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Circling back on the crypto FTX fiasco, Noah Smith has a new piece out theorizing, what happens if crypto just dies? Unfortunately it's paywalled so I couldn't read the whole thing, but I have been wondering this myself. More and more crypto exchanges have been dying off, especially over the last couple of years. FTX seemed to resemble one of the last exchanges embodying the spirit of crypto, and now it's gone.
By spirit of crypto, I mean the original cypherpunk, decentralized idea of a currency that operates outside the bounds of the State. As @aqouta and others have mentioned, big exchanges like Binance are actually more centralized, and if they continue to grow they can easily be incorporated as organs of the existing State apparatus.
As someone who has always been wary of censorship and centralized power, especially in light of the recent escalation in terms of woke social norms being shoved down everyone's throat, this is troubling to me. Both the right and left seem to care less and less about the overreach of the powers that be - in fact folks like Tyler Cowen think that the main difference in the 'New Right' is that they are more trusting of elites.
I'm curious for takes on either side of this issue. If you don't think we have anything to worry about with regards to State power, why is that so? Do you just think that with the rise of the internet/technology States are impotent, or is centralized power a good thing?
If you disagree with the premise above, then how can we work to push back on centralization? Especially with the rise of powerful tools like LLM and the rise of AI, is there any hope for the individual classical liberal ethos to survive the next century?
Sorry, I have to say it. This is good for crypto.
People are far too trusting with these centralized exchanges that are basically unregulated and provide very little transparency as to how they manage user funds. The more events like this happen, the more people will learn that the whole point of crypto is to not blindly trust an organization because they have their name on a stadium or advertise everywhere on social media.
Hardware wallet manufacturer Ledger has reported "massive outflows" from exchanges to the self-custody wallets they make. It appears people are learning.
The crypto space is still a wild west rife with scams, opaque systems, and deceptive marketing. This is just yet another expensive lesson for the newbies that joined in the 2021 bull market cycle.
The collapse of FTX came not a moment too soon. SBF, noted for playing League of Legends while on a fundraising call with investing giant Sequoia capital (and apparently squeezing in a round last night while dealing with the collapse of his empire) had been lobbying Washington for legislation that targets decentralized protocols and would grant favorable status to his exchange platforms. He was just behind George Soros as the #2 donor to the Democrats.
This event targets centralized exchanges as the source of systemic risk and highlights how decentralized open-source infrastructure is the safer, anti-fragile path forward. The progress being made here is remarkable and could soon make exchanges like FTX largely obsolete. Just over 2 years ago, the first decentralized exchange (DEX), Uniswap, launched and was slow and extremely expensive to use. Now we have an ecosystem of DEXes running on many blockchain networks, offering low-fee, fast, leveraged trading, limit orders, and supposedly soon, decentralized order books. The billions of dollars of capital poured into this ecosystem have not all been siphoned away by fraudsters, the world of decentralized finance is expanding and innovating rapidly. Web3/blockchain is now one of the most common career paths for CS grads. The opportunity and dream of a new financial system still lies ahead, and its future is brighter than ever.
To make a difference in the wider world where our freedoms and independence are being aggressively stripped from us day by day, more real economic activity needs to take place on decentralized, open networks. I'm still waiting for substack to open BTC lightning payments. Macro-economic content network Real Vision has pivoted heavily toward crypto and yet they won't let you pay for a subscription with cryptocurrency. It's very rare to see any online business accept crypto apart from donations to the odd independent creator, never mind seeing crypto acceptance at your local market or corner store. So we have a ways to go yet. But to be fair, we are just now getting to the point where transaction speed and convenience are at a point where they could be easily used in point-of-sale applications in the real world.
If you care about censorship and individual liberty, you'd be wise to get up to speed on crypto self-custody and see what you can do to use it more as "money" in your daily life.
All a DEX does is convert one Ethereum token to another token, sorta like like a WOW marketplace. It's not at all like a replacement for the existing financial system. A DEX does not solve the problem of converting fiat to crypto or crypto back to usable fiat.
This may be true, but crypto is not the answer
It has been 5 years and lightning network has close to no adoption. Substack or any website accepting bitcoin does not solve the problem of converting fiat to bitcoin, which is cumbersome. The vast majority of people would rather just pay with fiat.
Sticking your money in something that will likely to go zero or close to it is not a good way to protect one's liberty and freedom.
One 'rule' is that a product that is successful tends to be successful quickly. It's not something that is forced. Cellphones, social networks, the WWW, PayPal, iPhone, Walmart, Amazon, credit cards, TV, AOL, eBay, Google, Uber, mp3 players, etc all saw rapid adoption. Bitcoin after 12 years has not. So it may be a niche, but not something that will rise above that. That's not a total failure. But worth hundreds of billions of dollars? Likely not. One can argue that Bitcoin is a protocol like TLS and TCP and the the adoption will lay on it, but even then I am skeptical because it do not see what problem this solves.
The point is that more real economic activity needs done with crypto for it to truly make a difference. It's incredible it's gotten as far as it has without interacting with the real world much, but that is changing. the future will depend on people's willingness to use it and if they keep getting scared away or dismissing it, it will be a slow process. But it's looking inevitable barring some major catastrophe.
Lightning network may be a dead end (although it is still growing), as it is crippled by the ignorance and stubbornness of the bitcoin maxi's, but there are hundreds of other payment solutions being built on other crypto platforms. It's a race at this point and either the bitcoiners will compete or they won't.
Not to mention there are actual use cases of crypto today in countries with unstable financial systems.
Most of the companies and technologies you mention are exploring applications for crypto in their organizations. You may not see what problems it can solve, but millions of other people do.
FYI: DEXes exist on many networks, not just ETH, and cross-chain DEXes are becoming a thing.
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Well since you think that platforms with censorship officially built into them and regulated by telephone rule, like PayPal, are better because you can just pay for non-censored things instead, there's no hope of showing you the problem Bitcoin solves.
There still exists the possibility of censorship aided by chain analysis. Exchanges and merchants can reject tainted bitcoin, similar to how credit card companies can decline orders or refuse to do business with certain merchants. Crypto fiills a niche, but I don't see crypto ever gaining mainstream adoption or disrupting the global financial system. I myself have used crypto for small orders and would prefer it over PayPal , but few merchants want to accept bitcoin, in part because because so few people want to use it and it comes with the issue of having to convert the btc back into usable fiat.
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Censorship is bad, I think everyone understands that. What's not so clear is if it is a problem that bitcoin can solve. It doesn't matter if you accept payment in BTC if your hosting service doesn't, if your payment processor doesn't, if any of the points of failure on the modern web refuse to take your payments. Could Bitcoin have saved Kiwi Farms?
At some point crypto has to onramp onto the fiat economy, and whatever benefits its proponents says it has collapses.
Yes, you basically need a full stack of society to make an alternative economy viable, and so long as incumbent players can entrap you and handcuff you at exchange point, this is not a problem crypto can solve. No, this is not a cogent argument to make against crypto as compared to inherently backdoored transaction platforms, which he does. The stack must be made of trustworthy blocks.
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