Mark Ames pointed out that the left had become clueless about finance, and we’ll soon turn to the latest example, their stunningly naive belief that cryptocurrencies are somehow inclusive. Seriously. I’m sure many of you are already scratching your heads in wonderment, but let’s give Ames his say before returning to the main event:
By a quirk of historical bad luck, the American Left has gone two generations without understanding finance, or even caring to understand. It was the hippies who decided half a century ago that finance was beneath them, so they happily ceded the entire field—finance, business, economics, money—otherwise known as “political power”—to the other side. Walking away from the finance struggle was like that hitchhiker handing the gun back to the Manson Family.
Sadly the crypto touts have made enough money to fund a lobbying effort in Washington as well as enlisting some mayors as promoters, most notably New York City’s Eric Adams. Two initiatives are underway: a Democratic party initiative to set a regulatory framework for crypto, as well as a Fed inquiry about a digital dollar.
I have not yet turned to the Fed paper on the digital greenback, which was so badly written a college intern should have been embarrassed by it. I suspect this document was foisted on the Fed by the Biden administration. I hope to get to it at some point.
The Democrat crypto bill is not likely to pass this year due to intra-party splits. Given the high odds of a Democrat wipeout in the midterms, one has to wonder what becomes of it in 2023. An article earlier this week in Politico describes the fuzzy-headed “progressive” enthusiasm for it:
Sen. Elizabeth Warren of Massachusetts — who has long led the left’s charge to crack down on banks and Wall Street — has emerged as one of the party’s most vocal cryptocurrency critics, warning that it exposes consumers to danger, is ripe for financial crimes and is an environmental threat because of its electricity usage.
But a new generation of progressives — and a number of other senior Democrats — are embracing the startup industry. They’re arguing against regulations that could stifle what proponents say is a new avenue for financial inclusion and a breakthrough alternative to traditional banks….
“The banks have not served the American public well,” Warren told reporters when asked if she sees any societal benefits to crypto. “There’s a reason that crypto takes hold in some areas because the banks have continued to impose fees on transactions at a time when the cost of transactions should be dropping fast. However, substituting an unregulated, unverified system in which scammers and cheats and terrorists mix in with ordinary consumers and no one can tell who’s on the other side of a transaction is not a safe substitute.”
The stupid, it burns. The high environmental cost alone of crypto alone should make it a complete non-starter for soi-disant progressives.
The source of the current round of fluffy-headed thinking seems to be that ‘distributed” “new” and “Internet” are ever and always better than “traditional” and “regulated”. Perhaps the reptile brains of progressives equate “traditional” with “male patriarchy.” However, they seem to forget that “innovation” in finance means “better customer fleecing”. This is not just our view but also that of Paul Volcker, who declared the last bona fide innovation in banking to be the ATM.
And even if traditional banking is more male dominated at the top (the industry actually has more female than male employees), crypto is vastly more so.
First, let us start with the fact that crypto does not even remotely approach either a currency or banking. You can’t use to crypto to buy much of anything in the real world except presumably drugs. All the currencies have such volatility versus the dollar and euro that they can’t be considered to be stores of value. Buying a cryptocurrency is akin to buying readily tradeable property, where you can quickly get a bid and a payment. Guns are a close analogy, except gun prices are more stable than crypto and you can’t store a gun on your cellphone. But with guns you have the added benefit of use value, aka personal protection, in the meantime.
Before you get to anything approximating a banking system, these crypto players will wind up having to create a lot of new pieces from scratch. Wallets are one such piece, a place that provides for safe custody of your crypto (charitably assuming you don’t lose your passwords or have someone else manage to get to them….bank deposits are much better protected from theft or loss).
Given the number of currencies and players, this means the rebuilding of a lot of capacity that replicates existing banking industry activities. Those run at massive scale at super low costs (the fact that the banks mark them up is a different matter). It’s hard to think that repetitive services, developed by people who seem determined to stumble around reinventing the wheel due to their antipathy to finance, will wind up with something with lower costs. The fragmentation of currencies virtually assures they won’t get near banking’s scale economies.
More costly is hardly nice to the poor and therefore cannot be considered inclusive.
Second (which overlaps with the discussion above) is that crypto is more vulnerable to theft and loss. If you keep your crypto on your local devices, you are at risk of hard disk failure. This has happened as many stories of losses of crypto due to computer death or mistaken disposal attest. And the ones that make the press are the big ticket items. For every guy who lost a million dollars, there are easily 100 who lost at least $1000.
Otherwise you need a wallet. More costs! Coinbase wallets pretends to be free, but if you want to move your coins around, you incur transaction costs. So free is not free. There is at least what amounts to an exit fee.
Third are transaction costs of trading in and out of crypto, which you don’t face when dealing in dollars. And it’s not even clear that you get what you think you are getting. When I buy and sell stocks, I can see the bid-asked spread in pretty much real time at pokey Vanguard from regulated players. No one in crypto is regulated. Even if you see bid-asked prices, you have no idea if they are honestly reported, no idea if the bidders are spoofing. And in any event, bid-asked spreads are higher than for stocks or FX.
Fourth is crypto transactions are not revokable. Yet many real world transactions are. Again, once you get outside the world of criminal activity, most buyers want to be able to inspect their goods or test a service. That is the big rational reason for using credit cards despite their comparatively high cost. They make it easy for small fry to dispute a charge if a product was not delivered or was defective. In trade, letters of credit also allow a period of time before a payment held by a bank is released to the shipper. Crypto would need to build mechanisms like that to even begin to approach the functionality of banks.
Progressives have lost their minds. They somehow think that newbie finance overlords (and they are here already, a banking system cannot operate on a decentralized basis) will be nicer than the current bunch, with no foundation for that belief.
Why aren’t they pumping for obvious remedies? A Post Office bank is vastly more inclusive, particularly for the elderly and tech averse, or those so poor that they can’t afford a cell phone plan all the time. Or did they forget that banks are regulated, and they can be required to offer truly free accounts to the poor?
As Georgetown Law professor Adam Levitin pointed out by e-mail:
I’m all for financial inclusion, but this is a Rube Goldberg way to achieve it. The Canadians have figured out Ockham’s razor: they have a mandate for free or low-cost basic banking accounts. What’s nuts is how cheap it would be for the US to do. Using ABA account cost estimates, it would cost about $9B/year to provide free accounts for all unbanked households. Even a retail central bank digital currency would cost massively more.
Time for progressives to start focusing on simple numbers, like the hard dollar costs of making current banking “inclusive” as opposed to the much higher expenses of “Gee whiz technology” gimmicks.
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Of course crypto is inclusive, all scams are.
The primary good in my mind from bitcoin is the fact that it is not controlled by the government. A place of scammers? Can’t be used? Propaganda? Spoke to a friend who just came home after 2 years in Tunisia a few weeks ago. They are using it there. The energy use is transitory and irrelevant. Not everything is a climate crisis.
With all due respect, you are very poorly informed if you think the energy use to mine bitcoin is transitory and irrelevant. Do not spread disinformation.
https://fortune.com/2021/10/26/bitcoin-electricity-consumption-carbon-footprin/
The cost only rise as the blockchains get longer.
As for not controlled by the government, that position is naive too. Did you miss that China was able to ban all crypto?
https://www.weforum.org/agenda/2022/01/what-s-behind-china-s-cryptocurrency-ban/
And that wallets are regulated and required to report to the IRS?
https://tokentax.co/blog/does-coinbase-report-to-the-irs/
Statista is reporting an even larger number: 2258 kWh per transaction as of March 2022. Ouch! Apparently it’s risen a lot since the October article in Fortune.
https://www.statista.com/statistics/881541/bitcoin-energy-consumption-transaction-comparison-visa/
At $0.13 per kWh, this works out to $294 worth of electricity per transaction. This is unacceptable for even monthly transactions, much less for daily purchases like coffee.
It’s worth noting that other cryptocurrencies are more energy efficient, though I haven’t researched to see if they’re “efficient enough” to be used for routine transactions.
It doesn’t have to be controlled by the government as they will actively cooperate with the government. When the first major anti-Russian sanctions hit, Coinbase immediately ran to the US government and reported 12,000 Russian-linked accounts and I see now that Coinbase has blacklisted 25,000 Russian-linked addresses. This was not like Canada where they had to enable an emergency law to freeze bank accounts but Coinbase doing it off their own bat to keep on the government’s good books-
https://www.coindesk.com/business/2022/03/07/coinbase-touts-blacklist-of-25k-russia-linked-addresses-allegedly-tied-to-illicit-activity/
The fact that the government effectively controls access to the internet and electric power grants them de facto control of bitcoin. The claim that bitcoin ‘decentralizes’ finance is also bunk. The practical implementation puts significant control on a few entities, mostly the popular interfaces to the ‘decentralized’ ledger. The significant advantage of paper money is that once I have it in my possession, I need nothing other than a willing recipient in order to complete a transaction – the lack of intermediaries is what makes it so cost effective. Even a cursory look at the end-to-end transfer of money for an online transaction (buyer’s bank, buyer’s payment app, intermediary credit card, sellers bank) is revealing for just how many participants are taking a cut of the purchase price.
As somebody who works in finance, for a company that thinks very hard about about how cryptocurrencies and the blockchain can be applied to our industry, it’s proving exceedingly difficult to come up with a use case for either that can’t be implemented more effectively via more traditional methods. (We are not simply looking for the use case of shamelessly and blatantly separating customers from their cash).
Separately, I wonder about the calculations for a $9bn cost/year to provide free accounts to the unbanked. Seems a bit high — it’s not like banks would have to put in separate ATMs, or modify existing online systems or apps.
Bring back the $500 and $1,000 bills!
Whatever BS the lobbyists say, the attraction of crypto is as a vehicle for speculation. I have a friend originally from Africa. She makes great money here, tops in her field, yet she joined a crypto club that pays monthly dividends in dollars. I explained what a Ponzi scheme was, and of course she got it right away but planned to continue. I said, then at least start taking money out regularly, but this only sounded like a good idea up to the point of getting the original investment back. Playing with the the house’s money seems like a free lottery ticket. Is she wrong, this early in the game?
I agree with most of Yves’ comments on cryptocurrency above. However, it’s not clear who the pro-crypto “progressives” who “have lost their minds” actually are, as none of them are cited above. Most of the pro-crypto people I run into are “finance bros” whom I would never classify as progressives.
I didn’t want to over-quote from Politico, but since you asked:
Torres is a member of the Congressional Progressive Caucus. The article also quotes Josh Gottheimer and Jim Himes making approving noises.
Got it. It’s useful as a tool of distraction so they can avoid talking about real issues like raising the minimum wage and continue finding excuses on why they refuse to contest power.
They probably see it as a way of courting donations from true-believers in crypto.
Don’t forget Andrew Yang. He’s staking his career on DeFi, having become a crypto lobbyist.
Ritchie Torres and Cory Booker? So “top down” progressives, who generally didn’t need to fight establishment backed challengers, like the Squad does?
I think the word progressive is useless but I don’t see this getting broad support in the NGO space that powers Warren-space politicians. A few may go off range and aren’t being disciplined but I’d hardly call it a movement.
I have the same question. Who are these “progressives”? I’m an Independent Yankee Leftie who won’t touch cryptocurrency. It has “SCAM” written all over it. Gottheimer is not a Progressive.
I get into arguments with lefties who have fallen for the schtick all the time. There’s literally a guy who calls himself “the Blockchain Socialist” who’s been making the rounds of lefty podcasts, and has one of his own. So yeah, they are definitely out there.
Here’s but one example for you: https://www.crypto-commons.org/
this sounds very tin-foily, but in my online travels i believe that there is a concerted effort from a Stink Tank somewhere (probably of Thiel lineage or similar) for infiltration of the “left” from libertarians.
they make many simplistic arguments which sound very libertarian in nature, but are definitely trying to capture the “left” demographic. crypto boosterism is a part of that complex of ideas, of which most of the gist is that “govt is bad and unfair and can’t be trusted to take care of us, so we need to do it ourselves” (undeniably true, but their “solutions” are essentially paleocapitalist in nature, putting us all on the same boat to nowhere).
i would have to do a lot more digging out to give you a complete rundown on the constellation of ideas that seem to be linked to this effort, much less provide “proof” that it is a directed and intentional thing. since i’m an “idea ponderer” and not a digger, my thread may not convince you, but sadly that this effort at co-optation of the “left” by glibertarian brain disease on a number of fronts is already self-evident to me.
I agree with this. One point for this argument is that crypto started out to be self limiting. It was easier to mine at first but as it became “scarcer” mining became slower and slower and required ever more warehouses full of computers. A computer sweat shop is now necessary to mine just a few crypto. So, as the traders originally said, it is “manufacturing scarcity” – thereby value. But it is an entirely synthetic value. It has to be manipulated like mad to be pegged to the dollar to be exchangeable. I’d just offhand call that counterfeiting. It now looks pointless. Or perhaps there is still an ulterior motive lurking around in the basement – to create an effective crypto exchange which manages – by pure malfeasance – to convince the finance industry that it is needed. Some alternative, competing currency? Manufactured by an algorithm “programmed” to maintain a level of scarcity so that it is more “valuable” than sovereign fiat. Why? Because fiat can fiat itself – as necessary – somehow implies that it becomes less valuable. I’d just submit that the ability to fiat itself actually makes sovereign money much more valuable simply because it is so extremely useful. So if you look closely at this magic crypto trick it eventually ends its own usefulness because it becomes too rare; too fussy. It is literally an electronic substitute for gold, or some other historical fetish. And there can never be enough of it to be a currency because then it would lose its value. Crypto, at best (and it’s a real stretch) is a synthetic “asset” – of dubious integrity, and a total hassle to use.
From what I’ve seen, the earliest adopters were tech and finance bros. And they have zero interest “democratized finance.”
These bros already had individuals and organizations well-practiced as their boot-lickers. They know who to go to for fawning press articles.
In addition to media, the crypto industry has incorporated the methods of self-help gurus and multi-level marketing scams (pyramid schemes).
Promoters also are often using language and methods reminiscent of the prosperity gospel preachers and churches.
Thus, in these ways, the net was widened to ensnare more women and people traditionally defined as minorities.
And anybody else notice how much some of the talk from the cryptoheads is like the evangelicals talking about the apocalypse and the rapture?
Cherry picking. Who are “the progressives” who embrace crypto? Certainly not me or any of my friends. We have nothing but contempt for crypto and crypto investors, who are either just speculators or “libertarians” of the right-wing antisocial variety
I suggest you take this up with Politico. They report considerable support among Congressional progressives.
It would really help if you and your friends e-mailed or called to tell these Congrescritters off.
I’m baffled by this disbelief in progressive crypto backers, as I run into them constantly. Lots of people in the FLOSS orbit have drunk the kool-aid, for instance, and I know more than a few hippy-dippy types who are big into crypto, and constantly trying to get all their friends in too.
Crypto=Mary Kay/Amway/Herbalife
Yup. A cross between MLM and Ponzi, with a little “pig in a poke” thrown in for good measure.
Speaking as someone who fell for MLMs when I was a young and innocent Slim, I thank you for saying this, lyman. I’ve been hearing all sorts of hype about crypto and it reminded me of the same rhetoric I heard back in my MLM era.
I could name the MLMs I fell for, but no. They don’t deserve the publicity.
A year ago, I might have agreed with you.
However, listening to podcasts and ‘callin’ shows, I’m realizing there’s a sizable subset of purported lefties that are disillusioned with politics and are looking for other ways to find solutions to social problems.
Matt Stoller has been on a number of podcasts and Briahna Joy Gray has had a number of episodes on her podcast where she’s had guests call in who really sound like true believers.
There’s a weird lefty obsession with de-throning the dollar as the world’s reserve currency, as if that’s going to make things better. Are we going to pine for the days of the gold standard? Except, make it a bit-coin standard? How is that progress?
I think this hits the nail on the head:
I think a big part of this is that the left has been on a 40+ year losing streak, politically, and is desperate for anything that offers the hope of some actual change. And a lot of them have fallen for the “decentralization” hype, not realizing that the crypto ecosystem is actually highly centralized in terms of exchanges and mining capacity. This is what happens when people don’t get anything real for a couple of generations — they start latching on to whatever is around.
Back some time I saw the U.S. Greens had embraced the AMI American Monetary Institute as their experts, same fractional reserve system fail and compounded by loaning banks enough money at interest to bring reserves to 100%, converting all the past monetized credit, into U.S. government money utopias. Oh yeah they get to administer it to be neither inflationary nor deflationary.
I was watching one of those Indian english language broadcasts from Republic World the other day and they had about ten pundits from all over the world discussing the Ukraine crisis. One of he Americans they had on was a fairly young woman who mouthed all the typical liberal goodthinker “Putin is teh evil” platitudes on her first chance to speak. When the anchor Arnab Goswami went back to her a second time, she launched into another screed about how all the problems could be solved by large scale adoption of crypto. Peace on earth and good will towards men, all brought to you by Silicon Valley libertarian grifters!
In fairness, it is highly possible the Goswami picked the USians on the panel that day deliberately for their stupidity.
I saw that show and had a “wait, what??!!” moment when she switched to cryptobabble. Talk about “coming out of left field” . . .
Rep. Ro Khanna. Called it like “digital gold” and worthy of nuturing:
https://twitter.com/RoKhanna/status/1367275225201713154
RE: transaction costs of trading in and out of crypto
I wouldn’t go near crypto myself so I may be missing something about how it all works, but my understanding is that the Tether coin is supposed to “create liquidity” in the crypto markets and facilitate moving between dollars and/or other cryptocurrencies. Every Tether coin is backed by one actual US$, which would be quite the reserve requirement if true. But not all surprisingly, that seems highly unlikely to actually be true.
Very easy to find articles about it, and here’s one from a former NC contributor if I remember right – https://www.forbes.com/sites/francescoppola/2019/03/14/tethers-u-s-dollar-peg-is-no-longer-credible/?sh=e1ad28e451be
And they are apparently also under a DOJ probe – https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto-company-tether-for-possible-bank-fraud.html
> Tether
Nothing changes.
https://en.wikipedia.org/wiki/Salad_Oil_scandal
Corey Booker, Eric Adams, Gottheimer, and Ritchie Torres of “defend the police is dead” fame aren’the progressive in any age or meaning outside of DailyKos.
you’re aware of that, but naive millenial children of hippies/yuppies who believe in “be the change you want to see” aren’t.
many are mislead. because all “collective” solutions have been turned against themselves to be antagonistic to what their original goals are/were. see nearly any Dem policy seeded with landmines of means-testing for ready examples.
this also seems to follow along with my theory about glibertarian (or other “right” side) infiltration. the online chatter about “everything is the fault of communists and collectivitists” is directly on this message line.
someone’s doing a lot of work trying to channel discontent. again, just my aluminum-siding helmet talking, or something worse?
The word ‘inclusive’ is now a force-field that protects the bearer from all ‘left’ criticism. One may not now consider implications of cryptocurrency. The high priests of the ‘left’ now deem it inclusive, and therefore it is good. See for instance how the shield of ‘inclusivity’ now renders moot all other consideration in housing male convicts, including those convicted of sexual assault, in female prison cells. If ‘inclusivity’ protects THAT from consideration of implication, it can protect anything.
The so-called ‘left’ is now a theological movement, complete with shibboleths, an elect, a hierarchy of angels, and the casting out of heretics, not a movement grounded in materialism, much less in two centuries’ history of political-economic theory.
An otherwise kind of smart fellow lost his fortune to an early version of crypto in the South Sea Company bubble, so intelligence and/or political leaning in such matters doesn’t matter.
Issac Newton was the mintmaster @ the Royal Mint in 1723 when these English silver coins were minted, and if i’d lost as much money as he did on the bubble, i’m not sure i’d want to relive it, but maybe it was an attempt to buoy the stock price by evidence in your pocket or purse that it was a worthwhile venture?
https://en.wikipedia.org/wiki/SSC_coinage
The South Sea Company was government-backed until it failed. People’s intelligence wasn’t the trap here; it was their faith in Her Majesty’s Government.
A funny and educational cartoon explanation courtesy of Extra Credit on Youtube can be found here.
I tend to believe that crypto can be quite useful but not in the way that you think. My first question about this technology was whether it was sustainable and the answer was no. A closer look at the inputs and the outputs changed my answer to hell, no. This being the case, I saw how with crypto that you were either a scammer or were being scammed. And the later applies to enthusiasts who try to spread it. Yes, I realize how simplistic this sounds. So, the Mayor of New York is pushing this big time? He is a scammer. Matt Daemon is pushing it? Charitably, I will say that he is being scammed. A person say that they are a progressive but they are pushing crypto? Then they are not really a progressive, a term that even Nancy Pelosi used to described herself with, but a scammer. So for me the concept of crypto has become a sort of touchstone and can be very clarifying.
Anyone who wants to get a good critique of the crypto affair should read this guy’s blog posts on the matter (linked on NC before):
https://www.stephendiehl.com/blog.html
Also this video linked in WC is good (over 2 hrs but REALLY worth watching):
https://www.youtube.com/watch?v=YQ_xWvX1n9g
From the beginning, I have held, that in a world where financial fraud and economic fantasy are structural tenets; cryptocurrencies are a logical evolution and extension of that system.
I will pretend they are viable, for as long as everyone pretends the stock market and general neolib order are better. Certainly Tesla’s real value is closer in proportion to the real value of Bitcoin (zero), than it is to its sale price. Like Hermes bags. If you can justify the cost of an Hermes, or even a DaVinci, you can justify bitcoin.
I rest my case, and will be issuing an NFT of the Brooklyn Bridge. Don’t miss it.
To quote Frank Zappa: “We’re only in it for the money”
Good article. Just a few loose remarks, as I recently started to look a bit closer into crypto.
1) Many people think crypto=bitcoin. Yes, it’s the mothership of crypto, often regarded as the internet “gold”, as there is a finite supply / non-inflationary and mining it will become harder over time.
Mining bitcoin is so terribly expensive in terms of energy, because the consensus model on which it is based is called Proof Of Work, which basically means that you have computers (and nowadays multi-million dollar computer farms with specialized hardware) competing against each other to solve puzzles. The first one at the finishing line will get the proceeds of solving the puzzle and the rest wasted their energy trying to do so.
2) bitcoin is basically useless in terms of what you can do with it, other than trading it or, indirectly, make use of payment systems that somehow keep bitcoin balances rather than fiat.
3) The second biggest blockchain, Etherium, is also based on Proof Of Work consensus model, but is currently in the process of migrating to a Proof Of Stake consensus model that is an order of magnitude more energy efficient, because in this model you “delegate” the work to trusted “validators”. Most, if not all, recently created blockchains are Proof Of Stake based.
4) Etherium introduced something useful in the financial world (but not limited to) called “smart contracts”. The idea is that anything that banks can do, and more, can be done with this emerging technology. Pretty much all emerging blockchains implement smart contracts. Because of this Etherium was once considered the bitcoin “killer” and may still turn out to be.
5) Several emerging blockchains in turn are considered potential Etherium “killers”, because their technologies are evolving faster, and importantly, transaction fees are much lower than fees on Etherium. Nowadays you really don’t have to pay exhorbitant fees at all in order to participate in decentralized finance.
6) For all blockchains there is a trilema to consider. These are: decentralization, scalibility, and security. There is a tradeoff, as one can can typically only have 2 out of 3.
7) Decentralized finance (Defi) is a minefield, full of scammers, hackers and criminals. Tons of money get raised on the next hyped protocol (applications/smart contracts built on blockchains). By far most don’t make it and there’s always lots of victims and few winners. Things get hyped on social media (twitter is full of paid “influencers”), and then we see the pump, followed by the dump. Often protocols get “rugged” by the devs of said protocols themselves, with malicious/unaudited code in the contracts that hardly anyone is able to read or understand. Lots of other rug schemes and hacks, too many to mention.
8) “Decentralized” is a bit of a misnomer. Even though from an architectural point of view everybody can participate in holding a stake in some chain or protocol, and participate in governance (voting on the direction of chain or protocol), the reality is that without exception there are the uber-rich oligarchs (called whales) and an army of small participants holding little (called retail). Whales can destroy the simple guy in a minute. When whales decide to dump, it’s game over. They use the simple guy’s stake as “exit liquidity”. Even chains that pride themselves on their decentralization efforts, such as Cardano, probably have 90% held by whales. Same for bitcoin and Etherium or any other chain. You’re at their mercy.
9) The believe on crypto street is that the government’s main concern is the emergence and booming of “stablecoins” that are virtual coins typically pegged to the US dollar, either through algorithmic means or through backed collateral. It follows that the crypto enthusiast is part owner of decentralized central banks emitting these stablecoins. There are many billions of these coins in circulation and highly desirable in Defi, because they can pay up to 20% APR in borrow/lending protocols, and serve as a hedge in a highly volatile market. Main risk to the Defi player is obviously a depeg. The fear many hold is that the US gov will introduce its own version and ban other versions, like the Chinese already did (or are planning to do), that can be tracked or manipulated such that only “desirable” products can be purchased with it (no russian kalashnikovs, say), or if you’re paid your salary with it, you could be cancelled on a moment’s notice.
10) Last but not least, tons of serious research and brainpower goes into blockchain tech. I wouldn’t just write it off as a single big scam, that one ought to avoid the way hippies did in the past. It’s there, and it will only grow and evolve, just like the Internet did. There are so many parallels with the emergence of the Internet. Quite serious and interesting problems are being solved. It’s in desperate need of some form of regulation, though, as it’s currently a scammer’s paradise wild west. The form that will take is anyone’s guess, or perhaps not. If history is anything to go buy, new tech typically gets into the hands of private for-profit institutions.
I suspect the crypto controversy is a race between those who want to crack down on oligarchs, international tax cheats and file-locking Lithuanian mobsters and an ad hoc coalition of those who support a bit of populist tax avoidance, the right to be left alone and the powerful political payoff industry.
So far the latter seem to be winning.
On a local level here in Austin, the main axis of Yuppieland (the roads leading north-south from the University of Texas) is plastered with full-sized billboards containing pro-crypto, bumpersticker-level adds (“Crypto is a peacefully revolution”), each billboard funded a different front organization. We seem to be approaching the top of the hype parabola.
I keep trying to repress my inner Schadenfreude but I’m not being very successful.
yes, “crypto” is being marketed to the same types who engage in prepperism as a lifestyle/hobby and an image so your report is unsurprising.
There are at least two more huge problems with crypto as currency, though they have less to do with whatever the “progressive” arguments for it might be.
One is basic transaction throughput. Crypto adds two huge, from a processing power standpoint, steps to handling any individual transaction – someone needs to actually hash the new block on the chain, and the new chain needs to be proliferated to all the stakeholders. In a proof-of-work environment (bitcoin), it’s pretty much a dead end unless we imagine magical quantum computing in the palm of everyone’s hand, so to get anywhere close to the volumes of hourly transactions in even a small economy we have to shift to a proof-of-stake consensus mechanism, where some 2-3-4-10 “trusted participants” get to rotate transaction handling and host the overall transactions ledger. But this essentially replicates the current banking system, except instead of a single central bank you have 2-3-4-10 random unregulated private guys. This, somehow, denotes progress.
Two is storing the ledger – and recopying it to all the stakeholders. Understand, that for a blockchain to work, you have to store every single transaction in history, and you can’t just dump it on a tape and ship it to storage, since every new transaction re-updates the entire ledger. Bitcoin’s ledger, at present, is something like 400GB, which, by the way, already means that the original idea of every user being a “market participant” doesn’t work. Bitcoin is many orders of magnitude smaller than the transaction flow in any given economy, and then there is the part where every time you do a new block you have to recopy the entire ledger to all the stakeholders. So even if you do something like “annual ledger resets” to keep the size down (cut off transactions on December 31 and start a new ledger on January 1), at the end of the day you are still back to 2-3-4-10 private unregulated guys replicating the current banking system. This, again, constitutes progress.
I get that these are more technical things that might not be apparent to someone with little to no exposure to crypto. On the other hand, wouldn’t one expect someone touting the virtues of crypto for society to have at least a passing familiarity with how the thing actually works?
Unfair reference to the “reptile brains of progressives”! If ‘progressives’ have brains they are little mammal ones, unable to rest or to refrain from non-stop, frantic consumption.
Justice for the herps!
I have to admit, I’m shocked that the powers that be let crypto get this far. I think bring subjected to several crypto ads during the Superbowl was when I realized financial regulators were simply not going to make any serious attempts to regulate crypto and protect people. They couldn’t care less about us. I shouldn’t be surprised, but somehow I still am. It used to baffle me how they let real estate finance get so out of control 15 or so years ago, but it’s less shocking now.
As an aside, getting an accounting degree late in life was one of the best decisions I ever made. I’ll be done in a little over a year and hope to be a CPA inside of the next 2 years.
my theory is that they want the children to adopt crypto so that when the government rolls out its own version where they will be able to control what, whom from/to and how much you purchase with it there won’t be as much blowback.
the trick is to build the limitations into the official version to make them seem as “natural” as the economic laws people already spout on command, and not an imposition from Authority on High.
Agree about absence of regulation, and it’s a sad indication of how seriously nations really take climate change: banning Bitcoin etc is pretty much the lowest hanging fruit available for reducing carbon emissions. But no. So not only are progressives totally useless, so are environmentalists.
China did it, to be fair. Maybe that’s the only nation really hoping for any progress?
The WEF graduates and associates have only loyalty to “the agenda” of one world government, technocratic control. The “Woke” have had their brains on the wash cycle for so long, they have a cult mentality. Constant hype, fear-mongering, and War, War, War everywhere keep the delusional state … empowered…. This is the most intelligent site I’ve found, with the most likable, knowledgable and keenly aware people one can find online. But, the very fringe, that ties it all together, cannot in my estimate be wrong. I’m ok with being out way-beyond- the fence, but all this is working to destroy, not just Western Civilization, but *everything* and I think the “why” is hiding massive crimes against humanity – as a starting point.
No one has mentioned Glenn Greenwald.
“I don’t classify myself as a Bitcoin advocate, but the refusal to confront the power of global institutions to control currency, spy on everyone, wage Endless War, and police speech is unsustainable. Reflexively rejecting proposed solutions is irrational.”
https://t.co/S8GcBqrnEN
The strawmanning of crypto critics, like he does with COVID policy critics, is painful.
Between his support for let’er rip and crypto he has disappointed me more than any human being.
The strongest critiques here are around the (a) irrevocability (b) ease to lose/steal keys (c) level of scams and speculation. There are strong regulation related cases to be made as well, though the ‘just ban it all’ viewpoint will pre-empt regulation side of things.
On the banking and financial institutions side of thing, the strongest arguments are on those fronts such as (a) regulation needs humans involved and costs money, (b) critical consumer protections are missing (c) fewer intervention points for systematic risk (d) inability to punish bad actors, etc. Crypto banking on audited computer code is always going to be more cost efficient (cheap) than traditional banking systems – it already exists and is cheap. I’m not trying to start an argument here or say it’s better (it’s not), I’m simply saying that the financial plumbing is cheap to build and operate when the system is designed using a single computer language, with instant settlement, loans are secured with over-collateralization/auto-liquidation, and ability to see bid/asks with full certainty. And FWIW I do think the best solution is cheap banking on existing systems.
I am afraid you do not understand banking or complex processes to assert that it can be done anew cheaper. There have been all sorts of internet only banks that have not gotten much of anywhere.
You need data vetting. You need to provide for revocable transaction, which ever and always require humans to adjudicate the payor v. payee claims.
Banks exhibit an increasing cost curve over a pretty low total asset size threshold. That is because diseconomies of scope offset economies of scale.
See this:
https://onezero.medium.com/the-inevitability-of-trusted-third-parties-a51cbcffc4e2
Please ignore the discussion at the end. Doctorow does not understand CDOs, securitized mortgages, or credit default swaps, so his ideas there don’t remotely relate to how securitizations work. But that does not undermine his earlier general points.
On the subject of internet only banks, I’ve become very curious about Revolut, which seems to have identified a niche and is growing very rapidly here, mostly by word of mouth. In Japan and here in Ireland (I can’t vouch for anywhere else) its become almost the de facto way for young (and not so young) people to share money – things like settling bills after a dinner. Two friends pretty much insisted I downloaded it to share costs on a weekend break away. At first I thought it was just a glorified PayPal, but it seems to be slowly morphing into a real internet bank.
Okay, please forgive my lack of understanding of banking but could you please source your statement about banks exhibiting increasing costs curves? I hope you’re not still using Berger and other studies from the 1990s.
For the largest banks the consensus of economies of scale has been pretty consistent for at least the last 10-15 years. Most indicate increasing returns to scale, and a few are neutral depending on methodology used. For example – “We find that, despite the growth in size of many of the largest banks during and since the financial crisis, the very largest banks continued to face IRS (increasing returns to scale) in terms of cost in 2015. In fact, our estimates indicate that many of the largest banks experienced statistically significant increases in RTS between 2006 and 2015.”
-Wheelock, David C., and Paul W. Wilson, 2017 (update), “The Evolution of Scale Economies in US Banking,” FEDERAL RESERVE BANK OF ST. LOUIS Research Division
For sub $10b banks the FDIC staff study “Report No. 2020-06 Economies of Scale in Community Banks” also concludes increasing scale, with only a small bands of increasing costs around $1b. “The estimated efficient size rose precipitously from this nadir, climbing to almost $6 billion by 2014 and reaching the high end of our truncated data sample shortly thereafter. Since our sample includes only banks with less than $10 billion in assets, we are only able to say that the estimated commercial banking industry cost curve was still declining by 2019.”
It perhaps does not occur to you that the Fed has strong incentives to depict the increase in concentration that occurred after the crisis as virtuous. Presenting the bigger banks as more efficient helps that story.
These studies are methodologically bogus because the largest banks now carry substantial and heavily subsidized non-banking activities in their largest bank subsidiaries, above all, derivatives. The largest banks also have substantial securities and asset management operations that are included in BHC revenues and profits. Asset management exhibits extremely strong returns to scale. So does securities sales and trading. I don’t consider them to be banking. They are investment banking and should be separated out. The intent of regulation is to subsidize banking (core payment and deposit functions), not fund management and securities. Recall there was a big uproar when it was revealed that BHCs were booking derivatives in their lead banking sub, as in the derivatives could imperil FDIC guaranteed banks, but in the end no one did anything.
The older studies you pooh-pooh are much more representative of the core banking activities that the crypto-bros are reinventing.
Okay, thank you for the response. I personally don’t think pre-internet age bank studies are the best source for conclusions on blockchain banking activities but admittingly that is just my opinion. And scale is probably a minor aside to the validity and future (or lack thereof) of blockchain banking. Ironically, I’m a pretty big critic myself for different reasons, though I do spend a few hours using and researching each weekend. I won’t post anymore comments on your crypto or banking articles since it’s probably draining for both of us to talk past each other and that’s not my intention. Your work on CALPERs is great, so thanks for that too.
Thanks for the kind word about CalPERS.
Forgive me for going on for the benefit of anyone who comes across our exchange.
The studies about bank economics that the Fed is pooh poohing went through 2005 or so, so after the Internet was in wide use. The big break for retail banking economics was not the Internet, but banks no longer having to return cancelled checks to customers each month. Some banks stopped doing that as of 1980 if the customer consented, but it stopped as a matter of law in 2004. But again, big factory-type operations like check processing are, or at least should be, more efficiently done at bigger scale, so I don’t seen this change making much difference for big bank v. small bank efficiency.
Just so you understand, the point about banking having increasing cost curves above a relatively low size threshold (post 2000 studies had a wide range of break point, anywhere from $1 billion to $25 billion in total assets) is arguably favorable to new entrants like crypto players. But smaller banks have well-defined geographic footprints so I am not sure that example applies to crypto.
The theoretical advantage is that crypto plays will not have physical infrastructure. But as indicated, purely Internet banks, the closest analogy, have not fared well. And Charles Schwab rejected a study that suggested opening offices would not pay off. Schwab management was correct. Each office generated a lot of new customers, way more than enough to pay for itself, and also improved customer satisfaction ratings across all customers. Even if they didn’t use a branch, customers liked the idea that they could see someone in person.
I’ve been wanting to give you all a ‘heads up’ as we say in Australia about http://www.blockfi.com which to me is an ominous sign of something we were warned about on NC years ago. The interfacing of crypto with the global financial market. Now, I don’t know how much this is the case with ‘blockfi’ but on the face of it, it’s some kind of credit card scheme that pays you, allegedly, in crypto, for obtaining a credit card and also pays you in crypto for making credit transactions. Tim Ferriss is promoting BlockFi by way of advertisment on his web site. He also admits to being an investor in the product. It doesn’t appear to be legal for the US market. Tim Ferris on the other hand, is also a US citizen last time I checked, and his salivating audience are basically a particular demographic within that very same country. If someone knew how to follow that up with the appropriate authorities I think it would be very healthy for Mr Ferriss to be ‘checked’ in this regard. And probably save some people some marriages and bank balances down the track. With all the money, influence and notoriety he has he chooses NFT’s and crypto as the place to put his attention and influence. It’s not just a shame it makes me angry. He on the other hand could be promoting cash and its benefits for society, and actually effect change.