Ethical Investing in the Crypto Industry

By: Matthew Prewitt and Steven McKie

With an industry that has now gone through a few significant evolutions during its existence, we arrive at yet another important inflection point.. “Crypto”, as a whole, has made headway into legacy financial markets, become an important primitive in payment technologies, and has even found its importance and voice when engaging with and seeking to improve political landscapes and ideologies. Yet, fair or not, FTX, Binance and other recent major upheavals to this sector have precipitated a major credibility crisis. The industry finally needs to face its demons to move forward.

We’ve trudged through the underbelly of this dark forest, and through it have faced countless battles against greater industry greed manifesting as misaligned attempts to pair technological tools with human incentives and coordination. Though some of these battles have been won, more have been lost. Though the industry is flooded with intellectual talent from many disciplines, we’ve found ourselves time and time again looking at one another across the table asking “Where can we go from here?” and “Who can we really trust?”

Let’s begin by delving into the industry’s fundamental questions as we see them, and how Amentum thinks about them internally.

Crypto’s Confusing Promise

Crypto made a confusing promise since the advent of its early days. This promise was called “trustlessness”, and its meaning was always ambiguous. People took it to mean that, with crypto’s help, you wouldn’t need to trust anyone, so that you could interact confidently with everyone; i.e., that “trustless” systems would lead to more trust. But, as we’ve learned, it can just as easily lead to more distrust.

The original trustless technology is a lock. When you put a lock on your door, you are not “trusting” anyone not to break in. Instead, you’re assuming people will try to break in, and you choose to pre-emptively attempt to stop them from doing so. If trust is a relationship that runs between people, locks on doors are evidence of the opposite: distrustful relationships between people.

Now, if locks work really well in a distrustful community, something interesting happens: burglars stop trying the doors. It then becomes possible, perhaps even reasonable, to leave your door unlocked. This is good, of course. It’s great not to have any burglary, and it’s nice to be able to leave your door unlocked. But this is not the same as trusting that other people will not try to break in — it’s not real trust. A community with real trust would not only leave the doors unlocked, but enjoy many other benefits, such as easy collaboration and frictionless mutual support. If one burglar appeared, it would seem the exception not the rule, and doors would remain unlocked after the burglar was apprehended. By contrast, in a lock-based community, as soon as one burglar tried a door, all other doors would bolt back up and stay that way.

Crypto is built out of locks. It lets us lock information in place, so that we can be sure no one has altered it. This lets us collaborate in complex ways, all through this veil of locks. It lets us interact in spite of distrust, but does not thereby diminish distrust. Just as that would be asking too much of a mere lock, it’s also asking too much of mere crypto.

This limitation is well and good, no different from the limitation of any other technology. But it’s important for everyone to understand. Yet it’s so hard to understand — a problem compounded by the complexity of the technology — that informational asymmetry abounds. This creates easy opportunities for scammers, but perhaps even more worryingly, makes it easy even for extremely sophisticated and well-intentioned builders to “get it wrong” by building systems that won’t have the intended effect.

When we hold a hammer, we are at risk of imagining that every construction deficiency calls for more nails. When we hold cryptographic technology, we are at risk of hallucinating that every community weakness calls for more locks.

Nails and locks have their place; it’s not everywhere.

Can Trust Be Manufactured?

Large swathes of people in technology and elsewhere are interested in building or scaling trust, in the way that we’ve argued crypto cannot do. But what could do that? And would it be desirable?

Trust is a good thing. Societies that have a lot of it are better off and relationships that have it are much happier. The tricky question is whether it can be intentionally “manufactured” at scale. If it can, does the manufacturing process have dangerous by-products?

The most reliable trust-manufacturing methods we know of are dangerous. They include, for example, fomenting in-group fervors (religious, ethnic, nationalistic), and the various techniques of cult leaders and advertisers. These methods are unjustifiable absent exigent circumstances like war. Even fairly simple group bonding exercises put people at exceptional risk of manipulation, requiring the utmost ethical caution. Society-wide programs like childhood education would be completely undesirable without overwhelming social consensus.

“Trust is not an industrial product, nor is it the output of any new or old technology. It is a quality of how people see each other and, as such, can’t be forced.”

As with making truly great art, or delivering great education, there aren’t any safe or reliable shortcuts to it. It requires time, dedication, and great care.

Ethics in Investing

Amentum works from a commitment to see through technology’s various false promises, while also trying to bend the arc of technological development toward attractive outcomes for society. Sometimes these two goals can appear to be in tension, but navigating that borderland soberly is core to our approach.

We chart our path by focusing farther in the future and understanding technology earlier than others; motivated by a conservatively raised and managed AUM which keeps us committed to being strategic and agile. This (a) gives us a unique niche that suits our strengths, and (b) lets us stay out of the position that so many other crypto investors have found themselves in lately — the position of holding a hammer and having to argue that everything is a nail. This ultimately leads to firms doling out cash to teams and projects, simply for the sake of deploying capital to satisfy their large and diverse institutional LP base.

Here are a few of the guiding principles that have aided us in our pursuits:

1. Focus on promising new ecosystems.

As soon as new technological affordances are born, a period of large risks and rewards commences. This early phase in any technology’s arc also features high risks. Many projects never go anywhere. Hype and substance are indistinguishable to everyone except those willing to think from first principles and roll up their sleeves to understand new things . This is where we thrive. We have a culture of grasping cutting-edge ideas quickly and maintaining a mindset of openness to them.

There are also moral hazards in these early technology arcs. As ecosystems take shape, the risks of new technologies tend to be downplayed and poorly understood. Key actors in these uncertain and chaotic periods of technical development have an outsize impact — they can set a culture in which the risks of the technology are ignored and suppressed, or publicized and dealt with. We try to be the latter. It can feel like a buzzkill, but it’s a public good. The entire crypto sector is now feeling the hangover of a period in which the buzzkills weren’t loud enough. But we’ve been around since the early days, pointing out the difference between interesting (governance-related) and boring (speculation-related) uses of blockchain technology. We’re proud of this way of operating and plan to carry this methodology forward.

Once technologies reach a certain stage of maturity, a different sort of entrepreneurial mindset becomes predominant — a more extractive way of doing business, in which hype generated earlier is mined, often to the detriment of consumers and real innovators. It becomes a land grab. At this stage, our strategy is to take a step back and canvas the horizon for greener fields where our unique skills can be put to better use.

2. Learn from the past.

Lots of idealistic technology-related movements have lost their way during the past few decades. We’d be remiss as investors and citizens not to learn everything we can from that. Take the open source movement. Although enormously successful in many ways, it isn’t criticized seriously enough. Free software has a cost: the cost of knowing how to use it and coordinating the continual (safe) improvement of it. This means that it has always been more valuable to wealthier, bigger players, than to the little guy. In fact, every tech giant has built its house on the foundation of open source software. So from a certain angle, open source software has been a huge giveaway to venture capitalists and tech giants.

It’s time to be open about this, to air this kind of friendly criticism. Because it’s possible to do things differently. When open source software is made available with non-commercial licenses, it provides an advantage to publicly interested organizations like governments and nonprofits, without giving away power to venture capitalists whose businesses, more often than is convenient for anyone to admit, work against the public’s interests.

What other blind spots are technologists ignoring? Let’s find them and support the work that addresses them.

3. Lean into education and outreach.

Technology is complicated and people are busy. That’s why the public keeps failing to apprehend where the train of technology is bringing them. No one can close this legibility gap single-handedly, but everyone can help. We work to educate others about whatever issues we’re studying, and to inform society about the worries we’re mulling in private.

This approach consistently brings us into contact with the most thoughtful and honest technologists. And, we hope, it helps the non-technical public get keyed into important issues before it’s too late. Public conversations around internet privacy in 2010, and social media manipulation in 2018, missed the boat by about a decade. The whole world paid a price for that.

Ethics isn’t about making ourselves out to be saints. And it’s not about measuring the difference we think we’ve made. If you only do the good that can be measured, you’ll leave a lot of good on the table. Ethics is just about trying to get it right; navigating an often messy and unkempt world as well as we can. Here’s hoping (and praying) the entire technology culture can do better over the next decade.