It’s okay to opt out of the crypto revolution
The term “crypto” has become something of a catch-all for technology that runs on a blockchain. It’s often just referring to cryptocurrencies, like Bitcoin or Ether, but it can also more broadly mean a suite of tokenized web applications collectively referred to as Web3, most of which run on the Ethereum network. Much of it is deeply weird, some of it is potentially promising, and there’s a good bit that seems like little more than a scam. Regardless, crypto attracted more than $30 billion in VC investment last year and has drawn nearly $4 billion this year so far. New crypto funds like former federal prosecutor Katie Haun’s $1.5 billion venture are sprouting up, fresh crypto startups are boasting billion-dollar valuations months after founding, and Paris Hilton has boosted her NFT investments on The Tonight Show. Ready or not, cryptocurrencies are coming for us all.
Crypto enthusiasts claim that the industry will revolutionize financial systems by decentralizing commerce, grabbing the reins from the grip of the banks that have betrayed us in the past and the Big Tech gatekeepers that have held creators and innovators hostage with biased algorithms and hefty fees. The populist mantra of crypto believers is “WAGMI,” or “We’re all gonna make it,” and the community has deployed it in Discords, on Twitter, and in a cringeworthy Randi Zuckerberg music video to encourage commitment to the cause through crypto’s wild price swings.
But so far, the crypto industry has not made good on that democratizing promise. “Historically, claims like these often originate from groups of people with a significant amount of power and privilege already, who are seeking to reconsolidate and enhance that power in a new realm,” says Mar Hicks, a historian of technology, gender, and labor and the author of Programmed Inequality. Indeed, apart from a few lucky players, the crypto riches seem to be flowing mostly toward crypto executives and longtime Silicon Valley VCs, who need regular people to continue to invest in the industry so that it can keep growing. As of September 2021, almost 9 in 10 Americans polled had heard of cryptocurrencies but just 16% of those had used them; meanwhile, billions of dollars have already been lost to crypto fraudsters and scammers.
There is no clear picture of exactly how crypto will change the future of finance or the web, and little that can actually be done with cryptocurrencies should you buy some. Nevertheless, the crypto industry has ballooned into a shape too big to ignore. You may be able to block out the litany of paid messaging, but we all will likely feel the effects of crypto’s impact on society, whether we choose to engage or not.
And there are some beneficial changes happening, hiding under the star-studded bluster. The distributed blockchain protocol on which cryptocurrencies rely is winding its way into the back ends of industries like traditional finance and pharmaceuticals, offering real but mostly behind-the-scenes benefits like speed and transactional transparency. Look past the utopian rhetoric, the regulators playing catch-up, and the potential reshuffling of web platforms, and you’ll see that crypto’s most lasting positive contribution to history may be something closer to an invisible protocol like Bluetooth than a worldwide financial revolution.
To understand the crypto industry, we first have to pull apart its three main pieces—work that those Super Bowl ads avoided in favor of platitudes and Larry David in period costume.
The first element is cryptocurrencies. There are more than 10,000 of them globally, the most popular being Ether (ETH) and Bitcoin (BTC). Cryptocurrencies can be either coins or tokens. It’s a distinction that might seem a few syllables away from a hand wave, but in essence, tokens represent an asset (access to a lecture, for instance, or a digital representation of a physical item like a contract). By contrast, coins have purchasing power—the ability to buy tokens and, one day, a wide variety of other goods.
The second is the blockchain, which—despite the singular form—isn’t just one thing. It’s a type of back-end protocol that uses “consensus mechanisms” (in place of traditional authorities like banks) to approve changes, and visible ledgers (rather than private recordkeeping) to log those changes. The history of blockchain is intertwined with that of crypto; a pseudonymous engineer—or group of engineers—called Satoshi Nakamoto used the protocol to devise Bitcoin in 2008, in the midst of the US financial crisis. Bitcoin was to be a new, decentralized system that would allow “any two willing parties to transact directly with each other without the need for a trusted third party,” eliminating middlemen like banks. With a blockchain, Nakamoto wrote, finance could be purely peer-to-peer, with each transaction added to an immutable record.
SELMAN DESIGN
The third piece of this story is Web 3.0, or Web3, a term coined in 2014 by Ethereum Project cofounder Gavin Wood. Expanding on Nakamoto’s ideas, Wood envisioned a fully decentralized internet, where individuals could use digital tokens to do business online instead of relying on Big Tech platforms like Amazon or Google to manage security, storage, payments, and everything else that keeps the internet running. Web3 is a container concept for crypto and blockchain, positing a whole new digital economy where individuals carry a variety of cryptocurrencies in a digital wallet to buy goods and services from other individuals, or just to tip the creators of content they enjoy. In this (still theoretical) vision, the Web3 world resembles an enormous mall, with each shop taking payment in gift cards that you must purchase with real money before stepping inside. Many companies are purportedly working to realize the vision, but the biggest “Web3” businesses today are still cryptocurrency exchanges, cryptocurrencies, or the tooling to support them—although with so much funding sloshing around, that may soon change.
What is a regular person to make of all this? Should you be brave, as Matt Damon suggests in his Crypto.com TV ad, and turn your real money into Bitcoin? Should you choose from the more than 150 crypto wallets available to start your journey into the mall of the future? If you want to do anything with your money—buy tickets to a movie or split a bill among friends—the answer is no, not yet. And especially not if you don’t have the financial cushion to lose it all.
