Consider This from NPR - Cryptocurrency: The Future Of Investing Or A Scam?

Episode Date: February 19, 2022

During the Super Bowl, clever ads from cryptocurrency companies urged a mainstream audience of 101 million viewers to buy now or regret it later. But besides high-minded rhetoric, what exactly were these ads selling? And why are some critics warning against investing? To understand the arguments for and against investing in cryptocurrency, you have to get a bit technical. YouTuber, Dan Olson helps us understand these digital currencies, how they function, what you can buy with them and the ideology behind the tech. We'll hear why Chinese dissident artist, Badiucao, thinks NFT's – non-fungible tokens – are the new frontier for political art. And critics explain why the crypto craze may be a market bubble and a scam. In participating regions, you'll also hear a local news segment to help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Support for NPR and the following message come from the Kauffman Foundation, providing access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity, regardless of race, gender, or geography. Kauffman.org History is filled with almosts. You've seen the ads. Kyle Lowry has missed over 6,000 shots in his career. Don't be like Kyle and miss your opportunity again.

And again. And again. And again. And again. Seriously? And again. Yeah. And again.

They're selling FOMO, fear of missing out, and also courage and foresight. But if you want to make history, you've got to call your own shots. And they're also warning you against being a coward or just lame. It's FTX. It's a safe and easy way to get into crypto.

Yeah, I don't think so. And I'm never wrong about this stuff. What they're actually selling is cryptocurrency. And since many of these ads ran during the Super Bowl, this pushed a new frontier

of investing in front of a mainstream audience of 100 million viewers. It might be working, and at the very least, it's made a lot of people curious. The cryptocurrency exchange site Coinbase reportedly paid nearly $14 million to air a bouncing QR code set to music. In one minute, their site had more than 20 million hits. Enough people scanned the code and visited the site to crash the app. Consider this. Crypto companies are saying

buy now or regret it later, urging us to join the cryptocurrency revolution and step into the future. But besides a hot and heavy sales pitch, what exactly is it they're selling? And why do others say most people need to take a very deep breath before jumping in? That's coming up. From NPR, I'm Michelle Martin. It's Saturday, February 19th. This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time mid-market exchange rate with no hidden fees. Download the WISE app today or visit WISE.com. T's and C's apply. It's Consider This from NPR.

To understand the arguments for and against investing in cryptocurrency, we have to get a bit technical. For this, we're going to get some help from Dan Olson. He's a Canadian YouTuber whose video, Line Goes Up, The Problem with NFTs, has more than 5.5 million views and takes a deep dive into things like Bitcoin and Ethereum, two kinds of cryptocurrency or digital currency designed with a specific goal in mind. Philosophically, Bitcoin and cryptocurrency in general was paraded as an end to banks and centralized currency.

So unlike traditional currencies whose value is regulated by banks and governing bodies, cryptocurrencies are built on a decentralized network called blockchain. A giant log of transactions. Blockchain functions like a public digital ledger where sales are recorded and verified. So what can you buy with a digital currency? In its early days, let's keep it real, some of the more common uses were for shaking people down with ransomware or buying illegal services or drugs. But you can also buy cryptocurrency as an investment, like a stock or bond. Or you can buy NFTs.

Non-fungible tokens. NFTs are digital assets like an image, a GIF, or an outfit worn by a character in an online game. Really anything digital. But they are strictly unique or non-fungible. Strict uniqueness is a way of saying that two different things are different things, even if they're different copies of the same thing. Now you might be wondering, why would I buy an NFT when I could just look at an image, video, whatever, for free? Think a video clip of LeBron dunking. Holden Reneker understands the confusion, even though he has gone all in on

buying NFTs, of famous professional basketball moments called NBA Top Shots. I think it's a psychology that I, you know, even can't wrap my head around sometimes. But you own something that is limited in a way. But it's, I don't know, it's an authenticated, verifiable little piece of the NBA that you own as a fan. It's a different way of thinking about traditional objects that people own. And it's an investment. Reniker spent $11,000 on 75 NBA top shots, and now he estimates that collectively they're worth $65,000. It's a growing market, and there are fierce proponents and many critics. William Bernstein, a financial theorist

and author of The Delusions of Krauts, is one of those critics. When you see people around you getting rich, you want to become rich too. And the world's most pleasing narrative is the one that you're going to become effortlessly rich. YouTuber Dan Olson agrees that NFT trading can be intoxicating, although he wouldn't agree that it is effortless. The value of NFTs, just like the value of cryptocurrency, changes so quickly you have to be extremely plugged in to perform well. It becomes an obsession. It's hitting a lot of the same trigger points as like gambling addictions. You know, it's a lot like slot machines. Both Bernstein and Olson believe we're seeing a rapidly inflating bubble.

You know, if you read historical descriptions, all you have to do is change a couple of the names and you might as well be reading the Wall Street Journal. Even pro-crypto people are like, yeah, we'll begrudgingly admit that it's pretty bubbly right now. According to market tracker Dapp Radar, the NFT market surpassed $25 billion in 2021, up from just under $95 million the year before. The trick with bubbles is they can go on for a long time before they finally burn out. And that's one of the characteristics of bubbles, is you can feel like a fool for a very long time until the bubble meets its inevitable end. And this feeling that you're missing out on a good investment is what crypto companies are selling right now.

Coming up, while critics warn of a bubble and a scam, some digital artists are embracing NFTs as the future. Buddy Itzao is a Chinese dissident artist currently living in Melbourne, Australia. Buddy Itzao is a pseudonym, by the way, meant to protect his identity. As an artist, I've been subject to harassment and censorship constantly. My family back in Shanghai got harassed by the national security police every time when I have major events like exhibition or art display in important places. Buddy Itzao's art is very critical of China's communist government. He recently created satirical Olympic posters to bring attention to China's human rights violations, including against the Uyghur minority.

He says when his work exists in the physical world, in an art gallery or museum, censorship is always a possibility, even outside of China. But that's not the case online. Online space is definitely someplace that I can enjoy freedom and security to kind of keep a record of my art. And definitely, blockchain and NFT world is providing a very safe space because of the very nature of cryptocurrency. NFTs cannot be deleted. And when you create or mint an NFT, there's a record of ownership,

not to mention when you're converting your digital asset into an NFT, you can set up how much you'll be paid in royalties if your art gets sold again later on. That's a huge selling point for digital artists who are generally ignored in the traditional art market. And Ben Yitzhao's patrons can breathe a sigh of relief as well. Even for people who want to support you, they will have concern once they purchase your art or giving a donation, then they will be targeted by the Chinese government. But NFT and blockchain inherently giving an opportunity for the buyers or collectors a safe way to support political artists like myself and many others.

But Buddy Itso acknowledges that while NFTs can be a good way to make sure that political art can be seen and preserved, that's not what's getting attention. We haven't really seen a lot of political art appearing on the platforms. What we're thinking about NFT are still those monkey hats and kind of ridiculous collection. What he's talking about there is Bored Ape Yacht Club, a collection of cartoon ape profiles that are a hot commodity right now. Another popular NFT depicts an animated GIF of a flying cat with a Pop-Tart body. So a different kind of politics, perhaps.

Still, crypto proponents insist that this new technology benefits and protects artists. And while it has been a lucrative space for many creators, there are also some pitfalls, ones that Dan Olson, the YouTuber, set out to highlight. David Gerard, author of Attack of the 50-Foot Blockchain, summarized it on his blog very succinctly as such. NFTs are entirely for the benefit of the crypto grifters. The only purpose the artists serve is as aspiring suckers to pump the concept of crypto, and of course to buy cryptocurrency to pay for minting NFTs. Sometimes the artist gets some crumbs to keep them pumping the concept of crypto. And then there are the more straightforward scams. Last month, OpenSea, the biggest NFT marketplace,

said that more than 80% of the NFTs minted for free on its platform were, quote, plagiarized works, fake collections, and spam, unquote. Cent, a small marketplace, suspended most NFT sales until they could find a solution to these problems. In the meantime, they may have to implement some centralized controls to protect content creators. That would go against the core principles of many in the digital currency community, which believes less centralized control, less oversight, leads to a more democratic market. But Dan Olson argues that a centralized system can have its benefits. He says cryptocurrency and the NFT market are an example of a free market in its purest form.

And he doesn't think that's necessarily a good thing. The sophisticated, ideological, political goals of the system, which is to, you know, really go all in on this anti-government, anti-structure, anti-taxes, anti-social services, anti-safety net, anti-consumer protection philosophy of like how the world should be run. And I think that's ultimately just like deeply destructive to the fabric of our society. I asked him to explain more about his big issues with this kind of trading. Oh, boy. I mean, that's a that's kind of a two hour explanation there. But we did our best with the time we had. And we started with this pro crypto idea that NFT trading has a lower barrier to entry than traditional investing.

The fact that the barrier to entry is lower is not like strictly untrue, but it's a lower barrier of entry that functions much the same as like penny stocks in the same way that Jordan Belfort was using penny stocks as the way to convince like, you know, your your regular nine to five worker that they could pretend being a day trader, while he would just like pump and dump garbage, which he went to jail for doing. Crypto functions along like the exact same psychological lines. You know, it's this fake version of democratizing the finance industry, which, you know, we have to ask ourselves the question of is the finance industry, something that even should be democratized or encouraged in the first place? And a lot of it, it's just, it's smoke and mirrors. So it's like, is this an easier entry

point for regular people to get into investing? Well, sure, if you torture the definition of like what investing is, because you're not really like, you're not investing in a company that's going to survive based off of its ability to generate a good product that people want to use for a reasonable price at a fair market rate or based off of intangibles like, hey, they treat their employees well, then that company does well and pays out dividends. You're basically gambling on like, okay, is someone in the future going to be willing to pay more for this for reasons that I don't particularly care about or need to be concerned about? Question mark, question mark, question mark. You're rolling the dice on it. And sort of the only compelling counter argument that I've

run into against that is this like, well, you're kind of just describing like, you know, you're describing a lot of tech stocks, if you word it that way, to which my response is like, yeah, yeah, this is this is not just a crypto problem. Like, crypto is just this very outsized expression of a lot of problems that our systems already have. Well, if it is like gambling, you know, there's people who can gamble for fun, and if they get an endorphin rush over it, fine. And then there's people for whom it becomes really dangerous, right? It becomes like an addiction. If it's just kind of a hobby, what's the harm? Well, that's compartmentalization that's disconnecting the local behavior from the system as a whole and what the system is meant to do.

So is light gambling per se wrong? No, not really, but is a predatory casino that will offer people, back in the day, like 50 bucks round trip plane tickets to get you to Vegas and 20 bucks a night hotel rooms, free drinks, and then just this inescapable labyrinth of slot machines. It's predatory. It's designed to get people in. It specifically targets people who have just enough money to lose that they can play, but not so much money that they feel secure passing up the opportunity. And that's, I think, part of the really dangerous stuff like the the ad push the ad spam the bot spam the messaging around like oh you gotta get in now you gotta get in early this is gonna take off it's the future you could make 10 times 100 times returns just sitting around doing

nothing purely by buying in now all of that that messaging, it's the exact same kind of financial predation that we've seen over and over and over again through payday loan industries. Every scummy, garbage, exploitative business that focuses on exploiting the poor and the tenuously middle class, it's all ramped up to 11 and being just hammered at us day in and day out.

That's an extremely old tactic that's targeted at people like me. It's targeted at insecure white men. For centuries, you can get great results just by challenging men on their manliness and saying this, like, well, you're not a real man if you're not engaging in these risky behaviors. It's an extremely effective, you know, tried and true marketing technique. So it's no surprise that it's getting rolled out for this stuff. That was Dan Olson. He is a YouTube creator. His channel is called Folding Ideas.

It's Consider This from NPR. I'm Michelle Martin.