In his monumental history Debt: The First 5,000 Years, the anthropologist David Graeber accused economists of inventing “imaginary villages” as the settings for their just-so stories about the ancient origins of financial exchange. Five thousand years later, it is hard not to apply the same phrase to the strange world of cryptocurrency, a skein of imaginary communities and exchanges that claimed to be reinventing trade and commerce from first principles even as, in reality, they reinvented forms of fraud and exploitation that are almost as old as money itself. Money, Groucho Marx supposedly observed, can’t buy happiness, but it does let you choose your own form of misery. And fake money? All the more so.
Until recently, crypto fantasies were all but impossible to avoid. In the churn of shiny-object internet and technology fads, it feels like barely yesterday when every celeb in the United States was hawking crypto at the Super Bowl and NFTs on late night. The precise consumer purpose of crypto was never entirely clear—it was sold as something halfway between the stock market and online sports books—but celebrity spokespeople from Matt Damon to Larry David to Spike Lee promised that it represented the future, a vague country where banks and credit card companies and 10-year cycles of recession and 401(k) devaluation were as obsolete as the horse and buggy. Well, no one likes bank fees, and everyone hopes fortune will favor their boldness. Fear of missing out is a powerful economic motivator, which bland theories of rational individual economic actors do not capture.
Then FTX, once one of the most prominent crypto exchanges, collapsed spectacularly; the celebs got sued; and the regulatory bodies overseeing the world’s real capital markets suddenly saw fit to start poking around. In mid-June, the U.S. Securities and Exchange Commission and the major international cryptocurrency exchange Binance came to a court-mediated deal. The SEC had sought to force Binance to pay millions in restitution to customers that it had allegedly defrauded and to permanently enjoin the company’s founder, Changpeng Zhao (better known as CZ), from acting as a corporate director in the United States. Under the mediation deal, Binance’s U.S. arm would be permitted to continue limited operations, principally to allow U.S. customers to withdraw assets, but the company could not seamlessly transfer and intermingle funds and assets from the United States to its various offshore operations. That, it turns out, was the whole game.
The SEC suit follows a separate action from the Commodities Futures Trading Commission that seeks, among other things, to permanently bar CZ from ever again engaging in any activity that falls under CFTC jurisdiction. It is likely to succeed in doing just that, and Binance’s days of access to the North American market are almost certainly numbered. EU regulators are circling as well, particularly in France—the exchange maintains one of its major global offices in Paris—where Binance and CZ are accused of false advertising and failing anti–money laundering obligations. Well, there is always Kazakhstan.
Enthusiasts and investors have meanwhile found other fads to glom onto (the metaverse! AI!). When God bursts a bubble, he blows up a new one. Crypto still exists; the blockchain is still out there, endlessly searching for a use case; but the music is slowing, even if it has not yet entirely stopped.
In the mere 14 years since the first bitcoin was minted (mined?), the industry has created and destroyed astonishing digital fortunes, and it has destroyed many real nest eggs and retirements and lives as well. What happened? How did it grow so big, so fast? Why was it so lightly regulated for so long? Why was it so attractive to certain personality types and certain political ideologies? And maybe most interestingly, who were they, the guys at the top who took their many victims’ real money, washed it through their online exchanges, and turned it into real money and real assets to enrich themselves? How did they take so many people in?
These are the questions that Ben McKenzie and co-author Jacob Silverman try to answer in Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud. Part Vox-ish explainer, part globe-trotting picaresque, it follows McKenzie, an actor-turned-crypto critic, and Silverman, an indefatigable journalist, as they journey from SXSW stages to Miami confabs to Caribbean islands in search of some kind of there there to crypto—finding behind every door another door, as they try to unravel the nebulous and seemingly infinitely malleable schemes that kept the industry afloat as long as there were more new suckers to feed into its engine.
It’s an entertaining, if often depressing, read. Crypto is a wildly diffuse industry with wildly diffuse and often contradictory underpinnings, use cases, and economic justifications: what McKenzie and Silverman call “the economic narrative that developed around it, a constellation of sometimes overlapping stories that built up over the course of its existence.” The “blockchain,” the indelible digital ledger that forms the backbone of crypto transactions and accounting, was theorized in the early 1980s, and attempts at digital currency date from the ’90s. Likewise, microtransactions and the trading of digital assets have been around since the 1990s in multiplayer gaming, with gamers using both in-game assets and real-world currencies to purchase or trade for weapons, tools, character skins, and more.
It was in the late 2000s and early 2010s, in the shadow of the spectacular collapse of financial markets and institutions in the Great Recession and the decision of governments and central banks to bail them out, that Bitcoin launched and inaugurated the era of modern cryptocurrency. And as Easy Money is at pains to point out with charming bluntness, Bitcoin and its imitators did have a compelling narrative: “The original story—that Bitcoin represents a response to the devastating failures of the traditional financial system—holds significant power because we all agree on its premise: Our current financial system sucks.”
But as the authors make clear, the shadow financial ecosystem that sprouted around Bitcoin, its imitators, and its many descendants, rapidly came to imitate the worst aspects of traditional finance with none of the advantages of state backing and state regulation. Far from providing an alternative to regular currencies, a stable medium of exchange that could be almost universally traded for goods and services, crypto coins, or tokens, behaved more like stocks, whose value rose and fell on the basis of financial speculation, although, unlike regular stocks, coins conveyed no ownership of anything, no equity, and were not even loosely tied to an underlying business activity or real-world asset. Their value was entirely notional.
As long as a sufficient number of new investors bought in with real money, however, the paper value of their now purely digital holdings went up, and the whole system ran like a money-printing press. Crypto had low barriers to entry, few transaction fees, and much of it was opaque to taxing authorities. It required little more than an internet connection, and with that, anyone could remake himself (there were women in crypto, of course, but it was and remains an intensely male space) as a miniature Warren Buffett. It had, in other words, all the characteristics of a Ponzi scheme or a multilevel marketing scam.
And likewise, far from creating a decentralized, democratized currency and economy, the crypto world arrogated much of its wealth and influence to just a few firms and figures. McKenzie has a professional actor’s nose for character, a sense of those few foibles of speech, physical habits, manners of self-presentation that make a person a guy. (The book’s explainer-style interludes on the structure and history of global finance are somewhat less successful, alternating between high-level gloss and the forced jocularity of a cool substitute teacher.) There are “Charles and Paul,” two guys the co-authors originally meet and get drunk with at South by Southwest, who claim to be CIA agents looking to recruit in the crypto space, although neither seems to know anything at all about crypto. There is Alex Mashinsky, an Israeli serial entrepreneur notable for his time as CEO of the now-bankrupt crypto lending platform, Celsius, who waves off his own PR minders to casually tell McKenzie that no more than 15 percent of crypto assets have real-world exchange value, and the rest is pure speculation. (Mashinsky has since been arrested and charged with multiple counts of fraud and securities crimes.)
And of course, there is Sam Bankman-Fried, who grants the McKenzie-Silverman duo what, in other circumstances, might be described as “unprecedented access,” but which, for the shambolic, Adderall-popping paper zillionaire, seemed more or less par for the course: DMing the pair out of the blue and eventually agreeing to sit for a recorded interview, during which he sent his own minder out of the room.
This interview, conducted before FTX collapsed, before it was revealed that SBF and his accomplices were stealing their own clients’ money to make huge bets via their affiliated hedge fund, when outlets like Fortune were still credulously wondering if he was the “next Warren Buffett,” is an extraordinary text of an extraordinary age. While other interlocutors in the tech and financial press were embarrassingly eager to burnish SBF’s boy-genius reputation and to prematurely hail him as the man who could turn crypto into a respectable and mainstream financial instrument, McKenzie, by now experienced at playing the open-minded naïf, lets him bluster through a catastrophic conversation, bluffing his way through a series of straightforward questions about his business like a hungover flop with a lie-stuffed résumé at the worst job interview in the history of capitalism.
“Is Solana safe?” McKenzie asks, when SBF approvingly cited the troubled, frequently hacked exchange (an exchange in which, of course, Alameda Research, FTX’s sister trading firm, held an enormous stake). “So the basic answer,” Bankman-Fried replies, “is it depends on what you mean by safe.” He offers wildly varying responses to Mashinsky’s estimate of the amount of real money in the system and tries, unconvincingly, to wave away the problem of lost investor funds in collapsing exchanges. He is unable to explain why FTX listed a “stablecoin” called Terra, which Bankman-Fried himself had described on Twitter as “transparently” about to falter.
Such performances, amazingly, didn’t seem to hurt SBF. If anything, they added to his mystique. There is a tendency, under capitalism, to equate money with smarts, to assume that fortune is downstream from genius. If SBF and his counterparts in the industry often seemed unable to explain the underlying information technology and the basic financial principles on which their companies operated, they could allude to a kind of impenetrable black-box computer magic, and this deliberate obscurantism, ironically, seemed to make it all more trustworthy to the great masses of ordinary investors who propped it all up. The wealth of those at the top was an alibi and an excuse for anything: They were rich, so they must be doing something right; they were rich, so the technology must be good. Individual failures down at the bottom of the pyramid were failures of intelligence, nerve, and will. How could they be otherwise? It occurred to shockingly few people that the guys at the top made all that money not because they were smart, not because they were good, but because they were thieves.
As the SEC’s damning and voluminous complaint against Binance showed, and as much recent reporting on the implosion of FTX has told us, these are not just unlicensed exchanges trading underregulated equities (bad enough), but their main business is, in effect, to take their own customers’ money and use it to engage in wild financial speculation and self-dealing. (SBF used $10 billion in FTX customer funds to prop up his Alameda Research trading firm, among other alleged misdeeds.) Small investors were left with a bag of irredeemable, and therefore worthless, digital assets.
The Ponzi schemers who sat at the top of this ecosystem may have been transparently corrupt and self-interested criminals, but many of their marks and unwitting accomplices were nevertheless the kind of half-charming libertarian kooks who still read Ayn Rand as grown-ups, ensconced in a casino fantasy that betting is science and that markets and market forces are natural phenomena and natural laws, like stars or gravity. The book’s sadder portraits are of the many small investors who lost their shirts (and in some cases their lives; small-time crypto investors have distressingly high suicide rates) in this fiasco. Lured by the promise of quick riches, bolstered by cultish slogans like WAGMI (“we’re all gonna make it”), and gripped by an equally cultish penchant for excommunicating anyone who questions the precepts of the group, these small-time investors are easy prey for an industry that views them with utter contempt.
These are men like Harold “Hal” Henson, a preacher and “dreamer in the grand tradition of American men of a certain generation, believing that financial success was always around the corner,” whose unattainable hopes for a fortune to pass on to his grandchildren led from multilevel marketing scams to amateur forex trading and a fly-by-night crypto trading firm called Stallion Wings that took him for all he had and destroyed his relationship with the very family he was trying, in his misguided way, to protect and provide for. Day-trading, sports books, and MLM schemes are frequent pathways into crypto. For every crypto trader motivated by pure greed and acquisitiveness, there is another person who is simply trying to claw his way to financial success, in a society whose impressively resilient aggregate economic statistics mask a deep well of precarity. Is it any wonder people gamble and then double down on bad hands once they’re too deep in the hole to see any other way out?
This is the most condemnable aspect of crypto, and one that should guide us to a more skeptical and critical attitude toward its successor scams, schemes, and investment opportunities in tech. Because all the talk of “smart contracts” and immutable ledgers, of algorithmic black boxes that create value from nothing—of the technology itself—simply obscured a time-honored, analog truth: that promises of secret knowledge and quick riches are as powerful as any narcotic, and addictive as well. The technology is the fluttering newspaper to the face while with the other hand they pick your pocket. In technology and finance alike, we are too easily led down the dead-end path of asking: How does it work? Aren’t the real questions, though: What is it good for, and for whom?