good people building local/community cryptocurrency but, for me, it raises more questions than answers:
- Why would you use “trustless tech” to build trust and better relationships between people in a local community?
- Why would you use a “decentralised currency” that doesn’t need to scale beyond a local level?
- What is the motive to reverse fit a use case to a technology?
- Wouldn’t it be a better approach to be tech agnostic?
Blockchain will play a role in scaling global cooperative organisations, but to “govern” a publicly-traded currency to sustain its price — that is called a price cartel and, often, these cartels devolve into money cults.
5. Crypto is both a store of value and medium of exchange
Every currency that ever existed that serves as both store of value and medium of exchange has ultimately failed.
Yet in their hubris crypto gurus believe they have found the solution in changing the form of money without changing its function.
John Maynard Keynes was one of the earliest proponents of decoupling the store of value from medium of exchange. He believed the dual role of money compounded inequality as the working class need it to survive and the financial class use it to seek rent from the workers.
He was also an advocate of negative interest rates in certain cases and after WWII proposed his concept currency Bancor as a supranational unit to be used for international trade and would depreciate in value over time.
Cryptocurrency 1.0 is founded on exactly the opposite premise of Keynes’ Bancor: a supranational unit of exponentially increasing value that is marketed by influencers as new ‘money’. Instead, crypto 1.0 is the first asset class ever to have a suite of trading derivatives before it has any use case and I believe, this dislocation of interests between spenders, hoarders and gamblers will prevent it from ever becoming a widely accepted currency.
The Dichotomy of Money
This dichotomy of crypto (that it cannot simultaneously be both a good instrument for speculation and a medium of exchange) is most evident at point of sale.
Recently in my local seaside town salesmen from a crypto company have been door knocking on businesses to sign them up to accept their crypto at point of sale instead of cash (non-cash settled crypto transactions).
The dodgy name, website and domain don’t do it any favours and the obtuse product descriptions raises every red flag on first impression.
It’s marketed as a form of local currency that purports to support SMEs with zero merchant transaction fees and vague claims like “Generating new customers without borders”. For customers, buying the currency is “An opportunity to support local businesses, you and your families”, and of course the rising price of Qoin, which I was told by a customer relations agent has gone parabolic from AUD$0.12c in March 2020 to $9.80 now.
It’s marketed as a win-win for customers and merchants it’s actually zero-sum. In reality it’s a market with very thin liquidity where the market maker is the same entity who owns the trading venue and creates the assets you’re trading, the only person who wins is the middleman.
There may be good intentions behind this project and — giving it the benefit of the doubt — the best I could say about it is that its business model is nonsensical and will end badly.
6. Crypto is “scarce” and a paradigm shift (The red pill)
The reason people don’t get crypto is because, on the surface, there is nothing “to get”. People forever believed that money is scarce and for the past 50 years we use and value digital money as much as its analog.
Ironically, just as the ‘loanable funds’ scarcity argument of fiat and bank-debt money has been debunked with MMT, so too has it been completely debunked that there is any scarcity in crypto as around 10,000 currencies that have now been created with the ability to copy and paste the code to create another.
At some point it will soon dawn on people that there is no scarcity or intrinsic value in software either. It can be outsourced and recreated in factories like plastic toys and we will realise we have created a digital excess of crap just as we have clogged our ecosystems with .
‘It is perhaps well enough that the people of the nation do not know or understand our banking and monetary system, for if they did I believe there would be a revolution before tomorrow morning’
— Henry Ford
What crypto has done is add more layers of jargon and complexity to a subject that is purposely obfuscated and complex and 99% are still trying to fully understand.
As Henry Ford noted many years ago, keeping finance impenetrable only to a small cabal is the whole point of finance.
7. Blockchain is new technology
We often conflate invention with innovation, the genuinely new with the novel. In this case blockchain is not new but a novel iteration of old technology (distributed systems, smart contracts etc).
The current blockchain iteration was born 30 years ago in a paper, by Scott Scornetta and Haber, which cracked how to obviate the need for and trust in a third party in a network of transactions. What bitcoin and other crypto subsequently did was create a “digital currency” on top to scale the tech.
Crypto today is an atavistic idea that has emerged from this innovation, that has revived old ideologies (libertarian philosophy and Austrian economics) and fused them with technology.
It is a mutation of the contagious “Bimetallism” from the 1800s narrative which is itself an age-old, biblical, debate of what money is or should be.
8. We want more technology & apps in our lives
A false premise of all techno-solutionists is that the world wants more technology to resolve the problems largely caused by the march of technology.
The majority of software is not really new or useful but designed to duct tape over the problems of our creaking capitalist system — problems that shouldn’t be there to begin with if it really were an efficient system. Crypto is duct taping over the financial capitalism system while quantifying more of our lives and actions in $ terms and writing it to a digital ledger.
It’s a data geek’s wet dream. You can quantify every movement, peer into blocks, create dashboards and create any kind of chart that Tableau can handle which reifies it as ‘signal’.
“Not everything that can be counted counts, and not everything that counts can be counted” — A. Einstein
Not only does this quantification of life and human interaction assume people want it in their lives but it discriminates against those who want to spend more time offline and in the analog world.
There’s a demand to go ‘luddite’ eg. Cannon analog cameras, board games, Warhammer and Nokia 3210s, and we may actually be at a point of Peak Technology in our lives. The Slow Consumer/Degrowth movement underway may be the counterpoint at the end of this Move Fast and Break Stuff Tech era.
9. Blockchain will decentralise the economy
Decentralisation has been a false dawn of all breakthrough information tech — print press, radio, TV, internet — and there’s a diminishing effect on each.
Like the internet which has spawned our current digital landlords who have found a way to financialise our attention I believe blockchain will have a net centralising effect on our economy. It has already created a new industry of middlemen it was meant to obviate: brokers, bankers, lawyers and ticket-clippers of all stripes.
The irony is that crypto promises to replace the Attention Economy created by Facebook et al with the Attention Marketplace of token prices. Contrary to the predictions of economists, equality has actually worsened alongside the advancement of information technology and particularly the internet. This may be due to the network effects and power laws of exponential tech which skews the Pareto 80:20 distribution found in natural systems. Today the top 1% own 43% of the world’s wealth, and 10% own over 80%.
We might expect income distributions in the future to be more like that of sports stars today, where the top 1% of professionals get 90% of the views, earnings and sponsor money due to network effects of TV and social media.
10. It’s bottom-up systems design
Money, the fuel of an economy, is a social construct and the economy is the most complex of all interhuman systems.
All cryptocurrencies are not ‘emergent’ but originate in the heads of one or two men with grandiose ideals that they can create a complex system from scratch, better than the millennia of ideas that has led to fiat money.
‘A complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a working simple system.’
- John Gall (1975). General systemantics : an essay on how systems work, and especially how they fail, together
Furthermore, the design in Crypto 1.0 has come from 0.000001% of the global population (author’s SWAG), the brainchild of a few highly-educated males (usually white and many from Ivy League Unis) who have a polymath understanding of economics, game design, computer science and cryptography.
By design, crypto is top-down and patriarchal.
The systems, rules and parameters of blockchain/crypto have been created with resultant bias from the forefathers of computer science which is now hard set (sometimes slightly amenable or through hard forks).
Venture Capital and Wall Street fund managers are the early adopters in crypto (again well-educated guys from Finance 1.0) and by the time it reaches the early/late majority in the Rat Race it’s no different to buying into an IPO and you have no say in its direction.
Ironically, many of the crypto early adopters, the VCs, entrepreneurs and CEOs are the same sociopathic characters that decentralisation is supposed to save us from. But for some reason there is a naïve belief in crypto that they have the interest and needs of the general public at heart and are creating tools that shatter the profitable status quo to liberate the masses.
Crypto and decentralisation is modern day alchemy in the sense that it is part science, part pseudoscience and bordering on the mystical due to impenetrable jargon and paradoxes.
This is why people often defer to the the comp-sci wizards, the modern day John Dees. And this is why a lot of people get roped in to money cults and lose money.
Ultimately we have to ask the question: Is crypto 1.0 worth enduring years of degenerate business models and scam artists for a future the majority has not chosen?
If I asked you the same question 10 years ago about social media, and you knew what you know now, what would you say?
About Future Perspectives
After several years working in fintech and crypto startups I came to a dead end conclusion that the same old degenerate business models and behaviour which built Finance 1.0 is also building the New Economy and the future of money.
Future Perspectives ideates business strategies in the Digital Economy that are additive, not extractive, and more resilient to future disruption. For more info or to just have a yarn, message me here or LinkedIn. Thanks.