Three Books To Map Crypto’s Confusing New Landscape
After Bitcoin came Ethereum, and debates over the future of cryptocurrency were not far behind.
After Bitcoin came Ethereum, and debates over the future of cryptocurrency were not far behind.
In 2013, a Russian-born and Canadian-educated computer programmer named Vitalik Buterin published a white paper describing a new cryptocurrency he thought could rival Bitcoin. Then only 19 years old, Mr. Buterin envisioned Ethereum as an “all-purpose computational platform for smart contracts and decentralized autonomous corporations.” Beyond digital money, Mr. Buterin believed cryptocurrency could be used to record wills, document insurance contracts, authenticate art ownership, even enable a new democratic governance system for companies and organizations.
He spent the next two years with a small and contentious group at a shared house in Zug, Switzerland, working to turn the vision into a reality, culminating in the official launch of the so-called genesis block of Ethereum in 2015. The first adopters of the cryptocurrency were an odd mix of libertarians and cyberpunks who dreamed of a system free from control by governments or wealthy elites. “No lawyers, no bankers, no accountants, everything is outsourced to the blockchain,” enthused one Ethereum developer, referring to one of the central innovations behind Ethereum and other cryptocurrencies.
Coders around the world have rallied to Mr. Buterin’s vision of building a new decentralized world order on the blockchain. In Laura Shin’s “The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze” we meet Griff Green, who was genetically engineering hamster cells in Seattle when he first heard about Ethereum. A SuperSonics fan who Ms. Shin describes as having “bleached hair . . . shaped into a mohawk” and sporting “Hulk Gloves and green-and gold-coloured plastic jewels,” Mr. Green gave up his job, moved to Ecuador, and began trading alt-coins and working on a “decentralized autonomous corporation.” He was one of many.
Bitcoin and Ethereum are both cryptocurrencies: that is, digital assets whose ownership is documented in a public transaction record known as the blockchain. A traditional financial institution keeps its own private records and uses its own servers to process new transactions. Cryptocurrency transactions, by contrast, are processed on the computers of a global network of volunteers and recorded publicly (though pseudonymously) for the entire network to see. The key innovation of cryptocurrencies lies in the way each new transaction is added to the blockchain in a secure way. This requires the application of a great deal of computing power toward solving complex mathematical problems. Anyone can participate in the network and contribute computing power; in exchange, they earn cryptocurrency, a process called mining. The shared nature of the ledger and the algorithmic process for verifying transactions ensures that a unit of currency cannot be spent more than once.
If Bitcoin is digital gold, valuable for its scarcity rather than its usefulness, Ethereum was designed by Mr. Buterin to be something much more important: A digital Lego block that could be used to build a new, decentralized world order. Ethereum functions not just as a means of exchanging currency, but as a distributed computational platform. Users can run software programs, known as smart contracts, that represent complex financial arrangements. Ethereum’s possibilities seduced programmers across the world, whose interest would help spawn the second-largest cryptocurrency after Bitcoin.
We don’t know much about the creation of Bitcoin. The cryptocurrency’s anonymous programmer, who goes by Satoshi Nakamoto, has yet to be identified. But the story of Ethereum’s creation—and the conflicts and squabbling that has occurred among its co-founders—is better known. Camila Russo’s “The Infinite Machine,” published two years ago, recounted the basic story of how Ethereum got started, while also making the complexity of cryptocurrency accessible to a broad audience. Ms. Shin’s “The Cryptopians” adds a bit more detail to understanding, though primarily this is a tell-all designed to appeal most to crypto-insiders who may want to know every detail of what happened behind the scenes. Another recent book, “DeFi and the Future of America” by Campbell R. Harvey, Ashwin Ramachandran and Joey Santoro, is a textbook that makes the bold claim that crypto will soon replace all of traditional finance. Mr. Buterin wrote the brief preface.
The first major application built on Ethereum was a “distributed autonomous corporation” known as the DAO. The DAO functioned like a venture-capital firm, putting investors’ funds into startup companies, with the important difference that every choice about what to invest was made by a vote of the owners of tokens issued by the DAO. The idea was to fund the creation of “decentralized software- as-a-service” companies that, by virtue of their decentralization would be “alegal” and could not be shut down “not by a court, not by a police-force, not by a nation-state,” in the words of Ethereum co-founder Gavin Wood.
The DAO caught on with cryptocurrency investors: The initial crowdfunding campaign raised a total of $139.4 million. But a clever programmer spotted a mistake in the DAO’s code—a mistake that allowed the coder to drain almost a third of the funds from the DAO. In a blog post, the coder claimed this action was perfectly legitimate. “I am disappointed by those who are characterizing the use of this intentional feature as ‘theft,’ ” the coder wrote in a blog post quoted in “The Cryptopians.” “I am making use of this explicitly coded feature as per the smart contract terms.” This was a philosophical dilemma, testing the crypto-community’s commitment to one of its core principles: “Code is law.”
In this case, it turns out, the law needed interpretation. And Mr. Buterin and his co-developers turned out to be more Earl Warren than Antonin Scalia. What they decided to do was create a “hard fork” in the Ethereum code, beginning a new blockchain whose ledger of historical transactions was identical to the original . . . right up until the point when the hack occurred. After that, the fork diverted as if the hack had never happened.
In effect, the founders rewrote the history of Ethereum. This raised concerns about Ethereum as a cryptocurrency. “If you rewrite the Ethereum consensus rules to recover the coins,” one prominent Bitcoin developer wrote to Mr. Buterin in protest, “you show that the system is really controlled by political whim, in particular via you.” The DAO attack showed the limits of the “code is law” approach, and the immaturity of Mr. Buterin’s crypto-utopian vision.
In the preface to “DeFi and the Future of Finance,” Mr. Buterin describes the benefits of his decentralized approach as “censorship resistance, self-sovereignty . . . instant global accessibility . . . [and] the purchasing power stability of the dollar.” In the slim and credulous book that follows, the normally skeptical academic Campbell R. Harvey and his coauthors argue that decentralized finance will “replace all meaningful centralized financial infrastructure in the future.” Perhaps. Or perhaps Mr. Campbell and his colleagues have fallen into the trap of thinking that, to quote a satirical aside that Ms. Russo makes in “The Infinite Machine”: “If you picked any business idea and somehow added blockchain technology, it would be an instant success.”
So far, the decentralized solutions promised by Ethereum’s developers make the cures seem worse than the disease. Ethereum is supposed to be more accessible and less opaque than traditional finance. Yet how accessible and transparent is a system that requires a 15-page glossary of terms (including concepts like hexadecimals, impermanent losses, nonces, oracles and vertical scaling) in order for readers to properly understand it? Marketers might struggle to identify the consumer segment for whom “self-sovereignty” is the determining factor in choosing a credit card. Not everyone would prefer to trust the anonymous servers of the cryptocurrency world with their finances, rather than large financial institutions that are answerable to shareholders and, yes, government regulators.
In her book, Ms. Russo argues that fundraising has been the only “killer app” to emerge on Ethereum—first, “initial coin offerings” of speculative alt-coins that have now provoked a crackdown by the SEC, and later so-called nonfungible tokens like Crypto Kitties and Bored Apes. Mr. Buterin himself has expressed frustration with how his creation has been used. “Need to differentiate between getting hundreds of billions of dollars of digital paper wealth sloshing around and actually achieving something meaningful for society,” he wrote.
Believers in Ethereum argue that the cryptocurrency can solve many problems faced by society. In Ms. Russo’s telling, Ethereum co-founder Gavin Wood believes “the world is ruled by elites who will seek to maximize their own profit at the expense of others.” Thanks to Ethereum, Mr. Wood is now one of the richest people in the cryptoworld, with an estimated net worth in the hundreds of millions of dollars. Creating Ethereum might not have ended elite control of wealth, but the cryptocurrency did turn Mr. Wood and several of his fellow developers into new members of the financial elite.
These books on Ethereum, particularly Ms. Shin’s “The Cryptopians,” don’t portray the new elite as any better than the old elite. Her book is seamy, full of score-settling, gossip and backstabbing. Readers might share the exasperated view of one programmer who posts on Reddit: “Stop acting like bickering 5 year olds.” Ms. Shin covers the bickering in detail, and there are few likable people in “The Cryptopians.” Ms. Russo’s book, by contrast, spends less time on infighting and more time making Ethereum comprehensible to the lay reader. “The Infinite Machine” is well-organized, easy to follow and serves as the best introduction to the world of Ethereum.
But both these books reveal the messiness behind crypto. Code may be law, but code is written by people. Crypto may be decentralized, but servers are still bought and run by people. Ethereum may be both “immutable” and “self-governing,” but when the code was hacked, history proved plenty mutable and the developers who created the currency were the ones who made the ultimate decisions. Using cryptocurrency rather than the traditional financial system simply trades the abstract problems of monetary debasement and elite manipulation for the very concrete problems of rampant theft and fraud in the cryptoworld.
Are works like “The Cryptopians” and “The Infinite Machine” accounts of a world-changing new technology? Or histories of a utopian experiment that turned into a financial bubble? Only time will tell, and readers won’t miss much by waiting a few years for a work that reveals, with the benefit of hindsight, how the story turned out.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Food prices continue to rise at a rapid pace, surprising central banks and pressuring debt-laden governments
LONDON—Fresh out of an energy crisis, Europeans are facing a food-price explosion that is changing diets and forcing consumers across the region to tighten their belts—literally.
This is happening even though inflation as a whole is falling thanks to lower energy prices, presenting a new policy challenge for governments that deployed billions in aid last year to keep businesses and households afloat through the worst energy crisis in decades.
New data on Wednesday showed inflation in the U.K. fell sharply in April as energy prices cooled, following a similar pattern around Europe and in the U.S. But food prices were 19.3% higher than a year earlier.
The continued surge in food prices has caught central bankers off guard and pressured governments that are still reeling from the cost of last year’s emergency support to come to the rescue. And it is pressuring household budgets that are also under strain from rising borrowing costs.
In France, households have cut their food purchases by more than 10% since the invasion of Ukraine, while their purchases of energy have fallen by 4.8%.
In Germany, sales of food fell 1.1% in March from the previous month, and were down 10.3% from a year earlier, the largest drop since records began in 1994. According to the Federal Information Centre for Agriculture, meat consumption was lower in 2022 than at any time since records began in 1989, although it said that might partly reflect a continuing shift toward more plant-based diets.
Food retailers’ profit margins have contracted because they can’t pass on the entire price increases from their suppliers to their customers. Markus Mosa, chief executive of the Edeka supermarket chain, told German media that the company had stopped ordering products from several large suppliers because of rocketing prices.
A survey by the U.K.’s statistics agency earlier this month found that almost three-fifths of the poorest 20% of households were cutting back on food purchases.
“This is an access problem,” said Ludovic Subran, chief economist at insurer Allianz, who previously worked at the United Nations World Food Program. “Total food production has not plummeted. This is an entitlement crisis.”
Food accounts for a much larger share of consumer spending than energy, so a smaller rise in prices has a greater impact on budgets. The U.K.’s Resolution Foundation estimates that by the summer, the cumulative rise in food bills since 2020 will have amounted to 28 billion pounds, equivalent to $34.76 billion, outstripping the rise in energy bills, estimated at £25 billion.
“The cost of living crisis isn’t ending, it is just entering a new phase,” Torsten Bell, the research group’s chief executive, wrote in a recent report.
Food isn’t the only driver of inflation. In the U.K., the core rate of inflation—which excludes food and energy—rose to 6.8% in April from 6.2% in March, its highest level since 1992. Core inflation was close to its record high in the eurozone during the same month.
Still, Bank of England Gov. Andrew Bailey told lawmakers Tuesday that food prices now constitute a “fourth shock” to inflation after the bottlenecks that jammed supply chains during the Covid-19 pandemic, the rise in energy prices that accompanied Russia’s invasion of Ukraine, and surprisingly tight labor markets.
Europe’s governments spent heavily on supporting households as energy prices soared. Now they have less room to borrow given the surge in debt since the pandemic struck in 2020.
Some governments—including those of Italy, Spain and Portugal—have cut sales taxes on food products to ease the burden on consumers. Others are leaning on food retailers to keep their prices in check. In March, the French government negotiated an agreement with leading retailers to refrain from price rises if it is possible to do so.
Retailers have also come under scrutiny in Ireland and a number of other European countries. In the U.K., lawmakers have launched an investigation into the entire food supply chain “from farm to fork.”
“Yesterday I had the food producers into Downing Street, and we’ve also been talking to the supermarkets, to the farmers, looking at every element of the supply chain and what we can do to pass on some of the reduction in costs that are coming through to consumers as fast as possible,” U.K. Treasury Chief Jeremy Hunt said during The Wall Street Journal’s CEO Council Summit in London.
The government’s Competition and Markets Authority last week said it would take a closer look at retailers.
“Given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well,” said Sarah Cardell, who heads the CMA.
Some economists expect that added scrutiny to yield concrete results, assuming retailers won’t want to tarnish their image and will lean on their suppliers to keep prices down.
“With supermarkets now more heavily under the political spotlight, we think it more likely that price momentum in the food basket slows,” said Sanjay Raja, an economist at Deutsche Bank.
It isn’t entirely clear why food prices have risen so fast for so long. In world commodity markets, which set the prices received by farmers, food prices have been falling since April 2022. But raw commodity costs are just one part of the final price. Consumers are also paying for processing, packaging, transport and distribution, and the size of the gap between the farm and the dining table is unusually wide.
The BOE’s Bailey thinks one reason for the bank having misjudged food prices is that food producers entered into longer-term but relatively expensive contracts with fertilizer, energy and other suppliers around the time of Russia’s invasion of Ukraine in their eagerness to guarantee availability at a time of uncertainty.
But as the pressures being placed on retailers suggest, some policy makers suspect that an increase in profit margins may also have played a role. Speaking to lawmakers, Bailey was wary of placing any blame on food suppliers.
“It’s a story about rebuilding margins that were squeezed in the early part of last year,” he said.
The Victorian capital’s top-grossing transactions.
Commercial property sentiment has improved for a consecutive quarter.