The first crypto project was called Bitcoin. It went badly because its technology and economics were poorly designed.
Crypto was a project that wanted to remake money. Except many of the people who believed in this project didn’t like banks, didn’t like taxes and they didn’t like the government. They didn’t trust organizations of big groups of people, and they thought we should trust computers instead. The people who built this project had very weird ideas about regulation, the history of finance and what makes good money.
Money is normally created by national governments, and a group of people called a central bankwho are given the job to make the money usable. They do this by controlling how it is lent out between banks and people. Good money is money that exists to be lent out over many years for people to buy homes and to pay people to do jobs for other people. When this works, the economy grows and everyone is happier.
The first crypto project was called Bitcoin. It started trying to be a special type of money that did not have a central bank. It went badly because its technology and economics were poorly designed.
Bitcoin was based on a technology called blockchain. It was like a spreadsheet that would update across multiple computers. But the catch to this technology was that people could only add new rows to the spreadsheet, they couldn’t delete rows. This initially seemed like it would be very useful, except in practice, it was very slow to update the spreadsheet and people realized they actually wanted to delete things. They also didn’t want to use a spreadsheet that everyone in the world could see.
The economics of Bitcoin were also bad. When people use money, they want to buy things with it quickly and they want to know that the price of the thing they want to buy won’t change drastically. Bitcoin is bad at both of these things. Bitcoin was bad at being stable money because the technology was not designed to do that, because it didn’t want to have a central bank. This was unfixable because the entire project was based on a bad idea.
Not only did the whole experiment not work, but over the 13 years it ran, it caused enormous damage to the natural environment of a planet already in peril. It consumed vast electricity, and mostly in countries where the resources needed to make that electricity were cheapest, and least regulated.
So, then people made up a different story about Bitcoin. They said it was no longer money, it was a new type of investment. People said bitcoin was a way to make a lot of money really fast. But unlike other investments, bitcoin was built on bringing more people into the project because what they did wasn’t a good business. The business depended on paying one person by borrowing another person’s money until it all ran out of money.
People created a lot of other projects like bitcoin and called them “cryptocurrencies.” They used different types of blockchains. They all tried to remake money but in different ways. Some of them wanted to create new forms of banks, some of them wanted to create ways to break the law, and some of them really believed they were building good things for the world, until they blew up. A lot of normal people believed these lies. These people lost a lot of money.
Crypto money was really bad at buying things in the real world since they had to pay taxes on it, so then people had to create imaginary things to buy. So they created collections of make-believe cartoon animals to buy. Many celebrities started promoting cartoon animals as a way to make money from their fame by playing make-believe. This hurt a lot of their fans when they realized what they were buying was imaginary and their investments collapsed.
Despite all the anger about this project, a lot of rich people liked these cryptocurrencies because they could do bad things to make money with them that were illegal elsewhere. And rich people didn’t have much else to buy in the real world so they started to buy imaginary things because the only way to grow their wealth was to run scams. A lot of history scholars warned this was a repeat of the Gilded Age. Rich people became richer, and poor people became poorer. Crypto made that worse.
Crypto was a story about giving people new money, but instead it just stole people’s old money and destroyed their lives. Unfortunately, the world figured out crypto was a bad idea far too late.
Stephen Diehl, a London-based cryptocurrency critic and co-author of Popping the Crypto Bubble, is widely quoted and publishes blogs at stephendiehl.com. He’s worked 15 years as a software engineer in financial services. @smdiehl