[VenturePunk #3] We're at an Inflection Point for Crypto After the FTX Fiasco
And, no this isn't a commentary on SBF or FTX.
Like much of Crypto Twitter, I spent (too much) time last week with a bowl of virtual popcorn, watching the FTX news unfold. I’ve been following the leaks, rolling my eyes at the disclosures and revelations about the company culture. It’s a collective ritual expression of rage and disbelief, and it’s understandable.
Looking ever more deeply into the debacle, we see its fractal horror. Zoom in, and see the in-house psychiatrist prescribing designer stimulants. Then there’s, of course, the main event, the use of customer funds to YOLO into bad investments. And zooming out, we see the profound regulatory capture that SBF had enacted in Washington, like his championing of the DCCPA, which would enshrine protection of centralized exchanges, to the detriment of true DeFi.
While we eat our popcorn, mourn, rage, support each other, and continue to work on our projects, we can’t just put our heads down and keep saying GM to each other. We have to stop a moment, take a breath, and consider that this moment is an inflection point for our industry as a whole.
Here in GM-land we live and breathe this space every day, and we have high context available to follow every twist and turn of the lies, fraud and liquidity crises that have toppled firms from 3AC to FTX. Outside of our bubble, our friends and family hear the news and mutter to themselves, as they wash the dishes: I KNEW CRYPTO WAS A SCAM! A planet-busting, rich guy shell game scam. I can’t wait until they make this whole scam illegal.
What people need to remember is that, starting with Satoshi Nakamoto’s whitepaper, crypto was never designed to make people rich. It was designed to make us free.
Cryptocurrency, used as a currency, holds the promise and freedom of an autonomous, decentralized exchange of value. Its promise began with Bitcoin, and has deepened and broadened with blockchains like Ethereum, that become, in essence, a distributed virtual computer. Blockchain offers autonomy, privacy and security, and in the hands of decentralized communities, it offer the chance to scale the innate self-sovereignty of human beings to the global, digital stage.
This is a precious, important technology. It has brought us wonderful things—contract-enforceable royalties for creators, fully transparent decentralized exchanges, and true digital ownership. It has helped people on the margins of society, without equitable access to banks, participate in the digital economy. The technology offers so many powerful things in the future, like secure, private zero-knowledge proof of identity—without disclosing information to states and gatekeepers. In a world where we are becoming data-cows for Big Tech, blockchain technology offers a just solution. What the technology does not offer is a gambling casino, a fool-proof investment, or yet another field to be co-opted and captured by oligarchs.
The FTX crash is an opportunity to take stock—no pun intended—and to clean house. There are too many builders building Ponzi schemes, liquidity traps, and scams. We can’t kick them off chain using the technology, but as a community, we can rededicate ourselves to the norms and culture embodied by Nakamoto’s paper.
Just last week, Mastercard, Wells Fargo and Citigroup launched a 12 week digital dollar pilot project. This test will not be in the real world, but using simulated data. A central bank digital currency could offer some of the benefits of cryptocurrency, namely convenience and speed of settlement, but the risk is clear: such a currency is censorable, i.e. anyone’s wallet or currency could be barred from use at the behest of its controllers.
This prospect horrifies me. On the surface it seems pretty cool—stop thieves and scammers, traffickers and terrorists in their tracks by switching off their money. But that involves trusting the government—ANY government—not to use such a facility to clamp down on behaviors and groups it doesn’t like. When research repeatedly indicates systemic bias in organizations like police, it’s unrealistic to trust any entity, let alone a state, with the ability to directly control our money.
But states will continue to try to control crypto. They will cite the serious and real problems with crypto culture while attacking the technology. To defend the technology, we must change the culture.
We all like to say the bear is for building. Well we need to prioritize building for scaling crypto adoption in the real world—whether that’s something like being able to use USDC in Apple Pay (caveat, USDC is a censorable token), safely using an NFT as an access pass through a service like tokenproof, safely delegating NFTs using a service like delegate.cash, or making it easier, cheaper and more secure to use cryptocurrencies as money directly.
There are many global actors approaching this task. For example, El Salvador has already adopted Bitcoin as an official currency. Unfortunately, even this approach has had its flaws, as it was predicated on numbers going up. Numbers have not gone up, and now El Salvador is entering a free trade agreement with China, which has agreed to buy its foreign debt.
So, how do we encourage mass adoption without price going up? I don’t have the answers, of course—just questions and ideas.
One thing I’ve been thinking about is the circular economy. This is a concept that arises out of the systems-thinking philosophy, where an entity such as a company adopts an approach to materials management that ensures as much as possible is reused, recycled or otherwise plowed back into production.
Circular economy adoptees, who include large and successful companies, can use blockchains for keeping track of materials in order to ensure they’re effectively managed and reused. It’s a short step from here to adopting cryptocurrencies as units of account, and to using them in daily operations—anywhere from a company cafeteria to large-scale purchasing.
Bit by bit, this can scale, particularly if companies, cities, agencies, institutions, and, eventually, states preferentially do business with other entities that are doing the same.
There are also many local projects that could take advantage of a decentralized digital currency. Some municipalities have enacted a local soft currency-by-consent to encourage people to spend within their own community, offering various incentives and discounts in order to jumpstart and encourage this desirable activity. There’s no reason why municipalities can’t use a stable, fully backed cryptocurrency for this purpose.
As individuals in the space, we can use the impetus of this moment to reestablish the norms that crypto was invented with—security, transparency, community, education and social change. These do not conflict with the goals of consumer protection and the capacity to fight crime and sanction bad actors.
We can vote with our feet and our purses, engaging with projects that uphold these values. And we can also organize as a community, calling for a higher standard of accountability for the platforms, infrastructure services and tools we use on a daily basis.
Many people joined the space seeking opportunity and wealth. That is very understandable—the nature of the society in which we live means seeking profit is a survival tactic. But the reason price goes up, when it does, should reflect the utility and promise of blockchain technology, not the logic of a casino.
In the chaotic aftermath of FTX’s collapse, one of the biggest tragedies would be if states enacted regulatory responses that actually protected and enshrined the role of huge, opaque centralized exchanges. Bills like the US DCCPA would not prevent another FTX from happening. KYC regulations are unlikely to deter crime any more than existing mechanisms do. What would help everyone are regulations that protect DeFi and enshrine standards of transparency—fully disclosed assets and liabilities, on-chain, open-source code with robust security vetting, and protections and explicit risk education for individuals and communities that participate in the space.
It also involves a profound cultural and political change in our governments—a move away from collecting our human data and using it to control us. Our rights to privacy and freedom are not ideological. They are far too important to be aligned with conspiracy theories or pre-existing political agendas. There are members of all ideologies supporting and opposing crypto, but the movement for decentralization has the potential to rise above ideology.
At present, the regular person on the street thinks of crypto and associates it with scams and hacks. It’s up to us to highlight the truth of alternative narratives, the ways that crypto is changing the world for the better. This space is so full of energy, optimism and heart that I know we can do it. We need to put as much effort into telling our good stories as we do looking for the latest alpha.
I keep thinking of the livelihoods that the FTX crash—and other topplings, from Luna to 3AC to BlockFi—have destroyed. There are disabled folks, unbanked families from the Global South, communities and enterprises across the world who trusted these august leaders with their life’s savings, largely because they believed them to be safe. We are not yet at a point where everyone can self-custody with confidence. But we will be. What can we build together that will bring that point closer?
By Margaret Corvid About Margaret: Margaret Corvid (lorepunk.eth) is a writer and poet based in the U.K.
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