Cryptocurrency is supposedly the basis of trustless economy, but in the past few years there were a lot of everyday people who entrusted it with everything. How did this happen? In this episode of our miniseries on trust, we talk to Finn Brunton about the deep history of crypto and Molly White about how the crypto industry collapse started, and the regular people who got burned.
Finn Brunton is Professor at UC Davis in Science and Technology Studies + Cinema and Digital Media. He wrote the fantastic 2019 book Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency.
Molly White is the crypto critic who is the absolute best at getting under the most powerful people’s skin. She runs Web3 Is Going Just Great and has been publishing work on her Substack. We also talked to her last year.
This episode also mentions our interview with Lola and Elizabeth from Assembly Four.
Transcript
Ethan Zuckerman:
Hey everybody, welcome back to Reimagining the Internet. You’re listening to the second episode of our series about trust online, where we try to make sense of a paradox: trust is really hard to come by on the Internet, but everything we do online relies on tons of trust.
I’m joined once again by our producer, Mike Sugarman.
Mike Sugarman:
Hey Ethan, excited to be back on this side of the mic.
Ethan Zuckerman:
Great to have you here. Mike, what do we have lined up for today’s episode?
Mike Sugarman:
Ok, so last episode, we got in the weeds about DAOs with Primavera de Fillipi. She told us about the strange legal situations created by smart contracts. And when I say we got in the weeds with her, I mean really in the weeds.
And you know what Ethan? Today I’m asking listeners to take a leap of faith.
Ethan Zuckerman:
Do I sense that you’re asking for their, dare I say trust?
Mike Sugarman:
I am. Dear listener, I need your trust that you need another podcast episode in your life about cryptocurrency.
Ethan Zuckerman:
Uh oh.
Mike Sugarman:
Because this is a series about trust and…
Ethan Zuckerman:
And cryptocurrency is supposed to be trustless, right?
Mike Sugarman:
Well, yeah.
Ethan Zuckerman:
So this is going to be the episode when we address FTX and Sam Bankman-Fried and the bottom falling out on Bitcoin prices…
Mike Sugarman:
Actually, we’re not going to touch on that stuff at all. We will hear Molly White later in the episode about the first crypto crash that happened in 2022. I talked with her back in July about stablecoins and civil cases against crypto exchanges.
FTX wasn’t the first disaster in crypto and it’s not going to be the last. But what I really wanted to do with this episode was put that chaos in historical context.
Bitcoin didn’t come out of nowhere and I wanted to understand who put all the work into developing cryptocurrencies and why.
So I talked to Finn Brunton from the University of California Davis about his wonderful book Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency.
This whole story starts with a crisis of confidence.
Finn Brunton:
Common stories that a lot of people know are familiar with are things like the hyperinflation in Weimar Germany, or the hyperinflation in Zimbabwe, or many different cases of hyperinflation. We have not seen anything like that, but here in the United States we have recently witnessed a little burst of inflation and started to have that experience of suddenly like, “Oh, my money doesn’t seem to count for as much as it did just a little while ago.”
That kind of trust is actually very fragile, and when it’s broken it can be really hard to replace. So for me, I wanted to start my history of this with this movement, the technocrats, who were these hardcore engineers of civilization who wielded a really surprising amount of political power for a short period of time in the United States during the Great Depression.
That feeling of losing the ground under your feet in terms of suddenly being like, “Oh, this thing that was one of the key parts of how I survived in a modern capitalist society”, is now gone, and it’s gone overnight. It’s broken and there’s nothing that’s going to come in to replace it,”
Mike Sugarman:
Finn starts his book off talking about these people that called themselves the “technocrats.” This group is actually where the term “technocrat” comes from. They believed that the government couldn’t be trusted to operate US currency, and that it should instead be controlled in some automated way. So they proposed an idea in the 1930s that sounds a lot like cryptocurrency as we know it today: pegging the value of the dollar to electrical power.
Finn Brunton:
Groups like the technocrats stepped in and said, “We don’t want to have to trust in the value of our money. We want to have money that is based on something objective. And what could possibly be more objective than energy? Than literal physical ergs of energy? Volts of electricity, and so on?” So they developed this incredibly convoluted scheme where you and I would transact using a currency that was reflective of the expenditure of particular quantities of energy. Now, the reason why I think this is such a useful story is that it’s got a little sting in its tail, because they in theory now have money that’s based on something objective, as objective as physics.
But of course the value of that money is right back where it was in the first place. Whether or not that money is actually valuable depends on whether or not we are willing to transact it, which is whether or not we trust that other people will take it from us. You’re back at square one. And this cycle has been one that we’re going to see over and over again as we look at the project of trying to build these alternative objective currencies.
People will have currencies backed by gold. Gold is objective, it’s physical, you can hold it. If you drop a brick of it on your foot, you can break all of your bones. It’s an incredibly solid objective object. But of course, once we start transacting with it, the value of it becomes yet again a matter of trust. Trust that the gold is going to still remain valuable, trust that we should spend it because it’s not going to suddenly become much more valuable and we should just keep it and speculate on it, et cetera.
So I want to outline that because this is the same paradox that comes up as cryptocurrencies take shape. The people who are developing, especially a lot of the early cryptocurrency tools that underlie what things like Bitcoin eventually become, all of them are to one extent or another politically committed to American libertarian politics. And that is a politics that really wants to rebase the value of money onto something theoretically objective. It wants to move it out of this social trust in its value and how its value is going to work. And I would suggest that one of the reasons why this is a tricky idea is that that paradox is fundamentally irresolvable.
Mike Sugarman:
I read a really interesting blog post recently by Vitalik Buterin, the guy who developed Ethereum and is still really in charge of that project, especially as an ideological leader. And it was basically, and this was before Ethereum adopted the new standards that make it more green and all that stuff, which I think, honestly it’s a good thing. I’m glad about it. But he wrote this blog post that was basically like, “Look, yes, cryptocurrency uses a lot of energy. There are a lot of scams, we need to address that. It creates a lot of greed. It really rewards selfishness. But the thing about our world is that it is fundamentally an unstable, chaotic place where you just can’t trust that any of the institutions that you’re invested in will end up working.”
I’m paraphrasing , he did not say that exactly. But it’s worth mentioning that if you want to imagine your ideal type of world, it’s always worth asking if that’s your ideal type of world. It certainly is in a weird way for some people, or maybe what they would say is, “That’s not my ideal world, but realistically that’s how things work.”
Finn Brunton:
No, if you don’t mind, I would love to just reflect on that for a second because, for me, I think that really does cut to the heart of the larger crisis of trust, of which cryptocurrency is a part, in that when we look back at the underlying tools of cryptocurrency and the people who were developing the very earliest things in the 1970s, 1980s, and 1990s, they were also experiencing a crisis of trust that was wholly legitimate. A lot of them were activists. A lot of them were people who were aware that their work was being surveilled by the FBI. They were being infiltrated. They were deeply concerned about a future in which people’s activities could be policed to a degree, almost unimaginable, even in an analog era, even in the most extreme scenarios.
So they’re saying, “We don’t trust”, and this is not a libertarian position at all necessarily, but, “We don’t trust that the government is going to not be tempted into abuses of power over vulnerable populations so we want to provide systems and tools that will allow people to function sufficiently privately in the,” at that time, “Electronic future so that they will be able to sustain some level of autonomy and some freedom of thought and freedom of inner life and freedom of association and so on.” And I think one of the deep questions that contemporary crypto forces us to ask ourselves is, what shape does your lack of trust take? Is it a lack of trust in the dangers of overreach of power? That there’s kinds of power, there’s kinds of possibilities of control that it’s worth trying to restrain or worth trying to reign in? Or is it a kind of understanding that you can never trust any social institution of any kind and it’s all inevitably going to collapse in one form or another?
I think taking that as your commitment, and with it, the idea that that should not be corrected, that you should not try to build more robust public and civil institutions, more robust forms of social connection and community and culture that can withstand that kind of disruption, and instead just decide that it is inevitable that we live in a titanomachy of chaos and destruction, and our only recourse is to build super secure software systems. I think recognizing that is a choice that we can actually make now, and I think a choice that has some really, really strong arguments in favor of the former, is a good lesson that we can take from cryptocurrency.
Mike Sugarman:
The specific people Finn is alluding here to are the cypherpunks, a group of hacker/activists in the 1990s that become very interested in developing communications that could be shielded from surveillance. They ultimately developed PGP encryption technology for securing messages between two parties with cryptographic keys. They had a vision of an Internet where dissidents and really anyone else could use the Internet to communicate without any risk of repression.
But what I wanted to know more about was the moment in the aughts when cryptography met currency, and spawned not just BitCoin but also the Silk Road, an infamous dark web marketplace best known for its drug deals, started by then-college-student Ross Ulbricht. It was striking to me that both BitCoin and Silk Road emerged in the aftermath of the 2008 global financial crisis when, much like with the Great Depression, the layperson may have had their confidence in the system shaken a bit.
Mike Sugarman:
Something you point out is that Ross Ulbricht, I feel like the media story around him, the way that I think we tend to understand it, “Oh, he was just some wacky kid who started this online drug marketplace and used Bitcoin,” but he was an ideological libertarian. He says like, “Oh, agorism is pretty interesting.” And that what he got caught up in were the pitfalls of trying to advance his political agenda, his version of how the world should work. And if you look at it that way, his conviction is a pretty interesting moment where there’s an actual economy in the sense of political economy of the US government saying, “No, markets don’t work that way. You can’t use currency that way.” And it’s interesting that how many years later are we from that trial? I think that trial was 2014, 2015?
Finn Brunton:
Yeah, thereabouts.
Mike Sugarman:
We now have a non-negligible portion of members of our government saying people should invest in cryptocurrency, which it’s an interesting turn. And I just wonder if you have any thoughts on how we get from point A to point B where the ideological libertarians have to take the hit, but there’s potentially so much chaos in our current market system that there’s room for people basically operating the same way to, in one way or another, achieve what the cypher punks wanted all along?
Finn Brunton:
I think you really put your finger on one of the big paradoxes of how all of this played out, which is that this technology which was developed for explicitly political ends, this technology that was developed stem to stern, end to end, for transforming society, for bringing about a different world and a different way of life.
Bitcoin has this set of properties where it is supposed to be theoretically anonymous, and that’s part of what made it so attractive for buying contraband, buying drugs and things like that online. However, of course, the way that Bitcoin actually works involves registering every single transaction on a shared public blockchain. So it is simultaneously anonymous in the sense that you don’t need to provide your driver’s license to open an account to hold Bitcoin, but it is also the least anonymous money that has ever been produced. Money that produces a more meticulous account of how it has been used and by whom than money has ever, ever had before. And of course the reason for that is that Bitcoin is trying to reconcile these different libertarian agendas together. It’s like trying to simultaneously be an anonymous currency that is suitable for creating black markets and un-taxable, untraceable transactions, but it also has to be traceable because it’s trying to replace gold. It’s trying to function as digital gold. It’s trying to make sure that everyone can verify that there is no more of it circulating than there is supposed to be, and that amount is limited and artificially throttled in specific ways that will produce these sort of gold-like effects.
So I say all of that because that really, I think, helps us grasp how all this stuff came to work the way that it does, and also to understand the spirit with which it was originally meant. And you’re absolutely right about Ross. Ross is a lot of things, most of them pretty terrible. But one thing that he absolutely was not was just a guy who stumbled into this for the money because he was dealing weed in a parking lot or something like that, bootstrapped up to this . He was an ideologue. By his own lights, he was a political intellectual and he wanted to build an agorist machine. He was very inspired by the work of some of the earlier cypherpunks, people like this guy, Timothy C. May, who was their impresario and manifesto writer, who argued that how are you going to help people migrate over into an encrypted version of their lives online where they are used to the idea that most of their interactions are anonymous and absolutely private? Because that was a value that was very important to him for political reasons and philosophical reasons, how do you get people over into that space? Well, you make that space really attractive. You make that anonymous online world really attractive by allowing them to do things that they couldn’t otherwise do, allowing them access to things they wouldn’t otherwise have access to.
And he envisioned a whole slate of different things that would draw people over into this space, from being able to get inexpensive medicines, generic medicines, things that might not be available in the United States, to access to trade secrets, to access to every form of pirated media, and of course access to drugs. And Ross was explicitly inspired by this idea.
And I wanted to just also highlight, you mentioned how it emerged during 2008, and I think that is a really important detail because it again spoke to a political sense, not just a economic sense of, “Oh, there’s this new currency, this new digital online currency that’s being developed, and maybe this is a safe harbor alternative now that there’s this gigantic credit crisis and banks are going down and all these other issues are happening.” No, because even at the time, Bitcoin was an extremely rickety wagon to be carrying your life. So what actually was so perfect about the moment when it appeared was the fact that people who were already politically inclined to analyze the world’s situation in this way could look at Bitcoin and say, “Yes, this is the moment because the existing systems of finance, the existing monetary transaction systems, are all about to collapse. So even if Bitcoin is not the best example of this technology or how it could work, this is the one that we could run with because this is the one that is here at the moment of crisis.”
And you want that moment of crisis, and you want it to be there at that moment of crisis, because that’s one of the ways that you build the new world that you want to live in.
Mike Sugarman:
The thing about trust is it’s not some abstract value. There are really specific situations that people find themselves in where they can’t trust the law or they can’t trust financial institutions. During our interview, Finn pointed out that sex workers are put in incredibly risky situations because several different institutions jeopardize their safety .
Ethan Zuckerman:
Right, this is something that our friends Lola and Elizabeth from Assembly Four told us about in our episode with them in 2021. They can’t trust any kind of existing legal structure to keep them safe, so they turned to creating their own private Mastodon Server.
Mike Sugarman:
Right, exactly. The law always has blindspots, and sometimes it creates incredibly risky black markets. This is something that Ulbricht wanted to exploit when he created the Silk Road, and he thought he could do it best by creating a drug marketplace that was actually genuinely trustworthy. Finn said it was trustworthy enough that even the FBI had to admit it was doing a pretty good job.
Finn Brunton:
It’s really interesting to go back and read the FBI documents now where they have to grudgingly concede that, “Well, we ordered a bunch of drugs on the Silk Road and when they came, they were totally clean.” They were exactly what they said they were, which is not necessarily going to be the case with a lot of drug purchases. They had this whole rating system and ranking system and all these different ways. One of the reasons why the Silk Road ended up having so much Bitcoin on hand to be seized by the marshals when Ulbricht was arrested, was that people would hold it in escrow until the client had received their contraband and had verified that it was exactly what it purported to be. So there really was this sophisticated trust system in a very low-trust situation.
So we can almost see crypto as providing an accidental picture for us as a society of the spaces where trust is really lacking and where people are getting ripped off in various ways. One of the details that I like about the Silk Road is that there was this whole notion that you could buy firearms on there, and some people did, a few people, but there really wasn’t that much of that kind of activity because there are better and more trustworthy ways to buy guns in the United States. You can take advantage of gun show loopholes and things like that. You can go and actually hold the AR15 or whatever. So I think it’s really interesting to see crypto as providing this insight into those spaces. And that goes, in my mind, double for what happened to crypto after COVID. And to some degree, in the running up as we went into COVID, but in particular as COVID really took off. I think part of what those show us is not just consumers being taken advantage of. It’s consumers who are in a place where they don’t really trust, for good reason, that they are going to ever achieve financial security any other way.
Right? You’re not going to ever pay off your student loan debt. You’re never going to be able to buy a house. All of those things are, I think a reasonable young person could say, lies. They were things that were perhaps true for previous generations and they’re lies for you now. So why not roll the dice with a bunch of guys who are almost certainly scam artists, but maybe not? There’s an outside chance that you’re going to do really well. And I don’t say that to make light of the fact that this whole area is riddled with mendacity and fraud and lying to customers. But I think it also speaks to the idea of beyond just the promise of get rich quick, I think there is another dimension to it which it speaks to the erosion of trust in other areas, of people being able to build any wealth or any financial stability for themselves, that now then leaks as spill over into the crypto space.
Ethan Zuckerman:
So it sounds like this brings us to retail investors. And there have been a lot of stories over the course of the past couple of years about retail investors making risky decisions precisely because they don’t trust the financial system.
Mike Sugarman:
That’s right. Retail investors were pumping Gamestop and AMC stock in an effort to foil hedge funds, and they were investing in NFTs and various cryptocurrency projects because these were touted as a new economy.
Ethan Zuckerman:
Some people would call that gambling.
Mike Sugarman:
And they’d be right. During the COVID pandemic, when there was so much financial instability, when trust was really shaken in governments, people started gambling online.
So when I talked to Molly White back in July, that was pretty much the focus of the conversation. Lots of people were gambling on crypto, and they may have even been the type of person who wouldn’t typically gamble on the stock market or sports or on anything else.
The thing is, it seemed like a pretty good bet for a while. And this past spring, it all started to fall apart. Arguably the first domino was the collapse of Terra, a so-called stablecoin that was supposed to help guarantee the stability of the crypto economy writ large.
Molly White:
Well, there have been sort of a series of unfortunate events in the crypto world. The crypto prices have declined pretty broadly across the board, along with a lot of the traditional financial markets. But the fallout of that has resulted in kind of cascading failures throughout the crypto ecosystem, where projects were taking pretty enormous risks. A lot of projects were very tied up in one another, lending money to one another.
And so as prices came down and companies couldn’t meet their margin calls, we’ve seen several pretty high profile failures. There was also the collapse of the Terra ecosystem in May, I believe, where one of the major stablecoins lost its peg. So it was supposed to be pegged one to one with a US dollar, and it suddenly was no longer worth a dollar. It was worth less and less and less. And that triggered a lot of sort of dominoes falling throughout the crypto ecosystem as well.
Mike Sugarman:
Why do people trust that stablecoins will be stable? And what happens to that trust when suddenly the value of a stablecoin goes from a dollar to a cent? Which is I think what happened with Terra in the course of a couple of days right?
Molly White:
Yeah, it went pretty bad pretty quickly. Stablecoins, ostensibly, should be pegged to whatever the asset is that they’re supposed to be pegged to. So a lot of them are pegged the US dollar, but some of them are priced to other currencies or the price of gold or whatever it is. But the way that they maintain that peg differs somewhat between the currencies.
So some of the major stablecoins are called asset-backed stablecoins, where they actually supposedly maintain backing reserves such that each single stablecoin maps over to one single dollar. And so if someone wanted to redeem their stablecoins for actual dollars, they would supposedly able to do so. there’s no real enforcement that any of these stablecoins maintain those reserves. And in fact, several of them have been caught lying about the fact that they have those reserves, because they can make a lot more money if they don’t. And they just bet on people not redeeming the stablecoins.
There’s also stablecoins like Terra, which is the one that collapsed, that was called an algorithmic stablecoin. And those are kind of complex schemes, where, instead of having assets to back the stablecoin, they are supposed to maintain their value through a sequence of financial maneuvers. And, unfortunately, there have been many, or at least several cases where algorithmic stablecoin lose their peg and go into what is called a “death spiral,” where as soon as they start to lose the peg, even by half a cent or a cent or two cents, things suddenly start to escalate and go bad really, really fast. And that’s what happened with Terra.
And as you mentioned, these stablecoins are used throughout the cryptocurrency industry, and throughout other projects quite heavily. So a lot of projects depend on these stablecoins for various things, primarily because it’s a real pain to convert US dollars into crypto. And so anytime someone wants to, say, sell their Bitcoin and buy some other cryptocurrency like Ethereum, instead of selling their Bitcoin, turning it into US dollars, taking those US dollars, turning it back into Ethereum, where you’re basically going in and out and in and out of the crypto ecosystem, a lot of people will just use stablecoin instead. Which are of an idea that represents a dollar, but doesn’t actually require you to exit the crypto industry.
And so they sort of ease things in that way. But obviously if those stablecoins stop being worth what they say they are, there can be enormous ramifications throughout the whole industry. As we saw with Terra, and I think as we will see if other stablecoins go the same route.
Mike Sugarman:
Molly is a really wonderful, cogent blogger on crypto, and she started publishing excerpts from letters that investors wrote to judges in cases against crypto exchanges. These letters make it crystal clear that it wasn’t just r/WallStreetBets redditors and Dogecoin cultists who lost money. It was regular people too.
Molly White:
So the court cases that you’re referring to are bankruptcy filings by Celsius and Voyager, which are both platforms that are used to hold, and in some cases borrow against or loan crypto. So people were putting their cryptocurrencies into these projects and then they were receiving yield on their holdings, because they were basically allowing the entities to lend out their crypto. And now that things have gone really poorly, both Celsius and Voyager had exposure to other parts of the crypto ecosystem that also collapsed. Those two companies are both going through bankruptcy filings right now.
And one thing that we’ve been able to observe is some letters that are being sent to the judges in those cases by people who have money with those platforms, and have not been able to get it back out. So both of the platforms froze customer withdrawals before officially declaring bankruptcy. And ever since then people can see their money, their balance in their app, but they can’t actually get control of it, because they’ve entrusted it to those companies. Which is very, I think, antithetical to a lot of the crypto ethos around controlling your own coins, not entrusting your money to centralized sort of bank adjacent companies. But these companies came into being because they were offering people high percentage yields on their crypto holdings, and they were taking care of some of the really annoying, painful user experience problems that come to be when you’re self-custodying your crypto.
And people trusted them. I mean, they, in some cases really position themselves as very trustworthy, low risk ways to engage with the crypto ecosystem. And there were several people who wrote letters to the judges saying, basically, that, “We were told these were more trustworthy than traditional banks. We were told that under any circumstances we would be able to get our crypto coins back out. We were told that some of our funds had FDIC insurance.” In the case of Voyager, who basically represented to customers somehow that their holdings were insured by the FDIC, when they were not. And so people were really taken for a ride by some of these companies.
Mike Sugarman:
I mean, just to put a really fine point on this, let’s look at on the Celsius case, doc 179, filed July 23rd, 2022. I’m not going to read the whole thing, but a couple sentences kind of drives home to the point here. “I am a small depositor, an 84-year-old widow on social security. The deposit was my life savings to pay for home care when I am no longer able to care for myself. I don’t have years to wait for my savings to be returned. I made this decision after I watched the terrible care my husband received in a rehab hospital that was also a nursing home.” Now, sure, there’s a lot that you can say here about this wouldn’t even be a problem this person could get into if we had a better social safety net that took care of our seniors. I mean that’s the baseline.
I mean, arguably this person knew that they were gambling, but arguably they didn’t quite understand they were gambling, even though that’s exactly what was happening. How did it happen?
Molly White:
I think you really nailed the point that a lot of people are just feeling an enormous amount of pressure under the current economic conditions. It’s difficult to get high returns on your savings in a savings account or in more traditional financial instruments. And so people are going to crypto because they see advertisements of 20% APR or these very high returns, which, normally, if you see enormous APY like that, you’re looking at a Ponzi scheme. But generally speaking, when you’re looking at the higher the APY, the more risk that you are undertaking with your investment.
And so the interesting thing about some of the letters to Celsius and Voyager is that people accept that, and they’d say in their letters that, “I understand that crypto is risky. I understand that buying Bitcoin is risky. I did not understand that what Celsius and Voyager were doing with my crypto was risky.” And that’s because Celsius and Voyager and a lot of these companies have misrepresented what they were doing with customer funds. So they were able to convince a lot of people, including 80-year-olds, people waiting for their retirement home, they were convincing them that they were just holding onto the funds or that they were putting them into very low risk loans and things like that, when in reality they were doing extremely risky things with customer funds that they were not disclosing to their customers.
And so I think there was a major sort of marketing push. In some cases, the people who run these companies were appealing quite directly to the people who were investing with Celsius. The CEO, Alex Mashinsky, was doing weekly AMAs where he would answer questions and he would repeat a lot of the same things over and over.
And if you look at the letters to the judge, you see those AMAs referenced again and again and again, because people were really convinced by him saying that, “You can’t trust the traditional banking system. You can’t trust your bank, but you can trust us. We’re less risky than a bank, but somehow we also provide you these higher yields.” People really fell for that, I think. And there wasn’t anyone stepping in to check that what he was promising was true or that they were managing the funds in a responsible way.
And so people really got taken for a ride, because I think they assumed that there were similar protections as exist in the traditional financial system, which I think is partly a lack of education. I think some people just go, they just assume that if there’s money involved, if there’s a company and it’s registered in Delaware and the CEO’s real name is up there, then obviously they can’t be doing anything too shady. They would get arrested. Well, it turns out that’s not always the case. People do do illegal things sometimes in large scale.
Mike Sugarman:
Molly mentioned another reason why people might trust crypto: something she calls “predatory community.” According to her, crypto scams can be especially dangerous when retail investors become less interested in their holdings than in the friends they’ve made along the way.
Molly White:
So you’ll hear the word community a lot when people are talking about anything to do with crypto. A lot of people will say, “Oh, the community is a selling point. I’m not here for the money, I’m here for the community,” and things like that. Celsius actually talked about community a lot in their marketing and their discussions with our customers. And what people have successfully done in crypto is form these sort of affinity groups around specific crypto projects. So it could be a specific token, it could be an NFT collection, it could be even the companies that are running some of these platforms, but they basically form a group of their customers or their buyers or their investors who all get to know each other. They usually hang out in a chat room somewhere like on Discord or in Telegram or even on Reddit, and they get to know each other.
And people talk there. They talk about what’s going on in their day to day. They talk about their kids. They talk about their stresses, their work. They do get to know each other in these communities, which is great. I mean, online community is great. But there is a very sort of insidious problem where you are creating a community around a financial instrument, a highly speculative one, and one that is above all else incentivized to be positive and increase the value of the token by increasing the level of belief in the system.
And what happens is when people start to lose money, they don’t necessarily make decisions that are best for them in terms of their financial safety or wellbeing. They often will make decisions based on their emotional connection to the community. They will, in some cases, go on the offensive against people who are asking questions or being critical of their community.
And it forms this really negative environment where people get really, really sucked in. And we’ve seen it with almost every crypto project that has collapsed in this sort of spectacular fashion. Where, up until the very last moment, people were defending the companies, they were saying that they should put more money in, even though things were looking shaky. And then at the last minute, when Celsius paused withdrawals or even some people continued to hold on belief through that, and then finally they declared bankruptcy, and suddenly their customers realized that this community that they thought that they were a part of was actually serving to just separate them from their money.
Mike Sugarman:
I think that’s a good place to leave it. The thing that comes up in these conversations again and again is community. That’s Molly’s idea of predatory community, that’s also the libertarians and cypherpunks who developed all of the projects Finn was describing here.
The thing about community is that it requires cooperation.
Ethan Zuckerman:
That’s what we’ll be talking about in the next episode. And we’ll actually be returning to blockchain to talk about the cooperatives and artists who are trying to devise a way to use it as a technology for cooperation. But we’ll also look at a large and powerful group that often gets neglected in conversations about online community: gamers.