Counting the Ways the World Hates Bitcoin: Crypto IRL
The implosion of FTX has given ammunition to crypto skeptics. It's kind of this I told you so moment for those who've been against crypto from the beginning. At the same time, many of those said skeptics see the case against crypto is larger than the failure of one of the biggest crypto exchanges on earth. To them, it's about utility and inherent value of crypto. It's about the concept. They don't actually buy the idea that you can use crypto to create an alternative financial system.
Throughout this series, we've heard from the true believers who make passionate and extraordinary promises about crypto that Bitcoin provides freedom because they, not a government, are in control of their money, for example. But there are also people out there who make it their mission to shine a light on what they see as the deficiencies. You're about to hear from three of those people all of whom we spoke to before the FTX debacle. And even though we don't yet know the ultimate fallout from FTX's collapse. How much money is gone, what clients will recoup or how or if it will ultimately undermine confidence in crypto. We know that the skeptics are already using it as yet another example to make their case.
I gotta say it's a little weird that this is our last episode. In what way? Well, we're making the case against crypto. We're talking to prominent voices who are anti crypto.
Seems like a pretty good journalism thing to do. You know, get both sides of the argument Right, it's a noble pursuit. It's a higher calling, right? Yeah. We're out there collecting information about both sides and presenting it in an even handed way And we got to meet the guy from the OC. How did you find yourself in this mess? because people know you as Ryan Francis Atwood from the OC. They know you as a cop.
Right, yes. On other shows Yes, on two separate shows where I played a cop. Yeah, how did I find myself in this mess? So I have a degree in economics from the University of Virginia, which I got a while ago, two decades ago.
But over the pandemic, I had a lot of time on my hands. The short answer is a buddy of mine from college who has given me the worst financial advice of my life, came to me in 2021 and said you should buy some Bitcoin. And I said, okay. I think that's a red flag.
I some, something might be up here. So I hadn't paid attention to cryptocurrency really ever up to that point. I took Gary Ginsler, the head of the SEC's course that he taught on blockchain and crypto at MIT in 2019. He had made it available for free online. So I took it 19 hour hours later it was like I had a lot of information but I had the same questions, which to be honest they started with the word itself, with language. You know, I'm a a storyteller that's what I do for a living and words have a lot of power and cryptocurrencies aren't currencies by any reasonable economic definition.
They're a poor medium of exchange, unit of account and store of value. And so what they more closely resemble is a security and securities are obviously regulated under American law. They're an investment of money in a common enterprise with the expectation of profit to be derived from the efforts of others. That's the, the four prongs of the how we test which is how we define securities under American law. I saw a massive unregulated securities market that was drawing in millions and millions of people who I don't think were aware of the potential fraud that could, that could ensue that could be happening right at that moment. And so anyway, I reached out, I got, I got high one day and I decided that I should write a book about crypto and fraud, which sounded like a really good idea when I was high.
The next morning sober, I realized I didn't actually know how to write a book. So then I reached out to this journalist Jacob Silverman, who I had never met before but I had followed him on Twitter and he followed me back. He had written an article called, even Donald Trump knows Bitcoin is a scam, which I thought was kind of funny and had brought together a few things that I was thinking about.
This is why we always need to have our DMs open. My DMs are open. Yeah, anyway, I invited him to drinks and was like, hey do you wanna write a book about crypto and fraud? And he was like, my wife just, they were about to have a pandemic baby. My wife and I had had our pandemic baby earlier so he was going on parental leave. So he was probably like didn't have anything better to do, but he was like, yeah sure so. So it's funny that all of this kind of started in the pandemic for you because that's actually when I started watching the OC.
No way. Yeah, with my brothers. You were a little late. With my brothers actually, it was very weird. You're like so late. I know, I know. But I got there, which is the important thing.
That is the important thing. But listening to you, it sounds like most of your objections lie in the cryptocurrency part of the cryptocurrency universe, the currency part. But how broad is your skepticism here? Like when you think about things like decentralized finance like the promise of the blockchain, for example do you see any merit or potential in those areas? I think it's, I think it's extremely difficult to tell right now until the dust settles on what I believe was effectively the largest Ponzi scheme in history by an order of magnitude.
I know that's a bold claim but I'm happy to back it up with, you know facts and figures and all sorts of stuff until we see that settle and we see what's left. It's difficult to find hard numbers in crypto as you guys probably know, but according to the Pew study that was done just this last month they ask people, you know did your investment in crypto, the 40 million Americans who have bought crypto, 16% of the adult population, did your investment in crypto live up to your expectations? I think like 15, 16% said it exceeded them. 30% said it was, you know, kind of what they expected.
And like 45% said it was worse. So just starting there, you're looking at like a three to one split, right. With like 30% saying it was okay we don't really know where it's gonna go yet But if I'm optimistic, it sounds like you're open to it. Yeah, exactly. I'm totally opening.
No, no, I'm sorry. I couldn't tell if you were being sarcastic. I am, I am open to it.
I mean, I don't, I don't, I mean I don't care about a distributed ledger. Right, that does not animate my, like I don't. Doesn't get your blood pumping. I don't care. Okay. It's just a ledger.
Like if you can use it to further the things that crypto purports to do, then great. Right, I would love for our financial system, which has many many flaws to be better. I would like for it to be more inclusive. I would like for the fraud to be lessened and I'd like for people to be able to transact easily and and particularly overseas between countries.
But unfortunately crypto I don't think accomplishes any of those things. I'm wondering how you think about what you're doing right now in the context of your identity, your professional identity or your personal identity. You're a dad. You're an actor. You're a crypto skeptic, you're writing a book. Yeah.
I guess my question is what's the end game with the crypto side of things and how that kind of compares. For me? Yeah for you. Like what's your goal with writing the book? Why are you doing it? Like what, what do you wanna communicate? Yeah, it's funny, you know, I talked to my therapist and he's like, he said, he was like you're not the things you do, you're not the results of the things you do. That's why I said you're a dad too. Not that I talk to your therapist. Oh no, it's fine.
But like. I don't like it when people ident, like consider you're identity right. You're you, you're you, you're, Like you, you're Tim.
I'm Not just a journalist. Well, so what I hope to do with the book is tell a story about people and what they want and why they bought crypto and what we can learn from the failures of crypto and where we might go from here. And back to your point, is there, are there things we can take from blockchain and decentralized technologies that do offer value? And I'm very open to that and I'm talking to academics and people that know a lot more about that than me. When you reflect on the rug pulls, the pig butchering that's gone on, how much blame do you place at the feet of regulators? There's a lot of blame to go around, but it's funny I'm actually writing that chapter now. A lot, it's been a massive failure across the board, both parties. There's a lot of reasons for that I think.
I think, I don't think there's a sort of some, I don't think there are simple answers to that question. One of the things that I was struck by when I started to try to understand like why this had gotten so big with so little regulation one of the things that I observed that I thought was just sort of fascinating was the fact that we separate our commodities regulation from our securities regulation, which as far as I'm aware is we are the only country in the world to do so. You live in Brooklyn? Yes. I live in Brooklyn. I don't.
Matt Damon lives in Brooklyn. You won't even, yes it's true. You know where I'm going with this. Oh God, yeah. When you think of celebrities and crypto, you think of celebrities who've endorsed crypto.
Matt Damon, Larry David, Paris Hilton, Kim Kardashian. I mean, have you ever run into any of these celebrities given that you are kind of the sole celebrity skeptic I don't wanna say sole, but you're among the most vocal celebrity skeptics. Do you ever run into Matt Damon for example? At our weekly meetings? Yeah at your weekly meetings? No, I do not. So I haven't talked to them.
So I don't view celebrities as we, so the first article that Jacob and I wrote in October of last year was about Kim Kardashian and about the theory of max shilling which was just pretty obviously scammy. And so it's, it's pretty rewarding. I have to say personally, quite frankly to be a little indulgent that like almost exactly a year to the day after we wrote that article, the SEC, you know reached a settlement with her for $1.26 million. But, celebrities are just the megaphone that crypto needs in order to get more retail traders into the casinos.
Like they're not, I'm sure the celebrities, you know run the gamut in terms of their knowledge of cryptocurrency or blockchain technology. But my suspicion is they're not deeply steeped in the. They haven't all read the white papers.
They have not read the white papers or perhaps taken Ginsler's course. They are, you know, they're selling stuff as celebrities have always sold stuff since there have been celebrities. Ben McKenzie, thanks for hanging out with us. Yeah it's been a pleasure. Molly White, Tonantzin Carmona, thanks for joining us. It's good to see you both.
Thanks for having us. Thank you. Molly, I wanna start with you.
I think a lot of people, everyone knows about Web three is going great now, but I'm interested in your own journey because you have a background in computer science, you have a background in communities. It's kind of strange that you don't love crypto given that we're talking computer science and communities like what's not to love. I think crypto doesn't actually help communities in the way that it claims to be. You know, I do care a lot about communities and I care a lot about them being treated fairly and being educated about what they're getting into.
And I don't think crypto does either of those things very well. Tell us about your background. Is this live? No, just kidding, it's not live.
Okay, so I know that a lot of your research has focus on inequity and sort of how crypto plays into that. So I mean, taking those comments, would you agree? So I, like you just said, focus on inequities. I was not a crypto researcher person, didn't think I was gonna end up into this space, but I found that there were a lot of like recent reportings at least around the time I started looking into crypto with, you know, headlines around communities of color really being drawn to cryptocurrencies.
And so I really came in extraordinarily curious. I just wanted to know, so how does this work? How does this happen that you have these promises and it actually like comes true. And in doing that research is when I found one, the promises weren't being met.
And then two, it also, there's, this was this space with just a whole range of risks and drawbacks. Well, in that research Tonantzin, I'm wondering if there was anything that you found that is promising in the technology in the concepts to help build a more equitable society. Because the financial system, I mean is it fair to say that it it is exclusionary in some ways? Oh, a hundred percent. I think one of the things at least I talk about is that historically a lot of communities of color have been excluded from traditional financial institutions. That is absolutely true, but that doesn't mean that crypto's necessarily the solution.
I don't agree with the status quo. I believe we should fix the status quo. But then even digging deep into crypto, I don't disagree with the ideas of democratization of finance. I don't disagree with the claims themselves.
I disagree with the fact that they're essentially false promises. And so Molly, I mean, bringing that forward the work that you do, sort of chronicling all the risks and drawbacks, when you think about everything that has happened over the past few months, the scams that we have seen, the rugs that have been pulled what would you. What about the pigs? The pigs that have been slaughtered. Did you know about this pig butchering? Have you heard of this? Unfortunately yes. I said slaughter, God. It's okay.
Well, in any case I think it's actually called both. So you're good. Same effect at the end of the day, but what's the the common denominator there between all these different scams? Because it feels like they've taken a lot of different forms and shapes, but how, what what would you say is the common linkage? They do take a lot of different forms and I think they do differ in a lot of ways but they often rely on the fact that people think crypto is really hard to understand. It's really, you know, technologically complex. And so they're sort of willing to accept that maybe they don't understand it but that they should still, you know, buy into it.
People will often just say, well I don't really get how it works, but you know it's promising me these huge returns and so I'm probably just not smart enough to understand it. But, you know they'll put their money in and I think, you know people actually generally are actually smart enough to understand what's happening in these schemes. I'm wondering if Tonantzin, there's like any promise to the idea of disintermediation, of getting rid of you know, quote unquote middle man, a third party. The decentralization here, the idea of people being able to send remittances to other countries without paying huge fees to some sort of third party, isn't that at least promising? Right, so I guess your question really to me the thing that struck me was the fact that you said idea, the ideas are promising, but it's when you dig deep into the technology itself, you find that disintermediation that so-called decentralization I mean one could actually quibble with that in and of itself in that there are intermediaries within the technology itself. You have software developers who make decisions that you essentially have to rely on to make the right decisions that they have the right incentives to make those decisions that they don't have conflicts of interest as they're making decisions.
You have miners with certain cryptocurrencies that make decisions. So those intermediary actually exist. And when you zoom out the varied like structures or additional technologies and platforms that are being built on top of the blockchain you have a whole new set of intermediaries. Molly, there's this, this funny thing happened yesterday. I was on your website and there's this good news section sort of this good news tag and I was like, oh I'll click this and there'll be like all the good things that crypto has done.
It's not, it's like the last entry I think is July. And the good news was that some game developer's not gonna use NFTs. Yes. So my challenge to you is name something good that has come from all of this.
Well I think the best thing actually about crypto and everything that has sort of sprung out of it is that it has put the spotlight on a lot of failures in existing systems that we deal with today. So I think a lot of people are actually a lot more aware of issues in the banking system or in, you know unbanked communities than they might have been if they hadn't started engaging in crypto. And I think that's great. I wanna get your thoughts on a conversation we were having with Matt Levine and in his big piece on crypto, 40,000 words, Tim and I read all of it he makes the point that the reason you've seen a lot of trad-fi people go into crypto, leave big banks to go into crypto is because there's so much more room for creativity and innovation.
Rather than waiting for, you know, someone way high up at the bank to okay your project, you can just, you know go onto the blockchain, build a smart contract build some sort of application, just go out and do it. And I mean, maybe in its present state that hasn't produced anything that has any real sort of tentacles into the real economy or hasn't made our lives better necessarily. But when you think about that sort of blue sky thinking that, okay there's lower guardrails here maybe it'll produce something wonderful does that cross your mind at all? Well I think that's one of those things where you sort of have to push back and say well why is there so much, you know why is it so slow to do it in the current system? And it could be that he's, you know that a person is working at a huge bank and there's just a lot of bureaucracy there. But I would guess that, you know, if you're asking why is the traditional financial system really slow it's probably because of all the regulations that you have to comply with. And it's true that crypto doesn't have that many regulations. And so people are able to quote unquote innovate in very interesting ways.
But that's also where all the scams and the you know, enormous, disasters have been coming from too. And crypto I think has been, you know evangelists for crypto have been making the argument that you can't regulate crypto more strongly or you will squash innovation. Tonantzin where do you come down on regulation? Because if there's nothing actually useful there to be regulated, then is it sort of just a waste of time and a waste of resource to even think about regulation there? That's a great question. So to your point on the regulation, I was just thinking of like New York, they have a regulatory scheme.
It's not perfect by any means, but it's something and companies haven't left New York. So I think it also kind of just runs counter to the example that like. Do you mean from a crypto perspective or taxation? Yeah, yeah, from a crypto perspective.
Like companies are still operating in New York, they're still offering their services they're still so quote unquote like innovating. And so I just think that kind of helps debunk the argument that regulation is all bad. Are you frustrated with the slow pace of regulation at this point? I mean, I know that the SEC fined Kim Kardashian $1.3 million, huge but crypto is here, it's been here for a while. No indication it's going away.
And we're still talking about alphabet soup at this point. I'm enormously frustrated with it. I mean we've seen sort of piecemeal enforcement, you know individual schemes that are being cracked down on by the SCC or the DOJ or various other groups. But it's very sort of whack-a-mole at this point.
So Tonantzin, if crypto doesn't solve the problems that you've identified the problems that you've studied, what does? Well it depends on what you're trying. It depends on which problem. Exactly, 'cause it all varies. I mean, financial exclusion, inequities.
So if you're talking about, let's say like unbanked or underbanked, it's just to me even fascinating that again this gets lumped in with people wanting to use crypto for like wealth building, like for unbanked or underbanked what is it exactly we're trying to solve? Is it access to a bank account? Is it access to being able to make financial transactions? Like there are policy makers right now who provide a whole host of solutions. The thing is that many of them don't necessarily require technology. They're policy based solutions. If we're talking about wealth building which other people view like crypto as a mechanism for doing that, again, there are other policies that might actually help us do that. And what's fascinating is in this country the federal government used to provide ample amount of support subsidies to actually enhance wealth building.
We used to be able to provide support to buy a house, like in mass, you know, we do now, but it just it's not at the scale that it was before. Companies used to provide pensions. Yeah, there used to be like support to go to college to start a business, all of these things. And then like maybe post seventies you start to see kind of a decline in that, the dismantling a lot of that support. And so now you have people who in reality don't see a way to build wealth or if they're excluded, a way to access these systems in a low cost way. And so part of our work then is to figure out not necessarily the technology that solves this but what is the pain point? And then let's build from there.
And oftentimes it is policy solutions and we have plenty of academics and researchers that have these. And so what we're really lacking is political will. Thank you to both of us. Excuse me. We did great. Hold on, hold on, hold on, hold on, yeah, we did great.
Good job Tonantzin Carmona, Molly White, thanks for joining us. Thanks for having us. That's it. That's it.
That's it. We've done eight episodes. I'm kind of bummed. I'm very bummed. I hope we get to do this again.
I Hope so too. I just remember there was a time when we first started filming all the way back, what, eight weeks ago. I asked you your opinion on something.
You said, I don't have opinions, I'm a journalist. Sounds like me. But come on, after eight episodes, week in, week out, doing crypto talking to the people we spoke to you've gotta have an opinion on something. You know, you're right.
And this is something that I have struggled with and you know, when I when I really boil it all down, I truly think that.