Okay, hey, how's it going? My name is Brady Dale, and I am here with light bulb talks the podcast that I do every Tuesday and thursday night here on twitter spaces and then later shows up on the Space Cast network. We're here tonight to talk about scams—and scams and crypto.
Scams is one of those words that gets thrown around in crypto so much that it sort of stopped having any kind of real meaning, because it's—folks just say it when there's a project, they don't like, they call it a scam. And I think what they mean is "I don't think this thing is gonna work out" and that's fine, maybe it won't. But it doesn't mean it's a scam, it doesn't mean that it was done in bad faith, but as one of our guests tonight, Lana Swartz, a professor in Virginia and who studies communications and and who has studied crypto in particular and money more broadly, and how money is kind of a social network, wrote a book about it that I that I wrote about last year called "New Money: How many became Social". She does a good job of talking about how you can say like "oh, a scam is something that's in bad faith", but it does get fuzzy when you start talking about examples and so hopefully we'll get some of that tonight.
I wanna welcome Lana Swartz here, and also wanna introduce our other participant tonight—that is Patrick Murck of the—let me get this correct—of the Berkman Klein Center. Patrick Murck's twitter bio describes him as a Blockchain nihilist and a law maximalist. I also discovered researching this tonight, that he once upon a time worked for the Bitcoin Foundation, which is pretty interesting. So we're looking forward to some of that conversation coming in here.
So we're gonna talk tonight about crypto what scams are, how scams are related to it. Probably there's just none is what I'm guessing want to come up with.
For those who are listening as you form up, you know, we always open up the space towards the end to people for folks to ask questions or make comments. So please do that if you want to, I'll sort of stay when I bring, I'm opening it, but you know, indicate that you want to come on any time you want. And just one last note, just for folks to know. Obviously we are recording this and we're gonna re broadcasted on a podcast. So, you know, you're kind of consenting to that if you come on. But all right, let me bring on our guests.
Hey Lana and Patrick, how are you guys doing?
(Patrick Murck): I'm just doing great. Thank you Brady. Thanks for having me.
Good. Hey Lana, how are you. Lana? Oh we could be having technical difficulties. Well in the meantime, Patrick, how did I do on introducing you? Is there stuff that I left out that you'd like to add that's important.
(Patrick Murck): Oh no, you did a great job. Thanks. Yeah, Berkman Klein Center for Internet and Society. You got that. That's good. I'm also the chief legal officer and president at a company called Transparent Financial Systems right now. Before that I was special counsel at Cooley, where I co-led the Blockchain and Fintech practice.
Looks like we have Lana now, can you get through over the mic now?
(Lana Swartz): Yes, I dropped off for a minute and I didn't hear anything from you introducing Patrick to know, or beginning your introduction of Patrick. I'm back back.
We were just kind of chatting while we waited for you to come. I don't know if you want to add more about your background land before we really get going. I'm happy to do so.
(Lana Swartz): Sure. Yeah. I'm Lana Swartz and I'm media studies professor at UVA. As bring you mentioned. I started—so my background is in media studies and that is like a field of people who pay attention to the kind of social and cultural dimensions of technology and in particular communication technology. And so I got interested in money and in you know financial technology broadly defined and ultimately Cryptocurrency right around the same time kind of the world did I guess.
(Lana Swartz): So I started writing and paying attention to Bitcoin in like 2011, first published an academic paper about it in like 2013. And it was sort of this, "oh yeah," it was, it kind of felt like in the aftermath of the 2008 global financial crisis, everyone was trying to rethink money and trying to rethink money with technology.
(Lana Swartz): And so I was able to kind of get it on that and as an academic observer, sometimes pretty critical, sometimes pretty excited about the things I was observing. And so after spending—so I wrote this book that Brady mentioned called New Money: How Payment Became Social Media that makes the case, that money can be understood as a media and communication technology and kind of like claiming money as something media studies scholars should be paying attention to and then tracing that history and then looking to the future into how money is kind of changing right now.
(Lana Swartz): And then after spending like almost a decade paying attention to financial technology, mostly payments and also crypto Blockchain type stuff, I accidentally became… accidentally developed an area of expertise in scams, you know, both within industry and you know, what regulatory bodies think of as scams. But also just like different little scams that had popped up over the years, became totally fascinated by them and sort of what gets called a scam. And so I'm now, as I've, you know, spoke talked with both of you before, I have this new book project that is very much in a nascent form where I am trying to write a book about scams and what scams are, what they mean.
(Lana Swartz): Sometimes I think that scams are just um like, so there's this line that a weed is just a plant out of place and so we're going to think about scams, it's like capitalism out of place or sort of like these just, "this is capitalism we like, and this is capitalism we don't like" and depending on who we are, we have the ability to label them scamful or not scamful.
(Lana Swartz): But then there are, there are true dirtbags out there doing bad things. So how, you know, if we just get to through the looking glass with like postmodern definitions of ultra relativism around what scams are, then we kind of lose our way there as well. So I have a lot more to say about this, I could monologue about scams for a while, but I'm kind of just interested in having this conversation with you guys. And point of question, is this thing where the people who are listening can kind of pop in or is this mostly just us talking? Because I am also interested in hearing other people's thoughts on this topic.
What we usually do, I should have asked you guys this in our DMs, but how much time do you guys have? Like when would you like to wrap up?
(Lana Swartz): I would say like max an hour for me, unfortunately.
That's totally fine. Yeah, okay, we'll keep under that. So what we usually do is, talk for like, you know, two thirds of whatever amount of time that we have and then just sort of invite people to come join us if they want. Sometimes we get a bunch, sometimes we don't really. So we would love to have that happen as well too, but usually we just talk for a while and then do it towards the end.
One thing for folks who are listening right now, one thing I really want to encourage folks to do is there's a—if you look at, if you haven't been on twitter spaces before there's little heart at the bottom and uh, that's a variety of emoji you can express things with. So I encourage you to do that as much as you can possibly want to. So let's just go, you know, let's just go straight into crypto then. Um and Patrick, you can just stay on you did. I think it's better if you, if you do, unless you've got like, you know, a lawnmower nearby or something like that.
(Lana Swartz): I may have a toddler wake up and begin to go insane. In which case I will first viewed and then leave noted noted.
Noted. But so like what you guys is like what first comes to mind when you all think about, uh crypto and what is and scams? Like what, what's the first thing that pops into mind for you all
(Patrick Murck): boy I mean, that's a loaded question. But I mean we could work the other way. Maybe. No. Um, I think for me, like there's like sort of like the O. G. Like crypto scam right? Which was Bitcoin savings and Trust, which is just like phenomenal, it was an amazing, amazing like, you know, Ponzi scheme, um, from, you know, way back in the day. But I mean it's all right there in the name like Bitcoin Savings and Trust. You know, that sounds very official. You know run by you know pirate at 40 right? Like the typical sort of savings and trust banker that you would expect. Um That was a great one.
what I don't really know that one.
(Lana Swartz): I thought Patrick would be a great person to chat with about this is because I love this story and I love the way you tell it. I've heard it a few times. I love I love uh you know I think would be great to hear it again.
(Patrick Murck): Yeah sure sure. I'm happy to I mean uh so uh young man uh pirate at 40 also known as Trendon Shavers um out of Texas. Um but you know the time on Bitcoin talk, he was only known by his alias pirate 40 made of postings like I'm starting a Bitcoin savings and trust, you know If you uh if you deposit your Bitcoin with me, you know, I'll give you like something like 8% of week interest or some crazy number I remember of the pub, my head exactly what it was, but it's all there on Bitcoin talk so you can find, you know the exact detai(Lana Swartz): Um It was some crazy number and you know it was hilarious because it's obviously a Ponzi scheme to return those kinds of like You know that that rate of interest um and in fact on the thread.
(Lana Swartz): What year was this?
(Patrick Murck): Oh jeez it was a boy like 2011 or 2012, I mean it was pretty, it was early days. Um it was definitely early days um and uh but it was, it was brilliant. So you put out a threat and Bitcoin Talk was the forum where everything happened in Bitcoin back then for better or worse. And I mean there's plenty of interesting content on there. Um, the uh, so they post, you know, hey, there's Bitcoin saving the trust I'm starting, you know, give you this ridiculous weekly, like, you know, interest on whatever you deposit with me and everything. And um, even in the initial thread where it's posted, you know, some somebody go right in there, like, hey guys, this is obviously a Ponzi scheme, and, you know, the response was like, maybe, but as long as you get out first, right? And I'm just like, boy, that script in a nutshell, isn't that right? Like that's the whole scene
(Lana Swartz): but also called it an exchange and not told people that that's what he was doing
(Patrick Murck): exactly. But it was, it was really, it's really even going back and I'm sure it would be very amusing to go back into these threads and, and see the way people were justifying it because they were like, well, maybe maybe he can generate that if he's laundering money for cartels or something, maybe it's real, it's real, but it's like for some horrible, like, thing, like, of course, you know, later it turns the whole thing falls apart and it was clearly a Ponzi scheme and the SEC came after him and DOJ and there was criminal action and everything, um, and all of those different things. And of course, it was just totally a Ponzi scheme and he was like buying himself cars and gambling
did he make any pretence of doing work that might generate? Like using the capital in some way? Was there any pretense of that?
(Patrick Murck): You know, I think that what, what happens is like, if you can let sort of the crowd do that work for you as long as you leave enough space, right? Because then everybody can just sort of fill the gaps with like, well, what about this? What about that? You know, and I think it's actually more interactive and more engaging that way. Right. Um uh sort of like a LARP right, like you you want to actually like engage because it's like it's part of like the mystery of it. Like how is he generating these returns? Right. What if it is real? You know what if he does have these amazing connections with people or whatever? Of course, like I said, he didn't write and you know, he went to jail.
And the funny thing about those numbers of 8% is, I mean, you know, you can blow that away and DeFi fairly easily right now.
(Patrick Murck): Well, weekly, Right? weekly. Um Yeah, and yeah, the I would have to go back into the thread to get the number Exactly right. But it was it was it was something like that. Yeah. Yeah, I know, DeFi's great. Yeah.
A lot of wild things going on there. I mean, you know, I don't think it is all, you know, it's there's a fundamental religious there, but there is also crazy things that happen that
(Patrick Murck): You know, I'm a believer, I'm a believer in DeFi. I think if I I think DeFi is great. I mean there's obviously a lot of nonsense of it, right? It's highly amusing space and it's also like a very there's some real, like interesting things happening too at the same time, that's crypto in general
(Lana Swartz): But Patrick when you're talking on the topic of this conversation and when you're talking about what crypto is in a nutshell, when you say you're a believer and you think DeFi is great, but also amusing. What do you mean by great and what do you mean by a believer? Well, so I mean yourself speaking for yourself, speaking for myself
(Patrick Murck): I mean I've obviously like spent over a decade of my life in the space advocating for it and trying to make it happen and across, you know, in a number of different ways, whether it's entrepreneurially as a lawyer in private practice, as an advocate when I was Brady, you mentioned the Bitcoin Foundation, right? I mean, I let all the public policy efforts in the early days, you know, testifying before the Senate and things like that. So, I mean, obviously I believe in the potential of the space, generally speaking, um, you know, all of those different things and I think there is a lot of real interesting innovation that's happening. I think there's some real power to the both the technology and the systems, but also the narrative that's been created about around, you know, both like finance and money and what these things mean um from a community perspective and what they mean from a digital perspective and on the internet and sort of a global context, like there's definitely a lot of their, their um, but it's also highly entertaining because people take everything and turn the dial to 11, right?
(Patrick Murck): So it's like, I'll see your like special purpose vehicle and I'll make a fully autonomous DAO that like will blow itself up in like three months. Right? Yeah. Okay.
So yeah, there's a lot of things I'd like to ask about there, but I do want to turn to Lana. Do you do you have a sense for where crypto fits into your scam studies?
(Lana Swartz): Yeah, well I mean a lot of my, I guess my lens for what I'm thinking about as in terms of scams are sort of trained by my time spent in and around, you know crypto this, you know you you put this tweet up um that I you shared a tweet from a couple of months ago I guess um where you know, I write I kind of begin to define or like give a little tidbit of my working definitions of scams or why I think we need to kind of understand scams differently now and that's that you know when in the academic literature and also in just like popular imagination, when we talk about scams, we always imagine that there's a scammer, right? There is a person who is a scammer who's running the scam and there's scamees and maybe there's a conspiracy of scammers, maybe there's like a team. Um but it's always about two parties or two teams, the scammer and the scamee, the con man, con artist and the Mark. Um but you know, as you know, Patrick's example of Bitcoin, savings and trust illustrates is that yeah, there may be was one guy who was the scammer um in the sense that he was saying, you know, send me your Bitcoins, but it was all the other people who were filling in the blanks who are running the LARP.
And one thing that I think is kind of unique about that example that isn't making, that doesn't that doesn't quite exemplify like most scams in in crypto and more broadly today, is that the other people who are LARPing weren't also you know, caught up in, it weren't also um hadn't also bought in literally, and therefore they're recruiting of other people would like make a difference. So I think about, um, you know, everyone wants to be, everyone wants to say they're HODLing, but nobody wants to be a bag holder. And so if you are entailed in a scam or something scammy in some capacity, it's sort of incumbent upon you to, you know, get out, you know, to to ensure that others are brought in as you unwind your own position. Um, and and so, you know, Patrick, you know, you said it was a Ponzi, but like, was it a Ponzi? Like, it didn't actually have a dimension of people who got in early, we're able to to, you know, partake of its benefits in the same way that the main guy was right,
(Patrick Murck): right? Did people get paid out? Right? The sort of early investors to did get paid out?
(Lana Swartz): I mean, that's what makes it a Ponzi, right?
(Patrick Murck): That's a that's a classic Ponzi. That's right. Is some somebody has to actually get out, even if it has a Ponzi structure and you don't pay out, it's not really a Ponzi then, right, then it's just stealing. Yeah, that's right.
(Lana Swartz): So, I mean, I think that it's interesting because in, you know, so if in the scams that I've been paying attention to in crypto and more generally, you know, everyone kind of oscillates between, so first of all, it isn't like there's these two teams, the scammer in the scamee, rather, everyone is kind of oscillating between the subject position. So I'm using like academic lingo, but you know, basically everyone is occupying the position of being a scammer and everyone is also occupying the position of being scammed and you're sort of alternating in and out of cynicism and true belief between actually HODLing and just pumping your bags. Um And between being a bag holder yourself and it's this kind of vast network or almost, you know, decentralized scam rather than this old school model of this two player game. I think in the quote, I put um you know, they're better understood as a massively multi player online role playing game. Or is Patrick just put it a LARP rather than this game with like two players or two teams. Um And I think that that's true in crypto scams.
And I think it's also true in MLMs Which multi level marketing companies that have, you know, take taken on like wildfire over the last um you know, a few years, especially with social media and you know, I had someone tell me who was interviewing the other day or a couple months ago, tell me that OnlyFans was a Ponzi scheme. Um and what she meant by that was that most of the top earners are making money, not from fans, and so true subscribers, but from aspiring OnlyFans, performers who would like to get like shout outs or get affiliates or get basically down lines.
Um, and so this, it's like, who's being scammed here? Who's the scammer? Who is a scamee? How can we know? And I think that um what's interesting to me about this is that you can basically guess who's most likely to benefit from this setup. Um and you, you know, you can bet that the person ahead of you, you know, who bought in early or is more upline um is more likely to benefit than you or than someone else who bought in at a higher rate or um after you, but you don't, it's impossible to know who truly believes.
Um And so like for I've often thought as a scholar of money um that money is—all money forms, crypto or otherwise, are a bet on a future. So you only accept fiat currency because you are pretty sure that the government guaranteeing it will exist tomorrow and therefore someone will accept that money tomorrow. You only do put money in a 401K. Because you expect that the world won't totally collapsed by that point. You may be put money in Bitcoin or other cryptocurrencies because you think the world might indeed collapse by the, you know, down the line in the not so distant future, but while you're, while you're betting on a future, you're also conjuring that future, you're also pulling that future forward kind of like biologics of a prediction market basically.
Um And so it's, you know, whether from various different um ways of looking at it, you know, various different crypto projects either conjure a future where everything has collapsed and we can only rely—or you know, governments either that become too authoritative or to um incompetent to manage the economy and its infrastructures and therefore we need something different. Um or we're building, you know, as many kind of ethereum based projects um kind of proclaim like we're building a better future proactively rather than waiting for this one to collapse.
Um but it's impossible to know whether the person selling you the coin that conjures you the or pumping the coin that conjures the that a particular vision of the future truly believes in that future or if they're just pumping their bags and hoping that to unload them on you. Um And I think, yeah, that oscillation between belief and cynicism is fascinating to me
For those listening. Uh Lana spells a lot of those ideas out in an essay that I was the first thing I shared this Noema magazine essay. "Bitcoin as a meme and a future". Really interesting to dig into one comment you made there when I come back in a second. But before that, let me just put a thought experiment to the two of you. And this isn't even really a thought experiment. This has been done. Um And you know, I did a story around this time last year by the history of decentralized finance and I sort of dug back into like the archives and one of the things I found among the first sort of DeFi-ish applications that were proposed for a theory. And I couldn't really figure out what actually happened with these things. They were too early on. But I know similar things have happened since then, um, was, you know, some of the first games people proposed to put on ethereum And financial games were, I mean, they were openly Ponzi's, you know, they they were they were they were called like Ponzi mania or like Ponzi King. You know, I mean, they were they were smart contracts that worked as Ponzi's works. They made no bones about it. And so the question I have for both of you is, you know, and you could and you could see it all, you know, the way most Ponzi's fall apart is like a lot of people send money in and the guy like absconds with it. Right. But is it, is it still a Ponzi? If everyone can see all the money go in, they can see that it's not going anywhere that the smart contract doesn't say it should be going and but it still has that structure that people only get paid as long as new people start joining. Like is that still a scam? If like it is a bane then the rules, it said it would and you can even check the work.
(Patrick Murck): Yeah. Well, I mean technically it's not right. I mean, so write a scam requires some sort of ill intent right to scam is to convince somebody to do something through fraud or deceit so that it requires, you know, in a legal context we called mens rea but like criminal intent, right, ill intent. Um Do you have to like intentionally misleading if you just set up a pachinko machine that's rigged? But you tell everybody it's rigged? You know, I would argue it's not a scam, this was like the DAO, not a DAO, but The DAO right, is the classic example of that.
(Lana Swartz): There's a particular The DAO
(Patrick Murck): like the singular DAO. Yes, I mean, yeah, I mean just from naming it The Dao, it's just like so great, right? I mean you knew what was coming next, which was like, this is like obviously a rigged machine, Um and uh yeah, I mean that was a classic example of where it's like, well we built this crazy pachinko machine, but everything is there, like, it's all very transparent what's happening and you know, and they've made clear that like sort of the rules of the game are that, you know, the machine does what the machine does, and if you don't like it tough, like Um you know, and then of course they had to go break the machine to fix everything because it was a little bit too much, right? Because like I said, everybody is going to turn it up to 11 um, to make space so entertaining.
Lana do you agree? Like if it, if it has the structure of a classic scam, but everyone's honest about it, it's not a scam.
(Lana Swartz): Yeah, I mean, I think that that's that's something that's really interesting. It's like, that's part of what that question is at the heart of what draws me to this. Um, and it's, I one thing that I've noticed is that so often we're told people kind of talking about alternative visions for the economy, including crypto will say Wall Street is a scam. 9 to 5 is a scam. Um, you know, for 401k is a scam, Social Security to scam. Therefore you should jump ship and come to this other thing that we're not even going to pretend is not a scam, right? But you're entering this Wild west of caveat emptor, and just it's your job to figure out how to sink or swim as opposed to this other world of failing institutions that are pretending that they're there to help you, but really don't have your best interest in mind at all where the game is absolutely rigged. But everyone is pretending it's not come to this space where no one is is pretending anything.
Um, and I think that, and I am very cautious about that. I'm not someone who endorses that kind of like radical libertarian Wild West world view, but I'm trying to understand it because I think that in that context, you know, traditional notions of consumer protection absolutely fall flat. Like if you come in and say, you know, don't do these, you know, Ponzi, this is just a Ponzi scheme, everyone is just going to think. You're like um I was just going to make derisive memes about you basically. And but uh and and that's. Yeah but then you know one thing I've just in the last couple of years, so I recently did did a deep dive for better or worse into the 2017 ICO Bubble and
Favorite topics.
(Lana Swartz): Yes. Which I'd be happy to actually should send you the paper I'm writing about that is like you know, dummy check. Not just
like complicated like sort of what is this like the the scam question in that bubble is so complicated. You've heard me talk to you about this before. But anyway It's really yeah. Yeah. Yeah.
(Lana Swartz): I'd love to have your take on that. But one thing I will say is in 2017, it seemed to me that there was a lot of performativity around like making white papers and pretending like this this token or that, you know, was this idea was really going to happen. And then we after that kind of went into crypto winter and we've had this like big kind of covid era resurgence and all the new shit coins aren't going jumping through all the hoops and writing these like elaborate visionary white papers. And I think of Dave Portnoy recently like pumping Safemoon and saying, hey, if it's a Ponzi get in early, um, which, Which we've seen, you know, which wouldn't, I don't think what would have happened in 2017, it would have been veiled behind um, white papers and websites and like fake linkedin profiles, um, for like alleged founders. So yeah, 2017.
So Patrick just going back to your comment on if they're like, I guess the reason why I have a hard time with this notion, I guess to me it seems like if you know people are going to make the wrong move, like en mass, you knowingly do that and you're just like, hey, everyone, here's the wrong move to make it feels a little more complicated to me. And a part of where that's coming from for me is before I was a journalist, I did some nonprofit work in life. And one of the things I did was I was in the midst of predatory lending just before the housing crash. And one of the things that happened among predatory lenders is a big part of their hustle was they would offer people these loans that didn't really make sense over time, but they knew people would take them because (a) they they wanted to buy a house and they would give a house to anyone who had a pulse and be they would do things like, look, the interest rate will increase over time. But you can always refinance, you know, you're definitely gonna be making, you know, way more money in five years, right? And people would be like, oh, yeah, sure. Of course, because they knew people would fool themselves with over optimistic thinking. So, you know, we have truth and lending laws, they weren't hiding anything that they were going to do in the rules. And yet it's sort of still feels scammy to me. If you if you prevent people with a cliff and you know, they'll jump off it, it does seem like you're still a little bit complicit in inviting them to jump off the cliff. You know, that I don't know.
(Patrick Murck): Yeah, absolutely. So, I mean, what we're doing is we're drawing a line between what's legal and what's ethical, right? And so just because if something is legal does not mean that it's ethical, right? And and so, you know, if you're if you're setting somebody up to fail, even if you are transparent about it and honest and everything and you know, they jump off the cliff anyways, that's certainly not an ethical choice, right? Um and um it may indeed not even be a legal choice, even even if you're fully transparent as well, because there are other factors in play. But um but but for if you're defining like, you know, what is like fraud or scam or something like that from like a legal context, in other words, like will the state hold you responsible for your activity? Like, there's, you know, there's there might be a higher bar, right? Um If you're saying like, are you being an ethical person or an unethical person? I mean, I think the bar is set in a very different place. Right.
So would I say that creating The DAO? Was that ethical? No, it was not ethical knowing like what the way they went about doing, what they were doing? Absolutely not right. Even if it was fully transparent
(Lana Swartz): I'm the wrong person to push against this patrick, but I feel like there is some doubt people who are really in The DAO, who would want to push up against this a little bit, who would find your comments very provocative,
Curious about it. Like I the dumbest piece I ever wrote as a crypto reporter, I wrote about The DAO and I'm happy, I'm my own that um really go into it, but I'm curious why you think it's so obvious it was uh not because because the way, so if if anyone who's listening doesn't know The DAO is this thing that nearly broke ethereum, it was this decentralized autonomous organization. You bought these tokens, you could vote on how much money was spent, blah, blah, blah, blah. You know, the thing fell apart because of a mistake they made in the code. It wasn't anything that the creators profited from, you know,
(Patrick Murck): Well, we don't know whether they did or did not.
Oh. Okay. All right. All right. All right. Okay.
(Patrick Murck): I don't know that. Okay. Let's make like, you know, we got to be careful.
I mean, the creators being declared business they wanted to do and then they got hired later by other people and related, I don't know. But Okay.
(Patrick Murck): Well, and so they also marketed, so they did a few things that I think would tip the scales.
Please go for it.
(Patrick Murck): one. They claimed that they had audited the code, right? Which clearly it had not been audited. Um And uh and two they made some really like obvious like like choices right? That um around sort of like, you know how they presented and marketed it, right? This wasn't a group of people who are like, you know, humbly coming to the market and saying we have a new approach to fundraising, let's give it a shot, right? It was we have we have figured it out like this is the future, you know, and if you don't get on board like you're an idiot right? It was everything you were just saying about sort of that predatory lending sort of mindset about how you market, right? You're like, this is the thing.
I remember like some of the tweets that were going around and it was like, they were like I think it was like magic, the gathering cards they were putting themselves and it's like a whole thing, right? Like it was a huge orchestrated like marketing campaign to really make this thing happen, right? And they were not being like, even in that case, I think I overstated maybe how honest and transparent they were being along the way, right? Um There was definitely some some things around that, so I think that it was pretty clear and when I say, I think it was pretty clear, you know, quoted on the front page of the new york times in print saying this is going to fail one week before it failed, right? So and it's not because I'm a genius, it's because I think to like people who were paying attention it was obvious that this was not going to work right? But that didn't deter anybody from marketing it and it was the greatest thing since sliced bread and there was no possible way that it could fail, right?
(Lana Swartz): But do you think someone who maybe doesn't understand how um broadminded and open minded you are Patrick, wouldn't someone sort of say, oh he's just a Bitcoin guy pumping his bags at the expense of ethereum and that's why he's predicting it's going to fail. And in some ways he, (a) got lucky or (b) sort of like contributed to the fud around, but now I'm just being provocative here
(Patrick Murck): totally, totally and you know, better to be lucky than good. For sure. Right? So uh I mean that's fine, right? I think that, you know, I ran one of the very first ethereum test nodes, right? Like I thought that ethereum would be very cool. I was disappointed in that instance. I still think that there's a lot of interesting things happening out there and I invest in companies that build on ethereum I, you know, I believe in like the general like arc of this thing, whether it's ethereum or Bitcoin or any of these different things, you know, there's a certain group of people who came around when there was only Bitcoin, right? So obviously, you know, you start there, um, and I still think that Bitcoin is amazing invention and there's a lot of potential there, but it's not the only thing and I think that, you know, it would be foolish to be closed minded. So thank you for the opportunity on to like fully explained my position on this and not just come across as like some, you know, maxie guy who's just like "ethereum sucks", right?
(Lana Swartz): so I haven't like, I haven't changed a kind of a change of subject which is um, you know, some of the big for like not people who aren't really in this space. Um, the thing, the two scams I get questions about the most are onecoin and quadriga and it's basically because there's been these like big podcasts about these two cases,
which is a third scam, just kidding sorry
(Lana Swartz): podcast of our substack or yeah, for sure, a good podcast
I like the quadriga one much better than the onecoin one. BBC stuff is over
(Lana Swartz): there's two quadriga, two competing quadriga ones and I'm listening to the both at the same time and I don't remember
Who broke the quadriga story though, coindesk just to be clear. So anyway, sorry, keep going.
(Lana Swartz): Well. So in both cases. So the thing in one of the moments I found most poignant in the onecoin podcast was when this woman who is a true, true true believer. The thing that finally breaks her and kind of um I guess black pills her on on onecoin is when she comes to realize that there's truly no block chain that there's that they've been buying and selling not coins at all, let alone shit coins, but but just like information packets and onecoin didn't even bother to make the most
Like that was listening to the podcast. I was just like that isn't even hard, just like
(Lana Swartz): I know, I know
Getting so much money like I don't know,
(Lana Swartz): I know and then I'm just a yeah, but the point of that I want to do another thing and then in comparison to the Quadriga thing is that you know the big question on Quadriga is like is he dead? Is he not? Did he fake his death? What really happened? But whether or not he is dead, Quadriga was a scam. You know like that's one even if he is in fact you know sadly deceased like quadriga was completely a Ponzi scheme behind closed. Yeah.
Lana, I mean, you made an interesting point early on like, you know, are scams just like, you know, capitalism in the wrong place and I think this is everyone can agree, right? If what you do is you like, everybody give me some money. I'm gonna build this great thing about people give you money and then you just take the money and walk away. Like that isn't really capitalism in the wrong place. I mean, that's just we all, that's, that's what is called in crypto rug poll. Probably other worlds to, um, that's a scam. Right? I mean, right.
(Lana Swartz): I mean, but isn't that what all like venture capitalism is? Except the venture capitalists are accredited investors who like, no, are clued in.
Well, no, they genuinely try to put it, they say you give me money, I'm going to try to put it in things that are actually good and they're going to genuinely try to do that and they get their expectations.
(Lana Swartz): Like most of them aren't going to be good. They're just stunning. I mean, Patrick, you're a venture capitalist.
(Patrick Murck): Um, so definitely not a scam, right? Um, yeah, no, I mean, again, it's sort of like, where is the, where do you draw the line on these things? Right. And again, it's easier to do when you're talking about legality, but that's because like, there's so much at stake, right? When you're something's illegal, right? You could, you know, have, you know, both economic consequences, but you could like literally forfeit your ability to have, you know, freely walk around the street, you go to jail, right? So obviously there's like the high bar and it's a very, they're like clear lines, right? And it's really about like proving the facts or clear, you try and make those lines as clear as possible because of the consequences of when we get to ethics that other conversation, right? Like I think it's a much different, you know, it's harder to really clearly delineate which which side of it you're on or not on, right? And so yeah, could you structure like a venture fund that looks scammy? of course you could.
(Lana Swartz): I mean, isn't that The Dao
(Patrick Murck): Yeah, I mean, of course you could. Exactly right. Um But you know, I think that that um there's an interesting like economic pull their right like um if you if you're able to raise capital from your limited partners and be able to have that opportunity to deploy it and take carry so a commission on the gains and things like that and get a management fee. It seems like a really poor strategy to do a very like a short term scam, right? And just like grab a little bit of money. I mean you're much better off like being diligent, honest and working hard at it with the idea that then you can just keep raising money and ploughing it into all these different companies, like, like playing by the rules,
there's no rug pool is a rug pool, they just walk away. I mean vcs, they do stick it somewhere. I mean like, you know, it could be a bad call, but like, they don't just buy Porsches with it. They, you know, they're like, I don't know, it seems like a good idea. And you guys think I have good ideas, so I'm doing this, you know, like,
(Patrick Murck): But, so there's a lot of legal structure That makes sure of that too, right? So, for example, if I went out and raised a $50 million 50 million down, right? Actually, like getting that money doled out. Um you know, in capital calls as I need it. Um So it's not as though like, oh, you just wrote a big check for $50 million. I parked in my bank. First of all, that would be bad for my IRR and other performance metrics, but I'm not going to just like sit on a big pile of cash, right? And my LPs would be like, why are you doing A capital call for the full amount of the fun on day 2? They probably, that would probably like trigger some, you know, like red flags on their side. Like why does he need all this Porsche money? All of a sudden you
(Lana Swartz): for "VCs was a scam" is a bit or the whole system not so much from the VC end, but well or Silicon Valley VC as it operates. Is this? So if you, if I have a startup and I go around telling everybody that I have a vision for disrupting something, something, something. And I tell that's my investors and my investors hear it, but I know and my investors know and pretty much everybody knows that I have no intention of disrupting anything. I have the intention of making something, getting it sufficiently to scale such that we can all exit by my thing Getting acquired by facebook or google or whatever or a bank if it's a Fintech um and then it never actually does the thing that we all pretended to believe it was going to do and we all knew it was going to believe it, we just did this kind of performative dance that would allow us all to make a bunch of money and then have the thing get acquired and swallowed by the larger company and then never really used by them anyway. And so we've all made money, we're all happy, but the whole way we had to do this kind of performance. And to me that reminds me a lot of ICOs, you know like someone when I was doing, I can't remember what was when I was doing this deep dive into ICOs someone said to me if you even if you wanted to make some kind of Blockchain based system, you know you had this great idea and you raised a bunch of money through an ICE. And and then you didn't have to make the thing, there was no obligation to make the thing and almost nobody who had bought your coin in the ICO Was expecting you to make the thing. They just wanted you to kind of keep pretending you were making the thing long enough for them to do their thing on the secondary market for that that token for them to pump it and then dump it and get out ahead then why would you make the thing? Everyone's happy as well, you know, for you not to make this thing and and it's not really, I mean, it is kind we can call it an exit scam or we can call it, you know, a situation in which everyone kind of pretended to be on board for something for a particular temporal itty. And then, but when they were satisfied they divested.
So this is why the ICO. Thing is so complicated, but this ICO versus VC thing, I think there's an important distinction to make here kind of in in sort of Kind of recent American history too. It's just, you know, when I first started as a tech reporter around 2013, 2014, a lot of people were calling that era in which there was a lot of money sloshing around sort of like the next big bubble. We were heading into something like the dot com bubble. And I think the important distinction to make here between the dot com bubble in that time, which sort of has continued on to now and the ICO era of 2017 and later. There's there's there's two parallels there is that, you know, the VC era bubble, if it is that or not, who knows? That's all just rich people making rich people risks. Whereas 99 the first dot com boom, that was a ton of retail people who got screwed over like that really did hit Main Street. Whereas everything that happens from from like 2009 on, even if it all just went belly up, hardly any of that would touch Main Street because it's all just, it's still just received his money, you know? And I think similarly in crypto, the thing that was that made early, early ICO era scarier than the later ICO era that was a lot of normal people's money. Whereas later on like as of sort of 20, kicked in. It was all just, it was all just venture money from then on, which I can't help but think that that is an important difference.
(Lana Swartz): Well, I mean if you look at, I mean as we all know there's a little bit of a bull market happening in crypto like this week and all the memes are saying things like, you know when I see memes about buying the dip, all I think of is you guys still have money or like, oh feeling a sense of the FOMO because you can't buy the dip because you already YOLOd, you know like there definitely seems to be a lot of retail money in this space.
Sure that's in this space but it's not, it's not buying new tokens from unlatched projects or like you know pre buying tokens owning
(Lana Swartz): you don't think? Well I mean like Safemoon as Dave Portnoy was just pumping. I mean I haven't actually looked at the charts on Safemoon but you know overly telling people to if it's a Ponzi get in early and speaking to non retail investors.
I hear you Yeah I was just talking about 2017 and 2018. You know we're in a whole like that like this is like a different world.
(Lana Swartz): There's some interesting survey like like quantity survey data from 2017 that was you know, seem to indicate that the average investor put in about $1000. And I think it was something like 60% of the people in this data set who were in ICOs Had didn't own any stocks. So it was I mean I do think I understand, I agree with what you're saying, but I think that there is there is a lot of retail um money in this space. And I think in the covid I think that was I think that was true in 2017.
I think it's definitely true in the kind of covid and post covid moment. It was for sure true in 2017. That's and that. Yeah. And that's why it's important right? The thing is right tricky. But the reason I have complicated feelings about ICOs. Is you know that's what I came. That's why I went full time in crypto reporting to cover was ICOs And um you know the truth is people say that like everything from that era was all a scam and it was all rug pulls and the truth. There was a ton of them. There was a ton that amounted to nothing that, you know from my reporting were honest efforts that just were dumb and then, uh, but then also most of the biggest ones did fine and are still around and have all built the thing, you know, like, I mean there are there almost all out now with very few exceptions, you know, and they're all, you know, some of them aren't doing that great. Some of them have done really, really well, you know? Um, so it is, it is, it's a more complex story than people discuss, you know? Um, so that's that's why I have complex feelings about the whole, the whole sort of all ICOs were scams era. It's like, were they okay.
(Lana Swartz): Yeah. I mean I'm personally drawn to these questions because they are complex and there aren't these kind of easy answers or easy, easy villains, like it's hard to point to like who is the con man? And I think that that's what's interesting here.
So you raised a really interesting and you know, provocative point in the paper that we shared up at the start of the story that was like this whole HODL narrative in Bitcoin is like kind of a scam. Um Can you unpack that? I mean, you know, I see your logic uh and I it's a point I've raised myself too, but can you you sort of hinted to it earlier, what would you like a fully unpack it now?
(Lana Swartz): Um Like what did they say in that article?
You like nearly said it earlier on? So I thought you were referring to it, it was this idea, you know, you wrote that like um you know there's this there's this narrative in the community go ahead.
(Lana Swartz): Yeah, I mean, yeah, I mean it's it's more like, you know what? Yeah, like okay, so I think that there's there's the question of true belief and like really believing that Bitcoin or other cryptocurrencies are necessary as infrastructures for the future, either as a hedge against collapse or as a way to build a better tomorrow or some combination thereof. And then there's the and and therefore we need to like HODL to like bring forth that future. Um but then again, you know, no one, everyone is also in it to make money. And so why would you HODL if your ultimate goal is to make money when there's money to be made by not HODLing. Um and so so I think, you know there was this interesting post on the Bitcoin subreddit like which is less important I think now than it has been in the past, but um wherein someone laid out this vision for a global governmental crackdown on cryptocurrencies and they were pretty thorough and they it was like kind of conspiracy inflected and like you know the government is coming for your crypto and you know we need to hold on because you know and in previous years I think that most people would have heard that read this like missive on government authoritarianism and thought you know, Bitcoin people especially would have responded like this is why Bitcoin is more important than ever. This is why we need to triple down on it. This is only proof that the vision that we have projected is coming to fruition and like Bitcoin is more necessary than ever. Um but instead most of the comments from what I could tell from a kind of cursory glance were saying things like this is just FUD, this is this is just this is psy ops this is an attack, you're just trying to make us sell our Bitcoin, or they were saying things like, oh guys, we're losing all our money and they were reading it not as this kind of political vision for future that's hedging against authoritarianism, but rather attempt to kind of make it sound like the price of Bitcoin is going to go down because there's going to be more crackdowns, like what we've seen in china. Um and so so I just think that that's interesting this kind of tension between the trading aspect like is the price, price goes up, price goes down, I sell high, buy low and sell high or or this vision of conjuring a future and the kind of speculation depends upon like simultaneously pretending that you believe in the future and maybe believing in it and at the same time guarding against it. And I feel like those two impulses are always intention in this space. Um, yeah,
I always like my, I think the HODL narrative is just fascinating because it's just like there's a point you stop, right or is everyone just supposed to wait until hyper Bitcoinization? Is that what like folks? Really? But you know, I don't know, but I do think it's a, it's a complex thing. Like, I mean you got to get off the ferris wheel at least a little bit at some point. No, no, okay, cool. Whatever.
(Lana Swartz): Or what if calling something a scam made it more attractive to potential supporters and therefore in fact was not harmful, you know?
(Patrick Murck): So that's really interesting, right? Because like I feel like that has to be sort of the explanation for Craig Wright? Because Craig Wright is like such a like obvious and noxious scammer, right? And like the whole that whole like ridiculous crew over there, like I don't even know if they pretend like they're not scamming anymore right, with the court cases and everything. It's just total nonsense. So it's just a nonsense factory over there and like everybody sort of must know. But I feel like there is just like hard core group of people where it's the more you say like, you know, like that guy's obviously like a scammer there, like he's Satoshi, you know what you're talking about? Like very obviously not right. Um I don't know, there are certainly like maybe that explains it like by pointing it out like the dissonance just causes people to like, you know, bunker up or something and then like they can't see it anymore, right?
(Lana Swartz): I mean, I think with the big like retail investing outside of crypto, but kind of the Robin Hood, GME, AMC, Whatever the thing we heard again and again was it's all casino capitalism, it's all all a scam, but we should have equal opportunity to participate in it and we should be able to, to see if we can out scam the scammers rather than being um, disbarred or, you know, disallowed from being in the playground at all. And that's exactly where, you know, like I said, traditional notions of consumer protection fall flat because it's essentially sounds very paternalistic to say no, no, no, you can't play there because you're not in an accredited investor, you're not backed by a bank etcetera, etcetera. Um, and I think that, that they, many retail investors think of what they're doing as participating in a scam, but it doesn't bother them at all.
(Patrick Murck): I love that like theme of democratization and empowerment that you just brought to this Lana. I mean, what what an amazing way to end like this Blockchain scams talk right? Like it's not, you know, at least it's making the scams like, you know, egalitarian, right? Like we can all scam each other now on equal footing. So how could that be bad?
(Lana Swartz): I think big picture, that's the world that we are moving into and that is the world we're going to have to learn to grapple with. And I mean, I've been using the terminology of consumer protection, but like how to be number one and ethical actor ourselves, but also how to conceive of our own self interest. Um, and that's like not something that is being talked about in the financial literacy classes that just became mandated in Rhode island, for example.
Yeah, I don't, I don't think that's wrong. Uh, yeah, there's this, yeah, Anyway, that's an interesting point. And I don't know, you guys saw there was one of the hedge funds that was anti Gamestop went under today are the first of the sort of hedge funds that were trying to like make that trade against Reddit and they fell to read it as a small one, but it's still still interesting. Um, cool, well, this has been a spicy discussion. Um, definitely looking forward to uh, your papers in the scam studies area, Lana, um, you know, very curious what comes out of that. Um Patrick thanks a ton for being here. I was very excited to learn six minutes before the start of that used to work for the Bitcoin Foundation. That was, I was like, wow, this is a whole old next level thing here.
(Patrick Murck): in so many ways for this conversation that we will be.
Yes. Yeah. Cool, well thank you both. Thanks everyone who listened and I'm going to be speaking actually for those who have been here the whole time, just really quickly, thursday night, I'm gonna be talking about taos and a couple of folks that I really want to right about does more and and think about the more that that idea of the dow has come back in a gigantic way in the last year. Um I think it's a little bit more refined this time is a little more dispersed, so if any of them fall apart it won't go quite as far this time. And of course theory is also much bigger um but it's an interesting concept still, so If you want to come back on Thursday at 9:00, that's the topic douse and uh anyway until then have a great night everyone and peace"