I’m not going to pretend to be an expert in cryptocurrencies. I have a general awareness of what it is and how the blockchain works (sort of). I’ll admit that I’ve never really understood the purpose of crypto—sure, I understand its ostensible purpose as being a deregulated market that allows for private transactions or whatever, but it has often felt to me like just another kind of stock market controlled by the same tech billionaires that ruin everything else on the planet. So, I launched into Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by cryptoskeptics Ben McKenzie and Jacob Silverman.
It’s hard to know how much of their argument feeds into my confirmation bias. Crypto enthusiasts are notorious for saying “do your own research.” Well, in my “research” of watching videos like Dan Olson’s “Line Goes Up – The Problem with NFTs”, I have very little faith in the alternative markets that pop up. The little Marxist in me knows that money of all kinds is only valuable through collective agreement and that the surplus value of labour is expressed through bills and coins. There’s not really an inherent difference if people opt to trade in alternative currencies, but McKenzie and Silverman present a compelling case for crypto not really being a currency at all. McKenzie writes that because “you put real money into them and you hope to make off of them through no work of your own” and that “under American law, that’s an investment contract. More precisely, it’s a security.” He refers to the 1946 Supreme Court decision that established the Howey Test for determining securities. It has four prongs: “an investment of money, in a common enterprise, with the expectation of profit, to be derived from the efforts of others. Check, check, check, and check.” Referring to Bitcoin in particular, McKenzie and Silverman make the case that it, and the “20,000 or so other cryptos ought to be classified as securities under American law.” In practice, it operates more like a stock, and a stock that seems rigged from the start.
One striking stat that McKenzie and Silverman return to, albeit an estimation, is the response Alex Mashinsky, former CEO of the Celsius Network, provided when they asked how much “real money” was in the crypto system. His answer was 10-15%. This supposedly trillion dollar industry, the book asserts, is set for a collapse akin to the subprime mortgage crisis—or the tulip mania bubble burst. Even before getting into the scam part, the authors make the argument that Bitcoin isn’t all that useful and that it’s wrong to buy into the notion that “If more people would just buy Bitcoin, eventually it will become a currency you can actually use.” They consider the functions of money like store of value and unit of account and say that Bitcoin “fails miserably’ because “the price jumps up and down like a rabbit on amphetamines, making it impossible to run a business using Bitcoin, or any other crypto, or hold onto it for any period of time with reasonable confidence it would retain its value.” The unpredictability is its downfall: “Could you use a cryptocurrency as a rudimentary form of money?” the authors ask and then answer, “I mean, sure, you could call a brick a soccer ball, but I wouldn’t recommend using it that way.”
The use-value of crypto currencies is thoroughly discounted, in part because the technology isn’t there to support it. The authors make the case that “the technology behind Bitcoin sucks. It doesn’t scale.” While they concede that Satoshi Nakamoto’s “solution to the double-spend problem was innovative, [it was] also clunky. The more miners who entered the competition, the more energy was used but the blocks were the same.” When they give the statistics, it does seem pretty bleak: “Bitcoin is able to handle only 5-7 transactions a second; it can never go above that” whereas “Visa can process 24, 000.” If more people bought into, for example, Bitcoin—the technology might not be able to handle it efficiently, anyway.
This is also an environmental crisis, as with all “new” and “cutting edge” technologies. Bitcoin uses tremendous amounts of energy: “the equivalent, in 2021, of Argentina. The entire country.” By contrast, “Visa and Mastercard use comparatively miniscule amounts of electricity to serve a customer base orders of magnitude greater. Bitcoin’s energy consumption is enormously wasteful and poses a massive environmental problem for the supposedly cutting edge technology and, really, for all of us.”
Potential practicality aside, most of the book is about the criminal potential of cryptocurrencies. The authors give some account of the systemic issues with crypto (its unreal consumption of resources, its propensity to be used for money laundering, and so on). Aside from just having bad actors, the whole industry seems to operate through misinformation and backdoor deals that benefit the people at the top. The top 1% whales own the vast majority of all crypto, 90% of Bitcoin has already been mined, and so on. Cryptocoin creators also seem to have a habit of double-dipping and being invested in or having deals with crypto exchange markets. In one particularly harrowing anecdote, McKenzie recounts the story of two crypto enthusiasts’ disastrous experiences when their cryptoexchange crashed or otherwise became frozen at times when they were hoping to trade. As an aside, even at the best of times, average crypto transactions take about 8 minutes. One man lost an exorbitant amount of money; he knew he wanted to sell, but the system wasn’t responding and he sat in horror watching the price of his crypto plummet, not being able to divest. Meanwhile, another man was set to invest, but the flaws in the technology prevented his purchase, and he missed out on making (potentially) hundreds of thousands of dollars. That is, incidentally, if he even would have been able to cash out; McKenzie and Silverman point to the challenges of actually turning your crypto into actual funds when desired.
I’m not sure if the systemic nature of crypto’s fraud is fully established in the text. McKenzie and Silverman focus on particular case studies of cryptoscammers pretty frequently. Having the focus land so squarely on a couple of key players gives the impression that the bad apples are ruining the bunch. I don’t doubt that crypto is rotten to the core, but I think there might have been some more balance from the specific to the general in order to show how thoroughly rotten the scheme is.
That said, the case studies are pretty compelling. Some of my favourite chapters profile particular crypto scam artists or offer extended interviews with them (cf. Alex Mashinsky interview above). There’s an ongoing saga with Sam Bankman-Fried, founder of FTX cryptocurrency exchange. McKenzie offers a character study of the fraudster and replicates a series of bizarre and, frankly, pathetic text exchanges where Bankman-Fried is pleading to get McKenzie on his side, to like him. The wry humour of the book helps paint this portrait in an engaging way before documenting the ways that Bankman-Fried manipulated the market, donated vast sums of money to politicians, and so on, before getting charged with seven counts of fraud and conspiracy.
There’s a human interest aspect of the book that might have been emphasized a little more thoroughly for the victims of crypto scams. McKenzie points out that everyone seems to accept being scammed as part of the deal and place the blame on themselves and their own research (or lack thereof). Throughout the book, McKenzie and Silverman point out the comparisons between crypto and gambling, noting in particular the ways in which “the house always wins.” In the final chapter, McKenzie notes that gambling is the addiction most likely to lead to suicide, which makes it particularly concerning that the rise of crypto enthusiasm was seen most among young men (already overrepresented in suicide statistics) during the Covid pandemic. The final chapter also documents a family that falls apart because its patriarch gets addicted to crypto and continually wanted to borrow money for the next big score—his son offered to pay all of his bills, but not give cash. The argument that followed during that phone call was the last time they spoke.
We’ll continue to see how the cryptomarket develops. I gotta say, I’m not super optimistic.
Happy reading!
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