Many blog posts about Haskell often discuss the latest advances in our compiler, research in type systems and clever new ideas that make the Haskell language such a fun and inspiring tool. However, if you peel back the curtain on a lot of what we do as functional programmers you see the economic machinery that shapes everything we do and informs the problems we chose to spend our cycles on. While the last few years have seen enormous progress and excitement, there is an enormous elephant in the room that we’ve collectively chosen not to discuss.
For a while it has been a public secret the Haskell ecosystem has become increasingly entangled with an unsavoury ICO schemes in the cryptocurrency sector as one of primary mechanisms for funding development. This has been a double edged sword in that it has created jobs and allowed a lot of questionable ICO money and funds of dubious origin into the language ecosystem without a lot of questions being asked. It is time to ask that question. Does the deal with the devil come at too high a price?
Cryptocurrency is not a traditional business in any sense. The basic economic structure of a business is a group of people who exchange their goods or services for money. For example, your traditional software consulting business sells your time and expertise to clients to write software for them. Your ecommerce website provides a marketplace to sell physical goods. Your local coffee shops sells you wifi under the guise of coffee. However cryptocurrency companies do not produce anything, instead they offer synthetic financial products which are marketed to the generic public as investments. These “investments” are not tied directly to economic activity, these are what economists call non-productive assets. The value of these assets is only determined by what other people are willing to pay for them. This has created a giant ecosystem in which products aren’t traded on any investment fundamentals but on the hope to sell them off to a “greater fool”.
This is not a new phenomenon. We’ve seen markets with this kind of structure early in the early history of the development of modern market economies. We saw this with Wildcat banking in the 1800s in which frontier banks would issue massive amounts of new worthless currencies supposedly backed by other securities. Another variation occurred in the 20s with widespread Ponzi schemes where new investor money was used to pay out earlier investors. And again in the 80s with the rise of boiler rooms that would massive volumes of penny stocks and municipal bonds to the public with inflated promises of returns. The history of finance is full of scams and cryptocurrency is simply the latest iteration in a long line of frauds.
Normally these frauds are recognized for what they are quite quickly and the courts and regulatory bodies can clean up the mess and rectify the damages to those who have been misled. However this new type of scam is particularly nefarious in that it has found a way to decentralise operations and move the trading operations to offshore entities. Following the money on these companies leads to these deeply layered networks of shell entities across Lichtenstein, Isle of Man, and the Cayman Islands which are set up to be immune to prosecution while still being able to funnel money across less reputable actors in these jurisdictions.
These companies could not be set up in countries with financial regulators because what they are offering would be blatantly illegal to offer to the general public. Instead we’ve seen this metastasize across the world to form what are effectively digital gambling sites, in which unsophisticated investors trade unregulated products on markets that are directly manipulated by exchanges with no oversight. Most of the traded volume on these sites is directly manipulated by the exchange itself with no transparency or guarantees of market conditions. If these dodgy exchanges steal your funds, you have absolutely no legal recourse. Not surprisingly this has attracted an enormous amount of interest from global criminals and market manipulation is allowed to run wild allowing massive extraction of wealth from unsuspecting users.
The duplicitous story of these financial product offerings appeals to a lot of software engineers on a pure technical level. There are indeed massive inefficiencies in the financial system that could be addressed by the use of better technologies. And even in the most progressive countries it is undeniable that there exists an ambient level of corruption and fraud, which has especially hurt a younger generation who come of age in the financial crisis. However cryptocurrency does not provide any technical answers to the inefficiencies since its entire existence is purely predicated on the appeal as a speculative investment first and not on its efficacy to transmit value. The insidious mechanism embedded inside of crypto is that as investment it has a negative expected return. In this negative sum game each early investor mathematically needs to onboard more investors or inflate the price of the asset. The mechanism that has risen to achcieve this is creation of what is effectively a new religious movement deeply entangled with fringe economic theories and right wing conspiracies, whose purpose is to onboard new followers.
New religious movements like the cryptocult provide a psychological and philosophical framework that provides sense-making for a world that seems hostile and out of their control. The crypto movement fits all the textbook criteria, it provides a mechanism for determining an in-crowd and an out-crowd (no-coiners vs bitcoiners). It gives a framework for assessing the virtue of other followers based on their faith (HODLing) in the cause. It offers simple answers to complex issues in economics and monetary policy. It gives a linguistic framework of “thought-terminating clichés” and acronyms to quell dissent. It gives a mechanism of social control in which one can acquire influence and status in exchange proselytizing and onboarding more followers to buy tokens. It makes miraculous promises of wealth, not derived from effort but from faith. It presents an eschatological narrative of retributive justice about the end-times of the global financial system, in which the true believers will be reborn with a new life in an anarcho-capitalist utopia. And most importantly, it gives people a sense of a community, hope and belonging which is a powerful force that can be exploited by charismatic leaders. David Golumbia’s excellent book The Politics of Bitcoin: Software as Right-Wing Extremism outlines the rabbit-hole effect that this ecosystem is having on software engineers onboarding them into deeper forms of right-wing extremism.