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Posted on Fri 3 Dec 2021


The Case Against Crypto

In this article Martin O'Leary, Watershed's Creative Technologist, sets out the case against using cryptocurrency and NFTs.

A drawing of the bitcoin logo being dropped in a rubbish bin

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Martin O'Leary

As Creative Technologist, Martin explores and evaluates new technologies and advises and assists residents on the technical aspects of their projects.

As a studio with a diverse range of residents, the Pervasive Media Studio hosts a variety of viewpoints. We know that there are a range of opinions when it comes to the topics like the use of blockchain technologies, and their application to art. We welcome that debate. In this article Martin O'Leary, Watershed's Creative Technologist, sets out the case against using cryptocurrency and NFTs.

Cryptocurrencies, such as Bitcoin or Ethereum, are designed to solve the problem of tracking transaction data among individuals who don’t trust each other, without a centralised authority. They do this by creating a “distributed ledger”, which contains a list of all transactions shared between all participants in the network. The data structure which maintains this ledger is called a “blockchain” – there are several blockchain technologies available.

The most popular blockchains use a protocol called “proof of work”, which requires vast amounts of computation (and thus electricity) to operate at scale. This is the source of the enormous carbon footprint of cryptocurrencies. The laws of supply and demand mean that the amount of energy consumed closely tracks the price of the cryptocurrency in question: increases in demand correspond directly to increases in energy use. Although some newer cryptocurrencies avoid this through alternative protocols (“proof of stake” etc), they remain a distinct minority. Additionally, inter-currency trading means that their value closely tracks that of the larger cryptocurrencies, meaning that changes in their price have a similar effect on the total energy consumption.

While cryptocurrencies were originally intended to act as a frictionless digital payment system, the difficulty of use, lack of scalability, and the volatile nature of the market has made this impossible. In practice most cryptocurrency use falls into two categories: illegal activity (money laundering, ransomware, markets in drugs, weapons, etc) and speculation, with speculation forming the majority of the market. The sector is largely unregulated, meaning that fraud is rife, and the market is filled with get-rich-quick schemes and scams.

As speculative instruments, cryptocurrencies do not in themselves create value. Any money that one person makes from buying low and selling high must come from someone else who bought high and sold low – there are as many losers as winners. While those that have bought into cryptocurrencies may believe themselves to be rich on paper, this is often a mirage. The lack of transparency and regulation means that many cryptocurrencies have artificially inflated valuations, and it would be impossible for most “investors” to cash out without triggering a crash, as happened in early 2018, when the price of cryptocurrencies dropped by ~80%.

One popular way of making money through cryptocurrency is to start a new currency, while retaining a large chunk of it for yourself. As a result, there are now thousands of competing cryptocurrencies in operation, with relatively little technical difference between them. In order to succeed, currency founders must convince people that their currency is new and different, and crucially, that the buyer understands this while other less savvy investors do not. Wild claims, fanciful economic ideas and rampant technobabble are the order of the day. This is a field that thrives on mystique, and particularly preys on participants’ fear of missing out on the next big thing.

A similar logic applies to applications of this technology outside the world of finance, which come in two main kinds. The first are unnecessary complications on what could be a simple database. In many cases, “blockchain technology” is promoted as a way of adding security or transparency to a product, by implying that this produces a tamper-proof record. For example, a food manufacturer might claim a blockchain-based supply chain, where the origin of each ingredient is recorded to prove its origin, quality, fair-trade credentials, etc. In reality, there is no guarantee that the information recorded on the blockchain has any connection to reality, and indeed there is no way to make such a guarantee. Most systems like this would be better suited to a standard boring database in all respects, except crucially for when there is a need to seem novel and high-tech.

The second kind of cryptocurrency application is the attempt to bring other fields into this world of speculative finance. Non-fungible tokens (NFTs) are an example of this approach. Instead of recording transactions which purely involve currency, the blockchain is used to record the ownership of a “token” – effectively a cryptocurrency with one indivisible coin. The token is tagged with metadata, typically a link to a piece of media. This is presented as an ownership record for the media, often with no legal basis, and can be traded much like any other cryptocurrency.

The market in NFTs is broadly similar to that for other cryptocurrencies, with the same levels of fraud, speculation, and competitive hype. The primary difference between the NFT market and that of other cryptocurrencies is the presence of artists and art world institutions, who lend the enterprise a sense of prestige and legitimacy, in exchange for being able to sell NFTs which link to their work, often at wildly inflated prices. Speculators in NFTs position themselves as “collectors”, drawing on that sense of prestige, and use the mystique of their supposed good taste to suggest particular “wise investments”, much like the purveyors of minor cryptocurrencies.

The underlying technology of cryptocurrency is based on a world without trust. Its most ardent proponents want to demolish institutions and abolish regulation, reducing the world to a numbers game which they believe they can win. If the wildest fantasies of cryptocurrency enthusiasts were to come true, if all the environmental and technical objections were to fall away, the result would be financial capitalism with all the brakes taken off.

The promotion of cryptocurrencies is at best irresponsible, an advertisement for an unregulated casino. At worst it is an environmental disaster, a predatory pyramid scheme, and a commitment to an ideology of greed and distrust. I believe the only ethical response is to reject it in all its forms.