In the late 2010s, as the value of the cryptocurrency soared and soared, claims made in its name also ballooned. His evangelical fan base believed he could disrupt the financial industry while acting as inflation and recession proof “digital gold”. Its applications were limitless and could reform everything from politics to real estate. Even world peace was not out of the question. Defense analyst Jason Lowery – also an officer in the United States Space Force – was not the only one to argue that bitcoin could end war, calling it the “ultimate” peacekeeping “missile”. which could substitute for state-initiated “kinetic violence”. Back on Earth, cryptocurrency has instead created a very different paradigm shift. He revolutionized fraud.
Its immediate legacy was a golden age of scamming, where enterprising peddlers refreshed some of the oldest forms of scamming – Ponzi schemes, pumps and dumps, identity thefts and even art thefts. – and restored them to new. They also invented new methods to defraud the unconscious. “Carpet draws,” where coin creators simply disappeared with investors’ money, occupied a category of crime so new that it was not always against the law. Pitfalls bringing in hundreds of millions of dollars were common, and sometimes a team of hackers could bring in a billion or more. The gap between the utopian visions of crypto boosters and its increasingly unethical reality became a chasm, until several critics, including Bill Gates, were willing to declare the cryptocurrency itself- even a scam.
At the end of June this year, the Australian Competition and Consumer Commission’s website for recognizing, avoiding and reporting scams, called Scamwatch, received almost 5,800 reports mentioning cryptocurrencies, involving more than 138 million dollars in losses.
“We are now seeing cryptocurrency being used as a payment method in almost every scam category, from dial-up scams, threat-based scams, and even online shopping scams in rare cases. case,” said ACCC Vice President Delia Rickard.
“We’ve seen the rise of ‘romance baiting’ scams, where a scammer builds trust with an online love interest to lure them into an investment scam.”
The problem was there almost from the beginning. In 2014, the world’s largest bitcoin exchange, Tokyo-based Mt. Gox, filed for bankruptcy after hackers successfully stole $460 million worth of coins from its customers. Company owner Mark Karpelès – who loved being called “the king of bitcoin” – had neglected his security duties and instead became obsessed with building a French bistro-style bitcoin café. Although he apologized for the “trouble and inconvenience” he caused, Karpelès was found guilty of deception and the bitcoin cafe never opened. The stolen coins are now believed to be worth some $15 billion.
Yet for early investors, the reward always outweighed the risk. In its early years, crypto could still act as a get-rich-quick scheme that was genuine. At the end of 2019, the financial publication Bloomberg said bitcoin was the best performing asset in a decade, returning 9 million percent in 10 years. He had made “a fortune for speculators and a few thieves.” Its volatility was experienced as excitement, and the absence of an underlying asset meant that the commodity – if it was a commodity – seemed to reflect the sheer exuberance of investors. It helped that the crypto markets never closed. They attracted the most inveterate speculators.
This was especially true for cryptocurrencies other than bitcoin. Anyone with rudimentary coding skills could find a cryptocurrency and literally make money, and these lightning operations have been launched by the thousands. Originally called altcoins – alternatives to bitcoin – they quickly attracted a more familiar name: shitcoins. The pejorative spoke of their value, and cryptocurrency exchanges filled with endless variations of these penny stock-like investments – moonbeam, balancer, enzyme and aergo – each backed by little more than a name. Some had a stated purpose, such as the Juventus Fan Token, which was meant to be a way for fans of the Italian soccer team to influence club decisions. Others, collectively known as memecoins, made a joke out of their own uselessness.
The most famous of these was dogecoin. Co-founded as a prank by Australian programmer Jackson Palmer in 2013, dogecoin operated an internet meme dog (a shiba inu) to poke fun at the inflated value of the crypto. “It was absolutely a joke,” Palmer says. “Absolutely stupid.” The joke took off. Within a few years, the value of dogecoin also ballooned, until at its peak it was worth hundreds of billions of dollars. Palmer was appalled. “What is happening is a net loss to society,” he says. “Now anyone can run their own scam. If you look at MLM [multilevel marketing schemes], if you look at self-improvement peddlers, even pyramid schemes – they’ve all kind of gone crypto. While other forms of online payment such as PayPal will eject scammers, crypto has no such mechanism.
Ironically, volatility and even fraud may have attracted more investors than they have repelled. If, as Slovenian philosopher Slavoj Žižek said, the promise of populism was “corruption for everyone”, the promise of memecoins was “insider trading for everyone”. What if speculation was rampant and the social dividend questionable? Crypto advocates heard the criticism — it was underregulated, it took advantage of mom-and-pop suckers, it was ethically corrupt — and thought, How was all this different from the financial sector? Hadn’t all the border markets in history encouraged crime? It was the price of exploring uncharted territory.
One of crypto’s most perceptive critics had attacked exactly that excuse. “I don’t think crypto has enough potential to earn the nickname ‘frontier market,'” says Molly White. Self-proclaimed crypto moderate – ‘I admit it’s a loophole’, she writes on her site – she thinks crypto ‘isn’t entirely a scam’ but ‘in the same way gambling is is not a scam”.
“I also don’t see this as the ‘future of finance’ or the ‘future of the web’ or anything like that,” she says. Mainly, according to her, cryptocurrency is poorly explained.
Trying to explain it drew her into comments and then reviews. White is a software engineer and long-time Wikipedia writer who has become famous for her invigorating analysis of the shortcomings of cryptography. His skepticism began with curiosity. Intrigued by the concept of “Web 3.0”, the next generation of internet culture that blockchain technology is supposed to usher in, she started to do some research. Instead of decentralization and “smart contracts,” she found predatory financial practices and digital snake oil.
As a result, she founded a website named Web3 is just fine, a clearing house for crypto skepticism. It operates a Grift Counter™, which tallies the wreckage of Web3’s “clown car parade” in austere financial terms. In June, the counter broke the $10 billion mark for the first time, with the theft of $100 million from something called Horizon Bridge. Despite their scale, these acts of banditry are somehow unromantic. In 1963, carrying Great Train Robbery cash, worth the equivalent of $73 million today, was enough to make Ronnie Biggs a lifelong celebrity. Crypto’s much larger thefts, executed with cunning rather than audacity, leave little cultural impression. The MonkeyPoxInu scam has made no one a legend, despite grossing $400 million in three days.
White’s work not only examines this advertised price, but also the lack of benefit, the enormous waste that accompanies so much lost and stolen money. Jackson Palmer agrees that the biggest crime is opportunity cost. “So many great developers have quit their jobs over the last two years working on maybe important things that could actually help us save the environment, could help save lives and could help save health care,” says- he.
“They may have actually helped create the payment system for everyone in the real world. And now they’re working on, you know, a crappy monkey token.
Web3 is doing very well uses the motto “a huge scam that pours lighter fluid on our already burning planet”. And it is this environmental damage, particularly the vast fossil fuels consumed by bitcoin mining, that has made the debate around cryptocurrency not only more bitter but also more urgent.
This is the second part of a four part series.
Read the first part: How the Crypto Market Began.
Next week: The environmental impact of crypto.
This article first appeared in the print edition of The Saturday Paper on July 30, 2022 under the headline “The Golden Age of The Scam”.
A free press is a paid press. Now is the time to subscribe.