Cryptocurrencies Were Never Good for Anybody But the Rich
Bitcoin started as a populist alternative to government money—or was it just the rich getting richer all along?
The value of cryptocurrencies across the board skyrocketed last year due to speculative investing, and it feels as though early attempts to position digital money as a populist and democratic alternative to traditional finance are falling apart at the seams. But cryptocurrency has always been about the rich getting richer.
In 2013, for example, WIRED posited that Bitcoin could become the great equalizer in helping the homeless. Only a few months later, the same writer would claim that “homeless men wish they’d gone hungry instead of spending Bitcoins.” The article describes the homeless “scrounging” for Bitcoin via services that award coins for things like watching ads. The brutal sadness of the article can only truly be realized in one quote: “They're still using Bitcoin Tapper, a mobile app that doles out a tiny fraction of a bitcoin if you spent hours tapping on a digital icon over and over again.”
The beautiful dream of Bitcoin equality, apparently, was that the homeless can be reduced to mashing a button repeatedly in the hopes of obtaining a sliver of an income.
Appealing to the homeless in problematic ways to boost the perceived altruism of Bitcoin is not relegated to this one article. In 2017, a story about a homeless man panhandling 0.35842588 BTC ($800 in May 2017—now over $3,000 as of writing) made the rounds in the Bitcoin community. His wallet address’ last transaction was in August 2017. He may be dead. He may be well. We’ll likely never know.
There are real charities that try to do good work with cryptocurrency, like Bail Bloc—which shares mining power across multiple computers to pay the bail of low-income detainees—the deep-pocketed Pineapple Fund, and Sean’s Outpost, a charity that accepts Bitcoin to help the homeless of Pensacola, Florida. This is great. But it’s a drop in the ocean compared to the reality of who truly holds cryptocurrency.
Consider Erik Finman, a 19-year-old millionaire and owner of around 400 bitcoins. Finman has gotten plenty of positive press for his bitcoin investment of $1,000 back in 2011, based on a gift from his grandmother. He’s since been given a pulpit by the media to discuss his “investing advice.” All this based on a gamble he made at age 12, with someone else’s money. In January, the New York Times profiled people who’ve gotten rich buying cryptocurrencies—unsurprisingly, they were mostly successful tech bros. One subject was able to sink $400,000 into Ethereum when it was worth 80 cents—now, it’s worth nearly $600.
Anybody can invest in cryptocurrency, but the more you put in, the more you get out, as long as prices go up; the biggest and earliest movers have an advantage.
The cryptocurrency wealthy are largely already rich, successful people deep in the tech industry who are now able to buy Lamborghinis when before they could only afford an Audi. Now they build companies instead of work for them. The Winklevosses, who sit at the top of the Forbes Richest People In Cryptocurrency list (all men), bought $11 million worth of Bitcoin in 2013—around 1 percent of the entirety of Bitcoin’s supply. Less than 40 percent of Americans even have even $1,000 saved for an emergency. And just like how economic disparity creates inequality in the real world, there is a cryptocurrency elite: 40 percent of the Bitcoin market is owned by 1,000 people.
The irony is that Bitcoin was and continues to be couched in the rhetoric of being a populist alternative to government-issued money—only now it’s arguably more centralized and definitely harder to obtain than regular fiat currency. Perhaps, though, it was always designed to be that way: Bitcoin is less a currency and more a method of enriching those who consider themselves outsiders—lone wolves who have been left behind by society—when they’re largely just another flavor of the elite. As Ethereum co-founder Vinay Gupta recently put it on Twitter, “Right now cryptocurrency is a form of elite defection.”
The growing difficulty of the blockchain—which determines how hard it is for a computer to verify the next block of data and receive a reward in bitcoins—might not exist only to make the system more resilient against attackers, but to cement the power of early adopters. Bitcoin’s free market mining incentives have already led to one multi-billion-dollar firm controlling roughly 40 percent of the entire network hashrate, and supplying most everybody else’s mining hardware to boot. Even with said hardware, the biggest operations with the most computers win more often, and other options available to the cryptocurrency underclass, like cloud mining, are rife with scams.
The well-documented libertarian adoration of cryptocurrency is born of an adoration of unstructured, uncontrolled, unregulated financial transfer and an attendant worldview that those who succeed “deserve it” and those who fail “do not deserve it.” Matthew Mellon, an early investor in Ripple, perfectly illustrates this belief: "[My Ripple investment has become] $1 billion virtually for free,” he told Forbes in January. “I actually have earned it because I was the only person who was willing to raise his hand.”
The reality of cryptocurrency is that it’s a dreamworld deeply connected to Ayn Rand-inspired ideology. According to Rand’s Capitalism: The Unknown Ideal, “every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others.” So it's not surprising that even after cryptocurrency's biggest year ever, price-wise, some investors are looking for ways to avoid taxes and are otherwise reportedly skipping out on paying them altogether. Of course these folks would likely argue that nobody’s income should be taxed, but that’s beside the point.
These trends are only accelerating. New currencies or tokens—no matter how well-intentioned—are often funded in private pre-sale events that generally require hundreds of thousands or millions of dollars to participate. This allows wealthy investors to get that much richer if token values increase once they’re open to the public. Telegram’s own private, multibillion-dollar ICO presales are the natural endpoint of ICOs: A giant engine for hedge funds and millionaire investors to become even richer. In cryptocurrency, the successful don’t have to be smarter than you—just financially better off.
The grotesque nature of cryptocurrency makes it a two-faced system. For those that have thousands or millions of dollars to invest, it’s a casino with better odds and more table games— some of which, depending on your status, you can simply rig in your favor. It’s a new way to invest, a liquidity buffet that marries the speed of selling public stock with the arbitrary valuations of the world of startups.
To the rest of the world, it’s a roulette wheel that rarely stops spinning—fast and furious buy-ins into new chaotic markets that pop up overnight, the desperation and false hope that perhaps they will discover the next Bitcoin. It’s a darker, deeper hole of get-rich-quick schemes, with a lower barrier to entry and an even faster trip to an empty bank account. As with most methods to make millions from nowhere, the chance to actually make something from nothing isn’t gone by the time average people get on board—it was never there to begin with.
And so the story of cryptocurrency closely mirrors the story of capitalism in America, where having enough money to buy a factory will always be a better play than working in one. Most of the cryptocurrency-rich weren’t just already successful, they had the ability to play and lose a bet on a chaotic asset—and when it did well, they could pretend that they saw the future.
Yet more examples: Ripple’s Chris Larsen was a serial tech entrepreneur going back to the 90s, and prolific cryptocurrency investor Barry Silbert previously ran the NASDAQ-acquired finance startup SecondMarket, which was valued at $200 million during his tenure. Even stories of “regular people” getting rich from Bitcoin investment often contain a hidden privilege—in most cases, a windfall of at least a few grand that they could afford to lose, and that helped them become obscenely rich.
Cryptocurrency isn’t the future. It’s the present, and it’s the past. It’s the same song played in a different key and with a higher tempo—a quicker way for those with money to make more. Perhaps some good can come from the blockchain itself, but the currency side exists to multiply the fortunes of those who need more money the least.
Ed Zitron is the founder and CEO of EZPR. Some of his clients include companies working in the cryptocurrency industry. He's previously written about investing in the Bitcoin ecosystem for Motherboard.
Get six of our favorite Motherboard stories every day by signing up for our newsletter.