“Web3 is an enormous grift,” declares Molly White at the top of her closely watched blog, “Web3 is going great.” Silicon Valley has become obsessed with Web3, and depending on who you talk to, it’s either a big scam or the hottest new trend in tech.
An anonymous redditor opined, “Saying Web3 is an enormous grift is like saying ‘because hamburgers are made in the kitchen, the kitchen is a hamburger.'”
While the truth probably resides somewhere in the middle, White’s blog is a welcome bullshit detector in a media environment where incurious reporters routinely hype the FOMO-infested fever of Web3 without digging deeply into the reality of the market.
What’s behind the hype?
The basic tenets of Web3 is decentalization based on blockchain tech, token economics, and data-ownership by users, rather than big tech platforms. While it’s a huge relief that there’s a new buzzy name for this sector, even the most respected thinkers in tech have their doubts about the main selling points.
Antonio Garcia Martinez, an outspoken former Facebook product manager, said, “I think Web3 tends to decentralize as an article of faith but then recentralizes later to actually build a product.”
He makes a good point, as many NFT collectors have learned after losing fortunes on OpenSea, a start-up NFT marketplace already valued at $13.3 billion, which has recently made more than $6 million in payouts to victims of fraud and scams.
On June 5, hackers stole $113 million from Maiar, a decentralized exchange or DEX, and $5 million more from Osmosis, another DEX, a few days later. Not to worry, it’s just another action-packed week in Web3!
Even so, the most seductive aspect of Web3 is how it marries ideology and technology. It strikes at big tech, which owns and monetizes our personal data, by offering people with their hopes and dreams battered by a decade of economic doldrums, those who cannot own their houses or university degrees, a chance to own a part of the internet.
In the charged words of venture capital firm Andreesen Horowitz, Web3 “empowers a collective owned future over a corporate or government owned future,” and its platforms and companies “[use] crypto to truly empower financial inclusion.”
What’s clear is that Web3 is a powerful, albeit mostly theoretical, idea that has investors shoveling money into the pockets of any entrepreneur who claims to be working in the space.
According to Pitchbook, the top 15 venture firms poured more money into Web3 and DeFi during the first quarter of 2022 than any other sector, with $2 billion spread across 29 deals. That’s twice as much as biotech and three times the early-stage investment in fintech, and that makes it three quarters in a row that Web3 and DeFi has led the pack.
However, only a few entrepreneurs out there can actually take the idea and innovate with it. Most will impersonate the innovators, and their products will go bust as the bubble inflates.
A Lone Web3 Reporter
Reading White’s blog, it seems like Web3 is more of an enormous grift because every day, she exposes new scams, hacks, and rug-pulls endemic to the world of NFTs and digital assets in pithy, 300-word rapid-fire posts.
“A fool and her money are easily separated,” the saying goes, but in the Web3 space, even smart, experienced people routinely get ripped off for big bucks.
On May 24, White documented the theft of 29 Moonbirds worth $1.5 million from a prolific NFT collector whose big mistake was clicking on a malicious link.
These thefts happen so frequently that only those worth tens or hundreds of millions move the media needle, while the smaller ones aren’t considered newsworthy. These are the ones White assiduously documents on a daily basis.
In mid-May, local reporters jumped all over a jewelry heist where three Rolexes worth a combined $37,500 were stolen from three stores in the Houston area, but for some odd reason, an NFT heist where 30x more value was stolen flew under the radar. Does anybody care about Rolexes?
I sure as hell don’t. They were, like, a status symbol among a generation of people who are now dying off at a rate of 10,000 per day (which is not fast enough), but I wouldn’t wear a Rolex if you paid me!
Meanwhile, the Moonbird heist was reported in every crypto-focused outlet, but no major media organizations, except Yahoo News, seemed to notice. I’m sure editors at major media organizations know that NFTs are regarded as cool enough to blow money on among 14% of Gen-Z, but apparently, they can’t pay their Millennial reporters enough to learn anything about them.
The same day the Moonbird heist came to light, White also posted about DecentraWorld, billed as an “ecosystem of dapps with privacy protocols by default” which would financially liberate humanity from government control.
Despite these totally realistic claims, the DEWO token suddenly plummeted in value as the founders drained $1 million worth of BNB tokens and erased their presence from the web. DappRadar wrote a very detailed article, but needless to say no one, even in the cryptomedia, cared to document this fraud.
Law Enforcement is MIA
It’s open season for scammers and hackers in this ecosystem because there are no media watchdogs. Nobody understands what the hell is going on. Try and report this kind of heist to your local police, and you’ll get blank stares.
State attorneys generallly have cybercrime teams, as does the FBI, but there are not enough agents to cover all the crimes. Out of 35,000 employees, the FBI’s Cyber Action Team has 50 agents across 56 offices.
The FBI’s 2021 “Internet Crime Report” cited 34,202 complaints involving cryptocurrency, around 1,000 less than 2020, but the financial losses increased 700% from $246 million to $1.6 billion, which is an average of at least $47,000 stolen in each case.
Ten years ago, the FBI mightily struggled to digitize their case management system, spending $300 million and six years after which the Director groveled abjectly before angry congresspeople. For an agency that rather recently started using computers to store information, I’m sure everything is going splendidly in their cryptocurrency fraud investigations.
The Invisible Hand of Regulators
SEC Commissioner Hester Pierce says that “we’ve sort of dropped the regulatory ball” on crypto. “We’re not allowing innovation to develop and experimentation to happen in a healthy way, and there are long-term consequences of that failure.”
Rather than creating laws and regulations to govern the market, the U.S. government has instead relied on enforcement against criminal fraud. This year, the SEC doubled the staff in its crypto unit, so now it has 50 dedicated positions.
So, let me get this straight: the U.S. government has around 100-200 dedicated experts to enforce the law in the Web3 space, which is experiencing explosive growth.
No better time to enter the Web3 fraud business!
It’s not just in the U.S. that regulators have used a light touch in this ecosystem. In South Korea, the founder and staff of Terraform Labs, which created Terra blockchain, is facing a probe by prosecutors, but they dropped the ball, as well. The legal scrutiny, as well as a formal complaint from 76 victims of the crash, haven’t stopped the firm from pushing a new, worthless token.
In reference to the release of “Terra 2.0” in the wake of the meltdown of Terra’s stablecoin, White told the Washington Post, “It’s the little guy who’s being sold false promises [and] who’s getting absolutely torn apart by this. It’s just an enormous failure on the part of regulators.”
On her blog, White wrote a post cleverly entitled, “Terra decides to release ‘Terra 2.0’ because apparently, the way to fix a crypto catastrophe is with more crypto,” quoting a tweet by Billy Markus, one of the creators of Dogecoin.
Kanye West, who famously declared “Do not ask me to do a f***ing NFT,” earlier this year on Instagram, has decided to enter the Web3 casino, filing 17 trademark applications around his Yeezus name, including amusement parks, toys, and NFTs. Among other rappers and musicians, Snoop Dogg beat West to the punch, dropping an NFT on 4/20 and making around $300,000 the same day.
Nobody looking out for the little guy
Many investors in digital assets and NFTs are not sophisticated investors. They are normal people, hoping to escape their 9-5. Regulators, cybercops, and lawmakers are supposed to act to protect them, but far from “dropping the ball,” they haven’t even picked it up.
At the same time, most reporters just repackage what other reporters already wrote and do precious little original reporting or critical thinking. So few people understand what’s going on with Web3 that the Washington Post and other media outlets rely on Molly White, a 28-year-old software engineer whose blog is a side gig, to do critical thinking for them.
It’s understandable because critical thinking is, like, really hard, and White is good at it, but the whole situation is a recipe for disaster. On June 1, White was a signatory on a “Letter in Support of Responsible Fintech Policy” to the leaders of Congress, along with other engineers, cryptographers, and authors, warning of the vicissitudes of Web3.
“The catastrophes and externalities related to blockchain technologies and crypto-asset investments are neither isolated nor are they growing pains of a nascent technology,” the letter stated, continuing, “They are the inevitable outcomes of a technology that is not built for purpose and will remain forever unsuitable as a foundation for large-scale economic activity.”
Young people with FOMO are definitely not listening to Molly White or any others who see catastrophe on the horizon as top talent stampedes from Big Tech to Web3 companies.
Duy Cao, a senior consultant at CryptoRecruit, explained the phenomenon perfectly, telling Blockworks, “The most attractive thing about working for a crypto company is obviously the opportunity to work on the forefront of bleeding-edge [innovation]. We have heard many times before that the space right now is akin to what the internet was in the late 1990s or early 2000s.”
If someone could refresh my memory, what happened with “Dotcoms” in the early 2000s?
#Crypto #NFTs #DigitalAssets #Web3 #Scams
Author: Tim Tolka, writer, journalist, and BI researcher
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
