What’s That Problem With NFTs, Again?

Grappling with Dan Olsen’s “Line Goes Up”

[last updated 7/7/2022]

Not Financial Advice (NFA)| Do Your Own Research (DYOR)

A few days ago, Dan Olsen dropped a comprehensive, scathing video in which he does his absolute best to deliver a Mortal Kombat fatality to just about everything I’ve devoted a year of my life to.

It’s nothing personal, of course. But he’s got a lot of bitter pills for those of us who believe in the tech and are trying to build the blockchain industry. His words cut all the deeper by coinciding with a crypto market drop of 30% in the last week or so. He couldn’t have planned the release more perfectly if he wanted to.

Some bros treated the piece very dismissively, as if Olsen had only made the video for attention and profiteering.

Judging by the number of likes, a better approach was to playfully deflect from his underlying arguments using humor and visual memes, as De Tomaso Panera did.

But the most powerful thing to be done with The Problem With NFTs is to take its arguments seriously.

For those of us who really do care about changing the game and liberating humanity from oppressive, corrupt, coercive systems of control, Olsen is generously showering insights more valuable than digital gold. He’s holding up a mirror to our blind spots. It takes courage to look, but it’s well worth it.

In this article, I’ll give my most faithful representation of his position through a 20 minute summary of the 2 hour+ video. The perspectives and quotes are his, and I may or may not agree with each point.

After his arguments I’ll finally hold up a mirror of my own. By the end, I hope readers will agree with my pro-blockchain thesis instead of his dystopia. But either way, I’d really appreciate your feedback. You may want to save this article as it’s a bit much for one sitting.

Chapter 0: In 2008 The Economy Collapsed

Banks took mortgages, a long-term asset that was widely considered to be safe, and made them far more valuable and less risky by bundling them into mortgage backed securities. A bad mortgage that was part of a bond became worth more than a good mortgage that was not part of a bond.

The demand for these safe, high-yield mortgage backed securities went through the roof and became foundational to many institutional portfolios. But there’s only so many homes, so many buyers, and so many mortgages, so eventually the real market availability leveled off. The speculative market still ran hot, however. The incentive of builders was to make more upper middle class homes. For banks it was to approve continuously worse loans, because the more mortgages the better. For speculators, it was to buy up more assets that were always on the increase. For consumers, it was to get into a home they already couldn’t afford before the price went up any higher. Auditors had incentives to stay in the good graces of their clients and simply rubber stamp.

The result of each party pursuing their incentives proved to be unsustainable. Homeowners and speculators who had been lured into mortgages they couldn’t afford defaulted on loans once the artificially low teaser rates expired. Once a critical mass defaulted, it broke the bonds. The failure cascaded through the system to all the pensions and other institutions using derivative assets based on mortgages. By 2008, the economy crashed, leading to a government bailout and little to no consequences for the people that were most responsible.

It was a failure precipitated by a combination of greed, active fraud, and willful blindness at all levels of power.

Chapter 1: Bitcoin

Anti-capitalists diagnosed the problem that manifested in 2008 as being a kind of corruption that’s inherent to the system and its incentive structure. Hyper-capitalists, by contrast, saw the crisis as being the result of too much regulation and exclusion.

In that backdrop, in 2009 the peer to peer protocol Bitcoin was paraded by enthusiasts as an end to banks and centralized currency. A digital wallet functions like a bank account, and the currency is issued by the decentralized network in a transparent way that can’t be easily manipulated and is resistant against hackers and double spending the coins. There’s just one problem.

…Bitcoin was never designed to solve the actual problems created by the banking industry, only to be the new medium by which they operated.

The problems in the banking system are patterns of human behavior. The problem is what people do to each other, not whether the things being done are in a building that has the word “bank” on it.

Moreover, Bitcoin’s Proof of Work protocol used to secure its system is intentionally wasteful and complex to discourage malicious attacks, and so it could not scale to become a peer to peer cash system. Instead of remaining decentralized, the economies of scale left the mining under the control of a handful of wealthy rig operators. Power consumption of the network is comparable to that of a small industrialized nation.

Bitcoin evangelists point out that the traditional banking system uses a lot of electricity too, but on a per transaction basis Visa is orders of magnitude more efficient than Bitcoin. Plus it gets used by 7 billion people, not just a few hobbyists.

Bitcoin isn’t incentivizing a switch to renewable resources, it is offsetting it as miners quickly soak up any cheaper energy gains and to transform it into wasteful, pointless, discarded computations.

Chapter 2: Ethereum

Once you couldn’t even buy drugs on it anymore due to the government shutting down Silk Road, Bitcoin’s problems made it unusable for anything except speculation. A more efficient fork of Bitcoin called Ethereum was launched in 2014 with a new processing functionality that could be used to track arbitrary blocks of data as a kind of distributed virtual machine.

Its creator, Vitalik Buterin, envisioned an immutable new internet that could not be taken down by governments or regulators. People could bypass all the middlemen and give financial access to all the impoverished people of the world, ushering in a new era of human prosperity. At least this is the narrative accepted uncritically by Camila Russo in her book The Infinite Machine.

The reality is that in the period covered by Russo there were countless schemes. Astroturfing was especially popular. A few crypto scammers would take pictures with tribes in Africa or ask business owners to slap a “Bitcoin accepted here” sticker on their cash register. This gave the appearance of doing something meaningful, but the scammers would just leave after luring in naïve investors by putting on the show.

Meanwhile, the people who really were building cryptocurrencies were completely disconnected from reality, talking about things like putting medical records immutably on the blockchain, and basically having no understanding of the ecosystems they sought to disrupt.

[They] assume that because they understand one complicated thing, programming with cryptography, that all other complicated things must be lesser in complexity and naturally lower in the hierarchy of reality. Nails easily driven by the hammer they have created.

Chapter 3: The Machine

There are two important components for blockchains — a ledger and a consensus mechanism. All popular blockchains use an append-only ledger that adds data at the end.

It is free to read the blockchain, but it costs “gas” (the native coin, such as Ethereum) to write information on a block that gets added.

An alternative to Proof of Work (PoW) is a less wasteful but more resilient protocol called Proof of Stake (PoS). These PoS networks are still relatively unpopular and highly centralized, so it is difficult to gauge how well they’ll do at scaling and replacing Proof of Work. It is also more explicitly exclusionary.

In either case, the results of new blocks is dependent upon what happens in previous blocks.

Forks are when the consensus of the network falls out of sync and some nodes report one block as being valid, while another set of nodes reports a different block as being valid. This can happen either intentionally or unintentionally. Forking a chain is the only way to update the programming, but it can lead to schisms, such as the rift that led to Ethereum vs Ethereum Classic (more on that later).

The fact that two alternate reality states can diverge is amusing as an internet curiosity, but unacceptable for anything attempting to become a foundational layer of economic activity.

It’s an ecosystem that absolutely demolishes consumer protections and makes the re-implementation of them extremely difficult.

This technology is extremely resilient against man-in-the-middle hacker attacks, but these are actually very rare. The far more common type of attack targets users directly through things like phishing, malicious links, and ransomware. These common kinds of attacks, where the programming code’s rules in the protocol are technically being followed by malicious parties, have been made extremely easy by crypto.

The throughput of blockchains is so abysmal that on a very good day, Ethereum costs $20 to make a transaction, but its hourly averages can go higher than $1000 per transaction in what are called “gas wars”.

The high costs aren’t contained to assets that are perceived to be mispriced that get fought over and drive the high costs. All other assets on that network also are affected.

Fluctuations in prices and costs have led to what’s called stablecoins, which are pegged to the value of a dollar. Tether, the first and largest stablecoin is owned by the same people who own the Bitfinex exchange, and there’s evidence that they’re sharing the same pool of money. This means at any point in time, either service may be backed by nothing.

There’s a fundamental cash problem. Your holdings may have inflated to hundreds or thousands of times what you put in, but that number is just speculative and theoretical since you can’t spend crypto on anything. In order to get it out you need a bigger fool buyer behind you, making crypto a bigger fool scam.

These schemes around crypto tokens cannot create or destroy actual dollars, they can only shift them around… Crypto investments cannot be anything but a zero sum game, and many are actually massively negative sum.

-Stephen Diel

Chapter 4: NFTs Exist To Get You To Buy Crypto

Optimistically, NFTs are true digital objects in that they possess attributes of both the physical (strictly unique) and the digital (easy stored and transmitted).

NFTs are tokens that have unique serial numbers and are essentially boxes that you can put code into. That code could be a microprogram or “smart contract”, but more often it just points to a URL of a JPEG.

Proponents conceptualize the role of these things as the unity of programming and law…

…the claimed functionality and the actual functionality are both bad…

…the end goal is the financialization of everything.

NFTs have become synonymous with digital art, but what they represent is actually arbitrary. It could be anything from a video game item to a URL to a subscription to a virus that steals everything when you interact with it.

The narrative is that NFTs will free artists from the gig economy and provide buyers with an immutable record of authentic ownership. But many artists ended up losing money because of gas costs, and people in the NFT craze didn’t really know what they were buying nor is there any guarantee that the server storing the image that the NFT is pointing to will indefinitely run or that it is decentralized.

Ultimately, claims of digital scarcity only apply to the token, not to the thing the token signifies. There’s no cryptographic relationship between the token and the image, making the connection flimsy. There’s also no way to verify that the creator of the NFT owns the copyrights or is the artist. Artists complaining of having their work stolen were blamed for not minting their own work on the blockchain first, even though this wouldn’t necessarily solve the problem since there are a vast number of blockchains that NFTs can be minted on, and multiple marketplaces that do not communicate or coordinate with each other.

NFTs are entirely for the benefit of the crypto grifters. The only purpose the artists serve is as aspiring suckers to pump the concept of crypto — and, of course, to buy cryptocurrency to pay for “minting NFTs. Sometimes the artist gets some crumbs to keep them pumping the concept of crypto.

-David Gerard

The concept of using verified NFTs as a profile to replace one’s physical self is old. As an example, for six years on the Dungeons and Dragons forums, Olsen used a stock photo of a cabbage. So there’s nothing really new here.

NFT evangelists accuse Olsen of not getting it because he doesn’t understand “the community”. He joined some “blue-chip” NFT Discord communities and was unimpressed at best, and overwhelmingly bombarded with channel spam requests from other projects at worst.

Chapter 5: The Unbearable Cringe Of Crypto

The basic psychological profile of the average buyer is someone who is tenuously middle class, socially isolated, and highly responsive to memes. They are someone who has very little experience with real businesses and production processes, thus are unlikely to be turned off by unrealistic claims about future returns. They are insecure about their lack of knowledge, and this makes them very susceptible to flattery, in particular to being reassured that the only reason for negativity is because critics just don’t understand what they understand.

The market is lousy with fraud, often called rug-pulling or rugging. An example of manipulation are sock puppets, where a person uses one of their wallets to buy from another one of their wallets to create a false image of demand. It’s common for communities to expect leaders to engage in these kinds of behaviors to drive up the price, and it is almost considered disrespectful on their part not to drive up the resale value by any and all means possible.

The difference between success and failure often boils down to being that the projects already flush with cash, can engage in high-priced giveaways, and things like advertising in Times Square, which is ineffective for anything except internal propaganda. It gives the faithful an impression of credibility. If you’re in a speculative bubble hoping that someone else down the line will buy you out, then credibility is everything.

These new projects are positioning themselves as more than art. They are ongoing projects that you buy into. These can often be thought of as shares in an unofficial company, or as unofficial hedge funds that will buy crypto in other crypto projects.

Initially, the cost of minting was borne by the project up front, but eventually that evolved into the initial buyers paying for the mint in miner’s fee plus sale cost. There would be different rarities, making it a kind of gambling scam. With this minting cost pushed onto buyers, even “unsuccessful” projects make money for the creator, and the incentive structure actually rewards failure.

Chapter 6: A Self-Organizing High Control Group

All of this leads to a kind of toxic positivity. In this space there’s pretty much only vacuous promises and roadmaps with no serious chance of delivery, and so doubt is met with hostility by those who have a financial incentive to fuel hype.

All concerns are just FUD: fear, uncertainty, and doubt

Everything is reduced to cultish ingroup/outgroup signaling, even seemingly benign communication like wishing Twitter good morning (GM) or good night (GN).

“We’re all gonna make it” (WAGMI), “not gonna make it” (NGMI), “have fun staying poor” (HFSP), paper hands, diamond hands, and similar narratives form a vocabulary and culture that glorifies wealth no matter how its obtained, and mocks both those who are victims of fraud as well as those who lose money by selling what they think might have been a fraud.

Chapter 7: Crypto Reality

Not very much information can be stored in a smart contract, certainly not enough to house a typical JPEG which is why the images are not stored on the blockchain itself. Systems of multiple tokens and smart contracts with interactivity is needed for programs with any real complexity. If there’s any bug, contracts need to be relaunched entirely, and there’s fees at just about every stage of the process.

This creates a catch 22 where NFTs are supposed to be powerful miniature self governing applets, but at the same time the incentive is to put as little into them as possible.

The security features are weak, and there has been every kind of fraud and scheme perpetrated in this unregulated market. It is done with ponzi schemes, pump and dumps, insider trading, as well as things like phishing attacks.

Viruses pointing to an image can be dropped directly into wallets, and as soon as they’re interacted with like a normal NFT they’ll drain all the digital assets the user owns. There’s no approval step for moving a token into someone’s wallet. If the address is known, the sender can send it and there’s nothing the wallet holder can do.

NFT holders have essentially self identified themselves to scammers as gullible, persuadable, and susceptible to fraud.

The one market that cryptocurrency has successfully disrupted is the market of fraud.

Chapter 8: There Is No Privacy On The Chain

On social media, duplicate accounts are called sock-puppets, and in crypto, using multiple wallets to disrupt a process called a Sybil attack. Because there’s no intrinsic requirement to reveal identity on chain or limit one’s self to one wallet, this problem is tough to deal with. This is part of Opensea’s wash trading epidemic.

Blockchain is not technically anonymous, it’s pseudonymous and you can still circumstantially identify people based on their activity.

There are applications where permanence on a blockchain is desirable, but there are others where it is clearly not, such as putting a social network online that could potentially have dangerous, perverse, or doxing information.

Ethereum’s data storage network may be decentralized, but its decision-making apparatus is not. Nor is any other platform. There’s no mechanism that compels them to act in the interests of users, especially the poor and disempowered.

There’s an extreme power imbalance, where the more open and authentic good or neutral actors are, the more exposed they become. The more secretive and disingenuous bad actors are, the easier it is to deceive, defraud, and disappear.

The proposed web3, crypto-driven future of the internet is a privacy disaster.

Metamask in particular is a monumental point of failure.

Chapter 9: If This “Looks Like Scam” Then Every NFT Room I’m In Looks Like Scam LOL

Tokens are essentially like super-cookies that allow anyone to track an owner’s activity across all platforms and devices.

Every project that proports to be web3 is attached to blockchain. The two are inseparable. Advocates have been sold a lie that they will be in control of the metaverse, rather than the powerful moneyed interests that designed the code and/or can afford to actually be pulling the strings. “Enforcement of ownership” and “access passes” can and will be used against users.

An example of this is Squid Game Token which technically followed its own rules but was clearly a fraud, since the marble token that was necessary to allow sales or transfers was never made available.

Rules must always be evaluated for their power to oppress.

Instead of granting access when a token is discovered to be present, access to a site can just as easily be denied based on what is found in a wallet, or prices can be inflated, etc...

Now imagine that a decentralized finance organization checks for donations to the NAACP as part of their “risk assessment protocol”, or if Nestle checks in real time for unionization efforts by looking for governance tokens on a blockchain.

The naïve belief that the world will become fairer by enshrining rules into nearly unchangeable code is where a lot of Olsen’s resistance to the technology comes from. It’s an ahistoric blind spot to think that these tools won’t be used for culturally destructive ends.

Chapter 10: Play To Earn Exists To Get You To Buy Crypto

The play to earn game Axie Infinity is able to pose as a humanitarian project because some people in the Philippines have been able to earn a marginal living off of selling the Smooth Love Potions (SLP) that players are rewarded with. Because the NFT critters that are used in the game are too expensive for many people to afford, there has emerged a scholarship program where the owners of the NFTs lend them out to players in exchange for 50% of their winnings.

It’s capitalism in its rawest form. Players invest their time into grinding SLP… Players get to barely make minimum wage while the owners… [take] 50% from dozens, if not hundreds of players…

If there aren’t new players indefinitely coming in, then the price will crash. If there’s not enough new Axies being bred, the price will skyrocket. Games mess up their economies all the time but it normally doesn’t matter because it’s completely fictional gold, gems, dragon bones, or whatever.

More people play Axie Infinity to make money than because it’s something they enjoy, which is a critical flaw. The play to earn feature changes how people optimize and incentivizes parasitic behavior instead of just enjoyment of the purchase.

Chapter 11: We’re All Gonna Make It And By “We” I Mean “Us” Not You

The future shakes out in one of two possible ways: either something new comes along that causes crypto fever to die out and the bubble to pop, or the crypto bros are successful and cryptocurrency is able to force itself into our lives.

The claims of digital ownership are hollow when new tokens can be minted on a different chain or even the same chain to reference whatever thing it points to. Moreover, what makes Ethereum more or less authoritative than the dozens of competing chains?

Systems like Polygon that try to move tokens across networks can only create new tokens and make a note that politely asks users not to trade the original.

There are blockchains that are reasonably responsive and cheap because they’re not popular. When a blockchain does get popular, the price of its token goes up and it becomes hyperdeflationary. That rewards hoarders and punishes buyers. Deflation is a feature not a bug. It is the design creators and evangelists consider desirable. This is “going to the moon”.

Union busters and oligarchs love the power that crypto affords to the wealthy. The current system is a result of compounding complexity, where in order to participate laymen must use platforms and services. This concentrated power, and this is exactly what’s happening in crypto.

As scams target users such as Bored Ape Yacht Club members, they seek platforms like Opensea to become de facto authorities not on what the chain says (ownership), but what the chain means (theft).

It is just a recreation of existing power structures within the new environment.

Chapter 12: DAOs Exist To Get You To Buy Crypto

Decentralized Autonomous Organizations are supposed to be the answer to the governance problems discussed above. They consist of three parts: people, a machine built of smart contracts, and a token to allow the people to interact with the machine.

Usually a governance token is issued, and the mechanical process to be able to use the token is simply claimed as a future roadmap item. Ambiguity is important because although the claim is more democratization, the complexity needed to program the machine requires expertise and concentration of power.

Because of the stakes and the complexity, it is already beyond the capability of amateurs to create a DAO. The security risk of the DAO is directly proportional to the value of the assets it controls.

The history of the original DAO underscores the problems with this model. It was known to have a vulnerability, launched anyway, and was hacked shortly after. About 5% of the entire value of Ethereum was stolen. Remember forks? The Ethereum network was rolled back to the pre-attack state, and that fork led to a schism between what became Ethereum classic which did not roll back and Ethereum which did.

The rigidity of rules enforced by code is not a benefit. What happens when it runs up against complications that the coders didn’t foresee, like if someone with a lot of tokens is a bad actor or if the network commits a crime?

Most human organizations are too complex to properly address in code, and there are too many contingencies to account for. Because of this DAOs are relegated to things like book-keeping tasks, signature verification, and on-chain asset management.

DAOs only have meaningful advantages as a productivity tool for managing financial instruments on-chain, as they are powerless off-chain.

The rest is just a gimmick, a slow, inflexible tool for executing straw polls.

DAOs can be schemes designed with the intention of reducing liability for crypto bros who hide behind being “community members” when perpetrating things like copyright infringement.

Li Jin is a predatory venture capitalist who tries to polish the image of the gig economy to distract from how it erodes labor. She pitches DAOs as the future of unions and exaggerates what Yield Guild Gamers is. It’s really just a Discord server with ambitions to function like a hedge fund, not like a union.

Conceptually, you could make a DAO that is responsive to worker-focused goals, but you could also do that without a DAO, because it’s just an organization.

People like Li Jin promising democratization are liars, and the only thing really on offer is the corporatization of everything.

Chapter 13: I Know It’s Rigged, But It’s The Only Game In Town

All of this is really at its core a turf war between the tenuously wealthy and the ultra-wealthy.

Overpriced JPEGS aren’t a bug, they’re a feature. It’s a status flex, and it draws in the desperate, vulnerable, and isolated who want to believe that they too can win their freedom with just a single stroke of good luck. And as they feel hope evaporating, this seems like the only choice.

Rage about 2008 is a main driver. However, the anger is not about capitalism being an unjust system, but rather that there aren’t enough opportunities to become the oppressor.

A different system does not inherently mean a better system. We replace bad systems with worse ones all the time.

That’s exactly what’s happening here with blockchain, NFTs, and the financialization of every aspect of life.

How Much Did Olsen Get Right?

…A LOT.

I’m not gonna lie, he really did nail it. He’s a smart guy who did his homework and has his finger on the pulse of the narcissistic, self-serving NFT cults that currently dominate this space.

Home run.

Not without reason, Venturebeat went so far as to say of the video, “this should be the end of NFTs”.

I’m not going to rehash the myriad of things he got right item by item because that will get tedious.

But let’s just be clear that he hasn’t quite won yet. It’s my turn at bat.

No pressure.

What Olsen Missed

The primary problem with his thesis that forced me to write this is that Olsen only offers two possible outcomes, when there are actually at least three.

According to Olsen, the crypto world’s Ponzi scheme that’s been thrust upon humanity might 1) fail completely, or far more frighteningly, 2) it might succeed. He believes that the “crypto succeeds” outcome will be nightmarishly worse because it will trap us in an inescapable, commodified, hyper-capitalist framework in which the already wealthy tighten their grip over the rest of us.

I wrote this response because there is a “third-way” outcome that is far more likely as well as more moderate.

3) “Cryptocurrencies” fail to dislodge fiat or disrupt nation states, but they evolve into taxed and regulated “digital assets” that are competitive with things like real estate, bonds, and gold.

Even though they don’t end up disrupting banks completely, the existence of DeFi eventually pressures big banks to decrease fees and increase yield rates for customers, in their hopes to claw back market share from an emerging threat.

Whether because play-to-earn gaming takes off, or simply because of the threat that it might, game studios will also have to work much harder to incentivize and leverage the talent of their gaming communities. Take-rates will be lowered. Relatively less value will flow towards corporate investors. Relatively more value will go towards the individual creators in gaming communities that are active in modding and creating digital assets like skins. Players will be able to resell their assets in secondary markets in more games in the future, even if those games have none of their assets interacting with blockchains, simply because over time audiences will come to expect that.

If I’m proven right over the coming years, it isn’t because I’m a genius who can see the future. I’m simply observing the present, while some of Olsen’s arguments are true only of the past. The moderated, optimistic third scenario is basically already what’s happened with Bitcoin.

Bitcoin

Satoshi Nakamoto’s original whitepaper was titled A Peer to Peer Electronic Cash System and he/she/they included a reference to the 2008 bailouts in the genesis block, playfully expressing a desire for Bitcoin to challenge fiat as the global reserve currency.

To this day, there are still some die-hard would-be revolutionaries trying to disrupt the banking sector and central banks using Bitcoin. There’s chatter about the layer 2 Lightning Network becoming the backbone of digital payments (I’m highly skeptical of this).

But by 2022, pragmatic Bitcoiners have given up on that use case. Everyone knows that Bitcoin’s design just doesn’t give it the properties it needs to be a good form of money or a widely used settlement network. This isn’t news.

After some painful and embarrassing setbacks, Bitcoin’s use case successfully evolved towards being a store of value. This is the reason for its current valuation. As Michael Saylor explains, BTC is a form of digital property that is in competition with assets like gold or real estate, not fiat currencies. If the Bitcoin community just accepted the fact that Bitcoin has evolved into an investment and gave up the quixotic posturing of ushering in some kind of new world order, that would be best for everyone.

Similarly, the Winklevoss twins are well known to argue that “Bitcoin is better at being gold than gold.”

Despite this, Olsen completely ignores the main Store-of-Value use case which Bitcoin finally got traction with, and for which it owes its high price.

I agree with Olsen’s assessment that Bitcoin is not only less energy intensive than banking institutions, but it is also far less useful. So what?

What matters is a comparison of its energy use and environmental impact against gold mining, where it proves to be less damaging. It also still has room to 10x its price, depending on how much of gold’s market share it can take.

Remittances

Olsen shockingly failed to bring up what could well be blockchain’s most important and socially transformative use case for addressing poverty over the next five years: remittances. This is a global market of $540 billion in transactions that’s ripe for disruption and perfectly suited for cryptocurrencies, especially stablecoins. Oh, and on the topic of stablecoins, yes, Tether sucks. But so what? USDC is compliant to regulation and behaves responsibly, which is why it’s winning.

Anyway, the problem is not just the fees from using traditional financial services, which can be quite steep. Even worse, while collecting payments from relatives abroad, recipients become easy targets for violent criminals.

I suspect that Olsen’s pro-labor bias makes his feelings about this matter complicated, since migrant workers are deliberately used by capitalists to erode the pay and bargaining power of workers in developed countries. Still, it’s hard to overstate how much good it would be for humanity as a whole to achieve a significant improvement to the remittance model. The beneficiaries are millions of the world’s most vulnerable people, along with their loved ones who work very hard to support them. There’s no denying that there are people who rely on remittances literally for survival, and that crypto is increasingly offering better alternatives for them than the existing system.

Obtaining funds privately, quickly, and without expensive intermediaries is especially important for El Salvadorians, who suffer high crime levels. Fortunately, the country has a bright future thanks to building its financial infrastructure around Algorand.

Proof of Stake

Let’s zoom in further on Algorand.

While the crypto space is certainly filled with colorful fraudsters and shady hype men, Algorand’s founder Silvio Micali stands apart as one of the world’s leading cryptographers, a Turing Award winning computer scientist (essentially the Nobel Prize for that field), and one of the MIT professors who helped developed the zero knowledge proofs which are quickly becoming the industry standard. While Ethereum is trying to migrate to upgrade to Proof of Stake, Algorand is already there with a protocol that doesn’t need to fork to upgrade. Nor can it fork by accident.

Olsen’s claim that Proof of Stake (such as Algorand) is “less resilient” and “less popular” than proof of work is simply wrong.

Polygon, another Proof of Stake network which is only mentioned in passing in Olsen’s video and is quickly dismissed with a hand wave, has over 132 million wallet addresses and processes more than 3.2 million transactions per day. That’s almost double what Ethereum managed to process on its most active day ever.

Algorand and Polygon each typically settle transactions instantly for around a penny or less. That’s why I buy much more of these two than I buy of Ethereum or Bitcoin — you can actually use them for things like play to earn.

Play to Earn

Axie Infinity may not be the humanitarian miracle I wished it was when I wrote about it last summer. Still, it has undeniably helped some families in the Philippines to make it through the pandemic and is undoubtedly is a harbinger of things to come.

I understand why Olsen wouldn’t want to play Axie. I don’t play it either. But not everyone has the luxurious privilege to only contemplate gaming for the fun of it. What “sucks” to Olsen means survival to someone else.

I think it’s quite groundbreaking that anyone anywhere can now go on Axie Infinity and, through scholarships, can do a thing that generates a few dollars a day. That’s admittedly not a lot of money, nor is the split all that “fair”, but it nevertheless represents a raised floor for the minimum earning potential of any human being existing anywhere on Earth that has internet access. I believe the sort of future where things like starvation and homelessness are a thing of the past will happen by continually raising that earning power floor on a global basis.

It doesn’t bother me how rich venture capitalists or companies like Sky Mavis get in the process. That couldn’t be more irrelevant. What really matters is that the billions of vulnerable people at the bottom end of the scale have more alternatives to sweatshops and starvation.

Take a hard look at national and international cooperation levels. Be real. We’re not going to be able to achieve anything like a global UBI or global minimum wage or any kind of global safety net like that in the foreseeable future. We’re just not. Smooth Love Potion might “suck”, but it’s all we’ve got in our inventory at this stage of the quest.

There will no doubt be many failed experiments for in-game economies, and I agree that Axie will probably be one of them. Fine. We’ll keep trying, we’ll keep learning, and we’ll level up. Isn’t that what games are all about? If a system is deeply unfair, as many consider Axie scholarships to be, then another upstart game or service that offers a more equitable split will eventually lure players away.

Privacy

Olsen is right to describe blockchain as a potential privacy nightmare, and this is something that also concerns me. But let’s be real — what‘s the true state of your privacy situation as it stands? Ask Edward Snowden, if you’re not sure.

On every form for the last 20 years, you’ve skimmed the long legalese text blocks for about 2 seconds, and then clicked “I Agree”. You did it just like the rest of us did. We signed away our privacy a long, long time ago. This is our world now. And by the way, that’s not even accounting for data that’s been taken without asking.

If there’s any system that needs to be upgraded, it’s identification and privacy. Like it or not, blockchain and zero knowledge proofs are the best technologies available to power the backend of whatever new identification and verification systems we eventually upgrade to.

The government is obviously going to continue to violate even the most basic expectations we have about privacy regardless of what we do. The power asymmetry is overwhelming and the protections for individuals are essentially non-existent. But let’s at least get identity verification systems in place that are secure enough to protect ourselves against criminals, instead of continuing to use things like Social Security Numbers that in fact have ZERO security features.

It’s True That We’re Early

Where we are in blockchain is roughly analogous to the internet circa 1996. Eventually, blockchain will disrupt everything. Everything. But it’s so difficult to visualize the mature-stage result right now that even some very smart people like Olsen are getting this completely wrong. All they can see are the growing pains and the flood of dot com scams that sucker gamblers in and then go bust.

A lot of smart people got it wrong back in 1996, too. Nobel Prize winning economist Paul Krugman once proclaimed, “the internet’s effect on the world economy will be no greater than the fax machine’s.” The fact that you’re reading this on your device is a testament to how astonishingly wrong the undeniably brilliant Krugman was.

As long as we’re tip toeing around the challenges for human egos, let’s deal with a big elephant in the room.

It sucks to miss out.

I mean seriously, what goes through your mind when you see 22 year old’s accidently becoming overnight millionaires by selling overpriced JPEGS as a joke? Meanwhile, you’ve got to fight an hour of traffic to grind out yet another miserable day at the office (or worse) and no matter how hard you try you’re falling further behind. How can you not feel like you’ve missed out on crypto’s big gains? It’s only natural that you’d wish for the NFTs of these cocky punks’ to go to zero.

I don’t think there’s anything wrong with you if you can notice feelings of resentment in yourself. I have them too. But what made me able to calm them was the realization that as with the internet in 1996, the vast majority of the opportunity is still in front of us. By 1996, yeah, it would already have been too late to become a startup investor in Microsoft (1975) or Apple (1976). But Netflix wasn’t created until 1997. Google didn’t start until 1998. Facebook only finally arrived in 2004.

Just as an investor in 1996 hadn’t missed out on the best opportunities on the internet, you in 2022 still have the ability to make life-changing money and have world-altering impact. I think individual choices do matter a lot, and that real life is a lot more like Fallout New Vegas than it is like well, this.

I also think I may have played more games than is healthy… so now I’m going to learn to become a blockchain game developer and make them instead.

print(“Hello World! :D”);

In subsequent articles and videos, I’ll be talking about how I plan to make the most of the opportunities ahead, which may give you some ideas on how you can as well. I’ll list the skill tree I’m unlocking for myself, and what free/open-source resources I recommend. Sign up for emails and be sure to follow me on Twitter and YouTube for more. And please don’t hesitate to comment. Your feedback — positive or negative — means a lot to me.

Follow Up

Today’s date is 7/7/2022, which is not an occasion of any particular significance, I’m just finally getting around to updating this article.

A lot has happened since January of this year, obviously.

Once Russia invaded as much of Ukraine as it was able to, I pretty much stopped talking about crypto completely. It just didn’t seem important anymore.

The loss of life in Ukraine turns my stomach, but I’m also in horror of the impending famines that are going to result over the coming year when two major breadbaskets (Russia and Ukraine) severely limit their grain exports to vulnerable parts of the world.

I’m not going to write many new articles about crypto when that’s no longer what I’m obsessing about right now. But since you’ve spent all this time reading about it, I do feel a responsibility to update this article.

Many of my friends that are crypto-hostile are delighting in the price collapse and reputational damage the crypto space has endured in 2022. They think it vindicates their belief that NFTs are a scam and Bitcoin is going to zero.

To take just one example, the NFT of Jack Dorsey’s first tweet was originally bought for $2.9 million. When its owner attempted to sell, the top bid was only $280. Instead of discovering that they’ve staked out priceless digital assets, early speculators are finding that there’s simply no secondary market for these overpriced JPEGS that they spent millions on.

Does that mean I think that Web 3.0 is dead on arrival?

Nah.

I knew price discovery was going to be tumultuous, which is why I mostly stayed out of NFTs from the start. They’re well beyond my own risk tolerance and bankroll. I can’t diversify enough risk. But that doesn’t mean I think the NFT market as a whole is going to disappear the way my crypto-skeptic friends hope.

Moreover, with Bitcoin, it’s whole value proposition is its resilience. You can’t kill it, and neither can anyone else. Or so the mythology goes. I guess maybe Satoshi Nakamoto could somehow jump out of the bushes one day and, cackling like the Joker, pull the plug on BTC. Or maybe an exponentially more powerful next-gen computer could crack its encryption like a walnut.

Barring that kind of black swan event, a simple price crash doesn’t phase me. Bitcoin has had many. Entire exchanges collapsing into insolvency doesn’t even force me to rethink my expectations, as sad as these events are to the people impacted. It’s happened many times before, and will happen again.

I’ve heard estimates of Bitcoin going as low as $8k. And sure, I don’t see why not. But it isn’t going to stay down forever. Maybe it will take 5 years, maybe 10, but I fully expect Bitcoin to keep plugging along, and by its mere survival, to strengthen its value proposition by reinforcing how hard it is to kill.

It will consume/squander quite a lot of energy along the way. I agree. For that and many other reasons, I advocate as loudly as I can that energy needs to come from nuclear power rather than coal. Solar and wind is a mirage that just isn’t going to get us there, for reasons I discuss in the article.