ABC’s Four Corners recently did a report on cryptocurrencies (here: https://www.youtube.com/watch?v=WTfFQjEYxcQ&ab_channel=ABCNewsIn-depth) and it was a mix of hits and misses. Here’s some observations I made whilst watching it.
The focus was far more on the trading of crypto rather than anything to do with the financial building blocks that are being created with blockchain technology.
Even the language at the start of the show when describing bitcoin (“the movement has its own messianic creation story”) is steeped in cynicism.
It also felt like there is a continued focus on this space as currencies and what currencies have traditionally meant (“a system of money in general use in a particular country”). The fact of the matter is that only some cryptos fit this broad definition. The majority of these currencies are only within a narrow field of gaming or fitness or other areas of life where they are used as in-house transaction tokens.
This all goes back to the fact that we need better definitions around wording here because as soon as people hear currency they think of dollars and cents.
It’s better instead to think of this space as a whole bunch of projects and we can see that there’s just over 13k of them (tanks to CoinGecko data). Just like the traditional startup ecosystem, not everything is going to work out and as such, failure of a project should not be considered negative.
In fact, failure in this space should be considered a benefit, not a curse. Why? Because the failures are transparent since they happen on-chain. We can see them, analyse what went wrong and immediately share that across a wide network like Twitter. The fact that one of the biggest critics of crypto in this show (Molly White) writes a blog called Web3isgoinggreat is ironic because whilst she does not believe the crypto space can last, I would argue that in fact, she is helping it because she shines a light on what needs to be improved.
For those who know his work, Nassim Taleb is a great thinker and author. He penned a book called Antifragile and antifragility is exactly what we see here when it comes to crypto. It’s an industry that thanks to its open nature, gets stronger as it is critiqued. The market force pull it up and down and when it is down (like now) and the attention has gone away, that’s when the most building gets done.
Let’s take it further and look at the 3 types of projects there are out there
Those that gain purely from popularity rather than utility and never get utility added to it
Those that gain as above, but, add utility later. Forward selling of value.
Those that are built with utility in mind from the start and may or may not gain in popularity
Of these, 1 and 2 are difficult if you’re guessing if they’ll last and 3 is not guaranteed either. As above, they’re all experiments so keep that in mind.
Couple of other things I noticed/my own critiques of the episode
The shifting value of crypto has made it difficult to use it for everyday usage but stablecoins, pegged to a stable currency, and not algo-backed like Terra/Luna, are meant to solve for that
Molly is correct that marketing in this space has focused on retail traders but that’s because regulation hasn’t been there which has meant institutions haven’t been quick to dive in
Molly is correct that there is no fail safe when crypto goes wrong for investors, but regulation is coming
They showcase David Scott and his team filing a lawsuit against a coin called EthereumMax which rug pulled investors (e.g. did a pump and dump)
With all of the above, the scams are still a fraction of the growth of the market. Chainalysis shows this with their crypto crime report which highlighted that its less than 1% of overall activity
They highlight the issue around the algo stablecoin Luna but they don’t highlight that not all stablecoins are built this way and that others withstood the downfall/attack that befell Terra/Luna
David Scott also says that cryptos don’t have any underlying asset so they need to be hyped to have value. However, they don’t show whether or not he was talking about a specific coin or the industry in general
John Reed Stark saying that he believes that these are all ponzi schemes is a massive blanket statement that doesn’t consider the utility being built with various crypto projects. Also, it’s contradicted by Chainalysis crypto crime reports as mentioned above.
John is right in saying that we need regulation here and when it comes that a lot of the nonsense in crypto will be regulated out of existence. With regulation we’ll see improvement in how crypto projects are advertised to the public and hopefully, an increase in financial education in this space.
Justine Gough from the AFP highlighting the crypto crime that’s out there but again I say…. Chainalysis crypto crime report
Steve Johnson highlights the issues that many of these projects will fail (its true) but does see (as they show at the end) that there is hope and promise in blockchain technology
They then go into ransomware attacks and try to blame all ransomware attacks as being due to crypto. Ransomware attacks have occurred without crypto and would likely continue to occur whether we have crypto or not
Ken Gamble then highlights how crypto has created the greatest crime problem on the planet. As mentioned in various treasury responses we were part of, (https://www.defi.org.au/post/aus-defi-association-response-to-treasury-consultation-paper and https://www.tradeflows.io/post/tradeflows-response-to-crypto-asset-secondary-service-providers-licensing-and-custody-requirements), this is an opportunity for regulators to move from catching criminals after the crimes occur, to helping prevent crime from happening in the first place due to the unprecedented access to real-time data. The possibilities of what could be done by having regulators partner with the blockchain ecosystem and forming a community watchdog is quite interesting.
They then highlighted that $14 billion was the amount of criminal illicit activity in the crypto space last year as per that Chainalysis report. They said that whilst it was a tiny fraction, it was still a record high in dollar terms. For those wondering, that percentage was 0.15% in 2021. It’s down from 0.62% in 2020.
Despite the critiques, they do end on a high note with the possibilities of blockchain technology in making transactions more efficient (something we’re doing at TradeFlows). Also, Prof Ellie Reddie highlights how indigenous artists can be paid for their art via royalties automatically. This was something we highlighted in the sponsoring of the Canvas to Token event a few weeks ago with Alisha Geary at Provvy and sponsored by (Mercari, Australian DeFi Association, NotCentralised and Samsung) with highlights here: https://twitter.com/AusDeFi/status/1527794998963752960. Jonathan Miller from Kraken highlights the sovereignty and ownership that individuals can have in the new digital world.
They go back to the sour notes though in highlighting that the large corporations that decentralisation is meant to fight are actually the ones who will control everything. We can see an example of that with Facebook changing their name to Meta and trying to get into the metaverse space. But, the key here is choice and consumers can choose whether or not they want to be part of a corporate backed metaverse/web3 venture or not.
Matt Hooper (community manager at the Aus DeFi Association) also made some notes here: https://future-vicuna-ba9.notion.site/ABC-iview-crypto-show-notes-30-May-2022-188d8e092bfc413591dd2bc3a69d975f
In any case, great work by Chloe White, Jonathan Miller from Kraken, Caroline Malcom from Chainalysis, Professor Ellie Reddie of RMIT, Steve Johnson of Forager Funds, and Lucas Cullen for representing the blockchain ecosystem so well.