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Crypto Policy Symposium London: Narrative economics in the golden age of fraud

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Part of what made the Crypto Policy Symposium such interesting viewing was not the number of speakers who were self-professed crypto skeptics but the story of how they got there.

This was particularly true in the Narrative Economics in the Golden Age of Fraud session, the star guests of which were co-authors of an upcoming book called “Easy Money” – journalist Jacob Silverman and economist-turned-actor Ben McKenzie, who is probably best known as the star of The OC.”

Silverman is a journalist and author whose career has focused on tech topics; he recently wrote a book called “Terms of Service: Social Media and the Price of Constant Connection.” On the other hand, McKenzie had done a degree in economics before being swept up into showbiz, but his economic interest was piqued during the pandemic while watching the astronomical rise of digital assets in the public consciousness.

“The more I looked, the more questions I had,” said McKenzie. “Ultimately, I came to the conclusion—relatively quickly—that it smelled bad.”

McKenzie partnered with Silverman on several articles about the industry, with an early focus on how celebrities are being paid vast sums of money to market ‘crypto’ projects, despite knowing or caring very little about what those products actually were.

“I think in some ways it was unexceptional,” said McKenzie. “Celebrities have hawked products since there were celebrities.”

“They’re used as a way of signifying in the intended audience some degree of trust. We have a high opinion of a product, perhaps, because we associate the company’s ideas with a celebrity pitching it. The difference here came out of my understanding of economics. These products were not insurance, were not cars, were not sweaters—they were unregistered, unlicensed securities,” he added.

One of the best-known examples of this practice comes from Kim Kardashian, who was paid to shill for Ethereum Max around the peak of the crypto hype last summer. 

“This is not financial advice but sharing what my friends just told me about the Ethereum Max token!” Kardashian told her 200 million Instagram followers.

Her tweet came at the start of an enormous rise of the asset, but within months, it had lost over 97% of its value. The United Kingdom’s Financial Conduct Authority (FCA) issued a warning to investors over the promotion of the token, and Kardashian was the subject of a civil suit in California in 2021. But where does the blame really lie?

“It’s important to focus on [the promoters], but it’s also important to understand the context in which they exist. They only exist because there is money to spend by the crypto companies to lure more people into the casinos, which they earn from you entering the casino. That smacked to me of something similar to an MLM or a Ponzi.”

Since becoming writing partners, Silverman and McKenzie have investigated the industry widely and from many angles. The two visited El Salvador amidst the country’s infamous and so-called “Bitcoin revolution,” which was initially hyped as the first major domino in BTC’s plans for world domination. The enthusiasm has since cooled considerably (although not for the author of the “revolution,” President Nayib Bukele), as Silverman and McKenzie discovered.

“When we talk about crypto, we often talk about theoreticals of its going to do this, or it’s going to liberate that, but how is it working in practice?” said Silverman.

“In El Salvador, 70% of the economy was in cash. Until recently, the official currency was just the USD – now it’s bitcoin too. You can point to how much money the government has spent on the project and its technical problems, but at the bottom, it’s just not that widely used: people don’t seem to want it, people are suspicious or don’t understand it, or they don’t have the resources to make use of bitcoin. At the airports, they said, ‘please, no bitcoin – just the dollar.'”

“What we found is that people were ignoring it for the most part,” agreed McKenzie. 

“I think it’s important to understand how surprising that is. On the face of it, the marketing in El Salvador made sense. It’s a country where one-fourth of the economy is remittances. If Bitcoin were to work to send money across using this Chiba wallet system, and it did reduce costs, it could be a game changer. But it didn’t, at all. In fact, it costs the government a lot of money. The millions spent to create this system which is still opaque, and it’s ultimately hurt their credit and bond rating.”

Their surprise went far beyond just the stark contrast between what was promised and what was delivered on a technical level. On the panel, the two told of how their time in El Salvador exposed another kind of contrast—that being between the philosophy of Satoshi Nakamoto’s white paper and the troubling facts on the ground in the country.

“One of the other things I think is so glaring is that Satoshi’s white paper was supposed to allow people to transact directly,” explained McKenzie. “Peer-to-peer currency was supposed to democratize finance. It has done the exact opposite there. They create centralized system nobody uses, and democracy is on the [way out] in El Salvador.”

McKenzie said that Bukele had arrested 50,000 people out of a country of 7 million in the past four or five months. While there, they met a 50-year-old man who had been detained on Bitcoin Beach (a planned ‘Bitcoin’ ecosystem in a popular vacation spot) while selling ice to tourists. Initially herded into a jail cell holding 80 other men, he was only released because a Canadian woman staying locally became aware of the man’s plight and started tweeting at Bukele on Twitter.

“One thing we also learned and was reinforced by this trip is that there are different kinds of freedom. It’s not just the freedom to do whatever you want, and financial freedom isn’t the only kind of freedom. But [in El Salvador] a certain kind of freedom—bitcoin—has been imposed on people, and other kinds of freedom are eroding.”

“All the high-minded talk hasn’t manifested as improvements in the average El Salvadorian’s life. If anything, it has made it more dangerous, and there’s a strong possibility that down the road, more bad things will happen,” McKenzie agreed.

The authors didn’t need to go as far as El Salvador to realize these. One of the biggest problems almost fundamental to the current digital asset industry is the massive information asymmetries between investors on the one hand and those in charge of crypto platforms on the other.

“The people running these platforms know what gets people in, why people open an email and choose some sale or opportunity or whatever else,” said McKenzie.

“There’s this idea that people are entering this economy as empowered individuals, sovereign investors armed with information in a free market, and I think the opposite is true about all of those things. You can see it in how this is playing out – a lot of people have lost money, the people who are doing well who continue to run all this are the VCs, the whales, and the insiders.”

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