My best guess on where I’m wrong about crypto

By Theo Cox

To put it bluntly, what if pointing out that crypto doesn’t really work is missing the point? Sounds a bit odd I know, but that’s my best guess for where I might be wrong in this debate. I’ll explain below.

Over the past year or so I’ve spent a fair amount of time going pretty deep into the world of crypto. That work culminated in Life Itself Labs’ new guide, analysing the major claims in the space, and an upcoming paper exploring the implications of crypto and web3 for local governments for the US Government Finance Officers Association.

Now I’d say I have a fairly solid background in economics and the social sciences. And as you’ll notice reading any of the analysis I’ve done on the space I can’t help but conclude time and again that the dizzying grandeur of the claims just doesn’t seem to match up to the reality of what the tech involved is capable of.

However the whole point of my work has been to contribute to a reasonable discourse about these technologies in the context of where those of us who care about social change put our effort. That means doing my best to engage openly with oppositional views and question my own, however apparent they seem to me. I’m always trying to ask myself “where could I be wrong?” Borrowing the spirit of red teaming, I think putting your views to the test in this way is vital when engaging with complex and polarising topics. So with all that said, this is my best guess of where I might be wrong.

This thought was sparked by a truly excellent lecture on money from the perspective of critical political economy by Prof. Paulo dos Santos, featuring two excellent presentations by PhD candidates Hanin Khawaja and Josephine Baker which both referenced crypto. As an aside, it’s part of a brilliant free series put on by SOAS University in London and The New School in New York. For anyone interested in heterodox economics and political economy I really recommend it. Anyway, the lecture centred an exegetical reading of Marx’s monetary theory, honing on money as a social convention. Without getting into the weeds on that particular debate, the social construction of the monetary object and the laws supposedly governing it seems fairly undeniable to me. Otherwise, how would we have central banks continuing to respond to inflation with levers clearly incapable of truly addressing the real problem, for no other reason that they supposedly abide by the “laws” of money and monetary policy. The debate over monetary policy itself is broader evidence. There are hugely differing interpretations of how money works and how we should construct policies around it, and there have been massive differences geographically and historically in how monetary systems have operated. All this makes a very good inductive case that money is not a “thing” out there in the world. It’s a system we determine and project narratives onto, just like we do pretty much every other social system on the planet. As an aside, Paulo gives another great example of behaviour towards money market mutual funds (remember those?) as a great illustration of these elements of social construction. For the sake of brevity I’ll just recommend a watch.

So, money is a social construct. And the rules for governing it, monetary policy, can be changed to better meet our needs as human beings. Right now, this is not the prevailing narrative. Money and monetary policy are talked about as if they’re just as much a part of nature as carbon or the laws of thermodynamics. Given the harm the current monetary system does, both domestically and internationally, that seems like a pretty big deal. It also seems like a major narrative battleground for those who care about creating a more just and equitable economy. And yet, to my knowledge it’s not one that’s brought into the public debate nearly as much as it could be. And I get it, monetary policy doesn’t exactly scream sexy. It’s dry, superficially technical and not something that’s going to win you rapturous throngs of new supporters by speaking about. But I have a niggling feeling there’s more to it than that. It was very interesting, for example, that a recent review into the UK BBC’s economics coverage found that reporters lacking a solid grounding in economics unwittingly perpetuated contested narratives about how the economy works as if they were facts. Just as interesting was the fact that this report focused almost exclusively on fiscal policy, and had nothing much to say, for example, about the well versed and equally contested narrative that interest rate rises are the only way of tackling inflation. I’m not so sure that’s just because fiscal policy is the sexier sibling…

Whatever the reason for this narrative neglect, it doesn’t need to be this way. And given the stakes of getting people to realise that the possibility to change our monetary system is far greater than they thought, it might be worth at least trying to have the conversation in an accessible way.

Now you’ve probably got a hunch of where I’m going with this regarding crypto. I’ll hold my hands up to having a view of the world that can sometimes resemble that of Dr. Spock a little too closely to my liking. That means a natural tendency towards rational analysis as my default way of thinking, lots of focus on logic and technical details and far less of a tendency to think in terms of things like narrative significance, or the interaction between thought and feeling. There’s a whole lot more to decisions about how we structure society than abstract logic and rationality. Otherwise we’d have unified politics and sorted climate change ages ago. Sometimes, especially when I go into analytical problem solving mode, I need to remind myself of that.

Suffice to say I’ve been engaging with crypto very much in analytical problem solving mode for the past year or so. I’ve been particularly focused on gaining a technical, social scientific understanding of how major crypto projects work and stress testing them. This has led to me spending lots of time talking about what I view as fundamental flaws in the economics of how the crypto space works, particularly with respect to its claimed capacity to catalyse broader economic transformation. You can read some of my thoughts about that here and here, but to surmise none of it quite adds up from where I’m sitting. While I’m always open to having my mind changed there also, that’s a position that I still very much stand by,

So even if I still think all this stuff doesn’t work, my best guess at where I’ve gone wrong comes from the idea that us progressive crypto sceptics might have somewhat missed the point in trying to argue as such all the time. Now I do think an honest conversation is necessary, given the massive opportunity costs from the huge amounts of money, energy and intellect that’s currently expended on crypto and web3 more broadly. However my experience of the space is that all those messy human factors of narrative, belief and emotion, combined with the sheer inability to truly know how claims about the future are going to stack up in 10 years time, means that the debate is pretty intractable. As long as the space continues to exist the boosters are going to continue to boost and the sceptics are going to continue to doubt.

Besides, while the opportunity costs _are _significant I’d argue that diverting resources away from crypto is fairly small fry compared with the potential impact of winning a narrative battle over the socially constructed nature of mainstream money and monetary policy. So those of us who’ve been spending breath trying to make the case that the economics of crypto don’t work might do well to abandon that battle in pursuit of victory in a far greater war.

What would that look like? Well, it would start by answering every version of the question “is crypto really money?” with “it doesn’t matter”. Because for what crypto _shows _about the narrative of the money as a commodity, whether it’s technically able to function properly as such when push comes to shove is by the by. The way crypto has been adopted, used, and talked about is a prime example that narratives and belief are far more important when considering “money-ness” than technical functionality (again, I refer back to the MMMF example of the lecture). Furthermore, a huge array of tokens that have fundamentally been treated and used as if they were money by significant corners of the internet have been encoded with completely different rules for their functioning. Some are inherently deflationary–most famously Bitcoin’s hard cap of 21 million BTC in circulation–whereas others have supplies that can grow infinitely. Some peg their exchange value to the USD, others have a completely floating exchange value. Different projects implement a host of ways to regulate the number of cryptocurrencies or tokens in circulation. The list goes on. People have just come up with all of this, and now the crypto ecosystem is fundamentally shifting how swathes of the population engage with the concept of “money”.

Just take a step back and think for a minute. Whoever Satoshi Nakamoto is, it’s quite possible that this whole cambrian explosion was kicked off by some random person tapping away in their basement. Fast forward to today you’ve got central banks the world over developing digital currencies of their own (CBDCs), and exploring the potential of using them to settle international payments in a way that could potentially disrupt the hegemony of the US Dollar. That’s wild! And it’s not because blockchain represents some massive leap in technological innovation.

The implication of all this is that, as fun a learning experience as it’s been, I might have focused on the wrong conversation over the past year. Crypto fans often point to the space as carrying the potential to ground a new and better economic system. And maybe it might, just not in the way that’s often floated. While capitalism still dominates the political economies of most nation states, and the international economic system at large, I’m not confident that any crypto based secondary economy will really be able to take root and avoid being subsumed such that it does anything really transformative unto itself (countries where the economy is already failing aside, at least). However if we narratively capitalise well enough, it might just get us a foot in the door of questioning some of the most fundamental rules of the neoliberal capitalist game itself. If we care about enacting change, then maybe we stop trying to point out our critiques of crypto, and instead start shouting from the rooftops that it’s as clear a demonstration as we’ve had in the modern era that this money stuff isn’t what it initially seems. Getting that across is the first step to proposing that, given our monetary systems are working pretty terribly at the moment, it might be worth having a bit of a chat about changing them. This shift in focus opens up the far bigger prize of gaining narrative ground on an issue that’s going to be fundamental to any radical economic transformation. But it also means we can stop fighting with the crypto folks (many of whom are lovely people who share the same values and aspirations as the rest of us progressives) and get on the same team for a change, perhaps even pooling energetic resources to engage the people we really need to be focus on: the upholders of the current economic order and the population at large who vote for them.

We can point out until we’re blue in the face that append-only digital ledgers have been around since the 1980s, that’s not going to change the material reality of any impacts had by CBDCs in the current era. There’s a reason _now _is the moment that such impacts have become so much as possible and, I’ll say it again for the people at the back, it ain’t because of the technology. If I were to implore my fellow sceptics from this position of self-doubt, I’d probably say something like the following: let’s accept the reality of where we are and use our opportunity to try and shift the important stuff (i.e. the underlying narratives of neoliberal capitalism), rather than getting hung up on trying to find some objective fact of the matter about the technology and its potential.

Such a change in tactics will require a new approach, shifting away from rational analysis and perhaps into the realms of story, experience and art. It’ll require imagination, and to be honest for people who aren’t as nerdy as me it already sounds like it’ll make for a lot more fun. Whatever the future of crypto turns out to be, that seems to me like a proposition a lot more of us can get behind.