Line Goes Up – The Problem With NFTs

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Line Goes Up – The Problem With NFTs

Line Goes Up – The Problem With NFTs

For online content creators the unavoidable  subject of 2021 has been NFT’s.  From incredibly cringe-worthy ape profile pics, to  incomprehensibly tasteless tributes to deceased   celebrities, to six-figure sales of the “original  copy” of a meme, it is the thing that is currently   dominating the collective brain space of digital  artists and sucking up all the oxygen in the room. And I do want to talk about that, I want to  talk about my opinions on NFTs and digital   ownership and scarcity, all the myriad  dimensions of the issue, but I don’t   just want to talk about NFTs, I can’t just talk  about NFTs because ultimately they are just   a symbol of so much more, and it is that  “more” that is ultimately important. So let me tell you a story. [Drumming] In 2008 the economy functionally collapsed. The basic chain reaction was this: Banks came up with a thing called  a mortgage-backed security,   a financial instrument that could be traded  or collected that was based on a bundle   of thousands of individual mortgages. Based on the  general reluctance of banks to issue mortgages,   the risk-aversion in lending someone hundreds  of thousands of dollars that they’ll pay off   over the course of decades, these bonds  were seen as especially stable. However   they were also immensely profitable for the  banks who both issue the mortgages and the bonds. Because of that perceived stability a  lot of other financial organizations,   like pension funds and hedge funds, used them  as the backbone of their investment portfolio. In this arrangement a mortgage becomes more  profitable to the bank issuing the mortgage   as a component of a bond than it is as a  mortgage. Proportionally the returns per   mortgage from the bond are just that much better  than the returns from the isolated mortgage. There’s some problems, though. Problem one is  that the biggest returns on a bond come from   when it first hits the market, a new bond  that creates new securities sales is worth   more than an old bond that is slowly appreciating,  but not seeing much trade. Problem two   is that there are a finite number  of people and houses in America;   the market has to level out at a natural  ceiling as eventually all or nearly all   mortgages are packaged into bonds, thus very  few new bonds can be generated and sold. So here’s the incentives that are created. One: it’s good for banks if there are more  houses that they can issue mortgages for  Two: the more mortgages issued the  better, because a bad mortgage is   worth more as a component of a bond than  a good mortgage that’s not part of a bond. So real estate developers find that they have a  really easy time getting funding from banks for   creating vast new suburbs full of houses  that can be sold to generate mortgages,   but rather than building the kind of  housing most people actually need and want,   they focus specifically on the kinds of  upper-middle-class houses that fit into the sweet   spot from the perspective of the banks packaging  the bonds. Buyers, in turn, find that they have a   suspiciously easy time getting a mortgage despite  the fact that, for most people, the economy wasn’t   doing so great. Wages were stagnant and yet even  though developers were going absolutely haywire   building new housing, the houses being built  were all out of their price range to begin with,   and counter intuitively this massive increase  in supply wasn’t driving down the price. This is because the houses were being bought, just  mostly not by people intending to live in them.   They were being bought by speculators who  would then maybe rent them out or often just   leave them vacant with the intent  to sell a couple years later. Because speculators were buying up the supply  it created synthetic demand. The price keeps   going up because speculators keep buying, which  creates the illusion that the value is going up,   which attracts more speculators who buy up  more supply and further inflate the price. These speculators are enabled by a system  that is prioritizing generating new mortgages   purely for the sake of having more  mortgages to package into bonds.   The down payments are low and the mortgages  all have a really attractive teaser rate,   meaning that for the first three to seven years of  the mortgage the monthly payments are rock bottom,   as low as a few hundred dollars per month against  a mortgage that would normally charge thousands. Caught up in all this are legitimate  buyers who have been lured into signing   for a mortgage that they can’t afford  by aggressive salespeople who have an   incentive to generate mortgages that they can  then sell to a bank who can put it into a bond   to sell to pension funds to make a line go  up, because it’s good when the line goes up. It’s a bubble. The bubble burst as the teaser rates  on the mortgages started to expire,   the monthly cost jumped up, and  since the demand was synthetic   there were no actual buyers for the  speculators to sell the houses to. So the speculators start dumping stock, which  finally drives prices down, but because the   original price was so inflated the new price  is still out of reach of most actual buyers. Legitimate buyers caught in the  middle find their rates jumping, too,   but because the price of the house is going  down as speculators try and dump their stock   the price of the house goes down  relative to the mortgage issued,   and thus they can’t refinance and are  locked into paying the original terms. Unable to sell the house and unable  to afford the monthly payments,   the owners, legitimate and speculators,  default on their mortgages, they stop paying. Eventually the default rate reaches  criticality and the bonds fail.   As the bonds fail this impacts all the first order  buyers of the bonds, hedge funds, pension funds,   retirement savings funds, and the like.  It also cascades through all derivatives,   which are financial products that take their  value directly from the value of the bond. This creates a knock-on effect: huge segments  of the economy turn out to be dead trees,   rotten to the core, but as a rotten tree falls   it still shreds its neighbours  and crushes anything below it. It was a failure precipitated by a  combination of greed, active fraud,   and willful blindness at all levels of power.  The banks issuing the bad mortgages were the same   banks selling the bonds and providing the capital  to build the houses to generate the mortgages.   The ratings agencies checking the bonds were,  themselves, publicly traded and dependent   on being in good relations with the banks,  incentivized to rubber stamp whatever rating   would make their client happy. The regulatory  agencies that should have seen the problem coming   were gutted by budget cuts and mired  in conflicts of interest as employees   used their positions in regulation to  secure higher paying jobs in industry.   And, the cherry on top, the people largely  responsible for it all knew that because they   and their toxic products were so interwoven into  the foundations of the economy they could count   on a bailout from the government because no matter  how rotten they were, they were very large trees. [Drumming] This naked display of greed and fraud  created what would be fertile soil for   both anti-capitalist movements  and hyper-capitalist movements:   both groups of people who saw themselves as  being screwed over by the system, with one   group diagnosing the problem as the system’s  inherently corrupt and corrupting incentives,   and the other seeing the crisis as a consequence  of too much regulation, too much exclusion. The hyper-capitalist, or anarcho-capitalist  argument is that in a less constrained   market there would be more incentive to call  foul, that regulation had only succeeded in   creating an in-group that was effectively  able to conspire without competition. Of course this argument fails to  consider that a substantial number of   people within the system did, in fact, get  fabulously wealthy specifically by betting   against the synthetic success  of the market, but regardless. Into this environment in 2009 arrived Bitcoin,  an all-electronic peer-to-peer currency.   Philosophically Bitcoin, and  cryptocurrency in general,   was paraded as an end to banks  and centralized currency. This is what will form the bedrock,  both philosophical and technological,   that NFTs will be built on  top of. It’s a bit of a hike   from here to the Bored Ape Yacht Club,  so I guess get ready for that. Strap in. As we get into this we’re going to need to deal  with a lot of vocabulary, and a lot of complexity.   Some of this is the result of systems  that are very technically intricate,   and some of this is from systems that  are poorly designed or deliberately   obtuse in order to make them difficult to  understand and thus appear more legitimate. The entire subject sits at the intersection  of two fields that are notoriously prone to   hype-based obfuscation, computer tech and finance,  and inherits a lot of bad habits from both,   with a reputation for making things  deliberately more difficult to understand   specifically to create the illusion that  only they are smart enough to understand it. Mining and minting are both methods for making  tokens, which are the base thing that blockchains   deal with, but the two are colloquially different  processes, where mining is a coin token created as   a result of the consensus protocol and minting  is a user-initiated addition of a token to a   blockchain. All blockchains are made of nodes,  and these nodes can be watcher nodes, miner nodes,   or validator nodes, though most miner nodes are  also validator nodes. Fractionalization is the   process of taking one asset and creating a new  asset that represents portions of the original. So you get $DOG, a memecoin crypto DeFi venture  capital fund backed by the fractionalization of   the original Doge meme sold as an NFT  to PleasrDAO on the Ethereum network. I’m sorry, some of this is  just going to be like that. The idea behind cryptocurrency is that  your digital wallet functions the same as   a bank account, there’s no need for a bank  to hold and process your transactions because   rather than holding a sum that conceptually  represents physical currency, the cryptocoins   in your cryptowallet are the actual money. And  because this money isn’t issued by a government   it is resistant to historical cash crises like  hyperinflation caused by governments devaluing   their currency on purpose or by accident. It  brings the flexibility and anonymity of cash and   barter to the digital realm, allowing individuals  to transact without oversight or intermediaries. And in a one-paragraph pitch you can see the  appeal, there’s a compelling narrative there. But, of course, in the twelve years since  then none of that played out as designed.   Bitcoin was structurally too slow and  expensive to handle regular commerce.   The whole thing basically came out the  gate as a speculative financial vehicle   and so the only consumer market  that proved to be a viable use   was buying and selling prohibited drugs where  the high fees, rapid price fluctuations,   and multi-hour transaction times were mitigated  by receiving LSD in the mail a week later. And as far as banking is concerned, Bitcoin  was never designed to solve the actual problems   created by the banking industry, only to be the  new medium by which they operated. The principal   offering wasn’t revolution, but at best a changing  of the guard. The gripe is not with the outcomes   of 2008, but the fact that you had to be well  connected in order to get in on the grift in 2006. And even the change of the guard is an illusion.  Old money finance [ __ ] like the Winkelvoss   twins were some of the first big names to jump  on to crypto, where they remain to this day. Financial criminal Jordan Belfort, convicted  of fraud for running pump and dump schemes   and barred for life from trading regulated  securities or acting as a broker, loves Crypto. Venture capitalist Chris Dixon, who has  made huge bank off the “old web” in his   role as a general partner at VC firm Andreessen  Horowitz Capital Management, is super popular   in the NFT space. He likes to paint himself as  an outsider underdog fighting the gatekeepers,   but he also sits on the boards of  Coinbase, a large cryptocurrency   exchange that makes money by being  the gatekeeper collecting a fee on   all entries and exits to the crypto economy, and  Oculus VR, which is owned by Meta, nee Facebook. Peter Thiel, who also went from wealthy to  ultra-wealthy off the Web2 boom via PayPal,   loves crypto, and is friends with  a bunch of eugenics advocates who   promote cryptocurrency as a return to “sound  money” for a whole bunch of extremely racist   reasons because when they start talking  about banks and bankers, they mean Jews. Some of the largest institutional  holders of cryptocurrency   are the exact same investment banks  that created the subprime loan crash. Rather than being a reprieve to the  people harmed by the housing bubble,   the people whose savings and  retirements were, unknown to them,   being gambled on smoke, cryptocurrency instantly  became the new playground for smoke vendors. This is a really important point to stress:  cryptocurrency does nothing to address 99% of   the problems with the banking industry, because  those problems are patterns of human behaviour.   They’re incentives, they’re social structures,  they’re modalities. The problem is what people   are doing to others, not that the building they’re  doing it in has the word “bank” on the outside. In addition to not fixing problems, Bitcoin  also came with a pretty substantial drawback. The innovation of Bitcoin over previous attempts  at digital currency was to employ a distributed   append-only ledger, a kind of database where new  entries can only be added to the end, and then to   have several different nodes, called validators,  compete over who gets to validate the next update. These are, respectively, the blockchain,  and proof-of-work verification. Now, proof-of-work has an interesting  history as a technology, typically being   deployed as a deterrent to misbehaviour. For  example, if you require that for every email   sent the user’s computer has to complete a  small math problem it places a trivial load   onto normal users sending a few dozen,  or even a couple hundred emails a day,   but places a massive load on the infrastructure  of anyone attempting to spam millions of emails. How it works in Bitcoin, simply put, is  that when a block of transactions are   ready to be recorded to the ledger all of the  mining nodes in the network compete with one   another to solve a cryptographic math problem  that’s based on the data inside the block. Effectively they’re competing to figure out  the equation that yields a specific result   when the contents of the block are fed into  it, with the complexity of the desired result   getting deliberately more difficult based on the  total processing power available to the network. Once the math problem has been solved the  rest of the validation network can easily   double-check the work, since the contents of  the block can be fed into the proposed solution   and it either spits out the valid answer or fails. If the equation works and the consensus  of validators signs off on it the block   is added to the bottom of the ledger and  the miner who solved the problem first   is rewarded with newly generated Bitcoin. The complexity of the answer that the computers  are trying to solve scales up based on the   network’s processing power specifically to  incur heavy diminishing returns as a protection   against an attack on the network where someone  just builds a bigger computer and takes over. Critics pointed out that  this created new problems:   adversarial validation would deliberately incur  escalating processing costs, which would in turn   generate perverse structural incentives  that would quickly reward capital holders   and lock out any individual that wasn’t already  obscenely wealthy, because while the escalating   proof-of-work scheme incurs heavy diminishing  returns, diminishing returns are still returns,   so more would always go to those with  the resources to build the bigger rig. No matter what Bitcoin future was envisioned,   in the here and now computer  hardware can be bought with dollars. Rather than dismantling corrupt power structures,   this would just become a new  tool for existing wealth. And that’s… exactly what happened. Thus began an arms race for bigger and bigger  processing rigs, followed by escalating demands   for the support systems, hardware engineers, HVAC,  and operating space needed to put those rigs in. And, don’t worry, we’re not  forgetting the power requirements. These rigs draw an industrial amount of  power and, because of the winner-takes-all   nature of the competition, huge amounts of  redundant work are being done and discarded. Estimates for this power consumption are  hard to verify, the data is very complex,   spread across hundreds of operators  around the globe, who move frequently   in search of cheap electricity, and  it’s all pretty heavily politicized. But even conservative estimates from within the  crypto-mining industry puts the sum energy cost   of Bitcoin processing on par with the power  consumption of a small industrialized nation. Now, evangelists will counter that the global  banking industry also uses a lot of power,   gesturing at things like idle ATMs humming away  all night long, which is strictly speaking,   not untrue. On a factual level the  entire global banking industry does,   in fact, use a lot of total electricity. But, for scale, it takes six hours of that  sustained power draw for the Bitcoin network   to process as many transactions  as VISA handles in one minute,   and during that time VISA is using fractions  of a cent of electricity per transaction. And that’s just VISA. That’s  one major institution. So, like, yes, globally the entirety of the  banking industry consumes a lot of power,   and a non-trivial portion of that is  waste that could be better allocated.   But it’s also the global banking  industry for seven billion people,   and not the hobby horse of a few  hundred thousand gambling addicts. So just to head all this off at the pass,  Bitcoin and proof-of-work cryptocurrency aren’t   incentivizing a move to green energy sources,  like solar and wind, they are offsetting it. Because electrical consumption, electrical  waste, is the value that underpins Bitcoin.   Miners spend X dollars in electricity to  mine a Bitcoin, they expect to be able to   sell that coin for at least X plus profit.  When new power sources come online and the   price of electricity goes down, they don’t  let X go down, they build a bigger machine. [Drumming] In 2012 Vitalik Buterin, a crypto  enthusiast and butthurt Warlock main   set out to fix what he saw as the  failings and inflexibilities of Bitcoin. Rather than becoming the new digital currency,  a thing that people actually used to buy stuff,   Bitcoin had become an unwieldy  speculative financial instrument,   too slow and expensive to use for anything  other than stunt purchases of expensive cars. It was infested with money  laundering and mired in bad press. After the FBI shut down Silk Road you  couldn’t even buy drugs with it anymore. In practice you couldn’t do anything  with your Bitcoin but bet on it,   lock up money you already have in the hopes  that Bitcoin goes up later, and pray you don’t   lose it all in a scam, lose access to your  wallet, or have it all stolen by an exchange. The result, launched in 2014, was Ethereum, a  competing cryptocurrency that boasted lower fees,   faster transaction times, a  reduced electrical footprint,   and, most notably, a sophisticated  processing functionality. While the Bitcoin blockchain only tracks  the location and movement of Bitcoins,   Ethereum would be broader. In addition to  tracking Ether coins, the ledger would also   be able to track arbitrary blocks of data.  As long as they were compatible with the   structure of the Ethereum network,  those blocks of data could even be   programs that would utilize the validation  network as a distributed virtual machine. Vitalik envisioned this as a vast, infinite  machine, duplicated and distributed across   thousands or millions of computers, a system onto  which the entire history of a new internet could   be immutably written, immune to censorship,  and impossible for governments to take down. He saw it dismantling banks and other intermediary  industries, allowing everyone to be their own   bank, to be their own stock broker, to bypass  governments, regulators, and insurance agencies. His peers envisioned a future  where Ethereum became not just   a repository of financial transactions, but  of identity, with deeds, driver’s licenses,   professional credentials, medical  records, educational achievements,   and employment history turned into tokens and  stored immutable and eternal on the chain. Through crypto and the ethereum  virtual machine they could bring all   the benefits of Wall Street  investors and Silicon Valley   venture capitalists to the poorest people  of the world, the unbanked and forgotten. This heady high-minded philosophy  is outlined in great detail in the   journalistic abortion The Infinite Machine  by failed-journalist-turned-crypto-shill   Camilla Russo. The book is actually really interesting. Not for the merits of the writing, Russo fails  to interrogate the validity or rationality of   even the simplest claims and falls just  shy of hagiography by occasionally noting   that something was a bit tacky or  embarrassing, but only just shy. She tells florid stories about the impoverished  people that Vitalik and friends claimed to be   working to save, but never once considers that  the solutions offered might not actually work,   or that the people claiming to want to solve  those problems might not even be working on them. That’s actually a big issue, since the entire  crypto space, during the entire time that   Russo’s book covers, was absolutely awash with  astroturfing schemes where two guys would go to   some small community in Laos or Angola, take  a bunch of pictures of people at a “crypto   investing seminar”, generate some headlines  for their coin or fund, and then peace out. For years dudes were going around asking  vendors if they could slap a Bitcoin   sticker onto the back of the cash register,  because the optics of making it look like a   place takes Bitcoin was cheaper and easier  than actually using Bitcoin as a currency. We have an entire decade of  credulous articles about how   Venezuela and Chile are on the verge  of switching entirely to crypto,   based entirely on the claim of two  trust fund dudes from San Bernardino. A whole ten years littered with discarded  press releases about Dell and Microsoft and   Square bringing crypto to the consumers  before just quietly discontinuing their   services after a year or two when they  realize the demand isn’t actually there. The fact that the development of Ethereum was  extremely dependent on a $100,000 fellowship   grant from Peter Thiel is mentioned, but the  ideological implications of that connection   are never explored, the entire subject occupies  a single paragraph sprinkled as flavour into a   story about Vitalik and his co-developers airing  their grievances about some petty infighting. The book is mostly useful for it’s value  as a point of reference against reality.   It’s a very thorough, if uncritical,  document of absolutely insane claims. “The idea was that traits of  blockchain technology—such   as having no central point of failure, being  uncensorable, cutting out intermediaries,   and being immutable—could also benefit  other applications besides money.   Financial instruments like stocks and bonds, and  commodities like gold, were the obvious targets,   but people were also talking about putting other  representations of value like property deeds and   medical records on the blockchain, too. Those  efforts—admirable considering Bitcoin hadn’t,   and still hasn’t, been adopted widely  as currency—were known as Bitcoin 2.0.” I love this paragraph because it  outlines just how disconnected   from reality the people actually  building cryptocurrencies really are. They don’t understand anything about the  ecosystems they’re trying to disrupt,   they only know that these are things  that can be conceptualized as valuable   and assume that because they understand one very  complicated thing, programming with cryptography,   that all other complicated things must  be lesser in complexity and naturally   lower in the hierarchy of reality, nails easily  driven by the hammer that they have created. The idea of putting medical records on a  public, decentralized, trustless blockchain   is absolutely nightmarish, and anyone who  proposes it should be instantly discredited. The fact that Russo fails to question  any of this is journalistic malpractice. Now, in terms of improvements over  Bitcoin, Ethereum has many. It’s not hard. Bitcoin sucks. In terms of problems with Bitcoin,  Ethereum solves none of them and   introduces a whole new suite of problems  driven by the technofetishistic egotism of   assuming that programmers are uniquely  suited to solve society’s problems. Vitalik wants his invention to be  an infinite machine, so let’s ask   what that machine is built to do. [Drumming] In order to really understand the full  scope of this we do need to dig a bit   more into the technical aspects,  because that technical functionality   informs the way the rest of the system behaves. In a very McLuhanist way, the machine  shapes the environment around it. As already mentioned, a blockchain consists  of two broad fundamental components:   the ledger and the consensus mechanism. All currently popular blockchains  use an append-only ledger. Now this is, on its own, not that remarkable.  Append-only is just a database setting that only   allows new entries to be added to the end of the  current database, once something is written to the   database it’s read-only. Standard applications  are typically things like activity logs,   which is conceptually all a blockchain  really is: a giant log of transactions. The hitch is that it’s decentralized, with  elective participants hosting a complete copy   of the entire log, and this is where the second  component comes in, the consensus mechanism. All validating participants, called nodes,  have a complete copy of the database,   and no one copy is considered  to be the authoritative copy. Instead there is a consensus mechanism that  determines which transactions actually happened. This is all the proof of work stuff. Proof of work isn’t the only consensus mechanism,   but it’s popular because it’s very easy  to implement by just cloning Bitcoin   and is resilient against the kinds of  attacks that crypto enthusiasts care about. It’s a very brute-force solution,   but legitimately if you want a network of  ledgers where no one trusts anyone else,   just making everyone on the network do extreme  amounts of wasted, duplicate work is a solution. One of the major problems that this machine  solves is what’s called the double-spend   problem: how do you stop someone  from spending the same dollar twice? If someone tries, how do you determine  which transaction really happened? Banks solve this problem by not correlating  account balance with any specific dollar,   processing transactions first-come-first-serve,  which they track with central resources,   and punishing users with overdraft  fees for double-spending. Eschewing a central solution, cryptocurrencies  rely on their consensus mechanism. The most popular alternative to  proof-of-work is proof-of-stake,   where validators post collateral of some kind,  usually whatever currency is endemic to the chain,   with the amount of collateral determining their  odds of being rewarded the validation bounty   for any given transaction. The main proposal of  proof of stake is that it significantly reduces   the wasted power problems of proof of work,  but it’s less resilient than proof of work. On the energy cost side of things, proof of stake  is still inefficient, just by virtue of the sheer   volume of redundancy, but on a per-user basis  it’s at least inefficient on the scale of, like,   an MMO as opposed to a steel foundry. This is difficult to assess because the  most popular proof of stake chains are still   unpopular and low traffic in the  scope of things, heavily centralized.   Claims about scalability are backed  up by nothing but the creators’ word. Proof of stake is also significantly more  complex because there now needs to be some   mechanism for determining who gets to do the  validations, and also determining how audits   are conducted, and then the question  of who has control over that system,   and whether or not someone can gain control of  that system or control over the whole stake,   via just buying out the staking  pool, et cetera et cetera et cetera. Proof of Stake also, even more explicitly,  rewards the wealthy who have the capital   to both stake and spend. It’s also even more  explicitly exclusionary. Ethereum’s proposed   proof-of-stake migration has a buy-in of 32 Ether,  which at the time of writing is about $130,000,   so really only early adopters  and the wealthy can actually   meaningfully participate  for more than just crumbs. This is, in turn, compounding inherent problems  with the long term growth of the chain.   Even if you solve the escalating  power requirements of proof of work,   the data requirements of storing the chain  and participating as a validator are also   prohibitive in a way that inevitably centralizes  power in the hands of a few wealthy operators. Vitalik: 85 terabytes per year is  actually fine, right? Like, because, uh,   85 terabytes per year, like, if you have, if  you have even one person that just keeps buying,   like, um, a hundred dollar hard drive, like, uh,  I think once every month then they can store it,   right, like it’s something like that. So, it’s  too big for just like a casual user that just   wants to run the chain on their laptop, but one  dedicated user who cares, they can totally afford   to, uh, afford to store the chain. And so 85  terabytes, not a big deal, right, but once you   crank that number higher there comes a point  at which it starts becoming a really big deal. The major downside of all these systems is  that they’re extremely slow. Proof of work   is inefficient by design, and proof of stake  has multiple layers of lottery that need to   be executed before any transaction can  be conducted, and in particular suffers   from delays when elected validators are  offline and the system needs to draw again. As an extension of being slow  they’re also prone to getting   overwhelmed if too many people try  to make transactions simultaneously,   which can cause de-syncs between validators  and even lead to what’s called a fork,   where two or more pools of validators reach a  different consensus about the state of the network   and each branch keeps on going afterwards  assuming that it is the authoritative version. Forks can also be caused on purpose, and this  is, in fact, the only way to effectively undo   transactions. Like if someone stole your  coins the only way to get them back would   be to convince the people who manage the  chain itself to negotiate a rollback. That’s foreshadowing for later. Now, because the nature of a fork involves  a disagreement on what transactions   actually happened, and who got paid for those  transactions, this means that each arm of the   fork has a vested interest in its own arm being  the authoritative arm, so resolving forks can turn   into irreconcilable schisms, which is funny as  an outside observer viewing it as inane internet   drama, but is frankly unacceptable for anything  posturing as a serious and legitimate currency. Like, it’s important to stress that  because of the nature of the chain,   the way that the ID numbers of later blocks are  dependent on the outcomes of previous blocks,   these aren’t just a few disputed transactions  that need to be resolved between the buyer,   the seller, and the payment processor,  these are disagreements on the fundamental   state of the entire economy that  create an entire alternate reality. It’s an ecosystem that absolutely  demolishes consumer protections   and makes the re-implementation  of them extremely difficult. One of the big selling points of all this  technology is that it’s particularly secure,   very difficult for anyone to hack it  directly, since there’s so much redundancy. A lot of hay is made about the system’s  resiliency against man-in-the-middle   attacks, which are your classic  Hollywood hacker type attacks. Someone sends a command from point A and on the  way to point B it is intercepted and altered.   Someone hacks into the bank and adds an arbitrary  number of zeroes onto their account balance. Evangelists will commonly claim  that blockchain could revolutionize   the global shipping industry and reduce fraud. It’s a good claim to interrogate. First, the things that blockchain is  capable of tracking are things that   manufacturers and shippers are already  tracking, or at least trying to track,   so this is not so much “revolution”  as it would be “standardization.” Even that is built on a predicate assumption  that everyone picks the same chain. It’s an extremely optimistic assumption. Many, many, many firms deliberately want their   information centralized and obfuscated  to protect against corporate espionage. The lack of a shared, standardized  bucket to put all the information into   is not because it’s been heretofore  impossible, but because it’s been undesirable. Second, it assumes the existence of a theoretical  mechanism that ensures the synchronization of the   chain and reality above and beyond the  current capacity of logistics software,   some means of preventing people from just   lying to the blockchain and giving it the  information it expects to be receiving,   the blockchain equivalent of ripping off the  shipping label and slapping it on the new box. The bigger problem here is  that in the pantheon of fraud,   man-in-the-middle attacks  are actually pretty rare. Global shipping needs to deal with it in certain  capacities, but taken on the whole the vast   majority of fraud doesn’t come from altering  information as it passes between parties,   rather from colluding parties  entering bad information at the start. Con artists don’t hack the Gibson to transfer  your funds to their offshore accounts,   they convince you to give them your password. Most fraud comes from people who technically  have permission to be doing what they’re doing. Rather than preventing these  actual common types of fraud,   cryptocurrency has made them absurdly easy,  and the main reason why cryptocurrency needs   to be so resistant to man-in-the-middle  attacks is because the decentralized nature   of the network otherwise makes them  acutely vulnerable to those attacks. What this all kinda means  is that blockchains are all   pretty bad at doing most of the things  they’re trying to do, and a lot of the   innovations in blockchains are attempts at  solving problems that blockchains introduced. The biggest issue that cryptocurrencies have  suffered from is a lack of tangible things to   actually use them on as currencies, rent or food  or transit, and this is for pretty simple reasons. One is that the transaction fees on popular  chains are so prohibitive that it’s pointless   to use them on any transaction that isn’t  hundreds, if not thousands of dollars;   no one is going to buy the Bitcoin Bucket from  their local KFC. Ethereum’s main transaction fee,   called Gas, on a good day runs around $20 US  per transaction, but that’s severely optimistic. As of December 2021 the daily average  cost of Gas hasn’t gone below $50   US since August, with the three  month daily average riding over $130. And that’s just the daily average. The hourly price can, and does, swing  by up to two orders of magnitude. The throughput of blockchains is  so abysmal that transaction slots   are auctioned off to the highest bidder,  that’s why these numbers are so extreme. It only takes a few high rollers competing on  a transaction to drive the hourly price of gas   up over $1000 US. The internal term for this  is a “gas war” because it’s just that common. Bots, in particular, can drive  gas prices well into the tens   of thousands of dollars as they  compete to capitalize on mistakes,   such as someone listing something for  sale well below its general market price. Also, it needs to be stressed: these gas wars  aren’t localized to just the thing that’s being   fought over. If Steam is getting hammered because  ConcernedApe posted Stardew Valley 2 by surprise,   that will probably stay pretty well  contained. If Taylor Swift concert   tickets go on sale and LiveNation gets  crushed, you might never even know. What those don’t do is cause  the cost of placing an order   on DriveThruRPG to spike by eight  thousand percent for three hours. The second big reason is that value on  the coins themselves is so volatile that   unless you’re willing to engage with  the speculative nature of the coins   there’s actually a huge risk in  accepting them as payment for anything. Bitcoin in particular, owing to its glacial  transaction times, suffers from problems where   the value of the coin can change dramatically  between the start and end of a transaction. This is such a problem that it’s led to the rise  of an entire strata of middlemen in the ecosystem,   so-called “stablecoin” exchanges  like Tether that exist to quickly   transfer cryptocurrencies between  each other and lock-in values. The stablecoins, rather than  having a speculative value,   have a value that’s pegged to the value of an  actual currency, like the Euro or US dollar. The underlying problem that they  exist to solve is itself twofold. One is that converting cryptocurrency into   dollars is the step of the process that  makes you accountable to the tax man,   and the primary goal of crypto in general is  to starve public services, so that’s a no go. The second is that there just  aren’t actually that many buyers,   and there’s not enough liquidity in  the ecosystem to cash out big holdings. Tether, the largest stablecoin, used  to advertise itself as being backed   on a one to one basis back when it was  called Realcoin, but that language has   become far more nebulous over time as it’s  become obvious that it just isn’t true. This is a very complicated situation, but the  short version is that the people who own Tether   also own a real money exchange called Bitfinex,  and there’s evidence that the two services,   both which require having actual dollars  on hand in order to back their products and   facilitate exchanges, are sharing the same pool  of money, swapping it back and forth as needed. This means that at any given time  either service is potentially backed by   zero dollars, or at least that’s what  the data implies might be the case. Point is that if you’re a high  roller with tens of millions   of conceptual dollars tied up in cryptocurrency,   there’s a fundamental cash problem. Your  holdings have inflated to tens, hundreds,   or thousands of times what you put in, but that  price is just theoretical. It’s speculative. You have all this crypto, you  can’t meaningfully spend it,   and there’s not enough  buyers for you to get it out. In order for you to cash out you need  to convince someone else to buy in. These factors, taken holistically, mean  that cryptocurrency is a Bigger Fool scam.   There’s a lot of digital ink spilt trying  to outline if it’s a decentralized Ponzi   scheme or a pyramid scheme or some hybrid  of the two, which is a taxonomical argument   that I’m not here to settle, but, like  both of those, it’s a Bigger Fool scam. The whole thing operates by buying  worthless assets believing that you   will later be able to sell them to a bigger fool. The entire structure of cryptocurrencies  at their basic level of operation   is designed to deliver the greatest rewards  to the earliest adopters, regardless of   if you’re talking about proof-of-work or  proof-of-stake. This is inherent to their being. As Stephen Diel put it “These schemes around crypto tokens cannot create  or destroy actual dollars, they can only shift   them around. If you sell your crypto and make a  profit in dollars, it’s only because someone else   bought it at a higher price than you did. And  then they expect to do the same and so on and   so on ad infinitum. Every dollar that comes out of  cryptocurrency needs to come from a later investor   putting a dollar in. Crypto investments  cannot be anything but a zero sum game,   and many are actually massively negative sum. In  order to presume a crypto investment functions as   a store of value we simultaneously need to  suppose an infinite chain of greater fools   who keep buying these assets at any  irrational price and into the future forever.” So with all that out of the way,  let’s talk about the ape in the room. ♪ NFTs super-sexy, man it always lures me ♪ ♪ I’m too focused and you know you’ll never   ever deter me ♪ ♪ Crypto astronaut ♪  ♪ Degen moving so hazardous ♪ ♪ Crypto what I’m   gon’ dabble uh ♪ ♪ OpenSea is like chapel yeah ♪ NFTs, non-fungible tokens. On a conceptual level the  tech acts as a sort of generic   database to mediate the exchange of digital stuff. The most optimistic read on it is a framework for  a type of computer code that creates so-called   true digital objects, meaning digital  objects that possess the attributes of both   physical objects and digital,  being losslessly-transmittable   while providing strict uniqueness,  which is an important concept. Strict uniqueness is a way of  saying that two different things   are different things, even if they’re  different copies of the same thing. My copy of Grey by EL James is strictly unique.  While millions of copies of the book exist,   this is the only copy that is this copy,  and this is the only copy that has the   very specific damage of being glued  shut and thrown into the Bow River. [splash] It is also strictly scarce. While  millions of copies of Grey exist,   that’s still a finite number,  meaning it is possible,   though not immediately practical,  for the world to run out of copies. NFTs impose a simulacrum of this  physical scarcity and uniqueness   onto digital objects within their ecosystem. [splash] On a technical level a non-fungible token  is just a token that has a unique serial   number and can’t be subdivided into smaller parts. Two tokens, even two that tokenize the same   conceptual thing, are still strictly  unique with different serial numbers. Within the context of Ethereum  and its clones these tokens are   effectively a small packet of data  that can contain a payload of code. It’s a box that you can put a micro program into. That micro-program is called a smart contract, a  name that is so comically full of itself that I   feel like it’s misleading to even call them  that, but I have to for simplicity’s sake. But real quick, yes, that is how the  inventors conceptualize the role of   these things, as the unity of programming and law. The phrase “code is law” gets bandied  about as an aphorism, and it’s just   so full of holes that we’re going to be  spending the next forever talking about it. Before we move into that this is the root of it:   there is a tremendous disconnect between what NFT  advocates say they do and what they actually do. But, and this is very important,   both the claimed functionality and  the actual functionality are both bad. It’s all broken, none of it works well,   so the idea of it becoming the norm is  terrible, but the prospect of what the   world would look like if all the mythologizing  and over-promising came true also super sucks. The end goal of this infinite machine  is the financialization of everything. Any benefits of digital  uniqueness end up being a quirk,   a necessary precondition of turning  everything into a stock market. There’s nothing particularly offensive  underpinning the concept of digital collectibles,   frameworks and subcultures for  digital collectibles have existed for   decades within various contexts, but NFTs   exist to lend credibility and functionality to  the cryptocurrencies that they exist on top of. Okay, okay, okay, code is law. Now, what that little smart contract  program does is up to the token creator. It can be a relatively sophisticated applet that  allows the user to execute various commands,   or it can be a plain hypertext link to a  static URL of an image, or anything in between. Most are a lot closer to static URLs  than they are to functional programs. This is in part because the thing  that NFTs have become synonymous with   are digital artworks, but really what  the token represents is arbitrary. It can be a video game item, a  permission slip, a subscription,   a domain name, a virus that steals all your  digital stuff, or a combination of all of those. While the concept has been floating around since  2015 when the framework was thrown together   in a day during a hack-a-thon, and the first  Ethereum implemented tokens were minted in 2017,   for the mainstream the story starts in the spring  of 2021 following a string of high-priced sales   of tokens minted by digital artist Beeple,  culminating in a $69 million dollar sale   of a collage of Beeple’s work in March  via old money auction house Christie’s. This high-profile sale triggered a media  frenzy and an online gold rush as various   minor internet celebrities raced to cash in on  the trend, hoping to be the next to cash out big. Over the course of about six  weeks the ecosystem burnt   through just about every relevant meme possible. Laina Morris, popularized on Reddit as  Overly Attached Girlfriend, sold the   “original screengrab” to Emirati  music producer Farzin Fardin Fard   for the equivalent of a little over $400,000 US. Zoe Roth, aka Disaster Girl,   sold the original Disaster Girl  photograph to Fard, for also $400,000. Kyle Craven sold the original Bad Luck Brian  photo for $36,000 to anonymous buyer @A. Nyan Cat sold for almost $600,000 with  multiple variants also selling for six figures. Allison Harvard sold Creepy  Chan I and II for $67,000 and   $83,000, respectively, also both to Fard. In addition to these high-profile sales of things  that were already popular, whale buyers like Fard   were dropping four and five figure sales  onto a random assortment of other artworks. Corporations and individuals auctioned  off NFTs representing intangible,   non-transferable concepts, like the  “first tweet” or “the first text message.” Cryptocurrency evangelists jumped at  every opportunity to proselytize this new,   bold, revolutionary marketplace that  would free artists from the yoke of   the gig economy and provide buyers  with an immutable record of ownership   of authenticated artworks stored  on an eternal distributed machine. You could be holding the next generation’s  Picasso! Artists could continue to earn   passive revenue from secondary sales!  Imagine what it’ll be worth in five years! This created an air of absolute mania, as it  seemed like anything could be the golden ticket. Digital artists, especially those  working with media like generative   art that’s difficult to monetize via  conventional channels like physical prints,   raced into the space and, on  the whole, lost a lot of money. Critics began questioning what it was  that was actually being bought and sold. Copyright? Commercial permissions?  A digital file? Bragging rights? In a huge number of cases the answer  wasn’t very clear, and even the sellers,   caught in the promise of a payday, weren’t  altogether sure what they had even sold. Tons of the tokens did little more than point to  images stored on normal servers readily accessible   via HTTP, meaning the bought assets would be  just as vulnerable to link rot as anything else. Some pointed to images stored on peer-to-peer IPFS  servers, which are more resistant to link rot as,   similar to a torrent, it only requires that  someone keep the file active somewhere,   rather than requiring the original server to  stay up, but as millions of dead torrents prove:   that’s still a far cry from the “eternal”  storage solution that evangelists were claiming. The images were stored and delivered the  same way as any other image on the internet,   easily saved or duplicated simply  by virtue of the fact that in order   for your computer to display an  image it needs to download it. Claims of digital scarcity apply only to the  token itself, not the thing the token signified. More than that, there was no cryptographic  relationship between the images and the tokens. The image associated with a token  could be easily altered or replaced   if the person with access to the server that  the image was hosted on just changed file names,   making the relationship between the two tenuous  and flimsy in a way that undermined the claims   that this was somehow a more durable,  reliable way of transacting digital art. There was also no root proof of authenticity, no   confirmation that the person minting the  artwork was the person who created the artwork. This is a pretty handy encapsulation of the  way that blockchain fails to solve the most   common problems with fraud, which tend to start  with bad data going into a system at the input,   not data being altered mid-stream. Artists who complained about  this system which clearly   incentivized impersonating popular  artists, including deceased artists,   were told that it was their fault for  not jumping in sooner, that if they had   bought in and minted their stuff first then  it would be easy to prove the forgeries. Because evangelists don’t see this as  a tool, as a market that may or may   not fit into an artist’s business, they see it as   the future, so failure to participate isn’t  a business decision, it’s just a mistake. They’re terrible people. All told the frenzy collapsed pretty quickly. By June the market had  already receded by about 90%,   which, incidentally, just further incentivized  the low-effort process of minting other peoples’   artwork, to the point that art platform Deviant  Art implemented an extremely well received feature   that scans several popular NFT  marketplaces for matching images. The output of that is extremely depressing. Not to labour this point, but reposting  digital art without attribution is nothing new. Profiting off someone else’s  art is also nothing new. All that’s new is NFTs represent  a high-energy marketplace with an   irrational pricing culture where the mean buyer is  easily flattered and not particularly discerning. The potential payoff is extremely high, much,  much higher than a bootleg Redbubble store,   the consequences border nonexistent, and  the market is clearly in an untenable state,   so there’s an incentive to get in at as  low a cost as possible before it collapses,   hence the absolute plague of art theft. Even the argument that artists  could make passive revenue off   secondary sales turned out to  have a lot of caveats attached. One, the smart contract for the token needs  to have a function that defines royalties,   so anyone who minted a token based  off of hype making it sound like an   inherent function of the system was out of luck. And, two, the token doesn’t know what a sale  is and can’t differentiate between being sold   and being transferred, so it’s actually  the marketplace that informs the token   “you’re being sold” and collects the royalties. End result, royalties are easily bypassed  simply by using a marketplace that doesn’t   collect royalties or uses a different  format of royalty collection that’s   incompatible with the function the token uses. While a few sellers, legitimate and otherwise,  made off with undeniably big paydays,   hundreds of thousands of artists bought  in only to find that there wasn’t a new,   revolutionary, highly trafficked  audience of digital art collectors. Instead there was a closed market dealing in  casino chips where the primary winners were   those already connected, who already had the means  to get the attention of the whales and the media,   a market where participation required buying  into a cryptocurrency at a rapidly fluctuating   price in order to pay the minting costs to  post the work, where it would sit, unsold. This left those artists in the lurch,  where they had to choose between just   eating the losses, or attempting to convince  their existing audience to buy-in as well. The people who actually won were the people  with large holdings of cryptocurrency,   specifically Ethereum which mediated the  vast majority of these big ticket purchases. David Gerrard, author of Attack  of the 50 Foot Blockchain,   summarized it on his blog very succinctly as such: “NFTs are entirely for the benefit of the crypto  grifters. The only purpose the artists serve   is as aspiring suckers to pump the  concept of crypto — and, of course,   to buy cryptocurrency to pay for ‘minting’ NFTs.   Sometimes the artist gets some crumbs to  keep them pumping the concept of crypto.” The rush benefits them in two ways: first  the price of Ether itself goes up directly   from the spike in demand, between January and  May the price of Ether rose from $700 to $4000,   and second there’s new actual buyers  who aren’t just trading Bitcoin for   tether for ether and back again,  but are buying in with dollars,   providing the whole system with the liquidity  needed for whales to actually cash out. This arrangement, needing to buy a highly  volatile coin from people who paid far,   far less for it in order to participate  in a market that they control,   is why people reflexively describe  the whole arrangement as a scam. If you buy in at $4000 and compete against  people who bought in at $4, you’re the sucker. It reveals the basic truth that these  aren’t marketplaces, they’re casinos. And, indeed, even through all the rhetoric   of “protecting artists” and whatnot was  the ever-present spectre of the gamble:   whatever you buy now might be  worth hundreds of times more later. Constantly invoked is the opposite  proposition of the bad deal:   what if you had been the  person who bought in at $4? Let’s take a closer look at that eye  watering $69 million Beeple sale. Independent journalist Amy Castor has done an  enviable job running down the details here in   her piece “Metakovan, the mystery Beeple art  buyer, and his NFT/DeFi scheme“ but to summarize   the long and short of her notes, the buyer is  a crypto entrepreneur named Vignesh Sundaresan   who purchased the piece to boost the reputation  and value of his own crypto investment scheme   Metapurse and Metapurse’s own token B.20,  which Beeple owns 2% of the total supply of. Following the Christie’s sale the reported  value of B.20 went from 36¢ per token to $23. And that’s just the anatomy of a single sale. The very obvious conclusion observers reached  was that none of this is about the art at all,   but the speculative value;  not what it’s worth to you,   but what it’ll potentially be worth  in the future to someone else. It’s not a market, it’s a casino, gambling on the  receipt for an image or video that’s otherwise   infinitely digitally replicable. The thing itself is immaterial as  long as it can make a line go up. This is the essence of the market,  and a microcosm of what evangelists   imagine they want to see as the future,  the financialization of everything. The frenzied market around old Reddit  memes was doomed from the start.   There’s a finite supply of meaningful  originals, so to keep this thing going,   to keep the line going up, you need something  more, something less tied to anything specific. — In the months since the initial  craze the marketplace had mutated. The It Thing was no longer memes or  digital works from established artists,   but character profiles from large, procedurally  generated collections with names like CryptoPunks,   Bored Ape Yacht Club, Lazy Lions,  Cool Cats, Ether Gals, Gator World,   Baby Llama Club, Magic Mushroom Club,  Rogue Society Bot, and Crypto Chicks. These were notable for, again, commanding utterly  irrational prices seemingly completely decoupled   from any legitimate or legal transaction,  and being generally extremely fugly. This surge generated an immediately  adversarial relationship between the buyers,   who touted them as both evidence  of their extravagant wealth and   their foresight into the future of digital  economies, and pretty much everyone else. A very common response to anyone using one of  these profile pics, or bragging about their   purchase, became saving and reposting the image  in reply, or even changing profile pics to match. Spurred by a speculative tweet from  Twitter developers suggesting that   they were working on an NFT verification  system, Twitter users broadly rallied at the   opportunity to immediately identify  people that it was okay to bully. Tweets from within the cryptosphere started  leaking out, things like Santiago Santos   tweeting things like “NFTs = Identity 2.0. Can’t  remember the last time I used my pic on the left.” Emphasis on physical traits. Genetic  lottery. Prone to bias and prejudice. Identity by choice. Unique and digitally  scarce. Representation of values and beliefs. Of course what Santiago was leaving out was  that he had paid the equivalent of $171,000   US for that profile pic, which probably gives him  some incentive to really commit to it as something   interesting and special, even  though, stripped to the studs,   literally all he was describing was using a  non-representational image as a profile pic. For about six years my profile pic on the Dungeons  and Dragons forums was a stock photo of a cabbage. So, not really breaking new ground here. Greg Isenberg sat at his computer and  decided to bang out “most people who   make fun of NFTs – Own zero NFTs  – Have never minted an NFT – Have never participated in a community  – Have never staked their NFT – Haven’t built on-top of an NFT project  – Have never earned an NFT playing a game – Missed out on BAYC, Punks, Cool Cats etc.” A chain of logic implying that skeptics of  the market are just uninformed sore losers. Incidents like these lent to the very  accurate perception that the loudest   voices in NFTs weren’t very familiar  with internet culture as a whole,   weren’t terribly smart in general, and were by and  large coming at all this from the financial side,   further supported by all of them having “tweets  are not investment advice” in their twitter bios. In short the same people  who made and bought Juicero. It also laid bare that the  conversations were inherently suspect. How can you ever trust the sincerity  of someone telling you how awesome   their $171,000 investment is when your  persuasion stands to directly benefit them   by potentially driving up the value  of their investment portfolio? You’ve gotta be extremely rich for  $171,000 to not be an extremely sunk cost,   and that’s absolutely going to weigh on your  mind and influence how you see the market. So for my part I tweeted about several  of these incidents and was, in response,   hounded for days by annoying people with  NFT profile pics who insisted that I   just didn’t get it, I wasn’t seeing the community. So I decided to go see the community. My experiment started with the Cool Cats  Discord, one of the communities that I’d   been assured was top of the pile. I  joined, read back through days and   days of conversation logs, watched the active  conversations, and was generally unimpressed. It was, at best, unremarkable. A primary concern was still rooted  in the monetary value of the tokens. “If you spend 1 million on a cat,  it’s not just for Twitter and no   one would be happy seeing someone  mint another one later for free.   That’s why punks are at 120 Eth…  symbols… memes… theres’ the value.” What wasn’t unremarkable is the  way that I was immediately deluged   by bots sending me invites to other Discords. So, between the spam I was receiving  and the Cool Cats’ dedicated “shill”   channel I came up with an idea. ♪ Rap crypto, y’all know Bitcoin ♪ ♪ I want to thank y’all for checking   out this joint ♪ ♪ See I’m Vandal,   the token rapper ♪ ♪ And this right here is a brand new chapter ♪  ♪ Follow me as I go Rambo ♪ ♪ To the moon in my brand new Lambo ♪ For days now I’ve been accepting every  spam NFT Discord invite I’ve received,   and it’s getting dire. Stoner Cats, Oni Ronin, Magic Mushroom Club,  NFTITS, The Humanoids, EtherGals, Cool Cats, Senzu   Seeds, Pro Camel Riders, Long Ween Club, Stick  Humans, Bumping Uglies, World of Wojak, GenMAP,   DIMEZ, MagicMarblesNFT, Beverly Hills Car Club,  Cash Cows, Long Neck Cartel, Pug Force, HoodPunks,   Gorilla Club, Alien Archives, Betting Buddahs,  Fighter Turtles Club, The Iconimals, Basement   Dwellers, Wizard Man Jenkins, KATI, METAMONZ,  CrazySkullz, BoxGang, Gym Punks, Unc0vered,   Nitropunk, Crypto Bowls, Masquerade Massacre,  Cat Colony, SkelFtees, Daffy Panda Ganging Up,   Betting Kongs, Wolves of Wall Street, The Llama  Farm, Happy Sharks, Teacup Pigs, Cool Llamas,   Mad Carrot Gang, Barnyard Fashionistas,  Sol Cities, Oink Club, Outlaw Punks,   Crypto Astronuts, NFT Worlds, Panda  Paradise, Time Travellers, CyberKongz,   Party Ape Billionaire club, J Corps,  KwyptoKados, MetaBirds, and that’s about   as far as I got before more or less giving  up and finally shutting off Discord DMs. Now, this is a fraction of a fraction  of what’s out there, but I do think   it’s a pretty representative  sample, and I learned a lot. For example, the basic psychological  profile of the average buyer is someone   who is tenuously middle class, socially  isolated, and highly responsive to memes. They are someone who has very little experience  with real businesses and production processes,   thus are unlikely to be turned off by  unrealistic claims about future returns. They are insecure about their lack of knowledge,   and this makes them very susceptible to  flattery, in particular being reassured   that the only reason for negativity is  because critics just don’t understand. Being tenuously middle class gives them  enough disposable income to engage with   a pretty expensive system, but also a very  potent anxiety about their financial future. It goes without saying that  they’re fixated on money,   and they principally understand the  technology as a means of making money. Criticism of the system is typically met  with confusion. Don’t you want to make money? I also learned a lot about fraud, and how  to do it both on purpose and by accident. The term “rug pull” with its derivations “rug” and  “rugged”, all to describe projects that made big   promises but then took the money and ran, embedded  themselves in my vocabulary extremely quickly. The market is just absolutely  lousy with fraud and deception. Wash trading, where you sell something  to your own sockpuppets in order to lure   in a real buyer who thinks they’re  getting a good deal, is rampant. Market manipulation is so common and  accepted that it’s actually considered bad   form if project leaders don’t actively engage  in it, like it’s considered disrespectful   to the buyers if the project leaders  don’t help inflate the resale price. Also, and I really should not leave  this merely implied, the art is bad,   but not in any sort of interesting way. It’s bad in a smoothed over copycat way,   a low effort garbage dump from artists who have  largely given up on having ideas or opinions. Derivative, lazy, ugly, hollow, and boring. The capacity for original thought long having  been drained out of the illustrators kept in   the employ and proximity of people who  refuse to shut up about cryptocurrency,   there is an overwhelming tendency to fall  back on stale memes and self-flattery. A massive volume of cryptocurrency art ends  up being art about cryptocurrency, transparent   pandering to an audience that is either deeply  stupid or easily pleased and quite possibly both. Absent any artistic insight, the vacuum  is instead filled to overflowing with   references to doge memes, Bitcoin,  ethereum, stonks, to the moon,   buy the dip, good morning, and desperate  pleas for sempai Elon Musk to notice them,   all presented with the earnestness and  authenticity of a Pickle Rick bong. It’s tempting to say that my  approach, accepting every spam invite,   was a really flawed way to delve deeper,  that “obviously” accepting invites from   spam bots would mainly lead me into less  stable projects, but surprisingly no. I got just as much spam for successful  projects like Humanoids and NFT Worlds   as I did for rug-pulls like  Crypto Astronuts and Hood Punks. On the whole, if you just look at the  pitch package and the sample product,   there’s very little material difference between  a project that’s gonna sell out 10,000 tokens   in six hours and one that’s going to become a  trash fire as the project leader has a nervous   breakdown and burns the mint three days  post-launch after only selling 800 tokens. Party Ape Billionaire Club sold  out, bringing in about $3.2 million,   and are now flexing their wealth by  partnering with other crypto projects   like the 2chains-produced NFT cartoon  show The Red Ape Family, which just   really, truly shows off the community’s  deep pockets and commitment to quality. [humming noise] Deep in their roadmap is the promise that  they will start production on an MMORPG,   a claim that buyers are entirely faithful in. Crypto Astronuts sold 1262 of their 9485 tokens,  bringing in an impressive $375,000. But as nice as   that number is, it’s not remotely enough to even  start proceeding with their plan to build a full   scale PvP-based MMO. Following the failed mint  in October the devs slowly went quiet and then,   bit by bit, websites, social media accounts, and  eventually the Discord itself all disappeared. Based off the ostensible product, why should  one of these succeed and the other fail? The key distinction, ultimately, between a Party  Ape Billionaire Club and a Crypto Astronuts   is that PABC was already flush with cash and  able to manufacture hype with high-priced   giveaways and expensive advertising.  Buying advertising space in Times Square,   in particular, is a specific fixation. But running a 10 second ad  every eight minutes on one   out of the way billboard in Times Square  isn’t effective advertising, not externally. All it’s really good for is internal propaganda,   making insiders feel like the money that  they’ve spent is buying credibility. And if you’re in a speculative bubble,  betting that someone down the line will   buy you out for more than you bought in,  credibility is worth everything in the world. This is pervasive. Even in the most established projects, ones that  have been going for years, there’s not really an   underlying thing, these aren’t fandoms in the  way you would experience them around a game   or a TV show or a book, the product is pretty  insubstantial if not functionally non-existent. This is where these projects diverge significantly   from the artworks that drove the  speculative mania in the spring. They’re not positioning themselves as  art that is worth possessing for the art,   as flimsy and illusory as that claim was,  but as ongoing projects that you buy into. The purchase of a token is an abstracted  version of buying early stock in a company,   a venture-capital style investment in  promises, which is a very significant mutation. Okay, so what do these phantom  companies claim to exist to do? Pretty much all of them promise direct  financial returns in some way shape or form. Sometimes this is just a nebulous  sense that the whole thing will go   “to the moon”, meaning the value of the tokens  will take off and thus early buyers will be able   to resell for huge profits, or more direct as  the project leaders promise the formation of,   effectively, an unofficial hedge fund investing  a communal pool into other crypto products. Probably the funniest of all of these was  Betting Kongs, which wanted to create an   unregulated real money casino  in which token holders would be,   explicitly, part owners, and also permitted  to gamble in the casino that they owned. “Betting Kongs is not your ordinary NFT  project, we aim to create passive income   for our NFT owners by co-owning  a casino with a profit split.” “Welcome to the whitepaper fellow gamblers!” “Why are we doing this? To put it short,  we love gambling and noticed how a lot   of the operators out there are owned by large  corporations who have no care for the community   of the service they provide… We want to  provide a project where everyone playing   can be a co-owner of the place they’re  playing at and make money from it all.” Failure was probably the best outcome for  everyone, here, if we’re being honest. Some promise this in the form of  a more conventional media project,   like a comic book or a cartoon  or a movie, or all of the above. “We have planned the creation of a series  of comics dedicated to the pixel girl” “The key image is static, or at least we think so  now. But the squeaky girl is still a seductress so   the image of breasts will be presented in various  variations that our community will approve.” “Let’s imagine, there are 5,000 NFTITs holders.  There is a 30 million market of comics lovers in   the US… On average every comics lover spends  around 20 USD per comic per week. It means   80$ per month and 960$ per year. The total  addressable market is worth 28,800,000,000   USD. Let’s imagine that we take 1%  of this market. It’s 288,000,000 USD   per year on the base of monthly subscriptions  raised in crypto. This is a cash flow.” “Nice to see some active communication,  and appreciate the effort (as announced   this afternoon) trying to resurrect  this project into something successful…   The proposed path forward announced this afternoon  is intriguing and am prepared to support. The only   thing I would also like to see, assuming the  project can be successfully turned around   is to perhaps, in addition to some revenue  sharing, have some revenue donated to Breast   Cancer Research. To truly enjoy them,  we should keep them happy and healthy!” As already implied, many of them promise video  games, often an MMO, but just as often, like,   just the concept of a video game? Okay, wait, let me word that another way. They will promise “a video game”. Like, that’s the promise, in its entirety.  No clues for genre, style, scope, engine,   or platform or how any of the tokens would  interact with it. Just “a video game.” If   we sell 10,000 tokens for $300 each we will start  brainstorming development ideas for a video game. Now, all of these tend to be in collections  of ten thousand, and there’s actually an   interesting sort of quirk inside that. The initial format was to mint an   entire collection and just  shove them out onto the market. The cap comes into play purely  because you have to tell the program   generating the garbage when to stop. However as the scheme started to  take off and competition rose,   it became obvious that this was a sucker’s  way of doing it because that meant paying gas   fees on everything up front, plus  the gas fees on the actual sale. So someone came up with a system for  minting a random output on demand which   shuffles the mint cost off onto the buyer. From there it all took off like wildfire. Very low up-front cost, extremely low  risk, plus it turns the entire system   into a gacha game with different  rarity curves for attributes. At best these are all obfuscated  gambling schemes, at worst active scams. And the payoff of failure makes it extremely  difficult to parse one from the other. World of Wojak only sold 20 tokens to  11 people and still pocketed over $5000. Pro Camel Riders sold 114 tokens  to 71 buyers and took home $25,000. METAMONZ sold 722 of their 9999 tokens to  343 buyers and walked off with $211,000. Since the average buy-in is over $350, the payday  for failure makes it irrational to succeed. The interesting aspect of it all,  though, is the emergent fiction of it. These smoke vendors don’t have an actual  product more complex than the output of   a vending machine in the front of a grocery  store, so they need a story to sell instead,   and so we get this wave of poorly defined  projects pitching a token with an attached   jpg that represents the concept of a  thing that could become a future business. What that business does is unimportant,  and indeed many of these projects,   successful and otherwise, trade in a  flattering myth of decentralization   where the direction of the business,  down to its fundamental product,   is shunted into the indeterminate future to  be decided later by collective consensus. Are we a comic book, a movie, a hedge fund, a  casino, or a bimonthly curated box of snacks?   Well that’s for the token holders to decide. All that matters is that whatever  it is, it will definitely   make the value of your tokens go up,  so you should definitely buy two. “One thing I learned about NFTs, if you think  something’s going to be a blue chip, you should   definitely buy at least two, because you’re going  to get one, emotionally attached to one of them   and you’re not going to want to sell it, because  NFTs are going to explode all over the world. And if you’ve got a blue chip today it’s going  to be incredibly more valuable in five years   from now, or even three years from now, or  even two years from now, than it is today.” On the front of otherwise respectable, or  at least established, brands and people   getting into NFTs the results tend to  be extremely tepid and insubstantial,   even by the standards of NFTs; very low-risk,  low-quality, low-engagement tokens shoveled out   the door to capitalize on a hot buzzword,  chasing the cash that’s sloshing around. [Drumming] Tied up in all this, there’s an  extremely pervasive resistance to   any form of skepticism that ultimately  manifests as a sort of toxic positivity. This is all part of a complex feedback loop. The projects, broadly speaking, lack any  kind of substantial product, existing almost   entirely as promises backed by nothing more than  a screenshot of a roadmap and some sample PFPs. And, again, I think it’s really important to keep   in mind that that goes for successful  projects just as much as for rug-pulls. There really isn’t any meaningful  difference between a Party Ape   Billionaire Club and a Betting Kongs. Betting Kongs were never going to make a casino,  even if they hadn’t tanked, and despite the fact   that they were running billboards in Time  Square PABC is never making an MMORPG. Both claims are equally ridiculous, but  one of the two made a huge pile of money. The primary product is ultimately hype,  which is both insubstantial and fickle. Negativity, both internal and external, can  have a meaningful impact on the willingness   of people to buy into a project, and if buyers  are tepid then you won’t get a runaway sale,   and if you don’t get a runaway sale then  that’s going to turn off buyers even more,   which means the secondary market for  tokens will likely fail to materialize. This is what makes enthusiasts  so deeply unreliable. They have meaningful financial  stake in an intangible, volatile   thing that exists entirely  as a collective ideoform,   a story about a potential future outcome, whose  value is based entirely on public perception. You can’t trust what they have to say because  they’re currently holding a hot potato,   and as much as they insist that they just really,   really enjoy the feeling of a  burning hot potato in their hands, do they? Or are they just hoping that you’ll catch it? This creates an environment of  toxic positivity where doubt   is aggressively policed by both project leaders, who have an obvious financial interest in hype  since their big payday is the minting rush, and community members themselves, who have  a speculative financial interest in hype. While all of that is logical in the pure sense  that there’s an effect that can be explained by   an incentive, the output is effectively  a self-organizing high-control group. Doubters are ostracized so aggressively   that it chills all conversation  about a project’s actual viability. All concerns are just FUD:  fear, uncertainty, and doubt. Questions that would be utterly  banal in any other investment forum,   what has the team done, what assets do they have,   why should anyone believe they can deliver  on their promises, are treated as hostile. And the frank reality is  because there aren’t answers. Party Ape Billionaire Club is  just as vaporous, and yet they   superficially succeeded, so there’s  incentive to enforce the collective illusion. This is multiplied by an internal  form of performative etiquette. Participants ritualistically wish each  other good morning and good night,   boiled down to the shorthand GM and GN. That seems like a small thing, there’s nothing  inherently suspicious about good morning or   good night, but in observed practice it’s a very  distinct ritual, not merely a shibboleth, but a   repetitive action that signals in-group membership  and affirms loyalty on an ongoing basis. If you have Diamond Hands it means  you’re willing to Hold a token until   some promised future where the value goes To  the Moon, you’re not a Paper Hands loser who   is easily spooked by instability, volatility,  or the fact that there’s no reason to believe   that anyone is ever going to want to  buy a Crypto Astronut in the future. The shorthand WAGMI, We’re All Going To Make It,  is aphoristically bandied about even in openly   zero-sum competitions where, by definition,  most participants explicitly won’t make it. But you can’t point that out,  because that would be FUD. And if you’re spreading FUD then  you’re NGMI, Not Going to Make It. And making it, getting rich, is all that matters. HFSP, have fun staying poor. These are synthesized into a No True Scotsman  paradigm. The “we” in We’re All Going To Make It   does not refer to we all, it refers to the select,  the chosen, the Diamond Hands and the hodlers. Those who make it are clearly the We, and  if you didn’t make it, then you weren’t. People who get angry about being  scammed by a rug-pull or by   malware or by social engineering are berated  and belittled for not following the crowd. This incubates a community trained to  ignore warning signs and dismiss criticism,   a community with internal  language and customs that   are explicitly incompatible  with outside communications. Skepticism is FUD from non-believers  who are trying to undermine the value   of your assets and manipulate a crash  or trick you into being a paper hands. It all maps onto narratives of sin and deception,   a chosen-few who are privileged with  advance knowledge about the promised land,   which they can achieve by holding strong  to the rituals and expelling all doubt. The end product is a  self-organizing high-control group. And the results of that are obvious: there  are still people convinced that somehow   someone is going to pick up  the ashes of Evolved Apes   and manifest the rest of the project, a  belief based on no observable evidence. “You like to ban, you like to ban people,  right, you like to ban people from your   Twitch stream, huh? All you’re doing  is [ __ ] on Decentraland, bro.   I’m sorry you don’t like to make  money here in the network, but, uh,   I wanted to talk on your Twitch stream, man  I probably could have brought a lot of people   on there, and all you want to do is talk [ __ ]  and ban people, man you banned me instantly.” So the question, then, is what  do the tokens actually do? As mentioned before the token itself is just  a box that a bit of data can be put into. Now, this box is extremely small,   to the point that even an average cell phone  photograph is several times too large to fit. Due to the nature of the chain,   updating software that’s put onto the  chain is both difficult and expensive. Complicated programs need to be  broken up into multiple tokens each   containing a smart contract that  defines a portion of the whole,   and all of these contracts need to  interlink and reference each other, but with an eye towards the fact that  each transaction that either computes or   alters information requires paying processing  fees, only reading information is free. The process of fixing a bug in a smart contract  basically amounts to minting a new copy of the   contract and then jumping through some hoops  to re-name the old and new contract so that   the new copy has the name that any other  interacting contracts are looking for,   paying fees for just about  every step of that process. This creates a very funny Catch 22 where  on one hand is the insistence that the   NFTs that end users buy are potentially  extremely powerful, able to be miniature   self-governing applets that exist in a  web of like applets, and on the other hand   is a large stack of incentives to  put as little into them as possible. For an example of the pitfalls, Wolf Game  was a somewhat popular NFT based gambling   game that bragged about being hosted  entirely on-chain, at great expense.   Everything from the pixel art wolves and sheep  to the game’s code was stored on Ethereum. The idea behind the game is that users would mint  a character token, which had a 90% chance of being   a sheep, and a 10% chance of being a wolf, with  a finite supply of wolves and sheep available. The important thing here is that the character  tokens weren’t just a bit of art and a serial   number, but tiny programs that allowed  users to perform interactions like staking. The problem is that their code was full of  multiple bugs, and since some of those bugs   were contained in the character tokens, they  were replicated across all 13,809 minted tokens. A glitchy token can’t be  patched, it must be replaced. So the Wolf Game devs were forced to  not only re-deploy all their contracts,   but attempt to re-mint and distribute  identical copies of every token generated. It didn’t go well. Given the risks inherent in putting  functionality inside the token itself,   and the high cost of interaction,  the most common application   is to use external systems to simply  check for possession of a token. This is where we introduce another player into  the ecosystem: wallet managers like MetaMask. In a few short years the system has already  grown so bloated and difficult to interact with   that it’s become necessary to develop middleware   applications that simplify the  process of generating wallets,   switching wallets, and mediating handshakes  between the wallet and external systems. From one point of view these wallet managers  are the golden key that makes it all work. They solve the single-sign on problem allowing  your web browser to simply know that it’s   you who is using it, automatically negotiating  permissions based on relevant tokens. It’s your log in, your credit card, your Steam  profile, and your bank account all rolled into   a single point of contact making interaction with  Web3, the internet of the future, frictionless. From another point of view it’s a massive point  of failure that contains so much information,   so many permissions, so much of worth, that it  becomes an extremely obvious point of attack,   manufactured by idiots who claim to  be building a security product in 2021   that doesn’t obfuscate key phrases within  the UI or use two factor authentication. Remember, again, that these people want  to put medical records, drivers licenses,   professional accreditations, and  real estate deeds into their system. They should not be trusted. The entire market is absolutely lousy with scams,   and has been since Bitcoin  first gained any traction. Every single scam structure imaginable has been  dusted off and redeployed into this explicitly   unregulated market where victims  are largely without recourse. These range from institutional scams,  like Ponzi schemes, pump and dumps,   and insider trading, to middle-weight  scams like gold brick and wash trading,   to grittier scams like phishing  and sending fake links. Pump and dumps, in particular, are conducted  in broad daylight, since it’s not illegal,   it’s just against the terms of service  of the exchanges that you use to do it,   so the worst case scenario  is you burn your account. They’ll straight up walk you through  the process of doing a pump and dump,   no codewords, diagrams and everything. They’re notable as they’re actually  a two-headed scam because, you see,   you might get recruited onto  the pump half of the scheme,   or you might think you’re being recruited  to pump, but you’re actually the dump. As already mentioned, blockchain is resilient to  direct man-in-the-middle attacks, where someone   tries to inject bad data straight into the  chain, but man in the middle attacks are rare. In an environment like cryptocurrency,  with few, if any, repercussions for   misbehaviour that stays within the cryptosphere,  man-in-the-middle attacks are wholly unnecessary. Why try to brute force your bad data onto  the chain when you can trick someone into   giving you access to their wallet,  then transfer all their stuff out? Every smart contract becomes a  self-rewarding bug bounty where   the payout is whatever apes and coins  you can grab before anyone notices. And that’s not even touching  on the subject of malware! Smart contracts are just code, they’re software,   there’s no reason they can’t be viruses or worms,  the primary limitation is processing power. But, also, it’s a virus that someone can drop   directly into your bankless bank account  and just wait for you to activate it. And, yeah, that’s right, there’s no  offer/confirmation step in sending   tokens back and forth, someone who knows your  wallet can just drop stuff right into it, so, like, pin that somewhere in your brain. The best part about this is that the whole  ecosystem operates on a strict assumption that   possession is ownership and access is permission, which is absolutely buckwild coming from software   developers who claim to be very  concerned with systems security. If someone tricks you into sending  them your Bored Ape it’s now theirs. The only mechanism in the machine  for parsing legitimate transactions   from illegitimate transactions  is the consensus mechanism, which is only concerned with whether or not the  transactions followed the rules of the software. The only illegitimacy it recognizes  are people trying to insert fake data. When you are tricked into doing something   all of the mechanics of what follows are,  by the rules of the system, legitimate. It’s a legal transfer. More relevant, however, is the  sheer density of these scams. The one market that cryptocurrency has  successfully disrupted is the market of fraud. Think of this this way: a big population of  people have willingly self-identified that   they have substantial disposable income,  poor judgment, low social literacy,   a high tolerance for nonsensical  risk, and are highly persuadable. People who fall victim to these scams  have basically no options other than   taking to social media and attempting to  whip up enough of a frenzy that they can   convince marketplaces like OpenSea to act as  de facto censors by delisting stolen tokens. There’s no authority you can report them to  that has the power to return your tokens,   the best you can hope for is denying the scammers  profit on their incredibly low-cost operation. If your business is tricking  people out of their money   you would be a fool if you  didn’t take the opportunity. Not only have participants advertised their  susceptibility to incoherent promises of   future returns, the immutable structure of the  chain, the persistence of data, and the ease   with which that data can be collated, means that  for scammers it’s extremely easy to find marks. Every Discord for a rugpull NFT project is  a roster of potential victims. The ledger   of BAYC holders is a shopping list of  targets. The twitter account of anyone   complaining about what they lost on Evolved Apes  is the low hanging fruit of a very ripe orchard. And that’s a pretty good segue  into talking about privacy issues! [Drumming] A low trust environment is  also a low privacy environment. Anything you do on a blockchain is, by design,   accessible to everyone who  knows how to navigate the data. Now, you might be thinking, isn’t that  the opposite of how it’s supposed to work? I thought crypto was all anonymous? So, yes, crypto is anonymous by default, there’s  no inherent requirement for proof of identity,   and in fact numerous applications  that would benefit from a stricter   1-to-1 correlation between accounts  and people struggle with this. On forums and social media  it’s called sockpuppeting,   in crypto it’s called a Sibyl attack,  where users are able to generate   numerous alternate identities by  creating additional accounts or wallets. The epidemic of wash trading on OpenSea  relies on the ability to pretend you’re   several different people as you buy apes from  yourself for hundreds of thousands of dollars. Rather than anonymous this is pseudonymous. Everyone can see what wallets and  contracts your wallet interacts with   based off the long hash addresses like this,   but that hash is only implicitly connected to  your identity based on circumstantial connections. Of course a big circumstantial  connection would be something like   registering with a crypto-based social auction  platform that intrinsically connects the two. This makes it pretty easy to see that  Laina Morris, Overly Attached Girlfriend,   paid $153 on March 31st to mint  the Overly Attached Girlfriend NFT,   followed by a $205 reserve on April  2nd to list the NFT on Foundation. Ethereum whale Farzin Fardin Fard then bought  the token on April 3rd for 200 Ethereum,   30 of which went to Foundation, with  Laina getting the remaining 170,   which she transferred into USD using the  exchange service Kraken in a block of 105   on April 4th and a block of 65 on April 22nd  for a combined total payout of $374,726. After her sale Zoe Roth transferred  the Ethereum to dollars via Coinbase   the next day and hasn’t touched the wallet since. Kyle craven minted several… other… tokens, but  for the most part just split the Ethereum from   the initial sale into two separate holding  wallets where it’s sat untouched since. You don’t need to be some super  hacker to figure this stuff out,   it’s all publicly available, that’s  the entire point of the system. And in another feature-not-bug arrangement,   remember nothing can be deleted from the  blockchain without tremendous effort. Now, that’s fine if the blockchain only contains  a contextually relevant log of transactions,   there are absolutely contexts where that level  of transparency is desirable, but that falls   apart when you start talking about using the  blockchain itself as the storage medium for,   like, an entire social network. Blockchain-based social network Scuttlebutt  seems tacitly aware that this is a bad idea,   like somewhere inside their human brains they  recognize that it might be a mistake to make it   impossible to remove things from the system  when they warn users that anyone willing to   dig can surface any old usernames, photos, and  bios, but that doesn’t actually give them pause. So, if someone posts, say, child abuse  imagery, revenge porn, your home address,   intimate details of your private life, there’s  just nothing you can really do about that. If you mistakenly over-share, post some  information that maybe you shouldn’t have,   it’s already too late. You can try to hide it, but you can’t delete it. Remember that if someone knows your wallet  address they can just put tokens directly into it? As alluded there’s a whole scam where you  drop someone an NFT that lifts the art from   who cares, somewhere, but the smart contract is  malicious code that drains their wallet if they   ever interact with it to  move it, sell it, stake it,   burn it, it just becomes a landmine  sitting in their wallet forever. “Yo, this is fake, this is fake, this is fake,  this is fake, they popped up in my wallet,   I clicked on it to delete it, immediately they  stole 19 grand. Happily I just started this   wallet, but already they stole 19 thousand  out of it. Need [ __ ]’ help immediately.” Even on the non-malware side of  things people have already been   using this to dump promotional tokens into  the wallets of celebrities and influencers,   but, you know dick pics are an “any  second now” kinda thing, right? “Oh, look, I minted a photo of your front door  and dropped it directly into your wallet.” And you can’t just, like,   delete it, you need to actively send it  somewhere, and pay gas fees to do so. Revolutionary new vectors of harassment. The end product here is a massive power imbalance   that’s baked into the fabric of how  you engage with this new world order. Users who engage with the system authentically  as themselves expose vast swathes of information   about themselves and their activities,  while users who engage disingenuously   are empowered in their ability to  deceive, defraud, and disappear. A lot of this rhetoric stems from a pretty deep  failure to understand what a central authority   really is, or that you can decentralize  data storage while centralizing data. Ethereum is ultimately a central platform,  and the fact that a few dozen people need to   sign off on every major change before it can be  implemented is largely meaningless and symbolic,   with the validation network ultimately sitting  somewhere between consortium and cartel. Every large platform has multiple  internal and external stakeholders   that form a consensus about  the direction of the platform. Windows is not a single-minded monolith. Apple issues voting shares. Google is basically a hydra. While the network of Ethereum miners and  validators are not a formal corporation Yet There’s no mechanism in existence that  compels them to act in the interest of users,   particularly poor and disempowered users,  where those interests conflict with their own. The movement of Ethereum from proof of  work to proof of stake has been vapourware   in no small part because the  validators simply choose not to. Because proof of work, volatility, and high  gas fees benefit them in the here and now,   while proof of stake and low gas fees only  benefit them in a hypothetical future. Because these extremely obvious  pitfalls are what you get when   you let guys like Vitalik Buterin  and Elon Musk design the future. The sole protection for users of Ethereum  is that the system is so cumbersome   that all but the most egregious  breeches aren’t worth addressing. Of course that, in truth, means that only the  wealthy have access to justice within the system. If you take all these different things,  all these parts of your identity,   all your economic activity, all the video  games you play, all the groups you join,   and stick them into one system,  that’s a central system. It doesn’t matter how many different  servers that system spans or how many   validators need to agree before changes can be  made, you’ve pooled all that data in one place. The proposed web3, crypto-driven future  of the internet is a privacy disaster. This is why I find MetaMask  horrifying as a product. It’s a bucket that’s asking you to   pour unfathomable amounts of  data and permissions into it. It is such a tremendous and  monumental point of failure. And this is where NFTs really  bloom into their final form. [Drumming] The primary use case of tokens beyond speculation,  ultimately, is to function as access passes. From a web engineering perspective imagine tokens  that are the mother of all cookies and consider a   tracking token that users don’t just willingly  associate themselves with but enthusiastically   drag with them from device to device ensuring a  continuity of tracking across all web activity. The future version of the web,   built on the back of cryptocurrency and  mediated by financialized tokens, is a dystopia. It’s a technology that’s built  to turn everything into money,   to treat every corner of our  social existence as a marketplace,   to attach an abstract, representative token to  everything from video games to labour unions. Now, proponents of Web3 will  disagree with this assessment,   particularly the claim that cryptocurrency is  endemic to Web3 and the two are intractable,   but that’s the practical reality of the situation. Every substantial project branding  itself under the banner of Web3 is   strapped to the side of a blockchain,  be it issuing governance tokens,   or relying on the chain’s smart contract layer,  or requiring possession of a cryptocurrency in   order to pay the processing fees that  are mandatory in order to participate. They are at this point philosophically  and technologically entwined. Less accessible, less free, less interesting,  and substantially more expensive,   Web3 is the vanguard of a million paywalls and  oppressive “code enforced” DRM schemes sold to   idealists as a decentralized system where they,  and not wealthy stakeholders, have the power. I see tremendous blind spots in a community  that has spent so long focusing on the hype of   an untenable fantasy Metaverse where they’re the  ones cowing corporations with immutable ownership   guaranteeing their ability to resell video game  horse armour that they’ve failed to consider   that the “enforcement of ownership”  can and will be used against them   if and when corporations decide to  leverage their power in the space. The fantasy amongst evangelists is that  a tokenized economy where digital goods   are mediated by NFTs would give  them more power, that goods like   digital games would have true ownership,  encapsulated in the ability to be resold,   but there is no reason to believe that  this is how things would shake out. The far, far more probable result  is that the tokens are used to lock   products down even tighter. The Squid Game token scam is illustrative here. In early November, 2021, a new meme token popped  up, styled after the hit Netflix show Squid Game. Over the course of about a week the price of the   token was pumped from a few  cents to just under $3000 US. Estimates are that the Squid developers  took in about $3.38 million dollars   before cashing out their holdings, deleting  their socials, and vanishing into thin air. A classic rug pull, but the  truly transcendental detail   is that it left buyers with not merely a useless  token, but a token that couldn’t be sold at all. Built into SQUID was a requirement that  in order to transfer or sell the tokens   a corresponding number of MARBLES tokens  needed to be spent at the same time.   The hitch was that MARBLES were never available. No rules were broken in this scam, and indeed the  SQUID tokens do exactly what they say they do. If you have the appropriate  amount of MARBLES tokens   you can absolutely transfer or sell your SQUID. Just, good luck getting any. A game developer can in any of myriad ways  deliver on a “truly owned” digital token   that is rendered untradeable in practice,  and all by playing by the rules. Rules must always be evaluated  for their power to oppress. This is a blind spot to crypto enthusiasts because  they just assume that they’re the early adopters,   they’re the ones who will have power, they’re  the ones who will get to set the rules,   and they’re the ones who will do the oppressing. Consider that any token that can be used to  grant access can also be used to revoke it. Like, let’s say that I create a hangout spot  in one of the Metaverse contender platforms,   Decentraland, and we call  it the Ahegao Alpaca Oasis. The Oasis has a back room that only  allows registered players to enter,   meaning you need to have your metamask  linked to Decentraland in order to get in. This type of gate is typically used to create  VIP areas, places where only people who hold a   specific token or class of token can enter.  Only people with official Ahegao Alpacas   can enter. But, as is well known, within the  lore of the Metaverse the Ahegao Alpacas have   long been at war with the Bored Ape Yacht Club,  so rather than checking for an Alpaca token,   I check for Ape tokens, and then forbid entrance. Or maybe I just make my game artificially  more difficult for them, or inflate my prices. Now imagine that instead of running  a hangout spot in a video game,   that I’m a Decentralized Finance organization  giving out mortgages in cryptocurrency and I scour   your transaction history for donations to the  NAACP as part of my “risk assessment protocol”. Imagine that Nestle is able to track  unionization efforts in real time   because the union is issuing governance  tokens on a publicly auditable blockchain. The belief that the world will be fairer if  the rules are enshrined in code, enforced by   computers, and made extremely difficult  to change or circumvent is laughable. It’s not merely naive, but  categorically ahistoric. This is where a lot of my resistance comes from. You can create specialized crypto chains  that have a negligible environmental impact,   but the force of that model  is culturally destructive. The current system sucks, but this is just  a worse version of the current system. It doesn’t even stop there.  It’s tokens all the way down. “This game it has a, a good, a high barrier  of entry, so most people can’t do it unless   they have what’s called a scholarship where  someone essentially pays for their barrier   of entry to allow them to play the game and  then they can split the profits afterwards.” Like, okay, Axie Infinity is a so-called  “play to earn” video game based on Ethereum,   but because Ethereum is too slow and expensive to  interact with directly the developers, Sky Mavis,   created a side-chain called Ronin, which consists  of a governance currency called AXS, the game   character tokens called Axies, and the in-game  currency called Smooth Love Potions, or SLP. All of these components are  built to function as money,   because that’s what the machine is built to do. The so-called play-to-earn model is a great case   study in what the end result of the  crypto ecosystem actually looks like. Axie Infinity gets a lot of credulous coverage  from the press because a handful of people in the   Philippines are able to make a marginal living  by playing the game and flipping their SLP, which lets Sky Maven turn around and pretend  that they’re a humanitarian organization   and not a for-profit business who makes  money off all the people rushing to buy   a team of Axies believing they  can get paid just for playing. Now, real quick, Axie Infinity is  a lightweight card-based PvP game   where players fight with a team  of three critters called Axies. It’s a bit Pokemon and a bit Slay the Spire. Axis have randomized attributes  and are all tokenized,   so if you sell an Axie you’re  selling that specific Axie. Smooth Love Potions are used to breed Axies and  thus form the basis of the economy as they are   fungible relative to the Axies themselves. Matches are either ranked or unranked,   but only ranked matches, entered using energy  which recharges every day, can earn SLP. The amount of energy you have to  work with depends on the number   of axies in your wallet, and ranges from 20 to 60. Additionally higher ranked  matches are worth more SLP. More SLP means a bigger stable of Axies,   which means more energy to play matches,  more flexibility within the metagame,   better team compositions, and baseline  better stats, enabling easier wins. So the difference in earning  potential between higher and   lower ranked accounts is pretty substantial. What coverage tends to note and then  quickly move on from is the fact that the   game is extremely expensive to onboard, costing  hundreds of dollars to assemble a basic team,   which has led to the rise of what are  euphemistically called scholarship programs: businesses like Whale Scholars that  set up a large number of accounts,   give players access to the game  account but not the underlying wallet,   and then pay players a split of  the SLP the account generates. Whale Scholars, and other “mentorship” businesses,   retain full control of the wallet, and  thus the Axies, the SLP, and any AXS. It’s capitalism in its rawest form. Players invest their time into grinding SLP,  and then the owners take half the returns. Players get to barely make minimum wage  while the owners, who are taking 50%   from dozens, if not hundreds of players,  get to speculate on digital land. “Look what the Whale Scholars just got. We have  land in the arctic baby! We have arctic land!” Axie’s energy system is fundamentally broken in  how it promotes this exact middleman arrangement. If you have 21 Axies in your wallet you  can create one account that has 60 energy   at its disposal, or you can create seven  bare-minimum accounts with 20 energy each. A high-ranked account with 60 energy will  dramatically out-perform a single low ranked   account with 20 energy, but seven accounts  that are played daily by other people is far   and away the best ROI because it involves doing  basically nothing except collecting your cut. Even more illustrative, between August and October   2021 the internal economy  of Axie Infinity crashed. Not absolute rock bottom, but bad enough that  all but the highest ranking players, fell below   the average daily wage in the Philippines, with  low ranked players falling below minimum wage. Naavik, a think tank and consulting firm  that does deep research on game economies,   has done a pretty deep and thorough  analysis of the Axie economy   and in their write up they identify  the core source is psychological: players aren’t playing to play the  game, they’re playing to make money, they treat the game as a job and thus have  little interest in game items for their own sake. Once they have enough stuff to cover their job  they stop reinvesting and start cashing out. The price of low-quality axies, the ones that new   players are likely to buy in order to  onboard for the lowest cost possible,   is propped up entirely by players buying them  roughly at the same rate as they’re generated. This requires either mentors to be scaling  up their teams by buying axies instead of   generating them, or new players injecting  new money into the ecosystem by onboarding. But the more players that are playing, the  more SLP and axies that will be generated,   thus the fundamentally unsustainable  economic model where an infinite supply   of new players must enter the ecosystem  forever purely to keep the price stable. If it tips one way or the other you either  get runaway inflation or runaway deflation. This happens all the time in games,  games bork their internal economy   constantly, it just doesn’t normally  matter because you’re talking about   completely fictional gold,  or gems, or dragon bones. A truly stable economy isn’t even desirable  from a gameplay standpoint, anyway. Gentle inflation ends up helping newer and  more casual players by driving down the   costs of things in the in-game economy which  lets those players participate and have fun. Of course if your pitch is “play to  earn” and not “play to have fun”,   where the optics buoying up the ficitive  valuation of your company rest entirely on the   assumption that players can earn, then that’s  a bit of a different incentive set, isn’t it? More people play Axie Infinity to try and make  money than play it because it’s a game they enjoy. This is a fundamental flaw in the model. If you pitch your game based on earning  potential, you are going to attract people   seeking to industrialize your platform faster  and in greater numbers than would otherwise play. This is exactly the parasitic  situation that games for decades   now have been actively minimizing because  it creates vicious negative externalities. If players can sell their in-game stuff  then it changes the way they play the game,   it changes they way they optimize their playtime. Since the vast majority of games  are openly a non-investment,   a straight exchange of money for entertainment, also known as a “purchase”, players tend to optimize their play time for  intangible returns like fun, distraction,   socialization, relaxation, challenge, achievement,  and narrative fulfillment, with absolutely   no expectation that the money and time put in  should return anything other than those things. The key shift here, and the meaningless  buzzphrase that you’ll encounter online,   is the proposition that the results of  playing a game should “retain value”,   which is code for having a  potentially speculative price. In order to try and keep the grift  mill running for another few months   Sky Maven have tweaked the economy to reduce  the amount of SLP players can earn per hour. It is a nightmarishly thin edge to be walking on,  and the main thing it has managed to accomplish   is enabling an entire strata of pit bosses running  teams of players grinding out Smooth Love Potions. And, like all bosses, they have  not taken the downturn in stride,   and have instead started cracking the whip. “We do not accept mediocre gaming  anymore. Need at least 120-150   SLP a day, and those who yield more will  be rewarded with additional percentage.   I prioritize those who have gaming experience,  we have a separate program for charity.” Evangelists like to point to this  as though it’s inspiring, people in   economically disempowered countries able to make  a meagre living by simply playing a video game. I reject that framing. It’s horrifying. Our global system is so fundamentally  unjust that people are patting themselves   on the back for generating a whole new  kind of online UwU pit boss who tells   you to grind harder or you’re fired  but caps it off with blushy emoji. Oopsie, wooks wike somewun  didn’t meet theiwr qwota. This sucks. ♪ We all gonna make it ♪  ♪ Love love love love ♪ ♪ Do you wanna make it ♪  ♪ love ♪ To the moon! I think the thing that normies don’t get  about NFT bros is their dedication, the   staggering volume of capital they already  control, and how deeply rooted they are in   the culture of the people who operate  the platforms we all use every day,   and that alone is a good reason  for people to pay attention. They have a lot of money and a lot of clout  that they can use to try and make Fetch happen. This is something of the  splitting point. Basically   the future shakes out in one of two broad ways. One is that some new technological buzzword  comes along and “blockchain” and “web3” lose   their sway over investors, the  stream of new buyers dries up,   and the early investors cash out as  best they can, popping the whole bubble. The other is that they’re successful,  and cryptocurrency is able to crowbar   its way into enough corners of our  lives that it becomes unavoidable, we’re all forced in some way  to maintain a crypto wallet   to manage whatever coins and tokens become  necessary for participation in society, providing early investors with a captive  audience and steady flow of capital. To quote German sociotechnologist Jürgen  Geuter, better known by his online alias Tante “There are parts of your digital life  that currently you can’t really sell,   but that’s what they want to change. Everything  needs to be bought and sold, everything is just a   vehicle for more speculation. The reason they want  you to be able to resell your access token to some   service (instead of buying or renting it like  today) is to create even more markets for   speculation and the smart contracts can be set  up in a way that at every corner they profit.” The claims that this technology  facilitates an immutable ledger   of ownership is itself largely hollow  posturing, even from within the ecosystem. Remember that most of the actual things being  referenced are not contained within the chains   themselves, because the chains are too  slow, restrictive, and bad at their job   to actually store media, and because many of  the things being sold are purely ephemeral. The IPFS address for any given media token can be  effortlessly minted onto another competing chain,   or even the same chain. That’s not  even right-click saving, that’s   referencing the exact same media. Why is the token on Ethereum more authoritative  than the token on Tezos or Cardano or Solana or   Ergo or Celo or Binance or Alogorand or Polkadot   or Eos or Tron or VeChain or Ethereum  Classic or Fantom or Stellar or Stacks   or Neo or Waves or Holo or LINK or Radix or  Harmony or Oasis or ICON or Secret or IOTA or   Crown or TERA or Omni or Enigma or Elastos  or Edgeware or Bytom or Fuse or Gather? If a chain hard-forks, which version  of your stuff is the real one? Bitcoin is, itself, mired in a turf war  between Bitcoin, Bitcoin Cash, and Bitcoin SV. The myth of immutable ownership governed by these  systems is predicated on a monolithic victor. In reality your NFTs within the Ethereum  ecosystem are ultimately just as trapped,   sandboxed, and meaningless  as your Steam trading cards. You’ll hear about protocols like Polygon that  aim to let you move stuff from chain to chain,   but that’s sleight of hand. You can’t remove something from a chain, so  all they really do is create a new token at   the destination and add a note to the  bottom of the original token that says   “I’m currently somewhere else,  please don’t move or sell me.” It’s an ask that’s governed by smart  contracts, so vulnerable to bad coding. In video game terms they would be immediately  hammered looking for item duplication glitches,   a vulnerability that’s basically  inevitable in a mass adoption scenario. It’s a system that is at once   impenetrable and brittle, and that arrangement  disproportionately empowers the dishonest. One of the complications is that it’s basically  impossible to extricate the digital scarcity   concepts of NFTs from cryptocurrency and the core  philosophies that cryptocurrency was built from. One rose out of the other and they  are basically forever entwined. One of the ironies of all this is that  any legitimate artistic or anti-capitalist   uses of the underlying technology are  contingent on the tech remaining niche. On a very basic level, the systems just suck,   being slow, difficult to use, and  generally oblique. For the most part,   to the degree that they’re usable at all, it is  largely at the mercy of only having a few users. There are blockchains that are reasonably  responsive and reasonably cheap,   because they’re not popular. Hic Et Nunc is a well regarded art market on the  Tezos blockchain. Transaction fees and deflation   are, at the moment, relatively minimal and thus a  lot of the transactions are able to operate in the   range of five to twenty dollars, but that state  exists by the grace of being 45th in popularity,   just high enough to actually have users, but  not high enough to have attracted too many bots. If Tezos goes, as they say, to  the moon, then that all changes.   Users adopt the platform disproportionate to  the scale of validators, the value of of Tez   skyrockets, and the actual marketplace of people  using Hic Et Nunc experience hyperdeflation,   where currency hoarders are rewarded  handsomely and buyers are punished. Okay, we need to pause here for a moment,  because this is actually really important,   but absurdly complex, like textbook-length  subject matter, so here’s the short version. Deflation is counter-intuitive  because the line is going up,   which makes it look like a good  thing, but it’s only good if you   already have the currency in hand. As the  purchasing power of a currency increases,   typically because cash gets more scarce,  the cost of goods and labour goes down. A deflationary economy punishes buying things,   as anything that you buy today will  inevitably be cheaper to buy in the future. If you need to buy things that aren’t financial  assets, things that don’t appreciate in value,   like food, clothing, rent, vehicles,  transit fare, you screw yourself over. This is hyperdeflation, and it’s not only  designed into cryptocurrencies with their   hard cap on total coin supply, but considered  desirable by their creators and evangelists.   This is what going “to the moon” means. Now let’s talk about unions. Using tokens to verify union membership  and participate in union activities   relies on the tech being oblique enough  that union busters and their clients   don’t see it as a meaningful arena to monitor. Also that ship has already sailed. Union busters and gig economy evangelists love   crypto, they love DeFi, they love  smart contracts, and they love NFTs. And why wouldn’t they? It’s an environment that demolishes consumer   protections and transfers tremendous  amounts of explicit power to the wealthy. In a lot of ways this is all just a system for  deferring trust onto machines and pretending   that there aren’t humans on the other end, and if  there’s one thing that union busters love it’s the   prospect of an unbreakable individual contract  whose inequities can all be blamed on a machine. The current state of the web,   concentrated in a few mega platforms,  is the result of compounding complexity. We used to have a web where anyone could learn  to write a webpage in HTML in an afternoon. It’s just writing text and then  using tags to format the text. But over time people, understandably,  wanted the web to do more, to look better,   and so the things that were possible expanded  via scripting languages that allowed for dynamic,   interactive content. Soon the definition of what a “website” was and  looked like sailed out of reach of casual users,   and eventually even out of reach of  all but the most dedicated hobbyists. It became the domain of  specialists. So casual users,   excluded by complexity, moved to  templates, services, and platforms. This process gradually concentrated a critical   mass of users into a handful  of social media platforms. Already, even within the space,  new hegemons are forming. Tremendous amounts of capital and power are  concentrating in corporations like Consensys,   who own MetaMask, and Animoca Brands, who have  wide and deep investment in crypto gaming. OpenSea, the at present dominant marketplace  for tokens on a couple different chains,   is filling the power roles users need. While the chain itself is, in theory,  the arbiter of truth, nothing prevents   people from filling the chain with lies, and so  arises a demand for not merely a chain parser,   a service that enables users to interact with  the chain, but an interpreter of the chain. Motivational speaker and easy  mark Calvin Baccera claimed to   have lost three Bored Ape Yacht Club  tokens to a social engineering scam. In reaction to this he took to Twitter to whip  up a mob that could pressure OpenSea and two   other marketplaces into flagging the tokens  as stolen and blocking them from being sold. Calvin was eventually able to resecure his  tokens by paying a ransom, because that’s   really all you can do and he doesn’t seem  to consider that from the perspective   of the thieves that’s an  entirely desirable outcome. They won. Their plan worked. This happens all the time. Bored Ape members are particularly  susceptible targets of fraud owing   to their specific combination of  greed and low social literacy. Looking to avoid paying platform fees and  royalties many of them moved off OpenSea to doing   transactions on a shady little platform called  NFT Trader, which allowed scammers to run a very   simple link swap scam and steal at least a dozen  different ape tokens in the span of a couple days. The meat of Calvin’s incident is the way in which   the platforms that interact with the  chain are being deputized by users   to be the de facto authority not on what  the chain says, but what the chain means. It is just a recreation of existing power  structures within the new environment. [Drumming] This is where evangelists insist  that the answer lies in DAOs,   decentralized autonomous organizations, a  “revolutionary” new way to organize people,   that will allow for the decentralized  governance of these systems. So that’s the claim, but what is it,  exactly, once you strip off the paint? A DAO is an organization whose membership, roles,   and privileges are governed by possession  of relevant tokens on a given blockchain,   and it’s also the underlying software  that executes relevant operations. And that’s kinda really about it. So just to be very clear here, a conceptual  DAO consists of three things: people, a digital   machine built of smart contracts, and a token that  allows the people to interact with the machine. In practice most things that call themselves  DAOs don’t have the machine at all,   and a substantial number either don’t  have the token, or only have the token. The upside of a DAO is that it makes it  easy-ish to create a formal organization at   theoretically any scale, from only a couple  people to massive pools of stakeholders,   and the program layer makes it possible to  automate certain activities and the results. If the organization votes via the DAO interface,   the results of that vote are automatically  recorded, and potentially executed. Though that framing is misleading. As with tokens themselves there’s  no inherent functionality in a DAO,   it’s just a box that code goes into. I might as well be referring to all  the things you could do with a webpage. As already mentioned, many  organizations presenting   themselves as a DAO have no  machine functionality at all. It’s pretty standard to find a DAO  that has issued a governance token,   the scrip that’s used for voting, with the  systems to actually use that token being placed   somewhere in the nebulous future of the roadmap. That open-endedness is actually important because  while the claim is that these machines will   further democratize the internet, the technical  complexity that they add, the new specialized   programming expertise that they require,  concentrates a lot of power in the hands   of the people who can build the templates that in  turn enable non-programmers to actually use it. It’s just laying the seeds for the  future recreation of the status quo. The Facebook/Google/Amazon dominated internet  arose because the technical cost of building a   modern website rose far beyond what the  vast majority of amateurs could manage,   so everyone moved to templates, and then  to services, and finally to platforms. This doesn’t even reset the clock on that,   the technical cost of creating a DAO is  already far beyond any casual amateur,   in part because all of this is being built by  programmers, and in part because of the stakes. The only thing this stuff is truly  good for is managing on-chain assets. A DAO program can see the state of the chain and  interact with it, so the DAO humans can vote on   what should happen to those assets and then the  DAO program can automatically act on the results. But that raises the stakes. Because a DAO can see and interact directly  with on-chain assets there’s the risk that via   bad programming or unforeseen exploits a malicious  actor can use a DAO to access all kinds of stuff. The risk is directly proportional to  the value of the assets kept on-chain,   and remember, again, that evangelists  want to put everything on-chain. The hilarious thing is that this  has already played out once before. In fact it played out with the first  DAO ever built, called The DAO. This whole story unfolds over the course of  three months in 2016, from April to June. The DAO was an Ethereum-based venture capital fund  that aimed to use code to create an investment   firm without a conventional management structure  or board of directors, a scheme that’s positioned   as “lightweight” and “reducing bureaucratic  overhead”, but really it just translated   to an attempt at minimizing human liability  for the actions and behaviours of the fund. This unparalleled expression of  greed made the major speculative   players in Ethereum so horny that during the April   and May presale they funneled 14% of the entire  volume of ether into The DAO’s central wallet. Now, because The DAO’s underlying code was open  source, experts and malicious actors alike were   able to pour over it for vulnerabilities,  and, indeed, vulnerabilities were found. However, because at the end of the day  fleshy humans are the ones actually pushing   buttons and making decisions, the actual  leadership of the nominally-leaderless DAO,   horny for money and prestige,  decided to launch in late May anyway. Three weeks later The DAO’s programming was  exploited and the attacker was able to transfer   1/3rd of The DAO’s funds into a holding wallet,  about 5% of the entire Ethereum economy,   valued at the time around  16 to 17 million dollars. Now, because this threatened the  bottom line of capital holders,   the Ethereum project as a whole, the  entire thing, was almost immediately   forked in order to undo the hack and  protect the interests of the wealthy. Ethereum Classic, the arm of the fork that  didn’t undo the attack, persists to this day,   though it’s notably less popular despite  being demonstrably more principled. Because all the talk about  “decentralization” is a myth. It’s just words. At the end of the day the guys in charge, the guys  who built the system to serve their interests,   are still in charge and keep a  killswitch in their back pocket. Crypto is barely a decade old and organizations  deemed too big to fail already exist. The whole fiasco laid out  the truth from the word go:   calling a DAO a revolutionary structure is  smoke and mirrors, it’s just voting shares. You might as well call Apple “a bold  experiment in democracy” because   a baker’s dozen individuals make  the decisions instead of just one. Regardless of the future pitfalls,  DAOs are also extremely limited. They are, again, just code. While evangelists promise that they  can reinvent the social organization,   mentally consider all the problems,  conflicts, and decision making that   social organizations deal with and ask how  many of those even can be solved by code. Some of them can easily be  turned into computer programs. Automated bookkeeping, payouts,  collections, data tracking, sure,   that’s all stuff organizations  conceptually can make use of. But how do you code for the fact that Red  just really doesn’t get along with Blue? The pitch promises organizations  bound by unbreakable rules,   but how many organizations actually  benefit from that level of rigidity? In particular what happens when the  version of the rules enforced by code   run up against a complication  that the coders didn’t consider? What happens if someone with  legitimate stake in the DAO   starts spamming the organization’s  internal systems with bad requests? What if not enough people participate in voting? What if the system locks itself up? What if the rules are rigged? What if the system commits a crime? If this technology did see mass adoption, a future  timebomb already exists in the fact that very,   very few of these systems have factored mortality  into the considerations of their structures,   because “what if someone with an important token  dies?” is a really easy thing to overlook when   you’re the kind of insulated techbro who reinvents  vending machines and calls them Bodega Boxes. Now, all of these hypotheticals are technically  addressable, you can build contingency systems   that can account for them, but then  you need to consider contingencies   for those contingencies, because what if  someone uses systems intended for dealing   with deceased or absentee members to  expel people they just don’t like? And, again, you can only use code to enforce   interactions that the programmers  make enforceable via the code. ConstitutionDAO, a hastily set up scheme to bid on  one of the few remaining original copies of the US   constitution, already ran aground most of these  problems as the project failed to win the auction   and is now trying to issue refunds, a thing that  the slapdash machine was never intended to do. The reality is that most organizations  with any meaningful social complexity,   even tiny organizations like video game guilds,  are too complex to properly express in code.   There’s too many contingencies and contingencies  for those contingencies and contingencies for   those contingencies to account for, so rather  than trying to turn social interactions into code   the DAO is marginalized into only handling  code-appropriate tasks, like bookkeeping,   digital signature verification,  and on-chain asset management. But that’s not a revolutionary new way to  organize people, that’s just a productivity tool. The DAO can have a process for voting on  actions, but the moment the outcomes of   those actions move off-chain, i.e. into the  real world, the DAO program is powerless. The program can’t make humans  execute the decisions of the group,   that’s still an analog problem. The whole thing very quickly runs into  an incentive wall where it’s just faster   and easier to solve problems verbally, via  abstract trust relationships and promises,   to the same end results. This is why it’s so common for DAOs to not  actually have any of the inner machine that   would actually make them into what they  claim to be: it’s easier to just not. Taken as a whole DAOs aren’t some  revolutionary new model, they’re a   tool built onto the side of cryptocurrency that  only has meaningful advantages when interacting   with cryptocurrency as a tool for speculative  trading and managing financial instruments. The rest is just a gimmick, a slow,  inflexible tool for executing straw polls. Again, a lot of these boil down to a scheme to  minimize liability on the part of the creators. The creators of Inu Yasha Token, a meme coin DAO  based on nothing except the ephemeral concept of   the InuYasha anime, demonstrated this admirably  when they were pressed on the issue of copyright,   openly trading on a known  brand specifically for clout. Their answer to the question boils down  to, one, a failure to understand copyright,   and two, an insistence that it doesn’t  matter because no one’s responsible,   the DAO did it, no humans are liable,  just this amorphous sentient carbon cloud. “You have a really good way  to explain it about the um   about the copyright issue  that everyone’s afraid of,   because they don’t want to invest in a token  that’s going to be told to cease and desist or.. Right, yeah so I mean, to clear that up  I think first you need to distinguish   between a mark and copy. Right? So  right now on the website there’s,   it’s all custom art done by Steven. Your  friend steven. So there is no copy. I mean   the only person that can really copyright  us right now is Steven. Uh. You know? What about logo likeness or character likeness? Yeah, so trademarks. Um, it’s possible that the  InuYasha mark it it could become scrutinized.   However we’re a decentralized autonomous  organization officially, and the token is   launched on the Ethereum blockchain, so  there’s, there’s really no going back.   I’m just a community member. I’m not an  owner, there’s really no single entity   that has ownership so I mean it, it’s on  the blockchain now, there’s no going back.” And that bit also just so brilliantly demonstrates  the underlying mentality of a lot of these guys.   They wanted to use the Inu Yasha brand for  clout, but they didn’t want to ask for permission   because they would probably get rejected,  so they did it anyway, so now that it’s   “on chain” it can’t be easily taken down,  so I guess you gotta just let them do it? “it’s on the blockchain  now, there’s no going back.” Things get funny in that frustrating  way when you do come across a DAO   that’s trying to be legitimate, and  they tip their hand by revealing that   underneath they’re legally a co-op or an  LLC or some other extant legal entity. Unless your goal is a grift,   there’s nothing truly revolutionary  about their structure or functionality. Li Jin, the co-founder of a bunch of predatory  venture capital firms that focus on polishing   the image of the gig economy to distract from the  ways in which its eroding labour, has an extended   Twitter thread where she tries to pitch DAOs as  the future of unions, though her rationale is not   only shaky, relying heavily on magical thinking,  it’s also peppered with inexplicable lies. For example she champions Yield Guild, a DAO that  she describes as “a gaming guild comprised of   thousands of play-to-earn gamers. An onramp that  brings more players into play-to-earn gaming,   it can represent gamers & lobby  game devs for better policies.  Its scale also enables the collective to offer  benefits and protections (e.g. healthcare,   paid time off) that would be infeasible  if gamers were operating on their own.” This is a tremendous overstatement of what  Yield actually is. It’s not a union, nor does it   function as a union, nor does it have aspirations  of functioning as a union. It’s not even a DAO,   though it does have aspirations of  transitioning into being one. It’s   at best a mildly decentralized cartel that’s  experimenting with shaking down players with   the promise of helping them by gamifying  the process of participating in the guild.   In practice it’s a Discord server that helps  play-to-earn players find sponsorships,   pivot from one game to another, and generally  [ __ ] about how much their jobs suck. In fact, in response to Li Jin’s tweets  the server residents had this to say “I’ve read that through the YGG DAO members  are able to get access to healthcare — is   this true? is there any more info on this?  anywhere to learn more about what is offered?   or is this still in the works? as a freelancer  i’m always interested to learn about more options” “i actually don’t know that lol. that would  be awesome to get partnered with healthcare” “Where did you get that info though?  We haven’t heard of any kind about it” “Hmm yeah I think Li used it as an example of  potential benefits and didn’t mean it literally,   but nothing of that sort has been discussed yet” Now, on a functional level most  DAOs use an administrative system   based off the use and spending of  internal scrip, the governance tokens. There’s a decent amount of variability in how  they’re used, but basically they function either   as proportional voting power, exactly the same  as voting shares in a publicly traded company,   fiat voting power where there’s no point in  possessing more than one, or direct voting   power where tokens are spent to cast votes and  more tokens can be spent to cast more votes.   Typically this scrip can be bought and  sold, even on a secondary market, and,   indeed, possession of it is typically  a definitional part of membership. Rather than structuring like a union,   Yield’s overt goal for their DAO  is to function as a hedge fund,   using the exchange value of their token as a means  to raise funds to invest into play-to-earn games,   and allowing Yield members to spend their tokens  to gain access to these DAO-owned resources. In fact Yield is so far removed from  the purpose and functionality of a union   that the roadmap includes potentially  implementing what’s called holographic   consensus, which is a futures market where  participants gamble on what proposals   will or won’t be passed using their governance  tokens as the stakes. It’s amazing if you wanted   to build a machine whose sole purpose is to  concentrate political power slowly over time. Additionally many use a proof-of-stake  staking system to reward members with   additional tokens with no gate on how  many tokens any single member can hold. This whole arrangement creates  a system where participants with   only a few tokens are incentivized  to not vote against the interests   of highly staked members, plus anything  you spend limits what you can stake,   and thus reduces all future income of tokens,  which means even less voting power in the future. Members who possess a disproportionate share  of tokens can afford to out-spend on the   outcome of any vote AND still retain  a proportional future voting power.   At best you end up with high powered voting  blocs, and at worst a functional monopoly. The internal discourse of  Yield is, like all crypto,   focused on the price of the DAO’s scrip, and not  it’s actual functionality within the organization. Rather than creating a more equitable,   democratic organization that looks  out for the needs of all its members,   Yield is a scheme that explicitly rewards its  highest stakeholders with more power and access. Now, conceptually you could make a DAO  that behaves towards actually useful,   worker-focused goals, but you could also do that  without a DAO, because it’s just an organization. The DAO itself is just a  mechanism of an organization,   and more often than not its involvement  is little more than tech fetishism. So most actual DAOs don’t resemble  anything like a flat hierarchy. In fact the ability to buy and sell voting  power, and the hierarchy that results,   is seen as a strict advantage in that it allows  emotionally uninvested members to make money   and gives them a thing that they can reward  people with that will “align incentives”,   and despite the fact that Li Jin is directly  involved with Yield as the “philosopher in   residence” Yield is neither structured like a  labour union nor does it have ambitions to be one. The point is that thought leaders like Li Jin,  who get a lot of social traction by promising   that their technofetishistic community are  solving big societal problems, are liars. They love the pageantry of democracy because  it allows them to pretend to be democratic,   because they can paint their  detractors as being undemocratic. It’s all hollow handwaving  and technobabble to distract   from the fact that it’s just shareholding. It’s the corporatization of everything, the  conversion of the entire world into claves   governed by power granted via  token possession and enforced   by machines that allow humans to  wash their hands of the outcomes. At the end of the day every DAO pretending to  be useful is still a forced entry point to some   hype-driven memecoin whose existence only benefits  its creators and the exchange that sells it. [Subway rattling] In 2008 the economy functionally collapsed.  The basic chain reaction was this:   bankers took mortgages and turned them  into something they could gamble on. This created a bubble, and then the bubble popped. When you drill down into it you realize that the  core of the crypto ecosystem, the core of Web3,   the core of the NFT marketplace, is a turf  war between the wealthy and ultra-wealthy. Technofetishists who look at people like  Bill Gates and Jeff Bezos, billionaires   minted via tech industry doors that have  now been shut by market calcification,   and are looking for a do-over, looking  to synthesize a new market where they   can be the one to ascend from a merely wealthy  programmer to a hyper-wealthy industrialist. It’s a cat fight between the 5% and the 1%. Ultimately the driving forces underlying  this entire movement are economic disparity. The wealthy and tenuously wealthy are looking for  a space that they can dominate, where they can be   trendsetters and tastemakers and can seemingly  invent value through sheer force of will. This is, in my opinion, the  blindspot of many casual critics. The fact that tokens representing ape PFPs  are useless, yet somehow still expensive,   isn’t an overlooked glitch in  the system, it’s half the point. It’s a digital extension of inconvenient  fashion. It’s a flex and a form of mythmaking. And that’s how it draws in the bottom: people  who feel their opportunities shrinking, who see   the system closing around them, who have become  isolated by social media and a global pandemic,   who feel the future getting smaller, people  pressured by the casualization of work as   jobs are dissolved into the gig economy, and  want to believe that escape is just that easy. All you gotta do is bet on the right Discord and  you might be air-dropped the next new hotness. It could be you plucked out of the  crowd on Rarible and bestowed a six   figure price by an elusive Emerati music producer. Get a BAYC in your wallet, hodl like a  good diamond hands, and enjoy that yield. All you need is $5000 in seed money and you can  buy a Farmer’s World milk cow, and if you milk   that cow every four hours, day and night, for two  weeks, why there’s all your money back right there   and now it’s pure profit (minus, naturally, the  overhead of all the WAX you needed to stake,   the barn you needed to buy and build, the  barley you needed to purchase and grow,   the food you needed to buy to refill the energy  you needed to milk the cow, build the barn,   and grow the barley, plus you actually need to  cash out which isn’t getting paid, it’s quitting). This is your chance to stick it to  Wall Street and Venture Capitalists,   as long as you pay no attention  to the VCs behind the curtain. The line can only go up. It’s a movement driven in no small part  by rage, by people who looked at 2008,   who looked at the system as it exists,  but concluded that the problems with   capitalism were that it didn’t provide  enough opportunities to be the boot. And that’s the pitch. Buy in now, buy in early,  and you could be the high tech future boot. Our systems are breaking or broken,  straining under neglect and sabotage,   and our leaders seem at best complacent,  willing to coast out the collapse. We need something better. But a system that turns everyone into petty  digital landlords, that distills all interaction   into transaction, that determines the value  of something by how sellable it is and whether   or not it can be gambled on as a fractional  tokens sold via micro-auction, that’s not it. A different system does not  inherently mean a better system,   we replace bad systems with  worse ones all the time. We replaced a bad system of work and  bosses with a terrible system of apps,   gigs, and on-demand labour. So it’s not just that I oppose NFTs because  the foremost of them are aesthetically vacuous   representations of the dead inner lives  of the tech and finance bros behind them,   it’s that they represent the  vanguard of a worse system. The whole thing, from OpenSea fantasies  for starving artists to the buy-in for   Play to Earn games, it’s the same hollow,  exploitative pitch as MLMs. It’s Amway,   but everywhere you look people  are wearing ugly-ass ape cartoons.

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