The Lure of Crypto, Part Three
The relentless search for 'money for nuthin'---and why there ain't no such thing
There was a song from Dire Straits in 1985 that became something of an ear-worm for me when if first came out. If you’ve never heard it, the official video is below. I use it to introduce this video because I think the chorus pretty much describes a really troubling part of the economy. Be warned, as well as having pretty crummy animation, it is a fountain of homophobia, sexism, and, class stereotypes—but in the context of this article that’s a feature, not a bug.
It really is a product of a very different time, but I’m sharing it because it encapsulates the vibe I’ve felt when I research some of the stories I’ve been working on over the last few years.
What I’m talking about is that idea that some people want ‘money for nuthin’.
I was asked a while back to write something about crypto currency, so I’ve been doing a lot of reading on the subject and the more I dug into it, the less I could see. I wanted to know exactly why people buy it. A cursory look seemed to suggest it was being used for money laundering, but since it uses block-chain technology I quickly realized that this simply cannot be the issue.
While it’s true in practice that crypto currencies have been used to hide crimes, that’s not because of the way these currencies are structured so much as because most nations have been so slow off the mark when it comes to enforcement. Most regulatory agencies haven’t bothered to look at the block-chain records that will show where money has been flowing from and to. With the demise of the FTX crypto exchange and the conviction of Sam Bankman-Fried—among others—it’s become obvious that government regulators have the ability to go after criminals, even if they have up until now not bothered because… (Inertia? collossal stupidity in our ruling class? If you want to know, maybe call up your local MP or Congressman—because I’ve never been able to figure that out myself. But then I’ve never been able to figure out why Uber, Air BnB, and, social media platforms have been allowed to flaunt the law and public interest for years, either.)
This is such an important point that I’m going to stick a big quote from Wikipedia here. If you want to learn more, I suggest you read the entire article that I’ve linked to above as "block-chain records”.
Blockchain analysis
The analysis of public blockchains has become increasingly important with the popularity of bitcoin, Ethereum, litecoin and other cryptocurrencies.[55] A blockchain, if it is public, provides anyone who wants access to observe and analyse the chain data, given one has the know-how. The process of understanding and accessing the flow of crypto has been an issue for many cryptocurrencies, crypto exchanges and banks.[56][57] The reason for this is accusations of blockchain-enabled cryptocurrencies enabling illicit dark market trade of drugs, weapons, money laundering, etc.[58] A common belief has been that cryptocurrency is private and untraceable, thus leading many actors to use it for illegal purposes. This is changing and now specialised tech companies provide blockchain tracking services, making crypto exchanges, law-enforcement and banks more aware of what is happening with crypto funds and fiat-crypto exchanges. The development, some argue, has led criminals to prioritise the use of new cryptos such as Monero.[59][60][61]
The TLDR (Too Long Didn’t Read) of the above is that blockchain makes transactions readable by everyone—including law enforcement—which means that when the authorities finally get their fingers out of their bums, they can shut down money laundering through crypto currencies. They’ve started to do this. There have been attempts to create crypto specifically for money laundering—like Monero—but if the crypto currency exchanges want to stay in business, they have to exclude these specific types of ‘currencies’ from the exchange. And any crypto that isn’t on an exchange simply cannot be ‘cashed out’ into a major national currency like the dollar or Euro. This will effectively make crypto useless for money laundering.
If crypto isn’t better than just using casinos, condominiums, tax-havens, cash, art, or, precious metals to hide and transport the proceeds of crime; why are people still buying the stuff? I looked and looked and looked, and all I could hear was ‘it is an investment’.
This raises an interesting question. What exactly is an ‘investment’?
To me, an ‘investment’ is when you put some money into a business where you provide some good or service that adds value to the economy. The idea is that the money you put in helps gets the ball rolling and eventually the enterprise will make enough profit to be able to pay you back with a bit of interest too. For example, if someone wants to invest money into housing, they calculate how much it would cost to buy a building, how much it would cost to maintain it, and, rent out units at a price that will cover expenses and risks, and give a decent rate of return.
In contrast to an investment, there’s something called ‘speculation’. An example of that happens when an army encircles a city (think Gaza right now) and the rich merchants of the city buy-up and hide all the food so they can jack up the price and make a literal killing off sales.
Here’s part of an excellent video by an extremely insightful guy called ‘the Millenial Moron’. In this clip, he explains one element of our current housing crisis and as an aside shows the difference between an investment and speculation.
It’s absolutely essential for ordinary people to understand the difference between an investment and speculation, because the former can actually be a good thing for everyone whereas the latter is always based on exploitation. (In the case of housing, it’s all those fools who used ‘garbage math’ to buy buildings and who are now going to lose their life savings when the present housing bubble deflates. Oh, and all those poor slobs who can’t afford a place to live because speculation has driven up the cost of housing.)
Near as I can tell, crypto currency is also a speculation bubble—like housing as explained by Mr. Moron. Even more to the point, crypto serves no useful purpose whatsoever. In this sense it’s like those ‘non-fungible tokens’ (NFT) that were all the rage among foolish speculators until people realized that they were total nonsense. If you don’t know about non-fungible tokens, here’s a quote from an article on the subject in Wikipedia:
General NFT market
The NFT market experienced rapid growth during 2020, with its value tripling to US$250 million.[51] In the first three months of 2021, more than US$200 million were spent on NFTs.[52]
In the early months of 2021, interest in NFTs increased after a number of high-profile sales and art auctions.[53]
In May 2022, The Wall Street Journal reported that the NFT market was "collapsing". Daily sales of NFT tokens had declined 92% from September 2021, and the number of active wallets in the NFT market fell 88% from November 2021. While rising interest rates had impacted risky bets across the financial markets, the Journal said "NFTs are among the most speculative."[6]
A September 2023 report from cryptocurrency gambling website dappGambl claimed 95% of NFTs had fallen to zero monetary value.[7][8]
I’m not alone in seeing crypto currencies as nothing more than a speculative bubble. Here’s a link to an article that quotes six leading economists saying much the same thing about crypto currencies.
And yet, crypto is still around. The bubble has yet to burst. Why?
The thing to understand is that in as much as crypto currencies are currencies (not really all that much), they are fiat currencies. But they aren’t supported by national governments. Instead, they are supported by investor’s faith in ‘techno-utopianism’ and ‘libertarianism’. I discussed the importance of people’s belief systems in some depth in my second article on crypto where I showed that “money is psychology”.
As I explained in that second article, a ‘fiat’ currency is just money that people believe in because it is backed by some organization they trust. In the case of Canada and the USA, people trust that the government is going to be around for a long time, so they accept the dollars. In the case of my Guelph bucks (that I described in my first article on this subject), people accepted them because they believed in and trusted the community economic develop project I set up not to jerk them around.
Businesses that sell crypto currencies say that what they are selling is in opposition to fiat currencies. But in actual fact what they really are is a non-currency (in that almost all the time the only way you can purchase something with it is by converting it into something like Canadian and US dollars first) fiat entity (in that it has no inherent value other than a belief in it—just like the Canadian and US dollars).
Take a look at the following advertisement for a crypto exchange and think about what I’ve written above.
I’d say this advertisement is pushing a worldview known as ‘techno utopianism’. That’s the idea that all the fundamental problems facing humanity can be solved through the use of new technology. This means that there’s no sense investing thought and effort into designing more efficient cities with walkability and good public transit, for example. Instead, the solution to climate change is to get everyone into an electric car and voila, the problem is solved.
Of course, as many experts have shown, this is completely delusional. This type of thinking is just like the ‘garbage math’ that the Millenial Moron mocks. But it has the virtue of being a worldview that doesn’t threaten the basic structure of the modern economy. As such, it mobilizes a lot of ‘motivated reasoning’. In the case of crypto, it brings in a lot of people who—like the stereotype working men in the Dire Straits video—want ‘money for nuthin’.
On the personal level, for some folks ‘money for nuthin’ literally means borrowing some money, buying some Bitcoin, and, making a ton for doing nothing at all. (That’s what speculation really boils down to.)
On a cultural level, techno utopianism is the direct opposite of what I discussed in my last post. There I talked about the 30 year struggle that was required to elect a local Green Party MPP as part of a bigger battle to get society to take environmental issues—like climate change—seriously. Let me call this ‘realistic citizenship’. In contrast, techno-utopianism fits neatly into capitalism (which is itself a form of techno-utopianism). This means there doesn’t need to be any heroic, long-term struggle to get people to accept it. Just whip out your credit card, sign up on Kraken, and away you go.
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As an aside, what sort of idiot names a crypto exchange kraken? Didn’t they know that this is a Norse word for a huge cephalopod—like a giant squid—that supposedly attacks and destroyed ships and killed their crews? How is that a good name for an ‘investment’ vehicle? Isn’t this something like calling it Engulf and Devour Incorporated?
I have more to say, but this post is already kinda long. So I’m going to add a fourth installment to my deconstruction of crypto.
Nice to hear from you Bill