A Samurai in [Crypto] Autumn

A dispatch from no-man's land

Given how sporadic these missives are, I’m flattered so many of you are willing to pay. Thank you for the support! Membership now includes the equivalent of a three-month supply of iodine pills and three inches of lead plates. Proven to regrow hair and melt belly fat. (Your results may vary).

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All this late-era cold war nostalgia has come bubbling up for me: Kilo-class attack submarines have been sliding through the Dardanelles, close enough to touch. I used to pass an American airbase on my way to school in Spain every morning with billboard-sized Defense Condition status and its corresponding color bar. DEFCON is officially classified but was always at DEFCON THREE when I saw it (code name ROUNDHOUSE, 15 minutes to scramble jets). 

DEFCON was raised to two this week. As close as we came during the Cuban Missile Crisis. The only time we’ve come so close since the Cuban Missile Crisis. One step away from total thermonuclear war. Let’s hope it’s p.r.

Engulfing the world in nuclear hellfire seems hard to imagine. You have to hope those steely colonels manning the panels at NORAD and its Russian equivalent are still around, and they’ll doublecheck the order to fire at the last second and grab the operator’s hand a second before his quivering finger jabs in the red button...  But alas, they were probably propaganda, given the history of real Cold War nuclear shenanigans that have emerged, with atomic bombs sliding off the deck of aircraft carriers and our Dew Line (the early warning arctic radar system) false flagging the geese and the aurora borealis as incoming ballistic missiles. We’re lucky to have made it this long.

Closer to home, and by home I suppose I mean the “mass consensual hallucination” behind the screen where I spend fifteen hours a day as opposed to Odessa which is about as far as Los Angeles is from San Francisco, another conflict is playing out. 

Fifth-generation warfare is ramping up. We got a glimpse of it in Canada when the government started freezing protestors’ accounts and now the entire world – even Switzerland – is isolating Russia from the world economic system. They’re in talks to yank them from SWIFT (the Society for Worldwide Interbank Financial Telecommunication, the world’s non-crypto international payment system, essentially an artery of global finance). Individual companies are climbing into the fray, banks are freezing Russian assets, Apple and Google halted their payment systems and Google Maps has been selectively shutting down traffic information from and yanking apps from their stores. Countries are forbidding visas, encouraging their citizens to join the Ukrainian irregulars and fight, and all of sudden my entire social network seems to have turned into a botnet: the Russians are bad, the Russians are incompetent, the Russians are losing, the Russian convoy approaching Kiev never ran routine maintenance on its tires and they’re all going flat… Twitter is actually flagging Russian news sources now as potentially suspect, the way they started flagging vaccine skeptics. 

This may all be perfectly justified, but it in practice means opening a much larger front–all of a sudden it’s not just the Russian Army at war, the entire Russian population is under attack by everyone outside of them. During the Cold War war seemed tragically under our leaders’ control, now everyone and everything is politicized and polarized and we’re all combatants. It’s hard to dial this stuff back. Just look at how much tension remains between American democrats and republicans since the 2020 election.

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The crypto community is fighting hard to avoid being pulled into the war. For context, web3 has eclipsed some major milestones. The space is worth roughly $2T (a third of the value of the world’s gold supply) and the Ethereum network alone now contains something like $100B worth of value locked into its decentralized finance applications, and it’s growing quickly.

Traditional financial companies are starting to realize that they could be replaced by algorithms shuffling crypto.

El Salvador adopted Bitcoin as legal tender, and now Honduras – who someone once pointed out to me is a favorite destination for American wannabe social engineers because it’s the poorest functional country within easy reach of a Gulfstream jet – is also considering the switch. It’s a threat to US dollar hegemony and the U.S. and its allies are pushing back. 

On the government front, their first target (aside from deeply crooked initial coin offerings and blatant SEC violations) was Tether and a couple of other stablecoins, which are tokens meant to represent US dollars and other fiat currencies. They’re crucial for decentralized finance and speculation because they allow traders to easily convert from a fiat currency (such as a US dollar) to crypto and back again. They’re supposed to be backed 1:1 by dollars but in practice tend to have a certain percentage of slushier stuff like risky Chinese commercial bonds etc standing behind them. Meanwhile, the U.S. is considering whether to create a cryptocurrency of its own, a Central Bank Digital Currency (CBDC), a digital dollar with all of the features of crypto but backed by the Fed.

NFTs have also come under fire. It was peculiar to see it happen, there were a few months when they were broadly accepted, and then there was an onslaught of media antagonism, mostly focused on the environmental costs of NFTs (which are pretty easily mitigated in the long term). Cool kids hate NFT now, which is sad considering it’s one of the few new ways to make money with very little capital. 

So naturally, crypto has also been pulled into the Ukraine-Russia conflict. There were suggestions that Russia might use crypto to maneuver around the international sanctions, the way North Korea, Iran, and Venezuela are said to routinely do, and the U.S. has sworn it will sanction any platform that trades with Russia. Many of these platforms are essentially just an algorithm connecting two disparate parties, and there’s no easy way to exclude Russian trades. 

In response, the crypto community began donating to Ukraine en mass, openly and aggressively aligning themselves with NATO and Ukraine.

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While I was writing this a small group of Ukrainian nationals marched past our window (we’re about five blocks from the Russian Consulate).

The Ukrainian government created an official wallet for receiving crypto donations, which amounts to roughly $40mm as of March 3, 2022, and there’s a lot more are coming in.

What they did next was profoundly unsettling. They announced an airdrop to all of the addresses that had contributed to the wallet. We’ll find out soon what it is they are dropping, but will either be an NFT or an ERC-20 token of some sort or the chain equivalent. 

If it’s the latter then they’ve created a new vehicle for raising money, a new currency that they can sell on exchanges and use for funding military exercises, assuming they’ve kept a chunk for themselves. If it’s an NFT, then it could portend something a little more sinister. Imagine a badge permanently attached to your digital identity – a way of indelibly tattooing the Ukrainian government’s identity onto you forever. To me, this seems like a method of “standing up and being counted,” and pushing forward the flywheel of polarization. For many political issues in American politics, anymore there seems to be no middle ground, you’re either with us or the enemy. Even if it’s just a currency, it’s still disconcerting having a digital tag pointing to your political stance in a potential nuclear war.

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The United States is ostensibly free but most of us choose to spend most of our lives in fairly oppressive totalitarian micro regimes, corporations, or government institutions that keep us contained with far fewer rights than we ostensibly have as citizens. For example, I assume my social media is being monitored and could be used to fire me or destroy my source of income. Depending on where we live, we also outsource much of the process of governance to housing associations or condo boards, or municipal governments which are far from purely democratic. Decentralized Autonomous Organizations (DAOs) are both an evolution and a potential bulwark against the creeping economization of everything, which is what a cryptocurrency future enables, for better or worse. 

DAOs are a tool for organizing access to a public good. The utopian vision for DAOs is a world where you can carve out a political niche that is completely tailored to your existence. You might have subscription and voting rights in dozens of DAOs. If you don’t like one, you can “exit” or “hard fork,” copying and pasting an existing organization to create your own. 

Matt Levine opined in Bloomberg Opinion recently that “one great theme of the post-2008 financial world is that money is a social construct and a way to keep track of what you deserve in terms of goods and service.” This has always been true, but now “who has money and what they can do with it can be adjusted by central banks and national treasuries.”

The dark side of DAOs is that they bring this economization to an individual level, within the corporation, and there are now payment systems based on open peer review. Designed to spur conversations about compensation that ferret out hidden pockets of value, it’s a bit like crowdsourcing a management consultancy every month. Performance reviews are never fun, but imagine running the gauntlet every paycheck with all the delights of office politics getting dragged in too. And CBDCs are even scarier. They allow governments to turn off spending at will. They’re already doing so in Nigeria.

One of my favorite cyberpunk references, the last comprehensive U.S. National Intelligence Estimate (2035) predicted an increasingly acrimonious world that leads to three possible outcomes for nation-states – islands of isolation, spheres of influence similar to those during the cold war, or a gradual dissolution of the boundaries between public and private as NGOs and private corporations begin to scoop up duties that were traditionally left to the government. The latter seems to be coming to be in the Western world. The great powers like NATO are dissolving and leaving behind a strange gumbo of government in their wake.

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For now, it seems as though the threat of global war is receding. The [NATO-aligned] Polish and Bulgarian governments declined to loan the Ukrainian government their MiG-29s, and the risk of a rapid escalation seems to be dwindling. As a ten-year-old schoolboy in the 1980s, I would have loved to see the F-16s streaking off to battle the MiGs, but now I really would rather not.