Critics' Views on Crypto

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"Crypto is a scam." I've listened to crypto critics to understand why they believe crypto is the biggest scam in history. Here's what they think it is: 🧵

First, it's important to step out of our echo chambers. Twitter's algorithm tends to feed us more of the same, so I actively searched for critics to really hear them out. Keeping an open mind and reflecting on differing viewpoints is also quite rewarding.

As crypto grows, criticism intensifies as well. There's even a website and Twitter account called "Web3 is going just great" (@web3isgreat) where disasters happening in crypto, DeFi, and NFTs are documented. The site was created by crypto sceptic @molly0xfff

But I'll start with @jamesvjani's video as it encompasses many critics' views. His post "Crypto: The World’s Greatest Scam" attracted 2.9M views and was named the best video of 2023 by @MKBHD. He used to view crypto favorably but now thinks it's a form of smoke & mirrors.

What's the point of Bitcoin? It emerged during financial crisis as a digital currency free from government control. It appealed to a group who distrusted the existing financial system, but its use soon shifted from a global currency to a speculative investment.

Bitcoin's value attracted high-profile investors, like Winklevoss twins who had owned 1% of all Bitcoin in circulation by 2013. Indeed, 34.4% of the BTC supply is held by whales (entities with 1k+ BTC). However, this concentration has been slowly declining.

Still, the aim of this thread isn't to counter all criticism, but to listen and understand what critics have to say. @Nouriel calls it an ecosystem that is totally corrupt with seven Cs of crypto: Concealed, corrupt, crooks, criminals, con men, carnival barkers. twitter.com/Nouriel/status/1593841338981974016?lang=en

A critical flaw is Bitcoin's deflationary nature due to a fixed supply of 21M coins. This encourages hoarding over transacting, a setback for a proposed global transactional currency. Why spend it today if it'll be worth more tomorrow?

Moreover, Bitcoin's technical limitations became clear: It can process only 7 transactions per second, far less than traditional payment networks like Visa and Mastercard, which handle thousands per second. BRC-20s & Ordinals made this clearer than ever.

Bitcoin's energy-intensive proof of work consensus model is also problematic. This model triggered an arms race for Bitcoin mining, leading to massive energy consumption without increasing the transaction rate. twitter.com/smdiehl/status/1654000429900890112

Despite the hype, Bitcoin failed as a global currency. Yet, Bitcoin survived, primarily as an investment asset traded on centralized exchanges. Bitcoin's use today deviates far from its original purpose, critics claim. twitter.com/PeterSchiff/status/1591100124780023808

Other notable critics: • Nobel Prize-winning economist P. Krugman trashed Bitcoin as useless, inefficient, and largely a Ponzi scheme. • W. Buffett described it as "rat poison squared." • SEC Chair G. Gensler says crypto is all "hucksters, fraudsters, scam artists."

The technological backbone of Bitcoin, blockchain, was initially a simple digital ledger. But it soon morphed into the game-changing 'blockchain technology', inspiring the creation of other cryptocurrencies. Enter Ethereum.

Unlike Bitcoin, Ethereum allows to program applications on its blockchain, acting like an advanced Excel spreadsheet. This advanced capability sparked hopes for revolutionary use cases within the crypto world.

Yet, the first major use case of Ethereum was ironically in creating more cryptocurrencies, leading to the Initial Coin Offering (ICO) mania. ICOs were pitched as a new way to fund businesses. SEC Chairman @GaryGensler believes ICOs are securities.

Firms created their own tokens, released a white paper explaining the project's aims, and sold tokens to the public. This led to a flood of new tokens, some as jokes or outright scams. For example, Jesus Coin aimed to "provide miracles exclusively to Jesus Coin Owners".

The ICO mania also led to alliances with influencers. Celebrities like boxer Floyd Mayweather Jr. and music producer DJ Khaled were paid $150k to promote Centra Tech which turned out to be a scam. Their CEO wasn't even a real person. They raised $32M.

In crypto, hidden incentives are key (this is the part that DeFi fans agree with😅). Regardless of apparent absurdities, there's a relentless push to justify the soaring value to new investors. As a result, new use cases are continuously being sought.

Enter NFTs: The idea was initially pitched to digital artists, allowing them to tokenize and earn money from their artwork. A notable example is the digital artist Beeple, who sold a collage of his first 5000 images, "Everydays: The First 5000 Days," for $69M USD. twitter.com/sarah_script/status/1458190440784613377

This record sale raised eyebrows: The buyer, V. Sundaresan, founder of Metapurse, had previously bought other Beeple's NFTs for over $2.2M USD. @metapurse then put these NFTs into a virtual museum, launching the B20 token representing fractional ownership in this museum. twitter.com/laurashin/status/1373255781043290114

Critics argue that the record $69M purchase served primarily to inflate the B20 token's value, leading to accusations of market manipulation. The token first pumped and then crashed 99.66%. @metapurse Twitter isn't active anymore.

@davidgerard, the "author of books about why cryptocurrency is bad" summarizes NFT grift like this: 1. Artists are promised money 2. To get it, they must invest in crypto first 3. This turns them into crypto advocates 4. Some artists make a fortune 5. But you won't.

DeFi (where it hurts me the most): In the early DeFi days of 2020, the creator of Litecoin criticized it for being the worst of both worlds. DeFi lacks real decentralization, and you can't fix hacks/exploits without more centralization. twitter.com/SatoshiLite/status/1229080391027326976

The Bank for International Settlements argued "that full decentralisation in DeFi is an illusion." They also claimed that DeFi’s vulnerabilities are severe because of high leverage, liquidity mismatches, built-in interconnectedness and the lack of shock-absorbing capacity.

Leverage in DeFi: While most of DeFi is over-collateralized, "funds borrowed in one instance can be reused to serve as collateral in other transactions, allowing investors to build increasingly large exposure for a given amount of collateral."

Amy Castor is an independent journalist covering crypto and NFTs. She also actively covers DeFi in her anti-crypto blog, where DeFi is criticized for failing AML obligations, being controlled by whales and VCs. She thinks it's "the DeFi trash fire." twitter.com/ahcastor/status/1538875798949613569

In particular, @Jason claims that VCs could face criminal charges for knowingly selling worthless tokens to unsuspecting retail investors. Crypto tokens allow them to cash out quickly and with less regulation than equities. These are effectively unregistered securities.

Finally, crypto culture itself is a major point of criticism. It's often compared to a cult with crypto factions like Bitcoin maximalists or Ethereum hobbyists. E.g., Bloomberg posted "Tales from the Crypto Winter" on how crypto communities cope in bear markets.

@molly0xFFF calls crypto a "predatory community" that fosters bonds at the expense of its users, much like a multilevel marketing scheme. For example, Fame Lady Squad NFT, an "all-female led project," was in fact created by a group of three white men.

Like religious cults have their prayers, crypto slogans HODL, WAGMI, and "we're still early" are designed to keep you in the system. All to promise you a richer future. If you don't like crypto? Have fun staying poor.

Overall, the anti-crypto movement has a substantial following. The Buttcoin subreddit has 159K members and celebrates crypto failures. Their motto? "Buttcoin - it's a scam and we're honest about it!"

Interestingly, both crypto supporters and critics agree on issues like scams, centralization, and pump & dumps. The difference lies in the future. As a crypto supporter, I believe we can shape a healthier ecosystem, but skeptics view crypto as fundamentally flawed.

To wrap up, here's a quote by Stephen Diehl: "After studying crypto in any depth, there is only one natural conclusion that anyone with any nuance or understanding can come to—it needs to be completely destroyed because it's all a giant scam." twitter.com/smdiehl/status/1600958398039728138

I originally shared this story on my blog last week. Subscribe to my blog for: • In-depth DeFi insights • Actionable strategies • Coverage from lending protocols to tokenomics You can find the link to subscribe in my bio @DefiIgnas (Twitter penalizes sharing links).