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Four Corners
Crypto Mania: Behind the hype of cryptocurrencies
“Crypto really is the perfect thing for the times…It is the ultimate ‘chasing the dream’, it is the ultimate embracing of celebrity, it’s the ultimate embracing of ego, all wrapped up in a financial product. That is powerful.” Lawyer
Cryptocurrency is the hottest financial product in the world. The hype is everywhere, with forms of the digital currency endorsed and advertised by celebrities daring you to invest in this brave new world.
“It is the future of commerce right now and it’s happening, and people are being left behind.” Crypto “visionary”
On Monday, Four Corners investigates what lies behind the slick marketing and big promises to examine if it’s a fad, a fraud or the future.
“It took me two months to become a millionaire.” Crypto investor
It’s billed as more than a mere form of financial exchange. Emerging out of the ashes of the global financial crisis, crypto is sold on the promise of liberating people from the big banks and big tech.
“Crypto to the younger generation represents a revolution in the way we see money. The younger generation lacks a lot of trust in the government and banks and the way they run things, I feel like crypto is almost a freedom for us.” Crypto investor
Despite wild booms and crashes, the crypto evangelists are adamant that cryptocurrency and the tech it’s built on are the wave of the future.
“From payments, to gaming, to financial infrastructure, to lending, the sky is the limit.” Crypto exchange managing director
Not everyone is convinced by the glossy ads and bold claims.
“It has no real value aside from the shared delusion, that it’s worth something.” Software engineer and crypto critic
Critics warn that there are major risks for the unwary investors.
“There’s no doubt some people have lost a lot of money. What we’ve seen is taxi drivers, Uber drivers, mum and dads getting involved in something that is highly, highly speculative, and on a global scale that I don’t think we’ve ever seen before.” Fund manager
And the lack of regulation opens up avenues for significant crime.
“It’s the wild west because it is unregulated and that creates opportunities for people who want to engage in fraudulent or illicit conduct…there are many opportunities for people to lose their money.” Lawyer
From Melbourne and Brisbane to London, New York, Washington DC and Las Vegas, the program talks to leading players in the world of crypto and it’s a cautionary tale.
“You can say to me, ‘Okay, boomer. That’s just your view.’ Or ‘You need to do the research’ or ‘You just don’t get it.’ But to me, the emperor has no clothes.” Frmr head of the US Office of Internet Enforcement
Crypto Mania, reported by Stephen Long, goes to air on Monday 30th May at 8.30pm. It is replayed on Tuesday 31st May at 11.00pm and Wednesday 1st at 10am. It can also be seen on ABC NEWS channel on Saturday at 8.10pm AEST, ABC iview and at abc.net.au/4corners.
‘Crypto Mania’
30 May 2022
Four Corners
STEPHEN LONG, REPORTER: The hype about cryptocurrency is everywhere, promising to liberate us from big banks and big tech. Daring us to invest and take control.
CRYPTO.COM ADVERTISEMENT, MATT DAMON: Fortune favours the brave.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: It is the ultimate chasing the dream, it is the ultimate embracing of celebrity.
FTX.COM ADVERTISEMENT: GISELE BÜNDCHEN: What do you think? Are you in?
TOM BRADY: You know what? I’m in.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: It’s the ultimate embracing of ego, all wrapped up in a financial product, and financial product in quotes. That is powerful.
STEPHEN LONG, REPORTER: Despite wild booms and crashes, proponents are adamant that cryptocurrency and the tech it’s built on are the wave of the future.
PROFESSOR ELLIE RENNIE, RMIT BLOCKCHAIN INNOVATION HUB: With these technologies, we don’t need to rely on large corporations. We have exponential innovation and development.
JONATHON MILLER, MANAGING DIRECTOR AUSTRALIA, KRAKEN: From payments, to gaming, to financial infrastructure, to lending, the sky is the limit.
STEPHEN LONG, REPORTER: To critics, it’s a form of gambling that exploits the naïve and vulnerable.
MOLLY WHITE, SOFTWARE ENGINEER: Cryptocurrency has no real value aside from the shared delusion that it’s worth something.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: I believe it’s one big Ponzi scheme. That’s how I feel about cryptocurrency.
STEPHEN LONG, REPORTER: Tonight, on Four Corners, Crypto Mania: is it a fad, a fraud or the future? Digital currencies and the tech they’re built on are being hailed as a revolution that will transform the internet and society.
But amid the hype there’s been an explosion in crime, and fresh proof that cryptocurrencies are highly volatile investments.
We talk to true believers, and to critics sounding a clarion call, warning if we don’t deal with the dangers now, it’ll be too late.
STEPHEN LONG, REPORTER: Las Vegas – a mecca for gambling. Home to some of the world’s biggest casinos, and to a young man who made a very lucky bet – but not at the gaming tables on the famous strip.
GLAUBER CONTESSOTO, CRYPTO INVESTOR: My name is Glauber Contessoto. I do a bunch of things and I live in Las Vegas, Nevada. I want to build a music studio, I want to start a record label, I want to create a YouTube channel for hip-hop stuff, I want to have a podcast.
STEPHEN LONG, REPORTER: How are you funding these ambitions?
GLAUBER CONTESSOTO, CRYPTO INVESTOR: Well, the majority of it came from my crypto gains that I’ve made in the past year.
STEPHEN LONG, REPORTER: Glauber Contessoto is emblematic of the rags to riches promise that has lured people into cryptocurrency.
GLAUBER CONTESSOTO, CRYPTO INVESTOR: I was actually born in Brazil. My family never had a lot. And it’s funny, because if you ask a kid if they’re rich, they’ll say, “I don’t know.” And if you don’t know you’re rich, then you’re probably rich because you for sure know if you’re poor.
STEPHEN LONG, REPORTER: Last year, Glauber turned to crypto, ploughing his money into something called Dogecoin. It was based on a popular internet image, or meme, of a Japanese hunting dog.
GLAUBER CONTESSOTO, CRYPTO INVESTOR: It made sense to me to invest in Dogecoin because one, it’s the very first time you have a meme and a cryptocurrency paired together. I call it the language of the millennials, memes. We send memes to each other all the time, it’s just the way that we communicate, and Generation Z.
“What’s going on guys? Pro the Doge here, A.K.A. the Dogecoin Millionaire and I gotta tell you guys about Doge-apalooza. Sugarland Texas, if you guys hold Dogecoin, if you love Dogecoin, come out, celebrate with us, it’s going to be so much fun, we’re going to have live music.
GLAUBER CONTESSOTO: So, I figured, okay, this is going to be the next play. People are going to start investing in Dogecoin and it’s going to take off. Obviously, it helped that Elon Musk was also a fan of Dogecoin.
STEPHEN LONG, REPORTER: The price of Dogecoin soared when Elon Musk, head of Tesla and Space X, started aggressively promoting it on Twitter.
GLAUBER CONTESSOTO, CRYPTO INVESTOR: He tweeted back, to back, to back, to back, to back, to back like on a rant where he’s saying, “Dogecoin is the future”, “Dogecoin is the people’s crypto”. “You don’t have to be a gigachad to own it”, “everyone can own Dogecoin, it’s cents on a dollar.” And he posted a picture of a rocket to the moon, Dogecoin to the moon. He basically came out in full support and if you think about it, if you’re going to invest in a crypto, wouldn’t you want to invest in the one that the richest man in the world loves?
STEPHEN LONG, REPORTER: Glauber’s high risk gamble paid off …
GLAUBER CONTESSOTO, CRYPTO INVESTOR: It took me two months to become a millionaire. I made this post on Reddit, “Hey guys, I just became a Dogecoin millionaire,” and it went viral, and people started posting comments underneath that saying, “Oh, it’s the DogeFather!” Or “he’s a SlumDoge Millionaire”, or “Reservoir Doge.” They just had all these nicknames for me. And I just grabbed the one that I gravitated to the most, which was ‘SlumDoge Millionaire’.
STEPHEN LONG, REPORTER: The irony is that Dogecoin was meant to be a joke. It was co-created by an Australian tech guy, Jackson Palmer, to mock and satirise the crypto hype.
JACKSON PALMER, CO-FOUNDER, DOGECOIN, 13 FEBRUARY 2014: It started as a parody, so we weren’t trying to replicate anything, really. We were just having a laugh to ourselves. And as soon as we put it out there it just kind of exploded.
STEPHEN LONG, REPORTER: Somehow, the punchline got lost as Dogecoin became a social media sensation. At its peak, its market value soared to 89 billion US dollars.
GLAUBER CONTESSOTO, CRYPTO INVESTOR: It was a joke, man. It was basically created to poke fun at the seriousness behind cryptocurrency. It’s just funny because something that came out of a pure joke took off.
MOLLY WHITE, SOFTWARE ENGINEER: I feel like it’s really brought to the forefront that something that has no intrinsic value, that’s not tied to any real-life asset or service, that is just plainly a joke has become on par with some of the more serious cryptocurrencies like Bitcoin or Ethereum. They’re not all that different. One of them is just more plainly based in the shared belief that a silly dog token will go up in value.
DAVID SCOTT, MANAGING PARNER, SCOTT + SCOTT: Dogecoin represents the absurdity of what’s going on. Why is it that people simply went berserk for a joke coin, and somebody made a million dollars?
GLAUBER CONTESSOTO, CRYPTO INVESTOR: I mean, it’s funny because Dogecoin is a joke, but as long as I get the last laugh, we’re all good.
STEPHEN LONG, REPORTER: In the weird world of cryptocurrencies, jokes, memes, and investments that seem to defy common sense abound.
Yet according to its disciples, the cryptocurrency movement is far from a joke.
It’s a weeknight in Brisbane, Australia, and a crowd of people involved in cryptocurrency gathers at a tech hub just outside the CBD for a regular catchup.
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: I started the Bitcoin meetup in 2013, and it’s a way to educate people and talk about cryptocurrencies and some of their technologies and look for some of the opportunities or ways to protect your funds against theft. And it’s really about education and gathering people and discussing ideas and looking towards the future.
STEPHEN LONG, REPORTER: Lucas Cullen, who founded the group, goes by an interesting job description.
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: My role is a Visionary.
STEPHEN LONG, REPORTER: A Visionary?
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: Visionary. That’s correct.
STEPHEN LONG, REPORTER: Oh great.
STEPHEN LONG, REPORTER: His vision is a world where the way we do business is completely transformed by cryptocurrency.
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: It is the future of commerce right now and it’s happening, and people are being left behind.
STEPHEN LONG, REPORTER So it’s that stark to you, it is the future of commerce right now?
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: 100%.
STEPHEN LONG, REPORTER: Key to this is the technology that cryptocurrency is built on, known as blockchain.
JONATHON MILLER, MANAGING DIRECTOR AUSTRALIA, KRAKEN: It’s a technical innovation that allows for the transfer of value seamlessly between two parties without a middleman. Blockchain makes it possible for an individual to send money to another individual with no one else in between other than code.
STEPHEN LONG, REPORTER: Jonathon Miller runs the Australia arm of the global cryptocurrency exchange, Kraken.
STEPHEN LONG, REPORTER: Can you describe the blockchain – what is it?
JONATHON MILLER, MANAGING DIRECTOR AUSTRALIA, KRAKEN: So blockchain is a fancy way of describing a database, but the database is held on many computers, so it’s decentralised. The things that you put in that database can be financial information, or information about who owns what picture or music file online. And the blockchain will record that information over time. So, each block of information is chained to the previous block, and in doing so, you create a very transparent historic record. But importantly, extremely secure record over time of ownership.
MOLLY WHITE, SOFTWARE ENGINEER: One of the selling points of blockchains is that there isn’t a central entity that is responsible for that data. So there’s no bank or government that you have to trust to be giving you correct information about the transactions that have occurred. And you can pretty reliably believe that once a transaction has happened, it will remain accurately stored on the blockchain indefinitely.
STEPHEN LONG, REPORTER: Cryptocurrency is not just a financial product, it’s a philosophy, a movement, born out of a reaction against big banks, big government and regulation.
CHLOE WHITE, BLOCKCHAIN ADVISOR: The people who began this movement had the political philosophy of libertarianism. Essentially that you can use technology to assert your individual sovereignty and your freedom, and money is such an important tool in individual sovereignty because it’s the means through which all of our interactions in the economy are based.
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: For me, it’s about self-sovereignty. It’s about being in control of my assets and having the power to choose where I put my money and to make decisions based on my research. Being able to be in control of your assets without having a custodial or a third party owning them for you.
STEPHEN LONG, REPORTER: Why is that important to you?
LUCAS CULLEN, BLOCKCHAIN DEVELOPER: Because we don’t live in communism.
GLAUBER CONTESSOTO, BLOCKCHAIN DEVELOPER: I mean, crypto to the younger generation represents a revolution in the way we see money. The younger generation lacks a lot of trust in the government and banks and the way they run things, I feel like crypto is almost a freedom for us. Crypto’s like, you know what, I’ll take care of my money, I’ll hold my money, I’ll use it the way I choose to use it. I don’t want to have to pay fees and pay all these things just to use the money that I work so hard for.
STEPHEN LONG, REPORTER: The movement has its own messianic creation story revolving around the origins of the first cryptocurrency invented: Bitcoin.
CHLOE WHITE, BLOCKCHAIN ADVISOR: Bitcoin was created by someone who goes by the pseudonym, Satoshi Nakamoto. We don’t know who he, she, or they are or were, but Satoshi disappeared in the early years of the project, and Satoshi was inspired to create peer-to-peer digital currency.
CAROLINE MALCOLM, INT’L PUBLIC POLICY, CHAINALYSIS: Bitcoin really emerged out of the 2007, 2008 financial crisis, and really a sense that there was a system that really wasn’t working for everybody, that finance needed to be democratised. And Bitcoin was the first pillar of that democratisation of finance.
STEPHEN LONG, REPORTER: Since the advent of Bitcoin, thousands of cryptocurrencies have been launched, and are traded on exchanges and platforms by people of all ages.
DAN TADMORE, CRYPTO INVESTOR AND STUDENT: I’m Dan Tadmore. I’m 17 years old. I live in Melbourne and I’m in my final year of high school.
STEPHEN LONG, REPORTER: Dan Tadmore was just 15 when he bought his first crypto.
DAN TADMORE, CRYPTO INVESTOR AND STUDENT: My main holdings are Bitcoin and Ethereum, because those are the blue chips of crypto, if you will. I’d say around 25% of my friends hold some sort of cryptocurrency. For the one in four of my friends, it is just kind of a, ‘I’ll chuck 50 bucks, I’ll chuck 20 bucks into Bitcoin or Ethereum, or Dogecoin and see where it goes’. And I think that’s okay if you have minimal interest in crypto, because I think that’s where everyone will start. And I think in the future, a lot of them will maybe take more of an interest, but right now it’s more of the money than it is the technology.
STEPHEN LONG, REPORTER: He’s not worried about the wild price spikes and crashes.
DAN TADMORE, CRYPTO INVESTOR AND STUDENT: I think with any new technology, there’s going to be problems, there’s going to be volatility and I think that’s healthy and that’s okay. I think that crypto is a really exciting opportunity for teenagers my age. We are the first generation who’ve had the privilege of growing up with the internet and when there is this new technology, which you know, is a new internet in and of itself. It’s really exciting to be able to see it grow and develop.
STEPHEN LONG, REPORTER: In the CBD of Melbourne, cocktails are flowing at a swank bar called Fable. It’s now accepting payments in cryptocurrency.
Owner Gehan Rajapakse is a true believer.
GEHAN RAJAPAKSE, FABLE BAR OWNER: We always want to be innovators, and when we explored into it, we found out that 30% of Australians own crypto. So it made, you know, commercial sense to then, execute on that and, and bring it to the, to the venue.
GEHAN RAJAPAKSE, FABLE BAR OWNER: So if you want to use crypto to purchase food and drinks at the Fable, you go to our website, and you’d select one of our packages and instead of paying for a credit card, you’d click, use, for cryptocurrency, and it will take you to a portal where you can actually use Bitcoin, Ethereum. And it automatically transacts and for real time, converts it to Australian dollars for us, which is really, really convenient.
STEPHEN LONG, REPORTER: Yet, so far, a very small share of customers pays in cryptocurrency which is not surprising.
For now, at least, in the retail sphere, it’s rarely used to buy and sell anything.
PROFESSOR ELLIE RENNIE, RMIT BLOCKCHAIN INNOVATION HUB: People are possibly reluctant to use cryptocurrencies for payments because the price changes so frequently. They’re volatile assets. So I might spend $10 on a beer in Bitcoin but tomorrow that $10 worth of Bitcoin is actually worth $20. So that’s going to stop me from wanting to pay for my beer that way.
MOLLY WHITE, SOFTWARE ENGINEER: I don’t believe cryptocurrencies are money. They don’t function well as currency.
STEPHEN LONG, REPORTER: Boston, Massachusetts is home to one of America’s leading cryptocurrency critics, software engineer Molly White.
She’s developed a huge social media following for her commentary, which confronts the hype about the tech and chronicles its abuses.
MOLLY WHITE, SOFTWARE ENGINEER: I’ve become really concerned that the marketing of crypto has become focused on sort of the lay person, who’s not particularly technologically savvy or who doesn’t normally invest in highly speculative assets. But increasingly the marketing is major ads with celebrities telling people to buy crypto.
FTX.COM ADVERTISEMENT: GISELE BÜNDCHEN: What do you think? Are you in?
TOM BRADY: You know what? I’m in.
FTX.COM ADVERTISEMENT: ACTOR: It’s FTX, it’s a safe and easy way to get into crypto.
LARRY DAVID: Ehhhhhh I don’t think so, and I’m never wrong about this stuff. Never.
MOLLY WHITE, SOFTWARE ENGINEER: People were being told that these were investments. I don’t typically refer to cryptocurrencies as investments …
CRYPTO.COM ADVERTISEMENT: MATT DAMON: Fortune favours the brave
MOLLY WHITE, SOFTWARE ENGINEER: … because I see them a lot more like gambling. But with gambling, there’s regulation involved, the casinos can’t just take your money and run away with it. They are expected to actually play a game and the odds should be about what they say they are. But with cryptocurrency, there’s really no reason that people need to tell you the risk involved or the odds that you make money. And oftentimes people will just totally make off with your cryptocurrency and there’s nothing you can do about it. There’s no failsafe.
STEPHEN LONG, REPORTER: David Scott is managing partner at a global law firm. Crypto misconduct is a growth area for his business.
DAVID SCOTT MANAGING PARTNER, SCOTT + SCOTT: As the chairman of the SEC stated, it’s the wild west. And it’s the wild west because it is unregulated, really, and that creates opportunities for people who want to engage, if they want to engage in fraudulent or illicit conduct, crypto is an opportunity to do that. And because of that lack of regulation, there are many opportunities for people to lose their money.
SEAN MASSON, LAWYER, SCOTT + SCOTT: If crypto was any other asset class, none of these things would be allowed, right. They would be tightly regulated.
STEPHEN LONG, REPORTER: David Scott and his team have filed a multimillion-dollar class action on behalf of investors in what their lawsuit alleges was a cryptocurrency scam.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: To our mind, and as we allege in our complaint, it appears to be a classic pump and dump scheme.
STEPHEN LONG, REPORTER: The civil case claims a new crypto project called EthereumMax lured in investors by paying celebrities to endorse it.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: Crypto really is the perfect thing for the times. It’s that wanting to be famous, wanting to be great looking, and then add the final layer, I want to be rich, right? And if I do what this celebrity does, I’m going to be rich.
STEPHEN LONG, REPORTER: Boxer Floyd Mayweather was paid to throw his support behind it, and people who bought up big got ringside seats at a highly publicised fight.
Reality TV star Kim Kardashian spruiked the crypto on Instagram.
DAVID SCOTT MANAGING PARTNER, SCOTT + SCOTT: Kim Kardashian has 257 million Instagram followers. Imagine the influence that she has. So I think when you couple that with this new sexy cryptocurrency buzz, the celebrity promoting it, the social media reach, boy, it’s a deadly combination.
STEPHEN LONG, REPORTER: Amid these endorsements, there was a buying frenzy, which pushed up the value of the cryptocurrency.
And then, according to the lawsuit, founders cashed out and made a fortune.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: So they’re unloading their crypto, they’re making money, and everybody else is just riding the wave, thinking that, “Wow, this must be a great investment.” But in the back, they are unloading their tokens.
STEPHEN LONG, REPORTER: After the insiders allegedly dumped their holdings, the value of the cryptocurrency collapsed, plummeting 98 per cent.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: When it was all said and done, those people who bought on the good news and on the news that was being spread by the promoters, suffered extraordinary losses.
MOLLY WHITE, SOFTWARE ENGINEER: When I started to research cryptocurrencies. I noticed that I was seeing a lot of scams and fraud and hacks of major platforms. And it felt like people were being just taken for a ride day after, day after day, it was like, one scam, one day, two hacks the next day.
STEPHEN LONG, REPORTER: Sydney-based fund manager Steve Johnson is well-versed in the history of investment manias.
He sees parallels between the frenzy about crypto and the lead up to the tech wreck of 2000 and the Wall Street crash of 1929, with one key difference.
STEVE JOHNSON, FUND MANAGER, FORAGER FUNDS MANAGEMENT: The human emotions of this bubble are exactly the same as all of the previous ones that we’ve seen. It gets a momentum of its own, people get scared that they’re missing out on something, then they get really greedy when they start making a little bit more money, and they pile into these things, and it’s usually the last people in that lose the most. What’s different is that this is the first truly global mania that we’ve had – the advent of the internet, and now social media, has allowed people to promote these schemes all over the world, not just in one country.
STEPHEN LONG, REPORTER: And as we’ve been reminded recently, manias can quickly turn into panics and crashes.
ANGELA COX, CHANNEL 7 NEWS PRESENTER, 16 MAY 2022: Good evening and welcome to the latest on the crypto crash, as the global economy grapples with rising inflation and interest rates, cryptocurrencies haven’t escaped the panic of investors.
STEPHEN LONG, REPORTER: In early May, hundreds of billions of dollars were wiped off the value of cryptocurrencies. A coin that was meant to be stable in value, tied to the US dollar, collapsed and became worthless, accelerating a selloff in the entire sector. Investors big and small who’d bought in recently got badly burnt.
STEVE JOHNSON, FUND MANAGER, FORAGER FUNDS MANAGEMENT: There’s no doubt some people have lost a lot of money. What we’ve seen is taxi drivers, Uber drivers, mum and dads getting involved in something that is highly, highly speculative, and on a global scale that I don’t think we’ve ever seen before.
GLAUBER CONTESSOTO, CRYPTO INVESTOR, 11 MAY 2022: “What’s going guys, Pro the Doge here and today, woo-wee! A bloodbath, right? Blood in the streets, right? It’s getting crazy in this crypto market, right? It’s getting sweaty in here, you know what I’m saying? A little scarred, you know what I mean?”
STEPHEN LONG, REPORTER: In the midst of the rout, the SlumDoge Millionaire was doubling down, buying more Dogecoin, and sharing his faith with his followers online …
GLAUBER CONTESSOTO, CRYPTO INVESTOR, 11 MAY 2022: “I actually invested another 10 thousand dollars into Dogecoin and that roughly gave me about a hundred thousand Dogecoin give or take. But yeah, I’m a long-term holder, you guys know that, know what I’m saying? Diamond hands? And I’m going to keep on holding it.”
GLAUBER CONTESSOTO, CRYPTO INVESTOR: If you choose to do the research, if you choose to do your own due diligence and actually look into these things, there’s a lot of money to be made there. And it can not only change your life. It could change the life of your loved ones, it could change the lives of the people you care about. And I kind of want to be that representation of your common person who kind of made it in life because of crypto. And so I’m going to keep talking about Dogecoin, I’m going to keep talking about crypto and I really hope people kind of take something positive from it, you know?
MOLLY WHITE, SOFTWARE ENGINEER: People who invest in cryptocurrencies are enormously motivated to speak highly of them because as the more people who also invest in that cryptocurrency, the more their investment goes up. And so, people will speak very highly and avoid any criticism of cryptocurrencies because their financial incentive to do so is so strong.
DAVID SCOTT, MANAGING PARTNER, SCOTT + SCOTT: Because there is no underlying asset, there is a constant need to hype it. You’ve got to hype it, because the hype is what is creating the value.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: Once you own it, it’s in your best interest to spread the word about how great it is, so other people will buy it. And if you think about it, no other investment really allows for that, right? Does Microsoft go on television? Do you see a commercial for Microsoft saying, “Hey, buy our stock.” Do you see a commercial for Apple? “Hey, buy our stock.” You don’t, because those would constitute securities offerings. They would have to be registered. And if you make those kinds of disclosures, you also have to disclose the risks associated with buying your stock. But with crypto, they don’t seem to think those rules apply.
STEPHEN LONG, REPORTER: In Washington DC, John Reed Stark has spent decades at the intersection of law and technology.
He served for nearly 20 years with the principal markets’ regulator in the United States, the Securities and Exchange Commission – specialising in online violations.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: When I was Chief of the Office of Internet Enforcement, I considered myself to be a technology evangelist. I was so excited by everything that the internet could do.
STEPHEN LONG, REPORTER: Now he’s preaching against cryptocurrency.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: I believe it’s one big Ponzi scheme. That’s how I feel about cryptocurrency. It has no underlying intrinsic value. And the main reason that people invest in cryptocurrency is because they believe that there’s a greater fool out there. It’s something at the SEC we used to call the ‘Greater Fool Theory’, that you believe there’s a greater fool out there who will pay more, whatever the cryptocurrency might be.
STEPHEN LONG, REPORTER: He believes that if the crypto market is allowed to grow without safeguards, we will face huge financial risks.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: So there are really two ways for this to go. There could be more regulation and more regulation. And most of this nonsense will be regulated out of existence. Another is the regulation is too slow or the train has just left the station too quickly, and we experience another financial crisis that could be even worse than the crisis in 2008.
STEPHEN LONG, REPORTER: His other concern is that cryptocurrency is facilitating crime.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: All types of horrific crimes from ransomware attacks, and terrorism, and evading sanctions during war time, which is what’s going on right now, drug dealing, sex trafficking. All of those things are now a lot easier to do because of cryptocurrency.
JUSTINE GOUGH, ASSISTANT COMMISSIONER, AFP: It is the currency of choice typically for cybercrime. It enables criminal groups to move money very, very quickly and circumvent both cash transactions as well as the difficulties associated with cash transportation.
STEPHEN LONG, REPORTER: The Australian Federal Police is among the law enforcement agencies dealing with a new wave of crime enabled by cryptocurrency — crime it would be nigh impossible to conduct in cash or the regulated banking system, including ransomware.
JUSTINE GOUGH, ASSISTANT COMMISSIONER, AFP: The vast majority of ransomware attacks demand a payment in cryptocurrency. And the statistics show a rise that has taken place in the past year of ransomware attacks. They impact all sectors of the community. The government sector, health, transportation, logistics, no sector is immune. And it’s an increasingly lucrative way to make money by organised crime groups.
STEPHEN LONG, REPORTER: It’s lunchtime at Newcastle Grammar School in the New South Wales Hunter region.
More than a year and a half on, the school community is still scarred by the memory of its encounter with cybercrime.
ERICA THOMAS, HEAD OF SCHOOL, NEWCASTLE GRAMMAR: It was November 2020, and it was a Saturday morning. And we discovered that we were undergoing at that time, a ransomware attack on our IT system. I was at home. I was actually interviewing some staff and went to find out something on our timetable, realised that we couldn’t do that. And immediately called two of my staff and said, “Can you just take a look at this?” My IT manager took one look at it and realised immediately what he had found. And that was a ransom note from a Russian criminal gang demanding $1 million in cryptocurrency.
STEPHEN LONG, REPORTER: The attack paralysed the school.
ERICA THOMAS, HEAD OF SCHOOL, NEWCASTLE GRAMMAR: Our IT system was encrypted and that meant that we couldn’t use phones. We couldn’t use photocopiers. We couldn’t access any of our files. Our students couldn’t use our learning management system, access their textbooks, do anything. Our business office couldn’t actually look at accounts. We had lost control of many parts of our organisation.
ERICA THOMAS, HEAD OF SCHOOL, NEWCASTLE GRAMMAR: And our year seven to 10 students were about to do their yearly exams. We couldn’t come through our security gates to come in and I had to make a judgement on whether we could be operational.
STEPHEN LONG, REPORTER: Erica Thomas had to close the school. Her immediate concern was the personal data of students, staff and parents, including health records and bank details.
ERICA THOMAS, HEAD OF SCHOOL, NEWCASTLE GRAMMAR: We didn’t know what had been taken at that point. Those cyber criminals had been in our system for eight days beforehand.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: Ransomware attacks would not exist, but for Bitcoin. Every single ransomware attack pretty much seeks Bitcoin most. And that’s my specialty. I help companies respond to ransomware attacks. And guess what? Most of them pay.
STEPHEN LONG, REPORTER: Newcastle Grammar didn’t pay on principle, and notified authorities.
STEPHEN LONG, REPORTER: But there wasn’t much they could do?
ERICA THOMAS, HEAD OF SCHOOL, NEWCASTLE GRAMMAR: Absolutely, very little that they could do.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: The digital wallets used in ransomware attacks immediately use various kinds of money laundering tools to make it almost impossible to get caught. Yes, on a few occasions, just a few, people have been stupid enough and gotten caught, but generally you don’t get caught.
STEPHEN LONG, REPORTER: The school had to junk 14 computer servers and rebuild its entire IT system.
STEPHEN LONG, REPORTER: What does that make you feel about cryptocurrency?
ERICA THOMAS, HEAD OF SCHOOL, NEWCASTLE GRAMMAR: Very negatively about cryptocurrency. International criminals are using this to evade borders, to evade laws in countries and to undertake criminal activities worldwide. This was impacting on a very local level and we’re a small organisation. How do we fight an organisation that’s an international organisation that has unlimited resources, and is operating across multiple borders?
KEN GAMBLE, PRIVATE INVESTIGATOR, IFW GLOBAL: They are light years ahead. They’re state of the art compared to law enforcement who are very much restricted as to where they can even operate compared to these multinational, transnational criminal organisations who are working across border, across the world, all over the planet, at light speed
STEPHEN LONG, REPORTER: Cybercrime sleuth Ken Gamble runs a global private investigation agency that tries to recover stolen funds.
KEN GAMBLE, PRIVATE INVESTIGATOR, IFW GLOBAL: Every criminal organisation that’s using cybercrime as a means to make money is now using crypto because that’s fast, it’s easy. It’s a low risk. It’s created, I believe the greatest crime problem that history has ever faced on the planet. Organisations that traditionally were making tens of millions are now making hundreds of millions, if not billions of dollars. So, these organisations have been able to spread out across the world, compartmentalise their operations, recruit hundreds if not thousands more people into their criminal organisations and they’ve become grossly enriched.
STEPHEN LONG, REPORTER: From London, Caroline Malcolm works for Chainalysis, which tracks cryptocurrency crime. It boasts a who’s who of law enforcement among its clients, including the FBI and Europol.
CAROLINE MALCOLM, INT’L PUBLIC POLICY, CHAINALYSIS: Look, any sort of illicit activity is absolutely of concern. It’s absolutely something that we all need to stay on top of, both industry and law enforcement, to make sure that we’re able to drive down those numbers to the greatest extent possible.
CAROLINE MALCOLM, INT’L PUBLIC POLICY, CHAINALYSIS: We’re able to trace where that money goes to. So, we’re able to watch it move through the blockchain, move through all the different actors, often, of course, through to a place where somebody can turn it back into cash and then use it in the real economy.
STEPHEN LONG, REPORTER: But even though you can see the money moving, it’s extremely difficult to know who’s controlling it because anonymity is built into the design of cryptocurrency.
KEN GAMBLE, PRIVATE INVESTIGATOR, IFW GLOBAL: Ultimately none of those wallets have names associated until the money gets to a regulated exchange. What happens is the criminal groups involved in this type of crypto fraud use unregulated exchanges in different parts of the world to launder the money. Now these exchanges, because they’re unregulated, there’s no visibility by regulators or government or law enforcement on where that money goes and how it’s dealt with.
STEPHEN LONG, REPORTER: Alongside the crime, the scams and the risk, is the possibility that cryptocurrency and blockchain can become a force for good.
Despite all his concerns about a crypto bubble, Steve Johnson believes in the potential of blockchain technology where a buyer and seller are in direct contact, without needing a middleman.
STEVE JOHNSON, FUND MANAGER, FORAGER FUNDS MANAGEMENT: We have a lot of inefficiencies in our financial system, for most people settling a transaction on a house being the biggest one of them. At the moment that takes you ten weeks to do because there are a whole bunch of databases sitting in different places. I think within a decade you will be able to sign a contract for a house and own it within a few minutes because of this technology.
STEPHEN LONG, REPORTER: Professor Ellie Rennie is researching how blockchain technology can give people direct control of their assets.
PROFESSOR ELLIE RENNIE, RMIT BLOCKCHAIN INNOVATION HUB: I was just completely captured by this idea that maybe one day we wouldn’t have an internet that was dominated by four large corporations.
STEPHEN LONG, REPORTER: One possible benefit she sees of the blockchain is enabling Indigenous communities to be paid royalties for their artworks automatically.
PROFESSOR ELLIE RENNIE, RMIT BLOCKCHAIN INNOVATION HUB: What you can do with these tokens, for instance, is ensure that the royalties are distributed among a group of people. So, if there’s a shared intellectual property that’s owned by the community, you can organise the way that payments flow. And not just the first transaction of who that sold to, but every time it’s resold. You can ensure that some of those payments go back to the entire community.
JONATHON MILLER, MANAGING DIRECTOR AUSTRALIA, KRAKEN: In the future, you might see royalties for television programs or music. The distribution of those royalties when a program is bought or sold, or watched, or streamed, will be shared with the creators, without any intervention and no third parties. No bank, no payment provider, just a contract, that is code.
STEPHEN LONG, REPORTER: The imagined future is a new online world that sidelines not just big banks but big tech.
JONATHON MILLER, MANAGING DIRECTOR AUSTRALIA, KRAKEN: Imagine a world in which the value proposition for engaging on the internet is inverted. And we have individuals who own their data and can monetize that as opposed to organisations owning data and monetizing it without you realising.
STEPHEN LONG, REPORTER: But the talk of individuals taking control is at odds with the big money and big capital pouring into crypto.
MOLLY WHITE, SOFTWARE ENGINEER: There’s a promise that you’ll be taking the money into your own hands. You will no longer be enriching the big tech players, but those big tech players and the same venture capitalists who are funding large portions of the web, as we know it today, are jumping in with both feet into the cryptocurrency space. And it seems like to me, their incentive is to extract more of that value for themselves and to take advantage of the fact that people are believing this utopian vision.
STEPHEN LONG, REPORTER: Jackson Palmer, the co-founder of Dogecoin, believes the future cryptocurrency offers is more dystopian than utopian.
He now totally repudiates it, writing that “Despite claims of “decentralisation”, the … industry is controlled by a powerful cartel of wealthy figures”
And “cryptocurrency is almost purpose built to make the funnel of profiteering more efficient for those at the top and less safeguarded for the vulnerable.”
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: The ultimate irony is that you’ve just really transferred that control to Big Crypto. So you’ve gone from Big Banks to Big Crypto, from Big Social Media and Big Tech to Big Crypto. And Big Crypto is a lot worse. Because number one, they are not regulated. Number two, they are very exploitive. And number three, they’re not at all accountable. Most of the time, no one even knows who they are or what their purposes are. It’s just, obviously, the profiteering is, to me, far more shameless profiteering than what you would see from big banks.
STEPHEN LONG, REPORTER: The future of cryptocurrency and blockchain is yet to be written, but it has potential for good and ill.
MOLLY WHITE, SOFTWARE ENGINEER: I think there are actually a lot of real-world problems that people who are big into crypto are trying to solve. There are a lot of real issues with traditional finance and with banking and with equality around finances that are very serious, and I think do need to be addressed. But I think the likelihood that cryptocurrency is the answer to those problems is very, very slim.
CHLOE WHITE, BLOCKCHAIN ADVISOR: I think that there’s going to be more adoption. There’s going to be more institutional interest. There’s also going to be more government regulation.
STEVE JOHNSON, FUND MANAGER, FORAGER FUNDS MANAGEMENT: It’s a really important technology, blockchain, and I expect it to be become quite pervasive in our lives over the next couple of decades. I also think that 99 per cent of the coins that are currently being promoted to people will end up being worthless, and those two things can actually exist together.
JOHN REED STARK, FMR SEC CHIEF, OFFICE OF INTERNET ENFORCEMENT: You can sort of say to me, “Okay, boomer. That’s just your view.” Or “You need to do the research,” or “You just don’t get it.” But to me, the emperor has no clothes.
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