Why Crypto Isn’t Ready for Us

Photo from New York Magazine.

Sam Bankman-Fried is on trial this week for fraud in cryptocurrency, which seems like the perfect time to analyze why crypto is neither necessary nor sufficient for life in 2023. In other words, I don’t like it.

I’m supporting a couple of online investing classes that each had a whole module all about crypto, so I may have to “teach it.” One of my beefs is that explanation about a new payments process should not obsess about the technical aspects of how it works. If you start the discussion of “what is digital currency” by using the word “blockchain” and a set of Rubik’s cubes, then I know it’s already gone off the rails. Hope I don’t have to grade any assignments touting this nonsense er… technology still underdeveloped.

For those of you who don’t know the difference between proof of stake and proof of work or which Marvel movie featured the Scarlet Witch or how many points a ranger adds to their acrobatics D20 roll… in other words, if you’re not mesmerized by geekery over this stuff, let me see if I can detangle why digital currency’s time has not come. It has to do with 1) technological vulnerability; 2) lack of standardization; 3) volatility; 4) diffusion of purpose. Allow me to expound.


There’s actually a joke about crypto in the mystery series “After Party II.” The murdered guy made his fortune in crypto, and when one person asks what exactly he was doing, the official nerdy character jump in with, “Let me explain what blockchain is…” That’s how we know this is all silly. If you are explaining either an investment or a way to pay for a sandwich by talking about how the currency is built, we’re in trouble. Do I need to know what kind of special ink is used to make a twenty dollar bill or how they put the hologram on in order to know that it’s not counterfeit? If you ask me how a bank works, do I start by explaining what kind of reinforced concrete they use for the vaults?

Photo from Open Access Govt. Notice how you need digital art to create digital photos of blockchains.

Blockchain may indeed be quite secure. Encryption is pretty secure. Fort Knox, I suspect, is quite secure. The question of how digital currency works should not begin with whether or not it’s secure or how it’s secure. It should begin with how you use it. To my mind, there is vulnerability there. Why? Because digital currency can only be used from within a program.

Say I want to buy a soda at my local mini-mart with crypto. I need my phone, my password to the phone, my password to the app. And the phone needs service and to be fully charged. The mini-mart needs technology, too, as well as working access, service, etc. All of a sudden, this “so easy” process has several layers. Not convinced? One of the first folks to pay with crypto at Subway, which touted its willingness to accept payment, described this incredibly easy process as:

Once our subs were made the employee took out an iPad and opened Coinbase. She punched our total in the register and then in the iPad, which immediately generated a custom QR code linked to the store’s Coinbase account which was preloaded with our exact total calculated. I took out my iPhone, opened my Coinbase app, and scanned the QR code. Instantly the total popped up on my screen and gave me the option to leave a note about my purchase.

From Coindesk.com blog.

I’ll stop you right there. The employee took out an iPad? A separate piece of technology, disconnected to the register? That has to coordinate with the store’s accounting system? Who do you think is making these sandwiches at Subway? It’s not Chat GPT, I’ll tell you that much.

Photo at Coindesk.com.

By the way, googling this topic about Subway also led to story #1: Subway has just been sold to a giant conglomerate private equity firm that also owns a dozen other food service chains. Story #2: Subway-themed trading bot makes millions using ‘sandwich’ attacks! That means a digital pirate stole millions digitally using Subway as his villain name. And that whatever Subway wanted to do with digital currency acceptance may soon go out the window with the new ownership. Let’s see if crypto stays on Subway’s menu.

Not every individual or vendor has this technology capability, even when no pirates are involved. To date, the only significant non-online vendors accepting crypto are still only Starbuck’s and Subway, except for some Burger Kings in Venezuela. So if you’re in Venezuela, you’re good! What if you’re in someplace– say, Montana–and you don’t have all that immediate access to technology? What if you’re of an age where those things are too complicated to execute? Maybe all that technology is in place “most of the time.” Maybe it’s not, sometimes. P.S. if you’ve paid at Starbuck’s or Subway or someplace not online with cryptocurrency, send me a comment.

In today’s non-digital environment, I can always charge my sandwich to a card, even in Montana, and I can always pay with cash. (No offense to Montana, which is a beautiful state that I have visited several times!) But, goes the argument, cards are subject to fraud! Still, why do I care? Debit and credit card fraud on my card is annoying, but the regulations are set up so that it’s easy to deny that I made a transaction that I didn’t make and replace the card.

Ah those pesky regulations! It’s a funny thing that fraud argument is made by the cryptocurrency creators themselves. These cryptocurrencies were created to be outside the banking system, by people who hated banks. Wouldn’t it be a better argument for them to say, Yay fraud! Screw the banks because the banks are the ones getting stuck when there’s fraud. Creating an entirely new complex digital currency outside the banking system doesn’t seem like the most logical solution–for banks–to solve card fraud.

Photo courtesy of Openmarket.com.

Which Crypto?

It’s great that Subway takes digital currency. Which ones do you suppose they accept? Do they accept the one you happen to have? Another problem with crypto is the lack of standardization. A dollar is a dollar. I can use those dollars in different forms, either in physical money, tied to a card, in my digital wallet, or sent through the ACH or other payment systems. It’s all still a standard currency.

However, if I want to pay with digital currency, I have to pay with the currency that each vendor accepts. Right now, there are 1200 digital currencies out there, and new ones getting created every day. The usefulness of a currency is tied to what you can do with it. If I have one that isn’t accepted, then it’s not really “currency.”

The logical thought is that we should just standardize digital currency, then. Centralize it. The Fed has done just that and has already created a Central Bank Digital Currency (CBDC) that can be exchanged. Using blockchains and Rubik’s cube and all that. So doesn’t that mean crypto has won? Not so fast.

Crypto was designed to not be centralized. The founders of digital currency didn’t want it to go through or be structured by the banks. They didn’t want regulation. So, right now, the crypto companies aren’t embracing CBDC. My prediction is that regulated digital currency is an idea that makes sense and could lead to streamlined payments in the future. Go Central Bank, can’t wait for 2033! For the rest of you who don’t want things to be regulated, think about whether you want to exchange the ordinary dollars that you earned from hours of your time and effort for a currency that won’t buy a sandwich.

Not to mention fluctuation. While the value of dollars go up and down a little, they don’t zoom and crash. Everybody always loves the zooming part — I played a game for three hours, and now that’s worth $572! not so much the crashing. If you bought your crypto for $300 one day and it was worth $150 the next day, not so happy! You now only get half a sandwich.

But this isn’t all really about buying sandwiches anyway, is it?

Speaking of Fraud…

NY Times image of Sam Bankman-Fried

We’re talking about money, technology, and innovation. Crypto since its creation a decade plus ago has been about attracting investment dollars for development. The high market capitalizations–the value of the company according to the stock market–of Bitcoin and some of the earliest drivers is a reflection of the emotion of investors who want to make money buying and selling the company itself. Money attracts money. Risky money attracts risky money.

What Bankman-Fried did is attract investor cash for his company and then do what most of the high-risk dudes do. He used customer deposits to bribe er pay political lobbyists, make investments in other companies, and buy luxury real estate for himself. That’s nothing new. Blockchain doesn’t eliminate piracy. In fact, I’d argue that block chain attracts pirates and bank robbers. What did the guy say? Why do people rob banks? Because that’s where the money is.

Any time you hear that a lot of money is involved, you know that the skull and crossbones be raisin’. Any time that one of those investing media things — people on the teevee or on the internet–start gushing about this get rich quick thing that’s about to go down, hold on to your wallet. There was big news this week that Steph Curry was paid $35 million for his endorsement of some crypto thing in some advertisement way back when. It shouldn’t shock anybody how much he got paid. The owners of these companies are rolling around in so much investor money that it’s giving them wedgies.

It’s fine if you want to live inside the digital world, ok? If you still want to earn digital money playing digital games so you can exchange that digital currency for digital stuff, like NFTs, be my guest. Arguing that digital money is great because it buys things that are only digitally useful seems like a circular argument. Or arguing that we should have digital currency, then link it to a multi-zillion dollar investment opportunity sounds well… a lot like 2008 to me, where real estate mortgages got chopped up into cole slaw and offered ten times over to investors. I thought this whole thing was about doing better than the 2008 crash, which was only caused by banks?

The next time you see an argument on behalf of crypto, ask yourself who wrote it. Was it a banker? Was it a small-time vendor, accepting payments on their food truck? Or was it an investor, or one of the offshoot people who make money off the “investment industry” by writing about what’s hot in investing? Or was it somebody working in the burgeoning industry, just hoping that their jobs will turn out to add something useful? As opposed to creating the Metaverse, which apparently was a real thing that Mark Zuckerberg was touting for two years until it wasn’t, and lots of people lost real jobs.

Meanwhile, I’ll keep my eye out at my local Subway to find out if they’ve got those iPads behind the counter. Meanwhile, too, the U.S. currency is undergoing a massive overhaul to make the physical bills more secure and more user friendly to the visibly impaired. They say that the Harriet Tubman $20 bill is scheduled for issuance by 2030. That’s about as early as I’ll be ready to use digital currency anyway.

Courtesy US Treasure Dept.

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