Stephen Diehl: Krypto is the Commodification of populist anger, gambling and crime

"Cryptocurrency is a huge fraud, albeit a complicated fraud." So Stephen Diehl's rush against the crypto industry begins

When he published it in June, Bitcoin and other crypto-assets trembled. Since then, the collapse of FTX, the second largest crypto exchange, has created a potentially existential crisis. Billions of dollars of customer assets seem to have been burned, together with the status of FTX founder Sam Bankman-Fried as an old-truistic visionary. Is crypto everything just a Fata Morgana?

How Bankman-Fried is Diehl an American in the thirties with a nerd type and unborn hair. But while Bankman-Fried asked the US legislator to create cheap new regulations for crypto, Diehl pulled at the other end of the rope. He campaigned for crypto to be regulated like other assets. In June he coordinated a letter from 1,500 technologists to high-ranking members of the US congress and asked them to see "the hype and the roar of the crypto industry" and to understand their "inherent defects".

Diehl has the understanding of programming and economy in order to question crypto from scratch. He tried to sell blockchain technology-the distributed databases on which crypto builds up-and believes that he could have ride on the wave of crypto: “Anyone who looks like a nerd like me can probably go to the Valley and collect $ 50 million of some of them very much to pump and a life-changing money earn.

instead he stood on the sidelines and blog about the mistakes of crypto. That brought him a supporter - but also harassment, including death threats. "The past three years have been hell," he says of course shyly. "It's not easy to be a crypto skeptic."

Diehl's book, the crypto bubble burst , Bitcoin travels back to the crypto gold rush after 2016, which he calls "grifter era" during the global financial crisis. He argues that crypto slowly (it is based on the transfer of transactions via decentralized networks) and unreliable (individuals are responsible for securing their assets; if they lose or die passwords, there is much less recourse than, for example, a bank). It cannot be a great investment that is increasing and higher and a sustainable currency that offers a stable value. He argues that the price of crypto-assets is largely based on the fact that there is an even larger fool who believes in the hype.

"After 14 years it is still a solution to a problem. It does not build up a new financial system. It does not build up a new Internet. It is not a wealth that is not correlated with the market. It is not a protection against inflation. It is a vehicles for pure, naked speculation, detached from everything in the economy. It is a casino that is wrapped in all of these lies. remains like a net negative for the world. ”

You may not be interested in crypto, but it should be. "It reveals many of our dark tendencies," says Diehl. "And it is a mirror for a large part of the political struggle in society."

Diehl, 34, grew up in Massachusetts. He studied physics and was one of the first employees at Quantopian, a now dissolved hedge fund that financed investment algorithms through crowdsourcing. Later he moved to Great Britain with Adjoint, a software company that uses blockchain technology. Colon banks wondered whether such distributed databases could consolidate the steps to approved a mortgage, for example.

I suspect that there will be a great interest from private users for some time because the memes and the stories address a specific type of investor

"This is an interesting idea. Except in practice, it doesn't work very well. I have worked on some of these projects, and under all circumstances there is a much easier solution by using software that is about 30 years old."

blockchain could combine actors who do not trust each other. But in a world in which banks trust each other, "a so -called trustworthy network is superfluous.. If you have three large banks and have all the data you want to share, the architecture of three databases that are automatically synchronized is a much more complex architecture than just a database that all use together.

"I will not say that we have a 100 percent answer [Whether blockchain is useful]. But the answer doesn't really seem to be." Last week, the Australian stock exchange attempted to transfer its clearing house system to a blockchain-based platform-and wrote down 250 million AUD ($ 168 million) and seven years of work.

in 2019 and 2020, when Diehl started blogging, Bitcoin rose for seven times. Crypto fans mocked unbelievers with initials such as "Hfsp": Have fun staying arm. Wasn't Diehl afraid to miss anything? "I have no high risk tolerance." (He didn't manage to exceed an index fund while acting with his own money.)

His reservations were also ethical. "The price limit for the pound of Sterling is that people have to acquire pounds of sterling to pay their taxes. The price lower limit for crypto, if there is one, are dark flows of money, money laundering and crime."

crypto exchanges were hacked earlier and went bankrupt. How serious is FTX's collapse? "This corresponds to the collapse of a JPmorgan or a Citi within 48 hours. They were also the largest player who advanced the regulatory agenda of the crypto industry."

If Diehl is right, should all crypto assets soon go to zero? He is careful with predictions. "I think as soon as the capacity for parabolic upward movements is gone, the institutional money will dry up.

"[Crypto is the] Commercialization of populist anger, gambling and crime."

The loss of trust in the crypto fans in the financial system is strange in a way. Even at the crash of 2008, bank deposits were insured. The stocks rose over the most decades. "Take a look at this country in my most sensitive reading of crypto investors-how many young people have the feeling that they have a chance to get to the home managers? Many of them have the feeling that they have to invest in more risky systems because they need higher returns."

How much sympathy does he have? "I don't want so many people to be injured. My generation was hit by the financial crisis, from Covid, we will have the climate crisis. These people do not need this additional suffering in their life."

A reaction to the bankruptcy of FTX is that it was a centralized platform with an offshore basis. A better form of (decentralized or regulated) crypto could replace it. "If you accept the thesis that the assets are a 'larger fool' scheme, it doesn't matter where you act."

What if the crisis of Crypto were like the Dotcom bubble? Pets.com went bankrupt, but Google and Facebook soon climbed. But in contrast to FTX "Pets.com appeared in front of her door with dog food, they tried to do something right," says Diehl.

An argument that the risk capital company A16Z is brought to is that crypto could be used to pay creators online and break the grip of Facebook and Google. Does that work? "No, because the end users of these products want dollars and pounds." What if we live more online from our lives and paid for digital goods in the meta verse? "Can't I pull out my cell phone and pay you in 15 seconds? Money is already digital."

He argues that Bitcoin in particular is too slow to scale: It processes about seven transactions per second - "approximately enough to operate a small Tesco, but no economy". (Diehl has "not formed a complete opinion" to the digital currencies that the central banks want to issue.)

crypto should democratize finance. Since crypto-assets are unregulated and "deeply manipulated", hedge funds and others have made it to pump and dump instead. "This looks like a gigantic transfer of wealth from many really undemanding small investors to many experienced investors."

Among those who criticize Diehl, Elon Musk, who has worked out the meme, was Coin Dogecoin, and whose car company Tesla Bitcoin bought (before most of it was sold). "Elon is a clown. I think it's a joke for him. He is only an enabled. I am not sure whether he believes in it at all."

politicians were careful to block crypto "innovations". The supervisory authorities are overwhelmed. Diehl compares the bladder at ICOS-initial coin offered, in which crypto entrepreneurs collected money for projects that mostly disappeared-up to a cyber attack on the regulatory system. "Let us create 10,000 securities injuries and the [Securities and Exchange] The Commission simply does not have the bandwidth to take care of 1 percent of it."

An answer is "to be followed by the stock exchanges", the greatest player. So far, the US reaction has been “incoherent”. The chairman of the SEC, Gary Gensler, has suggested that most crypto tokens are not registered securities, "but it seems as if they are not ready to actually pursue this."

Sherrod Brown, chairman of the Senate banking committee, called the collapse of FTX "a loud warning bell". But many people in the congress like to let crypto "burn out like a forest fire," says Diehl.

He wants crypto to be restricted instead, as a blow against the world according to the truth. "The average person must be able to tell them in general why investing in assets without internal value is a bad idea."