Crypto’s biggest critics won’t back down

“It’s never a good time to be skeptical of crypto,” Molly White said. Her name might be familiar: She’s a software engineer who runs Web3 Is Going Just Great, an ironically named website that meticulously documents exchange hacks, rug-pulls, crashes, and stolen apes. The site even features a “grift counter,” which adds up the losses of all the scams and fraud White has documented—the amount is approaching $10 billion.

White’s assessment might be particularly true now as crypto plummets, and blockchain meteorologists keep bringing up crypto winter: Bitcoin is down almost 70% from its historic November high, ethereum is down more than 70%, and multiple crypto exchanges have laid off workers en masse (including Coinbase). “Stablecoin” now sounds almost ironic after the Terra Luna collapse, and the too-on-the-nose named crypto lender Celsius Network froze all account withdrawals, citing “extreme market conditions.” The cryptocurrency market lost more than $2 trillion dollars in a matter of months. For some of crypto’s fiercest critics, crypto winter has been proof that they were right all along. Matt Stoller of the American Economic Liberties Project recently tweeted: “I have no idea if Bitcoin or [ethereum] will go to zero. I hope they do, and soon. But my guess is that crypto will never become wholly worthless, but it will eventually become irrelevant, like the Beanie Baby frenzy of the 1990s.”

Not all of crypto’s critics are as uncharitable as Stoller, but they all agree that there’s no there there with crypto. While proponents may argue crypto is part of a new world order still shaking the dust off, its opponents see currency built out of sand. These critics are journalists, software engineers, policymakers, and academics. Some want the whole thing to “die in a fire,” while others want more proactive regulation. Many voiced their skepticism of crypto even when bitcoin was worth more than $68,000. But now, during crypto’s long, dark winter, they’re not letting up, even as crypto’s champions accuse them of spreading FUD (fear, uncertainty, and doubt).

Crypto critics like White, software engineer Stephen Diehl, Google engineer Kelsey Hightower, and journalist Jacob Silverman are resolute, raising concerns about everything from the practicality of blockchains to the growing political influence of crypto moguls to the possible social and economic impacts of the great digital currency experiment. Their voices seem increasingly urgent as crypto loses value and Washington, D.C. shows signs that industry regulation is coming in the near future.

White and Diehl are part of a group of software engineers and technologists who recently wrote an open letter urging Congress to beware of crypto interests who seek “to create a regulatory safe haven for these risky, flawed, and unproven digital financial instruments.” It’s a warranted concern: During the calendar year 2021 and the first quarter of 2022, crypto executives made over $26 million in political donations, exceeding those of the tech industry, big pharma, and defense. One singular force is Sam Bankman-Fried, the CEO of Bahamas-based crypto exchange FTX. He’s already spent tens of millions of dollars in the primaries this year, and estimates he might contribute up to $1 billion in 2024. Bankman-Fried has largely supported Democratic candidates in an effort to prevent the next pandemic, he said, but his detractors see his philanthropy as a way for him to purchase influence while the United States figures out how to regulate the crypto industry.

There is already some proof that the US is amenable to a light regulatory touch. Though the Biden administration took steps to regulate the industry in March with an executive order, the proposed legislation that followed in June has been described as “industry-friendly.” The most anticipated piece of legislation, The Responsible Financial Innovation Act, which seeks to create a regulatory framework for digital assets, classifies the majority of crypto as commodities instead of securities, putting more regulatory burden on the Commodity Futures Trading Commission (CFTC) instead of the SEC. Compared to the SEC, the CFTC has a smaller budget, with $365 million proposed vs. $2.15 billion proposed for FY2023. The bill was introduced by crypto-friendly Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), who have both recommended that workers look to bitcoin as a retirement savings vehicle.

The crypto general counsel for venture capitalist firm Andreessen Horowitz described the bill as “the starting point for discussions about what the law should look like.” Shortly before the bill was announced, the firm released its plans for its fourth crypto fund, a $4.5 billion vehicle meant to capitalize on the winter-cold crypto markets. Around the same time, Andreessen Horowitz released a “State of Crypto” report, which assured readers that, “Yes, it’s still early.” It’s a common refrain among those who compare the state of crypto now to the fledgling days of the internet. This notion allows many “hiccups,” such as rug-pulls, bank runs, and market volatility, to be chalked up to growing pains. It’s a widely repeated idea: After catching flak for allowing a crypto retirement fund to be advertised on her podcast, veteran tech journalist Kara Swisher tweeted that crypto was “like early internet. Sorry if that bothers you but it is so.”

According to Diehl, the crypto industry is reinventing the financial catastrophes of the past. Crypto is like early days, he argues: specifically, the wildcat banking of the 19th century, when small banks outside of federal regulation in the US issued paper cash without enough gold or silver to back it. It made for an unstable system where a simple rumor about the lack of liquid assets could cause a run on the bank. Diehl pointed to stablecoins as an example of parallels with wildcat banking, referring specifically to the Terra Luna crash. The TerraUSD stablecoin promised to be a “safe and happy” way to bank a 20% yield, as long as the coin stayed pegged to the dollar. But it didn’t stay pegged, the value plummeted, and the project wiped out about $40 billion from the crypto market. The Wall Street Journal described the event as a “crypto bank run.” (Weeks after Diehl’s comment to Morning Brew, crypto lender Celsius also faced a bank run, “except there’s no bank,” as Fortune reported.)

That speculative fervor isn’t unheard of on the internet. In the web’s early days, “a lot of crap” was built, Diehl said, pointing to Pets.com, the poster child for overinflated value before 2002’s dot-com crash. To Diehl, the crypto space looks more like Beanie Babies (sound familiar?), a “pure manifestation” of the greater fool theory, in which “the only value of an asset is what you can get somebody else to pay for it,” he said.

Rationales like “it’s early days” might be fine for VCs and crypto executives, Jacob Silverman, a former New Republic writer, said, “but that doesn’t work for the person who just lost 500 bucks that they can’t afford to lose.” Silverman might be the most familiar name of the bunch of critics. He’s teamed up with former teen heartthrob and crypto detractor Ben McKenzie (that’s Ryan from The O.C., for the uninitiated). The pair has gotten on television and landed a New York Times profile, and they’re currently working on a book. Silverman had been reporting on crypto for a while and every time he returned to digital currency, “I saw new reasons to be skeptical,” he said.

White agrees with Silverman and Diehl’s assessment of the “early days” argument. It “doesn’t stand up to scrutiny,” she said. “It’s basically unprecedented that any technology would take that long to find a viable use case.”

Use cases, or practical and specific examples of utility, are a fraught topic in the world of Web3. Blockchain technology is often hyped as not just disruptive but transformational, touching everything from finance to marriage. But for all of the blockchain’s promise, some of its most prominent defenders struggle to explain its practical applications. In a recent blunder, an influential Web3 writer and high-profile Andreessen Horowitz adviser went on Cartoon Avatars, a new tech podcast, and struggled to explain how the mortgage market could be disrupted with blockchain technology. The clipped segment was viewed on Twitter over half a million times where it was ruthlessly roasted.

Admittedly, a floundering Web3 evangelist is an easy target for Twitter critics. But, as White argues, blockchain isn’t the first technology to make big promises. She points to NoSQL, a database model aimed at Web 2.0 companies. “People thought that was going to be the database that everyone was going to use,” she said, adding that it had little impact. And compared to blockchain evangelists, NoSQL proponents were making far humbler promises. NoSQL wasn’t touted as a solution for helping unbanked people, or for revolutionizing mortgages.

Stoller acknowledged that there might be a “genuine leap of technical capacity” brought about by crypto, but he hasn’t seen it for himself. The rampant and accruing amount of fraud involving crypto is also an indicator of intent to Stoller. “If blockchain proponents want to advance their technology, they would eagerly seek to get rid of the fraud, but I don’t see that happening,” he said. “That signals to me the fraud is the point.” Or more specifically, as Kelsey Hightower argues, money is the point: “It’s not like someone looked at blockchain and said, ‘Oh, my God, we finally have a better database for storing transactions!’” Instead, what made blockchain’s big promises so compelling were stories of people turning a small amount of money into a lot. “And in our society, we equate morality to money,” Hightower said.

Hightower has debated with other tech experts about the technical merits of blockchain technology and cryptocurrencies. Through his conversations, including DMs with fervent blockchain advocates, he came to a realization: “This is hope,” he said, referring to the ideological investment in the blockchain. “And so even if I prove them wrong, I don’t have an alternative.” He can’t tell them to work hard and save up for an education, he said, because “a lot of those things have failed people.” He tries to enter conversations about crypto with that fact in mind.

Hightower’s sense that crypto’s rise is part of numerous systemic failures is a recurrent theme among crypto’s critics. In a blog post titled “On anti-crypto toxicity,” White wrote that while critics may be tempted to respond to randos yelling “NGMI,” they should…