Response: Why Cryptocurrencies Are Worse Than Pyramid Schemes
I want to start by saying I have followed Michael Shellenberger ever since watching one of his videos on TedTalks, which was literally the only TedTalks I’ve ever watched. I’ve read both his books, I’m subscribed to his substack (paid) and highly recommend all of it. I’ve sent his book Apocalypse Never to over a dozen politicians as it’s the most comprehensive book on climate alarm-ism and the negative impact it’s having on the actual climate conversation. I want to address his piece of crypto currencies and while I will try to keep this succinct — in hopes Michael reads this I need to make sure it’s equally thorough and worth reading.
For a fun starter, HODL comes from here bitcointalk — basically a drunk guy trying to say he doesn’t trade he just holds. It’s a typo…I’ve seen the “Hold on for deal life” before from what I’ll call newcoiners, those who haven’t learned yet it’s just an endearing meme.
1 — Crypto’s intrinsic value.
“They are just numbers on a public ledger, why does that hold any value”. Says all who start looking into crypto, just some number on a ledger, why does that matter? Crypto solves many problems which I’ll go through which provide it intrinsic value; what that value is totally depends on each cryptocurrency, they vary, but it certainly has underlying value. Far more value than “well you can melt the gold and turn it into earrings” or “well those dollars, I mean, …., you can burn them if you’re cold” — or finally “There’s an actual company with a real product that justifies this 100 price to sales ratio”.
1.1 Self Custody = store of value.
Not Your Keys Not Your Coins. Crypto is about self custody, think of returning to the time where all your money is no longer in a bank, it’s stored under your mattress as paper. You’re in control, not some bank. You get what’s called a ‘seed phrase’ when you create a wallet (12/18/24 words) and many people need to be educated that that seed phrase is the keys to the city — if anyone gets them, they get to take your crypto. No returns, no 1–800 number…you hold your money. No trusted third parties. No bank. When crypto folks roll our eyes at FTX, Celcius, etc… as saying “that’s not crypto” it’s because people took their crypto holdings and trusted them to a company. Companies fail, they can steal your money, the government can tell them to hold your money. Those exchanges or companies are just traditional finance taking custody of your crypto — which is the opposite of why crypto exists. If you hold your keys, you hold your coins, No one can take them from you. You’ll see a theme in crypto of Not Your Keys Not Your Coins. If you don’t hold your own keys you shouldn’t be in crypto. This is square one, when I talk to someone who owns crypto and holds it in an exchange, I start by telling them they’ve lost the plot. So why is holding all my wealth so great? Well for one it’s portable, I can travel anywhere in the world and just need to remember 12 words, I can access my crypto everywhere. I don’t have to fill out forms, or notify a bank, or notify the government that I want to use my money, I just travel, end of story.
If I hold all of my wealth in stocks, or in gold, or in dollars I’m really just trusting our institutions, I don’t own anything except IOUs. Try to cross the border with your million dollars of Gold, try to transfer your million dollars to another country, try to carry your million dollars across the border and see how far you get. You might succeed, maybe you fill out forms, maybe the authorities let you move your own hard earned wealth. Maybe they don’t, maybe they do. Maybe you get your money back, maybe you don’t. Maybe you go to jail because some lies about you, maybe they seize your assets because your last name rhymes with bitler. It’s worth A LOT to me to be in control of how to store my wealth, and not have to trust banks that, quite frankly, I don’t trust anymore — especially when we saw what happened in Canada.
(Men robbed of their money when going to purchase land), (guy wants to buy a music studio)..There are many stories of cash/asset seizures without being convicted of any crimes.
1.2 Censorship Resistance
In 2010 the US got a little embarrassed by a little known entity called Wikileaks, they dared publish a bunch of embarrassing stuff that made the US look bad. The US instituted a financial blockade facilitated by banks and credit card companies and figured they could starve them of resources(https://www.theguardian.com/media/2011/oct/24/wikileaks-suspends-publishing). Then Wikileaks began to accept Bitcoin and the world could donate to these bad people the government deemed enemies of the state (https://twitter.com/DefendAssange/status/919247873648283653). No one can stop me from handing you 20$ for your book, Paypal CAN stop me sending you 20$ electronically because they don’t like the content, same with credit cards — but NO ONE can stop me from sending you 20$ in crypto, because it’s digital cash. PayPal blocked my account in 2008 when I tried to buy a wedding dress from Thailand. They even sent snail mail to my home addres which I had to open and prove my address — hard to do when you’re on the other side of the planet. That’s when I learned how important censorship resistance was, how I had to bow to a company and beg them to pay the 1000$ for a wedding dress. They just had poor security policies but that’s part of the point — I got stuck in security theatre / bureaucracy and couldn’t spend my own money because a paper pusher thought better of it. Had that been for a hotel I could have slept on the street, maybe not be able to eat…kind of rediculous. So for reasons of ‘security’, or because I’m against gender identity theory, financial censorship is bad and should be criminal, and it seems you only really notice or care when you are the one who’s impacted and Murphy’s tends to tell us that happens when you least want it to. In Canada recently some protesters had their bank accounts frozen, in fact people who donated money to them got their bank accounts frozen (https://www.bnnbloomberg.ca/banks-freeze-millions-in-truck-convoy-funds-under-trudeau-edict-1.1727032)- that’s crazy and is becoming more common. In Brazil election deniers are now having their bank accounts frozen (https://www.aa.com.tr/en/americas/brazilian-authorities-block-bank-accounts-of-those-allegedly-driving-anti-democratic-acts-/2741642) There is growing financial censorship, but if you store your wealth in crypto, and you control your own keys, then those banks and governments can’t seize your assets anymore for your thought crimes. Wikileaks was a great example of early cancel culture and was the shot across the bow, Alex Jones was next, but now we’ve got countless examples of big tech and governments and banks colluding to cancel people’s money and that’s insane. Crypto solves this, I can send you money even if the woke police say I shouldn’t. I will be able to donate to my church even when they get cancelled for not rewriting their sacred text to be woke friendly. You can’t censor my transaction — and THAT has intrinsic value. I would rather have my money be uncensored, I prefer being able to pay for the wedding dress from Thailand.
1.3 Open, Immutable, Permission-less, Self-Custody.
The 2 points above highlight something massive. I don’t need anyone’s permission. I don’t need to be 18 years old, I don’t need ID, I don’t need permission from my government or from an official. I don’t need to prove anything to anyone to participate in this global distributed, border-less, permission-less system of finance. Big banks can’t pressure me with ESG to access my funds or to own property. This is worth A LOT for me, and for many others. Banks should be competing to serve you, they shouldn’t be your master.
1.4 Monetary policy.
The dollar has lost 99% of its value since the federal reserve was created. It is designed to always inflate, it is the asset you are guaranteed to lose money on over time. Government spending only goes up, and went crazy over the last decade. Governments used to raise money to fund wars (remember war bonds!?) now they just magically conjure up hundreds of billions of dollars to send to Ukraine, where does it come from? How can they just keep sending tens and hundreds of billions over there without some new tax? They don’t even ask any more, we fund wars and regime changes because we can just print the money we need. Imagine we take that power away and the government needs actual money from the people to start new wars….pretty soon they’d quit starting them when the people actually have to pay it. Imagine the government needs to compete with other currencies in a free market? Bitcoin has 21M Bitcoin ever, it currently inflates and that inflation (or monetary expansion) is paid to miners to secure the network. HEX, another cryptocurrency, inflates to pay interest to those who lock up their coins like a certificate of deposit. There are thousands of cryptocurrencies, each with their own monetary policy, and they compete for users and communities, and the strongest survive and thrive and there’s a river of dead projects out there….crypto is literally watching evolution occur to financial markets. There’s wrapped gold (though there is counter-party risk that someone actually holds gold in a vault somewhere, you hope) which tracks the price of gold. What monetary policy is best? whatever is right for you. If you want to store your wealth in Bitcoin, and I hold Ethereum, I can quickly swap from one to the other and pay you your Bitcoin — don’t need banks!
1.5 Decentralized trading / Decentralized Finance (DeFi) / Smart Contracts.
One of the greatest achievements for crypto which really sparked the last bull run was decentralized trading through automated market makers — the best known, most liquid game changing technology was Uniswap. I could now provide decentralized liquidity for trading to a market without needing KYC/AML, without being an accredited investor, and without being a bank. Little old Robert could take 1000$ of Ethereum and 1000$ of HEX and create a trading pair, and now anyone could trade between those 2 assets. No middlemen, no company, no trusted third parties, just code on the blockchain. This is a game changing technology. It has evolved into yield farming (incentive for providing liquidity), single sided liquidity, order routing, DEX aggregators, etc. There’s a new project called Thorswap which does trust-less cross-chain swaps, so you can even trade your Bitcoin (native) for native Ethereum without needing an exchange. Using an exchange like Coinbase, or FTX or Binance (which was banking 2.0) is largely becoming obsolete. In fact crypto exchanges like FTX/Binance were very hostile to DeFi because they saw the threat until they could try to monetize it. These technologies can have bugs, but as open source projects they become battle tested quickly and have a lot of eyeballs on them. Aave is a project which allows for trust-less collaterlized loans against your crypto. Liquity provides a stable USD backed by your Ethereum (more on this later). Decentralized finance is a bigger deal than decentralized currency.
Now it’s important to understand that many DeFi projects are just WEF puppets and serving VC interests….the threats to humanity posed by Central Bank Digital Currencies are potentially going to be enabled by DeFi. The same tools we create for freedom can be used for bad. There is fake DeFi, where central custodians hold admin keys, that’s bad — and at present this is a huge point of contention/debate in the crypto realm (Chris Blec focusses on this).
NFTS.
Michael mentions NFTs so I thought I would address them. I think people who purchase monkeys pictures are morons who deserve to lose all their money, they aren’t unique in any way, often they aren’t even written on the blockchain the NFT just has a URL to gdrive. However like baseball cards there is a market for these silly jpgs, I’m sure Justin Bieber is happy to have a million dollar picture of an ugly monkey.
NFTs however are so much more. If you make a Uniswap liquidity position (v3+) it’s represented as an NFT allowing you to sell your liquidity position on a market place, for the HEX cryptocurrency you can wrap your HEX (In a hedron stake) and sell that on a market place. So an NFT is just meant to be a unique instance of something, but the something can be a financial asset worth millions of very real world dollars. I agree the works of art (if you can call them that) are garbage, but the underlying tech is not. There will be a huge potential future for decentralized gaming characters, etc… powered by NFTs. In theory real-estate could be stored as NFTs — far more efficiently than your local land registry filing cabinet.
I end here by stating what should be obvious, decentralized trading and decentralized loans, and all that good stuff requires the underlying blockchain to run for those contracts to run. Ethereum has the most volume, value locked up, ecosystem, etc. In order for you to use the blockchain you need to pay fees (like gas to make your car go), and ETH is what you use to pay gas fees. I see a lot of value in being able to trade without a centralized exchange, and therefore for me there is intrinsic value in Ethereum because I need it to do that trust-less trading. I’ve spent hundreds and thousands of dollars in fees. While fees are terrible and add friction to using the network (often more expensive than traditional finance), they also are proof in the value people see in decentralized finance. This means ETH has intrinsic value…much of the speculation for ETH has to do with speculation of future demand (just like hoarding gas).
2. Criminals scams and scammers.
Saying crypto facilitates crime is FUD that the government and banks and MSM use to discredit crypto, because it threatens their hegemony and control of money. Justin Trudeau hates crypto because you can send it to protesters without him being able to shut down your bank account. The US gov hates it because it was the way to evade their financial blockade of Wikileaks in 2010. One day my government will hate it more because I am able to donate to my church despite them not rewriting their holy text to be LGBTQ+ friendly. One day MichaelS could be branded a criminal for crimes against humanity because his book caused climate denial-ism — his bank could seize his assets because they hold his money — not your keys not your coins. There would be no way to stop you if you have freedom of money. The point I’m making here is there’s no definition of criminal — the reality is that crypto can facilitate financial sovereignty of those we don’t like. Does this include actual terrorists and drug cartels and child traffickers? Yes, but they don’t need crypto to move their money, banks will happily do it for them. In fact it’s easier with banks because they are opaque and usually cozy with regulators. When the government tries to kill crypto it’s not to stop the criminals, it’s to stop the people from having money free of their control. In Australia they’ve made it illegal to have 10,000$ paper transactions. There is a war on dollars and it will be justified because dollars “help criminals”. Central Bank Digital Currencies are “the solution” by the globalist elites because they can tie your money to your behaviours, ultimate control…cryptocurrencies aren’t the problem, they are the solution.
2.1 Scammers in crypto:
There are many many scams in crypto. Just like if you knew every person on the street was holding their wealth on their person it would increase robberies, so criminals are savvy that all these crypto folks hold their own money and can make mistakes. If you look at many in authority (example telegram mods in t.me/hexcrypto) their name will say “I won’t DM you” — because impersonating a person of authority pretending to be tech support is the most common way to scam someone into giving you their seed phrase. Scammers really really abound and it’s unfortunate, and as a community we try to educate and call out scammers — I’m sure with hundreds of thousands of followers Michael likely gets his own impersonators trying to scam his followers — it’s the sadly nature of anonymous/impersonal networks.
2.2 Scams in crypto.
These unfortunately are also the rule as opposed to the exception. There are 100 scam projects for every legit project. It’s unfortunate and impossible to stop, but again as the community you educate, listen, do lots of research, make your own mistakes, and help others. Many will learn the hard lesson of getting scammed, then never get scammed again. There’s no amount of regulation that can stop this, it’s anonymous networks — I just saw Dr. Phil on Rogan showing how illicit drugs are now transmitted through tiktok and snapchat…
2.3 The worst scams in crypto
The worst scams in crypto are those you’ve been hearing about. Celcius, Terra, FTX, BlockFi. They are well funded companies that are cozy with regulators that influence politicians that convince Johnny SixPack to hand over his money to a very trusted company. These companies are not crypto, they are the opposite of crypto, they are traditional finance scammers trying to rob crypto holders of their wealth. These are the worst because they hurt the most people, they give us the worst wrap, they lose the most money.
3. What is a Ponzi vs. what is a speculative asset.
People misuse the term ponzi when they really mean a speculative asset. A ponzi has a definition, it’s an investment scheme that promises out-sized returns that it can’t actually pay and therefore pays early investors with the money from later investors. This scheme eventually collapses on itself when the incoming money is insufficient to pay the obligations that it has — it’s like a house of cards, it is guaranteed to fail systemically because of obligations it can’t meet. The key word here is obligations. An investment that is really bad — is just a bad investment. But if obligations were made (e.g safe, guaranteed 5% return) on that bad investment it becomes a ponzi. A ponzi is carried out and enabled by lies, misplaced trust and opaque financials. For example a professional looking office, “smart AI”, special trading formula, forex, etc. In crypto a recent example is Celcius — you gave them your Bitcoin to earn yield, and they wouldn’t explain how that yield was created….in the end they were trading, bear market got them rekt, they lost your Bitcoin. Giving your Bitcoin to a centralized company is the opposite of why crypto was invented — remember not your keys not your coins. Contrast this with a speculative asset like a tulip or Bitcoin or HEX. These are all speculative assets — if you run out of buyers and there are only sellers then the price plummets. The difference between those assets and a ponzi is that I still hold my Bitcoin or HEX even if I can’t sell it for a profit, or even if I can’t find a buyer at all…I still have the asset. The price imploded, but the asset is still there. In a ponzi you get nothing. This might seem like little difference — but MtGox was hacked (and went bankrupt in 2014). This caused a crypto winter, huge deal. 200K BTC were recovered — they will be dolled out soon. If you had had 1000$ in Bitcoin at the time, would you prefer getting 1000$ or the Bitcoin you had when they went bankrupt — even a fraction of what you had would be worth more than your original principal? people are holding their breath to get their Bitcoin back….because Bitcoin is not a ponzi, the price just crashes from time to time but it can always recover unlike a ponzi.
What else crashes? I purchased a little known stock called AquaBounty and it’s down 94% from ATH a little while ago…my HEX is down that much since Sept 2021 so if one is a ponzi why isn’t the other? We both know where I learned about AquaBounty :) My Shopify is not down AS much but pretty close..
let’s wrap the ponzi topic with one thought. What happens when everyone tries to withdraw all of their money from the bank? Structural failure — can’t meet obligations. What happens when you’re trying to sell tulips and no one wants them? You have a bunch of valueless tulips — between these 2 examples one seems like a bad investment and the other a ponzi.
If Michael really wants a potshot at cryptoenthusiasts he’d be in a better position using tulips or monkeys or discussing the greater fool principal — these are more accurate than ponzi or pyramid which cryptocurrencies are not (most times — actual ponzis like bitconnect aside).
4. Stablecoins and centralization
I’m not sure if Michael is aware, but when it comes to monetary policy in crypto, there are stable coins as well, these are tokens meant to hold a peg to another thing, the most popular being the US dollar. The 2 most popular stable coins are Tether (USDT) and USD-Circle (USDC). These are essentially “banks” that “hold 1 USD in reserve for every USD coin created”. I put these in quotes because there is little or no proof of reserves, especially for Tether (held by Binance). Many suspect that Tether has more coins in the wild than USD in their reserves, and if true that could be the ultimate nuclear bomb to drop on crypto — would be far more catastrophic then the failure of FTX. USDC, being in America — I suspect is more likely to hold adequate reserves, but it’s still crappy second rate crypto by many standards.
In the realm of stablecoins the most popular decentralized stable is called DAI — it’s an overcollateralized asset, where the reserves backing the DAI are a bunch of other crypto, the largest being USDC. This centralization again presents heavy risk to DAI — The USDC is custodied by Coinbase (recent decision). If Coinbase fails, USDC could have issues, and the majority asset backing DAI could evaporate. If Michael wants to research and write about a very real potential storm in crypto it would focus on stablecoins.
There’s a very interesting decentralized stablecoin called Liquity which is truly onchain decentralized, no third parties, no middlemen…but still very experimental. It has held its peg through this bear market and that says a lot.
Recently a stablecoin called TUSD (Terra USD) had a systemic flaw and collapsed. I’m no expert, but essentially the way this stablecoin worked was that you could trade in your 1$ worth or TUSD for 1$ worth of LUNA tokens. When the TUSD peg was lost (becomes worth 95c instead of 1$), this created an arbitrage opportunity (buy 1$ of TUSD for 95c, trade in for 1$ worth of LUNA). As the arbitrage got bigger more people played the arbitrage. On the back-end this caused the supply of LUNA to hyper-inflate as the value of its token plummeted with that hyperinflation…There were people in the crypto space that identified the structural flaw back about a year ago, and it just took bad actors like Blackrock to do the dirty deed. For a smarter guy’s take on it, here it is.
The final point I make here. You can store your crypto, your wealth, in something most would consider safe from price risk, they should keep their purchasing power pegged to the USD. The most successful ones to date have a trusted third party which is not good, and could be the proverbial weak leg that sends Bitcoin down to 100$ (run on tether exposes the emperor has no clothes).
None of the above constitutes financial advise. I am not a financial advisor and am not qualified to give financial advise or to provide guidance on financial products. Cryptocurrencies are very volatile, please do your own research.
I will end here, I could write considerably more but I know this was long enough. I wanted to make the quick case for crypto. I would offer to have a long form interview with you but I really enjoy my privacy. Some notable people I would recommend for longer form discussion and interview would be Richard Heart, Erik Voorhees or Chris Blec. (In that order). I think Maajid Nawaz could also be amazing to listen to, I’m not sure if I’d call him a crypto expert but he had great insight on Rogan (especially in respect to Central Bank Digital Currencies) and you’re two people I admire a lot. If you do go on long form interview with Richard Heart (@richardheartwin / t.me/richardheart) let him know HexNobody says hello…he won’t know me, because I am no one.
