Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud

by Ben McKenzie

While the marketing may have been new, the economics were familiar: These get-rich-quick speculative schemes were merely the latest iteration of casino capitalism.

You may have noticed something about cryptocurrencies: They don’t do anything. Sure, you can trade them, betting

that one will rise or fall, but they aren’t used for anything productive.

They’re computer code uncorrelated with any actual asset. Even the most arcane financial products have some relation to something of use in the material world.

It’s the digital equivalent of playing poker at a casino; you might win, you might not, but there is no increase in overall utility.

Cryptography, computer science, and finance are not my forte, but I can recognize when they’re being used to conjure—to sell—a narrative that might not be true.

The only thing needed to own a piece of the “future of money” was a willingness to part with the current version of it.

He defined an economic narrative as “a contagious story that has the potential to change how people make economic decisions, such as the decision to . . . invest in a volatile speculative asset.” His first example? Bitcoin.

In the wake of the general distrust born of the crisis, a new mutation to the financial system emerged: cryptocurrency.

(In fact, that’s not really true; people wouldn’t transact directly but rather through a shared database under common or collaborative control.)

Each “block” contains the cryptographic hash (a short, computable summary of all the data in it) of the prior block, linking the two and creating an irreversible record, a ledger composed of blocks of data that can be added to a

chain (blockchain), but never subtracted from.

The network targets a new block every ten minutes or so, by dynamically adjusting the degree of difficulty required in the winning block; the more participants, the harder the process gets, and the more energy is required to

guess the next block correctly. This is the proof of work behind Bitcoin: lots and lots of computers (“miners”) performing relatively simple mathematical calculations over and over again endlessly.

This is what’s called a Red Queen’s race, a reference to

Lewis Carroll’s Alice in Wonderland. As the Queen says to Alice, “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

If blockchain is so revolutionary, after thirty years, why is its primary use case gambling?

Instead, a “naturally occurring Ponzi” can form simply in response to a rise in price. Shiller writes, “Investors, their confidence and expectations

buoyed by past price increases, bid up speculative prices further, thereby enticing more investors to do the same, so that the cycle repeats again and again, resulting in an amplified response to the original precipitating factors. The feedback mechanism is widely suggested in popular discourse and is one of the oldest financial theories.”

“The implosion of a bubble always leads to the discovery of frauds and swindles that developed in the froth of the mania.”

Bitcoin is able to handle only five to seven transactions a second; it can never go above that. Visa can process 24,000. To operate, Bitcoin uses an enormous amount of energy, the equivalent in 2021 of Argentina—the entire country.

And perhaps most disturbing, most of the volume in crypto ran through overseas exchanges.

But cryptos don’t make stuff or do stuff. There are no goods or services produced. It’s air, pure securitized air.

“Anything that is growing unusually fast, for the type of thing that it is, needs to be checked out. And it needs to be checked out in a way that it hasn’t been checked out before.” I couldn’t get that simple idea out of my head: that this bubble needed to be “checked out” in a way it hadn’t been before. I felt an urgent need to

do something, but what part was mine to play?

They don’t want to appear foolish. The con was ingenious in its simplicity. It relied on nothing more than appeal to ego and status worship.

It’s getting to the point that we, as a country, never hold white collar criminals or politicians accountable.

Rule number one for fraud: Keep the circle of trust small.

A working paper published by the National Bureau of Economic Research from December 2022 found that 70 percent of trades on unregulated exchanges were fake.

for equities; you’re trying to find Springtime for Hitler in the form of a stock.

There’s no consolation prize for correctly assessing a fraud but betting against it too early.

(Doubt makes you crazy, certainty makes you stupid.)

Crypto has its own lexicon, with many words representing the opposite of what they claim to be. Many stablecoins ultimately proved to be not so stable. Smart contracts were neither smart, nor contracts in any familiar sense. Decentralized invariably meant centralized, only in private hands. You could even combine nonsensical crypto words to form meaningless new phrases, like some absurdist German language exercise. DAOs, or decentralized autonomous organizations, were neither decentralized, autonomous, nor particularly organized.

The hours-long Tupperware party of the 1950s has been replaced by a sixty-second TikTok video.

there was almost no scrap of web real estate they didn’t touch.

But in practice, a pyramid scheme is essentially just an MLM that was run poorly and got caught.”

.01 percent of Bitcoin

holders control 27 percent of all the coins in circulation. Some community.

a few people at the top, who occupy privileged positions of control. Jon M. Taylor studies MLMs, and is the founder of the Consumer Awareness Institute.

His 2011 paper “The Case (for and) against Multi-level Marketing” analyzed more than 400 such companies. He observed that the vast majority of commissions paid by MLM companies go to a tiny percentage of TOPPs (top-of-the-pyramid

In the case of crypto, the TOPPs are influencers, celebrities, VCs, crypto company executives, and other insiders. They are the industry’s 1 percent, and everyone else is overwhelmingly likely to lose, often through no fault of their own.

Unfortunately, this was nonsense. Code does not fall from the sky. People write it—sometimes badly, sometimes making mistakes, sometimes implanting backdoors or other subtle forms of trickery.

“The thing that makes money money is trust.” Saying you want to create trustless money is like saying you want to create a governmentless government or a religionless religion. I think the words you are searching for are anarchy and cult. The bartender should cut you off and make sure you get a ride home.

The gold standard was meant to keep the supply of money limited, tightly controlled by how much physical gold a country held in its reserves. Because extracting gold from the ground is expensive and there is a finite supply of it in the world, actual gold also has a significantly inelastic supply. But elasticity is crucially important in times of crisis. In response to some unanticipated calamity (such as COVID, for example), the public’s first reaction is often paralysis, followed by panic. Fearing worse times to come, people hoard rather than spend. Economic activity nosedives, and less spending leads to less production, which causes unemployment to surge, resulting in even less spending and thus less production. The dynamic quickly becomes self-reinforcing, capable of plunging an economy into a downward spiral that can last years, as it did during the Great Depression.

while gambling is technically illegal under Chinese law, ever since the Communist Party took power in 1949, it is an immensely popular pastime in the country. Gambling centers in Hong Kong and Macau provide citizens outlets for their interest, but crypto offered a more accessible alternative. The second, and perhaps more important, reason crypto took off in China was to avoid capital controls. The official limit of $50,000 in overseas foreign exchange per year is an attempt by the state to restrict wealthy Chinese from moving their money out of the country. If you are a Chinese billionaire, there are numerous ways to get around this, but one of the less expensive ones is crypto. Either buy crypto with yuan and cash out into dollars or other currencies overseas, or perhaps better yet, invest in Bitcoin mines (often using electricity stolen from the grid) and then move the mined Bitcoin via crypto trading elsewhere. Mining exploded in China in 2016 and 2017, and as the value of Bitcoin and other cryptos rose, the country

quickly became the dominant player in the industry, accounting for approximately 75 percent of global mining capacity. The success of crypto in China garnered increased scrutiny from government regulators.

Binance is not just an exchange where people can buy and sell crypto. The company, whose valuation some employees once claimed may be as high as $300 billion, is practically its own vertically integrated crypto economy, offering crypto loans and the widest selection of tokens. If that weren’t enough, Binance itself trades on its own exchange. In traditional markets, this kind of arrangement would never be allowed, as the conflicts of interest—and potential for market manipulation—are glaring. Imagine the New York Stock Exchange or Nasdaq taking positions on different sides of trades it facilitates. No financial regulator would allow it, for obvious reasons.

on the dais were luminaries like Jordan Peterson, the Canadian psychologist who found his true, and truly lucrative, calling as an alt-right provocateur who encouraged young men to clean their rooms.

El Salvador’s economy depends on remittances. The money that the two to three million people of Salvadoran descent living in the United States send home to their families and loved ones accounts for one-quarter of El Salvador’s GDP. The average Salvadoran makes about $400 a month, and 70 percent of the population lacks access to traditional banking, so most business is conducted in cash. (El Salvador “dollarized” in 2001, abandoning its local currency, the Colon, in favor of greenbacks.) Most Salvadorans rely on services such as Western Union or MoneyGram to accept remittances from relatives overseas, despite the sometimes high fees those services charge.

The pitch when it came to tourism was equally simple. El Salvador is small and mountainous, making large-scale agricultural production difficult. The country’s biggest export is cheap textiles, but that pales against remittances, which are, as mentioned above, a quarter of its annual GDP. With few natural resources, El Salvador’s options are limited. It does have excellent surfing, offering some of the biggest swells in the Pacific Ocean. For so-called Bitcoin nomads, who own a lot of Bitcoin and don’t want to be under the thumb of any government, Bukele offered up a vision of El Salvador as a crypto-Switzerland in the heart of Central America.