By John Gruber
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Despite being hyped in expensive Super Bowl ads, cryptocurrency is now having a difficult moment. As the New York Times reports, “the crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies.” One of cryptocurrency’s most vocal skeptics is Nicholas Weaver, senior staff researcher at the International Computer Science Institute and lecturer in the computer science department at UC Berkeley. Weaver has studied cryptocurrencies for years. Speaking with Current Affairs editor-in-chief Nathan J. Robinson, Prof. Weaver explains why he views the much-hyped technology with such antipathy. He argues that cryptocurrency is useless and destructive, and should “die in a fire.”
I can’t say I learned anything particularly novel from this interview, but Weaver’s cogent arguments and descriptions of how cryptocurrency works gave me confidence that I wasn’t missing anything. There just isn’t any there there other than burning an unconscionable amount of electricity.
So the stock market and the bond market are a positive-sum game. There are more winners than losers. Cryptocurrency starts with zero-sum. So it starts with a world where there can be no more winning than losing. We have systems like this. It’s called the horse track. It’s called the casino. Cryptocurrency investing is really provably gambling in an economic sense. And then there’s designs where those power bills have to get paid somewhere. So instead of zero-sum, it becomes deeply negative-sum.
Effectively, then, the economic analogies are gambling and a Ponzi scheme. Because the profits that are given to the early investors are literally taken from the later investors. This is why I call the space overall, a “self-assembled” Ponzi scheme. There’s been no intent to make a Ponzi scheme. But due to its nature, that is the only thing it can be.
Weaver also makes a strong case that ransomware is only feasible as an industry because of cryptocurrency.
★ Monday, 16 May 2022
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