Much Ado About Crypto
Finance and religion in the digital age
This post is a response to Brian Romanchuk’s comments on cryptocurrencies on bondeconomics.com
I suggest you read the post, and this is my response.
Okay, some great points, I just want to put things into context. The whole crypto ecosystem has been basically completely hyped and misdirected. There are a few things that a natively digital currency can allow you to do:
Facilitate micro-micro payments (in cents or fractions thereof)
Reduce the need for online advertising to finance online projects
Finance online collaborative projects directly (with small capital raises)
And things that crypto is not well suited for:
Investments and Securities
Financial Portfolios, Savings, or “Inflation hedging”
Large Capital Raises
One frustration with the modern economy, is that we say we live in an "information age", where the most costly aspect of everything is just a matter of information. Engineers are paid to draft plans, just information. Analysts, writes, etc. Even 3d printing is a great example of how raw information can be incredibly valuable when combined with modern technology. Open source software has been completely transformative, everything from linux which is used to host most websites, to browsers, to the entire technology stack developers use from compilers to text editors.
Now, Joel Spolsky has a great article on why open source software is financially attractive, and it has nothing to do with altruism or idealism. He says is all about "commodifying the complement". If a company sells hardware, they will benefit if there is more free software. Gaming consoles are a loss leader, etc.
The internet can also be a great place for grassroots movements, MMT has been a great example of this, as it has thrived online to a degree that would be difficult or impossible by traditional means. Now, it would be nice, even if it were not highly profitable, to create self contained and self sufficient financial efforts to support such activities. So perhaps, you moderate a forum, and maybe you don't earn an actual wage level, but you can get paid enough to cover your ISP costs, etc.
When people are doing such "passion projects" a little bit of money can go a long way. And even if this is unstable, that's an acceptable tradeoff, for people who want to be online anyway. In this case, it really is just "video game currency", but perhaps with a very limited market for uses of real world value.
If you recall, amazon launched a system called "the mechanical turk", which was basically to pay people a few cents an hour in wages to perform "captcha" like tasks, whether that was transcribing receipts, etc. I tried it once, and without helper scripts or an established reputation, it amounted to maybe $1 or $2 dollars an hour. In a week I could have likely been up to $3/hr, but it's hardly worth it.
So yes, this crypto stuff is poorly suited for a real economic activity, and even for video game money, it's not that great. Proof of work is a somewhat clever kludge to bootstrap a digital token, but taking it past a market cap of $1000 or $10k, was probably a complete mistake. A market cap of $10k is perfectly well suited so a niche base of users can transact on what may individually be relatively superficial activities, but when taken together could actually create interesting projects.
In such a case, you don't really have to deal with anti-money laundering or know your customer regulations, and it's possible to operate on the clearnet. The amount of people who could actually get on the darkweb and use a bitcoin mixer, I expect is quite small. The entire darkweb has a massive security problem, and that is that there is no direct domain name system. Onion URLs are long incomprehensible strings of characters, so you never know if you are going to the right place, unless you bookmark it. It is easy to remember "google.com", or "gmail.com", but trying to remember "alskdfnwoiefjosijdfaldsknflds.onion", is a complete joke.
Given that the dark web is the prelude to the cryptocurrency ecosystem (censorship resistence, and privacy protections), and it is an insecure mess filled with honeypots and spam and scam, altogether the worst possible user experience nightmare one could imagine... it's not surprising that cryptocurrencies, after their golden age of greasing the wheels of illicit activities, have transitioned to a superficial vehicle to bilk people with bad investment ideas.
If someone invests in cryptocurrency, having never used the darkweb, they are basically a fool, who likes to jump onto bandwagons.
But there actually is a potential way that cryptos could stabilize their price, and that is with transaction fees. If the value of the crypto goes down, transaction fees go up. Now, this of course sounds like a terrible way to do business, and if you are thinking in terms of trillion dollar valuations, of course it is.
Now expecting the crypto ecosystem to replace governments, when they can't even get the user experience of the dark web right, is next level stupidity. But if we aim, smaller, much smaller, at this $10k to $100k mark, then it could actually be useful for support grassroots efforts, side projects, an open source financing tool, if you will.
Now, decentralization is not really important here, for this vision, but censorship minimization is. The traditional banking system is actually highly decentralized, simply because it came into being before the information age. So this kind of model, where the bank is your agent, but there many banks to choose from, is much better. But even then, the best case scenario, is just repeating wildcat banking, but people don't lose their life savings, they just waste some time on an unproductive project.
Now, as for how ads can be eliminated, the brave browser already offered a compelling model for that, funded by... ads. Except users opt in to those ads, and can even get paid in real money. The brave browser actually uses tor for what it is good for, a poor man's VPN of sorts, which you can use to browse the conventional web just with a different IP address. Brave has excellent built-in ad blocking.
But as for an overarching goal or vision? I think the only thing that can be achieved is engaging users who are interested. Users could pay monthly for a fixed amount of a digital currency, and then use that in
But for sure, the decentralized aspect won't work out, except in the sense that there are competitors. If you want to have a public ledger or database, that is actually a compelling idea, but it doesn't need to be a decentralized service, you just anonymize user data, and then allow anyone to backup the database.
Again, where this will shine, is with specific industries, trying to boost user engagement, and just taking the conventional "hamster wheel" model of online engagement and social media, and making it feel more real, and potentially even be more democratic and open... but probably not that last part.
Crypto has become a religion, and like any religion, it is hard to predict what will happen to it, because that's a matter of what the members decide to do. So long as there are followers of these creed or tribe, people will be trying to stack sats and
buy the dip, and talk about going to the moon. There are some potential real non-religious commercial applications, but they will likely not be decentralized, at best peer to peer, which is not the same thing.
But aside from the digital aspect of cryptos, I think there is something else that could take off, and that is grassroots financing. This should not be seen as a "cryptocurrency" thing, because linking financial relationships to a specific technological layer was always a terrible idea. But rather, it is an opportunity for people in a community to support a finance something, with low rates of interest.