Don’t Shoot The Messenger — Crypto rant from an early adopter
At this point, I’m a broken record but, I’ve been around the crypto block since 2009, since installing a BTC miner on one of my experimental machines. But I’ll regurgitate anyway in the hopes of bringing some sanity in the discussion and also to point someone to an intentionally limited set of main skeptical arguments from an early adopter turned skeptic:
- BTC (or algorithm-controlled money supply in general) scarcity is on the BTC network and not outside the network. Nothing is stopping someone else (and indeed it does not) from creating another network and claiming scarcity on that network. This is the main difference between Crypto and Gold. A network of collaborators does not determine gold’s scarcity value — It is actually scarce — whether you are one of the collaborators or not. BTC and crypto, in general, are scarce, only on their own network. In this respect, it is exactly like baseball cards. Sure, it is scarce to the people who care about it, and indeed people make millions selling baseball cards. But in the end, it has to be converted into legal tender money to realize its value. This makes crypto more similar to a speculative asset and almost exactly similar to baseball cards and tulips — I know this argument drives crypto hardliners up the wall. Still, I’m yet to see anyone meaningfully address this.
- NFTs are something interesting, and I will take them seriously if someone tells me that it is a way to actually own something scarce in the digital space through smart-contracts that can be embedded into it. If the only purpose of executing the smart-contract on EVM is to validate the authenticity on ETH chain and not enforce unique ownership of the underlying digital asset, it just becomes self-congratulating intellectual exercise without real application. Original art is valued more in the real world precisely because it can be printed and recreated but never exactly in the same manner. If NFTs can allow a person to replicate the asset in the same form, bit for bit, any claim to authenticity is pointless. Where NFTs do make sense is establishing third-party-less ownership of tangible assets like a car or a house etc. — which are meaningfully unique. It also makes sense in scenarios like Steve Aoki actually delivering on making an NFT based music streaming, which executes a smart-contract every time the music is streamed or downloaded, cutting out the current music middlemen. But that now potentially creates the smart-contract provider or GAS expediter as the middleman(?). The bottom line is, you need to tease out the specific applicability of these scenarios and not claim an internet revolution wholesale. And again, here, ETH acts like a token that enables this smart-contract to execute. This makes ETH more valuable than BTC because ETH now adds network effect and stickiness — similar to Facebook — but with a caveat. This brings me to the next point.
- The network effect of Facebook works because the producer and consumer of the content both are on it — and that is also starting to get challenged. In the case of financial transactions, no one provider can claim ubiquity. If you cannot perform a transaction on VISA, you can try MASTERCARD, direct transfer, one of the thousand wallets. People have preferences; however, nothing insists on ubiquity other than interbank networks or ACH institutions — where crypto can play a role. But hold your horses. You can prefer specific blockchains over others for executing smart contracts, yet, that still costs GAS. You can already transfer money for zero cost on the same wallet, or indeed a government platform outside of the decentralized paradigm — India’s UPI comes to mind. Why will anyone spend money on such transfers in decentralized land just to remove the middleman who’s primarily an arbiter as of now? At this point, crypto looks like hard libertarians’ last-ditch attempt to park their money outside the purview of the tax system of their respective country, or just straightforward gambling. And at the risk of being a conspiracy theorist, it is curious that the recent crypto price skyrocketed after the global agreement among leading nations to close down tax havens and charge a global minimum tax bracket of 15% and push for various proposals for Wealth Tax.
- Finally, the old nugget, money is a social construct that everyone agrees to transfer and holds value. So should I prefer a monetary system, however flawed, that can offer redressal and hold accountable any abuse and be answerable to an elected government, or an oligarch’s wet dream where the mighty whales can yank asset prices with impunity?
This is what get-off-my-lawn of the crypto world looks like.
Time for my afternoon nap.
P.S. — Maybe I’m just salty about scrapping that mining machine back in 2010. But give it thought kids before lashing out at crypto grandpa.