Line Goes Up – a reaction

I spent a big part of my life being ‘the communist’ for some of my friends and ‘the capitalist’ for the rest. All of this while expressing the same opinions to everyone. Same concepts, polarised reactions. Here are some pics to show off my ability to use MS Paint:

Whenever I was saying something that was outside that ‘bubble’ accepted ideology, I was out. Not only my thinking was rejected, I was immediately assigned to the ‘enemy’. Reality looks more like this:

We live in a world where if you are not with me, you are against me.

At least I was prepared when I entered the crypto world. In November I was dead last in the Fantasy Football league I run with some friends; I decided to change the name of my team to “WAGMI”. Half of my mates are still asking themselves what does it mean, the other half started to send me a constant stream of crypto-jokes as if I suddenly became the third Winklevoss twin. Again, you can be a maximalist or a sceptical, no middle ground. In this context, Folding Ideas video ‘Line Goes Up – The problem with NFTs‘ 100% delivered.

After I wrote some posts about crypto, readers pointed me to the video and this week I finally found some hours to watch it (turns out having to create a full new set of ESG reports has its benefits: when the output is garbage by design, getting distracted while you arrange the input has no consequences). Random caveats:

• It was the first time I heard about Folding Ideas (from now on “FI”): I do not know their priors, their target audience, their goals. It can be another ZeroHedge and they got me…
• If finding the time to watch the video once was a miracle, I definitely cannot go back and watch it multiple times: this will be a real reaction. I will miss some angles, misinterpret others. It is fine.
• Do not expect an organised reaction. I did not watched the video in one go but in several sittings, taking notes and musing on those notes while at the gym, during conf calls and conversations with my wife about her friends.

Finding problems is easy, finding solutions is hard

Years ago a comedian decided to create a political party and now he is (partially) running a nation. No, it’s not that episode of Black Mirror, it’s Italy.

The comedian wrote a blog (uh, uh) where he was highlighting and condemning everything that was not working in Italy: corruption, frauds, a political class increasingly in detach with ‘the ordinary people’…well, the usual menu. Turns out that finding a problem is easy, especially when the issues are always related to others and never to you. Once you are given the key to run the show, it is time to find solutions and…ops, ain’t that easy anymore.

In this video, FI uses the same script. The narrative arc starts from the issues that emerged in the Great Financial Crisis to then burp all the deficiencies of crypto and its derivatives. All cast under the lights of absolutes, like if spelling the word ‘metaverse’ would mean that everyone will live every single second of their existence attached to a machine from that moment.

Anonymity vs Transparency

Take this as an example. FI goes straight to the conclusion that all crypto proponents want all information available on-chain. It would take just 5 minutes on Twitter to understand that the topic is a little bit more complex than that. Yes, transparency will save a lot of spam from trolls and bots. But anonymity is the tool that allows people to expose dictators or…your misogynist boss without exposing you to him. The solution is clearly not black or white and anyone with opposable thumbs knows it. Praising only half of the story works only on gullible people.

The problems

FI links the birth of crypto to the GFC like if it was democracy coming to France after the beheading of Marie Antoinette. Yes, the GFC exposed some issues in the system; a system that I am not sure how to define though. Capitalism? Western capitalism? Big banks? Big banks lobbing? What if instead of trying to reinvent society we look at smaller, simpler issues?

At a certain point I thought FI was picturing his scenario just from a unique point of view, someone living in a western democracy. When someone in Italy laugh at Bitcoin I think “wait that some ultra-nationalist takes the power and bring the country outside the EUR, then let’s see how your new fiat compares to BTC”. Just look at Turkey: TRY just experienced a BTC-like downfall but I do not think there is any scenario where we will see TRY back at where it was three years ago. And Turkey was much closer to Italy than it was to Zimbabwe. This is obviously quite a narrow user-case and not something I would use as a bullish case for investing 100% of your savings into BTC but it is an effective solution (definitely better than the alternatives) to a specific problem.

Transferring money from Europe to the US is a mess, let’s not even consider other cross-border payments that do not involve two developed countries. It took ages to create a payment protocol like SWIFT but even that is not a real protocol: the US are considering to ban Russian companies to access the protocol, and therefore participate in global financial transactions, if Russia is going to invade Ukraine. For many years it has been impossible even for non-US companies to make payments to countries that had a beef with Uncle Sam, like Cuba or Iran. More prosaically, why in the age of internet I can only make a transfer when a bank is ‘open’? A big part of the problem is that banking infrastructure was created for a different world. The pipes are old and rusty; maybe one day some of these issues will disappear but the case for a true permission-less protocol is still there. What if one day the US will become the bad guy of the story and we are still stuck with the current infrastructure?

In order to define something illegal, you need to define what is legal. The big premise of FI is that everyone is happy with whatever legal situation they live in. Otherwise, a permission-less way to transfer money is honestly pretty fucking awesome. Illegal does not necessarily mean hiring a hit-man on Silk Road.

Once you go into the permission-less rabbit hole, coming out with a functioning system is already a victory. If you are running away from a dictatorship and you can do it without having to sew diamonds inside your coat, the fact that BTC mining consumes a boatload of energy starts to feel pretty irrelevant. Probably that same solution is not practical to pay for a coffee at the bar downstairs but…it is still fine? Have you ever tried to pay for a coffee with your Vanguard retirement fund?

Yes, maybe years ago Satoshi thought that Bitcoin could be useful for this and now someone else realised that is great for that; the world is full of inventions that were created for something and then got used for something completely different. We all survived. The same logic is valid for proof of work, proof of stake, proof of stake with 100% nodes validation, proof of stake with 60% nodes validation, etc. Each solution has its pros and cons, security against costs. What if instead of having to use the same tool to fix everything, we will have a toolbox and each item will be utilised for what is best at?

The error is to think that something is not a problem because it is not your problem. The error is to think that the hammer is useless because once you tried to paint a wall with it and found it not really practical. This is the same problem I have with crypto maximalists that prefer to sit on the floor because buying Bitcoin is a better investment than a couch:

Then there are real objects that by now are functionally 100% digital, like event tickets. You buy them, you store them and you use them in their online form. Yes, you can print them but who actually does that anymore. The issue is that they cannot live outside the digital realm of the entity who sold them to you. If you want to resell them, you have to pass thru that entity, and pay a 30% fee for the pleasure. It is your property but…it is not really yours. From here you can expand the same concept to many things. Do you remember when you could lend a VHS to a friend to watch a movie? Boooooomer! Try to do that now with a movie you bought on AppleTV.

I worked for a cruise company and it is incredible the ‘distance’ you can have between the company providing the service and its customers. Travel agents are still a big part of how that world works; this means they own the relationship with the client while you manage all the problems. Refunding a customer is a nightmare. Gifting, offering discounts to a customer is a nightmare. And the travel agent is already using your blockchain platform to book a reservation. Yes, not all chains have to be 100% public, you can have a client wallet interact with a B2B chain; the token can then store all info you are already disclosing with your travel agent (passport details, health records, etc) that are required by the cruise company and all the port authorities involved in your trip. Way more efficient and yes, secure.

Rolex does not own any point of sales. They basically have no idea when one of their watches is sold. For one, imagine how to plan production in this context. To solve this, they tinkered around a program to associate each watch to a ‘unique credit card’ so that, when the watch is sold, the vendor swipe that card as well to send the sale information to Geneva. To achieve this, they need to partner with either Visa or Mastercard, who own ‘the pipes’. At the same time, the ownership of the watch’s box became the official “I did not steal this item” certificate. Does all of this ring any bell?

I am definitely not an expert in any of the above, I just wanted to list some ideas to prove that the user-case might be there. The B2B2C chain are also examples that not everything has to be ‘investable’, as FI alludes.

Funny thing for me is that the most successful NFT project so far, The Bored Apes Yacht Club, is also one of the field where having a token that can be freely sold is actually a detriment to the project. This is how it normally goes: cool kids invent something cool -> famous people want in -> rich people want in -> the thing is not cool anymore because rich people are assholes. There is a reason why I cannot become a member of the Soho House: people that work in finance suck. I want to get access to the Soho House because I know it means not hanging out with investment banking chads. If the Soho House membership could be traded freely…there will be no Soho House anymore.

The beginning of internet

I am old enough to remember when people would consider less risky to drive without a seatbelt than using their credit card on internet.

New environments facilitate scams, it does not mean that we should avoid innovation because of that risk. Michael Batnick, the infamous blogger/podcaster/money manager, got rugged like a noobwhale and lost his digital assets. He is doing fine. Why? Because he knew the risk and acted accordingly. In Bitcoin Billionaires, author Ben Mezrich describes the strategy the Winklevoss adopted to store their Bitcoins; spoiler alert: they did not use a Metamask wallet.

If you buy a jpeg of an Ape spending 90% of your savings, the problem is not when they steal it from you. Really.

It is the Far West and it is normal at this stage. The more crypto becomes mainstream, the more the infrastructure will be robust. A year ago someone cloned my wife SIM card and it was a mess; I receive phishy calls and emails every day, it is not that we live in a great world outside of crypto. I read about Kevin Mitnick ‘social engineering’ tactics when I was a teenager, the weak link is us, not the tech we use.

Play-to-Earn

Have you ever tried online poker? Maybe FI never did because it is illegal in the US (is it? Cannot keep up with their regulations). It is a grind. It is boring, your are alone, watching a screen for hours, sometimes multiple screens, maybe in the same room where you sleep…and then you smoke in it. Why people would do that? BECAUSE IT IS BETTER THAN THE ALTERNATIVE. It is an option ON TOP of whatever shitty thing you were doing before. You can always go back to sew footballs for Nike if you do not like it. That’s the real issue. Is it a great alternative? Maybe, maybe not. But as long as it is an alternative, it cannot subtract value compared to the reality where it did not exist.

Play-to-earn never existed in Italy (and I guess Europe) because the regulation forbids having a game linked to an IP than pays money. You can do it with poker because no one owns the IP on the cards or the rules. Now you can do it on top of any game (I guess? Technically Axie is illegal in Italy but you can still play it).

FI is especially disgusted with the alleged slavery involved but even there nothing is new under the sun. Mezrich (again!) in the book 21 tells the story of a group of students that developed a method to win at blackjack counting cards. They were bankrolled by some rich dudes and shared with them the profits. Why did they stop? Because the casino owners started to tell them they were not welcome breaking their knees. They did not stop because they felt part of a slaving ring.

You have jobs that pay you a fixed salary per hour, jobs that gives you a bonus, jobs where no matter the efforts and the hours you can come out LOSING money, called entrepreneurship. The ‘slave masters’ in FI story are risking their capital; ain’t free lunch dude. If the Axie price was so low that guys in the Philippines could afford to play independently from the start, then the payoff would be comparatively low. If the ‘slaves’ lose interest and stop playing, the slave masters will lose their capital too. It would be real slavery if players were forced to play but I do not think that Sky Mavis became Putin, innit?

FI actually makes a good point about PtE: it morphs the incentives and the ways the game is played. Other games in the past tried to maintain a ‘stable economy’ and failed, either via ramping inflation or deflation. This is the really interesting part about Axie. Would it succeed where others failed? Would it be possible to create a game where ultimately casual and professional players can co-exist?

US vs THEM

Guess what is the keyword for this section? Relative. Yes, again.

In every country where it was adopted, capitalism improved the standard of living of the population. Less starving, increased life expectancy, freedom of choice, etc. So why people are so pissed? Because they compare themselves with Jeff Bezos, not to their ‘alternative self’ living in the Middle Ages. In order for capitalism to work there have to be incentives. And incentives brings inequalities. We might have too much inequality now, or there was too little in the past at the expense of now, but you cannot have zero.

We are (all) gonna make it. We did.

But if you change your reference point, then we might have not. There cannot be a society were we all WAGMI the same, that utopia is called Communism and look at its track record (and anyway, even Communism had an US versus THEM, the guys at the top were living better than the one at the bottom, they simply did not post it on the Gram). If you take WAGMI as an optimistic message about the advancement of the overall society, then it might be possible. I think we can all have access to instantaneous, frictionless transfers of money between any Point A and Point B on Earth.

If you take WAGMI as everyone champagne shower-ing on their yacht, then you are the problem, not crypto (or go back to read the point where I discuss scams).

The tokenisation of everything

I tried to write this post without mentioning Packy once but it is impossible. To understand why FI is looking at the wrong side of the glass, read this. It is all explained better than I could ever do.

The tokenisation of everything is actually the feature that will allow us to get closer to WAGMI. To reduce inequality. It is not the dystopian bug of a Black Mirror episode (again!). It might be. But since it is not YET, isn’t it better to learn and contribute so that it won’t be? Because there is an upside.

It is quite glaring for me that this criticism comes from a guy that runs a YT channel. Dude, YT decides how much of the revenues generated by your work to share with you, down to zero if one day they will decide to kick you out for whatever reason. Maybe there is another, fairer way to run this thing. And be sure, this way will be for sure less efficient than YT now: the quality will be poorer, with fewer features. But you will have a voice.

It is not about moving to a world where everyone is an investment banker, is about giving a Uber driver a chance to compound his labour. Actually, it might be the best way to bring unions into this century (without having unions at all). There will be fewer clashes between capital and labour if labour is part of capital.

E-RMB

Since I do not want to sound too optimistic, I will close with one of the things I consider a real danger and FI did not bother to mention. Which is a country going fully e-money, like China is planning to do with the E-RMB. At that point, the Government will not only be able to cancel a dissenter post on a social network, but they will also be able to erase its entire net worth. That’s how powerful this stuff is. Still worried about people buying a picture of a rock in ETH?

FI video is good content and you should watch it, especially if you buy or are interested to buy crypto in the future. Always pay attention to the other side of the story.

What I am reading now:

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