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What Is Happening to the People Falling for Crypto and NFTs

What Is Happening to the People Falling for Crypto and NFTs

Friday, 6 May, 2022 - 04:30

To understand the latest incarnation of the colossal crypto grifts that continue to engulf the internet, I suppose we should start with all those bored apes, because how could we not?


I don’t mean real apes — little of what’s in this column is about stuff you could call in any tangible sense “real.” Instead I’m talking about the collection of digital art known as the Bored Apes Yacht Club. Created about a year ago by a quartet of mysterious, pseudonymous cryptocurrency enthusiasts, Bored Apes is a collection of thousands of “programmatically generated” hypercolor drawings of coolly disheveled primates, the kind you don’t bring home to mama.


For reasons that don’t seem much deeper than weird things happen online, bored apes have become a hot commodity in the market for nonfungible tokens, or NFTs. As of Thursday morning, the cheapest available Bored Ape NFT — a kind of digital certificate that grants its holder nebulous ownership of the ape illustration — was selling for the equivalent of about $340,000; last year, an NFT of a very rare Bored Ape, one of a small number with gold fur, sold at Sotheby’s for $3.4 million.


Are you with me so far? People online are going ape for what are essentially primate Pokemons. You may be wondering what the apes do and why people are paying so much for legally uncertain claims to them, and how you ever got so old and out of touch. All good questions — but we’re well past those now.


In the past year Yuga Labs, the well-funded start-up that makes Bored Apes, has embarked on a parade of new and even farther-out digital spinoffs of its simians. Its latest ventures have highlighted the head-scratching, money-burning, broken-casino vibe of what’s being called the internet’s next big thing. Cryptocurrencies, blockchains, NFTs and the constellation of hyped-up technologies known as “web3” have been celebrated as a way to liberate the internet from the tech giants who control it now. Instead what’s happening with Bored Apes suggests they’re doing the opposite: polluting the digital world in a thick haze of errors, swindles and expensive, largely unregulated financial speculation that ruins whatever scrap of trust still remains online.


The latest ape sale took place last weekend, and it was a disaster from top to bottom. Huge demand overloaded Ethereum, the open-source blockchain that hosts the Ether cryptocurrency and had been developed to be a more capable crypto system than Bitcoin. The technology’s shortcomings led to thousands of people paying about $180 million collectively in transaction fees. Some appeared to pay more in fees than what they paid for the NFT. They were the lucky ones; some paid steep transaction fees only to see their ape purchases fail for unknown reasons. (Yuga said it has refunded money spent on failed transactions.) Still others suffered various hacking and phishing scams. Meanwhile Yuga, whose backers include some of Silicon Valley’s biggest venture capital firms, generated at least $320 million in sales. Sales of what? Oh, plots of “land” in Otherside, a virtual world that might come out soon.


Of course, buyers participated in the sale willingly. You might find it hard to muster much sympathy for folks who paid huge sums to speculate on digital goods in an unbuilt corner of the metaverse. Play stupid games, win stupid prizes.


But Molly White, a software developer who runs Web 3 Is Going Just Great, a website and Twitter feed that documents the spectacular crashes happening seemingly every day in crypto, told me that a lot of people are getting suckered into being guinea pigs for a set of new technologies that are much less solid than boosters acknowledge.


“On the one hand we’re seeing problem after problem after problem on a scale that has not been seen in most technologies,” she told me. On the other hand, well-funded companies are running Super Bowl ads pushing crypto to the public, and big financial firms are gearing up to let people invest in digital currencies as part of their retirement funds. And much of this stuff is unregulated.


“There will only be a lot more damage as it continues,” White said.


Web3’s nominal aims are quite noble. The original internet boom of the late 1990s, what you might think of as web 1.0, was a time of great stock-market valuations that created a few enduring companies and a lot of dead dot-coms. The post-bust, web 2.0 era of mid- to late 2000s was marked by an explosion of new technologies and new companies — mobile devices, social networks, streaming services and a much more dynamic, interactive web. In the past decade, though, four companies — Google, Facebook, Amazon and Apple — emerged as the central gatekeepers of the internet and, in a larger sense, the tech industry.


Proponents of crypto and associated web3 innovations say these technologies can reverse the internet’s monopolistic turn. They argue that by building the next generation of internet apps on blockchains — essentially public ledgers that can record monetary transactions and store data in a way that is decentralized, meaning not under the thumb of any tech giant — we can pull the rug out from under today’s internet giants. Web3’s boosters also point to a variety of other so-far-unrealized virtues. They say crypto will free us from large financial powers like Wall Street and the Federal Reserve, that it will allow people to send and receive money cheaply, or will bring millions of the world’s “unbanked” into the modern financial system.


Honestly, I have long tried to keep an open mind to these claims, because I have been incredibly dismayed by the way a handful of firms have taken over an internet that I once thought of as a font of innovation. If there really is a new web that’s going to solve all the problems of the old web, sign me up.


But the continual blowups should crater those expectations. At the same time that the Ethereum blockchain was getting crushed by last weekend’s Bored Apes sale, another supposedly smart crypto network, Solana, was taken offline by bots — one of several full or partial outages it has experienced this year. Two other crypto ventures, Rari Capital and Saddle, were hit with attacks that led to a loss of a combined $90 million in Ether. Early last week, Deus Finance lost $13.4 million in the second attack in two months. I could go on — and on, and on.


There’s also little of the decentralization that we’re being promised. Many web3 companies are funded by the same people who built the web we’re now trying to reform.


The main problem isn’t that these technologies will become the basis for the future of the web. They are clearly not ready for that: As White put it, “If web3 can’t handle 55,000 Bored Ape NFTs, how can it handle web-scale technology?”


But how many people have to lose their shirts before we realize that web3 isn’t a solution to any of our problems?


The New York Times


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