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Idealism, greed, lies and the creation of the first big cryptocurrency craze

Laura Shin is a crypto journalist, host of the unleashed podcast and former editor of Forbes. Below, she shares 5 key insights from her new book, Cryptopians: Idealism, Greed, Lies, and the Creation of the First Big Cryptocurrency Craze. Listen to the audio version – read by Laura herself – in the Next Big Idea app.

1. Power shifts from business people to coders.

My book tells the story of Ethereum, the second largest crypto asset by market cap. The initial group of eight co-founders consisted of programmers and business people. During the first months, tensions rose between developers (or “devs”) and businessmen. In the end, the developers prevailed.

In contrast, when crypto was just a thing, a Coinbase co-founder, Fred Ehrsam, said that when he was a programmer at Goldman Sachs, he was basically considered a computer scientist. Business people stood before him, barking orders with one foot on his desk.

Wall Street was once seen as the center of power, but in recent decades that has shifted to Silicon Valley. And with the rise of crypto, it left Silicon Valley and went global. News reports have reported that we regularly see Silicon Valley executives jump ship to work in crypto.

I have sources who have gone from nothing to billionaires in the space of a few years, in places as diverse and unexpected as the Philippines, India and Brazil. They are just programmers who have learned blockchain coding, so they don’t need to work for a corporation to make a lot of money, nor do they need to be near the Bay Area. They sit in front of their laptop and do everything from home.

2. Power shifts from centralized actors to decentralized organizations.

Bitcoin is notable for reaching a market capitalization of around $1 trillion without a CEO, board, or hiring employees. This is all possible thanks to the incentive design of Bitcoin the activeand Bitcoin the network. People using the bitcoin software enter a contest approximately every 10 minutes to win new bitcoins minted by the software. For them, it looks like a chance to make money, while the Bitcoin network benefits from increased security as more computers on the network means it is more difficult for a single entity to take control of Bitcoin. This approach is more original than hiring an IT department and offering them salaries and stock options.

“These DAOs, or small democracies, are a far cry from startups or traditional businesses. Decisions are made collectively and loot is shared among all token holders.

Bitcoin was the first example of a decentralized organization (meaning there’s no need for business people to run it), but my book focuses on Ethereum, which is a platform for creating everything type of decentralized application: loan protocols, social clubs, exchange protocols, granting organizations, groups of people trying to buy things like a Wu-Tang Clan album, and more. Ethereum is like an App Store allowing developers to build and upload decentralized apps, all without a CEO, board, or legal contract.

These groups are called CAD, which stands for Decentralized Autonomous Organizations. You can think of them as small democracies. Some people only work for DAOs by submitting proposals to them and then doing the work if a proposal is approved. Many DAOs have their own tokens, called governance tokens, which function as a vote on submitted proposals. DAOs can have thousands of members, or they can be small groups of friends who invest in crypto or NFTs together. These DAOs, or small democracies, are a far cry from startups or traditional businesses. Decisions are made collectively and loot is shared among all token holders.

3. Even in technology, politics and personalities matter.

A popular tool on Ethereum are software called smart contracts. These are automated software that (like chat bots) will spit out various transactions, based on your input. They have often been described as financial vending machines.

It may look like sterile software, impervious to human influence. However, a fundamental tension is that programmers believe they are building what they like to call “trustless technologies,” but time and time again the personalities involved (and their clashes) affect the course of events. Even these so-called machines, which interact with larger markets, are subject to manipulation by actors behind the scenes.

“How people treat others can have a profound impact on the development of so-called trustless systems.”

For example, there was one particular developer who was instrumental in the architecture of Ethereum. He was brilliant, but also arrogant and was quick to point out the mistakes of others. After being kicked out of the Ethereum Foundation, he continued his competitive pursuits by writing blog posts that dissed the foundation’s software. Years later, he raised around $145 million worth of ether for a new project, but due to a flaw in the wallet he and his team designed to store that money, $90 million of those funds were frozen – unusable. Ethereum could did something to try to free up the money, but after his years of sowing ill will among the devs, they weren’t keen on helping him at all.

The crypto and blockchain crowd loves to dream of a world where trusting imperfect humans is not necessary, and financial transactions can be secured with the right code. But how people treat others can have a profound impact on the development of so-called trustless systems.

4. Reputation is worth more than money.

When I published my book, I was able to announce who was behind the biggest ether theft never– an amount of about 11 billion dollars today – due to peculiarities around How? ‘Or’ What the hacker stole the money. He was linked to a venture capital fund called DAO, and there were delays in any withdrawals. This person had ample time and opportunity to return the funds, and prior to the hack, the suspect contacted the creators to report flaws in the decentralized venture capital fund. These are the exact flaws that later made it extremely difficult to fix the hack without simply erasing the existence of the DAO, thus proving its concerns.

If the suspect had instead hacked it, but then come forward and said he would return the money after making his point, then the community would have considered him a hero. Indeed, there are now security researchers who are famous for identifying faulty code and saving the money before it can be hacked. Also, since it’s visible on the blockchain that the money was stolen, he couldn’t do much with it anyway.

“Because it’s visible on the blockchain that the money was stolen, there wasn’t much he could do with it anyway.”

One of the creators of DAO discovered the suspect’s identity, and said it was a shame for him that he hadn’t done anything to rectify the situation: “He really fucked the doggie. Reputation is worth far more than money.

5. Use good judgment with your business partners.

My book starts with the main character, the creator of Ethereum, Vitalik Buterin, who has an idea for a new type of blockchain. He wrote a white paper and emailed it to 13 friends in November 2013, the day bitcoin first broke through the price of $1,000. It was a heady time in bitcoin. Almost overnight, the high price created a number of bitcoin millionaires. When people saw the potential of Ethereum, they realized it could turn them into Ether millionaires too. So the initial group of co-founders and colleagues working on Ethereum were a mix of idealists and opportunists with dollar signs in their eyes.

Over the next few years, Buterin found himself in one crisis after another. He struggled to see ulterior motives, struggling to distinguish between opportunists and good people without selfish intentions. Also, he had trouble telling people no, which led to multiple instances in which he was rejected by those with stronger, more greedy personalities. After years of learning, he finally found a group of true friends who weren’t attached to him because of how he could benefit them. He began to understand how not standing up for himself and his principles could harm others and Ethereum.

While Ethereum managed to make a big impact on the world despite the drama and backstabbing of its early years, Buterin would have saved himself a lot of heartache and stress if he had learned, early on, to fix limits.

To listen to the audio version read by author Laura Shin, download the Next Big Idea app today:

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Margarita W. Wilson

The author Margarita W. Wilson