A year ago bitcoin and other cryptocurrencies
were selling at record prices, with a combined market value of around $3
trillion; glossy ads featuring celebrities — most infamously Matt Damon’s
“Fortune Favors the Brave” — filled the airwaves. Politicians, including, alas,
the mayor of New York, raced to align themselves with what seemed to be the
coming thing. Skeptics like yours truly were told that we just did not get it.
اضافة اعلان
The
price of BTC today have plunged, while a growing number of crypto
institutions have collapsed amid allegations of scandal. The implosion of FTX,
which appears to have used depositors’ money in an attempt to prop up a related
trading firm, has made the most headlines, but it is only one entry on a
growing list.
We are, many
people say, going through a “crypto winter”. But that may understate the case.
This is looking more and more like Fimbulwinter, the endless winter that, in
Norse mythology, precedes the end of the world — in this case the crypto world,
not just cryptocurrencies but the whole idea of organizing economic life around
the famous “blockchain”.
And the real
question, it seems to me, is why so many people — not just naive small
investors, but also major financial and business players — bought into the
belief that this bad idea was the wave of the future.
A blockchain is
a digital ledger associated with an asset, recording the history of
transactions in that asset — who bought it from whom and so on. The asset could
be a digital token like a bitcoin, but it could also be a stock or even a
physical thing like a shipping container. Ledgers, of course, are nothing new.
What is distinctive about blockchains is that the ledgers are supposed to be
decentralized: they are not sitting on the computers of a single bank or other
company; they are in the public domain, sustained by protocols that induce many
people to maintain records on many servers.
These protocols
are, everyone tells me, extremely clever. I will take their word for it. The
question I have never heard or seen satisfactorily answered, however, is, “What
is the point?” Why go to the trouble and expense of maintaining a ledger in
many places, and basically carrying that ledger around every time a transaction
takes place?
The original
rationale for bitcoin was that it would do away with the need for trust — you
would not have to worry about banks making off with your money, or governments
inflating away its value. In reality, however, banks rarely steal their
customers’ assets, while crypto institutions more easily succumb to the
temptation, and extreme inflation that destroys money’s value generally happens
only amid political chaos.
It is not just the small investors who have lost much if not all of their life savings. The crypto bubble has had huge costs to society as a whole.
Still, there was
an alternative, more modest justification for using blockchain technology, if
not necessarily for cryptocurrencies: it was supposed to offer a lower-cost,
more secure way to keep track of transactions and stuff in general.
But that dream
appears to be dying, too.
Amid all the
sound and fury over FTX, I am not sure how many people have noticed that the
few institutions that seriously tried to make use of blockchains seem to be
giving up.
Five years ago,
it was supposed to be a big deal — a sign of mainstream acceptance — when
Australia’s stock exchange announced that it was planning to use a blockchain
platform to clear and settle trades. Two weeks ago, it quietly canceled the
plan, writing off $168 million in losses.
Maersk, the
shipping giant, has also announced that it is winding down its efforts to use a
blockchain to manage supply chains.
A recent blog by
Tim Bray, who used to work for Amazon Web Services, tells us why Amazon chose
not to implement a blockchain of its own: it could not get a straight answer to
the question, “What useful thing does it do?”
So how did this
enterprise, which never stood up to scrutiny, become such a big deal?
It was probably
a combination of factors. Political ideology played a role: not all crypto
enthusiasts were right-wingers, but distrust of banks — we all know who runs
them — and government-managed money provided a hard core of support.
The romance of
high tech also played a role, with the very incomprehensibility of crypto
discourse acting, for a while, as a selling point. And then, as prices soared,
fear of missing out — plus large outlays on marketing and political
influence-buying — brought many others into the bubble.
It is an amazing
story, and also a tragedy. It is not just the small investors who have lost
much if not all of their life savings. The crypto bubble has had huge costs to
society as a whole. Bitcoin mining alone uses as much energy as many countries;
I have been trying to estimate the value of the resources consumed in producing
fundamentally worthless tokens, and it is probably in the tens of billions of
dollars, not counting the environmental damage.
Add in the costs
associated with other tokens and the resources burned up in abortive efforts to
apply a blockchain approach to everything, and we are probably talking about
waste on an epic scale.
No doubt I will hear
from many people still insisting that I do not get it. But it really looks as
if there never was an it to get.
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