Why Crypto’s Most Hated Skeptic Thinks the Crash Was a “Very Welcome Development”

David Golumbia knows you don’t like him. But he’d like to at least get a few facts straight.

Golumbia’s 2016 book The Politics of Bitcoin: Software as Right-Wing Extremism may still be the most deeply contrarian book ever written about cryptocurrency. Not content simply to call crypto a useless fad, Golumbia’s slim but forceful volume argues that crypto’s fundamental effect will be to undermine government protections for society’s weakest members, while empowering mainly rich individuals and corporations.

Golumbia, an associate professor at Virginia Commonwealth University, isn’t surprised that argument has made him a target of ire in the crypto community—in fact, the trolling validates some of his points. But he wants to make at least two things clear for his haters. First, he understands both code and finance better than many of them. He worked as a product manager for the technology wing of Investment Dealer’s Digest in the 1990s, including on projects that were fintech before “fintech” was a word. And second, far from a nocoiner, Golumbia says he was an early holder of both bitcoin and ether, which he sold for a tidy profit only after finishing his 2016 missive.

We wanted to hear what Golumbia had to say about developments since his book, particularly the epic bubble and its implications for economic fairness. So we called crypto’s resident Cassandra at an undisclosed location.

What is your political analysis of the bubble and the crash?
If we speak in very general terms about the culture of blockchain, there is a core of this right-wing economic conspiracy theory stuff, which worries me a lot. But then there’s a larger periphery in which there are more ordinary libertarian ideas, and what those people want is capitalism to be as unregulated as possible. And they especially love unregulated and absolutely free markets.

Part of what’s so concerning about that is that, in both the cryptocurrency and ICO spaces, those are being run up against regulated markets in very similar instruments. And if you ask yourself, well, who wants to be in those spaces, and would prefer to be in the unregulated version rather than the regulated version? For the most part, it is people who are not up to anything good.

"Promotion of ignorance seems to me one of the main effects of blockchain."

It’s not as if financial markets are so tightly regulated that you can’t make profits in very elegant and interesting ways. So it’s no surprise to me that in these unregulated markets are a huge preponderance of scams. Because what these people want is the freedom to scam other people.

And I think, honestly, the crash was a very welcome development because had it not happened, I think many more people would have gotten scammed than actually have. I think that it’s pretty clear that the next group of people who were going to get swept up in cryptocurrency mania were going to be ordinary people who didn’t know what they were getting into.

This is all sort of impressionistic, but I felt like a lot of less informed people had already gotten in. What’s your read on people putting so much money into these things? There were lots of credible warnings about the bubble.
My impression—especially as things were crashing, and especially if you read websites like CoinDesk—is that a lot of people have a vested interest in the price of bitcoin going up. Their goal, really, is to get new people to buy in, whatever it is they say. And then they themselves sell out.

It’s very hard to take a lot of what they say at face value. Especially since one of the unregulated aspects of this is that journalists who write about bitcoin and blockchain are so much more likely to have a direct interest in those securities, unlike in the financial press where that is for the most part pretty heavily restricted.

And we did start to see some evidence that the actual number of players in these spaces is very small. There might be a few very big players who are able to throw that money back and forth in the market and manipulate it pretty adroitly. They may be doing that to rope in smaller investors off whom they can make a significant profit, and then pull out their own initial capital.

I’m a little bit too young to have seen it myself, but have you looked back and compared the crypto bubble to the internet bubble of the late ‘90s and early 2000s?
I was old enough to have been around then, and that in fact was when I was working in financial technology on Wall Street. There are many parallels. Maybe the most obvious parallel is that what was being sold there was also a cloud of ignorance, in which asking too many questions was going to get you in trouble.

Also, there was the response of the financial industry. I started there a little before the internet really took over, in the early ‘90s. Our customers were all major investment banks, and we’d meet with them and talk about what we were doing, and they’d just be like, oh, that internet stuff is crap. And then two years later, they were demanding: “Why aren’t you guys more visionary? The internet is taking over everything!”

Suddenly they knew more than we did, even though they clearly knew nothing at all. That was very frightening, and you did get the sense that the world might be losing touch with underlying reality. It was easier to have a little faith that that couldn’t continue, because of the underlying logic of how Wall Street markets work. If bubbles inflate, they get popped.

But blockchain seems to be a bubble that is trying to insulate itself from that entire logic. The whole dot-com bubble thing was about six years at most, and once it burst people were on the lookout for more things like that to happen. For the most part, companies after that that issued IPOs either had a product, or revenue of some sort. A certain level of rationality returned. But blockchain now, you don’t see the same sort of puncturing of the rhetoric or ideas behind it that you did see by this point in the dot-com bubble.

The time frame can shift depending on your perspective. I think the first brush of hysteria was in 2013, so even that’s only five years ago. There’s at least a case that we’ve only just gone through the first big surge.
Yeah, that’s reasonable. I’m thinking more in terms of the technology, and the question of whether the technology can do anything. But you’re right in terms of the sort of hysterical bubble, it is not all that different in terms of the time frame. And obviously it has burst to some extent at this point.

At least there are some people on the inside trying to push the message that we have to look at real effects, we have to get past pure hype. Maybe that’ll lead to constructive work. Or maybe it’ll kill the whole thing because there’s nothing there.
Or it’ll continue to have these minor projects that use parts of blockchain and are successful. But how they relate to the larger thing is very unclear.

Nasim Taleb’s book Skin in the Game is used incessantly to make the case that people who are not financially invested shouldn’t be listened to. Have you noticed that?
Oh, absolutely. That whole ‘skin in the game’ critique I find profoundly disturbing, for a lot of reasons. You don’t just see it in bitcoin and blockchain, but you do see it prominently there. They often use the presence of the critique as prima facie evidence that there is no skin in the game—and as I’ve said in public quite a few times, I bought a small amount of bitcoin and Ethereum when they were cheap, partly because that helps me to keep track of them. And eventually I sold them for a fair amount of money, [but] when I wrote my book I still held most of it.

It’s hard to see what the force of that [argument] is. It’s also literally the opposite of what we expect from Wall Street, where you are supposed to disclose any holding you have, and probably shouldn’t comment on things if you are directly going to benefit from its price movement. Which I think is a wise and important rule to have.

Do you see the logical leaps people are taking as purely self-interested? Is it just, “we want nothing but positivity,” because of the profit motive? Or is it more complicated?
I do think there is more to it than that, and this is what continues to scare me about the whole situation. I don’t know if this is deliberate or not, but there is a strong bias for promoting ignorance—not only in blockchain, but in particular in blockchain.

For instance, they say “blockchain will prevent inflation.” And then if you say, well, “I’m gonna go read about inflation,” they’ll say, don’t do that, those people don’t understand what inflation is—meaning, any bankers, any scholars who’ve written a book about inflation. Well then, what justifies you talking about inflation at all, if you are actually rejecting the concept that we call inflation? They can’t answer that, because they’re playing games with words.

That promotion of ignorance to me is one of the main effects of blockchain. Believe this hype, don’t believe anyone who says anything to the contrary. And that often comes with a fair amount of viciousness and anger.

"How can you not see that you are literally building the thing that you claim to be opposed to in the deepest fashion?"

One of the places we see this is that most of the projects that people can point to as being successful, such as IBM and its Hyperledger project, aren’t really blockchain in the sense we understand it. Those are not out on the public blockchain, they don’t use bitcoin, they don’t use Ethereum. They are basically distributed databases in which the number of nodes is controlled by the central entity. They’re not decentralized, and they’re not open-access.

So saying that that is the same thing as blockchain, and therefore blockchain is succeeding, is really hand-waving in a very dangerous way. That is saying, don’t actually think about this, don’t actually look carefully at it.

It’s the ironic thing about technology, we have gotten to this point where some of the most advanced technologists—who must be relying on facts and logic and code to make things happen—at the same time are like, well, don’t look at it too closely. Don’t actually investigate what it does, just believe me.

You mentioned viciousness and anger. I assume you’ve experienced some of that personally.
Oh yeah, constantly, absolutely. I’m somewhat familiar with this kind of trolling, and I’m pretty quick to just block and mute people on Twitter. If you look at the reviews for my book on Amazon, for example, it starts out with five or six reviews by people who wrote them the day the book came out, and clearly have not read the book, and they’re just shredding, mean-spirited, and clearly misrepresenting the book.

Another example is, Zero Hedge actually published a review of the book a few months ago, and the headline was “Is Bitcoin Racist?” And you would be hard pressed to find a place in my book where I even come close to saying “bitcoin is racist.” What the author did was look up “right wing extremism” in the dictionary, and “right wing extremism” means “racism.” But in the book I’m very specific about what I mean by right wing extremism. So it’s this whole game of gotcha, and very disingenuous.

And you read the comments under that one and they are just, “How dare you call us Nazis?” And the next comment will be: “Yeah, he’s probably a Jew.”

What is your stance on the fundamental technology? After all of these years of looking at this stuff, do you believe there really is a good use for blockchain and cryptocurrency?
I think that means really going back to definitions. The Merkle tree technology is often taken to be one of, if not the central technology in blockchain—where the point is you can’t touch a file without there being a record that you’ve touched a file. It’s very clear that that is extremely useful, and it’s used all over the place. Github runs on that.

That kind of stuff, even some private blockchains, might well be useful, mostly to corporations like IBM. But I don’t think that really qualifies as blockchain.

"There’s the idea that if you call something decentralized, resources will be evenly spread out among all the participants. Which is just plain false. And I think that’s the basic problem in all libertarian philosophies."

But maybe to back up a little bit—it’s kind of hilarious, you know, that there was no parallel “SQL is going to change the world” movement when that was becoming popular. SQL is an incredibly ubiquitous, very important technology that is found everywhere in digital infrastructure. Whether this narrowed blockchain-Merkle tree thing would even rise to the level of influence of SQL is an open question, and I don’t think it remains all that interesting even if it did. There are a dozen things that are that important, and most of us outside of the actual technology development world don’t particularly care.

As for the true blockchain, Ethereum and the bitcoin blockchain and the other minor ones, I think that enough time has gone by that we have seen that they really are not going to be useful for anything, in part because of some pretty problematic assumptions that are made in the underlying infrastructure.

What sort of assumptions?

Specifically, there’s the idea that if you call something decentralized, resources will be evenly spread out among all the participants, which is just plain false. So you keep getting these highly concentrated nodes of power that depend on buying a lot of equipment and having a lot of access to electricity and so forth. And I think that’s the basic problem in all libertarian philosophies.

In that way, I don’t even know what blockchains are for anymore, exactly. You see people talking about these non-currency uses—voting, identification. One of the more powerful ideas currently is so-called self-sovereign identity. I think that’s completely untenable as an idea, and I think it’s also very frightening and terrible.

Compare it to Mark Zuckerberg and Facebook. The New Yorker made this point recently—Zuckerberg keeps wading into these fundamental human questions—the nature of truth, the meaning of free speech, the nature of community. He doesn’t appear to understand that these are issues that have occupied all of us for a long time, and that you can’t just solve them using Facebook.

And that’s what you see in the self-sovereign identity discussion. Do you even know what you’re talking about? What it means to attach people physically to tokens that somehow express their identity? A biometric marker that’s unchangeable, implanted in each person—that idea comes out of the mouths of the same people saying, “We need to resist the globalists.”

But you’re building it! How can you not see that you are literally building the thing that you claim to be opposed to in the deepest fashion?

"I don’t even know what blockchains are for anymore, exactly."

There’s definitely a tension there. The reason people are interested in self-sovereign identity is that Google and Facebook are already tracking so much of what you do through their own identity services. I think that is a good problem to be trying to fixthe question is whether this is the solution.
And have they even conceptualized that problem in the most effective way? And the solution to it? Because I still don’t see what prevents corporations from getting heavily involved in blockchain technology if and when it proves useful.

And for all we know, governments may well come up with some sort of permanent identity token that, hopefully, would be developed through serious democratic oversight and regulation, and would be very carefully implemented. If we wanted it and it made sense—which I don’t know about at this point—then I don’t really care what kind of technology that used.