The Breakdown - Vitalik vs. Dog Money: Recapping a Crazy Week in Crypto History

Episode Date: May 15, 2021

On this edition of “The Breakdown’s Weekly Recap,” NLW discusses: Why the Elon Musk issue is really one of power and audience What the Colonial Pipeline attack reveals about our critical infrastructure  The debate around Vitalik Buterin and the Shiba coins  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.a.o and bitstamp and produced and distributed by CoinDess. What's going on, guys? It is Saturday, May 15th, and today we are talking about one of the crazier weeks in crypto history. And specific, I want to get a little bit into Vitalik versus Dogg. money. Let's start, however, with a quick review of the stories that I covered in detail. The banner headline was, of course, Elon Musk and his fickle, strange relationship with Bitcoin, Doge, and public media. I've discussed this extensively this week, so I'll only add this here. There is a conversation

to be had about the power of audience. In other words, this Elon story isn't just about his whims and vagaries. It's also about how power is meted out via social media. Elon has a bigger microphone than nearly any corporate officer in history. Sure, Steve Jobs could have called a press conference and had every outlet there. But Elon can think of something stupid while taking a dump and pull or push billions from markets in less than a minute of typing. There is a larger question here that once again comes back to unresolved issues of social media in society. And by the way, if you're interested in this, I've got an exciting joint show with someone that I think you'll really enjoy to explore it more in depth in the next couple of weeks. I also covered the Binance Fudd

around a Department of Justice and IRS investigation. First and probably most importantly, the headline of the Bloomberg piece seems to have been a little fear-mongering, considering that the sub-headline made it clear that Binance has been accused of no wrongdoing. My point in my coverage, however, was that basically whatever the outcome is, it's probably a net positive for the industry. The worst-case scenario is some major set of accusations in wrongdoing and severe punishment, which would be a confidence hit in the short term, but in the longer term would clear space for better actors to arise. In the middle would be some slap on the wrist. This would be bullish both for not having been worse, as well as for most likely articulating what regulators expect out of foreign

exchanges when it comes to preventing access by U.S. citizens. Lastly, is the scenario where Binance is all cleared, which would obviously be massively confidence-inducing. But still, hell of a week for this news to break in the context of all this other fud as well. Because there was so much going on, there were a couple of big stories that I didn't get as much of a chance to cover. I think we have to take at least a moment to discuss the Colonial Pipeline attack. I'm borrowing a bunch of this data from Tracy's shoe chart, Chie Girl on Twitter, who has been on the show a couple of times and is an absolute wealth of information in this area.

Colonial Pipeline is a 5,500-mile-long oil pipeline that connects 29 refineries and 267 distribution terminals. It has the capacity for 2.5 million barrels of oil per day and moves refined petroleum products including gasoline, diesel, heating oil, and jet fuel. It runs from Houston, Texas, all the way to New York, and provides gas for a ton of markets in the south, including Tennessee, Georgia, and Virginia. On May 7th, the company reported that it had been the victim of a cybersecurity attack. We would learn later that it was Eastern European hackers in ransomware attack using software created by a group called Darkside.

In order to respond, the company took a number of their critical systems offline, and in total, the pipeline would be offline for five full days. Over the last week, there have been insane images of people filling plastic bags with gasoline, as well as huge percentages of gas stations in places like North Carolina being completely without gas. However, turning the thing back on, which they've now done, doesn't mean that those shortages go away right away. It takes days for the gas to flow from Texas to the rest of the country. Things are starting to turn around now, but there is a pretty bare implication that comes out of this.

Our critical infrastructure is extremely vulnerable. This isn't just some company getting hacked for personal data, bad as it is when that happens. This is something like 45% of the East Coast oil capacity going offline. And this isn't an isolated incident. In 2018, for example, there was a cyber attack that took out a communication system that was used by a slew of natural gas pipeline operators. In other words, this is a national security concern, not just a commercial one. Of course, there is a crypto connection.

We learned yesterday that the company paid nearly $5 million as a ransom. They also did so apparently hours after the thing happened. There will be concerned that this creates more motivation for hackers and that crypto will be their payment of choice, and that somehow that's crypto's fault. One interesting final denouement of the story is that Darkside themselves denounce the actions of the hackers. In a prepared statement, they wrote,

We are apolitical. We do not participate in geopolitics. Do not need to tie us with a defined government and look for our motives. Our goal is to make money and not creating problems for society. From today, we introduce moderation and check each company that our partners want to encrypt to avoid social consequences in the future. So yeah, just wild times all around. Looking for the best way to unlock your crypto's liquidity?

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and dedicated to making buying crypto fast and easy. Whether you are investing on our desktop platform and mobile app or trading on our speedy APIs, BitStamp gives you all the tools you need to reach your crypto goals. Visit bitstamp.net to learn more. BitStamp for all the ways we crypto. Let's talk Vitalik versus dog money. I gave you the basics of this the other day, but here's the story again. Doge has been the surprising breakout of this bull market.

I've spent far, far too much time now explaining why, but I think we can all agree that it has, just based on looking at the price and the numbers. Well, what happens when something is successful in Bull Market? markets. Other people copy it. This is especially true in a multi-chain world where people can say it's Doge, but on Solana or whatever. Anyway, a bunch of coins started popping up purporting to be doge killers. The non-cinical true believer would describe how they were going to bring a lot of new features like smart contract tools, etc. The skeptics might call them opportunistic pump and dump

schemes. In either case, one of the peculiarities of how they designed their token economics was that they sent 50% of the total supply to Vitalik Buterin's public wallet. The presumption was that he wouldn't actually accept the airdrop and the tokens would just be, in effect, burned. This is the language that they used when describing their methodology. Shib started this trend and then a bunch of others followed. Well, apparently, Vitalik did not like being used in this way. Or perhaps he didn't like the way that all these meme coins were causing gas fees to surge on Ethereum.

Either way, on Wednesday, these coins started to be moved in big batches to uniswap and sold. The proceeds were then sent on to charities. One billion dollar batch of shib was transferred to the India Crypto-CoVID relief fund. That's 50 trillion Shib tokens for those keeping track. Unsurprisingly, prices tanked, and the Zumer kids who are all about these coins lost their damn minds. I saw at least two or three new Binance smart chain coins called some version of Fittalic spun up within hours. And the number of people posting angry chats where their friends were asking who TF is Vitalik shows how new to the industry many of these people are.

And so, of course, a great debate began. Was Vitalik a heroic scam buster who threw a crappy scheme right back in its face? Or was he a lech who had ruined kids without any second thought about the hit to their wallet? David Vorick tweeted that he thought the donations were immoral, even though he believes Vitalik had honest intention, saying, quote, imagine that someone declared Elon Musk as CEO of their company. And Elon Musk says, I didn't want this role,

but since I'm CEO, I might as well sell, donate all the stock, and put the proceeds into charity. This is roughly analogous to what Vitalik did. Vitalik effectively took it upon himself to do a massive wealth transfer from token speculators to a charity of his choice, against the expectations, intentions, and desires of the speculators. Vitalik should have burned the coins. He resolves the problem where he's a massive unwilling billboard for the project and also avoids the ethical mess of taking money from speculators.

Sounds reasonable, right? Well, this sort of burning would effectively be doing exactly what these speculators wanted when they roped Fatalik in with his non-voluntary contribution in the first place. Dan McCartle wrote, If he burns the coins, that's massively bullish for the project itself, which is a cash-grab borderline scam with malintended founders. If you're a consequentialist, you want these things to get squashed fast. Best outcome is people learn their lessons sooner rather than later.

Jameson Lopped chimed in as well. Not sure why the desires or expectations of said speculators are relevant. Burning the tokens would have just further enriched them. Money to charities is a better outcome than the zero-sum game continuing, in my opinion. There was another argument that I saw a number of times that he had to do this fast, or else dozens more projects would have done the same thing. Taylor Monaghan made this point. She tweeted,

I'm defending his actions in this case because I think it's honestly the only thing that would maybe break the scam trend before at 10x's. For whatever reason, this fatalec holds our liquidity gained traction, was replicated, and those also gained traction. It was going to get worse. There's this idea that if he did nothing, everyone would be net zero and charities wouldn't benefit. That's not true.

It's not okay to promote a scam. It's also not okay to let someone use your name and reputation to promote a scam even if you aren't the one scamming. The next iteration of this wave of cat tokens would use as inaction in order to further perpetuate bigger and broader scams. That's how it works. And the second Vitalik is aware of this appalling and disgusting and insulting shit he didn't ask for. He can't not do anything. Finally, one more counterpoint expressed by a few people I saw, but most notably James Press Switch, is that the real issue isn't the speculators who get harmed but the structure of markets themselves.

or more specifically the power in markets. And yes, we're now back to why it relates to Elon as well. In a conversation with someone who didn't agree with him, he wrote, We disagree on the nature of the harm that was done. You're thinking about dogecoin holders and charities. Well, I'm thinking about market structure. Unpredictably causing market shakeups and froth is harmful to many, even if the donations are good. If VB wakes up on a Wednesday and chooses to crash a market, that's bad for Ethereum, regardless of what is done with the money. This point, this past power to crash markets is the underlying problem. It's the issue we saw this week with Elon as well. It's not super easily solvable because it relates fundamentally to changes in how people build and

use audiences. Although, frankly, I suppose in the case of Elon, it sort of is easily solvable by him just shutting the hell up for a goddamn minute. So yeah, it's complex. Still, even with that complexity, I wanted to get a sense of what people thought at core. So yesterday, I made it a binary and I tweeted, Vitalik's Shibasaker. Is he hero or villain? 75 to 25 people said hero, but by far the most popular comment was Hasu's, how about neither? So there you go. What a week, guys. If you made it through this, you can officially put this one on your credibility card. We will be talking about it for some time to come. And so I hope you're somewhere warm, having a great time with people you love. Until tomorrow, guys, be safe and take care of each other.

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