The Case Against Crypto

December 31, 2021

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A summary of my thoughts on crypto assets from 2020. Updated for 2025.

The Case Against Crypto

These days so much of my free time is booked with calls to explain to people outside the software industry why crypto assets are such a destructive force and why I support forceful regulation to halt this financially corrosive enterprise from spreading further into markets.

I basically have to repeat myself on the basic arguments for every call covering the same basic monetary theory, American history and technical limitations. Thus I’m going to summarize the basic argument so we have a reference and I don’t have to keep repeating myself all day.

The technology does not solve a real problem.

The crypto project has had 13 years to try and find a problem to solve. It has not found one.

The real world has fundamental constraints that make the technology unworkable, whenever it has to interact with the outside world the benefits of decentralization disappear and the solutions end up simply recreating slower and worse versions of processes and structures that already exist.

Despite that, for the last thirteen years these projects have done nothing but scam people by creating synthetic asset bubbles for gambling and destroying the environment. There are fundamental limitations to the scalability of blockchain-based technologies, and every use case is better served by another simpler technology except for crime, ransomware, extralegal gambling, and sanctions evasion; all of which are a drain on society not a benefit. Taken as a whole the technology has no tangible benefits over simply using trusted parties and centralized databases.

Crypto coins are simply speculative gambling products that only create a massive set of negative externalities on the world. It is introducing artificial volatility into markets untethered to any economic activity and creates an enormous opportunity cost where the only investment opportunity is as an economically corrosive synthetic hedge against all productive assets. This is not innovation, this is technical regression and flirtation with ecological disaster in a time when we cannot afford to gamble our planet’s fate on pyramid schemes and dog memes.

So called “cryptocurrencies” aren’t actually currencies, and cannot fulfil the function of money.

Money exists to exchange for goods and services in an economy. It is created to mediate the exchange of goods so that we have a common unit of account we can trade instead of bartering goods directly. Money needs to have a reliable and stable value compared to a domestic basket of common goods and services, in order to achieve that the supply of the money needs to be controlled by a monetary authority which can expand or contract the supply according to market fluctuations.

A dynamic money supply is a fundamental necessity for a modern economy. A small amount of inflation discourages hoarding and incentivizes investment into productive enterprises which grow the economy and produce prosperity. Conversely a static fixed money supply encouages hoarding, and is inflexible in times of crisis because it does not allow intervention. Economies do not stabilize themselves and require active intervention to curb recessions.

In an environment in which multiple currencies can commingle there is a perverse incentive to create counterfeit currency or to create parallel currencies. Counterfeit currencies dilute trust in commerce, create counterparty risk and catalyze crime. Parallel currencies introduce exchange risk and create artificial barriers to commerce. The optimal solution within any economic region is to thus have a single currency with a single authority to control the supply, protect against counterfeiting and lower barriers to commerce by discouraging other systems through creating demand. The only possible entity that can fulfil this role is the State and it creates demand for a single currency by requiring citizens to extinguish their obligations to the state in that currency. A single currency and single monetary authority is the inevitable role of the state because of its singular monopoly on taxation and justice.

Historically commodity-based money (so called “hard money”) was based on backing by metals and was used extensively in the 18th and 19th century. Instead of vesting power in democratic controls, it instead vested power in non-elected international parties who could source, mine and mint metals. Under a gold standard, inflation, growth and the financial system were all less stable due to trade imbalances. This led to frequent recessions, larger swings in consumer prices and perpetual banking crises. When these events occurred in one part of the world, the distress would be transmitted more quickly and completely to others and thus created a politically unstable, unequal and more violent world. We saw this in the Gilded Age of the 1870s to 1920s in...