In other circumstances, it might be the basis of a feel-good movie: late last week, hackers broke into Binance – the world’s largest cryptocurrency exchange – and made away with around $6.3bn in the space of just a few minutes.
Given that bitcoin and related cryptocurrencies have been used in endless pump-and-dump scams, traded as speculative assets by the ultra-rich, and used for widespread tax evasion and money laundering by criminal gangs, some of us might not be too sympathetic to the victims of such a crime.
Sadly, any hopes of this being a modern-day Robin Hood tale were swiftly dashed – the hackers were almost certainly working for North Korea, according to US investigators and blockchain analysts, and the prospect of what Kim Jong-un will do with swiftly acquired billions is hardly a reassuring one. It seems unlikely he will use it for food or healthcare for his long-suffering population, alas.
In the immediate scramble following the attack, crypto institutions managed to freeze around $3bn of the stolen assets. A further $2.4bn appeared to be beyond the reach of issuers able to freeze them. Binance, meanwhile, promised to cover the losses, meaning its users would not be left out of pocket.
The people running the crypto industry would like this to be a blip, forgotten as soon as possible – but whether they get their way or not, it’s an incident that shows up the contradictions in an industry that, before AI came along, was once the bright shiny future of big tech, if not the entire economy.
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Crypto was supposed to be a decentralised currency for the people. Its sales pitch was that you can’t trust the governments or central banks. They can just print money whenever they like, devaluing the cash you’ve worked hard to earn and save. They can freeze or shut down your assets whenever they like, change the rules to suit their needs, and otherwise rig the game against you.
Bitcoin and crypto would be different because it would be ruled by maths. No one could suddenly issue more currency and devalue what you own. Every transaction would be visible on the blockchain, so you wouldn’t have to trust middlemen.
You could store your own wallet securely, without relying on banks and intermediaries. Soon, they promised, you’d be able to buy whatever you wanted with crypto, without having to rely on out-of-date fiat currencies like the pound or the dollar.
None of that, of course, has happened. No one tries to use Bitcoin, ether, or any of the other crypto “currencies” as currencies. The only thing you can buy with crypto is… crypto. Instead, it’s just another speculative asset – something people buy in the hope of getting rich quickly, perhaps off the back of a greater fool.
The idea of holding your own assets and protecting your own wallet didn’t really work out, either. After a few high-profile cases of people losing wallets with millions of pounds’ worth of bitcoin on them – including a notorious case of a UK wallet allegedly worth £460m lost in a landfill site – or else getting robbed or hacked for them, people discovered they liked institutions after all.
The second-biggest cryptocurrency exchange was FTX, owned and operated by Sam Bankman-Fried, now serving a 25-year prison sentence for securities fraud. Its rival Binance, the target of last week’s hack, is by far the biggest player still standing – though its own founder, Changpeng Zhao, was convicted for offences connected to money laundering, but was later pardoned by Donald Trump.
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To those who have put their life savings into crypto, this is surely an endlessly exciting thrill ride. Every day there is a new coin promising to deliver unbelievably high returns, and every day someone loses their life savings because they believe an offer that’s too good to be true. Any time someone goes viral enough – whether they’re Hunter Biden or the Hawk Tuah girl – they launch a cryptocurrency, and their “fans” lose money.
To anyone outside the bubble, what’s happening is very obvious and very familiar: crypto grifters are speed-running the overreach of the banking industry in the late 19th and early 20th century – the speculative bubbles, the obvious frauds, and the desperate scramble for means to protect customers and build trust that people’s money is safe.
The first time around, though, this at least had a purpose: people were inventing finance as they went along, and learning how to regulate it for the first time. The lessons were immensely painful: people lost their life savings, economies crashed, but a useful sector was built.
Crypto is repeating all of that pain for none of the gain. The currencies don’t work: no one uses them as such. We have banks already. We have financial regulation already. Crypto was built to avoid them, and now is slowly rebuilding the rules, one screw-up at a time.
As AI finds new vulnerabilities in the internet’s architecture on a daily basis, people are learning the hard way the problems with relying on online security to keep your assets safe. Crypto is showing itself up as little more than an emblem of the hollowness of 21st-century speculation – promising riches while offering nothing tangible in return.
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Nowhere is that more apparent than in where the crypto industry has found its most loyal friends and political supporters. Donald Trump and his family have each launched their own pump-and-dump crypto coins, where insiders got rich at the expense of the regular people who bought them.
The crypto industry funded Trump’s election, supports his businesses, and has reaped the rewards. In the UK, Reform has become a major beneficiary of donations from crypto billionaires. What better bedfellows could there be? Both promise the world, offer nothing of substance, and eventually leave those who believe in them searching for their wallets.
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