This post is about understanding the negative response to NFTs and cryptocurrency which has become apparent in the last few years. I think that understanding the objections of the crypto critics and how these are likely to mature alongside the technology is the best way to get a sense of what widespread adoption of crypto might look like in the future, and speculate about who the beneficiaries of such a trend might be.

I’ve been following the cryptocurrency space since 2017 and have made it the main focus of my research¹ for the last few years.

My feelings about crypto have always been quite mixed - there are aspects of the technology I like, and aspects of how it is marketed and exploited that I’m not so keen on.

NFTs grew in popularity and awareness during 2021 and the reaction from some subcultures and communities has been quite vehemently opposed to them. The clash between crypto and “normie” cultures seems more animated when NFTs are the battleground, perhaps because those NFTs have drawn more recognisable individuals and organisations into the space/battlefield. NFTs are encroaching on the territory of games and art, and the communities who define themselves as gamers and artists are not being consulted. Fans worry that NFTs are going to change the thing they’re passionate about and the direction that the “crypto bros” are taking it in may not be appealing.

I’m not involved in trading NFTs and my feelings about them are mixed, but I realised that there are a lot of similarities between these reactions and how I felt about cryptocurrencies when I first looked into them. In 2021 NFTs became a new frontier on which many people engaged with “crypto” for the first time, particularly in jurisdictions where people who wanted it have already had access to cryptocurrencies for some years.

What I would like to do to start this post is to go over some statements about NFTs, positive and negative, to explain what I think about these points, and how that may have changed or stayed the same over the last few years.

I hope that people who read this post will come away with a better understanding of the other side’s perspective on NFTs and crypto. My impression is that participants in this debate are mostly talking past each other about concepts that they understand in very different ways, so this piece is my attempt to close the gap to some degree.

There are plenty of issues with NFTs, in particular the current crop of early efforts and their copycats - but there are also plenty of stories of people for whom NFTs have materially improved their lives, and projects that would never have been funded or developed otherwise. Like crypto(currency) before it, the NFT concept has been unleashed, and reached a critical mass such that it’s probably here to stay (although most of the current projects may wither and the name for it may change).

My view is that NFTs or “blockchain-tracked virtual items” will probably continue growing in relevance, and I can imagine some ways in which the “web3” turn could be beneficial for society - but I’m not really a fan of most of what has happened in the NFT space so far. I’m not always optimistic that the potential benefits can be achieved without somehow making things worse in (un)anticipated ways.

I wrote most of this in late 2021 but then some stuff came up and 2022 saw so many fast developments that I just struggled to keep up to date and the didn’t have much time for writing it up. The benefit is that 2022 has seen some of the trends I was following play out to a much greater degree so there’s more evidence to consider.

NFTs are fundamentally the same as cryptocurrencies

While most blockchain units of account claim the fungibility of cash they are actually non-fungible by nature. For assets like BTC or DOGE, fungibility is aspirational - ideally 1 DOGE = 1 DOGE. This is not always true though, as one will likely find out if one deposits cryptocurrency that came from a hacker or drug dealer (who got caught) with the kind of organisations who are mandated to perform anti-money-laundering checks. NFTs and crypto bought in the market share a drawback of any second-hand good - if it turns out you bought stolen goods you may not get to keep it.

Fungibility is an ideal of cryptocurrencies, but one that is technically difficult to attain because the ledger is public and anyone can read it. Projects like Monero make it the main objective for most of their technical development work. There is always a tension between transparency and privacy, and Monero has given up some of its transparency in favour of user privacy. Most of the transactions represented on the Monero blockchain are not real, they are like convenient static that real user transactions can blend in with. One down side is that it is not possible to audit the supply of Monero² and confirm that this is following the network’s rules as they are commonly understood. It is also not possible to analyse the distribution of XMR between addresses or address clusters to produce “rich lists” or see how much money someone has - this is lauded as a strength by Monero advocates.

If cryptocurrency were to take over as a major form of money there is a big difference in terms of the likely impacts depending on whether it’s a fundamentally transparent asset whose movements people can track on the public ledger or whether there are (regularly used) methods of obfuscating information. This was previously a big debate in the crypto community but it has been somewhat displaced in recent years - but perhaps due for a resurgence as the regulatory environment seems to become more averse to privacy-preserving cryptocurrency.

“Non-fungible tokens” are leaning into distributed ledger technology in this sense. The way you can follow the chain of custody from creation of the NFT to its current holder is a feature, not a bug.

As most of the popular NFTs are associated with an image or other asset that is only referenced by the blockchain (e.g. through a URL), I tend to see the history of who has owned these NFTs as one of the main things that people are actually buying for. The verifiable chain of custody from creator to owner is how one knows the NFT is “genuine”.

Many of the criticisms of NFTs also apply to cryptocurrencies generally, in particular in relation to how the value of different assets is determined. In many cases there is little to no organic demand for the assets because they don’t do anything useful, so the only thing supporting their price is the idea that people want to buy them at that price, usually because they are speculating that the value will increase later on (e.g. when some plan to give the tokens utility is completed, or when celebrities announce they “aped in”). A cryptocurrency network can function as intended perfectly for years or decades without its tokens necessarily reaching a high valuation, price depends on the level of supply/demand for the token and other factors. All else being equal however a higher price for the token typically makes it harder to attack the network as there will be more invested in security by honest miners/validators.

Social and Individualistic perspectives

To try and make sense of the positive and negative aspects I use two main lenses on NFTs/crypto, analysing at the social and individual level.

1. What are the likely impacts on society if this technology becomes popular?
2. What are the ramifications for individuals, and implicitly individuals like me, if this technology becomes popular?

This post is about NFTs and crypto, but it’s also about how I have turned my many chaotic and contradictory thoughts about them into concrete positions and actions.

The start of my journey was to accept that whether cryptocurrencies and related technologies like NFTs become popular and widely used is ultimately not dependant on my actions - and in fact there’s probably no way for me to influence that at a societal level, even if I tried really hard. It’s the same reason I’m using “crypto” as shorthand for “cryptocurrency”, and even that loosely - cryptographers are going to have to accept the battle for the term “crypto” is lost.

When I first encountered Bitcoin I found it fascinating, but it had dark associations with criminality and off shore funds. If you had asked me then if I thought Bitcoin was going to be a positive invention for humanity I would probably have leaned towards the position that it would be better if it had not been invented. After some years of watching it I realised that my feelings towards it were influencing my actions in unhelpful ways, and this framing was leading me astray. I began to see Bitcoin and the other blockchain-based cryptocurrencies as a more neutral force of nature which had been unleashed, and now we would find out if it is on the whole positive or negative as it runs its course. When I began to see more of the positive opportunities for crypto is when I began to write about it; because there are many possibilities, and trying to steer people towards what I see as the more socially beneficial choices is the kind of activity which appeals to me.

For the purposes of this piece I’m using “crypto” quite broadly, to mean any distributed ledger that users access through the use of cryptographic keys, and these networks are usually run in an open decentralized way where anyone can participate in principle - with some exceptions like “Central Bank Digital Currencies” which I will consider briefly towards the end.

As a researcher who is trying to understand the technology and what’s happening with it in society, deciding whether I think it’s a net positive or negative is not a priority or even particularly helpful - I wouldn’t expect to reach a conclusion on that for another decade or so, the same way one would probably have reached bad conclusions about how the internet was going to go based on what one was observing in the year 2000.

“Crypto technology” will become popular or fade away, and people may use stupid names for things, regardless of what I say or do about it.

That is a little defeatist though as a position, and ignores the fact that the trajectory of this technology will be shaped by the many individuals who engage with it in various ways.

My perspective here is informed by watching the internet and world wide web grow in popularity, doing some research to understand various aspects and finding that access to the best data was restricted to the same people who were deciding how everything worked and making all of the money - platform owner/operators. The nice thing about crypto is that “mixing it up with the platform owners/operators” is much easier to do from your bedroom or home office, because there is far less proprietary data/software that you need to be within an organisation or particular building to access. Public blockchain data means researchers are all working from more or less the same data-sets regardless of which company they’re working for.

The promise of crypto governance is being able to participate in open processes like this to shape how these networks function, but on this there is some way to go.

To put another slant on this, I have also considered what it would mean to effectively ban cryptocurrencies, and that’s not practical in my view without sacrificing a huge amount of freedom for individuals. I’m glad that we didn’t rip up the internet to eliminate things like P2P file sharing, and if that legislative restraint continues then blockchain networks are something that people (at least in countries that respect basic individual freedoms) are going to continue to be able to participate in. It is my view that use of crypto networks is not something that can be effectively banned without the state getting quite severe and invasive with enforcement. I think most people would not like to see their country go that way, if they stop to think about it.

The scenario where “crypto becomes mainstream” is very broad, there are a lot of different strands of crypto and a lot of different ways in which they could “become mainstream”. It could be Bitcoin as some new kind of bank foundation asset keeping them honest about their fractional reserves that becomes mainstream, or it could be some novel crypto that is not yet released or announced, doing something that is currently not seen as being within the crypto wheelhouse.

At this point we have Store of Value (SoV), Decentralized Finance (DeFi), Decentralized Autonomous Organizations (DAOs) and Non-Fungible Tokens (NFTs) all as quite distinct narratives for what “crypto” is about - but when it comes to what adoption means at scale, that is mostly imagined for now. Real world adoption (beyond holding some tokens in an exchange account) is still small as a percentage of global population, but any early indications of product market fit are jumped on by speculators who imagine how this trend will drive the price of the network’s native token to the moon. This leads to a short term spike upwards in the price of the network’s native token, which usually subsides when adoption falters and fails to keep pace with exuberant expectations. The crypto market cycle.

The openness of the software makes it easy for people to launch their own crypto projects. You can clone any of these open source projects and change some parameters and boom, a new blockchain or token is born. This is one reason why there are so many scammers in the space, but the flip side is that experimentation with how these networks work is available to anyone, there’s no minimum entry requirement to testing out your own cryptoeconomic model. With crypto networks, getting people to use them properly at any scale is often harder than deploying the network and getting the first few nodes up and running. This is something that the people building out software infrastructure for crypto can easily forget: the value these networks hold is determined by their users through social and market forces. This is how something like Doge, with software that gets no significant development, or Shiba Inu that doesn’t even have its own blockchain, can reach market cap valuations much higher than many projects that are more technically accomplished and offer more objective utility.

The openness of the networks/ledgers/software is the major theme which I will return to, this is ultimately the fall-back against the holders of cryptoassets becoming too powerful within these systems - i.e. the reason why they may be less “plutocratic” than the economic and financial systems we have now.

As an individual, if you don’t like the crypto projects that are currently on the market, one approach would be to reduce their mindshare in the crypto space and impact on society by coming up with your own project that can compete with and win some of their market share, and have a more positive impact in the process. Or perhaps more practically, find the crypto projects pursuing aims you agree with and see if they need some help. Most of these projects have still not solved the problem of informing a reasonable number of interested people that they exist - it means you might struggle to find them, but also that if you can help them raise awareness of their existence you can make a useful contribution.

Individuals will make decisions to engage with (or campaign against) crypto and NFTs, for their own individualistic reasons, and in aggregate those decisions will determine how successful crypto is and what form that success takes. My conjecture is that this will be determined chiefly by what the cohort of younger people do, and there are particular opportunities here for young people who are not advantaged by the legacy fiat economy. More on that further down.

“NFTs have no inherent value”

This is true for NFTs and crypto in general, they use distributed ledgers that, at least initially, are not connected to the real world in any meaningful way. You might be able to rely on the distributed ledger to say you have 100 DCR, but you can’t necessarily rely on there being anyone who will be willing to accept it from you in exchange for good or services, or to get any particular quantity of a good or service for it. Cryptocurrencies are free market based open source currencies, they’re worth whatever you can get for them on the market, and the class of “stablecoins” (which I’m mostly not speaking to) are the only crypto-assets that would aspire to be worth a particular amount as indexed in another asset.

Many cryptocurrencies are set up in a way which is intended to result in price appreciation - any project that has a fixed and diminishing issuance schedule is hoping to see demand outpace this supply at some point and for the price to go up as a result. This is the most common way in which people make money from cryptocurrency, they buy it and hold through a period of price appreciation, then sell some or all of their holdings. This is the flywheel that’s spinning at the centre of most successful crypto projects, the thing which draws people in and leads them to become users and promoters of the network(s). Many NFT collections take this to an extreme of saying there will only be 10,000 or less units, and as the units are not divisible this has an even greater impact than for divisible assets.

For NFTs things are a bit more complicated, because they are not all the same when it comes to the way they are constructed, and people often don’t understand what they bought, especially when it relates to copyright. The copyright aspect is complicated enough that I’m not going to get into it in depth (but see section below), but suffice it to say that if someone was trying to sell an NFT with associated image copyright, I would definitely read more about that before I put any weight on this aspect of owning the NFT.

The common summation of this argument against NFTs is that people can and should just “right click and save” the image to their own device, at which point they can continue to enjoy it for free, bypassing the costly step of paying to buy the associated NFT. This has come to be known as a “right-clicker mentality“³, which I think is a great term.

I have a fairly “right-clicker mentality” about the image NFTs, except that I would only occasionally be moved to actually right click and save something, usually I’m content to just look at these pictures once and move on…

As someone with a right-clicker mentality, image NFTs are great for me if I enjoy the art, because I can enjoy them all for free without paying a penny or leaving my desk.

More generally, if you can fund the creation of some media by selling associated NFTs, and you’re making the media itself freely available - this seems like a win to me for everyone, except possibly the NFT buyers, but that depends on their evaluation and probably in practice whether they can flip the tokens for a profit. The potential to use NFT sales to fund things is a theme revisited throughout this post. In some cases they are treated as transferrable tokens which demonstrate that the holder has supported some worthy endeavour, and I think that at present that is one of their stronger use cases.

This increasingly seems like a major point of contention and misunderstanding about NFTs to me. Some people are objecting to “artificial scarcity” of digital goods, which I agree is not good when it comes to preventing people from accessing digital media. Most NFT projects do not have this aspect however - although it is more common to use the NFTs to control access to social spaces. As a thought exercise, imagine if your favourite TV show starts selling NFTs representing individual scenes and using the revenue from those sales to fund more episodes - anyone can watch these episodes, and there’s a database online showing who owns the NFT for each scene, and the NFT holders might get something else like access to a chat room or tour of the studio. As a hypothetical fan of this show who doesn’t buy any NFTs, I could still benefit if they fund more episodes that I get to enjoy for free.

As I was wrapping up this piece (the first time, in Jan 2022) Twitter released⁴ an early version of its integration of NFTs (it looks more like an OpenSea integration from first impression) - if major centralised platforms like Twitter opt in to policing NFT ownership for use of NFT images as profile pictures, that would add to the value proposition of what you can use them for. I’m not convinced twitter are going to get involved in policing the use of NFT avatars though.

“NFTs are not just jpegs”

An important point to clarify at this stage is that the concept of a “non-fungible token” encompasses a lot of different types of token, and only one distinctive subtype is associated with images. The marketplace for NFTs is presently dominated by the image type, and specifically those collections of images which have been designed for use as profile pictures (pfps).

Another popular class of NFTs are described as virtual items, like the battling monsters in Axie Infinity or the playing cards in Splinterlands - and many more “games” which are still “in development” (some of which are borderline scams that will never deliver anything), but I will consider games in detail below.

One project which is already delivering functional NFTs is the Ethereum Name Service (ENS), which provides a DNS type routing and identification service - but instead of people signing up with a domain registrar who registers and holds the domain for them, whoever controls the NFT for a .eth can dictate what address it points to.

Some of the prophetic visions about NFT projects are hard to take seriously because of the bag shilling effect, but ENS is one which is doing something genuinely novel with the format in the present - although what it is doing is entirely bound up with the Ethereum ecosystem, so the idea that ENS is doing something useful requires one to buy into the value of an ecosystem like Ethereum as a whole.

Another point which will be considered in depth below is the way in which token airdrops and DAO governance have been associated with NFT projects - ENS was one of many high profile projects to initiate⁵ these steps in 2021.

This is a fundamental departure from what happens when a “web 2.0” era company looks to monetise the success of its product - how many domain name registrars or social media companies distributed a significant proportion of shares to their users when they listed on the stock exchange? Founders and staff members still get a healthy allocation in most projects that do a token airdrop, but the proportion of value being returned to users in this way is new, and points to some of the reasons why it is not prudent for sceptics to dismiss NFTs and crypto entirely.

“The market for NFTs is manipulated by whales”

Crypto markets are unregulated and have historically been the venue for all sorts of shady practices, like pump schemes to draw in traders and then dump inflated assets on them, and wash trading to make it seem like there is a more robust market for an asset than is really the case.

Some of these practices map onto NFTs quite neatly, and I have seen people alluding to them being used in NFT markets, so I think it’s wise to be on the lookout and assume this is happening to some degree.

A collection of NFTs is like an illiquid altcoin, but where each NFT also has its own unique history (crypto coins have this too but people are less inclined to look at it because the units are supposed to be fungible).

It makes it easier to convince someone to pay 5 ETH for your NFT if there is a similar sale value in its past transaction history, and for the price of a transaction fee anyone can set up a second address and make a trade with themselves.

I have also seen it suggested that people or groups will “sweep the floor” to buy every NFT in a collection and move the perceived minimum price up, becoming in the process the main actor in its market. Selective wash trading could then be used to make other smaller participants feel like their specific NFT is not selling as well, so maybe they should lower the price or accept a lower offer. This could follow a similar dynamic to “market makers” in fungible token markets, who can capture value from a spread between the bid and ask prices for the asset.

In February 2022 Chainalysis published a report⁶ about wash trading in NFTs, highlighting hundreds of probable wash traders on OpenSea, but interestingly only a small subset seemed to be (extremely) profitable after accounting for transaction fees incurred on the wash trades. The report paints a picture of a small number of proficient wash trading accounts making a lot of money, with a larger number of wash trading accounts failing to profit from the activity. Part of the issue here, noted in the report, is that “wash trading” of NFTs is not established as an illegal activity in the same way as it is in most developed financial markets, and there are (were) no enforcement agencies pursuing this kind of activity, so it exists in a kind of grey area.

Prior to this there have been several high profile twitter threads exposing the identity of some NFT influencers who have questionable histories and/or fraud convictions and have been accused (and in the court of twitter opinion, convicted) of using manipulative tactics to dump worthless NFTs on their followers for profit.

The prices which individual NFTs reached in 2021 indicate to me that the market is/was being driven by the “house money effect” - the people who are bidding the prices up that high have probably mostly acquired the ETH they are bidding with at a much lower cost basis, and so they spend it more freely than if it were dollars they had just earned from doing a job.

I think it’s fair to speculate that the NFT market is so far mostly driven by people who are very into crypto, and who probably already made quite a lot of money from it. The potential for popular projects to attract large bids has no doubt been instrumental in motivating many new people to enter the NFT market, both buyers and creators. This is like a crypto version of trickle down economics, where the silly money made by early people is flowing to a variety of increasingly off the wall speculative ventures (and clones of those speculative ventures).

Due to the way that market cap and price are associated with success, having available funds to play with the prices of NFT collections by sweeping floors allows these people to largely dictate the perception of which NFT projects are more or less successful.

“NFTs are a new way of funding content creation and creators”

One of the things I like about NFTs is the way they have drawn new people into the crypto space. It seems clear to me that many of the people who took an interest in NFTs had little prior interest in the more monetary, financial or technical crypto projects which had previously dominated the space. Art and gaming are new hooks which will inspire new people to give decentralized technology a closer look.

One of my interests here is in new ways to fund and maintain public and common pool resources, and NFTs have undoubtedly expanded the scope of the kind of work which gets funded with cryptocurrency.

In the case of NFT art, the artists can access the marketplace directly, with a number of well trafficked sites that serve as public showrooms of NFTs for sale. The role played by art galleries in the conventional art market, one of curation or gatekeeping, is being disintermediated.

The marketplaces for NFTs do retain some of the control of art galleries, and decision-making over which works to showcase has already been exploited for profit in at least one known instance. However, most of these marketplaces operate on a “publish then filter” model where anything can be listed, but items which contravene the rules can be subsequently delisted by admins. This diminishes the barrier to entry for new artists and the gatekeeping role of the platform, but increases the importance of competing for attention with the hundreds of other unfiltered projects which are allowed to also occupy the space.

Major centralized marketplaces like OpenSea have become powerful and profitable actors in the space, but their fee of 2.5% of sales is much lower than the level of fees charged by for example auction houses for art, whose fees are more varied and can be as much as 15% from buyer and seller.

Minting fees and royalties

In practical terms, the mechanisms through which NFT creators get paid can be quite different to other types of creator.

In some cases, such as bespoke images created as a one-off (¹⁄₁), the artist mints the NFT directly on chain and then lists it for sale.

In the case of many PFP projects though the creators put up a smart contract which will do the minting of NFTs, and then the initial buyers interact with this contract (send it ETH) to receive an NFT with pseudo-randomly determined attributes.

Hasu and Anish Agnihotri have written a comprehensive guide⁷ to designing effective NFT launches, and it goes into detail on the deficiencies of some previous launches.

The most popular way of selling NFTs is to publish a contract which people can access by paying a minting fee which goes to the seller. When this kind of fixed price first-come-first-served (FCFS) sale is popular or over-subscribed, it turns into a gas price auction where only the people who offer increased miner tips will be able to have their transactions mined in time. For the launch of “The Sevens” NFTs were priced at 0.07 ETH each but the median participant paid 1.49 ETH per NFT - with all of the surplus being extracted by miners. These surges in gas price made the whole network more expensive to use for everyone. Due to the way the network works, people trying to participate in NFT mints often end up paying transaction fees for failed transactions when they are outbid. Failed transactions can also be very costly for people who want to participate but don’t bid enough or are too late and don’t come away with an NFT.

As a means to fund creators, a gas price auction is a bad outcome for an NFT launch, because it means a significant portion of the revenue generated by the sale is going to Ethereum’s PoW miners rather than the creators of the NFTs.

The concept of an NFT launch is quite novel so it’s not surprising that there are issues with how many of these have been conducted - and it would be expected that launches in the future address most of these issues. My point here is that the details of how an NFT launch is conducted, and on which chain, can determine who the biggest winners are and how much of the proceeds go to the creators.

High gas costs for minting is specific to Ethereum network NFTs, it is much cheaper to do this on other networks because they have lower transaction fees. With relatively high transaction fees as a barrier on Ethereum, many of the really spammy and low effort NFTs live on other chains - and it is likely that this degree of friction around transacting on Ethereum has other consequences, like subdued responses to market movements because of the cost of making or cancelling orders.

From a funding perspective another interesting aspect of NFTs is the way some platforms continue to pay creators a royalty on secondary market sales. This is offered by platforms such as OpenSea and Rarible, creators who list their work on those platforms can specify a rate (up to 10%) and they will receive this cut of all future sales of the NFTs on that platform. Owners could try to avoid paying the royalty by transferring the NFT to another platform which does not share royalty commitments. It seems over-hyped to me, not something native to the NFTs but a convention in their markets, and I’m not sure how it is working for creators and traders of NFTs.

One thing we can conclude about NFTs as a way to fund creative activities is that they are a flexible tool, as flexible as software. There is a lot of experimentation and learning going on around this at the moment, and plenty of people looking to make some easy money in the mix too. The constraints on “what works” when designing an NFT are about what people can be persuaded to buy into, more so than what can be coded into the smart contracts.

“NFTs are good for strongly pseudonymous creators”

One of the interesting things happening with crypto/NFTs is the rise in prominence of pseudonymous characters in the discourse - and now with NFTs more directly in the economy.

Pseudonyms for artists is not a new phenomenon. Banksy is a well known example of a pseudonymous artist who has established widespread recognition and a high value for their work. Although members of the public don’t know who Banksy is I suspect there are plenty of people involved with his work who do know, because when Banksy started selling work for serious money there would have been no way to reliably handle that without at minimum some trusted representative who knew him personally, moving money from the auction house to Banksy’s bank accounts.

It is much easier for an NFT artist to be strongly pseudonymous if they choose to be. The minting contract will have an address to collect their fees and royalties, and from those the only way a creator is likely to be identified is if the ETH (or other asset) they used to publish the contract can be traced to a source that is associated with their identity.

Pseudonymous actors are not new to crypto, but having so many of them who can earn a living through their pseudonymous brand is a recent development, and I don’t think we have felt the full impact of this yet - in the long run I think it will be seen as one of the more significant aspects of the crypto turn.

In early 2022 we began to see considerable pushback against the prevalence of dodgy pseudonyms in NFT circles, with a number of prominent twitter threads that claim to expose the identity of some pseudonymous contributor(s) and their past misdeeds. I don’t follow the NFT avatar influencers closely enough to recall the details, but suffice it to say that there are a number of accounts operating as “influencer police” now and the level of trust in teams who are not doxxed is currently low.

In August 2022 there was a story about how two brothers created (or simulated) an entire DeFi ecosystem on Solana, complete with a host of fake pseudonymous developers and ways to double-count the funds they were using to spoof usage of their protocol.

While crypto makes it easier to operate pseudonymously there are limitations on what one can do without being doxxed, depending on whether there is anyone motivated to do the doxxing. The Bored Ape Yacht Club (BAYC) founders operated the Yuga Labs company through launch to a valuation of billions of dollars with their names on the public register of companies, and they were considered “pseudonymous” until Buzzfeed “doxxed” them.

This is a theme which I have written about before, particularly in relation to Ethereum - hackers are regularly identified and have to give back their loot, and because blockchain records are public and eternal many of the sensational hacks will eventually be attributed to someone. The most recent example being the DAO hacker of 2016 who was allegedly identified by Laura Shin in Feb 2022. Transacting on public ledgers leaves a lot of traces which can be followed by anyone at any time, so while crypto makes pseudonymous participation possible it also raises the possibility that one’s pseudonymous activity will leave traces back to one’s identity.

One review of Ethereum data which I have seen cited in several places put the figure earned by NFT creators at $3.5 billion, but looking at the methodology this is a fairly rough estimate which probably skews too large. The order of magnitude is probably about right though, and the point about Ethereum being up there with Spotify, Patreon etc. in terms of revenue for creators stands. I’m not aware of any research to determine what percentage of this revenue flowed to pseudonymous creators.

“NFTs enrich early adopters and sophisticated insiders”

As a casual observer of the NFT space this rings true to me. The people who could afford to spend ETH on NFTs while this was still a niche activity, not worry about the 50-80% transaction fees on mints, and hold these as they appreciated significantly in value by orders of magnitude, were probably quite well off to begin with.

Asset prices are in part driven by the number of people “aping in”, so knowing what the hot new trend is going to be can net serious profits. From my perspective this is driven mostly by influencers/taste-makers and media outlets - recognisable people in the space build buzz for a project by promoting it, a few well placed stories about the project behind the NFTs seem to lend enough legitimacy to drive the price up in combination with the buzz and the sense that people are making money from flipping the NFTs.

There has been one well publicised story in which someone in a curation role at OpenSea, who had insight into the collections which were going to be promoted, used this information to buy assets then sell them when they got the inevitable bump from being promoted on OpenSea. This was discovered coincidentally by a random twitter user who was interested in the buyers and sellers of some collection - the example was quite blatant, and there could be more cases out there which have not been discovered.

NFT minting contracts themselves can also be vulnerable to exploitation by technically skilled users. There are a number of stories about NFT mints for collections with rarity attributes where an attacker was able to gain preferential access to the best NFTs in the collection by composing a script or developing a technique which would exploit some weakness in the mint’s approach.

This is bad for everyone who is not a technically sophisticated user, compromising the fairness of the market and allowing users with a technical edge to extract value without adding anything of utility. This would be one of my main concerns about widespread adoption of NFTs for anything right now, it’s a complex concept and there are a lot of (bad) ways of doing NFTs, most people do not have the background knowledge required to differentiate when choosing between NFTs.

The Chainalysis report on NFTs released in December 2021 reinforces the idea that insiders have a strong advantage in NFT markets. Among its findings is that of a strong advantage for investors who are white-listed to participate in minting in advance of the main release or at a better price - people minting on whitelists make a profit 76% of the time but without a whitelist minters only profit 21% of the time. Projects typically whitelist early contributors as an incentive for them to promote the project.

The Chainalysis report suggests a better success rate for people making a profit by “flipping” NFTs on the secondary market - buying and then re-selling at a higher price. It also reveals quite strong concentration of the profits from NFT flipping, with 80% of these accruing to the top 5% of traders - who tend to have more trades and higher value trades. The study breaks the NFT traders down into five groups based on how profitable they were and looks at how membership of the different groups was associated with some variables. One of the big differentiators of the top group was that they would often spend quite a lot on the NFTs they acquired, but they were able to hold them until they sold at a large profit - whereas the least profitable group also bought expensive NFTs but then sold these at a loss.

The Chainalysis report is available but requires registration to download, this article⁸ has a summary.

“NFTs are too environmentally destructive”

This seems to have been one of the most common criticisms of NFTs in 2021, that their environmental cost is too great. I have some sympathy for this perspective, because I can see that there are global environmental challenges to face and using a significant amount of our global electricity generation capacity to mine cryptocurrency would not be ideal, especially considering how that electricity is currently produced.

When I first learned about PoW mining I was not a fan of the concept because using a lot of electricity and hardware to perform hashing calculations which serve no purpose other than to demonstrate that work is being done - it seemed very wasteful to me. This is a reasonable first impression for anyone to have, in my opinion, so it doesn’t help with introducing crypto to new audiences when some people argue against that position (e.g. on twitter) as if it were ridiculous.

I no longer think it is appropriate to view that electricity or hardware as “wasted”, it is serving an important purpose in maintaining the security of Bitcoin and other early PoW cryptocurrencies. The more pertinent question to ask is whether the energy being used is serving a useful purpose, as compared to other ways in which that energy could have been used.

One point in favour of PoW mining which detractors often miss is that it relatively mobile, hardware can be brought to sources of abundant energy which would otherwise be wasted due to lack of demand/storage - seasonal hydroelectric power in China was popular with miners, and there are efforts underway to explore using flared gas at oil fields. This will add something new to the energy market, and could spur development of technology which ultimately improves our utilisation of energy.

Another important point about the energy demands of PoW mining is that they are quite transparent, we know about the resource use because it can be estimated reasonably well based on publicly known parameters (network difficulty/hashrate, energy consumption and hashrate of individual mining units). The energy used by other “industries” is much less transparently reported or understood, because the only source of information is the private companies who run facilities, and it is not in their interests to publish information which reflects negatively on their operations.

This is the side of the equation which I would like more people to pay attention to - if the crypto platforms displace entities which are causing more damage or using more resources through the way they operate, that would be a positive development. There are already interesting comparisons that could be made in finance between the environmental impact of BTC and gold mining, as these assets are now widely regarded as being in competition for “Store of Value” status.

I appreciate the way crypto seems to have been associated with raised awareness of the concept of ESG performance - through people complaining about the ESG performance of PoW miners servicing NFT minting platforms.

This is good, but the next step is to realise that it’s the private companies we deal with for everything else where we really need to understand and improve their environmental and social impact. The crypto space is, unintentionally perhaps, pushing the boundaries of transparency on some aspects of business’ environmental impact.

This kind of robust transparency which cannot be faked is something that is sorely lacking in the way the “ESG performance” of companies is currently treated, and from the kind of information which is available to investors.

From an environmental perspective, the fiat finance system is costly - it consumes considerable resources to staff and operate all the banks and payment systems. Is “Decentralized Finance” more or less resource intensive? That’s probably not a meaningful comparison to make, because the functions of the two systems are very different at the moment.

In considering the impact of this technology we should consider the environmental costs in the context of whether they enable systems which have better properties than those which are being replaced. It’s not always clear what is being “replaced” though, particularly in the early stages of a new technological paradigm.

Proof of Stake is less energy intensive but has other drawbacks

It is important to understand that the criticism of PoW mining’s energy intensity is not applicable to other methods of maintaining consensus in decentralized networks. The original cryptocurrency, Bitcoin, pioneered this use of PoW, and for a while all of the cryptocurrencies emulated this innovation. It didn’t take long however for people to begin experimenting with other methods of maintaining consensus, methods not based on the amount of hardware or hashrate someone could deploy.

“Proof of Stake” (PoS) covers a range of consensus mechanisms which determine an individual’s eligibility to participate based on the quantity of the network’s native asset they control. Participants typically leave their computers online to contribute as called on, but do not compete on the amount of energy expended, so this is orders of magnitude lower.

There are now a number of crypto networks based on PoS consensus with consequential market caps, but it remains as a less proven method of maintaining decentralized consensus. Its failure modes are different to PoW, and it has some unique problems, so I don’t think it is right to think of it as a replacement for PoW at this stage, but rather as an alternative approach to providing the same kind of engine for a decentralized network.

Developers and technically minded fans of different cryptocurrencies often debate whether PoW or PoS provides better security, and what would happen in certain failure mode scenarios. I’m not technically knowledgeable enough to contribute to those debates, but it seems clear to me that PoW is the more road tested technology at this stage. There have been many PoW networks, some running for 12 years or more commanding significant value. There have also been many successful attacks on PoW cryptocurrencies, including many double spend attacks on PoW cryptocurrencies that do not dominate their hashing algorithm in terms of the hardware used for it. As a result we know something about which networks are vulnerable to this kind of attack and what happens when it occurs.

Most of the popular (expensive) NFT collections are minted and traded on Ethereum these days, and Ethereum is a PoW consensus network. However, Ethereum has since its inception had a plan to transition to PoS consensus, it is in progress and the transition is at time of publication in September 2022 imminent. When Ethereum switches to PoS the energy critiques will no longer apply to NFT minting and trading on Ethereum.

There are other chains for NFTs which are PoS, and some of these which even market themselves as “carbon neutral” for NFT minting with the use of offsets. People say they care about the environmental impact of NFTs minted on PoW chains, and the market is providing alternatives.

One of the downsides of PoS is that it has a “rich get richer” dynamic, people who have more funds to stake earn more of the rewards available to validators. PoW mined coins come at a cost of hardware and electricity to the miner, so they must typically sell some of the coins to cover these costs. The costs for PoS validators are usually much lower relative to the rewards they obtain, the profit margin is higher, and so the validator is not under as much pressure to sell some of their rewards.

Blockchains reducing their energy requirements looks set to be one of the themes of 2022. The Ethereum merge was mentioned above, Decred stakeholders have voted to shift most of its rewards from PoW to PoS, and Zcash is looking into how to switch to PoS from PoW. As someone who has been contributing to the Decred project for a while, I’m happy to see it make this kind of transition.

My feeling about this for some time is that PoW is an expensive way to secure a blockchain, more efficient ways will be found to do it and when they’re established as secure it will be difficult for PoW chains to compete because the outflow of costs to hardware manufacturers and energy providers is ultimately a weakness for the network if it can be avoided. In Decred’s case most of the security comes from the PoS element of its hybrid consensus already, so paying such a large share of rewards to miners (60%) no longer made sense.

As a method of distributing an upstart global currency however, PoW is not too bad, because of the way miners are (in theory) forced to sell some or all of their coins - a steady supply of coins coming to the market available to buy, over a long period of time, is good for ensuring more people get a chance to buy them at a “fair” early price.

Cryptocurrencies that transition to PoS after most of the supply is already circulating can potentially gain this benefit in terms of their distribution, before then switching to become more energy-efficient at scale.

The scale of the network is a big part of the issue around environmental impact, the problem is not so much today’s impact but the way miners increase hardware and energy use as there is more money to be made - specifically if they continue doing so when their growing consumption is causing shortages for other consumers of those resources. There are encouraging recent signs that PoW miners are or can be quite pro-social users of their electricity grid, because they have the rare trait of being easily throttled or switched off at very short notice - that rare kind of customer which can buy a lot of energy while it’s available and then stop using it as soon as its supply becomes constrained.

“NFTs are used for money laundering”

I have seen this claim a few times but never any real evidence for it. To me NFTs do not look particularly useful for money laundering, unless perhaps one is fronting as a successful NFT creator (e.g. by buying one’s own NFT creations at a high price with “dirty” funds).

Their non-fungibility would seem to make NFTs less suited to money laundering than cryptocurrency which aims to be fungible.

My view is that in the long run crypto-assets are not well suited to criminal activity because of the enduring public record of how they have changed hands.

By removing the need for intermediaries, crypto networks have democratised the capacity to do something like “move money offshore”, where it is less visible to the state its holder lives in - onto a parallel crypto network in this case. However, the down side is the parallel network has all its records in the open, the idea that it is “less visible to the state” is an illusion from an early period where the capacity to make sense of blockchain records was rare. State enforcement agencies had the tools to look into suspects’ financial records with cooperating banks, but did not have the tools to read the public crypto accounts in the same way.

The level of scrutiny of blockchain records has increased considerably by 2022, blockchain analysis service providers are now widely available and in house teams are getting more proficient.

People with a lot of money who that want to do things like launder money or evade paying tax would perhaps be better served by more conventional methods such as tax haven based intermediaries who can keep details of their transactions secret (unless they get hacked). Chainalsysis regularly publishes figures on the use of cryptocurrency for criminal purposes, and although the absolute value of criminal-linked crypto funds reached a new peak of $14 billion in 2021, this represented just 0.15% of the total use of cryptocurrencies. This is from a company which has incentive to publish large figures as they make it seem more necessary to pay for the kind of forensic analysis Chainalysis sells.

One theory I have seen advanced more recently is that a major player could launder funds through NFTs using collections where they control the markets via many different accounts, with the money given the clean history of “NFT flipping profits”. It is conceivable, but again the non-fungibility seems to add complexity to a function which could have been achieved just as easily with fungible “altcoins”.

“PFP NFTs are stupid”

One potentially unpopular opinion I hold about NFTs is that the well known “profile pic” (pfp) sub-genre of NFTs is actually pretty stupid. Based on browsing NFT market cap rankings this type accounts for most of the actively traded NFT collections.

If the proposition is that you can optionally pay cryptocurrency to have exclusive use of a certain profile picture, that is of very little interest to me. I don’t care much about my profile picture, so I wouldn’t be likely to spend a lot of money on something like this.

Using an NFT picture as a PFP does make the “right click save” approach less viable, as ownership of the NFT can be policed socially - although it’s not clear how effective this is.

I can appreciate that people show off NFTs as status symbols and there’s a market for this, but I don’t go in for showing off in other walks of life, so I’m not about to start doing this on social media with NFTs.

Also, from a security perspective there is risk in being associated with the ownership of high value NFTs and it doesn’t get much more conspicuous than using one as a profile pic on social media.

In practical terms the individual apes or punks can look fairly similar to each other, and this actually makes it harder to differentiate their users on social media. Ironically, by spending big money on a unique profile picture they end up blending into a crowd rather than standing out. Group membership is part of the point here, but if your group consists of people who own at least 1 $100K NFT that’s a very particular kind of group, and it’s of quite niche interest. Not for me.

“NFT owners are members of an exclusive club”

This one is not applicable to all NFT collections, but there are some NFTs which serve to grant access to various venues, usually chat rooms or occasionally in person events.

Bored Ape Yacht Club (BAYC) is perhaps the best known NFT collection of this type, and they put on quite a party⁹ in New York which garnered a lot of press coverage and BAYC holders could use their NFT to gain access to the event.

Technologically, NFTs seem well suited to this use as an access pass, because they cannot easily be falsified.

As a way to grant access to a club, the “permissionless” aspect of NFTs may have some drawbacks. In the best case scenario this is using the market to decide who can be a member of the club, anyone with the funds to buy an Ape can join. What happens if new members of the club clash with existing members? This is one of the functions conventional clubs serve, they often have a lot of rules to decide what’s appropriate and who can join, and a committee to oversee enforcement of those rules.

BAYC and its ilk have none of that, can have none of that, because membership is based on holding an NFT. This extends to situations where someone’s Ape has been stolen (there seemed to be a spate of these stories at the end of 2021) - one wonders whether future events will include a check at the gates that the entrant’s Ape NFT is not reported stolen.

“NFTs can have characters and form bands”

One popular and fun trend related to NFTs in 2021 has been people roleplaying as their NFT character. For example, Jenkins the Ape.

Once people take on the character and make it part of their brand, this could increase the value of the NFT they’re using, but could also make it difficult for them to sell for various reasons. One example like this which caught my eye was that of @richerd, who was offered $10 million for his mid tier cryptopunk after proclaiming on twitter that he would never sell it. Richerd held on to his punk, and he explained that this was because he “valued his personal brand and identity”, which is now tied up with the NFT, making it worth much more than the market rate to him, and even more than this above market offer.

The idea of building a brand with an NFT is not unique to richerd, there is even a guide.

Economically, NFTs make more sense to me in a scenario where one is looking to sell one’s brand. This would seem to be one of the main advantages of cultivating a brand around an NFT as opposed to a non blockchain based image - it’s possibly easier to sell it and cash in the value which has accrued to the brand through one’s efforts.

Where this all pushes against the limits of credibility for me is the idea that people have formed a band¹⁰ from a group of NFT Apes. Universal Music Group is responsible for this creation, they’re working with a BAYC holder to turn 4 of his Apes into “Kingship” - someone will compose and perform music while 3D renderings of the Apes cavort around. This seems like it’s taking “manufactured pop” to a new level, can’t say I’m optimistic about Kingship’s output, or enthusiastic to see them appearing in my local metaverse venue.

While much of the NFT roleplaying is not of interest to me there are a handful of these pseudonymous characters that I find insightful, like the imaginatively named punk6529 - for example, on “making it” - this is NFT thought leadership at its finest.

Just as I’m about to hit publish in August 2022 Eminem and Snoop Dogg took NFT promotion to another level as they transformed into Bored Apes in the “Otherside metaverse” - and a video of the apes was played along with the song the duo were performing. The general sentiment seemed to be that the whole thing was pretty lame, with even some BAYC holders acknowledging as much.

“pfp NFTs benefit from multi level marketing”

Cryptocurrencies have tended to follow a mode of distribution whereby many units of the currency flow to early adopters, who are then incentivised to promote broader adoption of the cryptocurrency, increase demand for the assets, in the hope of driving up the price and making a profit. This is a collective endeavour, because when the price of the asset increases it benefits all of the holders of the asset.

NFT collections seem to follow a similar distribution model, where a limited number of individuals will be able to participate in minting or direct purchase from the creator - with most sales occurring on the secondary market. Owners of NFTs in the same collection all benefit from promotion which increases visibility and recognition.

The non-fungibility of NFTs also brings in a strong individual element to promotion, recognition, and ultimately valuation. It’s probably too early to tell definitively but I would expect to see a price premium for NFTs that have been displayed prominently by celebrities. People will value buying the Ape or Lion from Stephen Currie, or a Woman from Reese Witherspoon, as much for the publicly recorded counterparty as the qualities of the particular NFT.

So, in my view using these pfp NFTs actively is almost part of the bargain in buying them - if you don’t put your NFT about on twitter, seeking out fellow holders and commenting it on their threads, your punk/ape/cat/penguin is not going to be as widely known, won’t appreciate in value as much, and maybe you’re not doing your part. More reasons why it’s not for me.

I have seen it said that “crypto is MLM for men”, which seems to be an insult aimed at “crypto bros” and the way they promote their assets. I’m not sure if NFTs qualify as an MLM scheme in the narrow sense the term seems to be used in but from a statistical modelling perspective there would be marketing effects at the group and individual level if anyone cared to observe them, so “multi level” is accurate in that sense. Plus the more general idea that people buy into some product and then start promoting it, potentially becoming annoying in the process.

“NFTs have issues with copyright”

NFTs are novel enough that there are a lot of unanswered questions about how the token and rights to the associated material (like an image) are related. For PFP NFTs there is the idea that people should not use the image as their profile picture unless they own the NFT - but does that have any backing in law? Without established precedents from similar cases it would be difficult to determine how disputes over use of NFTs will unfold, which means coming to a well informed opinion at this stage means spending a lot of time and/or money researching it.

I haven’t put in the time or money to achieve this kind of well informed opinion about copyright and NFTs, but I’m aware of some issues which affect a few types of NFT - most of these involve counterfeiting in some way.

There are now at least two copycat BAYC projects (and they’re disputing¹¹ which is the “real” fake BAYC), they use flipped versions of the same images to sell another set of NFTs, purportedly in the name of satirising the BAYC project/community, but also collecting some minting fees.

CryptoPunks already dealt with¹¹ a similar copycat project, CryptoPhunks, and the method of resolving this chosen by the creators of CryptoPunks (Larva Labs) was a DMCA notice. Seeing a “web 3” leader resorting to this very web 2.0 tactic of bringing in lawyers to cite legislation at people violating their copyright divided opinion in the crypto space.

Incidentally, CryptoPunks and BAYC take a very different approach to the copyright of the images, for BAYC this is (at least notionally) transferred with ownership of the NFT - whereas for CryptoPunks the NFT does not convey copyright, which is held by Larva Labs¹².

Update: In March 2022 Yuga Labs (BAYC creators) bought the CryptoPunks and Meebits collections with a view to amending their treatment of copyright to match BAYC’s.

There have been a series of well publicised¹³ incidents with BAYC in particular where the NFT holder has been hacked or scammed out of their NFTs, and platforms like OpenSea have marked them as suspicious or prevented trading (through the user interface). This article about OpenSea’s “week from hell”¹⁴ gives some insight into what has been happening.

One high profile case involved actor Seth Green, who bought a Bored Ape for $200,000 and created a new TV show using it as a character, but then lost it in a phishing attack, which put the whole TV show’s viability in doubt. Green then spent another $295,000 to buy the Ape back from the person who had bought it from the phishing attacker.

Whether they relate to individual stolen NFTs or issues with copied collections, the recipients of the takedown notices are centralised NFT marketplaces, who in response tend to de-list the assets in question or freeze trading. Having a collection of NFTs shut out of major platforms like OpenSea means it will be more difficult for people to trade them, and their value is likely to decrease, but functionally the NFTs remain the blockchain property of whoever bought them before they were de-listed, and they can still be transferred or sold on other marketplaces.

This is a phenomenon that happens quite a lot and will probably continue to happen with blockchain-based information that is constrained by external considerations - service providers who offer a front end through which to consume or interact with this information may be forced to censor it on their portals. It is not new to NFTs but NFTs are more likely to be the subject of a DMCA takedown notice and centralised platform operators are usually legally bound to respond to these. The same phenomenon occurs with platforms like Steemit/Peakd which provide a front end for a social media platform that stores data using a blockchain (STEEM/HIVE) - the content may break rules for what is allowed to be displayed (either because it’s illegal or violates community guidelines) and moderators may censor it on the front-end, but it remains on the blockchain.

It also comes up on Decred’s Politeia governance platform where I’m more familiar with how it’s dealt with, in this case users get a censorship token they can use to demonstrate what they submitted (useful for proposals that are censored before being published), and when comments are censored from the public proposals site they get hidden from view with a message explaining why the moderator censored.

In most of these cases it’s possible to go around the front end censorship and go directly to the blockchain for the data - but the difficulty of doing this means the content is effectively excluded (from receiving bids on OpenSea, or getting read and promoted on social platforms). This seems like a reasonable compromise to me, while also revealing the aspects where centralised entities still dominate these projects which aspire to decentralisation.

The difference to “web 2.0” is subtle, it may not be clear but the moderation policies of these centralised platforms are more contestable. If a platform like OpenSea gets too heavy-handed with restrictions to the point where users lose patience with it, some other front end for NFT trading could take its market share. The core data is public for competitors to use, so as long as the platform operator hasn’t found another way to lock users in they are more vulnerable than a company which hosts all the data for its platform on servers it controls. Airdrops of “governance tokens” to users of the centralised platform (based on their blockchain records) are being used to lure users of those platforms away or to at least give rivals a look. The SOS and LOOKS airdrops which occurred at the end of 2021 or early 2022 are considered further down in the section about opportunities.

Crypto software copyright

Copyright has also been used by Uniswap in 2021 to protect its v3 code - this is a rare move for a crypto project, but Uniswap was burned¹ previously by the open source licensing of its code when a group of pseudonymous developers used it to launch a rival service (Sushiswap). The v3 code is licensed with a “business source license“¹⁵ which does not allow others to deploy forked versions of the code for 2 years. It is rare for a crypto project to deploy code using licenses which do not allow for re-use. This is in part because there needs to be an entity which is able to pursue claims against violators of the license and decentralized projects are not really supposed to have such an entity. It also goes against decentralization to have key software which cannot be deployed or modified by a rival developer organisation.

NFTs are polarising, and often misunderstood

NFTs have gone from unknown outside a small niche to broadly recognised as a concept in a shorter space of time than this took for Bitcoin/cryptocurrency. NFTs are more difficult to understand than cryptocurrency because they build on top of the concepts like a distributed ledger, I would say one can’t properly understand NFTs without first understanding how blockchain based cryptocurrency works.

While cryptocurrency and DeFi have tended to draw in people who are interested in money and finance, NFT projects can draw more attention from communities with an interest in art, media or games. A common theme of 2021 has been established communities vocally rejecting some idea about how to deploy NFTs related to their subject of interest. Some examples:

• “How Misinformation on ‘Book Twitter’ Killed a Literary NFT Project“¹⁶
• “Discord CEO backs away from hinted NFT integration after backlash“¹⁷
• Creative Commons had to tweet a clarification that they’re not promoting NFTs after publishing an article about the technology.

The gaming community is one I have some familiarity with, and I can see some positive applications of NFTs to game worlds, so I have been interested in the hostile reaction from many gamers, and taken this as a sort of case study of the broader phenomenon.

NFTs and gamers

There is relevant background here for the crypto and gaming communities. Since the time when GPU mining of cryptocurrency has been profitable the crypto miners have become competitors for scare resources (graphics cards) with the gamers. There have been times when people who want to build a gaming PC have been unable to source a good graphics card because miner demand has snapped up all the available stock and already driven prices far above their recommended levels set by the manufacturers.

Communities that are competing for scarce resources don’t tend to get along too well, as documented by Henry Tajfel as part of Social Identity Theory - conflict over scarce resources leads the individuals to lean into their identities as members of a group that is in conflict with the other group. Cryptocurrency has already disrupted one aspect of gaming for the worse, so I can see why gamers would be negatively disposed towards NFTs, especially when they’re minted on the chain which was using most of the mining GPUs! (Ethereum)

Gamers are also fed up with certain major games publishers milking them through mechanisms like loot boxes. Incidentally loot boxes and many NFT collections share the same Gacha game mechanism, and this similarity is another reason for gamers to have a negative impression of NFTs.

It is therefore unsurprising that when a major games publisher like Ubisoft launched an NFT based project, it was received poorly¹⁸. Ubisoft have bucked the trend however in that they are pressing ahead with their NFT project. Unlike the other companies this is not Ubisoft’s first foray into NFTs, they have been experimenting with smaller projects for a while and invested in some crypto related companies. They have learned from this experience to use a PoS blockchain (Tezos) for their NFTs, but this didn’t stop them from catching a lot of (misinformed) criticism about the environmental dimension.

I share the gamers’ scepticism about Ubisoft’s NFT play here, given their track record it’s more likely to be implemented in the style of a cash grab than an attempt to democratise their game worlds.

Quick primer on virtual items in games for non-gamers

Games often have “virtual items”, weapons or objects that can be acquired and used in the game - sometimes trading these with NPCs is part of the game. In MMO games trading with other players is usually part of the game, and when the in game economy meets the black markets it usually has negative effects - bots or low wage gold farmers show up to make some easy money, they compete with players in ways that are not fun.

Virtual items are issued by the game publisher and generally sold directly to gamers through an in game interface - gamers who want to buy the items set up some payment mechanism like a credit card. Whether the owners of the items can re-sell them is determined by the game publisher, and if allowed this happens through their marketplace and they take a cut of sales, usually a big one. In popular MMO games there has usually been a black market for in game currency or whatever is not allowed to be traded in game. Records of who owns which item are stored on the game publisher’s servers, if they decide someone is banned then their items become irrelevant. When the company decides to no longer support the game the records of who owns which items will presumably be lost.

Also, when the game publisher has added a marketplace where they take a generous cut of transaction fees, they’re incentivised to push people into that marketplace in how they structure the game to incorporate the items and economy. Making the game about buying and selling stuff so that the publisher has more revenue is a game design pitfall.

Sometimes the game publisher is the only creator and seller of original items in the market, sometimes they allow players to also create items (within certain constraints) and sell these in the marketplace, generating sales commission for the publisher.

How could games be different with NFTs?

I’ve been aware of NFTs for a while, and a player of games for a long while, so I’ve had my own expectations about what this would look like - my projections tend to be optimistic so this is maybe a best case scenario.

It’s worth stating from the outset that I think games without NFT elements will and should persist. The “games with NFT elements” which we are seeing early versions of, are part of the crypto-economy, people will “play” them when they want their actions “in game” to have economic weight. This is more likely to occur in a virtual world than a game, early iterations are similar to something like Second Life but with NFT items/markets, or they replicate another format like a collectible card game.

The reason I think there’s a market for games with economic weight is the popularity of games like “Eve online”, where people can own and operate very expensive virtual ships which they can trade for real money ($20k+) and which can be destroyed in the game.

The big difference with NFTs is that the records of ownership are stored in a public ledger. The developer of a specific game will decide which types of NFT ownership to pay attention to (if any) - initially games will issue their own bespoke item collections, but once these are public, future developers have a choice of whether to create their own virtual items or work from the stock of items that already have public specifications and ownership registries.

The idea that the builder of a new virtual world will seek to make it interface with these distributed public ledgers is “the metaverse”, as I understand the concept.

Companies like Facebook are trying to establish themselves as important venues, places where people access, store, transfer and create these virtual items - presumably so that they can take a cut of sales and have access to additional metadata about the people involved in the public transactions. Indeed a company like Facebook/Meta may intend to capture the market and have “the metaverse” be more like another one of their walled gardens.

Most of us don’t want to see Facebook becoming a big player in “metaverse” (or stablecoins, or any aspect of crypto really). What we should recognise though is that even Facebook is going to have to cede some ground in terms of the integrity of the walls in their walled garden, if they want to get involved in something like a metaverse.

For games, it’s not clear to me how NFT integration with proprietary games is going to go - it’s quite possible this all becomes some weird offshoot that doesn’t really flourish, and NFTs in games won’t take off until there are games which are open source licensed. This is because most of the benefits of NFTs relate to reducing reliance on the game publisher, but if they retain complete control of the game’s code assets and the servers people play on, then any control players retain over items as NFTs is fairly irrelevant in a conflict scenario (see below).

In my view the biggest barrier to a successful “metaverse” play by established games publishers is that they have too much to lose from abandoning the current methods of selling and storing virtual items - which they hold tight control of. To the extent that these companies try to get involved I have a feeling they will be undercut by upstart crypto-native competitors who don’t expect to extract as much profit from their users.

The nature of the crypto markets is that once these projects start to show memetic traction, which for crypto-native projects can be at the conceptual stage, speculators start imagining what a successful future adoption of the token(s) would look like and start bidding the price up. Sometimes mania/FOMO sets in and that’s when a bubble forms. For games which are yet to be launched this is likely to be a problem, because who’s going to want to dive in to a new game world where all the good stuff was sold to early backers years earlier and is now unobtainably expensive?

Decentraland

Decentraland is a virtual world whose main defining characteristic is that plots of LAND are represented as tokens on the Ethereum blockchain. Decentraland got its start as an ICO, it created and sold MANA tokens on the promise that a virtual world would be created and plots of LAND sold, the people who held the LAND would be able to decide how their plots were used.

Decentraland is not a game. It is a virtual space in which to wander around, first and foremost. Within the virtual space people also host social events sometimes, I have not attended any of these but they include things like concerts. When I have loaded up Decentraland to wander around it has been a sparsely populated experience, by people and even objects - there are many vacant plots.

The plots were auctioned initially in December 2017, then the unsold plots were put up for sale again one year later. The Decentraland virtual world browser based experience opened in February 2020, so perhaps this delay accounts for some of the inactivity on LAND plots.

It is also possible that the inactive plots are held by speculators who are not yet ready to sell. At the end of 2021 LAND plots have a floor price of around 3.5 ETH, which is a considerable step up from the original auction price. This looks like good performance from an economic perspective, LAND has been a good asset for people who bought it early, but whether it makes a solid basis for a virtual world remains to be seen. The people sitting on their LAND waiting for it to appreciate are more conspicuous in this setting than they would be if they were holding some quantity of a fungible asset.

Loot

The Loot story is up there as a contender for the “most crypto thing I have seen in 2021”, a bizarre story that in hindsight, from a certain perspective, makes a lot of sense, but is still totally mad.

Loot is a collection of “gear for adventurers” launched in August, each NFT is a “bag” consisting of 8 “items”, 8 lines of white text on a black background. The items have different levels of rarity (longer names = more rare), and the idea is that they serve as a kind of open source scaffolding, where other people will fill in the parts that are missing (images representing how it looks, statistics determining what it does, a game to use it in). It was launched as “free” to mint (excluding gas costs) on a first come first served basis… and then the influx of crypto community attention and funds began and the valuation attached to this nascent experiment quickly reached absurd levels.

The absurdity involved other common crypto tropes - like a reinforcing cycle where the holders of the hot new crypto asset start receiving airdrops for associated assets (AGLD and other “adventurers currencies” in this case) which also quickly establish some value in the market. Over the following weeks a small ecosystem of NFT generators sprang¹⁸ up around Loot, mostly allowing people to mint related NFTs from their bag or split it into individual items or something of that nature.

I haven’t followed Loot that closely but it seems like it has been great at generating profits for early holders of the Loot bags, but it’s not clear how great it has been as an engine for funding development of an open source game world to use them in.

There may be a disconnect here between what holders of Loot bags expect when they hear the word “game”, and what gamers expect from a game. I would rate it more highly as an attempt to generate quick profits from hype than an effort to make a game in a new way, at this moment in time.

Play to Earn games

This is in my view an interesting sector and it’s progressing in the kind of way one might expect, with products that are really a hybrid of a game and asset collection/trading system. The successful games of this type are mostly modelled on existing deck builder card games (like Magic: The Gathering), these fit neatly into the asset/market mould because obtaining and combining cards of different power/rarity at different costs is integral to playing the game.

The methodical turn based pacing of these games also suits the blockchain context, where it can take several seconds at minimum for a transaction to be broadcast and received - in fact many P2E games strip the game down to effectively a single turn where the player has to take action.

I regard these as an early step on the road to something like a more decentralized version of that kind of trading card game. Games like Axie Infinity and Splinterlands are still early in the process of issuing tokens to their communities and laying groundwork for voting with those tokens to perform a major role in governance of the game’s future development.

The thing which put Axie Infinity on my radar was¹⁹ stories²⁰ about how it became a source of income for workers in the Philippines. Fast forward a few months and the stories²¹ are about how earnings for most Axie players in the Philippines have dropped below the minimum wage - so the “lifeline” that was being heralded earlier may not be sustained for most. This is nevertheless an interesting development, which we can compare to “gold farming” in MMO games, but now no longer in the grey or black market. It would be interesting to compare the working life of a low level gold farmer in 2005 to that of a low level Axie player in 2021 to see whether the change from proprietary and under the table to open source public ledgers is having a positive impact in their lives.

I suspect it has been relatively positive for most of the Philipinos who made some money playing Axie, they can obtain assets to use through game-based loaning mechanisms and so likely have much more independence than gold farmers who mostly worked within someone else’s enterprise.

While the publishers of MMOs sought to exclude the accounts of gold farmers, Axie’s early players and guild masters have been richly rewarded through the increased valuation of game assets. Rather than seeking to cut them out, the game’s developers have explicitly rewarded²² the early players with airdrops of new assets like AXS, a token which will be used for staking and governance.

There are a lot of unanswered questions about the “play to earn” business model, and in particular whether such systems can persist long term or if they have more of a short term Ponzi type character and tend to collapse in this way.

I think part of the issue here is confusion about whether the system’s priority is to function as a game or as a novel digital economy. Inflating asset prices suggest that people with money to spend are taking the assets seriously as productive investments - but this may not be compatible with keeping the game attractive to a broad range of players.

Sky Mavis, the Axie developers, have started referring to the model as “play and earn”, to shift emphasis away from the idea that people grind out an income in these systems alongside the “players” who are there for fun.

Without the perceived scarcity of assets and inflating prices to drive the game economy, the only established mechanisms for supporting this kind of economy are where players with money can pay to gain an edge in the game or skip labour intensive aspects. If there are enough players who spend enough money it can be a decent revenue source for whoever is able to provide the in game products which are in demand. Web3 games with NFTs have replicated this to a small degree but it’s not clear if the players who are consumers are there for fun or they also expect to make money.

It is also fair to think of the current era of P2E games as being highly constrained by contemporary blockchain technology, the same way as early computer games were. Blockchains with higher throughput and lower latency will enable different kinds of game experience to be replicated with a blockchain foundation. UX improvements should ultimately make these games almost as accessible as their non blockchain based contemporaries.

Neal Stephenson’s Metaverse

When I first heard about Decentraland I thought it sounded like aspects of a concept called the metaverse I had read about in a book called “Snow Crash”, and when I looked at the community spaces it was clear that many of the people who were interested in it had similar expectations based on reading the same book. There was even a big Decentraland District dedicated to recreating the Snow Crash metaverse. That was 4 or so years ago, and most of what’s happened since then makes sense if you see what’s happening with crypto and NFTs as the very early stages of something like the Metaverse described in Snow Crash. I would say it is indispensable reading if you want to understand what’s happening with the Metaverse concept, if only because many of the participants have read and internalised the same ideas.

Now that Facebook have hijacked the Metaverse term people will probably shift to another word, which is not a bad thing as it would be useful to have more/better differentiation in the terminology for this stuff.

Additional reasons why people hate NFTs

In my quest to answer the question posed by the title, here are some additional reasons as to why some people may hate NFTs:

• NFTs have bestowed outsize rewards and recognition on early adopter creators, who may not be particularly well regarded in their field. People who are into the “art scene” for example, may not like that there is a rival parallel scene where some of the artists are “taking a shortcut” to financial success. If one passes up this kind of opportunity for ethical concerns (e.g. scam similarity, environmental impact) then see some of one’s contemporaries become overnight millionaires based on mediocre output, that would tend to sour some people on the concept.
• Following on from the above, the NFT markets have been criticised for being driven by “crypto bro” buyers, whose taste is often at odds with participants in analogous conventional markets. People who like conventional art may laugh at NFTs because they are weak by conventional art standards. People who like games dismiss things like Loot and a lot of the pay to earn crypto games because they are not good games.
• For some artists their introduction to NFTs has been through finding out that someone ripped off their work and is selling it as NFTs without their knowledge - not a great first impression to make.
• Established companies/brands who enter the NFT market are typically doing so to make money, based on how the ICO saga unfolded they are more likely to launch something which ends up extracting value from their users/buyers. Scepticism about this kind of NFT launch from users of a company’s existing products is warranted, especially when those products have nothing to do with cryptocurrency. If a big games publisher has been ratcheting up the extraction with loot boxes and paid DLC and they announce they’re getting into Metaverse or NFTs, it probably doesn’t signal a fundamental shift in their approach to extracting money from gamers.
• There are a lot of highly speculative projects that have ambitions which seem far-fetched making short term profits by selling NFTs representing a stake in this dream venture. It can be hard for an observer to tell the difference between naivety and intention to scam, and when the net result is likely to be funds flowing from “investors” to creators or proxy investors in either case, some people take a dim view of that.

NFTs can be used to fund good things - and some people will hate on them anyway

There are some NFT projects which are dedicated to raising money for a cause or organisation. The charity sale or auction is a familiar fundraising mode, with things like memorabilia often being auctioned for charity. So, it is not surprising that some of the many hundreds/thousands of NFT projects are doing this, and some of their causes and methods seem quite legitimate.

Some examples:

Rainbow Rolls is using NFT mint fees on a layer 2 chain (so energy efficient) to buy up medical debt in bulk and so far raised 19.42 ETH which they used to buy $7.4M of debt, releasing 5,323 people from the burden of someone chasing them for their defunct medical debt.

The author Neil Gaiman tweeted to promote an NFT raffle to benefit a humanitarian charity but then deleted the tweet because of all the negative responses (although the auction went ahead).

A project with six young authors which planned to sell NFTs and use these to build out the universe (“Realms of Ruin”) around their stories was quickly shelved and its website taken down with all of the participating authors tweeting to apologise for ever considering it. This one used Solana, a PoS blockchain, to limit carbon emissions associated with the NFTs to extremely low levels, but the young authors were still bombarded with the talking points about NFTs boiling the oceans.

The WWF had a similar experience with launching and quickly walking back an NFT fundraising endeavour. Again WWF tried to get ahead of environmental criticism by choosing a blockchain with lower environmental footprint than Ethereum - but their choice of Polygon, a “layer 2” scaling solution for Ethereum, was called out for still ultimately relying on Ethereum’s PoW. WWF estimated the environmental footprint of an NFT at 1 pint of milk, the NFT envirodestruction lobby set it at 2,100 pints of milk.

What has surprised me is the level of hate this kind of project is getting on twitter, to the degree that people are deleting tweets that mentioned some sort of NFT charity sale, with some being cancelled entirely. I have seen some of the better known NFT haters encouraging others to bully people who won’t drop their support for an NFT project when confronted about it. It reminds one of the kind of barrage maximalists might direct at an “altcoin” supporter. NFT fans throwing shade or FUD on each others’ projects was a feature of mid-2021, but as more celebrities with non-crypto-related followings started to engage with NFTs or announce projects this kind of generalised bashing of NFT content on twitter has taken off.

A crypto-native approach to environmental fundraising can be seen in the rewilder project, which is taking donations of 1 ETH or greater, minting an NFT per donation which represents an approximate 1 acre of wild land that their donation has allowed the project to protect or rewild. The NFTs have no utility and are clearly marked as donations - but these kind of terms were also common to ICOs with the implicit understanding that everyone buying tokens really did expect that they would have a good chance to make a profit on the tokens they received for their “donations” - see Tezos and EOS for examples. The Rewilder Foundation has 3 executive members who share decision-making authority for the project, and there are only vague nods towards involving NFT holders in governance of the rewilding much further down the line. Rewilder includes carbon offsetting in their budget for the funds, which they anticipate costing $2,000-$5,000. The Rewilder website is light on details for a lot of this, including any news about how it’s going, which is a bit disappointing considering that this information should be available on chain and the project talks a lot about leveraging the transparency of blockchain donations.

An article from the end of 2021 puts the running total of Rewilder.xyz donations at $241k, and notes a few other projects which have embraced crypto fundraising, with mixed success.

Angry Teenagers has a similar aim to link NFTs with geolocated patches of land within specific projects that aim to plant trees with the support of the local community. The plan for the project is ambitious, with the NFTs being updated with data representing progress and the outcomes of inspections - with the potential for re-forested land to accrue carbon credits that the NFT holder would control and could potentially profit from. Angry Teenagers is still in the “pre-mint” phase, and figuring out a lot of the details no doubt, so we will have to wait and see how well the concept can be executed.

An even more crypto-native spin on crypto charity (but without NFTs) is Giveth. Giveth is a kind of charitable giving club, people donate crypto to approved projects directly and that generates GIV tokens, which I believe can be staked to generate a stream of revenue for the projects.

Giveth is rewarding and empowering those who give to projects, to society, and to the world!

It seems like a nice positive sum idea, but I’m not sure how GIV’s tokenomics will play out. With this kind of project the good will of early contributors can often help to paper over cracks with the tokenomics, I tend to approach any novel tokenomic model cautiously and assume that it won’t scale, until I see evidence to the contrary on an ongoing basis for some time.

The number of projects with what I would consider as pro-social aims external to crypto itself seems to have increased a lot in 2022, and this theme is revisited below.

One of the earliest academic research projects²³ about NFT creators interviewed a small sample of 15 and found that they had many positive experiences and received support from their communities, with the negative aspects they reported mostly concerning technical difficulties of working with NFTs. Early signs are that many creators in particular are happy with how their engagement with NFTs has gone, but perhaps the pushback from NFT critics and slowdown in the market has changed this since the study was conducted. There will undoubtedly be more research on this kind of subject forthcoming.

Some Bitcoiners hate crypto more than “nocoiners” do

As the level of animosity towards NFTs and crypto picked up on social media, it struck me that there is significant overlap between the position and actions of the “toxic Bitcoin maximalists” and the people going after NFT launches or people who dare to voice an interest in the subject. The Bitcoin Maximalists and crypto critics seem to agree on a lot, maybe most things, except Bitcoin itself. What has surprised me is the similarity in tactics, with social media pile-ons featuring heavily.

The phenomenon has been picked up by an article in Vice²⁴.

One of the more interesting trends of 2022 has been a sort of revolt against the Bitcoin Maximalist’s domination of “Bitcoin culture”, with a number of well know Bitcoiner personalities speaking out against the nasty way that “toxic maximalsists” would complain about and harass other projects with self-serving bad faith arguments. This movement arguably peaked in June 2022 when Nic Carter took on the Maximalists in a series of twitter spats and editorials.

NFT Summary

Distributed ledger and crypto technology is a fairly novel development that is seeing considerable experimentation, to the point where there is now an emerging parallel “crypto economy” built on these cryptocurrency payment rails.

There are a set of crypto assets which people transfer and trade on distributed ledgers, and some of these are associated with particular novel features, like staking or voting. These assets live on public ledgers that people interact with through open source software, and the capacity to access and use the network directly as a peer is one of their defining characteristics.

NFTs are a way of using crypto tokens which embraces their non-fungibility, each token is a unique asset whose history is recorded on a blockchain.

The cryptosphere, or “metaverse”, is a wild and largely ungoverned space. People interact directly with the hard rules of the network, and hackers can find and exploit weaknesses in how these rules are enforced which allow them to perform actions that other participants don’t like, which violate the social rules of the network as humans understand them. This is the “code is law” “dark forest” where anyone who enters better look out for their own wellbeing and “do your own research”.

On the table are the desirable characteristics of transparency and reliability, a system can be built to embody these principles well such that it is very difficult for people to exploit or corrupt the system for their own benefit, especially in secret. All the cryptocurrency and NFT hacks and exposés are in some ways a positive sign, because each is a learning opportunity that is being used to close down newly discovered attack vectors. The transparency means that every discovered hack benefits the community at large by allowing additional precautions to be added to the systems in general, which makes future attacks of the same sort less likely.

To achieve these desirable characteristics the system sacrifices some of its “humanity”, as the peers (who are people) instruct their nodes (which are machines) to rigidly follow the consensus rules of the network - giving up any notion that the peer might intervene in the faithful following of these rules, even if doing so could avert some sort of outcome which the human node operator would agree is negative or even catastrophic.

In moving to a blockchain based system, as opposed to one operated by people within organisations, the capacity for human agents within the system to sense damage to users and mitigate this on an individual basis in real time is lost. A system that is based on human to human interactions is much more complex, it can adapt to address issues more quickly, but it is also more prone to corruption.

The best way I can find to summarise the differences is to think about the blockchain as replacing the functions of an organisation - instead of organising people with legal constructs and hierarchy in a top down fashion (like a corporation), people opt in to playing a set role (e.g. “validator”, “developer”), they get rewarded if they follow the rules of the network in doing so - and participants can agree to change the rules of the network if they get together.

What happens on chain is not constrained by law in the same way that a corporation’s behaviour is supposed to be constrained by the legal codes of the jurisdictions it operates in. For a blockchain, the commonly agreed rules of the network constrain what entities can do on chain, but individual participants or relevant legal entities can still be taken to court in meatspace (if they can be identified). This is one reason why people tend to differentiate between crypto projects that have “doxxed” vs pseudonymous leaders - in the event that the project “rug pulls” or similar, the people who lost out cannot even bring a case against the fraudsters until they discover their real identities.

Cryptocurrency networks are touted by their supporters as decentralized and as such resistant to external legal control - but for most networks this has not been tested much as yet. The adding of Tornado Cash, an Ethereum mixing service, to the OFAC sanctions list in August 2022 is one of the most significant ways in which an on chain crypto service has been targeted by law enforcement agencies so far, and it sparked discussion about whether institutional Ethereum PoS validators might be forced to censor certain types of transaction in future.

Making all of the workings public allows for problems to be identified (and usually mocked by fans of rival projects), so when a crypto network starts breaking the rules we tend to hear about it quite quickly - whereas corporations and human organisations generally are quite opaque by default, and can often hide rule-breaking by or within the organisation proficiently for a long time.

As well as watching NFTs and the response to them I have followed along with other developments in crypto, DAOs in particular, and my updated thoughts on these are provided below for the remainder of this piece.

2021 new DAOs

2021 was a year in which the number of active DAOs exploded, way beyond my capacity to follow most of them. It seems to me that the criteria for what constitutes a “DAO” are quite lax now, many operate with just a multi-sig wallet to control some funds, a Discord server and forum to chat on, and use Snapshot to vote on proposals. This is apparently considered a minimum viable DAO, but in my view it is far less than ideal, and an accommodation to an environment of high gas fees - it requires minimal on chain transactions because it is not realistic to expect people to pay high transaction fees to participate in something which is not directly beneficial to them. Using a multi-sig to store the DAO’s funds means it can only be as strong and reliable as the election of multi-sig holders allows it to be - it introduces a lot of trust in a small group of people, which is antithetical to using a blockchain for this kind of purpose in the first place.

One unfortunate side-effect of relying on Discord (software which was originally intended for gaming communities) as a central way of conveying information about DAO happenings is the high number of people who end up getting hacked or losing funds as a consequence. There have been a number of attacks²⁵ which targeted Discord specifically and used this platform to circulate dodgy links that offered airdrops but would steal the funds from people who interacted with the contract. Discord in these cases being used to falsely indicate that the link comes from a trusted source like a project admin or moderator.

At the other extreme of DAO security, Decred went live with a decentralized treasury system that requires input from the ticket-voting public at large to make any transactions from the project’s treasury fund, beginning the process of phasing out a multi-sig setup that had been used as a stopgap since the start of the chain in 2016. Decred’s Politeia governance platform also saw significant progress on the back end in 2021 and is moving towards a more scalable and portable setup - this could be of interest to other DAOs as it provides a variety of enhancements to facilitate governance discourse with a robust record of moderation and tamper-proof voting.

2022 DAO rush

Now that people can set up a “DAO” almost as easily as a Discord server, and joining such ventures has been normalised and has been profitable for some early groups of this type - there has been a rush of enthusiasm to set up DAOs to do exciting things, but they are not always successful or particularly well thought through. Writing in early 2022 there are some funny contemporary examples, like the group that paid €2.66M for a hard copy of “Jodorowsky’s Dune”²⁶, a director’s bible which was used to seek funding to make a film adaptation of Dune. The price was 100 times the estimate, which led many to conclude that the “SpiceDAO” had misunderstood what they were buying, as marketing materials referred to making an original animated series inspired by the book. The physical copy of the book conveyed no copyright or intellectual property rights of any type, and the SpiceDAO scrambled to come up with an alternative purpose for itself.

As the story is fresh there is still uncertainty about whether the SpiceDAO really misunderstood what they were buying, but there is a story dated from December which suggest the SpiceDAO members became aware of the limitations around using the book before they bought it. The story straight from the sandworm’s mouth is that owning the book and developing an animated series are two ventures which will proceed in parallel, and the rumour that they were going to destroy the book and turn each page into an NFT was based on a quickly censored community proposal.

The venture which inspired this model of pooling funds in a multi-sig for some meme-worthy purpose was a DAO created to buy a copy of the US Constitution, ConstitutionDAO. ConstitutionDAO had a different problem, because it didn’t win²⁷ the auction for the item it was created to buy, and so underwent a messy dissolution process in which Ethereum transaction fees ate up the lion’s share of many participants’ refunds - after a brief attempt to build consensus around some other venture that the funds could be used for.

Decentralized exchanges like Uniswap and Sushiswap¹ are part of the story here, because they allow permissionless and relatively easy access to a marketplace where the DAO’s newly created token can be traded and some level of liquidity can be easily established. In the case of ConstitutionDAO the token price actually surged at one stage after the failure to buy the constitution and some people cashed out their refunds - so even when the DAO fails it can still be a money-maker, and the people who get in early usually do the best.

Other similar themed ventures include BlockbusterDAO, to buy the blockbuster brand and turn it into a decentralized film studio and streaming platform, and LinksDAO, which aims to reinvent the golf course or country club.

Krause House is a venture²⁸ to buy and collectively run an NBA team, it raised 1,000 ETH very quickly and issued KRAUSE tokens (which the organisers retain 80% of), this money will be used to put together a bid but the terms say donations and KRAUSE tokens will not confer any ownership rights in the team - the money to buy the team will be raised at a later date, possibly through KYC’d channels. For projects that are based in the USA or wish to raise funds from there, the limiting factors in how they use crypto to fundraise are related to the definition of a security, which teams are usually keen to avoid falling into as it comes with reporting requirements.

At the peak of NFT mania one of the newly emerging types were “Simp DAOs”, with IreneDAO blazing the trail²⁹, going from a Telegram sticker collection to an NFT collection which was launched as a test case but had sold out in minutes and immediately reached a price of greater than $4,000 for each “Tribe pass” on the secondary market, and also secured VC backing. It looks like Irene’s DAO was actually started by someone else, without her knowledge, and without making any money for her, while she was out swimming - but as it took off and acquired celebrity backers she has decided to roll with it.

The commonality to these DAO projects springing up is that they’re aiming to achieve some sort of coordination and economic production with a new type of organisation, not a corporation or limited company or necessarily bound by any legal agreement.

For many cases the decision to use a DAO rather than a company is motivated simply by easier access to a global group of investors/participants, rather than for any reasons related to what the organisation will do once it’s up and running.

There is a strange hybrid “LAO” form which has made it to the statute books of Wyoming, which is a form of limited company bound up with a DAO and its smart contracts, where the DAO seems to play a coordination role but the power and responsibility to execute decisions lies within the legal entity. It seems complicated to me, which is maybe the worst of both worlds. There are some early signs of friction³⁰ with these Wyoming based DAOs failing to file their forms correctly.

People are using DAOs as a replacement for corporate structures, but sometimes in ways that appear to make little sense if one is aware of the advantages of using the appropriate legal entities which are being eschewed.

The idea that DAOs could replace and improve upon organisational structures is something I have been excited about since I got into this area, but as with everything touched by Ethereum people are getting way ahead of themselves with how much money they throw into early stage prototypes, and the valuations that their tokens can reach. This to me demonstrates enthusiasm for improving on the corporate style of organisation, people are optimistic about this and excited when projects gain traction and have a chance to deliver on their aims.

As has always been the case though, there are opportunists in the mix who see a way to sell the hype around this kind of progress, but who are unlikely to deliver anything of substance.

DAOs getting political

One reason to use a (proper) DAO for some venture is if it’s likely to be attacked by going after its financing - the same kind of scenario that boosted Bitcoin’s adoption early on when Wikileaks was being censored by payment processors. Projects with a political angle are perhaps the most likely type to be cut off from conventional funding sources, and in the case of DAOs there may be some way to build in protection against key operators or decision-makers being identified and pressured to change their stance. I think about it as decentralizing the “key person risk”, trying to build a movement which can be coherent but also robust to corruption, defection, capture or assassination of key people. That’s thinking about the future though, 2021 was the year in which DAOs first started to be used for anything outside the realm of crypto infrastructure funding and decision-making.

As an example I’m picking a story which ties back to the early stages of Bitcoin adoption and highlights how the same kind of technology is now being deployed to very different ends.

Ross Ulbricht was imprisoned for life for his role in setting up the Silk Road darknet marketplace, the first to popularise the concept of using cryptocurrency to pay for deliveries of illegal items (mostly drugs). His sentence was extremely harsh compared to that which others have received since then for similar crimes, and so he has a lot of support among some cryptocurrency communities. In 2021 Ross decided to create an NFT from a collection of his art and writing, and to sell the NFT to raise money for the Art4Giving charity and efforts to free Ross. The NFT collection sold for $6.2M, and it was bought by a DAO which was created for that purpose: FreeRossDAO.

This is their manifesto:

1. We will help Free Ross.
2. We will advance prison reform.
3. We will share Ross’s work with the world and give everyone a unique opportunity to own a piece of it.

The effort was kickstarted by PleasrDAO which seeded the multi-sig wallet with 240 ETH (~$1M at the time). PleasrDAO was created to collect NFTs as a group and fractionalise them, so this kind of venture was well within their wheelhouse. Originally the PleasrDAO formed to buy a piece by NFT artist pplpleasr³¹, who then joined the DAO³² - notable other purchases include the Wu-Tang album nobody has heard.

While FreeRossDAO has aspirations to use its remaining funds to advance prison reform, the details of what this entails are still being figured out. As of Jan 22 2022, a third proposal has passed and it is all about retaining the “core team” that’s been doing everything so far, in their current roles.

One thing that is well known about organisations is that they tend to prioritise their own survival, it stems from people seeking stability and we shouldn’t expect DAOs to be any different.

One reason it has taken me so long to finish this article is that NFT/DAOs lost the plot in January 2022, with all sorts of crazy schemes in the news. The madness touches the political via the medium of Carrie’s Hamsters³³, a project which “resurrects” 2,000 hamsters that are being euthanised in Hong Kong as part of a Covid-19-related cull. The project is associated with opposition to the culling, and proceeds are to be directed towards some charitable cause.

Some of the largest movers and funders in the space have also been engaging more in political lobbying in 2021, and DAOs have played a role in this. Uniswap holders voted to spend $25M on a “political defense” fund for DeFi³⁴, to be spent through a network of university affiliated research groups.

There are also projects tackling environmental issues, such as Klima DAO, which aims to apply DeFi principles to carbon markets. Klima seems to operate as a booster for other carbon-tokenisation projects, aiming to fund this kind of venture and boost its liquidity. It is one of quite a few forks of OlympusDAO³⁵, which popularised the concept of an “algorithmic stablecoin” backed by a reserve of assets.

As with many of the other OlympusDAO forks, the price of Klima tokens has been in a steep decline since the hype around “Defi 2.0” started to die down. Klima appears to be forging ahead with some projects, while investors have become disgruntled about the prospect of a return on their investment.

In January 2022 the “Defi 2.0” constellation of Olympus (OHM) forks and related projects was the subject of some negative stories³⁶ about the background of pseudonymous developers/founders. There also seemed to be a collective change of heart about promoting the “ponzinomics” of these projects in a light-hearted way.

DAO strife

DAOs have been around in large enough numbers for long enough that many people have now experienced participation in some form of DAO, and we can see lots of examples of DAOs that blew up or fizzled out. Even the relatively successful DAOs have issues, some of which are being openly discussed.

Nearing publication time (Aug 2022) a debate between Rune Christensen (founder of MKR) and Hasu (pseudonymous crypto researcher, MKR governance delegate) took place which I found very interesting. MKR is one of the longest-surviving Ethereum DAOs of any significance, and so Rune has considerable experience of watching how this DAO has evolved over time. Rune stepped back from his role as Maker lead some time ago, but was recently spurred to re-engage by what he perceived as issues with how the DAO was running and evolving. Rune observed that the people contributing to the DAO were doing so primarily for their own benefit, and had different ideas about the precise direction the project should go in or even what it was ultimately about. His concern is that the DAO will be captured by the individuals who spend time participating in it and that they will turn it into a vehicle for their own benefit - rather than serving the protocol or MKR token-holders.

I have written about Maker DAO before, so I won’t repeat the description of the old governance setup which is now seen by everyone involved as having failed.

Hasu is a pseudonymous researcher who is well known in the crypto space and has been working for some time as a MKR delegate (people who hold MKR can delegate their voting power to him). Hasu’s concern is that token-holders are not necessarily well equipped to make all of the decisions which are put to them in the running of the project - especially in the way this decision-making process is currently structured. Hasu has supported a number of proposals to create more autonomous contributor groups with specific functions, with the aim of allowing the Maker project to grow more effective teams that can contribute in beneficial ways to the project’s overall objectives.

This twitter thread from a community member who has been following the drama provides a concise summary from August 2022, describing a third faction of decentralization maximalists who want to see the MKR protocol locked down or “ossified” such that it won’t or can’t change in response to changing regulation. It is an alliance between this faction and Christensen’s that allowed for the core unit proposals to be blocked despite some of these enjoying the support of VCs.

As one of the longest running DAOs managing significant resources for DeFi, Maker DAO’s issues are fairly unique among DAOs as it is one of the only such organisations to show longevity, and the broad use of its DAI token seems set to maintain MKR’s relevance.

Among smaller less significant DAO projects there has been much more experimentation with modes of organisation, and many of these projects are already dead.

One novel trend was for DAO mergers and acquisitions, where groups would come together whose products were complimentary. An example of such a relationship which has now fully played out was seen with the merger of FEI and RARI communities, which seemed to be going well until one aspect of the merged protocol was attacked and drained. After this attack the two “merged” communities found themselves in conflict as they had different levels of exposure to the hack, and their conflict showcased a big weakness of many DAOs’ governance - the process for holding a vote was not well defined and so one successful vote could be followed by another which is incongruent and leaves the DAO in confusion about what has been decided. In the end it took four proposal votes to resolve this dispute, and the resolution involved a dissolution of the merger.

Era of financial censorship

In February 2022 the Russian invasion of Ukraine began, and some of the early sanctions hit Russia’s finances and capacity to do business. Major Russian banks were excluded from international banking arrangements like SWIFT, and the Russian central bank is being denied access to its reserves, including those held by Switzerland³⁷. This supports the notion that while one’s resources are expressed as entries on some entity’s database they are exposed to confiscation or censorship. “Bitcoin solves this” with a distributed public ledger, to a degree, for individuals, but despite cautions that Russia could use crypto to evade sanctions this seems unlikely to be practical on any significant scale³⁸ because the crypto markets in their current form are too small to accommodate the scale of liquidity Russia needs.

Furthermore, several months into the conflict and sanctions (Sep 2022) there is no sign that Russia is using crypto for any sanctions or evasion or taking any of the steps which would make it more suited to this purpose.

The Ukrainian government have sought crypto donations, and received significant sums, especially after alluding to an airdrop - which was subsequently withdrawn³⁹. The Ukrainian interest in crypto in the early stages of the conflict were in part due to issues with donations sent through other means being held up.

Later in the conflict the Ukrainian government moved to ban citizens from buying cryptocurrency with the national currency, a decision implemented under the martial law related to Russian invasion, as part of a series of capital controls to prevent money flowing out of the country and to support the national currency.

Freezing the Russian central bank’s reserves has been described as a significant escalation of international financial sanctions - and it violates the spirit of neutrality of these institutions, revealing that they cannot in fact be trusted by all users. This situation is likely to lead other countries to consider whether they might be censored in a similar way in future, and possibly take steps to address this weakness of their current position.

The culmination of sanctions of this nature and commodity market disruptions are being described by one analyst as giving rise to the birth of a new world monetary order⁴⁰.

This is coming on the heels of Canada’s use of bank account freezes against the protesting truckers and people who sent money to them. On Feb 15 Justin Trudeau invoked emergency powers to try and remove the “Freedom Convoy” truckers who had occupied some sites, and a week later these powers were withdrawn and the bank accounts unfrozen - after the protestors had been removed. Prior to this GoFundMe had taken the step of shutting down a successful donations campaign for the truckers once they decided it had moved from “protest” to “occupation”. Having platforms like GoFundMe shutting down donations for things which make them uncomfortable is nothing new, but using emergency powers to shut down access to banking without any due process appeared as a significant escalation in use of financial sanctions against people who were not directly involved in any criminal activity.

These are the kinds of scenario that many of the early cryptocurrency advocates have long been talking about, and they will prompt more people to consider what happens if someone puts a blocker on them transferring money they want to transfer or shuts down their accounts entirely. The more that governments and the fiat banking system introduce limits on who can send how much to whom, the more push there is for people to use crypto assets which are more robust to interference. The next question is what happens when a larger proportion of the targets of financial censorship are getting around it with decentralized networks.

For individual citizens, if they feel that their relevant government cannot be trusted to respect their freedom to hold and transfer wealth in assets of their choosing, holding some portion of these assets as cryptocurrency may make sense. The portability of cryptoassets make them well suited to use cases where the holder needs to flee their homeland, they can be transported as easily as a set of seed words and the government one is fleeing from has no means to close the account. The visibility of cryptoassets on a public ledger makes them unsuited to many use cases, but pose more of a problem for a corrupt government than a persecuted citizen who manages to make it across the border to somewhere that won’t try to confiscate their assets.

Distributed public ledgers make it more difficult to run an extractive platform

At the end of 2021 a token airdrop⁰ from OpenDAO leveraged the open record of who had been trading NFTs on OpenSea, one of the main marketplaces, such that people who had traded on OpenSea could collect SOS tokens, proportional to the amount they had traded. When SOS was announced and hyped it was not clear what purpose this DAO would take on, looking at theopendao.com the page was mostly about how to claim SOS tokens and the supply information, the only words about its purpose were: “The token for the largest NFT community, to pay tribute, to protect, to promote…”

SOS (OpenDAO) was the first of three tokens to launch in about a month which targeted OpenSea users as the eligible recipients for an airdrop, the other two⁴¹ being LooksRare (LOOKS) and fees.WTF (WTF).

Looksrare distinguished itself initially as a platform that deliberately incentivised wash trading⁴², with “the vast majority” (~87%) of trading volume on the platform representing people trading with themselves to game the SOS token distribution mechanism. This was a deliberate ploy to get NFT traders to start using the platform with an infusion of easy to earn tokens, the test is whether real trades will pick up the slack when the early bootstrapping phase is over and the easy money has been handed out.

While these three airdrop upstarts may all fizzle out and fail to oust OpenSea from its throne, the fact that they can exist and have a credible shot at unseating OpenSea is based on the intersection of two phenomena I have outlined above - transparency of the blockchain, and the reflexive interaction between the price of these assets and speculation that they might succeed. In Web3, anyone can pitch a new token at OpenSea’s users or the users of any other NFT platform, identified by various on chain footprints. Anyone can create these tokens, but the dark arts are around how to imbue them with value, either to milk a short term profit for the creators of the scheme or to establish a base to build for the long term. Most of the projects promise the latter, many are thinking about the former.

Using open distributed ledgers means that no single entity has exclusive control of that data. The business model of luring in users before getting more extractive and profit-oriented should be less workable, because it’s much easier for a rival to poach those users if they become dissatisfied.

There are a couple of examples from the last few years which illustrate how a public ledger basis for a community platform shifts the power away from the people who run the servers and opens up new affordances to those communities. Both stories involve well known blockchain personalities and their corporate entities being shut out by communities who found they had become parasitic.

Steem is a blockchain which hosts “Steemit”, a user generated content platform built on that blockchain as the initial use case for it. On Steemit users are rewarded with cryptocurrency when their content is upvoted. In 2020 a conflict erupted between the Steemit company, recently acquired by Justin Sun of Tron fame, and the users of the Steem blockchain more broadly. This⁴³ comprehensive account by Tim Copeland details the origins of the conflict, tracing these to the launch of Steem in 2016 and a “ninja pre-mine” by Daniel Larimer and Ned Scott. Years later, Justin Sun made a deal with Scott to acquire Steemit - some of those pre-mined funds remained with Steemit, and users of the Steem chain started to worry that Justin Sun might use them to sabotage the STEEM network somehow as part of a forced transition of Steemit to his Tron network.

To simplify: Justin Sun acquired Steemit (a social news type site) for its community, he purportedly planned to migrate the back-end to his Tron blockchain from Steem. Users of the Steem blockchain did not like the fact that Sun acquired a significant share of their network tokens with his purchase of Steemit - and moved to pre-emptively shut down any attempt to use these tokens to take over the network or force through some agenda.

This started a conflict which, as with many community conflicts in the crypto space, involved a forking and splitting of the blockchain. A section of the Steem community started Hive as a fork of Steem which nullified the tokens in question, like a re-founding of the community with an additional “no Justins” rule, applied retrospectively to his recently acquired stake.

The key information to run the Steem blockchain, and the Steemit platform, are publicly available - this means that anyone can spin up a competitor to either of them quite easily. The companies that write the code and run the servers don’t necessarily control the whole endeavour because it can be reproduced easily.

In this case the HIVE fork has done relatively well compared to Steem, looking at the Coingecko rankings at the end of 2021 HIVE is #168 at $1.55, STEEM is #354 at $0.44. This should be taken as a cautionary tale for anyone who thinks they can buy control of a blockchain network and act against the community of users - if you’re big enough to dominate the network you’re probably big enough to warrant forking around when you start to cause trouble for other users.

Another similar recent example occurred with Block.one, the company which conducted the EOS ICO and developed the initial release of its software, high profile members include Daniel Larimer and Brock Pierce.

The EOS community started to grumble that Block.one was not using the $4 Billion they paid them in the ICO⁴⁴ to further the EOS cause, which is understandable when they see moves like the big budget Voice pivoting from being an EOS-based social media platform to a platform to sell NFTs which doesn’t involve EOS at all. Ultimately EOS validators moved to block⁴⁵ the payment of $250 million worth of EOS to Block.one. This comes as part of an ongoing dispute over EOS intellectual property, which the community of validators wish to acquire but which is currently held by the Bullish exchange, another side-project of Block.one.

Prior to this in 2018 a group of EOS users had already forked the project to create Telos as an alternative blockchain which would dilute the power of large token-holders significantly by reducing the share of tokens which they were able to claim relative to the original EOS chain.

In the STEEM and EOS examples, consensus among the users of a network broadly allowed them to change the rules in a way which did not suit one major player in their network, taking actions which nullified some contractual obligations relating to this actor.

In 2022 a DAO (Merit Circle) clashed with its Venture Capital investors (Yield Guild Games) and following a successful token vote overturned a binding SAFT investment contract in which its corporate entity had agreed to give tokens for capital. In this case the token holders unilaterally decided not to pay out the tokens, which did not go down well with Yield Guild Games (YGG). A member of the DAO made the proposal to cancel the agreement and “refund” the investment because YGG were “not adding enough value”, but the terms of the SAFT agreement were clearly cash for tokens, and YGG did provide the cash. In this case the private limited company Merit Circle got together with YGG to work out a mutually acceptable solution and avoid a likely court case. The solution called for Merit Circle to buy YGG out at a token price of $0.32, which was a significant discount on the MC token which was trading in the range $0.65 to $1 in June 2022 when the agreement was reached.

This case offers a preview of what is likely to be a more regular occurrence going forward, what happens when stakeholders in a DAO feel aggrieved enough get lawyers involved? Early signs are that when a DAO has a closely related legal entity the people who are responsible for this entity will tend to act in a way which keeps them out of court.

This dynamic will get more interesting if the DAOs involved can avoid exposing their key people to legal risk - one of the perceived benefits of the “decentralization” which so many “DAOs” have taken shortcuts on.

Public Ledgers make the work of open source investigators easier

One of the themes of the crypto and particularly NFT space at the start of 2022 has been investigations which unmask bad actors. I have not followed these in depth, but some of the stories which made a big impact on social media were as follows:

• NFTethics exposes popular (?) NFT influencer “beaniemaxie” as an individual with a background in shady business practices, and deeper involvement than disclosed in many of the projects he shilled to his audience.
• NFTethics revealing the insider frontrunning of Larva Labs, with one of the co-founders dumping 40 V1 Punks on the market less than a week before an official statement is released by the organisation saying they are worthless.
• NFTethics illuminating the behind-the-scenes setups for celebrity NFT acquisitions, and the people who set them up using their inside information to make some easy money.
• Laura Shin published an article about her efforts to reveal the identity of the Ethereum DAO hacker, and named him publicly. This infamous hack occurred in 2016 and had a material impact on the development of the Ethereum ecosystem.
• ZachXBT outed 0xSifu as Michael Patryn, a co-founder of QuadrigaCX, a Canadian Bitcoin exchange which lost all its customers’ money when the person running it died and the wallets were found to be empty. Patryn was also revealed to have a previous conviction for fraud. 0xSifu was a major contributor to a family of DeFi projects focusing on Wonderland, a clone of Olympus, with his role encompassing a degree of control of project funds. It was revealed that the founder of Wonderland knew about Patryn’s identity and past from early in his involvement but decided to give him a chance anyway - and it is not clear that the character 0xSifu actually did anything wrong in this role.

The 0xSifu story also highlights some of the issues with the way many Ethereum “DAOs” are operating. 0xSifu was in charge of the Wonderland project’s Treasury, which exacerbated the reputational damage to the project due to his past fraudulent behaviour - a proper DAO would not have an individual or multi-sig which is in control of all the funds, this would be handled with smart contracts that gate access to the funds with for example a formal voting process.

There were a number of snapshot polls about whether to remove 0xSifu from their positions within the project - and these had conflicting outcomes. Wonderland, as with many “DAOs” now, actually has quite an informal way of making decisions, because while there may be some criteria defined for a valid vote the process around organising and holding these votes can be quite ad hoc and fast moving.

In the end Sifu maintained his innocence and it appears that they returned all funds which had been entrusted to them on Wonderland’s behalf. Sifu launched his own fund trading crypto, and Wonderland imploded like most of the Olympus forks. The Sifu situation looks to me like it was a bit of a witch hunt and the guy may have actually done nothing wrong with regard to Wonderland - this is the down side of the ad hoc investigations and relying on social media amplification to decide what the important stories are.

We have already considered (⁸ ) some analysis of NFT trading patterns which revealed the presence of a set of advanced users who were making most of the profits - going as far as identifying several traits which differentiate this group.

The public nature of the ledgers where this activity is occurring makes it easier for community driven investigations, which have no special inside access to data, to make and communicate significant discoveries, often with relatively scant resources at their disposal. Consider that NFT trading didn’t really reach significant volumes until 2021, and we already have quite deep insights into that marketplace thanks to these research reports and twitter threads - and contrast that with the traditional financial system and how long it has taken for the recent spate of leaks (Panama papers, etc.) to occur, be processed by journalists, and make it into the public domain. Within the dominant fiat financial system there is a delay of years or sometimes decades between the criminal activity being committed and identified publicly, which often makes redress impractical.

If you look at how these two systems work, who has access to information and what their incentives are, it seems obvious to me that the traditional financial system is much better suited to hiding illegal activity, and we should assume that there is much more shady stuff going on there which we have no clue about and won’t hear about for years (if ever) than is the case with assets tracked on distributed public ledgers.

Does technology have ideology?

Two sides of this argument:

1: Bitcoin and crypto are fundamentally “right wing” technology. This is the argument made by David Golumbia’s 2016 book “The Politics of Bitcoin - Software as Right-Wing Extremism”, and others since. From what I have read most or all of these arguments are based largely on the ideology of Bitcoin proponents and advocates, specifically the “libertarian” set, who have been most vocal in Bitcoin’s community thus far. People criticising Bitcoin and crypto from this angle have internalised a lot of what Bitcoiners say about the nature of the technology and what it is good for.

2: Bitcoin and the thousands of crypto blockchain type projects which have followed in its wake are early experiments with a new way of producing money. As these experiments are opt-in, volunteer and community driven and of very little practical utility at first, it is the people who see an affinity between what the technology does and what they’re interested in achieving who jump into these experiments first. The ideology of these people determines what the technology is seen to be about or for, in the early stages, because they make up the vast majority of people who know about or are interested in the technology.

I’m old enough to have seen the later stages of adoption play out with the Internet, which was once seen as a haven for intellectual debate, largely because it started and grew from a University campus setting. The mature form of the network and its social impacts look very different once it’s a technology that more or less everyone is familiar with and using in some way.

The first wave of crypto was dominated by people who had some issue with the fiat banking system, either their payments or balances being censored (or even the thought that this could happen to them), or their “stored value” being eaten by inflation over time. Subsequent waves have attracted people who see issues with other forms of interaction that require one to rely on trusted intermediaries, seeking to build a more versatile ledger capable of executing “smart contracts” of infinite variety.

Casual observation of Bitcoin and Ethereum communities, for example, suggest that the dominant ways of thinking about the world are quite different between these communities. There is a subset of the Ethereum community which is focused on public goods and funding thereof for example, whereas members of the Bitcoin community have relatively little to say on this subject, possibly because the idea that rich Bitcoin holders will fund development spontaneously on a philanthropic basis is consistent with the ideology of its supporters.

What is the dominant ideology of NFTs? That is not clear to me yet, but it doesn’t seem to be libertarianism as such - it blends the idea of hard digital bearer assets with softer notions about funding the work of creators and building community together. If I had to pin it down I’d say the NFT community is driven to allow creators to capture the value of their creations for themselves and their community of users, in a decentralized fashion.

My sense when I see a lot of uninformed crypto takes is that there is some validity to the criticism but it is coming from a biased source and the person who’s repeating it probably doesn’t understand the underlying technology or issues that well. I have been studying this stuff for a few years now and I don’t understand most of it myself, despite trying fairly hard in some cases, so I’m not aiming to be disrespectful in writing this.

The other issue is that the critiques are based on the particular manifestations of the technology which are out there in the real world - and in most cases there is a lot to criticise, plenty of projects with questionable technical or social merit have achieved substantial market valuations, often, it is suspected or in some cases proven, by using underhand tactics.

Cryptoassets with a diminishing supply issuance (like Bitcoin) use this programmed scarcity to incentivise and bootstrap their use and security. People will buy it, mine it and hold it because they think it will become more difficult to acquire in future and increase in value. This aspect has come to be seen as a defining feature by many Bitcoiners, who value the network more for the “sound money” properties of the BTC asset than its always-on uncensorable transactions.

The “asset with diminishing supply which enriches early adopters” template is not a fundamental feature of distributed ledger or even cryptocurrencies, it is rather the most popular “cryptoeconomic” method for incentivising the popularisation of a new blockchain/asset. Structure the issuance in such a way that initial buyers can be sold on the idea that they are “buying in while it’s cheap”.

The creators of cryptocurrencies make them this way because they want people to use them and for the network to survive, it’s a method which has been shown to work and it only makes the assumption that people are greedy and will act in their economic self interest.

In a technical sense it would be just as easy to make a cryptocurrency that has a flat issuance schedule, or which gives out progressively more units over time, or even which applies a decay function, like a negative interest rate, to reduce the balances of large holders. The problem for deploying such a system is not technical, it is getting people to wilfully opt in to using the system. Central Bank Digital Currencies (CBDCs) are perhaps more likely to make use of such levers, because they could call on the power of the state to mandate their use.

There are also plenty of crypto projects which are not aiming to enrich early adopters, some don’t even seem to have this as a secondary objective! You probably haven’t heard of most of these projects because they don’t have the resources to hire PRs or make teenagers millionaires, so they struggle to get themselves noticed. Sadly most of them will quietly expire for the same reason, without ever having gathered enough participants and momentum to achieve much of anything.

Maybe I tend to have quite an optimistic disposition, but I feel like there’s a lot of unexplored territory around the ways to incentivise the securing and maintenance of opt in public ledger crypto. I’ve written about that before though and I don’t want to get side-tracked with it for this piece, for which I will instead focus on some relevant factors in the here and how, and consider where the opportunities are, and for whom.

Crypto winners and losers

If crypto becomes more popular, more of the world’s economic activity will shift on to the parallel crypto rails. If the tokens needed to use these networks are of fixed issuance, more demand should mean a higher price for the tokens. This kind of exponential price rise is how people holding the tokens made money, when the network went from obscure to popular and people began to speculate that it might be the next big thing the price for the tokens went up significantly.

The idea that serious money can be made just by finding the right project before it takes off has drawn many people into crypto trading or holding. However, since the relatively early days there have been many different crypto assets for a buyer to choose between - and most of these have not achieved long term usage and price appreciation or stability, quite a few have been outright or borderline scams. There have always been many ways for people to lose money “investing” in crypto, but the people who made money (or want to present as though they made money) are usually more visible. The @coinfessions twitter account is one of the more interesting new accounts of 2022 because the anonymous confessions it collects often involve describing this kind of negative scenario - even sometimes from the perspective of a scammer who walked away with other peoples’ funds.

The opportunities and risks in crypto are not the same for everyone, because not everyone has the faculties to compare different crypto projects on their merits and invest safely, and because people are dealing with different situations and alternatives that make crypto more or less useful/necessary for them. There are a couple of factors which I think are particularly salient and I will consider here.

Firstly it is not easy to learn how to use crypto safely, and accessing cutting edge products often involves using open source software which is not polished or accessible. This gives an advantage to people with technical skills or this kind of experience tinkering with computers and software - or anyone who can easily acquire those skills. Young people can do this much more easily because they’re generally better at learning and adapting to new things.

Secondly, whether one sees the appeal of crypto as an alternative to fiat money surely depends in large part on the quality (and quantity) of the fiat money one has access to. Consider someone living in the US where dollars are the default, people have strong rights to use these freely, and there are strongly regulated financial institutions to deal with - and the very different proposition faced by someone living in Iran where rials are the default, they lose value consistently and people are restricted in doing things like sending them overseas.

There have been many corrupt states where peoples’ money could be arbitrarily seized when they are declared an enemy of the state. It’s the classic crypto use case as envisioned by the cypherpunks, but some people really do live in these situations and use it that way.

Demographic effects

Older people are generally more attached to the “legacy” fiat economy way of doing things, and it is more difficult for them to see past the perceived weaknesses of crypto which stem from its decentralized nature. In my view there are two main drivers here:

1: As we get older our brains become less adaptable, we lose “neural plasticity” and this makes it harder for us to learn new things or change our understanding of the world based on new information.

2: People who have a higher level of wealth and status in the current system are its beneficiaries, it works to their advantage and so they are less likely to see the weaknesses of the system, or the problems it causes as important. Many of the largest beneficiaries of the current system are quite old, because it takes time to accumulate wealth and power. Some young people inherit, or can expect to inherit, a nice position in the current system, either by directly receiving assets from their elders and/or through advantages like getting a better quality of education and access to social networks of higher status and influence.

If the current economy serves you well, you might consider a crypto investment as a hedge or insurance policy, against a deteriorating political environment which raises uncertainty about which assets are safe, in the sense that they will hold their value but also that they won’t be easily confiscated. I don’t see why people in this position would really embrace crypto with any enthusiasm though, unless they think it can address issues that they have with society for ideological reasons or they think they can gain some edge in the market.

Many people take issue with the idea that there is no institution or physical resource “backing” cryptocurrency, nobody to call about lost passwords or stolen funds. Banks provide useful services, for many people they are irreplaceable, but we collectively pay a high price for these services, and it is often the poorest among us who are contributing most generously to the banks’ profit margins, through fees and surcharges on people who don’t have enough money to cover their payments.

If you are not benefitting from the current fiat economy (and something like 50% of US residents have virtually zero savings, many are mired in debt), the prospect of all those assets which rich people own crashing in value as people and institutions rush to embrace crypto in a “hyperbitcoinization” event probably would not faze you too much.

People with very little skin in the game for the conventional economy may well see its collapse and the replacement of commercial bank accounts with a fresh set of decentralized ledgers as an opportunity. Should the presently available fixed supply cryptocurrencies become more popular the people who bought them would have a lot of upside, with very little downside from a relative decrease in the value of “fiat assets” (which they don’t own).

I see this sentiment a fair bit in my casual observation of the crypto-oriented parts of reddit and twitter, a lot of younger people starting out now see it as a sort of Hail Mary on ever being able to afford to own a home and things like that which seem out of reach financially without some kind of seismic event that moves the markets in their favour.

Add to this the age and tech skill effects, where a lot of people just won’t be able to move to the crypto economy safely even if they wanted to, because it requires learning fairly advanced concepts (harder if they weren’t around when you were in education) in order to use it safely.

Bitcoin was launched in the aftermath of the ²⁰⁰⁷⁄₈ financial crisis where banks were bailed out because they were “too big to fail”, and most people could appreciate the horror of bank runs that could wipe out their savings. In practice it was probably the people who had the greatest wealth tied up in this system who would have really suffered the most, but the idea that it would affect everyone helped to sell the high cost of the bailout to the public. Next time it happens, it will be interesting to see what proportion of the population feel like they are insulated enough from the damage to just let the banks fail and “build back better” from the calamity, with a system that has a much smaller role for this kind of financial institution which profits during the good times and needs bailing out when unforeseen events hit.

Geographical effects

If we talk about crypto as being censorship resistant, this is attractive to the people who fear financial censorship, but not to the people who feel like they are being protected by the financial censors.

Why anyone thinks it’s a good idea to give private banks a major role in enforcing global rules is beyond me though, they have been shown to be bad at this and too many bankers see the opportunity to profit by facilitating the kind of activity they’re supposed to be stopping.

If we talk about cryptocurrency being resistant to secret debasement, this is attractive to the people whose governments are corrupt and selling them out every day, but not to the people who feel like they can trust their central bank’s leaders.

The major benefit of cryptocurrency right now for a lot of people in the world is simply that it does not care where they are based, in fact properly decentralized systems cannot even really discriminate based on location. This means that someone in a place with very poor financial infrastructure can gain access to the same global standard crypto infrastructure as everyone else. Barriers do exist, people may be prevented from trading to/from their local currency or even lacking appropriate hardware to do so, so it is hard for crypto-native local economies to grow.

The Ethereum community made a rallying call of “bank the unbanked” at one point, and while DeFi made certain kinds of limited operation globally accessible to anyone with assets on the Ethereum network, the cost of making transactions has usually been high enough that it is not viable unless one is dealing with quite large sums of money.

Recently we are seeing some of the first systematic attempts to enforce geographical restrictions (related to sanctions) on Ethereum apps - by forcing service providers which host the front ends for these apps to block certain IP ranges. Blockchain networks where most of the participants rely on centralised service providers to access or host apps are going to encounter this kind of request and feel obligated to introduce measures in response more and more going forward.

One alternative to buying into the crypto ecosystem that some people in the “global south” are finding, is that they can work with groups based in relatively rich areas which are accustomed to paying relatively high wages by global standards. While businesses often report issues paying contractors overseas through banks and the fees can be high for cross-border payments - a cryptocurrency doesn’t know or care if a border was crossed by the payment.

Decred, the project that’s paying me to do this research, is an example of a project which pays at rates which do not reflect the location where a worker is based. Consequently, it has quite a few developers who are based in Latin America and Africa, where rates like $30-50/hr are competitive and being paid by the blockchain’s treasury directly in DCR is a way to acquire crypto without having to go through any intermediaries. Decred’s GUI wallet has a built in atomic swap DEX now so that DCR can be traded for BTC without having to rely on any intermediaries, and there are many merchants who accept BTC.

I haven’t looked into the remuneration arrangements for many other DAOs in detail but my impression is that the work is largely performed remotely and rates of pay are not usually determined by location - this wouldn’t make sense in any case for DAOs that allow pseudonymous contributors because these would be unlikely to submit evidence of where they live.

Crypto gives people who have poor prospects to earn income locally access to global opportunities, most of the lucrative opportunities require tech skills but because all the crypto software is open source there are very few barriers for people with the ability and access to the internet who are aware of these opportunities. As the success or failure of these projects depends on their adoption and they are engaged in competition for public mindshare, there are also many other types of opportunity, but these may not pay as well as roles for specialised software engineers.

For the crypto critics, something to bear in mind is whether they themselves are relatively comfortable and well served within the present economic order - because if that’s the case, maybe you won’t see it the same way as people who are desperate to escape their current situation. Maybe your criticism ends up discouraging people from things which could have made their life materially better - in which case don’t expect any thanks once they come to see it that way.

Cryptocurrency as collective action to tip the scales on a decaying financial system

As a thought experiment, suppose there was a cryptocurrency that was readily accessible to everyone, could be used on a global scale without huge transaction fees, and didn’t use an excessive amount of energy in its method of maintaining consensus.

Would this be a good or bad thing for people to access and use? Would it be good or bad for human society to switch over to this kind of asset as our main type of money?

In my view this depends on the answers to questions like how the money in each system is distributed and who has it.

The only reasonable comparison to make is between variations of the fiat money system (Dollars for the steel man, Lira for the straw man) and the public blockchain approach (examples usually being Bitcoin or Ethereum).

Fiat money is issued by banks as debt, usually in accordance with some limitations on how much they can lend (create) in proportion to the customer deposits they hold on account. Central banks dictate aspects of monetary policy like interest rates payable on loans, and can create new money for specific purposes with the consent of government.

The fiat financial system is in theory subordinate to the state - banks will freeze and confiscate the assets of their customers when government agents present them with the appropriate legal documents. However, there are many jurisdictions (like tax havens) where the rules say they don’t even need to disclose who owns which companies/assets.

This increasingly to me looks like the worst of both worlds, where ordinary citizens are inconvenienced by excessive paperwork and higher costs to comply with regulation - while the really big criminals seem to be regularly making secret arrangements with the banks who are supposed to be watching them, so that they are able to launder vast quantities of dirty money. The scale of “illicit” funds flowing into some markets is such that they are having a material impact on prices and what people who aren’t part of the criminal/laundering class can afford.

Crypto money is issued on a public blockchain, usually to Proof of Work miners (as in Bitcoin) who are deploying specialized hardware to perform a lot of computations which serve no purpose other than proving that “work” is being done by the miner.

If you care about the environmental issues (covered above) then a cryptocurrency that uses a lot of energy in Proof of Work is at a serious disadvantage on this metric.

Cryptocurrencies with Proof of Stake consensus commonly issue some or all of the new units of their currency to validators, who perform a role analogous to miners. This is a more novel method of maintaining consensus than PoW, so its security properties in the wild are not as well understood, but it offers a much less energy intensive way to perform the same function.

Pure Proof of Stake consensus has a rich get richer, feudalistic, or rent-seeking aspect where all the new money flows to the people who already had money within the system. This is, in my view, not a great way to issue new cryptocurrency. The problem is it works, has been shown to be an effective way of bootstrapping the launch of tokens by allowing them to establish some perceived value - people want to collect the rent, and will buy tokens which allow them to do so.

Something in particular to look out for with pure Proof of Stake networks, or PoS dominant networks, is the initial distribution of tokens or the distribution at the point where PoS takes over in cases of a network that transitions in this direction. If, for example, you conduct an ICO where major stakes in the network go to the founders and some early backers, and then the network starts up with all or most of the new tokens going to the people who stake their tokens to validate - this creates a scenario where the early whales can easily maintain their degree of ownership of the network and will have significant influence in markets for the token.

Joining or founding a crypto network

Suppose there is a large group of people who are interested in getting away from the “legacy fiat economy” and embracing crypto, there are a lot of networks which would love to see them join, and there are many marketers trying to bring this kind of outcome about. Adding members to a network typically increases its value to all (Metcalfe’s law), and all things being equal one would prefer to join/use the cryptocurrency with the best network as that would tend to offer the most utility.

A well established crypto like Bitcoin has probably the strongest network. The most users with the most economic heft means it’s widely accepted and relatively liquid (this matters more to people who are in charge of larger sums). To use the Bitcoin network people need BTC, and for people who want to store their wealth in crypto and use the network that way, it means buying a lot of BTC - so the asset is arguably as or more important than the network. You can see this in Bitcoin’s historical forks, where the side of the network that loses the hashrate and market battles usually remains quite serviceable even as its token price declines against BTC.

One has to buy BTC from the people who already hold it, the people who started using the network already - or mining it. The declining issuance schedule of Bitcoin means it is deliberately stacked in favour of people who get in early, they typically “got a better deal” if they mined in the past, and usually if they bought in the market too provided it was long enough ago or they timed it well.

When I first encountered Bitcoin I thought the easy forkability of its open source code would prevent the value of BTC from rising too high - at some point people would spin up their own chains rather than pay excessively high prices for BTC. In hindsight, this didn’t really become a serious phenomenon until Bitcoin chain congestion and transaction fees started to kick in - and by then Bitcoin had already established quite a high valuation in the markets. While there have been alternative blockchains that relied heavily on Bitcoin’s open source code since the early days, these didn’t gain sustained traction until they found alternative purposes that communities could rally behind.

I would divide these “alt coins” broadly into two sets, cryptocurrencies with some alternative spin on money (like better privacy), and blockchains which aim to facilitate more varied types of activity, along the lines of Ethereum. Scaling has become a particular issue for the “world computer” type blockchains because by handling a lot more complex information and interactions each user generates more overhead that server operators have to deal with. As with cryptocurrency use cases, a major divide is around whether the scaling happens mostly on chain, or via some second layer solutions which handle most of the activity on another blockchain or network, with the option to migrate assets between layers.

An individual who wants to start using crypto has a lot of choices about what they use it for and which chain to use - in my view a group or established community has even more choices, and could in principle negotiate a better entry point because they will add value by adding their numbers and support to the venture. At the moment it seems to be mostly Venture Capitalists who get this kind of preferential access, because they can add value with their contacts and support and they’re easier to raise money from in a regulatory sense.

A strong indicator of the value in recruiting network participants is the popularity of airdrops in the crypto space - giving the asset away freely to some set of potential users because the value of converting some of them to users outweighs the cost of all the tokens which are dumped in the market. This kind of airdrop is being used with some success to launch new Ethereum tokens in particular when it targets the group of potential users very well (often because they are the people who already use the associated product).

However, the fit between airdrop recipients and potential users needs to be quite good, or the method can backfire. Stellar (XLM) conducted one such airdrop in collaboration with Keybase, targeting the Keybase community with an airdrop of free tokens that was originally planned to give away $120M in value. However, that plan was abandoned⁴⁶ after spammers showed up in numbers to game the token allocation mechanism and dump their free tokens - causing damage to both XLM and Keybase in the process. This is interesting as an example where an existing “centralised” community platform negotiated access to its users so that these users could get preferential access to a specific crypto - and presumably there was something in it for Keybase the organisation too.

Ultimately, if you have a large enough group and it encompasses people with the required skills, you can freely create a new chain for your group to start building up - using all the open source software of your favourite crypto project(s). This should establish a baseline for the level of advantage to early users that will be tolerated before new users stop buying in and instead start moving on to fresher chains with lower fees.

In practice though I’m not aware of any established communities (of a certain scale) that are planning to spin up their own blockchain using available open source software. To my knowledge most of the new crypto launches fall into one of two types: 1) a group of developers seeking to build a new community, possibly using forked code and possibly targeting users of an existing chain with an airdrop or chain split event, or 2) an established community platform operator seeking to build and launch its own token and crypto network. Of the second type I can think of Facebook (Libra, now Diem⁴⁷), Signal (Mobilecoin⁴⁸) and Telegram (TON⁴⁹). Both Facebook and Telegram have abandoned their projects before launch due to regulatory issues (although TON inspired spin-offs which are still going). The TON case is interesting because it demonstrates a case where the established organisation is not able to do something but the smaller community groups can use their open source assets to do that same thing. Facebook’s Libra/Diem is also still kicking and receiving significant investment in the form of Aptos in July 2022, but also after having broken all ties to Facebook/Meta.

In my view this is such a fundamental shift that I can’t take any critiques of blockchain/crypto seriously unless they speak to this question of open source code and open data directly - this is the thing which could make problems with a “crypto economy” more tractable and fixable. Any critique about how a blockchain’s oligarchs are going to use it as tool of domination must explain why the users aren’t going to fork the code/chain and go a different way. In my view most of the army of crypto critics are simply not aware that this is a possibility or what it means in practice - for as long as people have freedom to choose between and fork crypto chains this should act as a safeguard of sorts.

In my view the phenomenon of Bitcoin Maximalism is largely a way to address this perceived “weakness” of Bitcoin (or whichever chain the maximalist favours). The artificial scarcity induced by Bitcoin’s fixed supply will only drive the BTC price up if there is sufficient demand, and if the demand for crypto products is fragmented across thousands of different coins/tokens there won’t be the same level of demand for Bitcoin and it won’t trade for as high a price. Maximalism is making the case that something will happen or must happen, in order to influence the behaviour of people who could easily choose to go a different way in the right (or wrong) circumstances.

Aside: I’m not using “maximalist” in a derogatory way here, I’m just using it as a neutral way to denote someone who believes (their preferred) one blockchain is going to dominate the market and make all the others irrelevant in future. Apparently the term originated as an insult which was adopted by the “maximalsists”, but this was before my time.

Another side to Maximalism is as a defence mechanism against the number of scam projects which sell far-fetched ideas that the team cannot deliver - these are hard to spot for all but the more technical people or those who have learned from experience, so dismissing anything that’s not Bitcoin or Ethereum is a relatively safe option for many.

Bitcoin’s issuance schedule was calibrated to draw people in early with huge rewards, but it tapers down relatively quickly and after a few “halvenings” the level of rewards available to miners will be relatively low as a percentage of circulating supply. Bitcoin was once promoted as being the “most secure” blockchain, but that claim will be challenged in the future if other networks continue to command much higher transaction fee revenues - the greater variety of consensus mechanisms in use will also make determination of what the “most secure” chain is more difficult and contestable.

The ultimate danger for Bitcoin is not that it gets banned, but that most people use other blockchains for the things that maximalists thought Bitcoin would be best at.

If Bitcoin remains entirely PoW-based I think it will come under greater pressure from chains that can deliver comparable security at a fraction of the cost.

The Bitcoin brand is also apparently toxic to some segment of the “no coiner” population - if and when they do decide to use some type of cryptocurrency my guess is they’ll choose from one of the many alternatives, probably one that doesn’t have the issues that bothered them about crypto in the first place. For many people, and I include myself in this, the most off-putting thing about Bitcoin is social - the laser-eyed maximalists who tell people to “have fun staying poor” while excommunicating anyone who dares to publicly criticise Bitcoin or see value in its competitors.

In Favor of Fresh Starts for Fleet Footed Collectives

In December 2021 Jack Dorsey tweeted about VC ownership of “web3” being an issue, in the process drawing some attention⁵⁰ to it and triggering responses from some VCs. There’s a Messari pie chart in the linked article showing token allocation shares for insiders, foundations, community and public sales - this is vital information and one of the key criteria for evaluating a project’s intentions with regard to extracting money from their users (or often the people speculating on token prices before there’s anything to use). There’s a lot of variability in how crypto projects distribute their tokens, and some distribution schemes are much more likely to result in power and money flowing to the project’s founders, or to early investors in private seed rounds - and from the “retail investors” who buy smaller amounts when it’s offered for trade on major exchanges.

This has become quite a pattern now with many examples of projects that have taken on huge amounts of funding and whose original members still retain control of significant share of the tokens for their network. Coinbase has been criticised for listing this kind of asset which is primed for dumping on retail investors - and ex-employees are being prosecuted for insider trading around the listing announcements.

What we haven’t seen so much of yet are established communities launching their own community-driven cryptocurrencies - usually the community forms around the cryptocurrency in the speculative manner described above.

I have a somewhat controversial view of Sam Altman’s Worldcoin⁵¹, which would use dystopian looking retinal scanning orbs that issue new currency in exchange for eyeball scans. I don’t hate the idea as much as most people, because I can see the appeal of being able to issue units of a new currency to people based on their being an individual human.

The points I would critique Worldcoin on are as follows:

• 20% VC pre-mine
• Those orbs
• Storing hashes of everyone’s retina scans - seems risky from a data loss or exploitation perspective but I’m not an expert here
• Would be more promising if participants shared a common objective beyond exchanging retina data for a small crypto handout

I think, or hope, that we will start to see more communities realising they can bypass the operators of the platforms they use to form their own cryptocurrencies, instead of just using whatever they’re given or can find in the open market. Joining a crypto network as a user adds value to that network, the value is either shared among the established participants or some share of it accrues to the user (e.g. via airdrop).

It’s a sort of consumer power issue, where the consumers should realise they have more options at their disposal than usual, and figure out how to leverage this aspect of the situation to get a better deal.

CBDCs - blockchains with admin access

Central Bank Digital Currencies have been in the pipeline for a few years now, and some have already launched - but most major jurisdictions are currently evaluating whether a CBDC could work for them and what form it should take. As most of these are still in the design phase it’s hard to give a detailed critique, but one can guess about which aspects of crypto networks are going to be retained or expunged. I think it is likely that the institution (Central Bank) will retain “admin access” to the network so that they can 1) change how it works in future in a general sense, by updating the consensus rules, and 2) perform operations like confiscating funds from people who are deemed to have obtained them illegitimately. CBDCs are unlikely to embrace decentralization as crypto projects have because they will be created by central banks.

How would a CBDC be different to a conventional fiat currency? It must incorporate a way for members of the public to download and parse the chain data at minimum, in my view, to be worthy of the label CBDC. A CBDC can dramatically increase the transparency of the economy, making it easier for analysts to understand what is happening on the network, and confirm that everyone is playing by the rules.

Another way in which CBDCs may be beneficial to citizens is if they allow for bypassing commercial banks and accessing one’s accounts and the network directly. We presently rely on networks of private institutions to facilitate digital financial transactions, they take a cut on many transactions and have devised other ways to profit from their positions in the system. The size and profitability of the banking sector is an indicator of the price we are all paying for conducting our business this way.

If CBDCs allow for opening up more aspects of money use to competition and DIY solutions they could have positive effects - if the aim is to force people to stop using cash and use CBDC instead that would be a very different situation and much more likely to have negative consequences as it amounts to pushing people into a system which has much stronger centralized control and easier to monitor.

Privacy for People, not Institutions

I’m a firm believer that you need a degree of privacy to safely use cryptocurrency, beyond that which a basic public ledger offers. Unfortunately the use of mixing services on Bitcoin and Ethereum has come to be seen as a mark of criminality or tainted funds. Practices which weaken the privacy of individual cryptocurrency holders have the potential to cause a lot of blowback for those users in the future. This is something I have written about elsewhere.

This year I’ve been thinking more about the other side of the argument - where is the privacy of transactions causing issues that could be addressed by using a public distributed ledger?

I think there is huge potential in a shift which pushes public institutions to transact on public ledgers. Government bodies, corporations and non-profits play significant roles in our world and they do so largely behind opaque fronts. The brands you know and love are usually owned and operated by companies you don’t know, and the profits could go just about anywhere before they’re accounted for to tax authorities and shareholders.

These are the entities whose transactions and interactions we should be disclosing and exposing on public blockchains. We need rules that constrain the behaviour of corporations, but equally we need a means of reliably enforcing these rules.

Looking ahead to a future where the will to address environmental destruction seems to be growing, transparency technology is going to become even more useful. It’s one thing to create regulations that mandate better practices, but it’s another to see them enforced successfully and without imposing additional burdens in terms of audits and fines.

In my view the crux of the issue is too much opacity in the industries doing the most damage. Limited companies in company-friendly jurisdictions are a convenient way to distance oneself from responsibility for any damage they do, and it’s also very hard to find out anything about what’s going on inside those companies without their active cooperation. Almost everything we know about companies’ ESG (Environmental, Social, Governance) performance comes from voluntary self-disclosures and the relatively small number of infractions that result in litigation. Considering the apparent difficulty of identifying and prosecuting criminal behaviour by corporations I think it’s safe to assume there is and has been a lot of bad stuff going on that the public is not aware of.

For me one reason DAOs are interesting is because they are (or should be) more transparent because all their “internal” workings are on chain. In some contexts (like ConstitutionDAO bidding in a public auction) this is a problem for the DAO to try and mitigate - but in contexts where strong public oversight is beneficial this is an advantage. A blockchain-native organisational form like a DAO could reach levels of robust and assured transparency in its records which are not achievable for organisations that operate from private bank accounts and buildings. This is in my view one of the aspects of blockchain technology which has been least well explored thus far.

Corporate Cryptonite?

One notion I have been entertaining about crypto for a while is that it will come to be seen as a territory which is dangerous for “legacy” operators to engage with if they don’t really get it, or to go in to with the wrong objectives. Optimistically, I suspect that some well known companies are going to pour resources into acquiring or developing Web3 assets, then stumble in how they deploy those assets, and they’ll be picked off by some crypto native upstarts that fork out the objectionable parts, or the company’s stake, and re-deploy with a different name, maybe forcing the company to compete with its own disenfranchised users operating a rival platform.

Facebook is blazing the trail here, sinking large sums of money into Diem and now a Metaverse play that looks equally disastrous.

We’re getting into the realms of futurism speculation here but I have a feeling the organisations that come to be seen as having succeeded in their forays into “Web3” will do so by shrinking their organisation and restructuring so that more aspects can be reliably and transparently automated.

For many people who have worked inside a large organisation, it is easy to find faults with how it operates, and many workers don’t feel much affinity with their employer. Unless the worker received stock options or some other form of performance related pay, they have little reason to care about the success of the company.

These are some of the conditions that lead to what Karl Marx described as alienation, and considering that he was writing 150 years ago about something that would develop within capitalist societies, I think the way he describes this concept is a good description of how many people feel about their place in the economy now. There are a lot of people who are deeply dissatisfied with the type of employment opportunities available to them.

I feel that the corporation has passed its peak as an organisational form. It’s too early to say if “DAOs” will displace corporations for some use cases, the flexibility with which the term is used covers a lot of groups and many of these look like they are set to fail. However, another perspective is that people have just started to experiment with creating and maintaining organisational structures through smart contracts and software. I feel there is considerable scope to improve on corporations for many use cases, and some of the many DAO-based projects will probably hit upon some useful forms or templates.

The politics of crypto

While cryptocurrency may seem to some incompatible with Marxist and other left-leaning ideologies, I think this is an impression created by the first few thousand people to experiment with this new way of doing things. The resistance to external control and aim of decentralizing power appealed to cypherpunks and projects like Bitcoin and Ethereum have grown in popularity within certain circles thanks to the people who are enthusiastic enough about them to evangelise. This has shaped the evolution of the technology to a large degree so far.

As knowledge of blockchains and cryptocurrency has expanded in recent years to penetrate the mainstream there has been a backlash against it, as I have been discussing above. There are also more people “falling down the rabbithole” and exploring what a blockchain-adopting future might have in store, resulting in a much broader variety of people coming up with their own project ideas - but this takes time, and the people who quickly dismiss the technology are louder and more visible, at least initially.

There is now a distinct sub-community of people with left-leaning views who are into crypto, it has its own active subreddit and there are people who construct their crypto identity around this kind of perspective (like @TBSocialist) who are amassing a decent following. This goes against the dominant theme of people who are pro-crypto being pro-Capitalism with libertarian tendencies, and while that probably still describes the majority of crypto enthusiasts, the rest of this section will consider whether that’s likely to change in future and what it implies for the future of crypto adoption.

Solarpunk Hyper-Regen Culture

I have noticed more and more crypto projects driven by explicitly pro-social aims over the last few years, projects that don’t promise something that will benefit the individuals who invest in it (or token holders) but instead take on sometimes grand aims of solving society’s ills or providing useful new public goods. Unfortunately the “non-profit” world has the same kind of grifters as for-profit enterprise, crypto is surely no different and it can be hard to distinguish well-meaning moonshots that have limited chance of success from the grifters who care more about generating revenue than fulfilling the pro-social objectives of their organisation.

I have noted Gitcoin before as an interesting endeavour to watch, and its success has seemingly encouraged the development of many other public goods funding or public goods spirited projects in the Ethereum ecosystem - to the point where this is being labelled as a distinct “hyperregen” subculture⁵².

Within the Ethereum community Paul Dylan-Ennis describes two newly forming sub-groups which are distinct from the “DeFi degens” in that they identify with certain political perspectives on the future which have become comingled with “solarpunk” and “lunarpunk” aesthetics. Solarpunk seems to have originated in Brazilian science fiction of the 2000s/2010s about an optimistic future of solar power and people living in environments with more plants. It has become popular for people who talk about using crypto and other tech for planetary biological regeneration to incorporate the Solarpunk aesthetic. “Lunarpunks” reject the naïve optimism of the Solarpunks, being more wary of how the state will react to the rise of crypto protocols and having a much greater concern for privacy, something which is not well provided for by Ethereum.

More interesting than the definitions of these different “punk” flavours is the fact that this kind of differentiation is emerging in the Ethereum community. Bitcoin’s community has long celebrated its “cypherpunk” roots and ethos but this is treated more like a historical artefact, harking back to the “good old days” of the Bitcointalk forum. I get the impression that the Ethereum community is much more actively engaged in thinking about its place in the world in the light of a changing regulatory environment and lessons from waves of adoption, whereas many Bitcoiners think that’s already been figured out and ossifying the codebase is all that’s needed to keep Bitcoin strong, or they don’t want to openly discuss their ideas for adaptation because they’re worried they’ll end up on the wrong side of the maximalist mob.

Since witnessing the BTC/BCH split, and in the first things I have written about crypto, I have seen Bitcoin’s approach to governance as deeply problematic for its broader adoption. I think there are a lot of issues with Ethereum’s governance too, but simply by acknowledging that governance does happen and allowing issues to be discussed openly without trying to brow beat people into submission it has been causing less of a problem in comparison to Bitcoin’s approach. I’m not speaking to the technical merit of the decisions being made by the governance of either project, just observing that when people look into these projects deeply enough to understand how the decisions are being made and witness the processes in action they’re more likely to be turned off by what they see in the Bitcoin community.

For people with a video meeting aversion like myself, watching an Ethereum Core devs call where some controversial governance subject is up for discussion is not a good time, I wouldn’t want to be in a situation where I had a stake in the outcome of that process and therefore had to pay attention to it or participate. These calls are good for transparency compared with other projects that have private meetings of influential developers where decisions are made, but in my view it is not itself a good primary venue for making these decisions because it is quite inefficient and privileges the perspectives of people who enjoy the method and are willing to spend more time on video calls to the detriment of people who don’t want to spend a long time on video calls.

I have noted plenty of interesting crypto projects which have some pro-social aim over the years, but often had misgivings about whether they were genuinely helping in some novel way, or a kind of philanthropist’s plaything where people are in a generous mood and throwing some money around but it wouldn’t work outside their very specific context and probably won’t have longevity there either.

The production and maintenance of public goods is a core concern of any crypto project, all the software and documentation is open source and mission critical. Projects will not last for the long term if they cannot meet this need in an adequate way, and it is important that the funding of development work does not undermine decentralization of decision-making power.

As a not particularly technical person who is more interested in the social dimensions of the technology, I’m interested in these new crypto native ways to solve public goods problems - but a big part of that interest for me is in what comes next, how can this kind of “decentralized with transparent assurance” approach be used to tackle problems outside the crypto domain.

For the people who are critical of or indifferent towards crypto, the only way I see them changing their minds is if some of these projects start to produce some practical benefits that people who are not into finance or hard money recognise as being of positive social utility. More positive than negative things which one can point to and say “crypto made it this way”.

As I am wrapping this article up I noticed an article about crypto philanthropy on cnet and it’s all about DAOs, mostly Gitcoin. I think this kind of coverage does a lot to introduce cryptocurrency to a broader audience in a positive way. There is a lot of interesting stuff going on which the harshest crypto critics don’t want to acknowledge or talk about, maybe they’re not aware of it. Maybe the Solarpunks can engineer a scenario where all of this interesting stuff is illuminated for a broader audience, and earn their place in the crypto Pantheon alongside the Cypherpunks.

Dynamic Inequality - Chaotic Social Mobility

There are a few ways to look at the relationship between crypto and inequality of wealth. The most obvious thing to do is to look at the distribution of each asset between the addresses which hold it - it’s trivially easy to do this for something like Bitcoin, whereas it’s practically impossible to do it accurately for a currency like the Dollar or Monero. Unfortunately interpreting the meaning of the distribution of crypto amounts between addresses is not as straightforward as some people who interpret these Gini coefficients or equivalents make out - because depending on the ledger model a single wallet could have hundreds or thousands of associated addresses. Gini coefficients on clusters of addresses linked by heuristics that suggest the same wallet is an improvement, but there is always a degree of error in the associations and it is difficult to quantify this accurately.

One relatively recent (2021) and thorough analysis of wealth inequality in cryptocurrencies⁵³ compares a range of crypto ledgers in terms of their Gini and Nakamoto coefficients, and notes that Bitcoin’s indices of inequality are declining over time, whereas the other smaller Bitcoin-like cryptocurrencies considered did not show the same effect, likely because they did not have the same influx of new users. Ethereum also showed a declining Gini coefficient and wealth inequality, but a selection of top ERC20 tokens had Gini coefficients approaching 1 or total inequality. Three cryptocurrencies were identified (Dogecoin, ZCash, Ethereum Classic) which had high wealth concentration that violated the honest majority assumption with less than 100 participants. In this analysis clustering addresses for Bitcoin did not significantly change the results, although it did increase the Gini coefficient measured in 2021 by 0.08 to be 0.73, which is at a similar level to many advanced economies (they give the example of Ireland at a Gini of 0.67 in the paper).

The balances held by people on these distributed ledgers are very unequally distributed in any case, but probably only to a similar degree as other assets. This being the case it seems counterintuitive to suggest that a switch to a cryptocurrency based economy could diminish the level of global inequality or the negative effects of inequality.

Consider however that it is really the total of an individual’s assets across all domains which determine their relative degree of wealth in society - so to assess whether growing adoption of crypto is making resources more unequally distributed in a society, we would have to consider whether the holders of crypto are the same set of people who are holding a lot of other types of wealth (e.g. property, stocks, gold).

I would guess that, at least for crypto assets which are relatively early in their life, most of their holders are not particularly wealthy in conventional terms - and there are plenty of stories about people who made significant money from crypto without having much going for them economically in other walks of life. There are obviously strong filters operating here, such that only people who were doing relatively well economically and had access to the required computing resources were able to participate in this kind of highly speculative venture, but these are common to the more general “digital divide” in beneficiaries of new technology. That inequality of access is however dissipating, particularly with the opportunities to earn crypto that have come to the forefront in recent years.

The sense I’m getting is that crypto will end up being seen as a positive thing from a social mobility perspective. It’s one thing to have a society where resources are very unequally distributed, and another (even worse thing) to have the pattern of inequality be passed down from parent to child for generations with very little movement possible between the classes of leisure and the have-nots.

One of the most significant negative effects of high wealth concentration is that when returns to capital outpace income from labour to a significant degree, then the ownership class can become effectively locked in, and very difficult to depose even when they lose their edge or a psychopath inherits the family firm.

Everyone alive today has lived in a time of relative dynamism in the economy, after WW2 many of the severely damaged countries saw large one-off taxes imposed on people who still retained significant assets, and this was coupled with inflation and a shortage of labour which drove relatively high wages. These factors combined to make it more difficult for people who had a lot of wealth to retain their relative purchasing power just by sitting on low risk investments as they had been doing before - while high growth in the recovering and catching up economies created many new millionaires and billionaires who did not necessarily come from wealthy backgrounds.

Although there are probably still plenty of families inheriting fortunes from the 19th century, the hyperfinancialization of the economy in these last few decades has seen new fortunes of greater and greater scale created, on more compressed timelines. The result is that dynastic families who have been living off their ancestors’ wealth don’t dominate the economy of today - but if the “rich get richer” dynamics of the last few decades continue then we’re looking at a future where the families and foundations of today’s billionaires are likely to maintain a strong influence.

If some crisis befalls the financial system and crypto comes to be seen as the solution, there would likely be significant migration of wealth from classes of assets that are losing value to the new crypto-equivalents. If this were to happen on a short time frame it would be extremely chaotic, and would likely shake up the distribution in terms of who is wealthy, with people who are late to switch losing out. This is a version of the “hyperbitcoinization” hypothesis which is part of the lore of the Bitcoin community and espoused by “The Bitcoin Standard” by Saifedean Ammous - a classic Maximalist text which describes a hypothetical chain of events where everyone switches to using Bitcoin and presents this eventuality as being almost inevitable, with only positive outcomes for society. I didn’t find The Bitcoin Standard to be very compelling, I think it overstates the degree of friction trading between currencies causes and the whole thing reads like someone working backwards from what they think would be a utopian outcome.

Blockchain Anchors in an Sea of Disinformation

Crypto advocates laud the robustness of the distributed ledger to manipulation, it is a remarkable public resource that is accessible to all and cannot be corrupted by attackers, who have great incentives to try and do things like adjust balances or double-spend money. This feature has been mobilised to address the unfettered money printing of central banks, but it can also contribute to addressing the proliferation of misinformation and disinformation.

When public institutions or organisations that aspire to provide public services publish information, they could do so in a way which leverages blockchain-like technology to provide a guarantee that the information is not being manipulated post-publication. A system could be created today which provides an effective guarantee that the timestamp or edit history you see on an article accurately reflects the state of the article through time. There are already two publicly accessible “blockchain timestamping” services I know of which will do the job of inserting the hashes in a blockchain for their users for free, opentimestanps (using Bitcoin) and dcrtime (using Decred), and because they’re open source they could presumably be cloned by a group that wanted to do its own blockchain timestamping directly.

What would the point of this be? It would contribute to diminishing the power of the webmaster, administrator or archivist in determining what the “historical record” shows for a particular piece of internet-hosted content. If we consider a web resource with a very high level of transparency like Wikipedia with its historical record of edits for every page, whoever has admin access to its servers still has the power to adjust its database records to make it look like some edits happened earlier or never happened at all. The only checks on this power to ensure it is not abused (to my knowledge) are social - there are a lot of editors so if anything significant was changed some of them might notice and raise alarm that something was going on.

Most websites that host news or information have no equivalent of the public edit history of a Wikipedia page, and even reputable news outlets have been known to edit stories or titles after publication in a way which changes the nature of the story significantly without stating this change clearly on the page. Where a single entity controls production of a resource like a news site usually this means some individuals or a group have power and access to quickly change it without warning or notice, which can leave people who read (and cited) the original version floundering. People take image captures of things as evidence that they were published but these can be faked, which opens up the whole domain of this kind of fakery to people who want to spread disinformation.

Social sites are also vulnerable to admin abuses because there is no mechanism for automatically detecting when the admins took some action which was not within the (socially defined) rules, whoever controls the server has absolute authority. This feature of “web2.0” has been implicated in the story of the QAnon conspiracy, and the site admin is suspected of taking over the account of the original Q poster and using it for their own purposes.

I think we can aspire to being able to reference items of content online at a particular point in time, and to have our reference encapsulate some evidence of what that item of content looked like at the time of reference. This would be useful for things like news stories, but even more so for primary data sources where a consistent stream of live data and statistics is being published on some subject (e.g. COVID-19 fatalities, toxic air emissions), and the publishers want to instil confidence that people can rely on the robustness and availability of the published information.

Estonia is still to my knowledge leading in the beneficial use of this kind of technology with its own blockchain-like system for managing public and citizens’ information. These systems have been developed to serve the particular needs of the state in different contexts, so for example in the domain of health patients’ records benefit from access restrictions and logs that allow inappropriate uses of private data to be prosecuted, making it much easier to enforce rules which protect patient privacy.

What does it mean to be “conservative”?

I have been surprised to see some people refer to crypto as a “conservative” movement, which doesn’t fit with my understanding of what it means to be “conservative” at all.

When I look this word up on dictionary.com the main points of the definition are:

• disposed to preserve existing conditions, institutions, etc., or to restore traditional ones, and to limit change.
• cautiously moderate or purposefully low: a conservative estimate.
• traditional in style or manner; avoiding novelty or showiness: conservative suit.
• (often initial capital letter) of or relating to the Conservative party.

Preserving existing conditions, institutions etc. is what I understand the term’s primary meaning to be, and this is totally at odds with promoting the adoption of cryptocurrency - which has the aim of making some of the world’s more important institutions irrelevant or obsolete. There would also be nothing “conservative” about the process of switching from established national currencies to hundreds/thousands of fresh community-run open source cryptocurrencies whose valuations fluctuate wildly.

If “conservative” is taken to mean “people who favour Conservative political parties” and the affinity with crypto is because it allows rich people to preserve their wealth, that makes more sense to me, but only to people who have bought in to the idea that fixed supply cryptocurrencies with a diminishing issuance must necessarily maintain or increase their value over time. This will end up not being true for the vast majority of crypto assets, which may have one or more speculative booms but end up fizzling out with negligible value retained. Assuming one’s chosen cryptocurrency or NFT falls into the small percentage of assets that are “going to make it” might feel like a sure thing to the people who believe it - but from an external statistical perspective they appear to be engaged in a high risk play.

This was one of the aspects which was shocking about the collapse of the Terra/Luna ecosystem - many users had totally fallen for the idea that Terra USD was a “stablecoin”, so they felt safe using it to store their savings. The risk that something goes catastrophically wrong is always present with crypto projects because the way they work and what they’re trying to do is so novel. More technically adept people are better able to evaluate the level of this kind of risk associated with different projects, but even they can get swept up in overconfidence in things like “stock to flow models” which assure them price rises are imminent.

I think the way this confidence in one’s chosen asset is projected by many people in the crypto social sphere is inherited from the people who “made it” with Bitcoin, Ethereum and the other major cryptocurrencies. People who bought into major crypto projects early have had their confidence rewarded and reinforced and lots of them still have “life-changing profits” - and there are also LARPers who represent this kind of lifestyle to enhance their brand/persona. Worst of all are the people who present this kind of lifestyle as the assured outcome of investing in whatever token they are pitching on their crypto-noob-oriented video channel.

One of the main lessons I took from 2021 was not to expect the market’s treatment of these assets to make a lot of sense to me. In particular I did not see the meme token or “dog money” craze coming, where projects with little technical merit would have their token prices pump enormously because TikTok users thought it had a cute mascot and started making videos about it - and I suspect some organised group(s) manipulated the price on exchanges to help the memes spread. I have seen stories on reddit from people who thought they were knowledgeable confidently telling their friends to avoid dog money projects but then seeing them have huge price increases and this causing ill feeling in the friendship.

That is why I don’t give financial advice about any of this stuff to anyone, and why I continuously remind myself to be sceptical about anyone who professes to know what will happen to the prices of specific assets in the future.

If you’re feeling conservative about money though, it’s hard to recommend putting much of it into crypto tokens where the speculators backing it think there’s going to be a societal calamity or crypto revolution that prompts people to start using it in large numbers.

Warped Judgment

When the first motorway was opened in Britain in 1959 the transport minister of the day warned in his speech that “the speed is so great the senses may be numbed and judgment warped”, and upon seeing the speed of the traffic (a 70 mph speed limit would not be imposed until 1967) was heard to mutter “My God, what have I started?”. It didn’t take long before people became habituated to the novel high speeds, and the aspects of motorway driving and car use which concern people today are quite different.

Within the crypto “asset class” the valuations of assets move up and down more quickly and violently than most other markets that contemporary “retail investors” have access to. Some people have put a little bit of money into crypto and seen it grow in value to dramatically increase their net worth and make their crypto holdings a major component of it. Some people have put all their money into crypto or even taken out loans to buy it, and seen the value of their holdings shrink by 90%+, in some cases dwindling to effectively zero.

This is a phenomenon which warrants a proper study of its own, but based on my casual observations of the kind of anonymous “confession” one sees on twitter/reddit/forums people do seem to be numbed by the experience. Seeing one’s net worth dramatically increase or decrease in a short space of time must have the effect of warping one’s sense of value, and my conjecture is that many people find this to be quite disagreeable. Obviously the people who invested a lot of their wealth and saw it decrease in value are not going to be happy about that - but the people who experienced the converse and became wealthy very quickly are also complaining about depression and discontentment, not knowing what to do next.

I am coming to suspect that this kind of discomfort is what lies unacknowledged behind the vocal criticisms of some “no coiners”. Max Weber published “The Protestant Ethic and the Spirit of Capitalism” in 1905, and it popularised the notion that wealth in a Capitalist society should be associated with righteousness by citizens in that society. Under Calvinism’s doctrine of predetermination, the accumulation of wealth was seen as a sign of God’s favour towards the wealthy, which they must have done something to deserve. Most people who are in favour of Capitalism as a way of organising production have internalised some version of this, and believe (or in any case would like the system to be set up so that) people who work hard and honestly will do better than those who are lazy or antisocial.

While we may still see a relationship between success and hard work in some sectors of the economy, we should expect that it only applies to income which one earns from labour. For people who own the means of production, their income will be determined mostly by what they own rather than what they do personally, and so there is no reason to believe that a strong work ethic will be preserved in this group, particularly through successive generations who inherit control of assets from their parents.

It seems to me that there has been a shift in thinking which has accelerated in the last decade, whereby many young people are no longer convinced by the proposition that people who work hard will be rewarded, or that having wealth is an indicator of one’s having made positive contributions to society. Add to this environmental concerns which cast the whole system as hopelessly unsustainable and diminishing the habitability of the planet we all live on, and the age differential in how people see these subjects - it’s hard for me to see a trend reversal coming in attitudes towards Capitalism as it is currently practiced any time soon.

From this alienated perspective, adding crypto into the mix has the effect of rubbing the brokenness of the underlying system in one’s face. People are becoming millionaires in a month because they bought some monkey pictures at the right time, while others work long hours performing vital functions and still struggle to afford essentials. Unlike the people who got rich by inheriting their money or climbing the corporate ladder, people getting rich from crypto are not necessarily upper class people who move in elite circles. The seemingly more varied economic backgrounds of crypto enthusiasts means that it’s more likely someone you know or can relate to has been involved, which makes it seem more real.

If you had been implicitly holding on to an idea that wealth reflects something virtuous, the rise of the Bored Ape Yacht Club and its members’ net worth must have come as a shock. For people selling ICO tokens or NFTs, convincing the crowd that their project is likely to be successful in future, even if it’s just for a short while to fuel token price speculation, could be enough to allow founders to exit with significant profits. Value is being created out of nothing but hype and contrived scarcity, it is bouncing around in a volatile way and flowing from the unlucky and impatient to those whose feel for the market or inside information gives them an edge.

That seems like a good note to finish on: the root of some peoples’ distaste for NFTs and crypto is that it challenges their world view in ways that make them uncomfortable. People have a sense of what it means for crypto to become more of a force in society and for many it is a source of apprehension, or for people who recognise they understand very little about crypto that itself is a source of unease. There are many examples of negative things happening which are associated with crypto, so it’s easy to convince people who are just learning about it and already negatively disposed towards it that it is all bad, and that maybe it should be banned or heavily restricted.

For many people who are in a comfortable position, it would be much easier and more relaxing if crypto just went away, re-thinking how fundamental aspects of the social world works is challenging and uncomfortable, and all of this can be avoided if crypto implodes and amounts to nothing.

For people who hold cryptoassets or are otherwise exposed to and tracking the volatility of their valuations, history suggests that it will warp their sense of value and change it materially forever. For those with a significant amount at stake the consequences for their finances are also likely to be significant, for good or ill, based on highly unpredictable and unknowable factors, with the potential for market manipulation of the types which were outlawed in more established markets decades ago..

If you are of a conservative persuasion, it makes sense to me that you might want to ban crypto because it appears as a disruptive force which threatens the status quo.

If you are of a more progressive persuasion, the status quo is presumably perceived as not good, and one may want to see a fairly drastic shift to a new type of economic model which is fairer, however one defines that. Writing off crypto means writing off a whole new array of modes of organisation which have only been around for a few years, and for most of that time the only people who have been experimenting with them have been focused on “hard money” or otherwise coming at it from a finance perspective. Dismissing crypto also means ignoring the peculiar and novel ways in which it is redistributing wealth, which seems imprudent for anyone who is interested in inequality.

I realise that this view is at odds with the dominant perception of whether people with certain political views should be for/against crypto - but I don’t feel like I have it totally wrong. My optimistic hunch about the future is that we will end up solving some global problems with an economic system that is different enough that it comes to be regarded as “post-Capitalist”, and that it will have taken some learnings and/or technology from the crypto space to get there.

If we consider open source distributed ledger based economies as a broad canvas, the cypherpunks created it and their libertarian followers have filled in a lot of interesting detail in one corner of the canvas. Over time we will see new applications of the technology which draw people in from different backgrounds, and the projects with the most potential for growth may be those that appeal to people who never saw any value in “crypto” until this hypothetical point in the future. The hot new trends for 2022 so far look like DeSci (Decentralized Science) and ReFi (Regenerative Finance), or maybe it just looks that way to me because of who I’ve ended up following on twitter - but the important point is that these new trends will appeal to some people who never had a reason to pay serious attention to crypto until now, and some of them will tell their friends about it.

References