24 highlights
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Twenty percent of American adults, and 36 percent of millennials, own cryptocurrency, according to a recent Morning Consult survey.
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Today, the crypto market is valued at around $1.75 trillion — roughly the size of Google. And in Silicon Valley, engineers and executives are bolting from cushy jobs in droves to join the crypto gold rush.
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As it’s gone mainstream, crypto has inspired an unusually polarized discourse. Its biggest fans think it’s saving the world, while its biggest skeptics are convinced it’s all a scam — an environment-killing speculative bubble orchestrated by grifters and sold to greedy dupes, which will probably crash the economy when it bursts.
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I’ve also learned, in my career as a tech journalist, that when so much money, energy and talent flows toward a new thing, it’s generally a good idea to pay attention, regardless of your views on the thing itself.
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Bitcoin, which emerged out of the ashes of the 2008 financial crisis, first caught on among libertarians and anti-establishment activists who saw it as the cornerstone of a new, incorruptible monetary system.
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The second reason to pay attention to crypto is that understanding it now is the best way to ensure it doesn’t become a destructive force later.
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What nobody was asking back then — at least not loudly — were questions like: What if social media is actually insanely successful? What kind of regulations would need to exist in a world where Facebook and Twitter were the dominant communication platforms? How should tech companies with billions of users weigh the trade-offs between free speech and safety? What product features could prevent online hate and misinformation from cascading into offline violence? By the middle of the decade, when it was clear that these were urgent questions, it was too late.
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Are we making the same mistake with crypto today? It’s possible. No one knows yet whether crypto will or won’t “work,” in the grandest sense.
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Surveys have suggested that high-earning white men make up a large share of crypto owners, and libertarians with dog-eared copies of “Atlas Shrugged” are likely overrepresented among crypto millionaires. But it’s not an intellectual monolith.
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All of that work is done by the computers on the network, using what’s called a consensus mechanism — basically, a complicated algorithm that allows them to agree on what’s in a database without the need for a neutral referee. This makes blockchains more secure than traditional record-keeping systems, proponents believe, since no single person or company can take down the blockchain or alter its contents, and anyone trying to hack or change the records in the ledger would need to break into many computers simultaneously.
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Third, blockchains are typically append-only and permanent, meaning that unlike with a Google spreadsheet, data that’s added to a blockchain typically can’t be deleted or changed after the fact.
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It’s also true that the value of cryptocurrencies has grown enormously since the early Bitcoin days, despite them not being most people’s daily spending money. Part of that growth is speculation — people buying crypto assets in hopes of selling them for more later on. Part of it is because the blockchains that have emerged since Bitcoin, like Ethereum and Solana, have expanded what can be done with this technology.
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These non-financial uses are still fairly limited. But crypto fans often make the case that the technology is still young, and that it took the internet decades to mature into what it is today. Investors are pouring billions of dollars into crypto start-ups because they think that someday, blockchains will be used for all kinds of things: storing medical records, tracking streaming music rights, even hosting new social media platforms.
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Some critics believe that cryptocurrency markets are fundamentally fraudulent, either because early investors get rich at the expense of late investors (a pyramid scheme), or because crypto projects lure in unsuspecting investors with promises of safe returns, then collapse once new money stops coming in (a Ponzi scheme).
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There are certainly plenty of examples of pyramid and Ponzi schemes within crypto. They include OneCoin, a fraudulent crypto operation that stole $4 billion from investors from 2014 to 2019; and Virgil Sigma Fund, a $90 million crypto hedge fund run by a 24-year-old investor who pleaded guilty to securities fraud and was sentenced to seven and a half years in prison.
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Unlike buying stock in, say, Apple, a purchase that (theoretically, at least) reflects a belief that Apple’s underlying business is healthy, buying a cryptocurrency is more like betting on the success of an idea, they say.
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Crypto owners, then, have a rational incentive to convince other people to buy. And if you don’t think that cryptocurrency technology is inherently valuable, you might conclude that the entire thing resembles a pyramid scheme, in which you primarily make money by recruiting others to join.
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In the United States, certain centralized crypto exchanges, such as Coinbase, are required to register as money transmitters and follow laws like the Bank Secrecy Act, which requires them to collect certain information about their customers.
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There are also technical hurdles crypto needs to overcome if it’s ever going to displace government-issued currency. Today, the most popular blockchains — Bitcoin and Ethereum — are slow and inefficient compared with traditional payment networks. (The Ethereum blockchain, for example, can process only about 15 transactions per second, whereas Visa says it can process thousands of credit card transactions per second.)
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That said, some recent studies have also found that a small number of people own the vast majority of crypto wealth — so it’s not necessarily an egalitarian paradise.
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It’s true that most crypto activity today takes place on blockchains that require large amounts of energy to store and verify transactions. These networks use a “proof-of-work” consensus mechanism — a process that has been compared to a global guessing game, played by computers all competing to solve cryptographic puzzles in order to add new information to the database and earn a reward in return. Solving these puzzles requires powerful computers, which in turn use lots of energy.
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Bitcoin’s energy needs aren’t expected to fall significantly anytime soon. And even if every Bitcoin miner ran entirely on renewable energy — which, to be clear, isn’t the case — there would still be an environmental cost associated with maintaining the blockchain.
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People who believe in crypto tend to really believe in it — to the point that they can appear to the outside world more like evangelists for a new religion than fans of a new technology.
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It’s fun to laugh at the (often cringeworthy) ways crypto fans try to entertain and inspire each other. But focusing too much on their behavior and customs might mean missing what’s genuinely novel — and, depending on where you sit, either exciting or dangerous — about the technology itself.