Incomprehensibility is a feature
The complexity of cryptocurrencies, blockchain, NFT’s, is a wonderful way to confuse people. When people are confused by technology, they look for service providers to reduce that cognitive load and do the work for them for a “small fee”. Fortunately, there is someone to take your money, the crypto exchanges.
Read this excerpt from Coindesk.com, and ask yourself what it means.
The benefits of incentivizing Curve token holders for voting on a specific gauge resulted in new developments within the space. The Curve ecosystem has enjoyed higher voter participation than most other DeFi protocols in large part because of its veCRV locking system. Forcing users to lock, from three months to four years, to access token utility has pushed stakeholders to align. The token itself is distinguished by a clear separation of utilities.
That type of word salad is featured prominently in all the crypto websites and promotional material I have seen.
It is not anonymous
The blockchain is NOT anonymous. By definition the blockchain is a pseudonymous PUBLIC record of transactions. While the owner of a transaction is publicly identified with a wallet address, law enforcement agencies can successfully identify blockchain wallet owners.
It is not decentralized
In practice, the mechanics of setting up an e-wallet and performing crypto transactions are too complicated for the average person to understand giving rise to about 15 companies (“exchanges”) that process approximately 85% of all crypto transactions. These exchanges process millions of transactions and hold transactions in “suspense” (an internal ledger) then settle up on the blockchain periodically. In most cases of hacks where crypto coins go missing they are stolen from these internal company ledgers. These internal ledgers are the opposite of “distributed” and are NOT on the blockchain. These crypto exchanges are the opposite of what cryptocurrency is widely believed to be, this is a centralization of power, similar like central banks in conventional banking.
Management Questions
The term “rug pull” has now entered the lexicon as companies are formed, for some reason people put real money in them, then the companies go bankrupt and the executive officers suddenly go missing. That is a rug pull. Approximately $11,000,000,000 ($11 Billion) US Dollars are known to have been embezzled in 2022 alone. This site keeps a running total of the monies embezzled and reports daily on the rampant malfeasance in the cryptocurrency industry. Chainalysis, has a more conservative estimate, and claims hackers have stolen more than $3 billion in cryptocurrency so far this year, shattering the previous record of $2.1 billion set in 2021. We could argue over the exact numbers, but it’s pretty clear there is a lot of calculated malfeasance in the cryptocurrency space.
Insane Energy Usage
Much has been written on the massive energy use of “mining” cryptocurrencies. Many comparisons to the total energy use for cryptocurrency mining to the energy used by entire countries, Belgium, Argentina, 45 million people/year, have been made. This number rises with each successive article. Research from the University of New Mexico suggests that cryptocurrency is less like gold and more like crude oil, in terms of how deleterious it is to the environment.
Is it truly immutable?
Another misunderstanding is that the blockchain is distributed and therefore immutable. This is one of the foundational principles of blockchain technology. Cryptocurrency tech is vulnerable to tampering, this DARPA analysis finds.
Code is law?
The phrase “code is law” is part of the crypto lexicon. It implies that whatever the crypto trading algorithms do is the de-facto law. This can lead to unexpected outcomes. This is a fascinating story about how an 18-year-old graduate student exploited a weakness in Indexed Finance’s code, and by working within the rules of the software “acquired” millions of dollars of crypto equivalent. Then he disappeared. The article characterizes his acquisition as theft, but as you can see, he broke no rules or laws. Draw your own conclusions.