Stephen Diehl - Popping the Crypto Bubble

Stephen Diehl, Jan Akalin, Darren Tseng

Consilience Publishing

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ISBN 978-1-915597-00-7

English (US)
First Edition
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Cryptocurrency is a giant scam, although a complicated scam that uses technobabble, heterodox economics and populist anger to obfuscate its functioning. A pitch perfect scam for the post-truth era of social media where trust in institutions and experts is at an all-time low.

The overarching idea of cryptocurrency is based on a complex set of myth-making built on a simple unifying aim: to reinvent money from first principles independent of current power structures. Rarely in the history of technology has there been any invention that has been the nexus of discussion along many dimensions of human experience and divides technologists on the ethical implications of its existence. the way that cryptocurrency does. It has emerged as one of the most intriguing and destructive socio-technical phenomena of the early 21st century, capturing the zeitgeist in economics, technology, politics, law, ethics, culture, and monetary policy.

Cryptocurrencies are undeniably an economic bubble, but it is a bubble on a scale that we are yet to experience. Nevertheless, the Nobel laureate Robert Shiller gives us a framework for understanding this phenomenon in his Narrative Economics [] , which describes the epidemiology of bubbles that perpetuate "stories that motivate and connect activities to deeply felt values and needs". Cryptocurrency is primarily driven by the twenty-first century narrative of distrust in financial institutions coupled with, the need for continuity of the financial services traditionally provided by these institutions.

While a software is political, some software is more political than other. Cryptocurrency can best be understood as a reaction to the 2008 Global Financial crisis and the synthesis of technolibertarian ideology with growing distrust in financial institutions. Within this context, technology has influenced the financial services sector and had a profound influence on popular economic discourse. It is a technology that remains extremely divisive in its approach to disruption and its political ends. The divisions over cryptocurrency are based on a philosophical question: Do you worry more about the abuse of centralized power, or about anarchy?

For those who fear anarchy, cryptocurrency is the fantasy of a financial system free of democratic oversight whose efficacy is based purely on technology and free-market forces. For those who fear centralized power, cryptocurrency is a hedge against the overreach and corruption of big government and a financial services sector whose greed and excesses were made clear during the financial crisis. This philosophical divide falls loosely along existing political ideologies. The cryptocurrency school is often ideologically adjacent to existing right-wing economic schools of thought, although it is, not entirely contained within that political sphere. It is a phenomenon that many individuals have co-opted [] for many ends as a result of its general misunderstanding.

In this critique, we will survey the state of cryptocurrency, its political imaginaries, and the outcomes it has achieved in the last decade. In the fake it til you make it culture of Silicon Valley and libertarian ideologies, it is widely accepted to ignore externalities of technology until a critical mass is reached, and the benefits of the technology can be realized in hindsight.

Nevertheless, cryptocurrency in the present moment has profound technical, privacy, economic, ethical, and environmental shortcomings that need to be discussed. The constellation of these shortcomings, lack of innovation, and potential for vast public harm form the case against the cryptocurrency [] .

The concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation.

Will and Ariel Durant, The Lessons of History

The introduction of bitcoin as a technology is a limited innovation, it presents a quirky and limited solution to a classic problem in computer science. However, for most of the general public, the perception of cryptocurrency is often at the more basic level of:

Bitcoin has something to do with computers / is very expensive / is the future of something / sometimes goes up.

The technology behind cryptocurrency is the product of many people and the fusion of different advances from the last twenty years. Nevertheless, its history is described by a single overarching truth:

Cryptocurrencies were intended as a peer-to-peer medium of payment but have since morphed into a product whose purpose is almost exclusively as a speculative investment.

Despite its most ardent acolytes claim, bitcoin was not an artifact of divine revelation. Like most technologies, it does not exist in a vacuum and was the product of a long sequence of trends going back to the early days of the internet. Bitcoin was not even the first digital currency and was preceded by multiple attempts along the same idea dating back to the early 1980s. The provenance of bitcoin is best understood through the lens of understanding the various internet subcultures that gave rise to the political ideologies and component technologies behind it.

The first hints of this idea go back to David Chaums cryptography paper Blind Signatures for Untraceable Payments which outlines a theoretical basis for a system of making an electronic payment system using digital signature algorithms. [] The paper presents this idea as a mathematical formulation and does not provide an implementation. Later in 1989, Chaum started a company that attempted to bring these ideas into production in the financial services sector. The company sold three years later, and its technology was eventually folded into an open-source project called GNU Taler.

At the same time, the Cold War was coming to an end, and the United States Department of Commerce and the State Department were increasingly concerned with the geopolitical implications of allowing exports of strong encryption standards. This led Phil Zimmerman, the inventor of a common encryption standard known as PGP, to challenge the United States munition controls on encryption in what would be known as the first Crypto Wars. The legal precedent, in this case, had massive implications for the early development of internet browsers and internet technology which were starting to rely on strong encryption standards to enable secure communication and eventually e-commerce. This trend created an underground movement on the early internet known as cypherpunks, who were technological activists who advocated for the unrestricted use of cryptography and privacy-enhancing technologies as a vehicle for social and political change.