This Sam Blankman dude has been in the news lately.  Now he’s said to be fighting extradition.  If experts are to be believed he’ll lose and wind up being brought back to face criminal charges.  However it keeps bugging me we even have to hear about him because I truly don’t get how cryptocurrency ever became a “thing” in the first place.

From where I sit, what happened with this guy and his company FTX should be taken as an object lesson.  It can come crashing down in a matter of days.   Like a stock it can suddenly collapse in value in the course of a single day, losing half more of its value and it happens with this stuff.  Not just once in a blue moon either.  Hell, in many ways it’s very much like stock.  It gets value in part by how much people buy of it, except that in the case of stock there’s some company offering a product or service.  With cryptocurrency neither is really the case.

So last month all the money, the real money folks had traded for whatever FTX called their “currency” is gone along with the now worthless “tokens” that replaced their real money! Maybe I’m way the hell wrong but it sure seems to me like the same thing could happen with any of these companies.  Here today, worthless tomorrow. (or within a week).  And unlike bank accounts there’s no federal program I’m award of that protects at least a portion of what you had in your bank.

Now, I’ve questioned cryptocurrency from the get-go and been told I just didn’t get it.  That I was obstinate.  Old fashioned.  Behind the times.  That cryptocurrency was “the future” and virtually always there was at least a whiff, if not outright implication that I was just uncool.  And looked upon with at best mild amusement over my winding up being left in the proverbial dust of financial doings.  Sometimes it’s been outright contempt over my “backwardness.”

Granted, being cool or hip or whatever the current term is hasn’t been my thing.  Pretty much since forever.  If for the last four months of high school (I’m in my mid sixties now) I was widely well thought of, even by the cool/popular kids it was short lived.  And from the “in crowd” it was mostly grudging, or out of embarrassment (at least from those I’d been classmates with since kindergarten) from too many to count.  I recall comedian Bill Engvall doing a special titled “14 degrees off cool” and that’s me.  Except I’ve often been quite a bit more than fifteen degrees off.

Pretty much clueless in fact on a lot of “happening stuff” complete with some truly embarrassing moments going back decades.   There was the Thursday evening (during “Field Day”) incident in the plaza of the BEQ at Henderson Hall when my voice boomed out (just as things got quiet) “Who the fc@k is Prince in the summer of 1984?  Every eye on all five decks of both sides of the two “wings” of rooms seemed to stare down from the balconies on each deck/level and I got weird looks for ages after.  Years later I’d have to have it explained to me who the hell Kim Kardassian was, and got looks of pity over not understanding why she and other “famous for being famous” (?) were being talked about like they were important.  Then there was the Miley Cyrus thing – with my co-workers all of whom were female.  The whole twerking on Canadian singer Robin Thick was some big “scandal” they were talking about (and I’d seen news stuff about it) and I asked “What the hell is twerking?” And I freely admit to having been to multiple strip clubs over the years with friends!  Let’s just say I felt about the size of a microbe from the reaction (both short and long term) to that bit of cluelessness.

So I know, I know when it comes to trends I’m almost certain to be behind the curve.

When the whole cryptocurrency thing kicked off my reaction was “why would anyone with a lick of sense give up using govt. backed currencies for some unregulated, faceless internet site/person?”  It seemed like a scam.  To me, it was like modern art (or even regular old classic art) in that value was solely in the eye of the beholder.   Or as I noted earlier sort of like stocks.  Unlike money in bank/credit union accounts nothing backed up cryptocurrency other than the word of some private, for profit creator(s).  No FDIC backing for a certain amount as with my dollars in my credit union. If (extremely, highly unlikely) it were to go belly-up I have way less than the amount that’s backed by the govt.  But if a cryptocurrency goes kaput, it’s like having a bunch of stock that suddenly plunges in value because the company itself was a fraud.  Like Theranos for example.  Or Enron.   Or some old-school Ponzi scheme.

That’s how it has always seemed to me.

Maybe I’m an idiot who just doesn’t get it.  One who is yet again way the hell behind the times.  But for the life of me I don’t understand why someone would put their faith, and financial well-being in the hands of some internet venture that doesn’t guarantee I won’t lose it all in the blink of an eye if something, say a Sam Blankman type turns out to be a scam artist embezzler.   I’m no economist or particularly financially knowledgeable but I understand how transactions work.  How money, real money like Dollars, Pounds, Marks, Yen etc. are used to complete them.  Each country’s currency has a value that’s backed by its government and markets further set their value against each other.  But in the end every dollar, every “Federal Reserve Note” regardless of denomination has a level of backing no cryptocurrency has.  Same with other major currencies.

And here’s another thing.  I can make transactions on the internet using my good ole American dollars!   Or any other govt. issued currency as can people from any country.   That’s not only possible but common ever since the internet got built out and businesses began doing business online!  If the whole idea is some Libertarian dream of removing governments from the financial equation let’s just say governments aren’t making it easy.  China, the world’s largest market bans it.  It’s not well received in lots of other country’s governments including our own.  Elizabeth Warren is among those who have pushed for regulation.  But cryptocurrency is still out there and people are trading their govt. issued currency for it and doing transactions with the stuff.  (With the issuers taking a small fee of course.  And what’s to keep them from playing top dog in a Ponzi scheme and cutting & running?)

So I again ask the question: “What does cryptocurrency offer that regular govt. issued money doesn’t?”  WHY would people create an account made of this stuff?  Trade their actual money for cryptocurrency?  I truly am mystified.

I also realize I might wind up not just “schooled” by folks who read this but even experience yet another epic humiliation of the type I talked about earlier.  On a much grander scale.

If the appeal is that cryptocurrency is free of govt. regulation I say be careful what you wish for.  That particular double-edged sword can cut deeper and faster than in your worst nightmares.  Everyone should take a hard look at what’s going on with this now disgraced former CEO.  And his company which of course went bankrupt when he was exposed.  I’ve seen talking heads this week say when he spoke before to Congress he conned them because as is often the case (social media has been adept at talking over their heads too) they simply didn’t understand what the hell they were “investigating in some hearing.  And being Congress Critters, they weren’t about to cede their time on camera to staff, or worse the rare colleague who actually knew shit on the topic at hand and who could hold the Blankman’s, the Zuckerberg’s and the other’s feet to the fire.

As far as I’m concerned every single “cryptocoin” should be required by every country in the world to have Caveat Emptor etched into it.  Buyer Beware.

So, I’m going to keep on being a clueless, non-cool, unhip, behind-the-times curmudgeon/old fart and stick to using good ole American dollars.   I suggest others do the same.  Or if you don’t trust the monetary system then buy something tangible like precious metals.  Gold.  Platinum.  That kind of thing.  But for Pete’s sake don’t go trading your dollars for some unbacked, unregulated only can be used on the web “currency.”

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  1. I had the same thoughts exactly, when I first heard of crypto currency. I am 100% right there with you. Maybe someone can fill us in on our understanding, but I have yet to see a good explanation that answers the valid concerns you brought up.

  2. I can promise that every serious tech guy who gets the bleeding edge of their field knew crypto was a scam from jump. It always carried the stench of too many other past speculator bubbles for me. Fundamentally, it’s no different than the Dutch tulips boom, the 1990s comics speculator bubble, Enron stock and too many other socially acceptable Ponzi schemes to recite.

  3. People have been falling for ‘get rich quick’ schemes for centuries. Check on the Dutch ‘tulip mania’ bubble of the 1630s
    Or the ‘South Sea bubble’ of 1720

    Most ‘get rich quick’ ideas are really ‘get poor fast’

    Of course, you can always buy a $12 million company for $44 million and then get rid of the people who actually made it work

  4. I had a 90 year old client try to convince me to by crypto currency several years ago. I told him I need to see something tangible for my money so, no. Earlier this year, he was bankrupt and nearly lost his home.

  5. Blockchain is an interesting technique but crypto is a scam. It’s another libertarian pipedream and works about as well as their other scams.

      • Blockchain is a method of traceability used by, among other things, cryptocurrency.
        The same way that your signature verifies that you agree to the terms of a contract, it is a separate thing from actual you.
        I think that the main appeal of cryptocurrency is that it allows for the purchase of goods and services you’d rather governments didn’t know about.

  6. I live by this simple rule: if a bunch of “bros” are into it, get outta there! Crypto was a boon to all manner of criminals to hide their transactions and launder their money. When Feds and DEA got smarter at finding the digital and blockchain ratholes, the crumbling began. My biggest worry is that the worst thing about blockchain technology is not going away!! The massive servers needed to run it are destroying our power grid and eating up huge areas of real estate to house the servers!! There is no fix to that as blockchain becomes more popular!!

    • Popular for how long? What I can tell, it’s got all the same problems crypto does. The impracticality of it as things presently stand means it either adapts or collapses too.

  7. From one old fart to another, very well put Denis. Excellent piece. Like all of us here know – a scam. The purpose of crypto is essentially for criminals to make transactions, no one else “needs” it. They just all hoped it would keep going up in value and they could get out before it fell off a cliff. Sound familiar? If not, maybe give a shout to Charles Ponzi, he could explain it to you. As Warren Buffet said about Internet businesses in the 90’s just before they ALL collapsed “I don’t understand them at all. Where is their intrinsic VALUE? I understand the value proposition of Coke and Dairy Queen since I use both of them prodigiously. I understand the value of Insurance because most people REALLY NEED it and that’s good for GEICO. But Internet Businesses?? I just don’t “get” them, so I am not investing in them.” Smart man that Buffet. We could all learn something from him. Sadly, all those who “invested” in FTX never listened to Buffet, or like-man wise-men/nerds, like Denis Elliot!!!!
    Thanks Den 🙂

    PS What is a BEQ?? Is it something like Base Exchange (PX) ? What does BEQ stand for?


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