What Can We Really Learn From the Recent Crypto Crackdown?
What is the environmental impact of the plastic in all the credit and debit cards issued annually, so many of which end up in landfills? That’s not an easy question to answer, because the environmental impact of our current banking system is not something journalists write about. Why then have so many written sensational articles on the electrical usage of Bitcoin?
The blockchain space seems under assault lately, as a series of negative headlines, regulatory crackdowns and advertising bans have resulted in falling cryptocoin prices across the board. But if we take a step back and a broader look at the negativity, we can see that most of it has more to do with who is doing the criticizing, than the intended target.
The electrical usage of proof-of-work mining is a good example, because in of itself, it’s a reasonable issue to discuss. But what’s telling is how nobody does an apples to apples comparison. If they did, you’d see the resource usage of crypto mining compared to that of the financial infrastructure a cryptocoin could someday replace, like hundreds of thousands of bank branches and millions of ATM machines, not to mention all that plastic.
That sort of analysis is never done, because the blockchain space is always treated with a double standard. Case in point: the recent blanket advertising bans by Twitter, Google and Facebook.
On its own, the ban is understandable, because the industry has seen a spike in shady operators lately (upsetting the real innovators in this space more than anyone else) and crypto investing is by nature risky. A ban by the tech giants would make sense if they were consistent in banning ads for any activity that might entail risk.
So, what’s Googles Adwords policy on gambling?
We support responsible gambling advertising …
Casinos and fantasy sports sites are profitable because in the long run, consumers are guaranteed to lose money. Google has no problem with that. But an ICO where you might lose money? That’s not allowed!
A critic might say there is a distinction, because a casino is selling entertainment, while a coin or token is supposed to be an investment. Fair enough.
Run a Google search for the term “Inverse ETF,” and the first thing you’ll see is an advertisement for “ProShares Tactical ETFs,” which as the ad goes on to explain, are investment products that allow you to “Trade 2x, 3x, -2x, -3x.” These are exchange-traded funds that allow people to gamble on the daily moves of the financial markets.
I say gamble, because responsible investors don’t touch this stuff. To see why, click through that advertisement and read up on any one of the leveraged products whose very name sounds more like a slot machine than an investment, like the UltraproShort Dow 30.
The point of this product is to do the opposite of what the stock market does, but with three times the leverage. It’s complex, expensive and can lead to ruin, as described in its own prospectus:
The use of such leverage could result in the total loss of an investor’s investment.
Google, as it turns out, doesn’t have a problem with ads for dangerous investments, just crypto ones. Our critic might now argue the tech giants are simply taking their lead from the regulators, who’ve been cracking down on everything crypto. But there too lies a double standard.
The Securities and Exchange Commission, the same body that has repeatedly rejected the creation of a Bitcoin ETF because it’s too risky, has approved dozens of levered and inverse ETFs, and stood by idly while many of them grind their way to zero.
Owning Bitcoin is risky — we don’t call it hodl for nothing — but the one thing we can say for certain is that it has a nine-year track record of not vaporizing in a single day, unlike one particularly notorious SEC-approved ETF.
Back in February, the VelocityShares Daily Inverse VIX Short-Term Exchange Traded Note lost 90% of its value in a matter of hours, with no hope of recovery. Credit Suisse, the creator of the product, defended itself by reminding everyone that the product worked as intended. Cue its prospectus:
The long term expected value of your ETNs is zero. If you hold your ETNs as a long term investment, it is likely that you will lose all or a substantial portion of your investment.
If all it took to get a risky product approved was a prospectus that spelled out the risks, we’d have a Bitcoin ETF already. But the regulatory reactions, just like the advertising ban, are not about how dangerous cryptocoins can be for investors. They are about how dangerous blockchain technology might be for today’s gatekeepers.
In my upcoming book, “The Story of the Blockchain: A Beginner’s Guide to the Technology Nobody Understands,” I try to introduce novices to the possibilities of blockchain technology by describing it as a great disintermediary. One way to think of many of today’s most powerful organizations, be they banks, social media platforms or even government regulators, is as gatekeepers who create trust where it wouldn’t otherwise exist. For that, we should be grateful, because our society would not have gotten this far otherwise.
But now we could look down the road and imagine a world where distributed ledgers and consensus mechanisms could provide the same trust faster and cheaper. A great accomplishment for the average person, but a terrible development for the gatekeepers.
Mark Zuckerberg might talk a big game about the potential of crypto, but if he’s a half-way decent CEO, he is terrified of the existential threat blockchain technology poses to his company. Other than providing a reliable platform that monetizes the content created by its users, there is nothing inherently special about Facebook. That’s why it’s not hard to imagine it being replaced by a blockchain-based platform that allows content creators, as opposed to Facebook shareholders, to monetize their work.
Such a decentralized platform would also reduce the risks of the privacy breaches for which Facebook is currently under fire. The transition might not happen tomorrow, and it might not be to Steem, but when you understand the technology, you know it’s possible, as is the replacement of Google’s ad-supported business, and whatever it is that makes the big banks that keep poo-pooing cryptocoins so profitable.
Less banks means less bank regulators. Ever since the financial crisis, being a bank regulator, or a compliance officer working for a bank (then switching between the two) has been a great career path. Nobody roots for a technology that might someday replace them.
Despite the fact that crypto assets have taken a hit recently from all of this negativity, when you look at who is doing the criticizing, it becomes apparent that the great promise of blockchain technology is slowly starting to become real. Social media giants don’t ban ads for casinos and government regulators don’t mind ETFs that occasionally blow up because neither is an existential threat. If anything, both are good for business (as are sensational stories written by reporters who don’t understand the technology.)
The gatekeepers are reacting because deep down inside, they too are starting to believe. The best proof that the rebellion is getting somewhere is the empire striking back.
My beginner’s guide to blockchain technology is due to be published in early April. Visit omidmalekan.com to learn more.
