Crypto Policy Symposium London: Narrative Economics in the Golden Age of Fraud

Part of what made the Crypto Policy Symposium so interesting to watch was not the number of speakers who were self-proclaimed crypto-skeptics, but the story of how they got there.

This was particularly true in Narrative Economics in the Golden Age of Fraud session, where the guest stars were co-authors of an upcoming book called “Easy Money” — journalist Jacob Silverman and economist-turned-actor Ben McKenzie, who is probably best known as the star of “OC.”

Silverman is a journalist and author whose career has focused on technology topics; he recently wrote a book called “Terms of Service: Social Media and the Price of Constant Connectivity.” On the other hand, McKenzie had a degree in economics before being swept up in showbiz, but his financial interest was piqued during the pandemic as he watched the astronomical rise of digital assets in the public consciousness.

“The more I saw, the more questions I had,” McKenzie said. “Eventually I came to the conclusion – relatively quickly – that it smelled bad.”

McKenzie collaborated with Silverman on several articles about the industry, with an early focus on how celebrities are paid huge sums to promote “crypto” projects, despite knowing or caring very little about what those products actually were.

“I think in some ways it was unusual,” McKenzie said. “Celebrities have been running products since there were celebrities.”

“They are used as a way of signaling a certain degree of trust with the intended audience. We have a high opinion of a product, perhaps because we associate the company’s ideas with a celebrity pitching it. The difference here came from my understanding of economics. These products were not insurance, were not cars, were not sweaters – they were unregistered, unlicensed securities,” he added.

One of the most famous examples of this practice comes from Kim Kardashian, who was paid to shill for Ethereum Max around the peak of the crypto hype last summer.

“This is not financial advice, but sharing what my friends just told me about the Ethereum Max token!” Kardashian told her 200 million Instagram followers.

Her tweet came at the start of a huge rise in the asset, but within months it had lost over 97% of its value. Britain’s Financial Conduct Authority (FCA) issued a warning to investors over the promotion of the token, and Kardashian was the subject of a civil suit in California in 2021. But where exactly is the blame?

“It is important to focus on [the promoters], but it is also important to understand the context in which they exist. They only exist because there is money to be used by the crypto companies to lure more people into the casinos, which they profit from you entering the casino. It tasted to me like something similar to an MLM or a Ponzi.”

Since becoming writing partners, Silverman and McKenzie have researched the industry widely and from many angles. The two visited El Salvador in the midst of the country’s infamous and so-called “Bitcoin revolution,” which was initially hyped as the first major domino in BTC’s plans for world domination. Enthusiasm has since cooled considerably (though not for the author of the “revolution”, President Nayib Bukele), as Silverman and McKenzie discovered.

“When we talk about crypto, we often talk about theories about it’s going to do thisor it’s going to release it, but how does it work in practice?” Silverman said.

“In El Salvador, 70% of the economy was in cash. Until recently, the official currency was only the USD – now it’s bitcoin too. You can point to how much money the government has spent on the project and its technical problems, but basically it’s just not that much spent: people don’t seem to want it, people are suspicious or don’t understand it, or they don’t have the resources to use bitcoin. At the airports they said, “please, no bitcoin – only the dollar.”

“What we found is that people ignored it for the most part,” McKenzie said.

“I think it’s important to understand how surprising it is. Immediately, marketing in El Salvador made sense. It is a country where a quarter of the economy is remittances. If Bitcoin were to work to send money across this Chiba wallet system, and it reduced costs, it could be a game changer. But it didn’t at all. In fact, it costs the government a lot of money. The millions that were spent to create this system that is still opaque and that has ultimately hurt their credit and bond ratings.”

Their surprise went far beyond just the stark contrast between what was promised and what was delivered on a technical level. At the panel, the two talked about how their time in El Salvador revealed a different kind of contrast – that between the philosophy of Satoshi Nakamoto’s white paper and the disturbing facts on the ground in the country.

“One of the other things that I think is so glaring is that Satoshi’s white paper was supposed to allow people to trade directly,” McKenzie explained. “Peer-to-peer currency was supposed to democratize finance. It has done the exact opposite there. They create centralized system nobody uses and the democracy is in place [way out] in El Salvador.”

McKenzie said Bukele had arrested 50,000 people from a country of 7 million in the past four or five months. While there, they met a 50-year-old man who had been arrested at Bitcoin Beach (a planned “Bitcoin” ecosystem at a popular resort) while selling ice cream to tourists. He was initially herded into a prison cell with 80 other men, and was only released because a Canadian woman who lived locally became aware of the man’s plight and started tweeting at Bukele on Twitter.

“One thing we also learned and was reinforced by this trip is that there are different types of freedom. It’s not just the freedom to do whatever you want, and financial freedom isn’t the only kind of freedom. But [in El Salvador] a certain type of freedom – bitcoin – has been imposed on people, and other types of freedom are eroding.”

“All the high-minded talk has not manifested as improvements in the life of the average El Salvadorian. If anything, it has made it more dangerous, and there is a strong possibility that more bad things will happen down the road,” McKenzie agreed.

The authors did not have to go as far as El Salvador to realize these. One of the biggest problems that is almost fundamental to the current digital asset industry is the massive information asymmetry between investors on the one hand and those in charge of crypto platforms on the other.

“The people who run these platforms know what brings people in, why people open an email and choose a sale or an opportunity or something else,” McKenzie said.

“There’s this idea that people go into this economy as empowered individuals, sovereign investors armed with information in a free market, and I think the opposite is true about all of these things. You can see it in how this is playing out — many people have lost money, the doers who continue to drive all this are the VCs, the whales and the insiders.”

See: The presentation of the BSV Global Blockchain Convention, Buzzmint: Elevating NFTs

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