As someone who is pro-crypto and has been working in the space for 5-6 years, I have never felt so embarrassed and disillusioned as the past few months. I wish the market had stayed quiet and NFTs had never entered the mainstream. Now it's 99.9% scams and ponzi schemes. It's even worse than the ICO bubble and the whole thing will come crashing down again soon. You'd think people learn, but the get rich quick pitches are just too attractive to the average American who doesn't understand technology or finance.
NFTs are just an extension to what happened to bitcoin years ago, when it failed to scale but nobody in charge cared. The main interest in cryptocurrency is not in "A Peer-to-Peer Electronic Cash System", but in a global game of greater fool. Lack of scaling isn't important, because the people in control are perfectly happy with paying once to buy in, then selling once to cash out. If your expectation is that you'll make extremely infrequent transactions worth in the tens of thousands of USD, that you had to pay $50 to get it processed reasonably quickly is a rounding error.
Overall it'd been interesting to see how the supposed decentralized system didn't really last. Things got centralized anyway in that there's a very small team that develops the software and a small amount of groups that form an unelected governance systems, and the small contributors to the network effectively don't matter.
Yes, there was a period of time, mostly after the ICO crash, where the market was relatively quiet and most people in the space worked on interesting technological problems. I don't want to get into arguments about the usefulness of blockchains and web3, but the intention of developers was not to scam consumers, at least not explicitly or from the outset. Now the intention of most projects is explicitly to rug pull and scam people, mostly due to the NFT craze.
Just cycles repeating. Remember 2013 then it was all kinds of shitcoins when the term shitcoin was most used, happened. Peercoin, FeatherCoin, AmsterdamCoin, TitsAndAssCoin. They all pumped and dumped. Somebody looking into crypto late 2013 would have found 99% scam coins. Same thing in 2017, 99% scam ICOs. Today its 99% NFT and token scams.
To be clear though, any kind of investing into items with no practical value is fundamentally a ponzi scheme. For someone that buys low and sells high there's always someone that buys high. Be it on the stock market, forex, crypto exchanges or whatever the NFT scene is doing these days.
How do you differentiate a crypto rugpull or a company going bankrupt after all the funding has been drained out by its owner? Or fiat devalued by inflation? In principle it's all different sides of the same coin, pun intended.
1) Stocks in companies have value not just because people buy and sell them to each other at higher and higher prices, but because companies add value to the world, and generate income.
2) the difference between a crypto rug pull and a company being drained of its resources is that the second one would result in a police investigation, and fraud charges. It would be illegal, because of the laws that protect investors from exactly that situation.
If "It's all the same" then why invest in crypto at all? It's way riskier, and had a lot more negative externalities.
1) That's debatable. Companies are after all just people doing stuff. You don't own the people and they could all just quit one day. Maybe you own a part of the company assets, but these days with remote work and internet companies that can be close to nothing. I don't see many stocks paying out dividends, but I suppose that's a thing.
2) Illegal's never stopped anyone from doing anything, and I don't see how the crypto version isn't fraud too. But in both these cases you can fly to a non extradition country with your newfound fuck-you-money, leaving the investors up shit creek without damages.
Crypto has some benefits over the stock market, it's open 24/7 so it doesn't discriminate against anyone, and it's more volatile so one can get higher returns (well, or losses) with less of an investment without having to resort to options or margin which are just as risky. It also has more defined and predictable bull/bear markets in relation to bitcoin halvings.
I don't really see the two markets as too different though. One has just had more time to become more rigged for wall street.
But people do do stuff. At the very least, every day the company is changed in some small way by employees innovating. One share of apple is not the same thing it was ten years ago because apple is not the same thing.
BTC on the other hand is not a productive asset. It’s value cannot change by the underlying thing changing. Instead it’s value can only change in regards to how much people want it.
The fundamental issue is a complete lack of any financial literacy education in the United States. The average person has zero to negative logic running in their heads how finance and the financial world operate. So, of course, every manner of magic fairy dust logic is a possible explanation given the black hole void most people have when it comes to how financial logic operates.
> but the get rich quick pitches are just too attractive to the average American who doesn't understand technology or finance.
This is the real reason there's such a backlash; it doesn't actually matter what the underlying merits or otherwise are, the ubiquitous sales tactics, cultishness, and arrogance of the advocates have enraged people.
I'm reminded of Russ Alberry's epic rant from 24 years ago about spam destroying one of the original internet decentralized communities, USENET: https://www.eyrie.org/~eagle/writing/rant.html
I compare it to the dot com bubble. This is simply what happens when you introduce large amounts of stupid money to a very immature sector. The average American doesn't exist. But of course a lot of amateur investors with dollar signs that lost their money 20 years ago, are the same kind of gullible fools lining up for a repeat of that. So, I'm happy it is happening and it can't happen fast enough for me. In fact, it's long overdue.
Back in the day, if you even hinted at "we might get a domain name and a website", you'd be getting funding. People were dumping millions in some pretty moronic and misguided notions. A lot of those companies failed for quite obvious reasons. But not without making several people very rich. Investors have a way with money where they manage to not lose when things go bad and win a lot when that fails to happen. That's one of the perks of playing with other people's money. Worst case you just take your cut and then you wash your hands of the whole thing. Best case it was all you and your genius insights. Sometimes stupid money is tempting for smart investors. When it's on offer, there will be people taking it.
And of course few companies actually had some good ideas and got a little more funding than they would have otherwise gotten and used that to become amazingly successful. Amazon, Google, Ebay, and a few others survived the bursting of the bubble and survived and thrived.
The same is happening with crypto and blockchain companies. Most of them are obviously empty shells run by charlatans operating out of dodgy jurisdictions. But those are actually pretty easy to spot. If it looks dodgy, it more than likely is super dodgy. If it looks to good to be true, it probably is. So, people losing their money are mostly just fools. The exact same kind of fools that lost their money 20 years ago. When some of those fools are institutional investors betting with your pension money, you'd be right to be a bit concerned about that though. That too happened 20 years ago.
More interesting is to look for the things that just aren't that dodgy at a first glance. Some of these companies are looking pretty serious actually. Solid investors, actual customers, working products, etc. It's not all scams and pyramid schemes and those might be the possible survivors of the crypto bubble bursting. Some of the tech is actually quite impressive and looks like it might be used to solve some real problems.
There are probably more than few very good tech companies just putting their heads down and getting some real work done right now. Those are the interesting ones to follow.
> So, people losing their money are mostly just fools. The exact same kind of fools that lost their money 20 years ago. When some of those fools are institutional investors betting with your pension money, you'd be right to be a bit concerned about that though.
Why can't I be concerned about the thousands and thousands of fools that are losing money they can't afford? Yes, they are fools but are they deserving to suffer for being fools and getting carried away by con-men?
I know some poor, desperate people in Brazil who got caught in cryptocurrencies and NFTs out of desperation, they are fools but I believe they do deserve empathy when their families go hungry because of a predator with confidence was able to scam them. Not feeling concerned that thousands of individuals like that exist and are being tricked is a bit concerning for me...
> So, people losing their money are mostly just fools. The exact same kind of fools that lost their money 20 years ago. When some of those fools are institutional investors betting with your pension money, you'd be right to be a bit concerned about that though. That too happened 20 years ago.
That last part is my primary concern: there's a good argument that the real-estate bubble was in part caused by big investors seeking returns high enough to make up for their bad dotcom calls, and the cryptocurrency world seems to have a much higher risk of returns being at or close to zero — pets.com at least had some assets which could be sold to Petsmart but there's no value in random hashes.
> More interesting is to look for the things that just aren't that dodgy at a first glance. Some of these companies are looking pretty serious actually. Solid investors, actual customers, working products, etc. It's not all scams and pyramid schemes and those might be the possible survivors of the crypto bubble bursting. Some of the tech is actually quite impressive and looks like it might be used to solve some real problems.
Do you have any examples? In the dotcom era it was pretty obvious at the time which companies had a real chance: some were losing money on every transaction but others were actually doing something real (e.g. Amazon was a popular punching bag but if you looked at the financials it was clear that there was a solid business there). That last part has been missing so far in the cryptocurrency world — the only companies which seem to have a real business are the ones which seem to have pivoted away from the blockchain world where they got their early funding to do things like supply chain management using more conventional technology.
A lot of stuff in the Stellar ecosystem is pretty OK. Quite a few companies operating under out of e.g. Germany or other countries doing e.g. remittance networks using simple stable coins. Not that glamorous but looks real enough. In general, that ecosystem seems to be generally designed to be fintech friendly. Meaning people are working with financial authorities and generally are trying to do the right thing. E.g. Bitbond is a German company doing an investment products on top of Stellar. They've been working with the German financial authorities (Bafin) and are also partnering with a few big banks.
There are also plenty of traditional enterprise consultancy companies that have been working with various customers to implement e.g. blockchain based schemes for carbon trading, or solutions related to logistics or sourcing materials. Not all of that might succeed but it seems that trading/inventing some new crypto currency is not a goal with these projects.
During the dot com era, it all looked like a bunch of hippies going on about digital highways and crazy stuff like that.
> E.g. Bitbond is a German company doing an investment products on top of Stellar. They've been working with the German financial authorities (Bafin) and are also partnering with a few big banks.
That's interesting, not being German I hadn't heard about them.
> There are also plenty of traditional enterprise consultancy companies that have been working with various customers to implement e.g. blockchain based schemes for carbon trading, or solutions related to logistics or sourcing materials. Not all of that might succeed but it seems that trading/inventing some new crypto currency is not a goal with these projects.
That last part seems to fit with what I've seen in the companies I've looked at: they were pivoting away from what the cryptocurrency people call a blockchain to a ledger restricted to known parties since they're tracking existing business relationships anyway and things like efficiency or offline/low-connectivity support are important.
> During the dot com era, it all looked like a bunch of hippies going on about digital highways and crazy stuff like that.
That was definitely present, but it wasn't anywhere close to a majority position by at least the middle of the decade. You definitely had the hippies but also a ton of distilled capitalism: companies seeing new businesses which weren't previously viable, companies seeing advantages from moving their business online, selling services to the previous groups, etc. The Wired crowd got a certain amount of publicity but there were an awful lot of boring companies spending considerably more money.
I don't see the similarity. Yes, the stocks were overpriced, and people who didn't understand venture capital were effectively providing venture capital. But the dot com era produced some major corporations: Google, Amazon, eBay, Netflix, and many more. Those companies have real economic value because they create products that people want to pay for.
Web3 hasn't produced anything comparable. The space is now polluted enough that I doubt it will.
Yet; each of those companies burned through quite a bit of investment before they became profitable. You need to look at this space in ten years again. Web3 is just a marketing term that some people came up with in the last year or so. It takes longer than that for companies to become successful.
And BTW., that's your connection to the dot com bubble right there. That was web 1.0. This is web3. The tech is different. The investment behavior is the same level of idiocy.
I say it can be very well all three. Just the groups involved are different.
It clearly is bubble with insane valuations for nothing on expectation of growth.
It is scam, due to wash trading and all other fun stuff. And fundamental way of trying to sell something worthless with implication that it will go up in value with rest of the bubble.
And yeah, point three is back to wash trading and laudering.
There's a lot of evidence that the inflows to NFTs are extremely small, and that the VAST majority of NFT sales are wash trades.
Why would anyone do this when the fees to trade are so high? Everyone thinks the end goal is to fake it until you make it, and sell the wash-traded pumped up tokens to an unsuspecting victim.
It's not.
The goal is to create fake wealth from nothing. There are banks now that will lend using NFTs as collateral.
You get millions of dollars in loans, then you spend millions, then you go bankrupt. Oopsie.
Step 3. Put ill gotten gains in the wallet in step 2.
Step 4. Purchase your own asset with money from step 3.
Step 5. Cash out.
Because there appears to be no reason behind the valuation of NFTs, it's pretty hard for the tax man to determine that "Oh hey, this doesn't look above board!". Because wallets are pretty easy to create and fund from all over the place, it makes the perfect mode to turn anonymous money into real money.
Oh, and bonus points, you still have the NFT, so see if you can't unload it on a rube for less money.
You mean, you didn't feel embarrassed in 2020 when people were all trying to find the next "food coin" advertising 10,000% APY to ape into?
Because no matter how many times misinformed critics call NFTs a "scam": there is something inherently honest about them: pay money, get a collectible. There are no financial instruments here that can be misunderstood.
> Because no matter how many times misinformed critics call NFTs a "scam": there is something inherently honest about them: pay money, get a collectible. There are no financial instruments here that can be misunderstood.
It can absolutely still be a scam. Wash trading is trivially employed to inflate the price of the "bid money" step, fraudulently suggesting the existence of demand when there is none.
I have yet to see any evidence that someone successfully wash traded their NFT project to success, but lots of people claiming that it is common place.
Just have patience and don't sell your crypto just yet. Peoples moods are so temporary and forgetful there for sure will be another bubble within months again.
