Go anywhere in Silicon Valley these days and start saying the word “cryp – “. Before you get to the second syllable, everyone around you will chant in unison “PONZIS 100% SCAMS ZERO-LEGITIMATE-USE-CASES SPEEDRUNNING-THE-HISTORY-OF-FINANCIAL-FRAUD!” It’s really quite impressive.
I’m no true believer. But I’m less than infinitely hostile to crypto. This is becoming a pretty rare position, so let me explain why:
Look at the graph of countries that use crypto the most (source):
Do Vietnamese people love trading monkey gifs? Are Ukrainians especially susceptible to Ponzi schemes? Is Venezuela laden with techbros?
Vietnam uses crypto because it’s terrible at banks. 69% of Vietnamese have no bank access, the second highest in the world. I’m not sure why; articles play up rural poverty, but many nations have more rural poor than Vietnam. There’s a history of the government forcing banks to make terrible loans, and then those banks collapsing; maybe this destroyed public trust? In any case, between banklessness and remittances (eg from Vietnamese-Americans), Vietnam leads the world in crypto use.
Ukraine has always been among the top crypto countries: in 2021, NYT called it “the crypto capital of the world”. Again, this owes a lot to its terrible banking system. NYT describes its banks as “so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork”, and this guy says that if you deposit more than $100,000 in a Ukrainian bank, “the chance that you get it back is very slim”. When Russia invaded, the Ukrainian government doubled down on crypto as a way for friendly Westerners to send donations to support the war effort – $70 million as of March. It proved so helpful that during the first month of the war, in between dodging Russian artillery shells President Zelenskyy found time to pass a law legalizing crypto and strengthening its regulatory framework.
Venezuela’s economy has been in slow motion collapse for the past decade. The inflation is currently in the triple digits (remember, people thought the Democrats would lose the midterms because of a US inflation rate of 8%). If your country has a triple-digit inflation rate, you might prefer to use an alternative currency, which Venezuela’s authoritarian government tries to prevent people from doing. Cryptocurrency provides a hard-to-ban alternative which has caught on among Venezuelan hustlers and small businessmen.
I personally contributed in a small way to Russia’s cryptocurrency use. I’ve been trying to help Russian ACX readers escape to other countries to avoid conscription or arrest. Of my two successes so far, both involved sending cryptocurrency to help them afford a ticket out and living expenses while they searched for a job in their new country. I’m pretty proud of this and I don’t think it would have been possible without crypto.
I think a lot of Westerners want to think of developing-world uses as a boring sideshow, and highlight Westerners trading monkey gifs as the only part of crypto worth talking about. But about 66% of crypto users live in the developing world. More people own cryptocurrency in Africa than in North America. Of course a technology centered around avoiding governance and banking failures will be centered in the countries with the most governance and banking failures!
I realize this is a bold sentence to use as a section header in 2022. But I recently tried to figure out the exact scam rate, and it seemed low.
I searched for articles called things like The Top Crypto Projects Of 20XX, and then I checked how many of those projects, years later, had turned out to be scams.I tried my best not to cherry-pick, and to focus on the first article that Google fed me for each of various relevant search terms. I ended up using four articles for this experiment:
…which between them described 54 different crypto projects1. Looking back at these from our position in late 2022, as best I can tell zero of them have been revealed to be outright rug-pull-style scams. A few fizzled out for lack of interest, like any business can. Two of the ten stablecoins lost their pegs, going to 70 – 80 cents instead of the expected $12. One exchange got in trouble for money laundering, although this didn’t negatively affect users. But overall this doesn’t seem worse than any other industry.
If you split $1000 and invested it equally in all the top crypto projects of 2015, you would now have $25,400. If you invested it in the biggest cryptocurrencies by market cap of 2020, you would have $2,700. Stablecoins aren’t really an investment, but if you put it in the top stablecoins of 2020 anyway, you would have $964.30. Exchanges definitely aren’t an investment, but if you put your $1000 in the best crypto exchanges of 2020, I think it would all still be there (FTX wasn’t on the list; maybe it’s too new).3
So why do people think everything in crypto is a scam?
Crypto is a few hundred interesting p
