Scott Jackson

It's not what you think. Most criticisms of cryptocurrency originate from its use for less-than-legal purposes, or at least purposes that people don't want being connected with their public personae. There's an expectation that's pretty strongly associated with the history of Bitcoin as the payment method of choice for online gambling (which is largely unlawful) and trade in illegal items that the mere use of cryptocurrency at all ends up being suspect.

Similarly, much has been written about its volatility (which for many is a feature and not a bug, as one's cryptocurrency holdings can dectuple as easily as they can be annihilated) which takes on all of the negative connotations of any other speculative and potentially worthless asset- tulips or Beanie Babies or otherwise. More financially-knowledgeable people criticize its lack of fundamental value- unlike gold which has useful applications and thus has a basic utility value floor; in my view this is slightly inaccurate: cryptocurrencies' fundamentals are in their utility for exactly the purposes they're optimized for.

For example, the fundamental value of Bitcoins are for their unique ability to be (mostly) securely used for otherwise unlawful or at the least scandalous transactions. If someone desires some illegal item or service, that's an incentive to purchase Bitcoins, thus contributing to their value. If you're considering the moral implications of this to be fairly alarming, you're right: profiting off of cryptocurrencies whether by speculation, mining, or otherwise neutral acts still involves extracting value from human trafficking, illegal pornography, and other violent and inhumane industries which are illegal for good reason.

So why are big-name startups all unveiling new "coins", or NFT markets, or other blockchain-based "solutions" for new features? Is this just Shiny Object Syndrome? Are they really doing all of this based purely on the abstract notions of tech-forwardness and marketability of vague platitudes about having "privacy" and "freedom" by consuming their specific product? I accept that these are all arguably boosts to a company's bottom line but don't adequately explain the fact that blockchain projects are emerging at companies whose investors aren't willing to accept the argument that "tech-forwardness" is worth the risk of investing engineering resources in a project.

So here's my answer: companies adopting blockchain are scamming their customers. Even if you assume that tokens aren't a speculation risk, even if you assume that they won't be used for illegal purposes; basically, if you assume all of the systemic guarantees of a centralized exchange except that the system is distributed, distributed blockchains are a scam for a simple reason: infrastructure costs money.

Hosting a payment processing system is no small feat. It's a technological whale as evidenced by the lucrative industry that gave Elon Musk his first millions. It continues to be a hard problem that the most technologically sophisticated organizations will outsource to third parties. In addition, there are serious legal requirements for payment processors that have extreme costs of compliance and grave consequences for falling short.

So as an alternative to hosting a centralized payment processing system (hard, expensive, risky) companies are electing to distribute that using blockchains (open source prior art, trivial hosting to pay for, risk falls on the customer). And when they "distribute" it, that means they distribute the cost as well. In fact, the power expense of blockchain systems relative to a centralized system (whether proof-of-work or the admittedly less expensive proof-of-stake system) are so much higher that one of the major criticisms of these systems is their environmental destruction as a result of excessive power consumption!

Let me be clear, the most direct manner in which blockchain systems scam customers is by requiring them to provide the bulk of the hosting for payment processing as well as bearing the majority of the legal and practical risk of loss from the failure of that system such that the sponsoring corporation can profit from the use of this service while simultaneously minimizing the overhead. These companies are basically extracting value from customer power bills at a fraction of the efficiency of literally just asking the customer for donations.

The part about this that makes it a scam is also the way it's pitched to customers as "freedom" or "privacy". This entire notion- that consuming a new product from a company will make you more private- is facially absurd. Ostensibly any existing service (Signal, for example) that integrates cryptocurrency payments will have transactions inextricably linked with their existing identity- you are no more or less private and therefore free than you were before. Even if they did have these benefits- anonymous payments are already a solved problem- by every other cryptocurrency already in existence. One more option with an exclusive integration into an existing service won't change this. What it does, though, is provide concrete value for the company utilizing it at the cost of the customer's compute time, power bill, and the irreversibility of payments.

You can tell it's a scam by how easily disagreements about the nature of blockchain services get reduced to political partisanship. In my experience, the quicker someone calls you a communist over something mundane tends to reveal that absent those scare-words they don't really have any concrete response to your concerns. And frankly, refusal to agree to have my wealth skimmed by a greedy company with aspirations of becoming the next Paypal has absolutely jack to do with dictatorship of the proletariat.

That having been said, I think people are also too quick to reduce the adoption of blockchain technology to mere libertarian ideological commitment when in reality it's simple greed masked by vague libertarian platitudes, looking to extract money from fools who identify strongly with libertarian-futurist lifestyle brands.