If you’ve been following my writing, you’ll know I’m no fan of cryptocurrency. The entire crypto space is little more than a massive Ponzi-like scam – and as with all such scams, it’s bound to collapse in a massive conflagration I call the crypto #megarug pull.
When the balloon finally pops, the collateral damage will be extensive, taking down many related efforts. Web 3.0, the Metaverse, non-fungible tokens (NFTs), and decentralized finance (DeFi) will be among the casualties.
These initiatives, however, are not simple victims. They are extensive, complicated scams in their own right. One might say they are the Four Horsemen to crypto’s Antichrist.
Glimpsing the dark underbelly of these cons is essential to protecting yourself from their evil. Here’s a closer look.
NFTs: Encrypted Bookmarks for Wash Sale Scams, IP Theft, and other Mischief
An NFT is a digital token that points to a particular digital file that uniquely identifies that file, where the record of the token is written to a blockchain for everyone to see and validate.
The idea is to create a system of NFT ownership that conveys ownership of the underlying file, thus creating a market for the tokens.
NFTs, however, don’t convey any type of legal ownership, as there is no legal structure (like copyright law) that conveys that ownership. As a result, anyone can create an NFT of anything, regardless of who has what rights to the underlying asset.
Even without such legal protections, owners of NFTs typically claim some type of ownership over the linked asset. As a result, there’s a brisk business in ‘stealing’ the rights to artwork from their legal owners.
Furthermore, the NFT points to the underlying asset via a URL – in other words, it’s a bookmark. Just like normal bookmarks, if its reference is moved or deleted, the bookmark fails. Bye bye digital asset.
Given the lack of regulation – or really, any kind of oversight – myriad other scams have popped up. Pump and dump wash sale schemes are dead simple: Create an NFT, sell it to your buddy for a million bucks, and then have them sell it back to you for the same amount. The NFT now has a market value of $1,000,000, and some mark will be over the moon to get it for half that.
DeFi: Scams instead of Banks
DeFi is a system for offering financial instruments (bank accounts, investment derivatives, payment mechanisms, and the like) that uses smart contracts on a blockchain instead of regulated intermediaries like banks and brokerages.
The world of finance has relied upon trusted intermediaries for centuries, and for good reason: they facilitate financial transactions at scale, and they provide a recourse mechanism should a transaction go awry.
DeFi offers neither of these fundamental requirements. Blockchain is far too slow to handle modern finance, and it cannot scale nearly well enough to handle modern financial loads.
If a transaction goes astray – either via a technical issue or an attack – there’s no central party to appeal to, let alone fix the problem. Unless, of course, you introduce a central party for those purposes, but then you wouldn’t have DeFi, would you?
In practice, all of DeFi’s fundamentals are extraordinarily risky. Most offerings depend upon stablecoins, which are fictitious assets that purport to provide a stable source of value for crypto (until, of course, the #megarug pull).
Many DeFi products offer high interest rates for highly leveraged, complex investments that appear to work as long as ‘number goes up’ – but in the event of a significant downturn will collapse along with all investor funds.
Given DeFi’s lack of regulation, dependence on scammy stablecoins, and encouragement of highly leveraged positions, the entire industry has become a massive scam machine sucking in the greedy and foolish.
The Metaverse: Crypto + Facebook. What Could Go Wrong?
The Metaverse is a science fiction construct where everyone puts on virtual reality (VR) goggles and ‘walks’ around a 3D virtual world, interacting with each other, the landscape, and virtual objects. Just think of all the games you can play and business you can conduct without ever having to take a shower!
The Metaverse really shouldn’t be one of our apocalyptic horsemen, as the fundamental idea is sound. I’m sure that one of these years, we’ll be communicating and conducting business via VR.
Only not with the Metaverse people are talking about now.
The first red flag that should concern all Metaverse fans is the fact that Facebook – ahem, Meta – is pouring beaucoup bucks into it. We all know what Facebook is up to: packaging users (you and me) into products they sell to advertisers.
For Meta, the Metaverse is more of the same, only targeted at the 18 – 25-year-old demographic that has largely abandoned Facebook for cooler social media apps like TikTok and Snapchat.
Who else is pouring money into the Metaverse? Big brands like Coca-Cola, Ford, Procter & Gamble, and more. You can rest assured your stroll through your virtual neighborhood will have plenty of billboards lining your path.
Serving eyeballs to advertisers, however, doesn’t reflect the rotten core of the Metaverse. How are you supposed to conduct commerce in this virtual realm? Crypto, of course.
For all its hype and virtual flash, the Metaverse is really just one more pump and dump scam meant to extend the life of the crypto Ponzi.
Web 3.0: Fixing What Isn’t Broken
Just as pestilence, war, and famine all lead to death, so too do NFTs, DeFi, and the Metaverse lead to Web 3.0.
The idea of Web 3.0 is to break up the hegemony that Meta, Google, Twitter, and other big-tech firms have over the Internet by moving to a decentralized version of the Web that leverages crypto, NFTs, DeFi, and the Metaverse.
Blockchain would be core to the Web 3.0 architecture, in spite of its dramatic scalability and speed limitations. It would do away with all centralized consumer protections, allowing for all manner of scams, harassment, hate speech, and child pornography – all in the interests of decentralization.
Or perhaps Web 3.0 isn’t really decentralized after all – it’s just a way for VCs like Andreessen Horowitz to wrest control of the internet from the big-tech firms. As George Orwell said, “the creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”
The Intellyx Take
There may be four horsemen, but there is a single thread running through this story: decentralization courtesy of crypto and blockchain.
This entire scope of effort is fundamentally flawed. Decentralization is nothing but a Libertarian wet dream, where the illusion of liberty is swept away by the reality of scams, theft, and all manner of malfeasance.
Despite all the FOMO and the appallingly powerful madness of crowds, there are some fundamental lessons here: Decentralization is a myth. Blockchain doesn’t work. Crypto is a scam. And our four horsemen are simply more of the same.
© Intellyx LLC. Intellyx publishes the Intellyx Cloud-Native Computing Poster and advises business leaders and technology vendors on their digital transformation strategies. None of the organizations mentioned in this article is an Intellyx customer. The author has never owned, nor does he intend to own, any cryptocurrency or cryptocurrency derivatives. Intellyx retains editorial control over the content of this document. Image credit: Viktor Vasnetsov (public domain).