Every day I write something about crypto to the nature of “crypto is all a scam”; this belief represents the core of my philosophy in understanding the complexities of crypto—in fact, it’s the very first line of my book on the subject. I sometimes get pushback (mostly in bad faith) on this as being hyperbolic, but the reality is that it’s not hyperbolic at all. It’s the only defensible position once one dives into the underlying ecaonomics of the products being sold, which are all contingent on fraud and misrepresentation, albeit of different forms. From a pure definitional perspective, the Oxford dictionary defines a scam as:
scam /skæm/ (noun): a clever and dishonest plan for making money
And indeed, crypto does match that definition to a tee; it is equal parts clever and dishonest, and misrepresentation and the abuse of language are absolutely central to this scheme. Nevertheless, crypto is undoubtedly both a clever and ingenious scam, and I say this with complete sincerity. It’s not often in history that you get to witness a new predatory financial scheme arise, and with crypto, we got a first-hand look at a genuinely new form of crime rooted in a particularly pernicious and intellectually convoluted duplicity. Crypto is not a currency. Crypto is useless as a unit of account. Crypto is not a reliable store of value. Crypto is not a hedge against inflation. Crypto is not a medium of exchange. Crypto is not a new financial system. Crypto is not a new internet.
These cases are straightforward. If someone sells something that is not what they claim it is, they’re either dishonest in directly misrepresenting the product or themselves. If you sell a horse as a car, you’re either lying or can’t tell the difference between the two and thus have no business selling either, and in both cases, this is a scam. Sincerely believing a car is identical to a horse does not alter objective reality. Similarly, the “crypto as currency” and “crypto as investment” narratives have been thoroughly debunked because the truth value of these statements is predicated on factual claims that are demonstrably falsifiable. The only defensible narratives that remain are slightly fuzzier concepts where crypto is one of:
For collectibles, the topic is nuanced and largely philosophical. People assign value to all manner of bizarre curio. However, in most cases, these things have intrinsic value arising from their use. We can wear trainers and hang artwork to decorate a room; they are tangible physical objects, and the floor of their market value arises out of the physical commodities that comprise it, synthesized with craftsmanship or artistry—crypto is not a tangible commodity and thus has none of that, it’s nothing more than an entry in a database created out of thin air. However, there are historical cases of “pseudo-commodities” that, like crypto, have no intrinsic value and which are sold as collectibles, and where market liquidity arises out of more complicated social phenomena. In the Middle Ages, people collected indulgences from the Medieval church because they believed or were socialized into believing that possessing these church-issued certificates would act as a proxy for divine penance, a way of financializing forgiveness of sins to individuals who could not receive it through the sacrament of penance. The sale of indulgences, which—like crypto—were purely narrative-driven collectibles, was a way for the church to raise funds for various causes, such as the construction of St. Peter’s Basilica in Rome. The cost of an indulgence depended on one’s social status, with higher prices for the wealthy and lower costs for the poor. The church went so far as to create a thriving market of sophisticated contracts for both partial and plenary options granting various spiritual rights, all synthesized out of thin air.
Indulgences were the first purely-narrative-driven collectible bubble in human history and utilized the same social dynamics of crypto and predated Satoshi by 500 years. Whether you think indulgences were a scam is a philosophically interesting question. If one is a believer and buys into the idea of the infallibility of the Medieval church’s narrative, then for the finite price of three gold florins, you were buying eternal heavenly salvation—which is a pretty good trade. If one is a non-believer, indulgences were a racket—a scam in the truest sense. Sell the illiterate hoi polloi on an imagined fear built around a complex narrative and then profit from that fear in a self-sustaining closed loop that generates its own demand. And really, there is no “moderate” position here; the answer is black and white and entirely depends on the presupposition of faith in the narrative, which is incommensurate with the opposite position. Nevertheless, the case of asserting that both indulgences and crypto are a scam is absolutely a justified true belief if you reject the underlying presupposition they rest on. Faith is the substance of things hoped for, the evidence of things not seen, but a market for lemon-flavored fairy dust can never be anything but a scam.
The second defensible position for crypto is that it is a gambling contract—most succinctly described by Charlie Munger’s Wall Street Journal op-ed as “a gambling contract with a nearly 100% edge for the house”, which is entirely accurate. A crypto token is a pathological edge case of a financial “asset” (although it stretches the term to absurd limits) with no income from economic activity and no claim on any underlying assets. The most eloquent description of this activity is from Martin Walker:
“Big Crypto firms have been buying and selling”nothing" for so long, mostly in return for different lumps of “nothing,” that many have genuinely come to believe that taking Nothing, giving it a name — and sometimes a story — combined with a little bit of trading back and forth with friends, gives “nothing” enormous value. Whether huge valuations for “nothing” tokens came from simply pumping up the market price of old school cryptocurrencies or creating complex DeFi (Decentralised Finance) structures, the belief in the value of Nothing makes is easy to lose sight of the fact of the underlying reality: it is the inflow of real money rather than “the technology,” “the community,” “the network” or “freedom” that gives crypto assets value."
John Maynard Keynes, the British economist and philosopher, famously stated that “the economic problem” is the struggle to reconcile the conflicting desires for economic goods, given the scarcity of resourcaes. In 1936, Keynes argued that the root of the economic problem lies in the limited resources available to meet the unlimited wants and needs of individuals. Keynesian economics asserts that the solution to the economic problem involves the active manipulation of aggregate demand through monetary and fiscal policies, which help to stimulate economic activity and increase the production and distribution of goods. Finance is thus a means to direct society’s resources towards efficient uses in the presence of imperfect information and unpredictable market conditions.
However, crypto represents a divergence entirely from a Keynesian worldview in that it has created this bizarre simulacrum of markets with all the trappings and veneer of finance but which has no pretense of being tethered to the economic problem at all. No goods, services or resources are being exchanged. Crypto is a Keynesian beauty contest for zero-sum get-rich-quick schemes. I call it the nothingness game, a bizarre contest in which participants continuously punt on get-rich-quick schemes for lumps of nothing based on their perception of which lump of nothing others believe is the most attractive. It’s a byzantine (and completely non-economic) casino game of creating elaborate stories and systems for trading lumps of nothing back and forth based on memes and sentiment. And it really is a remarkable spectacle to watch because it’s a pure exercise in an extraordinary collective hallucinatory delusion, the financial equivalent of watching a room full of LARPing wizards shooting imaginary fireballs at each other.
Now regulated gambling amongst consenting adults is not intrinsically problematic. It’s a form of consumption and entertainment, and while a Keynesian beauty contest for dog-themed lumps of nothing is genuinely bizarre, there’s no a priori rationale that it’s any more weird or arbitrary than poker or betting on a bunch of blokes kicking a football around a pitch. The problem is that, as Charlie Munger points out, it’s a gambling contract with a nearly 100% edge for the house, where neither the game, odds nor rules are fixed or presented accurately to consumers. Casino games are presented to the public honestly as casino games, the odds are printed on the table or machine, and there is an enormous body of regulation surrounding the activity. Nothing about the public presentation of crypto is honest because it is currently sold to both policymakers and the public as a financial investment, not the actual gambling contract it is. Until that changes, the entire crypto-gambling complex is an entirely non-economic unregulated casino built on material misrepresentation, or in other words, a scam.
No matter which crypto narrative one picks, following these ideas to their logical conclusions ends up in economic absurdities or the revelation that the narrative is based on misrepresentation and is thus a scam. Nevertheless, scams and absurd belief systems are universal fixtures of the human condition. The cynical opportunist stance is that it’s better to position oneself as running the gambling parlor or selling indulgences to prey on fellow man’s ignorance. Crypto is a morbid symptom of a society obsessed with wealth and so disheartened by the lack of opportunities for upward mobility that they spend their meager savings gambling on lumps of nothingness; however, their participation in the market only enriches the casino and inevitably deepens their conditions of despair. It’s incredibly bleak, and the biggest scam of crypto is not financial; it’s the anti-humanist philosophy at its core that turns victims into victimizers, rejects the premise of progress, and normalizes nihilism.