Bitcoin Buddhism 🧘‍♂️💸

Proof-of-Take (#010): a dose of perspective and context in the world of Bitcoin

Welcome to Proof-of-Take. The separation of Money and State, enabled by Bitcoin, will happen in our lifetime. It will be one of the most important developments in the history of civilization. This is on-par with inventions like the printing press, antibiotics, and the internet. By the end of it, we may even be able to explain what a blockchain is.

As always, nothing below is investment, legal, or relationship advice.

I recently returned from a 10 day Silent Meditation Retreat. For 10 days, you lead the life of a monk, practicing the same meditation technique the Buddha used to achieve enlightenment.

You wake up at 4am, meditate for 10 hours, and go to sleep. You’re given modest meals and accommodations. Speaking, eye contact, reading, and writing are forbidden, and all electronics are confiscated.

It’s quite the experience.

Naturally, during my 10 hours of daily meditation, my mind often wandered to Bitcoin. This retreat was in the Buddhist tradition and I discovered some deep similarities between Bitcoin and Buddhism.

🧘‍♂️ Buddhism is the Red Pill for Consciousness.

💸 Bitcoin is the Red Pill for Money.

Buddhism’s basic teaching is that we suffer because we are deluded in how we see reality. Instead of seeing it clearly and objectively , we view it through the lens of made-up stories we repeat about ourselves and others. Stories about our past, stories about our future, and stories about our self.

When you identify with and react to these stories, you suffer. When you finally see reality clearly, you wake up. You are liberated from suffering and become enlightened (a “Buddha”).

Money is the most powerful made-up story humanity ever created. And Bitcoin opens our eyes to see money for what it really is—an intersubjective myth. It’s a shared fable about green pieces of paper and entries in a database. It only has power because we collectively believe it does.

All money, not just Bitcoin, is “magic internet money”—90% of dollars are just entries in a database with no bills in existence.

All money, not just Bitcoin is “backed by nothing”—in today’s world of fiat money, nothing supports the US Dollar but a promise (a made-up story) from the government.

Buddhism makes us rethink our core assumptions about the nature of our mind.

Bitcoin makes us rethink our core assumptions about the nature of our money.

And once we see the world as it really is, we can never unsee it.

There’s no going back up the rabbit hole once you’ve fallen down.

The point of these Red Pills is to reduce suffering

Whether it’s Buddhism or Bitcoin, there’s a reason behind taking the Red Pill—to reduce our suffering.

Meditation isn’t just a game you play to experience novel sensations and states of consciousness. The point is realize the harm we cause ourselves through our delusions about consciousnesses. And break free of them.

And Bitcoin isn’t just a game you to play to accumulate magic internet money. The point is to realize the harm we cause ourselves through our delusions about money. And break free of them.

When you truly embrace Buddhism or Bitcoin, you do so to reduce the aggregate suffering in the world.

The truths in these Red Pills can be difficult to swallow. Some may decide that ignorance about the nature of reality is bliss.

Nobody said it would be easy. They just said it would be worth it.

“Don’t trust, verify”

-The Buddha

The technique that Buddha used to become enlightened is very specific—known as Vipassana. Essentially, it teaches you to become aware and equanimous towards the sensations on every single part of your body and mind. You observe everything but react to nothing. Once you gain full mastery over the body and mind, you can transcend the body and mind, to something greater (enlightenment).

Importantly though, the Buddha was against blind devotion and ritualistic worship of this technique. As our teacher during the course said:

This is not a dogma to be accepted on faith, nor a philosophy to be accepted intellectually. You have to investigate yourself to discover the truth. Accept it as true only when you experience it. Hearing about truth is important, but it must lead to actual practice. All the teachings of the Buddha must be practiced and experienced for oneself.

This is in-line with the Bitcoin ethos of “Don’t trust, verify.” The entire point of Bitcoin’s peer-to-peer network is that no participant has to trust anyone who says a transaction is valid, or a money supply is fixed—you can verify it yourself. You should not accept on blind faith that Bitcoin is limited to 21 million coins or that double spending is forbidden simply because Coinbase or Bitmain or Donald Trump says so. Run a full node and see for yourself.

Don’t trust, verify.

You hold the (private) key to your own salvation.

In Buddhism, achieving enlightenment is viewed as the ultimate salvation. But instead of being promised eternity in heaven, you’re simply promised an end to the misery and suffering that is existence.

Importantly, no singular deity or prophet can deliver you to this salvation. Praying to the Buddha, god almighty, or Jesus Christ won’t take you there. Enlightenment is a path, and you must walk the path yourself. Only you can break the cycle of your own suffering. You are sovereign over your fate.

Bitcoin relies on a similar ethos in 2 ways. First, Bitcoin itself is a self-sovereign money. It relies on no singular government or financial institution to tweak or optimize policy. And no singular Bitcoin leader will deliver Bitcoiners to paradise either. Second, Bitcoin allows the users themselves to fully control their wealth via holding their private keys.

You hold the (private) key to your own salvation.

⏳ Lowering your time preference ⌛️

Buddhsim, like Bitcoin, has the effect of lowering your time preference. While meditating, you observe, every craving and aversion that arises within you — without reacting to any of them. From back pain, to hunger, and boredom to anxiety. The easiest way to do this is to realize that each of these is an impermanent feeling that will eventually pass away. No itch lasts forever.

Just like Bitcoin, cultivating this non-reactivity towards cravings and aversions has the impact of lowering your time preference. You are no longer desperate to instantly gratify your urges. That must-have impulse purchase is now powerless over you. There are fewer online shopping sprees, expensive dinners, and large bar tabs. This lets you both (A) be more content in the present, while (B) carrying your purchasing power into the future.

🐘 Different things to different people, and that’s okay 🐘

There’s a popular proverb (meme) called “The Blind Men & The Elephant” that pops up when Crypto Twitter argues over the “true use case” for Bitcoin. On the fifth day of the retreat, I nearly fell off my meditation cushion when our teacher started describing the same meme, but about Buddhism.

As the story goes, a group of blind men are brought to an elephant, but not told it’s an elephant. Each one is brought to a different part and asked to describe the object they’re touching.

The man at the tusk says “It’s a spear!”

The man at the tail says “No, it’s a rope!”

The man at the leg says “No, it’s a tree!”

Our teacher told us this story in the context of this meditation technique. You do not need to take as gospel everything the teacher says. Vipassana lets you pick and choose. Inspect what this technique actually teaches you, and accept that as true — and discard everything else.

This lesson also applies to Bitcoin:

Bitcoiner 1: “It’s a speculative, uncorrelated asset for my portfolio!”

Bitcoiner 2: “No, it’s a tool for cheaper international transactions!”

Bitcoiner 3: “No, it’s a check on government inflation!”

They are not mutually exclusive. It can be each of these things to each of these people. After all, money is just a made-up story anyway.

🌱 You reap what you sow. Be careful the seed you plant 🌱

A main lesson on the retreat was that you reap what you sow. Planting a small, fragile seed may seem like an insignificant act at first, but the seed grows exponentially and eventually becomes massive.

According to this tradition, each time you react with craving or aversion to something, you are planting a small, fragile seed deep in the soil of your subconscious. So long as you remain ignorant towards the nature of the mind, your subconscious will be a fertile swamp, and that seed will grow. And as it grows, your misery will be multiplied. A bitter tree will sprout up. You reap what you sow.

And when you begin to meditate deeply, becoming aware and equanimous, you are also planting a small, fragile seed deep in your subconscious. Your daily meditation practice acts like water and sunlight on this seed. And as it grows, your misery will be reduced. A mighty tree will sprout up. You reap what you sow.

Bitcoin also began as a small, fragile seed. This metaphor is captured beautifully in Dan Held’s Planting Bitcoin series. As Dan says:

Bitcoin’s origin is akin to planting a tree. It wasn’t just Satoshi’s selection of the species (code), but the season (timing), soil (distribution), and gardening (community) that were essential to its success.

Bitcoiners stand ready to reap what Satoshi has sown.

Not all that glitters is (digital) gold?

Naturally, there are elements of Bitcoin and Buddhism that are tough to reconcile. While Bitcoin preaches carnivory, Buddhism is against the deliberate killing of any sentient being. While much of Crypto Twitter is folks attacking one another, Buddhism, teaches non-reaction and equanimity.

Still, when you’ve deeply experienced each of these worlds, it’s difficult to ignore the similarities.

I’ll leave you with a story we were told on the retreat.

Many years ago, a young man started barefoot on an epically long journey. He began walking on a path that stretched thousands and thousands of miles. This whole path was littered with sharp rocks, brambles, and other impediments.

The man, barefoot, starts walking. After a few paces, he steps on a bramble. Ow! He reaches down and pulls the bramble out of his foot. Next, he steps on a sharp rock, and experiences a searing pain. Frustrated, he resolves to clear the path himself. He bends down and sweeps each rock and bramble out of his way. He proceeds agonizingly slow.

Finally, he meets another traveler, an older man. The older man sees the young man hunched over, clearing each rock and bramble out of the way and says:

What are you doing? You’ll walk the whole path paying attention and fighting each obstacle? You’ll never reach the end.

The young man says

I know, but what choice do I have? These rocks and brambles are painful. They are unavoidable They cut me and I bleed, I must clear them out of the way.

Then the old man smiles and points to his own feet.

My friend, you do not need to avoid them, and you do not need to clear them. Just put on a pair of these shoes. Instead of being tortured and governed by these rocks and brambles, you’ll calmly walk over your obstacles.

The lesson? On the path of life, we will be confronted by obstacles, vicissitudes, and changes in fortune. They are unavoidable. They can be painful. But instead of obsessing on they pain they cause or clearing them out of your path, put on a pair of shoes.

In Buddhism as in Bitcoin, putting on your shoes means cultivating awareness, and equanimity. You are not a prisoner of your emotions or your thoughts. You are not a prisoner of Bitcoin’s price or Crypto Twitter. Ignore the noise and see reality for what it truly is.

You hold the (private) key to your own salvation.

Thanks for reading! If you loved (or hated) this post, please forward it and share on social media 🙏. I’d also like to hear what you think about it. Hit me up on twitter @canthardywait

If you’re interested in learning more about the 10 Day Silent Meditation retreat, I wrote a blog post about it here

What does the fox say? 🦊

Proof-of-Take (#009): a dose of perspective and context in the world of Bitcoin

Welcome to Proof-of-Take. The separation of Money and State, enabled by Bitcoin, will happen in our lifetime. It will be one of the most important developments in the history of civilization. This is on-par with inventions like the printing press, antibiotics, and the internet. By the end of it, we may even be able to explain what a blockchain is.

As always, nothing below is investment, legal, or relationship advice.

"Bitcoin will change us more than we’ll change Bitcoin”

Marty Bent

This quote is trippy to ponder. Bitcoin calls into question our view of everything. Spending, society, and money itself. Money makes the world go round, and Bitcoin is changing money.

Bitcoin is also changing me. It’s turning me from a fox 🦊 into a hedgehog 🦔.

I love the book Superforecasting by Phil Tetlock. It’s about making predictions — why they matter, why most people are so bad at them, and how we can be better.

He starts by exposing a truth that most of us know. Celebrity TV pundits and media personalities blow a lot of hot air. They make bold but unfalsifiable predictions. Heads they win, tails you lose.

And when pressed to make tangible predictions, “they’re no better at making predictions than a dart-throwing chimpanzee.”

From there, Tetlock explains the world can be split into two types of people: foxes 🦊 & hedgehogs 🦔:

“The fox knows many things, but the hedgehog knows one big thing.” 

—Greek Poet Archilochus, (~660 B.C.)

A hedgehog (like the pundits above) sees & explains the world through one big issue. They insist on their views, and rarely change (even when proven wrong). They’re idealogues who can only see reality through their preferred theory of the world.

Hedgehogs have a hammer, and everything is a nail.

Hedgehogs are everywhere. These are the people who trace EVERYthing back to ONE BIG thing: science, democracy, religion, the patriarchy, capitalism, or technological innovation. It’s the pundit on TV who confidently explains that “It’s the economy, stupid” — even when it’s not.

Foxes, on the other hand, are different. They use interdisciplinary knowledge and adapt their approaches according to real circumstances. They coldly self-assess and criticize whenever necessary. They recognize the complexity of our world and rely more on observation and less on theory.

Superforecasting clearly favors foxes. Foxes are better forecasters.

I’ve long considered myself a fox. With a background in poker, “rationality,” & self-improvement, it appealed to me. A fox has the intellectual virtues I strive for. Who wouldn’t want to be humble, open-minded, analytical, gritty and successful? It hits every Silicon Valley aphorism—Fail fast, Strong beliefs, weakly held & keep your identity small:

Credit Suisse Research, Mauboussin & Callahan.

Updating your beliefs based on new information seems like a winning formula for business & life. As a fox, being wrong is okay since you’re not too attached to a particular position. Failing is an opportunity to learn.

After all:

Meanwhile, for a hedgehog, being wrong about your one big thing is an existential threat to your identity. You have your eggs in one basket, and risk a major “blow-up.”

But a funny thing happened to this fox. Bitcoin is turning me into a hedgehog.

Superforecasting paints foxes with a rosy brush, but there are legitimate criticisms as well. The most notable comes from Nassim Taleb, author of the Black Swan.

As a reminder, Black Swans are rare events that:

  1. Are unpredictable in advance

  2. Are deeply impactful

  3. Seem predictable in hindsight.

Black Swans are the events that define history. They are the things that humanity will still care about 100 years from now. Things like the fall of the Roman Empire, Pearl Harbor, the rise of the Internet, and September 11th.

For Taleb, improving our Superforecasting on non-Black Swan events would be great. Except that such improvements are a waste of time. These events don’t matter. And the events that do matter can’t be predicted. Foxes, according to Taleb, are winning at the wrong game.

Taleb prizes slugging percentage (how far you hit the ball) over batting average (how often you hit the ball).

More and more, Bitcoin is becoming my one big thing. I view almost everything from political events to my paycheck through Bitcoin-tinted glasses. Bitcoin really, REALLY matters. I’m becoming a Bitcoin Hedgehog.

Like a true fox though, I’m try to self-assess. What are the best parts of each school of thought? Can I be both?

This is confusing and disorienting, but I remain confident in one thing:

Bitcoin, the reinvention of money, is a Black Swan. Bitcoin will change us more than we change Bitcoin. Bitcoin comes around once in the history of a civilization.

And I’m grateful to be alive for it.

Thanks for reading! If you loved (or hated) this post, please forward it and share on social media 🙏. I’d also like to hear what you think about it. Hit me up on twitter @canthardywait

P.S., for those of you wondering why my twitter handle has a 🦊 & a 🦔, now you know.

Sources & Further Reading:

Dale Carnegie was totally wrong.

Proof-of-Take (#008): a dose of perspective and context in the world of Bitcoin

Welcome to Proof-of-Take. The separation of Money and State, enabled by Bitcoin, will happen in our lifetime. It will be one of the most important developments in the history of civilization. This is on-par with inventions like the printing press, antibiotics, and the internet. By the end of it, we may even be able to explain what a blockchain is.

As always, nothing below is investment, legal, or relationship advice.

Dale Carnegie famously wrote How to Win Friends and Influence People

Dale Carnegie famously said:

Be more concerned with your character than with your reputation, for your character is what you are, while your reputation is merely what others think you are.”

And now, Dale Carnegie is famously, utterly wrong.

Character is important. But reputation is everything.

This may have been good advice before the information age. But the game has changed. There are three ingredients rendering this advice is wrong, each uniquely enabled by the internet.

The Black Mirror Effect

The internet has uniquely enabled us to measure, track, and permanently record reputation. This manifests in everything from a Yelp review, to your Uber score, to China’s new dystopian “social credit scoring.”

I name this “The Black Mirror Effect” due to an episode of the series taking place in a world where reputation literally is everything. Everyone has their own personal Uber rating — for every single interaction. People walk around constantly rating each other. From your best friend, to the ticketing agent at the airport.

In the show, a world of “highly rated” and “lowly rated” people emerges, with the high status people prohibited from accessing things like public places and airplanes. We’re not so far off from this world.

Today, your reputation permanently follows you, like a shadow. And governments, companies, and other people stand ready to weaponize it against you if it suits their needs.

The New Prestige Economy

A good reporters say follow the money. A good social psychologist says follow the prestige. People everywhere, particularly young adults, chase prestige like nothing else. Prestige can be a competition of who has the most beauty, athleticism, intellect or money.

According to Jon Haidt, as examined in his new book The Coddling of the American Mind, a “New Prestige Economy” driven by “callout culture” has emerged in certain pockets of society — namely college campuses.

In his words: “It emerged in ~2013. In the New Prestige Economy you gain prestige by calling out others. Accusing them of racism, sexism, homophobia, islamophobia, or some other form of bigtory… If we have an economy of prestige where I gain prestige by these callouts, there’s an cost imposed on the people I accuse, which doesn’t effect me.”

Nassim Taleb would call this problem: no skin in the game. In economics it’s called an externality. So we have a new economy with negative externalities. Just like companies who pollute rivers — they don’t directly bear the cost, so they increase their activity too much — past the optimal point for society as a whole.

Note that this economy too is uniquely enabled by the internet. Information is now ubiquitous and everyone has access to instant, mass communication. Sending a tweet, forwarding an email, or leaving a review on is trivial.

*I will of course make the MASSIVE caveat here that heinous actors who perpetrate crimes against people should be called out. Whistles should be blown. However, I think Haidt has hit on something more nuanced.*

(Here’s a good podcast with Haidt and Sam Harris further discussing this topic)

The Court of Public Opinion always gets its pound of flesh

The hallmark of the US justice system is built on the principle of “innocent until proven guilty.” We have this so that everyone enjoys “due process” under the law. It’s in the Constitution.

The hallmark of the Court of Public Opinion, is the opposite. You’re guilty until proven innocent. And the Court of Public Opinion plays judge, jury, and executioner.

Declaring someone guilty (aka destroying their reputation) without due process is bad enough. However, the court of public opinion routinely demands punishment for the crime. And they have a thirst for blood.

Typically, demanding that someone be immediately fired from their job is a good start for a crime committed in the court of public opinion. In some cases, only full exile from society would satisfy the bloodlust.

Again, this is uniquely enabled by the internet. Via social media, the court of public opinion is able to publicly twist corporation’s arms to take swift action.

My caveat above applies here. However, I’m not convinced that process (trial by social media) or outcome is fair crime. Regardless, this is our new reality. You’ve been warned.

There are many examples of this of the years, but here’s an interesting book on the topic.

Dale Carnegie’s advice, that character is more important than reputation, now sounds quaint. And entirely wrong.

How would Dale survive in China’s social credit system? Or on a modern college campus? Or on trial in the court of public opinion?

Thanks for reading! If you loved (or hated) this post, please forward it and share on social media 🙏. I’d also like to hear what you think about it. Hit me up on twitter @canthardywait. This post was inspired by a twitter conversation with my friend Sar

Crypto Shenanigans™: a new framework for scams

Proof-of-Take: a dose of perspective and context in the world of Bitcoin (#007)

Welcome to Proof-of-Take. I believe the separation of Money and State, enabled by Bitcoin, will happen in our lifetime. It will be one of the most important developments in the history of civilization. This is on-par with inventions like the printing press, antibiotics, and the internet. By the end of it, we may even be able to explain what a blockchain is.

As always, nothing below is investment, legal, or relationship advice.

Crypto is suffering from a “fake news” problem.

No, I’m not referring to the baseless FUD (Fear, Uncertainty, and Doubt) that people like Nouriel Roubini and Paul Krugman are spreading.

The problem is how we use certain words.

Words matter. And some words get so weaponized and distorted from their original intent that they lack any meaning whatsoever.

In today’s political climate, it’s the term “fake news.”

In Bitcoin, it’s the term “scam.”

Below, I’ll discuss why “scam” needs a precise definition, the history and misuse of the term, and propose a new framework and term, Crypto Shenanigans™, to describe some of the acts we see.

You can barely dip a toe into Crypto twitter without seeing the word “scam.” Folks use it to describe everything from actual Ponzi Schemes to Venture Capital firms to merchants who accept bitcoin.

You may be thinking, “yeah, people play fast and loose with the word scam, so what?”

The problem boils down to two factors: reputation and asymmetry.

As we’ll see below, the original meaning of a “scam” was a deliberate act. A “scam” is perpetrated by a “scammer.” Being labeled a “scammer” is like getting a very bad review on Yelp — the target suffers reputational harm. And reputation is everything.

To quote the prescient 1988 Crypto Anarchist Manifesto, a Bitcoin equivalent of the Federalist Papers:¹

In the age of the internet, reputations will be of central importance, far more important in dealings than even the credit ratings of today.

Which brings us to asymmetry. On the internet, reputational attacks are asymmetric: they’re easy to commit and difficult to defend. It takes almost 0 effort to lob accusations that get seen be millions of people. And this can be done using an anonymous avatar that doesn’t stake a real-world identity to the accusation. So while calling someone a “scammer” can take 15 seconds, no proof, and no risk (skin in the game), successfully rebutting that accusation can cost massive amounts of time and money. There are many recent high profile examples of people’s reputation (and lives) being dismantled via internet mobs². Expect this trend to continue.

Today, reputation is both more important and more fragile than it’s ever been. We must be precise on the meaning of a “scam.”

The Anatomy of a Scam

So then, what is a scam?

The dictionary defines “scam” as using dishonest methods to acquire something of value.

Under US Law, a scam is not formally defined. You can’t be sued or jailed for committing a “scam.” The closest unlawful acts are “fraud” or “misrepresentation.”

And yet, regulators use the term scam everywhere!

Here’s a page from the SEC website designed to educate investors³

Here’s FINRA, Wall Street’s self-regulating entity, discussing scams⁴

What exactly is the difference between a scam and merely a bad investment? After all, the SEC was created to protect investors from scammers, not themselves.

For a “scam” to be punishable as an unlawful act like fraud, it generally require two things. First, the scammer must have knowledge or intent to commit the act. Second, the information conveyed in the scam has to be “material” (aka important). If you were an investor, would that particular fact matter?

Make no mistake, this is an extremely high burden of proof. Proving actual knowledge or intent is the highest standard in our legal system, and materiality is entirely subjective and depends on the particular facts at hand.⁵

So “scam” is not a legal term, but it’s widely used & accepted by the SEC, FINRA & Crypto twitter. Contrast this with other words. If I call someone a murderer, a drug-dealer, or a jay-walker, it’s pretty clear what act they’ve committed. Call someone a scammer, and I’m all like:

The state defines laws—not morals. And often the link between the two is tenuous. After all, there are plenty of things that are lawful but unethical (cheating on a significant other, berating the waitstaff, ghosting someone on a dating app, or most types of lying) and plenty of things that are unlawful, but perfectly ethical (smoking weed, jaywalking, and the infamous “sodomy laws.”⁶) These so-called victimless crimes are preposterous. If an act has no intended victim, it shouldn’t be a crime.

Taking back the power

Betting on the state to coherently define a “scam” is a losing proposition.

Therefore, I propose we take back the power, and clarify what people mean when they call something a scam.

Acts described as scams usually fall into one of three categories.

Category 1: Deliberate fraud

Category 2: Crypto Shenanigans™

Category 3: Literally everything

Category 1 is the most morally and legally culpable — and consistent with the original meaning of a scam. Categories 2 and 3 are more nuanced. I describe each below, with a focus on Crypto Shenanigans™— a new term I’m proposing here.

Category 1: Deliberate Fraud

There is little controversy in describing Category 1 acts as scams. These actors provably and knowingly deceived others for their own enrichment. Category 1 acts are the closest to the original meaning of scam (deliberate fraud). Some examples:

Pump and Dump: In a pump and dump, the perpetrator deliberately spreads false and misleading information about an asset to cause a price increase (the “pump”), then sells the asset at a higher price to unsuspecting rubes (the“dump”). In Crypto, this infamously happens on the messaging app Telegram.⁷

Exit Scam: Here, a “promoter” launches a new project based on a promising idea; then raises funds via cryptoassets from various investors, usually via crowdsale (ICO); the promoter then pretends to work on the project for a time; and then they disappear with the crypto, leaving the investors holding the bag. Importantly, crypto transactions are basically irreversible, so possession is 10/10ths of the law. When the coins are gone, they’re gone.⁸

Ponzi Schemes & Pyramid Schemes: These scams pay profit to earlier investors by luring in new investors, who in turn are promised profits by recruiting even dumber money. Compare this business model to, you know, actually creating & selling something of value. Think Bernie Madoff, but with a token.⁹

Dishonest Exchanges: There are many examples here, with Mt. Gox being the most famous. Exchanges are basically banks, so behavior like lying about account balances, solvency, and whether it’s been hacked can have grave consequences. These acts are punishable by law and can cause ‘bank runs’ — where all customers rush to get their money out at the same time. Imagine a fire in a crowded movie theater with everyone running for the exits. The best defense against dishonest exchanges is to never, ever, store your cryptocurrency on an exchange.

Category 1 Scams can be punishable under US civil and criminal law. You don’t want to be a Category 1 Scammer.

Category 2: Crypto Shenanigans

Describing Category 2 acts as “scams” feels inappropriate, as they’re not necessarily illegal or even unethical. They’re more like shady or sketchy behavior that makes your skin crawl. These are more “bad looks” than “bad acts.” So we need a new term. I’ll call it Crypto Shenanigans™. These are moral hazard problems, which create interesting ethical dilemmas and gray areas. Each case is unique, and facts matter. The below acts warrant deeper exploration than this post, but I’m hopeful that identifying them can spark a productive conversation.

As a rule, transparency and disclosure can mitigate the ethical pitfalls of committing Crypto Shenanigans. Why? Because we’re all freedom-loving, rational, individuals, so we know that adults with sufficient information should be allowed to enter into consensual agreements. Sunlight is the best disinfectant and Caveat Emptor.

Consider the following acts and, for dramatization, some uncharitable real-world analogs:

Venture Capitalist (“VC”) Shenanigans

Venture Capitalists generally invest money into young, risky companies on behalf of rich individuals and pension funds. They funded things like Facebook, Uber, and Snapchat when such companies were ideas on a napkin. VC’s competitive advantages are their network of entrepreneurs & opportunities (‘dealflow’), and their experience. And now, VCs have made their way into crypto.

Here are some archetypal VC Shenanigans:

Paid Shill / Talking Your Book:

Worst-case real world analog: An instagram #influencer getting paid to post their SoulCycle ride or favorite makeup brand without mentioning #sponsored #ad.

Description:  Glowingly tweeting about certain crypto companies (‘projects’) without disclosing that you have an ownership stake in them, or that the project is paying you to speak positively about (“shill”) it. A variety of this is badmouthing XYZcoin’s competitor because you own XYZcoin — without disclosing such.

Dumping on the Public:

Worst-case real world analog: Selling ice to an eskimo or the Brooklyn Bridge to an immigrant at Ellis Island.

Description: VCs have privileged access to “pre-sales” of many projects. That means they can invest in a project at a very large discount, with the understanding that later, a crowdsale to the public (ICO) will occur. Projects offer discounts because of the “social proof” that investment from a brand name VC confers. After the pre-sale, the VC can sell (dump) some of their holdings on a greater fool — the public.¹⁰ This can be particularly nefarious given Project Shenanigans discussed below.

Exchange Shenanigans

Exchanges are centralized companies that use computers to match buyers and sellers and determine a ‘market’ price for cryptoassets. Exchanges are the most popular on-ramps for new crypto investors and build their brand on reputation and trust — so their shenanigans are particularly troubling.

🍆💦Casual Ex(change listings)

Worst-case real world analog: Amazon selling roofing products containing asbestos or a middle school vending machine with nothing but junk food.

Description: Exchanges have the important, often unspoken power to decide which assets to list. Exchanges also make most of their money from trading. Therefore, it’s in their financial interest to list as many things to trade as possible. Even if exchanges thoroughly vet what they sell (many don’t), it’s difficult for crypto novices tell the difference in quality between listed projects. And some exchanges will list almost any project that pays a listing fee.¹¹

Fractional Reserve Exchanges:

Worst-case real world analog: A bank in the 1920s (before FDIC insurance), or the Full Tilt Poker Scandal.¹²

Description: Exchanges are basically banks. Many people, out of laziness or inexperience, leave their cryptoassets on the exchange, trusting it with their holdings. There are compelling arguments that any Fractional Reserve Banking (lending out more money that people deposit) is unethical, if not illegal. Regardless, the lack of transparency from exchanges about how “fractional” their “reserves” qualifies as shenanigans, and puts exchanges at risk for bank runs.

Allowing two-factor authentication via text message (SMS):

Worst-case real world analog: Wal-Mart selling a gun that doesn’t have a safety

Description: I’ve written before about 2-factor authentication — using SMS is a gaping security hole. That exchanges still allow this is a Shenanigan. We have countless examples of people losing hundreds or thousands of bitcoin due to SMS. While some point blame at wireless carriers, there are compelling arguments that it’s not their responsibility.

Honorable mentions for exchange shenanigans include: surveilling their customers, failing to batch transactions, not activating SegWit, and allowing frontrunning of trades.

Project Shenanigans

Most crypto “projects” are essentially startup companies by another name. At formation, they’re centrally controlled. Of late, investors have decided to value them 10x higher than their traditional equity counterparts, while receiving 10x fewer (or zero) rights and preferences that traditional equity investors get. Here’s a sampling of common project shenanigans:


Worst-case real world analog: The CEO of a company serving as the sole member of the compensation committee.

Description (As described in Pierre Rochard’s recent article on premines):

In a typical premine, a token gets created upfront by a centralized entity. Tokens are then distributed and/or sold to stakeholders, often via crowdsale (ICO). The process is analagous to how companies create equity, and can be problematic for a few reasons. (1) Tokens are typically used as compensation for securing a network, not generous, self-directed rewards. (2) The entire ethos of crypto is decentralization, but a premine concentrates ownership in a privileged few. And (3) such premines are often done out of the public eye, with little transparency or oversight.

Nonsensical valuations with limited or 0 “investor” rights

Worst-case real world analog: The Tulip Bubble

Description: Even assuming that a typical ICO is not a security (a bold assumption given recent subpoena activity), they’re so fraught with risk (compared to traditional equity counterparts) that the sky high valuations they’ve seen border on insane. In addition to the typical risks of a startup, crypto projects have:

  • Unproven entity structure,

  • Unproven use or need for a blockchain,

  • Unproven justification that the token will accrue any value whatsoever,

  • No entity to sue

  • Negligible investor rights as compared to traditional equity.

Plus, ICOs have shown suffer from an adverse selection problem, as the public tends to be a funder of last resort. I.e., if the project could’ve raised from smarter money, it would have.

Founder cashing out:

Worst-case real world analog: Selling a house with a rotting foundation and skipping town.

Description: The most prominent example here is Litecoin — whose founder publicly announced he was selling all of his Litecoin holdings to prevent a “conflict of interest.”¹³ How much skin in the game a founder retains is an age-old business question and up for debate. In public companies, there are strict rules around when and how executives can sell stock (it’s often viewed as a very negative signal) and in startups, much ink has been spilled around the appropriate time for a founder to sell some of the stake.

In addition to the above Shenanigans, projects are of course plagued with Category 1 behavior such as insider trading, market manipulation, and deliberate fraud.

Crypto Shenanigans are often not punishable under existing US Civil or Criminal Law, as the state does not impute legal responsibility for these acts. Primarily because these actors lack deliberate intent or recklessness

While Crypto Shenanigans fall into the “unethical but legal” bucket, justice can still be served. The Court of Public Opinion (Crypto Twitter) gleefully acts as judge, jury, and executioner for perpetrators of Crypto Shenanigans. In a world that’s increasingly defined by reputation, this could end up being as harmful as the punishment from the state.

Other players in the crypto ecosystem commit Shenanigans. In a future post, I’ll explore behavior by media companies, conference organizers, crypto traders, and no-coiners.

This brings us to the elephant in the room around Shenanigans™. If Bitcoin is the only crypto project to gain mass adoption, then it’s an extinction-level-event for VCs, exchanges, and other projects. Bitcoin didn’t have a pre-sale where VCs could get in at a massive discount, and many VCs will struggle to justify their management fees given the simplicity of acquiring Bitcoin. For exchanges, “Buying and HODLing” (not trading) is emerging as consensus investing wisdom, decimating their business model. And for project leaders, Bitcoin’s founder disappeared and his coins have never been spent. In order for a VC, exchange, or project leader to enrich themselves, let alone justify their existence, they need a winner other than Bitcoin. See any conflict of interest here? As Upton Sinclair said:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Category 3: Everyone’s a scammer.

One Bitcoiner I’ve learned a lot from is Michael Goldstein. He’s been into Bitcoin since before it was cool.

His theory? Everyone is a scammer

His post has an attention grabbing title but contain ideas worth understanding. The logic goes as follows:

Bitcoin is going to be massively valuable one day. This is a concept among Bitcoiners called “hyperbitcoinization.” It’s refers to Bitcoin’s transition from magic internet money, to the global currency.

In Hyperbitcoinization, each coin will be worth a lot (even [conservative bitcoiners] tend to think maybe $10 million per coin in today's purchasing power)

Assuming hyperbitcoinization happens, “everyone is a scammer because, merchants, altcoiners, and other hoarders have convinced countless bitcoiners to part with their Bitcoin… despite the obvious downsides given a long enough time horizon to see the coming post-fiat world.'“

I suggest reading the full article and engaging with the ideas. I’ll save a deeper analysis of Category 3 for another time. Suffice to say that this view is held by a non-trivial portion of Bitcoiners, so warrants listing here. Perhaps future generations will look back on Category 3 Scammers, with the same moral relativism we view cigarette companies or the government-endorsed food pyramid.

Above, I’ve outlined the 3 main categories of behavior people might be referring to when they call something a scam. To me, Crypto Shenanigans are the most interesting. They present a Rubik’s Cube of conflicts of interest and incentive problems to analyze. They’re part of the metagame of “crypto ethics” which I find fascinating.

Thanks for reading! If you loved (or hated) this post, please forward it and share on social media 🙏. I’d also like to hear what you think about it. Hit me up on twitter @canthardywait.

I’d like to recognize a few people on who kindly answered my basic questions and humored my half-baked ideas: Arjun Balaji, Gabe Bassin, Evan Bayless, Brendan Bernstein, Marty Bent, Jake Chervinsky, Spencer Noon, Tony Sheng, and Dan Sachs.




3 Securities & Exchange Commission: “How to Avoid Fraud,”


5 Responses from some smart securities lawyers on twitter


7 The Outline story on Pump and Dumps

8 Investopedia Article on Exit Scams

9 — for an interesting discussion on Bitcoin as a “Nakamoto Scheme,” check out Preston Byrne’s post.

10 It’s worth noting that VC’s have a fiduciary duty to their investors (LP’s) and are legally obligated to act in their investors’ best interests.

11 Nic Carter’s recent post was a hugely inspiration to my thinking here



Why Privacy Matters (Proof-of-take #006)

Proof-of-Take: a dose of perspective and context in the world of Bitcoin

I have some bad news: you’re currently a prisoner. So am I. And the worst part is, we don’t even know it. Modern surveillance is our warden.

Privacy in most parts of our lives has been chipped away. We’re constantly being surveilled.

  • Some of this happens through straight-up, “1984” style government surveillance: The Patriot Act, the modern banking system and Edward Snowden / NSA.

  • Some of it happens by tech companies: Google stores your search history, Facebook profits from your data, and Ashley Madison records all of your infidelities 🍆.

  • And some of it happens via changing cultural norms. We’re in the age of oversharing. It’s expected for people to put their entire family albums on Instagram, their thoughts on Twitter, and not uncommon for emails and texts to show up on the front page of the New York Times.

So, what’s the big deal? You might be thinking “Yeah, I don’t love that the NSA is spying on me, and that Google and Facebook know everything about me, but I’m harmless, so I’m okay with it.”

This mindset is dangerously misguided. Because it has the logic exactly backwards. You’re not agreeing to surveillance because you’re harmless, you’re harmless because you’re being surveilled.

Today, we live in a Panopticon. The Panopticon was a surveillance invention from the 1700s designed for prisons. It’s an enormous tower at the center of the prison where those in power could, at any moment watch any inmate. Although they couldn't watch all inmates all the time, the inmates couldn’t see into the Panopticon, so they never knew if they were being watched or even when. They rationally assumed they were always being watched.

Science tells us that if somebody knows they’re being watched, their behavior changes. Today, we’re always being watched watched. So today, behavior is always being changed. And the worst part is that this happens subconsciously— we don’t realize this is happening.

I can’t say it any better than this TedTalk on Privacy by Alan Greenwald. If you remember one thing from this post, remember this:

Surveillance creates a prison in the mind that is a more subtle and effective means of fostering compliance with social norms or with social orthodoxy. It’s much more effective than brute force could ever be.

When we live in surveillance, we subconsciously decide that certain behavioral choices are off-limits, without even knowing we’re making that choice.

Whenever voting season gets close, a social pressure emerges. People proudly don their “I Voted” stickers, and those who don’t vote are often chastised by those who did. Sayings like:

  • “It’s your democratic duty to vote”

  • “People died so you could vote”

  • “What if everyone thought like you?”

I’m not here to argue with any of the above. But what if the energy channeled into promoting voting was instead channeled into privacy? Like voting, privacy is essential for our democracy, freedom of expression, and inalienable rights. And while we vote (or don’t) every two years, we need, and (surrender), our privacy every. single. day.

So what does this have to do with Bitcoin? Well, everything. Bitcoin is the love child of the 2001 Patriot Act and the 2008 Financial Crisis. Financial surveillance is one of the government’s most powerful tools. Everything from political donations to medical purchases is viewable by those in power. And as paper cash dies out, and all money becomes digital, that power grows exponentially. Bitcoin offers an alternative.

I’ll end on a more hopeful note from the TedTalk:

Humans are social creatures. We crave companionship, approval, and love from others.

But equally essential to what it means to be a free and fulfilled human being is to have a place that we can go and be free of the judgmental eyes of other people.

Thank you for reading! Like it? Hate it? Still processing it? Please share it with a friend or enemy, and tell me why I’m wrong. Let’s continue the conversation; the best way to reach me is on Twitter — I’m @CantHardyWait.

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