Technology and ideology

Crypto-currency has generated quite a bit of interest over the last few years, and quite a lot of money was dumped into crypto-schemes. The collapse of FTX and other crypto-related companies shined some light on the whole mess and now we can see things a little better.

Crypto-currencies are based on a piece of technology called a blockchain. It’s sort of like a database just slower and more cumbersome. In fact almost every use of the blockchain has proved to be a failure. Existing technologies like databases are orders of magnitude faster and more secure. Nonetheless interest in blockchains remains high.

That interest is mostly ideological. The idea behind crypto-currency is that the system requires no oversight. It is trust-less. Individuals can send and receive crypto-currency payments without resorting to a bank or other institution. The transactions can happen “peer-to-peer” and thus escape government oversight. This has a very big appeal to libertarians, anarchists, and of course criminals.

Just about every transaction we make in our society involves a trusted third-party service. If you buy a house you need a title and escrow company. If you use a credit card the merchant knows the bank backing the card will pay. The bank backing the card also protects the buyer if the card is stolen. Refunds, reimbursements, and cancellations are easy with credit cards. The system is set up that way and we are willing to pay the fees to the big banks to keep it going.

Complex deals require lawyers and contracts. This protects both parties. Our society relies on this trust-mistrust dynamic. Because we engage in so many transactions we have to place our trust in institutions (like the legal system, or the banks, or the F.D.I.C). We can’t possibly trust every person or entity we deal with so we have to have backstops and fail-safes to protect our interests.

Crypto-currency does away with all this. Many people don’t trust the government to protect their rights so they’d rather do things outside the government’s reach. This is not unreasonable as governments often betray their citizens’ trust. People don’t trust the banks or the entire global financial system. This is not unreasonable either. I remember very well the S&L scandal in the 80s and our most recent shit-storm in 2008. Bankers don’t look out for the little guy. It’s not crazy to be suspicious of Big Finance.

Enter the blockchain and its spawn, Bitcoin. Finally there was a way to send and receive money without relying on all those crooks and creeps! Alas, crypto-currencies failed almost immediately as currencies. You couldn’t buy anything with these digital tokens. You couldn’t pay the rent or the water bill with them. You couldn’t buy groceries with them. You couldn’t buy weed or ecstasy at a concert with them, either. All the existing forms of money were far, far superior. In fact, most people found that they had to exchange their digital tokens for real money, and this is where it all fell apart. The “exchanges” that grew up around crypto-coins were run by rip-off artists. They were the high-tech version of check-cashing places.

But ideology is powerful. The appeal of doing something outside of the mainstream remains strong. The crypto-enthusiast is not much different from the back-to-the-land hippie or the 60s radical. Those folks mistrusted the modern world and wanted to create an alternative. There’s nothing wrong with that.

The problem is that the blockchain and crypto-currency are poor solutions. Hell, they aren’t solutions at all! They don’t solve any of the problems presented by government over-reach or the massive power of financial institutions. They just created a playground for criminals. And the gargantuan energy requirements of these crypto-schemes makes them a global environmental disaster. (The same can be said for “AI” or machine-learning systems.)

These days investors in crypto-currency don’t expect to actually use the stuff as money. A crypto-token is a collectible, like a Mickey Mantle baseball card. You are gambling that it will increase in value over time. Of course I’m gambling that my traditional, regulated securities (stocks and bonds) will increase in value over time, too!

There are lots of people who’ve made money on these un-regulated crypto-securities. But there are way more folks who’ve been cleaned out. Not all of them bought into the crypto-ideology but they got burned by it nonetheless.

We have a tendency to imbue our technology with characteristics it does not possess. We seem to project our desires and our values onto the technology and that can blind us to what’s happening. Crypto-currency can’t do what its makers envisioned. That’s not surprising as most of our inventions fall well short of our expectations.

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