Cryptocurrency has a trust problem – Marketplace

Cryptocurrency has a trust problem – Marketplace

Blockchain Crypto Market Technology
November 1, 2022 by Coinvasity
19
It’s a world of big promises, big personalities and, lately, big failures that can seem inscrutable and often ridiculous.But cryptocurrency has moved into finance, tech, even sports arenas. And according to Bloomberg Businessweek, it demands to be understood.This week the magazine has dedicated an entire issue to what it calls “The Crypto Story: Where it
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It’s a world of big promises, big personalities and, lately, big failures that can seem inscrutable and often ridiculous.
But cryptocurrency has moved into finance, tech, even sports arenas. And according to Bloomberg Businessweek, it demands to be understood.
This week the magazine has dedicated an entire issue to what it calls “The Crypto Story: Where it came from, what it all means, and why it still matters.”
Marketplace’s Meghan McCarty Carino spoke with Bloomberg opinion columnist Matt Levine, who wrote the article. He said crypto and the blockchain technology behind it started as a reaction to traditional banking, which, of course, relies on trust in institutions.
The following is an edited transcript of their conversation.
Matt Levine: The world is complicated, and in your daily life, you’re just going around trusting that the systems you use will just work. And then in 2008, which is kind of the dawn of cryptocurrency, people, like, lost a lot of that trust, specifically in banks, but also in just sort of the system broadly. Crypto kind of emerged as a reaction to that, and the sort of initial idea was really, you don’t have to trust anyone. This all lives in verifiable, open-source code, every transaction is recorded publicly in an immutable way. The fact that it was checkable meant that they were sort of relying a little bit less on trust. And that was this real philosophical shift. But then, of course, crypto got bigger and more complicated. And trust really crept back into this system where if you wanted to buy bitcoin, you’d probably go to a crypto exchange, because it was easier than doing it yourself. And so people ended up trusting centralized actors in crypto sort of almost as much as they do in like the rest of the world.
Meghan McCarty Carino: Right, so this idea of crypto and the blockchain kind of being “trustless,” what does that mean, now?
Levine: Well, it hasn’t gone away, [but] there’s a lot of stuff in crypto that isn’t that. There’s a lot of centralized intermediaries, or lenders and exchanges. And I think that one effect of the kind of crypto winter and the meltdown in crypto prices earlier this year is that the decentralized stuff kind of worked pretty well. And a lot of the people who put their trust in centralized platforms saw that trust abused, and some of those platforms went bankrupt, and customers lost access to their money. But I also think that to the extent you’re going to build a big part of the economy, you do need to find some way to have trusted intermediaries. And I think probably a component of that is regulation in some form or another.
McCarty Carino: Right, you describe this moment as like a crypto winter, markets have had this big crash, there have been mounting scams and frauds. I mean, to the extent that trust is an element in these systems, how big of a hit has it taken?
Levine: A pretty big one, but there are companies and people who survive better than others. And I think that one thing that is interesting to watch in the aftermath of this is that some of the bigger survivors are clearly very invested in not losing all sense of trust in crypto. And so you have people like Sam Bankman-Fried, who runs the exchange FTX, which is a big crypto exchange. He has been sort of buying up or propping up some of the lending platforms that have failed, because if customers of one crypto platform lose their money in a way that feels bad to them, then that’s going to lead to distrust in the entire system. The government is not stepping in to bail out these crypto platforms. But there is a little bit of a “roll your own bailout” situation, where you don’t want the whole system to crash. And so there is some sense of “We need to restore trust by giving customers their money back.”
McCarty Carino: You mentioned the prospect of government regulation. But wouldn’t government regulations sort of go against the whole crypto ethos? I mean, could this really restore trust in these systems?
Levine: Oh, yeah. And I think that if you sort of look at the history of U.S. stock investing, you know, you could tell a similar story of like, the 1920s were this real boom time, and then there was a big crash. And then after that, securities regulation was kind of built from scratch. And there was, like, a long period of growing trust in the markets that allowed you to raise a lot more money, because people trusted the market. But to your point that it’s anathema to crypto people, that’s absolutely true. But there is, I think, a divide in the crypto world where there are a lot of people who came to crypto for philosophical reasons, then there’s a lot of other people who are hedge fund managers who are like, “I want to make money and I want to be able to attract institutional investment.” And the way to do that is absolutely to have it regulated. Both of those strains are real and kind of legitimate in the crypto world.
McCarty Carino: So now that you have done this massive article and all this research, do you feel like you have trust in crypto?
Levine: I don’t know that I have trust in crypto. I mean, I think that, you know, the days when I put my 401(k) into crypto — I’m a traditional person, right? And I’ll wait for a little bit more regulation before I do that. I do sort of see the appeal. And I do kind of think that I don’t believe that everything that you do in your financial life has to be fully trustworthy, right? I mean, in investing, you put some of your money in the bank and you really want to get it back, and then you put some of your money into risky stocks and you hope to make a lot of money, and you realize you might lose some money. You know, in crypto, there were these problems where people offered very high returns and sort of created the impression that it was just a bank account and your money was safe, and a lot of those things went very wrong. But I think a lot of people in crypto are like, “Hey, this is fun gambling,” and if it goes wrong, you know that was a risk they were taking.
If you want a better understanding of crypto, blockchain and more, Matt Levine’s story is about as in-depth of an explainer as you’ll find anywhere.
It’s 40,000 words in four chapters. Bloomberg has labelled it “The Only Crypto Story You Need,” but just in case it’s a little more crypto story than you need, it’s also kindly broken down into a cheat sheet of the 10 biggest takeaways.
But I will say, in addition to having about 39,000 fewer words, the digest version is also lacking all of the fun graphics, gifs and memes of the original.
And what is a crypto story without gifs and memes?
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