Crypto skeptics take on Web3: No real-world use for cryptocurrencies

It’s been a volatile year for cryptocurrency markets and a big year for Web3 theft in general, from NFT kidnappings to hacks targeting the crypto exchanges and the “bridge” devices that facilitate sales and trades. Duke University lecturer Lee Reiners has emerged as a vocal doubter of the viability of cryptocurrencies as a meaningful factor for nations and commerce, particularly for the kind of royalty-laden contracts entered into in the entertainment industry. In a conversation with Variety Editor-in-Chief Cynthia Littleton.

What makes you so skeptical about cryptocurrencies?

Crypto, in my opinion, still does not provide any real financial benefit. There is no real use case. Not many people actually use it for money, which is why it was invented. But it is too volatile to use as a medium of exchange. If you’re a small merchant, why accept something in payment that can drop 20% in value in an hour?

But people are starting to use crypto for game transactions and such. Can you give a specific example of the threat its volatile nature poses?

A good example of real-world problems is Axie Infinity — a decentralized video game that was essentially like Pokémon; characters would fight each other. The characters were NFTs and you could buy the characters. The more you have played and won, you will earn cryptocurrency. It became quite popular in the Philippines. And what happened is that normal economics took over. The value of the NFTs increased. It became more difficult for people to buy them. Wealthy people bought them and rented them out to poorer players. This is digital len. And then the game got hacked and people lost a lot of money. [In March, a so-called bridge exchange tied to Axie Infinity lost $600 million in a hack attack.]

Given its vulnerability to hacking, why has crypto spawned so many evangelists?

It is a story as old as time. It’s a get-rich-quick scheme. There are many factors that have made it so popular. At its core, it comes down to what some would call greed; others will call it hope. Especially among younger people, the reality is that you won’t get ahead in this country if you’re just a wage earner. Financial opportunities that were there for their parents and grandparents are not there. It is very difficult to climb the socioeconomic ladder from work alone. Some see crypto as a great financial opportunity. That hope and desire has been fueled by commercials (for cryptocurrencies) featuring Matt Damon and Tom Brady.

Were you surprised to see names like Damon and Brady endorse this nascent, radical departure from monetary tradition?

We have seen financial bubbles throughout the ages. A lot of people bought into the narrative that this is the future of money and technology, and there was a sense of, “Well, gee, I don’t want to miss out.”

What has surprised you about this bubble?

The politicians’ ignorant response. The 2008 crisis raised a lot of suspicion about what were trusted third parties handling transactions. Banks do not fulfill that role of goodness of heart; they charge fees and must mediate disputes. Transactions can be reversed. The idea behind blockchain is to replace that sense of trust with cryptographic proof. That is the innovation behind blockchain – it allows people to trust the contents of the ledgers. But we still don’t know how to regulate a decentralized financial system. What are the on and off ramps?

We are seeing more and more movies and TV shows come to life through blockchain investments and Web3 incubations through NFTs and short format content. How will that model work in the long run if a property becomes a mainstream movie or TV series?

If we haven’t really seen blockchain used at scale in any context outside of crypto, why would we expect it to work in the content space? If you are essentially crowdsourcing funding for a film [with crypto], it sounds like a certainty. If you do this through an existing funding mechanism, there will be lawyers doing the due diligence. There are a whole host of securities and regulatory issues. How do you make sure people understand the risks? How do they know that you comply with laws and regulations around money?

What will it take to stabilize the big names in cryptocoins?

You need a good narrative to justify the price [to investors]. “Web3”, “the metaverse” – that’s where it’s going to be really valuable. I’m sure if Web3 and metaverse don’t pan out they’ll move on to something else.