Objections to crypto I have time for

There are plenty of good objections to crypto that are worth debating and working on fixing.

Unfortunately, discourse is dominated by the shit ones. You’ve seen those:

  • The ad-hominems: “you are just a crypto bro”
  • The strawmanning: “crypto is all a scam!”
  • The lack of awareness of the link between financial bubbles and technological innovation cycles: “it’s just a bubble!” (read Carlota Perez)
  • The inability to look beyond the current limitations: “the gas fees are too high!” (look at scaling roadmaps and L2s being increasingly supported natively)

These points come through in a constant repulsive stream of engagement farming on Twitter and hit pieces on Alphaville, sometimes met with a volley of blocks.

Here are some better objections to crypto.

Market manipulation

Due to (1) the relative immaturity of the markets, and (2) the lack of clear regulatory oversight/guidance, there is a lot of market manipulation. This leaves the less sophisticated players vulnerable to:

  • Pump & dumps (note this doesn’t just happen in crypto however, *cough* chamath SPACs *cough*)
  • Wash trading, particularly in the NFT market. Alice buys her own NFT (with another of her wallets) for 100x the initial value, then puts it up for sale at 90x and Bob buys it – what a deal.
  • Order book manipulation. Creating artificial support levels etc. This leaves those who try to trade (but don’t have the skills to) vulnerable. Probably happens on other asset classes to, and again the answer is to buy & hold if you don’t know how to trade.
  • Whale abuse, insider abuse. In public companies if an exec insider sells stock that needs to be disclosed. Not in crypto.

There is room for regulation to improve disclosures and transparency on projects. I also think gating access based on customer understanding rather than legacy rules like existing assets ($1M to be an accredited investor), as proposed by a16z here, makes sense.

Decentralised governance theatre

A lot of projects which are perceived as DAOs and governed by the community, etc. are in effect run by a small team of insiders & whales. There are a few reasons:

  • On-chain voting is not suitable for most decisions. Many decisions such as new product expansion, token supply changes, new core mechanics are too impractical to be implemented on-chain (all options would have to be written into the contracts with the execution path chosen based on a DAO vote oracle)
  • Voter apathy. Having an opinion on proposals requires a lot of technical knowledge and time.
  • 1 coin 1 vote. This overly favours the whales, insiders, and treasury of the project. There are interesting alternatives to try out.

Perhaps the most pernicious thing is when there is company behind the project accruing revenues from the protocol, and also a token, but no promises are made about the token to avoid having it classed as a security. This is the case of Uniswap Labs & UNI, and dydx and the DYDX token. All decisions about the economics or utility of the token are in the hands of Uniswap Labs and the dydx co. Everything voted on through coin governance is only indicative.

I think it’s totally fine for most decisions not to be subject to community vote (it’s hard enough to build good software with one aligned team). I am less OK with the mismatch between the narrative and the reality.

Centralised intermediaries / SPOFs

There are multiple single points of failure / centralisation points in the way things are built today.

  • Almost all traffic from dapps and wallets goes to endpoints hosted by “node as a service” companies like Alchemy and Infura. There are projects like The Graph and Pokt Network which decentralise these services but they have not the dominant patterns of use yet.
  • Many NFT projects have the data point to a centralised server (which could be an IPFS gateway like Pinata). IPFS + the incentivisation-layer of Filecoin or Arweave is not yet used throughout.
  • A huge majority of NFT exchange volume is on OpenSea.
  • A huge majority of EVM chains usage is on the Metamask wallet (which uses Alchemy & Infura endpoints)

This was one of Signal founder Moxie’s biggest points in his recent critique of Web3, which was refreshingly well-written and grounded in real experience. As Vitalik responded he is probably right on the current state but things are moving in the right direction.

Self-custody and blockchain maximalism

You’ve heard the “not your keys not your coins” memes. Self-custody is pretty awesome theoretically (you are the only person in the world in control of your assets) but in practice most people won’t want to do it. 1) you can lose your keys, 2) you can be subject to a $5 wrench attack. Using a password manager is already a step too far for most people – they will not want to self-custody.

Another form of maximalism is saying that everything needs to be re-written to be on blockchains. Most applications don’t make sense to go on blockchains. There are a few reasons:

  • Performance and cost of delivery
  • Physical touchpoints: if the application is touching anything in the real world there already is an entity you must trust (say to produce and ship your item) so it doesn’t make sense to decentralise the rest of the process. This is why money (which is pretty much exclusively digital now), gaming, online fan communities, make sense as application areas for now.
  • Coordination overhead: the “bottoms-up” governance inherent to blockchain networks isn’t worth it for most operations / service delivery.

Blockchains also don’t have the monopoly on ways to decentralise power from web2 tech giants. I recently heard Tim O’Reilly say something that stuck with me: “Federated machine learning will do more to decentralise the internet economy than crypto”. This seems super under-discussed.

Happy debating

Happy debating, see you out there.

In any case I hope we can all agree that the memes make it worth this journey.

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