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Web3: A VC-funded gig economy of securities fraud

220 points by mhoad 5y ago

Traster 5y ago
The one thing I would say about the SEC being slow moving, is that the sanctions available to the SEC are quite strong. It's one thing to say that the SEC will never get around to investigating all of these, but really all the SEC has to do is pick one strong case, pursue it to the end.If you win you apply a strong injunction - in this case you just take Chris Dixon aside and say "Hey, we're Fyre festivaling you, you can no longer directly or indirectly participate in the issuance, purchase, offer, or sale of any security, except for your own personal account". The problem isn't that the SEC is slow. It's that it's slow and gives out speeding tickets.
vmception 5y ago
Nice, before the DeFi days, similar articles were calling Ethereum a securities fraud vending machine, when all the issuances were called ICOs I got a kick out of that I think this article misses for the forest for the trees, or weeds, or looses sight of the depth of this activity for a few VCs. That activity just gets worse ha. I think its up to the consumers to be more pragmatic in what they buy. VC involvement is not clout, but there is a heavy incentive to assume it is because non-VC involvement is also ripe for quicker disaster. When you try to bring this up in communities, people crowd you out. If you had previously said something nice about a project but noticed these conflicts of interest people will just say "don't FUD your own bags", meaning only say positive things to keep the interest high so that the exit liquidity remains for you too. Interestingly, I wonder if this how the 1920s were. I like how in the equities market it is possible to be a holder and take a critical position to bring people to highlight an issue and improve on it, but most don't or wouldn't do that either for the same reason: "don't FUD your own bags"
fxtentacle 5y ago
Sadly, this seems about right. Both MLM and NFT and ICO tokens are mostly used to dump bad investments onto clueless suckers. Of course, there's also useful uses, which is why I own some crypto myself. But if you design a system to avoid legal oversight as much as possible, then of course there won't be much legal oversight to protect the stupid from intelligent scams. In the end, that means the whole Web 3.0 and crypto complaints boil down to a simple question: Should our government protect (idiots|naive investors) from getting scammed? I'd argue yes, to make society more peaceful and more stable. But one could also argue that this is just the financial survival of the fittest and, hence, a natural rule that suckers get taken advantage of.
- senko 5y ago
  > Should our government protect (idiots|naive investors) from getting scammed? > But one could also argue that this is just the financial survival of the fittest and, hence, a natural rule that suckers get taken advantage of. In the nation where you have to put "Caution - Hot" on coffee-to-go cups to avoid being sued, I think the answer to that is self-evident.
  - barnabee 5y ago
    Not all of us live there or want those rules
  - dugite-code 5y ago
    >In the nation where you have to put "Caution - Hot" on coffee-to-go cups to avoid being sued Hate to be that guy but McDonald's got sued over the hot coffee because they continued to serve coffee well above safe temperatures long after valid saftey concerns had been raised. The poor woman recieved 3rd degree burns (something that shouldn't be possible from a spilled beverage). She was publicly vilified for the massive settlement awarded to her when she only asked for reasonable medical costs. Also the "Caution - Hot" warning wouldn't have prevented her from being able to sue for negligence. From the data America isn't nearly as litigious as many media stories make out. In fact after this minor court case it actually became harder to sue companies in America and arguably resulted in may corporations to be less concerned about their affect on the common good.
- prox 5y ago
  It reminds me of Michael Scott explaining that his new revenue program was not a pyramid scheme and when he draws to explain he draws a pyramid. Anyone I know personally who makes NFT or his interested in it is doing it for speculation, not to make art per se.
- igorkraw 5y ago
  > Should our government protect (idiots|naive investors) from getting scammed? While the answer for me is yes I also dislike the framing of this. We live in a society that (the US even more than Europe) 1. Over centuries has moved towards more and more privatisation of what used to be commons (land, water, ways, now software), thus forcing people to engage in either business or crime to survive - unless you are born rich 2. Has grown more and more complex to navigate,sometimes by necessity but often via rent seeking (Intuit and taxes) requiring you to spend quite a lot of mental capacity and time to manage it - unless you are rich enough to pay someone to do the work for you 3. Does not really adequately give you the training and time required to acquire these skills - unless you are rich in money enough to afford college and possibly additional training, or have rich/self sacrificing enough parents to navigate college, learn how to separate good free sources from bad free sources etc. (not even bringing in systemic handicaps like lead paint or other cognitively impairing pollution in low income areas) 4. Has grown a hundreds of billion dollar industry around manipulating people, with useful information ever more difficult to distinguish from "sponsored posts" etc. - reinforcing the above 3 points. The swamp of influencers feeding parasocial relationships to monetize as part of that that is especially normalized throughout all of life and entertainment - unless you can afford paying for "high quality" media that doesn't feature them (in cash or in time searching for gems) and we blame individuals for getting scammed? All of the above boil down to "if you are already privileged, you can avoid getting scammed" and most of the moralistic arguments people use (greed, stupidity, impulsive,lazy...) are "fuck the poor" in disguise: fuck the poor for having poor impulse control (nevermind lead paint, unresolved trauma because there was no therapist money, not having the time to learn that impulse control before being thrust into work...), fuck the poor for their greed (never mind the fact that high risk games might be the only chance for meaningful social mobility if they work and the whole culture valorizes taking risks and having vision), fuck the poor for being stupid (education costs money, even if the internet gives you info for free you need to sift, sort, learn), fuck the poor for being lazy (nevermind that being poor is expensive due to lack of economizing opportunities and after just breaking even you might already have done a whole day of work). We are putting up a well oiled, highly funded (sometimes state subsidised) machine of professional nudging, manipulation and technically legal scams against Joe Plumber or Joe Programmer who is just trying to do the right thing and hustle on top of his normal job. I'm not sure we should blame Joe for statistically not being on top in that game
kangaroozach 5y ago
I find it hard to believe that the author is so knowledgeable about crypto and yet owns no crypto whatsoever. Odd.
- mhoad 5y ago
  I see it as more of a natural correlation honestly.
- oofbey 5y ago
  You assume everybody who understands crypto thinks it’s awesome? Dead wrong.
  - genge 5y ago
    The article doesn't provide someone that understands crypto when their focus is solely on the bad. Check one of the biggest projects, Polkadot and their Substrate framework. It's an amazing work just from a technical point of view. Lots of projects are non-profit.
- timClicks 5y ago
  People can become knowledgeable about something without being a participant. Otherwise learning history would be impossible.
- tirpen 5y ago
  It's possible to have a deep understanding of crypto and chose to not participate in it. It's called having a conscience.
- davidgerard 5y ago
  I find it hard to believe that the author can caution people against skinny-dipping in sewers after shooting up krokodil and yet does not skinny-dip in sewers after shooting up krokodil himself whatsoever. Odd.
- usrbinbash 5y ago
  Astrophysicists are incredibly knowledgable about distant galaxies and black holes, but no man-made object has been close to even the nearest exoplanet.
Dave3of5 5y ago
Yip a lot of these altcoins are just pump and dump schemes but much more technical. I wonder if the programmers working on them realise this ?
- davidgerard 5y ago
  Largely, yes they fully realise it. https://news.ycombinator.com/item?id=30268807 https://news.ycombinator.com/item?id=30268807 "Ask HN: Does Anyone else working in a crypto company feel this is all a scam?"
- dmitriid 5y ago
  In crypto, you're either a gullible fool, or know exactly what you're doing.
  - pavlov 5y ago
    There’s also another axis, the libertarian/goldbug ideology. So crypto people divide into four categories: Ideological fool Greedy fool Ideological competent Greedy competent
ackbar03 5y ago
I feel like there is a dichotomy amongst developers over crypto / web3 stuff. The HN crowd seems to hold a generally negative view on cyptocurrencies and web3 and view it as a bit of scam with no proper use case except to leave someone holding the bag At the same time there's seems to be a lot of anecdotal evidence that a lot of developers are now flocking to these crypto companies, enough that I think its fair to assume its likely true. Does anybody have any insight as to why this is the case? Is somebody missing something?
- searchableguy 5y ago
  Opportunity for huge pay out. Unlike web2 startups, web3 startups provide token based ownership. It is more easily liquidated. Vesting periods are shorter for tokens. They have potentially no limit on the ceiling for token valuation while a similar company on public market will depend on fundamentals for its valuation. If you are on a web3 rocketship, the chances of you cashing out is much higher than otherwise similar web2 startup. Similarly, you also have more control over the direction of the company via DAO voting. You can protect your bags from getting diluted.
  - jzm2k 5y ago
    I'd say there's also a ton of interesting work to be done, especially on L1: cryptography, distributed storage, peer-to-peer networks etc.
    - danuker 5y ago
      Scaling L1 is a tough-to-impossible proposition. There's just no way to store everyone's transactions on everyone's computers.
      - capableweb 5y ago
        It's not about storing everyones transactions on everyones computers. It's about distributing it to enough computers in order for transactions to be safe and fast. Algorand seems to handle this on L1 just fine.
rvz 5y ago
Yes. That is the scam with them involved. We have seen these co-ordinated pump and dump schemes before with Coinbase Ventures, a16z, etc with other tokens like ApeCoin (APE), Internet Computer (ICP), ENS, Compound (COMP) and DeSO (DESO) [0] [1] getting listed immediately after dumping on retail and cashing out. Also see here: https://startupsandecon.substack.com/p/you-dont-own-web3-a-coinbase-curse?s=r https://startupsandecon.substack.com/p/you-dont-own-web3-a-c... The web3 crypto VC playbook is that they pretend to care about it up to the minute they use retail and the exchanges as a liquidity event to exit and make a killing out of them. It is a rigged game which they can never lose. All thanks to and started by the Ethereum ecosystem since the first ICO. [0] https://news.ycombinator.com/item?id=30725449 https://news.ycombinator.com/item?id=30725449 [1] https://news.ycombinator.com/item?id=29948397 https://news.ycombinator.com/item?id=29948397
jollybean 5y ago
I think a lot of VC's know this and actually don't like it. My hunch is that a16z founders don't like it, and that they are bit jealous of Chris Dixon about it (their crypto guy), but would never even consider turning away from all that money. There's probably a lot of 'but we want to invest in real tech' whining going on and FYI I suggest that there's legitimacy to this. Crypto is a form of economic populism, a mostly net-zero value creating activity distracting a lot of people's time and energy away from things that would be more beneficial, but without the giant upside. You can be a doctor, help save lives, do surgery on 30 people a year ... OR ... you can be a Crypto Billinaire Elon Musk TV Dragon CEO Baller with 1 Billion Twitter Followers And Own The Basketball Team! It's a bit perverse. FYI there are probably real opportunities in crypto but they are limited.
zefram_l 5y ago
The Web: A VC-funded gig economy of securities fraud I mean, pets.com? Seriously? It's a bubble waiting to be burst (and it did in 2001) so the Web is morally depraved and the government should come in and make sure only millionaires can invest in them. Makes total sense.
- dundarious 5y ago
  I don't think anybody selling Beanie Babies was claiming to be transforming finance and democratizing intellectual property or making any of the many other ludicrous claims in the web3/crypto space. When I look at web3/crypto, at best I see "solutions" in search of a problem, but mostly I see confused techno-utopianism mixed with Beanie Babies and various other scams and empty crazes. A lot of stuff on the Web sucks (always has), but importantly, there was always a sizeable proportion that didn't (Wikipedia, etc.). Cryptocurrencies are so bad at doing what they originally set out to do (function as currencies in at least some of the ways that currencies are useful), that anything in the space is almost universally exhibiting the problems I mentioned above. I had the thought a few months ago that crypto is just a meme, a potent viral marketing scheme for the modern era. The gig economy notion of the article resonates strongly with me.
- pavlov 5y ago
  You could easily build on the web in 1999 without trying to peddle your shares to retail investors. Most people did just that. But on “web3” nobody wants to just build useful or interesting stuff. Instead everybody is looking to sell you their useless thing as an amazing investment. And that’s why it’s both morally obnoxious and tends to run afoul of securities laws.
  - zomglings 5y ago
    You can easily build on web3 in 2022 without trying to peddle your tokens to retail investors, too. But those aren't the projects that you hear about. It is disingenuous of you to recognize the possibility on the web in 1999 but then characterize people building on web3 as not wanting to build useful or interesting stuff.
brunorsini 5y ago
We are still working on the impact of proof of work networks, gas fees... and there are quite a few obviously inflated assets that will in time find their way back to earth. But people finally funding the arts... digital goods with provenance and attribution... all with easily accessible secondary markets, complete with game-changing royalty fees. What's not to like? These rants are seriously getting old.
- xchaotic 5y ago
  Why do you think you need the complication of blockchain for people to pay for art? Also a technicality but they’re paying for the NFT of the art not the art itself and some fees, which is not optimal.
  - brunorsini 5y ago
    You don't need it. You don't even "need" art. But: a) it's working, at least for now, and it certainly wasn't before (music label owner here, friends with many professional artists) b) decentralization really does have a few important use case advantages — one can use the asset all across the internet while exhibiting provenance, etc.
    - Kaze404 5y ago
      > it's working, at least for now, and it certainly wasn't before Does this include the people whose art is simply downloaded off Deviantart to be sold by a third party as an NFT? Doesn't sound like it's working to me, especially if you consider these things aren't even used enough to be relevant.
      - brunorsini 5y ago
        Again, yes, there are many problems yet to be solved. But on the subject of piracy, it is still pretty rampant even on major platforms like YouTube, to this day — but less so than when they started out. Very fair to expect a similar trend here.
beckman466 5y ago
anyone also heavily skeptical of anything web3/crypto might like: https://www.reddit.com/r/Buttcoin/ https://www.reddit.com/r/Buttcoin/
ZeroGravitas 5y ago
One of the things that came out of climate change was the concept of the "inevitable policy response". Basically if you recognize that coal is poisoning people for no societal benefit, then it can carry on via momentum for a while, insiders can prop it up for longer than it should, but eventually it'll get crushed and you don't want to be holding the bag when it does. As far as I can tell, that applies to most crypto. I'm sure there's cool uses, but mostly it seems a way for people to make money from the people who will be caught out when it shuts down. So the obvious question is, how do you do a 'big short' on this?
- VHRanger 5y ago
  Don't try to short a fraud. You'll get squeezed.
  - novotionworepr 5y ago
    The more conventional phrasing is, "the market can remain irrational longer than you can remain solvent."
  - api 5y ago
    I'm old enough to remember the SCO vs IBM Linux lawsuit. My dad tried to short it. He couldn't even do so. There were too many shorts already. Later lots of those shorts got squeezed. The whole thing did eventually go to zero but it took a while and few actually made money shorting it.
    - lern_too_spel 5y ago
      See also: Herbalife.
- CryptoPunk 5y ago
  Coal generates negative externalities, which is defined as an effect that violates some party's right to their person or property. Financial interactions are entirely within the realm of voluntarily interactions, and those that are not are already considered fraud, and prohibited.
CryptoPunk 5y ago
This is a blatant, completely shameless and very aggressive character assassination campaign, to manufacture consent for a heavy handed response against users of cryptocurrencies, going as far as regulatory restrictions on what code we can run on our computing devices. "Securities fraud" here characterizes offering members of the public investment contracts without the approval of a centralized regulatory gatekeeper - something which typically requires a company to have annual revenue exceeding $100 million. That is of course not actually "fraud" under any reasonable definition of the term. It's regulatory-speak, to mislead the public and make these restrictions sound reasonable.
- weego 5y ago
  This is a blatant, completely shameless and very aggressive character assassination campaign And yet all of the specific details are presented with decent context and are easily verifiable, something I'm sure you are very much in favour of. If it's damming and objectively true, maybe the problem is not that the words are being said. On another note, the ease at which VCs have inserted themselves into, and have been accepted as part of, the crypto scene and supposed future is both amusing and scary to me. They might not be a Govt entity, but they also play by a set of less formal rules that do not benefit anyone but the closed group they choose said rules to benefit.
  - CryptoPunk 5y ago
    >>And yet all of the specific details are presented with decent context and are easily verifiable, something I'm sure you a very much in favour of. That doesn't detract from the fact that the headline, which is the only part of the article many will read, is inflammatory and misleading. >>They might not be a Govt entity, but they also play by a set of less formal rules that do not benefit anyone but the closed group they choose said rules to be edit. VCs took center stage in the crypto space because the SEC entered it and prohibited programmatic crowdsales whereby the public could participate in initial funding rounds. There is literally no other legal avenue by which people can raise funds for cryptocurrency projects, and those methods being explored as possible alternatives, like NFT sales, are already being eyed by the SEC with a mind to ban them. And if Congress gives the SEC the power to do so, they will. Ethereum, had it conducted its capital raising after 2018, would have had to rely on venture capital firms, instead of a public crowdsale like it conducted in 2014 that provided it with wide distribution of token holders.
unfocussed_mike 5y ago
I really hope David is absolutely certain of everything he says. I have learned not to be surprised about anything to do with web3, but if there's the slightest error in here they will rip him apart in the British courts. (Though that might produce enough heat to bring about an investigation, at least.)
5350-uiop-1130 5y ago
purpose of web3 is to sell you a token at some 100x multiple of what the VCs paid for it (possibly zero). the token itself doesn't do anything, but it may carry the illusion of hope in some form...until it doesn't.
- zomglings 5y ago
  Ditto an IPO (especially a SPAC). So what?
  - 5350-uiop-1130 5y ago
    >So what? two wrongs don't make a right. also if you did read the article then you will know that an IPO is regualted whereas a web3 token sale is not.
    - zomglings 5y ago
      Regulation is developing fast* for ERC20 token sales. Most projects are very careful about the criteria under which they allow US nationals to purchase tokens (many going so far as to not sell tokens to people that come from US IPs). * As fast as the SEC can manage.
spir 5y ago
I think it's fair to say that most tokens are effectively trash, and there are many scams in crypto. Relative to other speculative manias in history, crypto is a mechanism for mania and speculation. You can't trade tulips on tulips. But you can trade crypto on crypto. For example, in the British railway mania of the 1840s, many patterns occurred similar to today's crypto frenzy, such as stock exchanges created expressly for the purpose of trading railway stocks and publications to talk about and advertise railway stocks. But railways lack crypto's reflexivity because you can't trade railway stocks on railways. Crypto mechanizes its own speculative mania. But what's the other side here? Does it even exist? I think it does exist. In my view, a balanced discussion of the pros and cons of crypto often seems to elude the HN community. HN is a community of technologists, right? So what's the actual technology here? At the root of crypto are two technologies, 1) programmatic public chains that are inexpensive to run and 2) zero-knowledge proofs. By combining public chains and zero-knowledge proofs, we get an inherently global market, with p2p transactions that scale to all of humanity, where you can send money digitally, similar to handing a $20 bill to a friend. And the transfers can include rigid, sophisticated logic that offers the potential to reduce transaction costs for many kinds of routine economic activity. So, while it's fair to say that most crypto tokens are effectively trash and crypto mechanizes scams and speculation, it's also unfair to omit discussion of the fundamental innovation, and those who do so will end up on the wrong side of history.
- leonidasv 5y ago
  The problem with most approaches is that they throw out the baby with the bathwater. Sure, you trusting third-parties is shady. Sure, having governments handling over your money is bad. However, having a fully-immutable chain is not the solution. Let's say, you tokenized the ownership of your home but a bad actor from the other side of the globe stole the token. A standard certificate of ownership can still be brought to court in case of fraud, but a token cannot. I mean, you still can bring it to court, have the judge decide in your favor, but the chain is immutable and neither you or the court officials can do anything to revert that. So you'll end-up with a token that does not represent the reality - and that's why standard, traditional certificates exist and are trusted: they represent the rule of the law, something an immutable decentralized chain can't do. Another example is just what is happening to Russia and its oligarchs. Traditional banks can be forced by the rule of the law to impose sanctions; crypto cannot. So they're just evading those sanctions in plain sight by using crypto. You may side with Russia on the current affairs, but this also applies to terrorist groups, gangs, you name it. And it goes on and on... if you're a victim of a phishing attack like the one happened recently at OpenSea[1], but instead of signing with your wallet you filled your credit card data into a shady field, you can still contest the purchase with your bank and have your money back. Even if you authorized a one-way money transfer from your bank account, in some countries you can still contest it and eventually have your money back.[2] None of this is available for the victims of the NFT phishing scam. So, while the technology sure has interesting points, the current use-cases are far from optimal. Society developed trust and trust-chains for a reason. If you're a going to implement this in blockchain, then you'll have to build a non-decentralized* approach from the ground up, that most of the crypto community will bash you for. * To be fair, many consider the proof-of-stake to be a non-decentralized approach departing from the vision of S. Nakamoto. And some will even argue that the current proof-of-work mining concentration is already centralized.[3] [1] https://cointelegraph.com/news/opensea-phishing-scandal-reveals-a-security-need-across-the-nft-landscape https://cointelegraph.com/news/opensea-phishing-scandal-reve... [2] https://www-poder360-com-br.translate.goog/justica/globo-ganha-na-justica-casa-paga-com-pix-errado-de-r-318-mil/?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp https://www-poder360-com-br.translate.goog/justica/globo-gan... [3] https://www.technologyreview.com/2022/03/04/1046636/ethereum-blockchain-proof-of-stake/ https://www.technologyreview.com/2022/03/04/1046636/ethereum...
zeryx 5y ago
As someone who extensively works in crypto (www.fractional.finance) and building web3 technologies - the vast majority of projects are scams, or scams that are trying to fake themselves into legitimacy. Most NFT projects fall into the category of MLMs or have other mechanisms to massively reward early adopters to grow network effects. Not all projects are like that, and many have actual real practical uses; public DLT and ZK Proofs are absolutely massive. Some teams and organizations are actually using them properly, they're just still building. HN: Give the market 4 months, if you still think "all of crypto is a scam" then either everyone failed; or you were pretty set in your ways anyways :)
- pavlov 5y ago
  You think four months is going to change something? We’ve heard these same promises for a decade. During the 2017 ICO boom, people who were selling their tokens were saying the exact same thing as you: “Now that we have all this investment and smart people in this space, the real-world use cases are just around the corner.” The billions that flowed into crypto in 2017-18 created nothing except a stream of SEC investigations and fines. The “builders” were grifters. Why is this time different?
  - zeryx 5y ago
    We launch in June, but there's plenty of other projects with builders who are actually building real sustainable businesses and organizations with roadmaps towards profitability as well. They aren't common, to your point the vast majority _are_ grifters; but obviously there have been big transformative steps like Ethereum itself, Filecoin, IPFS and others.
    - pavlov 5y ago
      IPFS has nothing to do with crypto though. That’s one of the problems of the current “web3” rhetoric: they’re trying to swallow every project on Earth into their argument that I should rush out and buy their token right now. Anyway, good luck. I hope your roadmap to profitability is something else than “We’ll dump our tokens to retail” or “We’ll do enterprise consulting and sell proof-of-concept projects to hapless corporate middle managers who are very excited about capital-B Blockchain”
k__ 5y ago
"“Web3” is an undefined marketing buzzword. It means whatever the advocate in question needs it to mean in that sentence." As far as I know, Web3 is defined as all technologies that try to decentralize the Web. Your frontend code stays almost the same. It just gets delivered via IPFS, or Arweave. You still call APIs, they just happen to be gateways to (potentially/actually) decentralized technology.
t_mann 5y ago
This seems to be a post mostly about the economics and legal aspects of token sales and NFTs, and the author makes some strong arguments there. However, since HN is a tech forum, I think this sentence in the introduction should be challenged: How does Web3 work? Well, it’s nothing to do with any technology. I don't know whether the space has converged on a single common definition, but it seems pretty clear that web3 refers to web apps that interact with decentralized services, eg smart contracts on Ethereum or IPFS storage. Other than that, they're not vastly different from other web apps, at least for a front-end developer. It's a few npm packages that handle the blockchain interactions, learning the basics of those should be doable within a few weeks (learning how to write safe smart contracts might take longer, but that's sort of a spearate role). What that technology is being used for, and whether you consider that a libertarian utopia or a scam-riddled fraud, is a separate question. But from the technical perspective it's pretty clear what counts as web3 and what doesn't, and the difference is not just marketing.

220 points by mhoad 5y ago

The one thing I would say about the SEC being slow moving, is that the sanctions available to the SEC are quite strong. It's one thing to say that the SEC will never get around to investigating all of these, but really all the SEC has to do is pick one strong case, pursue it to the end.If you win you apply a strong injunction - in this case you just take Chris Dixon aside and say "Hey, we're Fyre festivaling you, you can no longer directly or indirectly participate in the issuance, purchase, offer, or sale of any security, except for your own personal account". The problem isn't that the SEC is slow. It's that it's slow and gives out speeding tickets.

vmception 5y ago

Nice, before the DeFi days, similar articles were calling Ethereum a securities fraud vending machine, when all the issuances were called ICOs I got a kick out of that I think this article misses for the forest for the trees, or weeds, or looses sight of the depth of this activity for a few VCs. That activity just gets worse ha. I think its up to the consumers to be more pragmatic in what they buy. VC involvement is not clout, but there is a heavy incentive to assume it is because non-VC involvement is also ripe for quicker disaster. When you try to bring this up in communities, people crowd you out. If you had previously said something nice about a project but noticed these conflicts of interest people will just say "don't FUD your own bags", meaning only say positive things to keep the interest high so that the exit liquidity remains for you too. Interestingly, I wonder if this how the 1920s were. I like how in the equities market it is possible to be a holder and take a critical position to bring people to highlight an issue and improve on it, but most don't or wouldn't do that either for the same reason: "don't FUD your own bags"

fxtentacle 5y ago

Sadly, this seems about right. Both MLM and NFT and ICO tokens are mostly used to dump bad investments onto clueless suckers. Of course, there's also useful uses, which is why I own some crypto myself. But if you design a system to avoid legal oversight as much as possible, then of course there won't be much legal oversight to protect the stupid from intelligent scams. In the end, that means the whole Web 3.0 and crypto complaints boil down to a simple question: Should our government protect (idiots|naive investors) from getting scammed? I'd argue yes, to make society more peaceful and more stable. But one could also argue that this is just the financial survival of the fittest and, hence, a natural rule that suckers get taken advantage of.

senko 5y ago
> Should our government protect (idiots|naive investors) from getting scammed? > But one could also argue that this is just the financial survival of the fittest and, hence, a natural rule that suckers get taken advantage of. In the nation where you have to put "Caution - Hot" on coffee-to-go cups to avoid being sued, I think the answer to that is self-evident.
- barnabee 5y ago
  Not all of us live there or want those rules
- dugite-code 5y ago
  >In the nation where you have to put "Caution - Hot" on coffee-to-go cups to avoid being sued Hate to be that guy but McDonald's got sued over the hot coffee because they continued to serve coffee well above safe temperatures long after valid saftey concerns had been raised. The poor woman recieved 3rd degree burns (something that shouldn't be possible from a spilled beverage). She was publicly vilified for the massive settlement awarded to her when she only asked for reasonable medical costs. Also the "Caution - Hot" warning wouldn't have prevented her from being able to sue for negligence. From the data America isn't nearly as litigious as many media stories make out. In fact after this minor court case it actually became harder to sue companies in America and arguably resulted in may corporations to be less concerned about their affect on the common good.
prox 5y ago
It reminds me of Michael Scott explaining that his new revenue program was not a pyramid scheme and when he draws to explain he draws a pyramid. Anyone I know personally who makes NFT or his interested in it is doing it for speculation, not to make art per se.
igorkraw 5y ago
> Should our government protect (idiots|naive investors) from getting scammed? While the answer for me is yes I also dislike the framing of this. We live in a society that (the US even more than Europe) 1. Over centuries has moved towards more and more privatisation of what used to be commons (land, water, ways, now software), thus forcing people to engage in either business or crime to survive - unless you are born rich 2. Has grown more and more complex to navigate,sometimes by necessity but often via rent seeking (Intuit and taxes) requiring you to spend quite a lot of mental capacity and time to manage it - unless you are rich enough to pay someone to do the work for you 3. Does not really adequately give you the training and time required to acquire these skills - unless you are rich in money enough to afford college and possibly additional training, or have rich/self sacrificing enough parents to navigate college, learn how to separate good free sources from bad free sources etc. (not even bringing in systemic handicaps like lead paint or other cognitively impairing pollution in low income areas) 4. Has grown a hundreds of billion dollar industry around manipulating people, with useful information ever more difficult to distinguish from "sponsored posts" etc. - reinforcing the above 3 points. The swamp of influencers feeding parasocial relationships to monetize as part of that that is especially normalized throughout all of life and entertainment - unless you can afford paying for "high quality" media that doesn't feature them (in cash or in time searching for gems) and we blame individuals for getting scammed? All of the above boil down to "if you are already privileged, you can avoid getting scammed" and most of the moralistic arguments people use (greed, stupidity, impulsive,lazy...) are "fuck the poor" in disguise: fuck the poor for having poor impulse control (nevermind lead paint, unresolved trauma because there was no therapist money, not having the time to learn that impulse control before being thrust into work...), fuck the poor for their greed (never mind the fact that high risk games might be the only chance for meaningful social mobility if they work and the whole culture valorizes taking risks and having vision), fuck the poor for being stupid (education costs money, even if the internet gives you info for free you need to sift, sort, learn), fuck the poor for being lazy (nevermind that being poor is expensive due to lack of economizing opportunities and after just breaking even you might already have done a whole day of work). We are putting up a well oiled, highly funded (sometimes state subsidised) machine of professional nudging, manipulation and technically legal scams against Joe Plumber or Joe Programmer who is just trying to do the right thing and hustle on top of his normal job. I'm not sure we should blame Joe for statistically not being on top in that game

kangaroozach 5y ago

I find it hard to believe that the author is so knowledgeable about crypto and yet owns no crypto whatsoever. Odd.

mhoad 5y ago
I see it as more of a natural correlation honestly.
oofbey 5y ago
You assume everybody who understands crypto thinks it’s awesome? Dead wrong.
- genge 5y ago
  The article doesn't provide someone that understands crypto when their focus is solely on the bad. Check one of the biggest projects, Polkadot and their Substrate framework. It's an amazing work just from a technical point of view. Lots of projects are non-profit.
timClicks 5y ago
People can become knowledgeable about something without being a participant. Otherwise learning history would be impossible.
tirpen 5y ago
It's possible to have a deep understanding of crypto and chose to not participate in it. It's called having a conscience.
davidgerard 5y ago
I find it hard to believe that the author can caution people against skinny-dipping in sewers after shooting up krokodil and yet does not skinny-dip in sewers after shooting up krokodil himself whatsoever. Odd.
usrbinbash 5y ago
Astrophysicists are incredibly knowledgable about distant galaxies and black holes, but no man-made object has been close to even the nearest exoplanet.

Dave3of5 5y ago

Yip a lot of these altcoins are just pump and dump schemes but much more technical. I wonder if the programmers working on them realise this ?

davidgerard 5y ago
Largely, yes they fully realise it. https://news.ycombinator.com/item?id=30268807 https://news.ycombinator.com/item?id=30268807 "Ask HN: Does Anyone else working in a crypto company feel this is all a scam?"
dmitriid 5y ago
In crypto, you're either a gullible fool, or know exactly what you're doing.
- pavlov 5y ago
  There’s also another axis, the libertarian/goldbug ideology. So crypto people divide into four categories: Ideological fool Greedy fool Ideological competent Greedy competent

ackbar03 5y ago

I feel like there is a dichotomy amongst developers over crypto / web3 stuff. The HN crowd seems to hold a generally negative view on cyptocurrencies and web3 and view it as a bit of scam with no proper use case except to leave someone holding the bag At the same time there's seems to be a lot of anecdotal evidence that a lot of developers are now flocking to these crypto companies, enough that I think its fair to assume its likely true. Does anybody have any insight as to why this is the case? Is somebody missing something?

searchableguy 5y ago
Opportunity for huge pay out. Unlike web2 startups, web3 startups provide token based ownership. It is more easily liquidated. Vesting periods are shorter for tokens. They have potentially no limit on the ceiling for token valuation while a similar company on public market will depend on fundamentals for its valuation. If you are on a web3 rocketship, the chances of you cashing out is much higher than otherwise similar web2 startup. Similarly, you also have more control over the direction of the company via DAO voting. You can protect your bags from getting diluted.
- jzm2k 5y ago
  I'd say there's also a ton of interesting work to be done, especially on L1: cryptography, distributed storage, peer-to-peer networks etc.
  - danuker 5y ago
    Scaling L1 is a tough-to-impossible proposition. There's just no way to store everyone's transactions on everyone's computers.
    - capableweb 5y ago
      It's not about storing everyones transactions on everyones computers. It's about distributing it to enough computers in order for transactions to be safe and fast. Algorand seems to handle this on L1 just fine.

rvz 5y ago

Yes. That is the scam with them involved. We have seen these co-ordinated pump and dump schemes before with Coinbase Ventures, a16z, etc with other tokens like ApeCoin (APE), Internet Computer (ICP), ENS, Compound (COMP) and DeSO (DESO) [0] [1] getting listed immediately after dumping on retail and cashing out. Also see here: https://startupsandecon.substack.com/p/you-dont-own-web3-a-coinbase-curse?s=r https://startupsandecon.substack.com/p/you-dont-own-web3-a-c... The web3 crypto VC playbook is that they pretend to care about it up to the minute they use retail and the exchanges as a liquidity event to exit and make a killing out of them. It is a rigged game which they can never lose. All thanks to and started by the Ethereum ecosystem since the first ICO. [0] https://news.ycombinator.com/item?id=30725449 https://news.ycombinator.com/item?id=30725449 [1] https://news.ycombinator.com/item?id=29948397 https://news.ycombinator.com/item?id=29948397

jollybean 5y ago

I think a lot of VC's know this and actually don't like it. My hunch is that a16z founders don't like it, and that they are bit jealous of Chris Dixon about it (their crypto guy), but would never even consider turning away from all that money. There's probably a lot of 'but we want to invest in real tech' whining going on and FYI I suggest that there's legitimacy to this. Crypto is a form of economic populism, a mostly net-zero value creating activity distracting a lot of people's time and energy away from things that would be more beneficial, but without the giant upside. You can be a doctor, help save lives, do surgery on 30 people a year ... OR ... you can be a Crypto Billinaire Elon Musk TV Dragon CEO Baller with 1 Billion Twitter Followers And Own The Basketball Team! It's a bit perverse. FYI there are probably real opportunities in crypto but they are limited.

zefram_l 5y ago

The Web: A VC-funded gig economy of securities fraud I mean, pets.com? Seriously? It's a bubble waiting to be burst (and it did in 2001) so the Web is morally depraved and the government should come in and make sure only millionaires can invest in them. Makes total sense.

dundarious 5y ago
I don't think anybody selling Beanie Babies was claiming to be transforming finance and democratizing intellectual property or making any of the many other ludicrous claims in the web3/crypto space. When I look at web3/crypto, at best I see "solutions" in search of a problem, but mostly I see confused techno-utopianism mixed with Beanie Babies and various other scams and empty crazes. A lot of stuff on the Web sucks (always has), but importantly, there was always a sizeable proportion that didn't (Wikipedia, etc.). Cryptocurrencies are so bad at doing what they originally set out to do (function as currencies in at least some of the ways that currencies are useful), that anything in the space is almost universally exhibiting the problems I mentioned above. I had the thought a few months ago that crypto is just a meme, a potent viral marketing scheme for the modern era. The gig economy notion of the article resonates strongly with me.
pavlov 5y ago
You could easily build on the web in 1999 without trying to peddle your shares to retail investors. Most people did just that. But on “web3” nobody wants to just build useful or interesting stuff. Instead everybody is looking to sell you their useless thing as an amazing investment. And that’s why it’s both morally obnoxious and tends to run afoul of securities laws.
- zomglings 5y ago
  You can easily build on web3 in 2022 without trying to peddle your tokens to retail investors, too. But those aren't the projects that you hear about. It is disingenuous of you to recognize the possibility on the web in 1999 but then characterize people building on web3 as not wanting to build useful or interesting stuff.

brunorsini 5y ago

We are still working on the impact of proof of work networks, gas fees... and there are quite a few obviously inflated assets that will in time find their way back to earth. But people finally funding the arts... digital goods with provenance and attribution... all with easily accessible secondary markets, complete with game-changing royalty fees. What's not to like? These rants are seriously getting old.

xchaotic 5y ago
Why do you think you need the complication of blockchain for people to pay for art? Also a technicality but they’re paying for the NFT of the art not the art itself and some fees, which is not optimal.
- brunorsini 5y ago
  You don't need it. You don't even "need" art. But: a) it's working, at least for now, and it certainly wasn't before (music label owner here, friends with many professional artists) b) decentralization really does have a few important use case advantages — one can use the asset all across the internet while exhibiting provenance, etc.
  - Kaze404 5y ago
    > it's working, at least for now, and it certainly wasn't before Does this include the people whose art is simply downloaded off Deviantart to be sold by a third party as an NFT? Doesn't sound like it's working to me, especially if you consider these things aren't even used enough to be relevant.
    - brunorsini 5y ago
      Again, yes, there are many problems yet to be solved. But on the subject of piracy, it is still pretty rampant even on major platforms like YouTube, to this day — but less so than when they started out. Very fair to expect a similar trend here.

beckman466 5y ago

anyone also heavily skeptical of anything web3/crypto might like: https://www.reddit.com/r/Buttcoin/ https://www.reddit.com/r/Buttcoin/

ZeroGravitas 5y ago

One of the things that came out of climate change was the concept of the "inevitable policy response". Basically if you recognize that coal is poisoning people for no societal benefit, then it can carry on via momentum for a while, insiders can prop it up for longer than it should, but eventually it'll get crushed and you don't want to be holding the bag when it does. As far as I can tell, that applies to most crypto. I'm sure there's cool uses, but mostly it seems a way for people to make money from the people who will be caught out when it shuts down. So the obvious question is, how do you do a 'big short' on this?

VHRanger 5y ago
Don't try to short a fraud. You'll get squeezed.
- novotionworepr 5y ago
  The more conventional phrasing is, "the market can remain irrational longer than you can remain solvent."
- api 5y ago
  I'm old enough to remember the SCO vs IBM Linux lawsuit. My dad tried to short it. He couldn't even do so. There were too many shorts already. Later lots of those shorts got squeezed. The whole thing did eventually go to zero but it took a while and few actually made money shorting it.
  - lern_too_spel 5y ago
    See also: Herbalife.
CryptoPunk 5y ago
Coal generates negative externalities, which is defined as an effect that violates some party's right to their person or property. Financial interactions are entirely within the realm of voluntarily interactions, and those that are not are already considered fraud, and prohibited.

CryptoPunk 5y ago

This is a blatant, completely shameless and very aggressive character assassination campaign, to manufacture consent for a heavy handed response against users of cryptocurrencies, going as far as regulatory restrictions on what code we can run on our computing devices. "Securities fraud" here characterizes offering members of the public investment contracts without the approval of a centralized regulatory gatekeeper - something which typically requires a company to have annual revenue exceeding $100 million. That is of course not actually "fraud" under any reasonable definition of the term. It's regulatory-speak, to mislead the public and make these restrictions sound reasonable.

weego 5y ago
This is a blatant, completely shameless and very aggressive character assassination campaign And yet all of the specific details are presented with decent context and are easily verifiable, something I'm sure you are very much in favour of. If it's damming and objectively true, maybe the problem is not that the words are being said. On another note, the ease at which VCs have inserted themselves into, and have been accepted as part of, the crypto scene and supposed future is both amusing and scary to me. They might not be a Govt entity, but they also play by a set of less formal rules that do not benefit anyone but the closed group they choose said rules to benefit.
- CryptoPunk 5y ago
  >>And yet all of the specific details are presented with decent context and are easily verifiable, something I'm sure you a very much in favour of. That doesn't detract from the fact that the headline, which is the only part of the article many will read, is inflammatory and misleading. >>They might not be a Govt entity, but they also play by a set of less formal rules that do not benefit anyone but the closed group they choose said rules to be edit. VCs took center stage in the crypto space because the SEC entered it and prohibited programmatic crowdsales whereby the public could participate in initial funding rounds. There is literally no other legal avenue by which people can raise funds for cryptocurrency projects, and those methods being explored as possible alternatives, like NFT sales, are already being eyed by the SEC with a mind to ban them. And if Congress gives the SEC the power to do so, they will. Ethereum, had it conducted its capital raising after 2018, would have had to rely on venture capital firms, instead of a public crowdsale like it conducted in 2014 that provided it with wide distribution of token holders.

unfocussed_mike 5y ago

I really hope David is absolutely certain of everything he says. I have learned not to be surprised about anything to do with web3, but if there's the slightest error in here they will rip him apart in the British courts. (Though that might produce enough heat to bring about an investigation, at least.)

5350-uiop-1130 5y ago

purpose of web3 is to sell you a token at some 100x multiple of what the VCs paid for it (possibly zero). the token itself doesn't do anything, but it may carry the illusion of hope in some form...until it doesn't.

zomglings 5y ago
Ditto an IPO (especially a SPAC). So what?
- 5350-uiop-1130 5y ago
  >So what? two wrongs don't make a right. also if you did read the article then you will know that an IPO is regualted whereas a web3 token sale is not.
  - zomglings 5y ago
    Regulation is developing fast* for ERC20 token sales. Most projects are very careful about the criteria under which they allow US nationals to purchase tokens (many going so far as to not sell tokens to people that come from US IPs). * As fast as the SEC can manage.

spir 5y ago

I think it's fair to say that most tokens are effectively trash, and there are many scams in crypto. Relative to other speculative manias in history, crypto is a mechanism for mania and speculation. You can't trade tulips on tulips. But you can trade crypto on crypto. For example, in the British railway mania of the 1840s, many patterns occurred similar to today's crypto frenzy, such as stock exchanges created expressly for the purpose of trading railway stocks and publications to talk about and advertise railway stocks. But railways lack crypto's reflexivity because you can't trade railway stocks on railways. Crypto mechanizes its own speculative mania. But what's the other side here? Does it even exist? I think it does exist. In my view, a balanced discussion of the pros and cons of crypto often seems to elude the HN community. HN is a community of technologists, right? So what's the actual technology here? At the root of crypto are two technologies, 1) programmatic public chains that are inexpensive to run and 2) zero-knowledge proofs. By combining public chains and zero-knowledge proofs, we get an inherently global market, with p2p transactions that scale to all of humanity, where you can send money digitally, similar to handing a $20 bill to a friend. And the transfers can include rigid, sophisticated logic that offers the potential to reduce transaction costs for many kinds of routine economic activity. So, while it's fair to say that most crypto tokens are effectively trash and crypto mechanizes scams and speculation, it's also unfair to omit discussion of the fundamental innovation, and those who do so will end up on the wrong side of history.

leonidasv 5y ago
The problem with most approaches is that they throw out the baby with the bathwater. Sure, you trusting third-parties is shady. Sure, having governments handling over your money is bad. However, having a fully-immutable chain is not the solution. Let's say, you tokenized the ownership of your home but a bad actor from the other side of the globe stole the token. A standard certificate of ownership can still be brought to court in case of fraud, but a token cannot. I mean, you still can bring it to court, have the judge decide in your favor, but the chain is immutable and neither you or the court officials can do anything to revert that. So you'll end-up with a token that does not represent the reality - and that's why standard, traditional certificates exist and are trusted: they represent the rule of the law, something an immutable decentralized chain can't do. Another example is just what is happening to Russia and its oligarchs. Traditional banks can be forced by the rule of the law to impose sanctions; crypto cannot. So they're just evading those sanctions in plain sight by using crypto. You may side with Russia on the current affairs, but this also applies to terrorist groups, gangs, you name it. And it goes on and on... if you're a victim of a phishing attack like the one happened recently at OpenSea[1], but instead of signing with your wallet you filled your credit card data into a shady field, you can still contest the purchase with your bank and have your money back. Even if you authorized a one-way money transfer from your bank account, in some countries you can still contest it and eventually have your money back.[2] None of this is available for the victims of the NFT phishing scam. So, while the technology sure has interesting points, the current use-cases are far from optimal. Society developed trust and trust-chains for a reason. If you're a going to implement this in blockchain, then you'll have to build a non-decentralized* approach from the ground up, that most of the crypto community will bash you for. * To be fair, many consider the proof-of-stake to be a non-decentralized approach departing from the vision of S. Nakamoto. And some will even argue that the current proof-of-work mining concentration is already centralized.[3] [1] https://cointelegraph.com/news/opensea-phishing-scandal-reveals-a-security-need-across-the-nft-landscape https://cointelegraph.com/news/opensea-phishing-scandal-reve... [2] https://www-poder360-com-br.translate.goog/justica/globo-ganha-na-justica-casa-paga-com-pix-errado-de-r-318-mil/?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp https://www-poder360-com-br.translate.goog/justica/globo-gan... [3] https://www.technologyreview.com/2022/03/04/1046636/ethereum-blockchain-proof-of-stake/ https://www.technologyreview.com/2022/03/04/1046636/ethereum...

zeryx 5y ago

As someone who extensively works in crypto (www.fractional.finance) and building web3 technologies - the vast majority of projects are scams, or scams that are trying to fake themselves into legitimacy. Most NFT projects fall into the category of MLMs or have other mechanisms to massively reward early adopters to grow network effects. Not all projects are like that, and many have actual real practical uses; public DLT and ZK Proofs are absolutely massive. Some teams and organizations are actually using them properly, they're just still building. HN: Give the market 4 months, if you still think "all of crypto is a scam" then either everyone failed; or you were pretty set in your ways anyways :)

pavlov 5y ago
You think four months is going to change something? We’ve heard these same promises for a decade. During the 2017 ICO boom, people who were selling their tokens were saying the exact same thing as you: “Now that we have all this investment and smart people in this space, the real-world use cases are just around the corner.” The billions that flowed into crypto in 2017-18 created nothing except a stream of SEC investigations and fines. The “builders” were grifters. Why is this time different?
- zeryx 5y ago
  We launch in June, but there's plenty of other projects with builders who are actually building real sustainable businesses and organizations with roadmaps towards profitability as well. They aren't common, to your point the vast majority _are_ grifters; but obviously there have been big transformative steps like Ethereum itself, Filecoin, IPFS and others.
  - pavlov 5y ago
    IPFS has nothing to do with crypto though. That’s one of the problems of the current “web3” rhetoric: they’re trying to swallow every project on Earth into their argument that I should rush out and buy their token right now. Anyway, good luck. I hope your roadmap to profitability is something else than “We’ll dump our tokens to retail” or “We’ll do enterprise consulting and sell proof-of-concept projects to hapless corporate middle managers who are very excited about capital-B Blockchain”

k__ 5y ago

"“Web3” is an undefined marketing buzzword. It means whatever the advocate in question needs it to mean in that sentence." As far as I know, Web3 is defined as all technologies that try to decentralize the Web. Your frontend code stays almost the same. It just gets delivered via IPFS, or Arweave. You still call APIs, they just happen to be gateways to (potentially/actually) decentralized technology.

t_mann 5y ago

This seems to be a post mostly about the economics and legal aspects of token sales and NFTs, and the author makes some strong arguments there. However, since HN is a tech forum, I think this sentence in the introduction should be challenged: How does Web3 work? Well, it’s nothing to do with any technology. I don't know whether the space has converged on a single common definition, but it seems pretty clear that web3 refers to web apps that interact with decentralized services, eg smart contracts on Ethereum or IPFS storage. Other than that, they're not vastly different from other web apps, at least for a front-end developer. It's a few npm packages that handle the blockchain interactions, learning the basics of those should be doable within a few weeks (learning how to write safe smart contracts might take longer, but that's sort of a spearate role). What that technology is being used for, and whether you consider that a libertarian utopia or a scam-riddled fraud, is a separate question. But from the technical perspective it's pretty clear what counts as web3 and what doesn't, and the difference is not just marketing.