LINE

GOES

UP

Dan Olson

April 2022

Line Goes Up is © 2022 Dan Olson, licensed under CC BY-NC 4.0

In plain terms I want people to be able to freely share this document, reference it, cite it, and (at their discretion) create and distribute translations, but no direct derivatives (translations, annotations, re-formatting, etc.) can be sold.

Original: https://www.youtube.com/watch?v=YQ_xWvX1n9g Jan. 21, 2022

First ePub Edition: Apr. 12, 2022

Foreward

Preface

In 2008 the economy collapsed

Bitcoin

Ethereum

The machine

Nfts exist to get you to buy crypto

The unbearable cringe of crypto

a self-organizing high-control group

Crypto reality

There is no privacy on the chain

If This "Looks Like Scam" Then Every NFT Room I'm In Looks Like Scam LOL

Play To Earn Exists To Get You To Buy Crypto

We're All Gonna Make It And By "We" I Mean "Us" Not You

DAOs Exist To Get You To Buy Crypto

I Know It's Rigged, But It's The Only Game In Town

Foreward

Welcome.

First of all this is not Line Goes Up: The Book, I’ve made a few efforts to make things more appropriate for a text-based delivery but this is in effect the transcript of Line Goes Up: The Problem With NFTs, and as such there remain many visual components that are left out. I would love for a more book-ified version to exist with addendums, additions, and follow-ups, but that takes a substantial amount of time to put together.

I will likely issue additional versions, but I have already been dragging my heels too long getting this version complete.

Preface

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.

In 2008 the economy collapsed

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.

Bitcoin

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 assholes 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.

Ethereum

In 2012 Vitalik Buterin, a crypto enthusiast and butthurt Warlock main¹ 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.

The machine

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 McCluhenist 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 Buterin: “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 exist to get you to buy crypto

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.²

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.

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.

The unbearable cringe of crypto

For days now I’ve been accepting every spam NFT Discord invite I've received, and it's getting dire.

@foldablehuman, 0ct. 26, 2021

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. 

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.

a self-organizing high-control group

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.

Crypto reality

“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 shitting 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 shit and ban people, man you banned me instantly.”

Salty rando in Decentraland

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!

There is no privacy on the chain

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… tokens³, 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 fuckin’ help immediately.”

@WakaFlocka

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.

If This "Looks Like Scam" Then Every NFT Room I'm In Looks Like Scam LOL

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.

Play To Earn Exists To Get You To Buy Crypto

“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.”

Kro_Tez, Twitch.tv

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!”

WS Sean, Twitch.tv

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.”

@Axie_Queen, Nov. 29, 2021

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're All Gonna Make It And By "We" I Mean "Us" Not You

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.

DAOs Exist To Get You To Buy Crypto

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 bitch 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 its 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.

I Know It's Rigged, But It's The Only Game In Town

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.

¹ Vitalik, in his own bio, describes how the removal of the spell Siphon Life in World of Warcraft formed the inciting incident for him to seek “immutable solutions” to the “tyranny” of the people who operate multiplayer video games. This is extremely funny both because it’s incredibly selfish (they’re multiplayer games that need to balance a fun system for many, many different players) and because in strict game terms it was an extremely trivial nerf with minimal impact on the actual outcomes, was offset by buffs to other elements of the class, and was mostly focused on making the class less demanding to play.

² In the video A Lukewarm Defence of Fifty Shades – Part 3: Freed a copy of Grey was thrown into the river as the punchline for a joke.

³ the “other” tokens depict Kyle as the Joker, styled after Joaquin Phoenix’s appearance in the 2019, and Aquaman