No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.
Matthew 6:24 KJV
Ken Chang recently published a post entitled “I wasted 8 years of my life in crypto” in which he laments the capital destruction and financial nihilism that is seemingly inherent to the industry.
People in crypto like to snicker about these types of “ragequit” articles, remembering with glee the loud exits of historical figures like Mike Hearn or Jeff Garzik (and pointing out how much Bitcoin went up after).
But Ken is mostly right in his article. He says:
Crypto purports that it helps decentralize the financial system, which I completely bought into, but in reality, it’s just a speculation and a gambling hyper-system that’s really just a mirror of what the economy is now. The reality hit me like a fucking truck. I am NOT building a new financial system. I built a casino. A casino that does not call itself a casino, but it is the biggest, online, multi-player 24/7 casino our generation has ever concocted.
Ken points out that VCs have incinerated billions of dollars backing new L1s when of course, we didn’t need that many. That much is true, even if he slightly distorts the incentive model (VCs are just conduits for capital – in the aggregate, they will do whatever LPs are willing to tolerate). Ken indicts the proliferation of perp and spot DEXes, prediction markets, meme coin launchpads, and so on. Indeed, while you could make the case for these concepts in the abstract (minus the memecoin launchpads, which are indefensible), it’s unarguable that these are proliferating simply because the market incentivizes them to and VCs are willing to fund them.
Ken says he entered crypto bright-eyed and bushy-tailed with ideological motives. These are very familiar to anyone involved in crypto: he had Randian, libertarian sympathies. But then instead of carrying out the libertarian praxis he built a casino. Specifically, he is best known for his work with Ribbon Finance, a protocol that allowed users to deposit their assets in a vault and obtain a yield by systematically writing options.
I don’t want to be too mean here, but yeah. I’d be doing some soul-searching too. As the tension between his principles and his work becomes too much to bear, Ken arrives at his gloomy realization. Crypto is a casino, not a revolution.
One of the things that struck me reading Chang’s post is how much it reminded me of Mike Hearn’s post, written nearly 10 years ago. Hearn writes:
Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.
The details are different, but the argument is the same. Bitcoin/crypto was meant to be something (decentralization, cypherpunk praxis), but it turned into something else (casino, centralized). Both agree: it turned out to be no better than the existing financial system.
The arguments of Hearn and Chang reduce down to the following statement: crypto had a point at first, but it ended up being something else. So we end up in an argument about the telos, or purpose, of crypto. But what is the point meant to be, again?
The five teloi of crypto
The way I see it, there are roughly five camps here. They are not mutually exclusive. For instance, I personally most align with the first and fifth camps, although I sympathize with all of them. But I am not overly wedded to any of them, not even the hardcore Bitcoin camp, as I made clear in 2022.
1. Restoration of sound money
This is the original dream, shared by most but not all of the early bitcoiners. The idea was that, with time, Bitcoin would pose a competitive threat to the monetary privilege of many nation-states and perhaps even replace their currencies, returning us to a neo-Gold standard type arrangement. People in this tribe generally regard everything else happening in crypto as a distraction and a scam riding on the coattails of Bitcoin. Suffice to say, Bitcoin has achieved only moderate gains at the sovereign level, but it still has come admirably far as a monetary asset of consequence in only 15 years. Bitcoiners that subscribe to this view live in a permanent state of disillusionment mixed with hopeful if delusional expectations that hyperbitcoinization is just around the corner.
2. Codifying business logic into smart contracts
This is the view best espoused by Vitalik Buterin and most in the Ethereum camp; that if we can digitize money, we can also express all sorts of transactions and contracts as code, making the world a more efficient, fairer place. To Bitcoiners, this was the original heresy. But it has arguably succeeded in some narrow respects, especially if you consider contracts that are easy to express in a mathematical way, like derivatives.
3. Making digital property real
This is my best summary of the “web3” or “Read Write Own” philosophy. The idea, which isn’t without merit, is that digital property should be just as real as physical property. The implementation of this idea – NFTs, web3 social – was either completely wrongheaded, or more charitably ahead of its time. Even though billions of dollars were deployed here, you won’t find many people defending this philosophy any more. I do think there’s something to be said for it though. I think most of our online woes stem from the fact that we don’t actually own our namespaces in any meaningful sense, and we can’t meaningfully control who we interact with and who is served our content. I do think that eventually we will reassert dominion over our online property, and this will probably involve blockchains. But this is an idea whose time has not yet come.
4. Making capital markets more efficient
This is the least ideological of the five categories here. You won’t find a lot of people particularly animated by securities settlement or COBOL or SWIFT or wire transfer windows. But this is something that does, for better or worse, power a meaningful subset of the crypto industry. The idea is that the financial system in the west is built on antiquated technology that is extremely hard to update for path-dependent reasons (you don’t want to rip and replace the core infra powering trillions of dollars of settlement a day), and it’s overdue for an update. The update has to come from outside the system and consist of a brand new architecture. Most of the value here is captured in the form of efficiencies and maybe some consumer surplus, so it’s not that exciting.
5. Broadening financial access globally
Lastly, you have the bleeding hearts that see crypto as an inclusive technology which will give the global south access to low-cost financial infrastructure, in some cases for the first time. This means giving them the opportunity to self-custody cryptoassets or, more commonly nowadays, stablecoins, to access tokenized equities or money market funds, to receive a card issued against their crypto wallet or exchange account, and to be treated as an equal peer on the financial internet. This is a very real phenomenon and its apparent success gives succor to many of the ideologues whose enthusiasm has been waning.
Pragmatic optimism
So who is right, the idealists or the cynics? Or is it a secret third thing?
Well, I could blather on about how bubbles always accompany major technological shifts, and how bubbles actually catalyze useful infrastructure buildout, and how crypto is particularly speculation-ridden because it’s a technology about finance, but that is mostly cope.
My real answer is the following: being pragmatically optimistic is the right disposition, and you have to hold on to that whenever you find yourself getting blackpilled about the crypto casino. The speculation and mania and extraction should be understood as an inevitable but unpleasant externality of a useful infrastructure buildout. It carries a very real human cost that I don’t want to diminish. The normalization of memecoins, idle gambling and financial nihilism especially among the youth is depressing and bad for society. But it’s an inevitable (if negative) side effect of building capital markets on permissionless rails. I don’t think it could have happened otherwise. You just have to accept this as a consequence of how blockchains work. You don’t have to participate in it.
The synthesis here is that there *is *a telos to crypto, and it’s perfectly ok to be idealistic about it. There is a force that animates the thousands of individuals that are dedicating their professional lives to this industry.
It’s just that it may not be as exciting as you thought it was.
The world is probably not going to hyperbitcoinize. NFTs didn’t revolutionize digital ownership. Capital markets are coming on chain, but only very slowly. We haven’t tokenized much of anything aside from dollars yet. No authoritarian regimes have been toppled by regular folks toting their crypto wallets. Smart contracts are mostly about derivatives and little else. The applications with real PMF so far are limited to Bitcoin, stablecoins, DEXes, and prediction markets. And yes, much of the value created may be captured by big corporates or end up returned to consumers in the form of efficiencies and cost savings.
So the challenge is to maintain an optimism which is nevertheless grounded in what might realistically happen rather than indulging in Panglossian fantasies. The dissonance between your expectations and the reality of crypto will eventually collapse if you believe in a Randian libertarian utopia. As far as the casino dynamics, the unrestrained token issuance, the rampant speculation are concerned, they should be acknowledged as unsightly warts on the belly of the industry, but ones that are very hard to peel off. If you decide that the cost of bringing blockchains into the world exceeds its benefits, you are entirely within your rights to become disillusioned. But from my perspective, things are actually better than ever. We have more evidence than ever before that we are on the right track. Just remember the telos.
