ICYMI: There’s a Dedicated Conference for Crypto Skeptics

the hype machine that keeps the industries. Thousands of projects going rallying cries of wag me an acronym for we're all going to make it, and to the moon abound found in tweets from accounts with colorful graphic profile pictures and usually a hashtag or two. But there are always two sides to a coin. And if you've come across the Twitter display name featuring the tulip emoji, you might

have found a crypto skeptic. In add a reference to the Dutch to the Mania of the six hundreds these figures, technologists, academics, and writers among them are working to counteract cryptos steady rise to the top with a dose of reality. Today, I'm joined by Stephen Deal. I'm the author of the

book Popping the Crypto Bobble. I'm one of the more outspoken critics of the cryptocurrency industry, a software engineer by trade, a leading crypto skeptic, author, and now co founder of the recently established Center for Emerging Technology Policy, I think tank set up to ensure regulators, policymakers and more are informed about where cryptos promises of a brighter tomorrow might

actually be closer to me. So you often write about kind of the common misconceptions around crypto and blockchain and the things that the promises to solve. We're here to talk about those particular kinds of myths to day. So what are some of those problems can you explain them to? So cryptocurrencies are broadly speaking, a new form of highly

speculative investment. Let's emerged in the last few years out of the birth of bitcoin, and the entire industry is wrapped in a level of sort of myth making about this new technology being the birth of like to say, a new Internet, or it's a new form of monetary policy, um, and not a lot of those stories actually kind of match the lived reality on the ground under the technology, on the economics or the financial side of the reality

of the industry. I know you think a lot about, you know, how blockchain is a solution works for parts of financial services. It's something that if we think about the Bank of England and particularly speakers like Deputy Governor John con If they often espouse, you know, the benefits of crypto technology financial services and how it's going to transform the way that we do finance as we know it today. And I know that you don't necessarily red

with the perspective. Yeah, there's a lot of rhetoric coming from inside government about you know, the transformative nature of say the blockchain technology to solves certain either civic or financial problems, and unfortunately you look at the reality every time the blockchain has been applied to specific applications and financial services, there's not a whole lot of track record of success for these projects. Because UM blockchain is a solution is something we've not had to build for about

thirty years. It's not a new idea to build append

only UM digital ledgers. We've known how to do this for quite some time UM and so in that sense, blockchain is really only useful for one real application, which is building cryptocurrencies, which is the whole other topic onto itself of discuss But if you look at specific applications of saying, I don't know, applying blocking technology for payment systems, your settlement and clearing, or you tracking of provenance for specific supply chains, um, most of these applications of this

technology are strictly worse than using technology that's been around for thirty years and already exists. Do you think that is your fundamental objection to crypto or was there something deeper as well that happens within the industry that you think is the fundamental part of why you dislike it. I would say there's crypto assets and then there's blockchain. Blockchain I dislike from a sense that like, I don't think it's a particularly good solution, but that's really a

matter of like a software architecture perspective. I don't think there's a whole lot of public harm concerns related to append only databases. But then you over look over at

crypto assets. These are financial products that are sold to the public, which exists specifically to arbitual securities laws UM and to create extremely risky assets that are sold directly to the public, oftentimes masked in this kind of veneer of techno solutionism or you know, some sort of revolutionary technology, and the technology itself is questionable at best, and the financial assets themselves come wrapped in an enormous amount of

risks and some very dubious economics. And what about the social side of this too, Because a frequent retort in crypto is that tokenized versions of assets are going to fix a variety of issues, and developing countries are Carl Salvador banking the unbanked. That's something I always get told when we asked about bitcoin is that it's an alternative monetary system that's going to bring everybody out of poverty

and save the world from censorship. The reason that most people are on bank is simply because they don't have enough money to hold a bank account. UM. And it's unclear to me that's you know, it's this private money issued by corporations UM, which is highly volatile its value, is actually going to address any of those issues. And so I fundamentally disagree with the notion that creating new private forms of money is the solution to the unbanked.

What's the unbanked need is probably like basic bank account subsidized by the government UM and enough money to be able to, you know, hold those accounts, and those are hard problems to solved. I don't the crypto has many answers to those. You need only look at All Salvador because in the last year they've been running an experiment by trying to use bitcoin as legal tender there and

it's not going well. But blackly, we had several speakers from the Crypto Policies and Posium come who are all Salvadorian citizens and talk about their lived experience on the ground in All Salvador, and it turns out really bitcoin, because of its very basic economic design, cannot function as money um and when you try to roll it out as a means of exchange inside of the country, it

goes very badly. They cannot um fund their government wallet with their bank account as easy as other people can, like they had to physically go to key d M in a consulate location that sometimes it's really far away from where they live. People have to drive six hours eight hours to reach the nearest consulate and it's not

a practical thing to do. And particularly as well this year, we've seen a lot of incidents in crypto that I think have brought this to front of my view, has created a bit of more of an urgency than I think you've had to face in previous years, you know, with bankruptcy is happening, with Celsius and the Quorn and the collapse of Tara Luna. It's definitely been a year that regulators probably want to hear from you more than ever. They certainly do, and we've had a lot of productive

conversations with regulators and both sides of the pond. Um certainly, what you're seeing is sort of the inevitable outcome of an industry that has been purposely built outside of regulation,

and unfortunately, there's nothing new under the sun. What you're seeing is a lot of the same kind of financial catastrophes that occurred both in two thousand eight and sort of the pre the Securities Act era, unfortunately, and it turns out when people don't have um, you know, sensible disclosures and sensible investor protections and sensible rules around romans and custody of funds, then you get a lot of sort of accidents in the financial services industry and a

lot of retail investors get hurt. And I think we all recognized that even on the crypto industry that there needs to be some framework put in place so that members of the general public are not so much exposed to these financial risks. Coming up more from Stephen Deal on what tools cryptos skeptics are using to make their voices heard on the global stage. And so you're American,

but you're based in London. I'm also in London and I interviewed you earlier this year for a series of mini profiles we did about crypto's most influential players in the UK, which I'm sure is a monica you didn't expect to receive. UM. But you've done a lot of work recently with regulators in the UK and Europe and in the US as well on cryptos encroachment into finance particularly, We've had several regulations announced this year alone in the

UK and Europe. UM. What trends have you been seeing in the financial services industry with crypto and how do you think policymakers should approach that either you know to be to be containing it, providing rules for it, or should you know banks be running away with blockchain. There's definitely been a rise in interest UM in crypto assets

from what I've considered the traditional financial service sector. It's still very much sort of a separate world because there's sort of the regulated world of banks and normal financial institutions, and there's the crypto world, which is largely you know, set up in offshore tax shelters and exists largely outside of the regulatory perimeter at the moment. The Securities Act from the nineteen thirties is a very broadbrush and it paints a very robust framework that we've been using for

almost last hundred years. And I agree with Chairman Ginsler from the Securiity Exchange Commissions that almost all crypto assets or securities contracts, and we know how to regulate securities contracts UM. There's some rather robust framework around disclosures, reporting, UM and investor protections around these assets that we know

very well. And just because security has offered on a blockchain versus a like a stock certificate doesn't really change the underlying legal reality of what are and once crypto assets are brought within the regulatory premature and classify as securities, I think a lot of the risks go away. Finally, I wanted to find out where you think crypto will

be in five or ten years time. You know, do you think that it's going to be a fully legally regulated industry and everyone will be registered as broken dealers and that will be, you know, all above board, or do you think we might have a version that looks a little bit like how we have it today. You know, we're still having booms and busts and customers losing out. The question of where crypto was going is ultimately a question about what comparable assets can you find to crypto?

And I think many of the tokens that are being issued today look very much like securities. They're being used to raise funds common enterprise with the entrepreneurial efforts of others, where the investors are expecting our return, right, So in that sense, they're basically like a stock. And I think there's a very sensible framework that we've had for a

hundred years. But how to deal with those? And then you have some other ones, you know, your doge coins, you have your you know, sheet booty news, and it's unclear what the purpose of these projects are. And if we were to look at sort of the fundamentals of these investments, you know, there's zero sum write any money that any person makes off of them, is ultimately money that someone else lost. They're not going to fund a

common enterprise or any kind of platform. They're just they exist kind of ostilate up and down randomly, and in that sense, they look very much like gambling products. Um, they look verty much like you know, wagering on sports betting. And if I were to say that the latter category probably should follow in the same kind of regulatory framework that you know, like the Gambling Commission has right, they

should be treated like sports betting. And I think under both those frameworks the market probably collapses down into something much, much, much smaller than itself right now because those are industries. So crypto will shrink down into a much smaller version of itself and be regulated as either digital equities or as gambling products. All right, well, thank you for your

insights and thanks for joining us today. You can find more reporting like this on the Bloomberg terminal, on Bloomberg dot com in the Bloomberg Crypto News set up, and you can follow me on Twitter at Emily je Nicole. I'm Emily Nicole. In today the Stacy Murray Ishmael On the next episode of Bloomberg Crypto Climate Change, It's real, it's happening, and it's got consequences for how the US government thinks about crypto. We spoke to Costos Samaras, who

works at the White House. He's the Chief Advisor for Energy Policy in the Office of Science and Technology Policy, and we asked him all about crypto and the climate. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net

or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producer is Mohammed Farouk. Associate producer is Moses on m Desto One Rod is our engineer. Original music by Leo Sidron. I'm Stacy Maria Shmaal. We'll be back tomorrow.