John Reed Stark
@JohnReedStark
I worked at the SEC for 18+ yrs, the last 11 as Chief of the SEC Office of Internet Enforcement. I have taught cyber law at Georgetown and Duke Law Schools for 20 yrs. I spent 5 yrs at Stroz Friedberg fighting cyber crime. Why I believe the bulk of Web3 is both scourge & scam.
A fractionalized link to a JPEG of a "bored ape" with funny glasses and a colorful hat is not a sound investment, sensible means of commerce and prudent pathway to live out the financial dream.
A glorified append-only spreadsheet is not the panacea for economic inequality, financial empowerment, social justice and any other current or future societal ill.
A piece of computer code devised by one person in 2008 that solves no problem, and does nothing except to the extent that some other fool can be induced to pay more money for it, will not usher in a global monetary policy to cure everyone's financial woes.
DeFi is inefficient, wasteful and uneconomical; facilitates massive energy consumption; increases network congestion and bugs; is environmentally destructive; and as so many experts have stated, is cumbersome, unwieldy, bulky, burdensome, clumsy and the list goes on.
DeFi is an illusion. Most users pay high fees to a slew of intermediaries, including self-hosted wallets (where investors store their crypto), exchanges (where investors exchange sovereign currencies and crypto) and miners (who charge fees to validate crypto transactions).
DeFi is plagued by: high network transaction fees; failed transactions; net capital issues; blockchain vulnerabilities; privacy and cybersecurity weaknesses; software forks; and blockchain patching code challenges.
DeFi's risky leverage/liquidity mismatches/built-in interconnectedness/lack of shock-absorbing capacity/poorly understood infrastructures -- all undermine financial stability, creating systemic and bank run risk while exacerbating issues of procyclicality and destabilization.
Web3 lacks formalized accountability structures and fiduciaries, creating a den of thieves/robber barons/shameless profiteers, praying upon those most susceptible to get rich quick schemes, who have the most to lose (e.g. money they need to live) and are oft the most vulnerable.
Web3 applications typically present: monstrous scalability challenges; rampant exit scams and rug pulls; extraordinary market manipulation/insider trading risks, front-running, transaction reordering and consensus instability.
Web3 applications are typically replete with: cybersecurity vulnerabilities galore; nonexistent consumer protection/regulatory oversight; wildly volatile crypto prices; costly hidden/obvious transaction fees; volatile lending rates and margin calls; and rampant fraud/chicanery.
Web3 adoption benefits mostly criminals seeking to shelter/hide their profits from ransomware attacks/drug dealing/terrorism/sex trafficking/money laundering/and most other crimes. Crypto reduces efficacy of U.S. sanctions, enabling transfers of funds outside financial systems.
Those spreading the myth that crypto-transactions are easy to trace remain sorely misguided to say the least. This is perhaps the most absurd, frustrating and entirely misleading of all crypto-enthusiast retort.
If crypto were so easy to track, then the tens of thousands of ransomware attackers would all get caught. But the reality is that only a minuscule few are ever even identified, let alone apprehended, charged, extradited and brought to justice.
While crypto payments (if not obscured or properly laundered) might in some instances provide a glimpse into the chain of where crypto is going, the chain does not identify who the crypto is going to.
The increasing use of advanced obfuscation techniques makes blockchain analysis difficult (often impossible) and resource intensive for U.S. agencies. Criminals now commonly use anonymity-enhanced tools/methods to hide illicit transactions to facilitate criminal activities.
Tracing crypto-transactions to catch criminals requires immense resources, years of doggedness and lots of luck – and prosecutorial success rarely happens. Period. End of story.
Crypto presents few real-economy uses, and is used mostly for speculation/arbitrage. Crooks who revel in crypto's pseudo-anonymity (and perhaps early adopters who have transformed themselves from victims into victimizers) seem to be the only real winners in the crypto community.
The NFT marketplace seems wholly rigged. Market manipulation of NFTs appears not only rampant and tolerated, but also encouraged. Fraud not only rewarded, but also taught. The cybersecurity risks alone render NFT markets a dire and absurd choice for any sort of investment.
Too many good people have had their communities ravaged by crypto-mining operations. Yet another example of the definitive, obvious and negative externalities crypto creates. Crypto-miners (a dubious and reckless group to say the least) are relentless in their pursuit of power.
Per various sources, the collective process of crypto-mining, annually, uses up more energy than the entire country of Finland. It’s seven times more than all of Google’s global operations. Unless mitigated, crypto-mining poses huge power supply risks to public power utilities.
Meanwhile, crypto-mining malware can impair system performance and subject end users and businesses to theft, hijacking, and a litany of other malware-related risks, and per one 2021 study, cost residents and businesses in upstate NY about $250M in higher annual electric bills.
Crypto, DeFi, NFTs and the rest of Web3 generally tout the same tired and faux libertarian notions of decentralization, except with even less protection, even more fraud and even more unlicensed, unregulated and suspect money-sucking intermediaries.
What problem does Web3 solve and is Web3 even remotely worth the risk of its intrinsically perilous externalities? Big Crypto wants you to believe Web3 is the future but the reality is that Web3 is indeed the future – except only for Big Crypto. For the rest of us, not so much.
Please read for yourself some of the research for my conclusions and beliefs at johnreedstark.com/digital-trust-… (DigitalTrustWatch is free, has no sponsors and generates no income or profits.)
