Crypto Policy Symposium brings together blockchain skeptics

John Reed Stark helped launch the SEC’s Office of Internet Enforcement in 1998, at the height of the dot-com boom.

Under Stark, the office’s founder, the team was tasked with cracking down on securities fraud committed through the nascent but rapidly expanding web. The job was to go after the bad guys with the same technology they used – technology that Stark found fascinating.

“I was an internet evangelist,” he told Protocol. “I was out there talking about how incredible the internet was and how endless the possibilities were.”

More than 20 years later, Stark is speaking out against what he sees as a new wave of fraud. But this time he also takes aim at the technology that he says the scammers are using: cryptocurrencies and blockchain.

“There are so many reasons to be skeptical of cryptocurrency,” Stark said. “I just feel like it’s really shameless.”

Stark has emerged as one of the most outspoken critics of crypto and is a leading figure in the movement pushing for a more critical view of the industry and trend.

This loose network includes leading technologists, academics, journalists and activists. One of them is prominent software engineer Stephen Diehl, who was among the tech experts who sent a letter to US congressmen in June urging them to resist the crypto hype.

On Monday, Stark will join the first major conference of this network of crypto critics, including Rep. Brad Sherman, chairman of the House Financial Services Subcommittee on Investor Protection, and Alex Sobel, a member of the British Parliament.

In an interview with Protocol, Stark discussed what the network of crypto opponents hopes to achieve and why he decided to fight the blockchain.

This interview has been edited for clarity and brevity.

How did the idea for this conference of crypto critics come about?

Stephen [Diehl] began working on that letter with a group of other extraordinary technologists. When the letter came out, there was such momentum because the skepticism surrounding cryptocurrency, DeFi, NFTs and all the other Web3 nonsense is extraordinarily multifaceted.

There are so many aspects to it, whether you’re talking about bitcoin and the Greater Fool theory, or the externalities of ransomware and drug trafficking and human sex trafficking, or the financial systemic risk created by cryptocurrency or the real bluster, hype and nonsense. the belief in blockchain. There are so many reasons to be skeptical of cryptocurrency.

There are critics who worry about the way the crypto industry is developing, but they do not reject blockchain technology altogether. I get the feeling that this movement totally rejects these technologies.

Yes, yes, yes. That’s a broad way of saying it. That’s fine with me because blockchain is the fundamental aspect of all of this. And as the technologists explained in the letter, this is not the solution. [Blockchain technology] generally makes things worse. It does not scale. It has all kinds of problems associated with it.

There was a Wendy’s commercial when I was growing up [which asked], “Where’s the steak?” I was the head of the Office of Internet Enforcement for 11 years. Almost my entire tenure at the SEC, which was nearly 20 years, was spent in the juxtaposition of law, business, and technology.

I was an internet evangelist. I was out there talking about how incredible the internet was and how endless the possibilities were. I actually helped install the very first Internet terminal at SEC headquarters. It was this incredible technology.

“The cryptocrime wave is taking the world by storm.”

Fast forward to today. [I asked] one of these crypto enthusiasts, “OK, tell me what, what are the benefits here?” It’s just so incredibly ambitious, or it’s just a marketing ploy so an IT person can get a little more funding. It’s not this panacea that people make it out to be.

On top of that, the ramifications of blockchain technology being used in cryptocurrencies, in NFTs, for decentralized finance – all of these things have wreaked havoc, not just in terms of ransomware, human sex trafficking, drug trafficking. The cryptocrime wave is taking the world by storm. Then there are the environmental issues associated with cryptocurrency mining.

What do you say to those who claim that crypto is similar to the web, which also faced a lot of skepticism but eventually developed and flourished?

The first thing I always say is, “Tell me a use that isn’t just a broad-brushed aspiration [like], ‘Hey, this is going to make it so that when you buy your house, it’s instant. This is going to make it so that when you make a credit card transaction, it will be more secure than ever before.'”

They just throw anything out. They say it’s about financial inclusion, which is the worst of all – that it’s going to solve the problem of the unbanked. That’s how they get into people. So what I say to them is: “Tell me a use”. Don’t tell me this is here to stay just because a lot of criminals have started using it and a lot of venture capitalists have gotten rich investing in it. Tell me why it’s worth it.

John Stark helped launch the SEC’s Office of Internet Enforcement in 1998.Photo courtesy of John Stark

It does not function as a currency. Does anyone use it? Of course not. It is far too fleeting. What dealer would want to take it one day and the next day it would be worth a third of what it was worth? It makes no sense.

And the idea that it is decentralized is complete fraud. There are miners. There are digital wallets. There are the platforms, the exchanges. There are so many intermediaries. It just gets more and more every time you read about it.

Seven or eight years ago I was willing to entertain the idea that this might become something one day. But I just finished it. Because there came a point in my research, my writing and my experience, where I just felt like it’s really shameless.

Gary Gensler is considered a leading critic of crypto. But I’ve never heard him condemn blockchain as a scam. In fact, in his 2018 MIT lectures, he appears open to the potential innovation of crypto and blockchain technology.

I greatly appreciate Chairman Gensler’s position. If you go back to my original writings in 2017, 2018 and even 2020, I would usually end by saying that blockchain could have the most incredible potential.

I’m not a technologist, although I’ve been around technology all my life. I am not an engineer. So I was very careful.

“It doesn’t work as a currency. Does anyone use it? Of course not. It’s far too volatile.”

Then I started reading more and more technologists and talking to more and more of them. I started gathering data, gathering sources of information, watching lectures, reading everything I could about it. I came out one day a couple of years ago and said, “You know what, blockchain is bunk.”

I stand by that, not as someone who draws that conclusion somewhat reflexively or without much study. Gensler was exactly where I was, at the same time he was teaching. I think I would say the same.

But you know, it’s not the early days. It shouldn’t be hard for someone to explain the benefits to me.

There are crypto industry leaders who recognize the need for regulation and are even taking steps to set up structures and systems for compliance requirements such as KYC. What do you think of these moves?

I think, for one thing, that the industry is crumbling. You can see it with optimism because all these venture capitalists are pouring money into it. It’s a magic money machine. Slap the label Web3 on anything and what do you get? An exponential business valuation.

Look at the NFT market. At first I was like, “You want to buy a stupid electronic cartoon with a link to a JPEG file and you want to pay a lot of money for it and help someone else reap more money? Go ahead.”

People want to be ridiculous with their money, let them be. But when you look at it, it became such an incredible industry, filled with so much fraud and chicanery. None of it made sense to me. It looked like a big washing machine.

Suddenly, to me, there was a lot of harm in these things, and the celebrities who called it out, to me, seem so unbelievably awful, so shameless, that you would exploit your own fans so you can make a few extra millions. The conflicts of interest were so incredible.

People talk about: “We need a new set of rules.” I do not see it. I see the existing regulations. They keep saying how wonderful everything is going [but] we need regulatory clarity. We just want to do this right. There is no transparency in any of these devices at all. And you can’t have a financial system without that kind of transparency. It’s just not safe.

I’m not a big stickler. But when it comes to finances, it’s just not an area where you can let people run free.

You argue that the industry is crumbling. But it’s hard to imagine crypto and blockchain disappearing.

You know, that’s a very good point. What are we going to do with this industry? It is here to stay. All I can tell you is how bad it is.

What do you hope to achieve with the conference?

The idea is to bring some sunlight into all these many misrepresentations and fallacies of Web3, crypto, bitcoin, DeFi, NFT – all of them. And to focus on all the questions about why these products are not a good thing.

We are all just a collection of experts in different fields who want to come together to talk about, through their lens, why they believe what they believe.

None of us will make any money from what we say at this conference. Maybe someone is making money somehow, I don’t know. But I know that waking up in the morning to a pile of Twitter hate and vitriol isn’t necessarily the right path to business development and profit. There is no anti-crypto factory you can work in.

From my perspective, I think the greatness of this conference is that it is the first in history to really present these experts who are going to come together for the first time in a way that presents all angles. Because it is a multifaceted situation. There are hundreds of cryptocurrency conferences and they’re all these love fests where everyone just sits around talking about how great it is because they’re all getting rich off of it.

I don’t mean to sound cynical, but it’s the truth. That is the reality. So it’s a bit of an antidote to that disease, which is plaguing the place right now.

Can you talk about your role in the creation of the Office of Internet Enforcement?

It was a long time ago. I have always been very interested in technology. I started doing a lot of technology-only cases and developed a name for myself in the enforcement department as someone you could go to if you had any kind of technology-related problem. I wrote the first set of guidelines for electronic surveys.

It started to explode. More and more cases affected the internet. There were so many investigative questions, so many prosecution cases. I wrote a white paper that we should create an office dedicated only to online [issues] which will help with monitoring, education, liaison and prosecution. We created the first online enforcement complaint center. We set up an email box called [email protected]. And I opened that email box every morning and read every single one and figured out what to do with each one.

I had this wonderful director, Dick Walker, who was very technically savvy in his own right, and he said, “Let’s make an office.”

They created the Office of Internet Enforcement and it ended up growing. We kept doing more and more. We had different experts – broker-dealer registration experts, tax experts. We had technology people. We also had experienced enforcement officers.

I have a picture of myself pointing to the poster outside my office that said, “John Reed Stark, Director of the Office of Internet Enforcement.” You can see I’m so excited, like a little kid.