On Crypto Skepticism and Misconceptions
Anyone involved with the industry is no stranger to doubtful sentiment about the future of crypto. Most, including me, have seen many friends and colleagues second-guessing their dedication to the space and belief in its success. This, of course, is an expected side-effect of a bear market, especially one in which crypto has been attacked from all angles: popular thought leaders expressing their skeptic views, traditional finance shunning crypto as a fraud industry, and especially the lack of regulatory clarity and judicial attacks by the SEC. After Celsius/3AC, Terra Luna, and FTX, it’s no surprise that such attacks have taken place. Now, while it may feel like the worst is behind us after the recent pump in prices and Ripple’s win in court, severe skepticism still exists, and it is largely because of a complete misunderstanding of what blockchain is and what it is aiming to accomplish.
On Skepticism
Some of the most prominent thought leaders in economics and other fields are avid crypto skeptics. A handful are even household names — Nassim Taleb, Nouriel Roubini, and Peter Schiff to name a few. It seems that crypto skepticism has become a school of thought popular among some of the most distinguished scholars in our day, and their status has done nothing but increase the popularity of labelling crypto as a scam. This, to me especially, is a severe disappointment, especially since I look up to the contributions of the aforementioned thought leaders in their respective fields. However much I respect them, however, their perspectives are results of their ignorance of blockchain technology, which I will explain soon.
Contrary to what many may think, crypto skepticism even surpasses the domains of Baby Boomer/Gen X economists, legacy wall streeters, politicians, regulators, etc. Since 2022, it feels as if the world entirely has turned its back on crypto and no longer believes in the power of blockchain, web3, and decentralized finance like it once did. I recently came across a popular YouTube documentary titled Crypto: The World’s Greatest Scam, which deeply investigated virtually all of the biggest debacles and so-called “false promises” of the crypto space. As someone who tries to avoid echo-chambers and confirmation bias, I decided to be open minded to opposing perspectives and dig deeper into the opinions of crypto skeptics.
To put oneself in their shoes is not at all a challenge. To steel man their perspective, crypto seems like a massive web of shitcoins spawned out of nothing on the internet, with people religiously claiming that it will replace all the world currencies and lead to global economic equality. This is a hard claim to believe in when debacles like FTX have taken place, resulting in droves of people losing their life savings and $16b being swiped clean out of investor’s hands. If I saw it from this perspective, I would absolutely see crypto to be a scam. Global economic equality and decentralization sound like false promises when you’re not even confident that you won’t lose every cent you put into crypto. These concerns are valid, but stem from a very important misunderstanding that has painted crypto in the worst way possible. I will describe this misunderstanding in the next section, but first we must acknowledge the legitimacy of blockchain technology, and specifically the brilliance of the people building it.
Crypto skeptics lack context. They see the industry from the top-down rather than a set of high-tech decentralized systems that enable unlimited digital ecosystem-building on top. In other words, the first thing they judge is the plethora of grifters who have contaminated the crypto space with their extravagant, front-page financial schemes, without first understanding the neutrality and sophistication of the underlying technology and economic incentives. Blockchain technology is simply a powerful tool for building a new digital paradigm. Skeptics do not view it this way, however, and their skepticism is a consequence of shitcoins, price volatility, Ponzi schemes and other scams like FTX.
Focusing on the bottom-up, it is important to acknowledge that blockchain technology is being researched and developed by the most talented minds in the world. This includes researchers, engineers, scholars, and entrepreneurs who have all come from years of experience and distinguished positions in more traditional disciplines and dedicated their careers to blockchain and crypto. This includes top computer science researchers, economists, ex-wall streeters, successful Silicon Valley entrepreneurs pursuing their next venture, and the best in venture capital. For example, a quick survey of the most prominent academic scholars in cryptography and distributed systems reveals that many of these academics contribute to blockchain research and have strong conviction for the technology’s impact. Such names include Silvio Micali, Dan Boneh, Steven Goldfelder, and many more. Because of genius minds like these, blockchains like Bitcoin and Ethereum have never once failed to execute their purpose — be a distributed, permissionless, immutable, and perpetual global ledger that allows for decentralized payments and applications. The technology does not fail us, it is people who fail us.
The Ultimate Misunderstanding
Given that blockchain technology is certainly not the problem, what is it that makes non-crypto people cringe when they hear the words “blockchain” “crypto” or “web3”? We already know where the skepticism comes from — it is the result of a top-down view of crypto, where the most standout thing seen on the “top” is a plethora of Ponzi schemes, scams, shitcoins, NFT rug-pulls, and FTX-like events (while there plenty of very legitimate DeFi and web3 applications, the scams are those which make headlines and attract attention).
This leads us to the ultimate misunderstanding — the misconception between the “crypto casino” and the blockchain technologists.
So what is the crypto casino? Think about the ICO/NFT booms (and all the rug-pull projects), Ponzi schemes like Ohm and Terra Luna, and the centralized scammers like FTX and Celsius/3AC. All these examples are cases of greedy bad actors utilizing an emerging technology for their own monetary benefit, at the expense of unaware people. In many similar cases, blockchain, a completely open and agnostic technology, is used as a tool for gambling, money-grabs, scamming, and grifting. However, blockchain technology and the cypherpunk goals of crypto are NOT at fault for the crypto casino, but rather the crypto casino is a result of severe misuse of the technology. This misuse happens because the “wild west” side effect of these open properties of blockchains make them very attractive for scammers and grifters. It is only logical that the most greedy and immoral individuals would be drawn towards a digital world where one can be anonymous, not legally liable for their actions, and generate unfathomable amounts of money by sitting in front of a computer screen. However, these are not the only people in crypto, and their values do not represent the values of those working every day to improve the technology and protocols that they hope will fulfill the “crypto ethos” and cypherpunk goals of decentralized technology.
This brings us to the blockchain technologists — those who simply view blockchain as a way to enhance the human experience through decentralization and true ownership of ones assets, currency, and digital identity. These people are driven by an ambition to build a new age of the internet in which ownership is taken out of the hands of internet conglomerates and financial institutions and put into the hands of people through the power of cryptography and economic incentives.
But what does this look like? I believe there are a few “killer use cases” of blockchain technology, of which some are realized and some are unrealized. These include stablecoins and on-chain real world assets (RWAs), which allow for instant-settlement and global, decentralized financial transactions; web 3.0, which encompasses the idea of “read, write, own” and on-chain self-sovereign identities; network states and globalized communities enabled by the network effects of open-source data; and mitigating the negative externalities of AI agents and deep fakes on the internet by using blockchain and cryptography to verify authenticity.
Blockchain and distributed ledger technologies have many additional use cases that I could write multiple other essays on, but every single one leads to the conclusion that crypto offers a real value proposition to the world. Regardless of whether one chooses to believe in these value propositions or not, even the skeptics must acknowledge the legitimacy of the blockchain technologist’s pursuits, and at least give these blockchain technologists the opportunity to try to change the world with their technology, rather than scoffing at them and stifling their good intentions.
Ergo, the blockchain technologists, with all their good intentions, become scapegoats, while the crypto casino, which exists solely to exploit people, tarnishes the reputation of the blockchain industry.
Antifragility
On the topic of the many crypto fiascos and debacles the world has witnessed, there is an optimistic perspective that the industry’s ability to withstand these events will only strengthen its success in the future. Here, I’d like to ironically apply a concept created by one of the most prominent crypto skeptics, Nassim Taleb. This is the idea of antifragility, which describes how systems develop the ability to thrive as a result of continuous failures, shocks, and attacks. I view the past decade and current era of crypto as the defining period in which the space develops its antifragility. Through all the Ponzis, scams, regulatory attacks, hacks, crashes, bear markets, and more, the industry has grown, both in terms of the new innovations and amount of developers, and also in terms of the market cap of blockchain (the former is far more important).
Antifragility doesn’t just apply to the industry momentum and trajectory, however, as it also applies to the technology infrastructure being developed. This is why I previously mentioned hacks, which has been another pain point for crypto users and common topic that skeptics use to disparage crypto. As more hacks happen and vulnerabilities are uncovered, crypto protocols will improve and become antifragile. This effect is compounded in comparison to traditional software, as the difference between blockchain technology and traditional software is that, because of the immutable and decentralized nature of blockchains, the consequences for every action in crypto are final. Crypto protocols must be secure from the moment they are deployed, blockchains must be scalable and fast in order to not deter users, and blockchains must be decentralized in order to not risk a consensus-level attack. If you’re not technical at all, this may not make sense to you, but the key takeaway is that the technology being built will become extremely robust over time due to the severe consequences of mistakes and high value at stake. The following tweets make another fantastic point on the antifragility and robustness of crypto protocols:
What Crypto Needs in Order to Flourish
Thus, crypto’s developing antifragility and continued growth as an industry will ensure that it continues to flourish in the decades to come, contingent on a few important factors including regulation and education, which are necessary if we want to put an end to the fraudulent parts of the crypto casino.
Fair and clear regulatory policy on crypto will benefit virtually all the good actors involved. Primarily, retail investors should be protected from fraudulent centralized institutions such as FTX and Celsius (financial audits and proof of reserves are necessary here). Second, crypto startups will no longer be hindered in their operations, especially with clarity and explicit rules to follow. Comprehensive policy making will allow these companies to operate in a compliant manner and also hold them liable for the products they offer to customers. Third, traditional finance and technology institutions will no longer be deterred from dabbling in crypto due to their fear of regulatory incompliance.
Policies should strike a balance between fostering innovation and mitigating risk, encouraging exploration while safeguarding against exploitation. Only then can we begin to untangle the misconceptions about blockchain and allow the technology to shine in its truest form.
Until now, crypto traders have been learning their lessons the hard way, but this doesn’t need to be the case. Education and awareness are also key when it comes to mitigating the effects of the crypto casino. This is more of a task for the industry itself than it is for anyone else — the thought leaders of the space must be diligent in pushing initiatives to teach retail investors how to protect their funds on chain, and stay away from the scams.
If the industry can do this, coupled with good regulatory policy, the scams and grifts might finally come to an end, and the ongoing innovations in the space will only continue and become more antifragile over time. Only then will crypto will show the world what it’s really worth.
