Line Goes Up – The Problem With NFTs

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. [Drumming] 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.

[Drumming] 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. [Drumming] In 2012 Vitalik Buterin, a crypto 
enthusiast and butthurt Warlock main   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. [Drumming] 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 McLuhanist 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: 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 super-sexy, man it always lures me ♪
♪ I’m too focused and you know you’ll never   ever deter me ♪
♪ Crypto astronaut ♪  ♪ Degen moving so hazardous ♪
♪ Crypto what I’m   gon’ dabble uh ♪
♪ OpenSea is like chapel yeah ♪ 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. [splash] 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. [splash] 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. ♪ Rap crypto, y’all know Bitcoin ♪
♪ I want to thank y’all for checking   out this joint ♪
♪ See I’m Vandal,   the token rapper ♪
♪ And this right here is a brand new chapter ♪  ♪ Follow me as I go Rambo ♪
♪ To the moon in my brand new Lambo ♪ For days now I’ve been accepting every 
spam NFT Discord invite I've received,   and it's getting dire.

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. [humming noise] 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.

[Drumming] 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. “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.” 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! [Drumming] 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… tokens, 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.” 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. [Drumming] 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. “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.” 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!” 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.” 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 all gonna make it ♪  ♪ Love love love love ♪
♪ Do you wanna make it ♪  ♪ love ♪
To the moon! 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. [Drumming] 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 
it’s 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. [Subway rattling] 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..

As found on YouTube