One crash is currently chasing the next on the crypto market. In an interview with ntv.de, the freelance computer scientist and consultant Jürgen Geuter explains why he considers the industry to be extremely dangerous, who its potential victims are and how he thinks it should be regulated. The author is also known by the stage name "tante".
ntv.de: Are you happy about the current crash on the crypto market?
Jürgen Geuter: I see it with mixed feelings. I and many others have long warned that end customers are now actually losing their savings, which is nothing to be happy about. On the other hand, it is in a way a satisfaction that the house of cards is now collapsing.
Is it the usual ups and downs or a sustained crash?
At the moment, very central building blocks of the landscape from different projects and companies are falling over. In the past few weeks, large projects have crashed, for example the stable coin Terra and the token Luna, which in turn probably brought about the collapse of the Celsius network a few days ago. Because the projects are all intertwined; if one starts to shake, all the others will shake. The fact that some have now crashed is already an indicator that these are not normal price fluctuations.
On the other hand, many people have an interest in recapturing the system, so they will again use a lot of money and opinion power to stabilize the market. For example, Marc Andreessen and Chris Dixon, two of the most influential partners of the US venture capital firm Andreessen Horowitz, which is extremely invested in the crypto market, have been very aggressive in public communication in the past few days and weeks. They don't have a robust narrative, but repeat that cryptocurrencies are the future. Investors are obviously aware of a great danger. The question now is how many of the projects that are currently shaky will fall over in the next few days and weeks.
Which ones, for example?
The stable coin space is in question. The criticism here is primarily aimed at the Tether project. Tether claims to be what is known as an asset-backed stablecoin, meaning it has a dollar for every token they offer. With Tether, you know for a fact that this is a lie. Now, owners have started converting their tokens back into cash, so this project's war chest is empty. If someone big pulls their money again, Tether will have to say, sorry, we don't have any money. When that happens, the whole system crashes hard because Tether is the largest stable coin, so a lot depends on its valuation. The Bitcoin price, for example, is supported by this. Whenever the Bitcoin price collapsed, Tether printed many tokens and then bought Bitcoins to boost the price.
Could the market be cleaned up by the current crypto crisis so that in the end only serious projects remain?
We are already seeing a market shakeout, the extremely high-risk projects are falling over. But there are actually no low-risk applications in crypto. The relevance of the area arises from the fact that everyone believes that they can earn a lot of money with these assets.
In the DeFi area, i.e. the decentralized financial sector, where you speculate with tokens, lend them and get interest, we see a strong market shakeout. But there are actually no reputable providers there, the platforms promise a return of 20 percent or more. This is not a serious offer, it does not exist. One must not forget that providers can often print any money they like: If I issue a token that has a book value and need more money, then I print another million or a billion of it. The market isn't regulated, so I can still do half-silk deals for a very long time that look like the thing is still going.
Is that why cryptocurrencies are so dangerous in your eyes?
The greatest danger arises because it is an unregulated market. If I offer a risky share, I have to comply with a lot of regulations, for example documenting the risks for investors very clearly. That will also be checked. If I state something wrong, it is criminally relevant in case of doubt. There are no such rules for the crypto market, I can write anything on my website, for example that I have a dollar for every tether. That constitutes an extremely great danger.
What dangers still threaten investors?
In addition, there is an extremely high number of direct fraud attempts, so a token is offered without planning to ever do anything. Someone just sells them and then disappears. In other cases, the operators are unknown, so unavailable when it becomes clear that they have cheated. There is also no deposit insurance or anything like that. If my bank fails, my deposits are protected to some extent. Even if a scam in the crypto market is proven, I have little chance of getting anything back. But that is not communicated, instead it is talked about how infinitely much money can be earned.
Why is there so little criticism?
The projects confirm each other, there is little critical classification. The big platforms that deal with cryptocurrencies are often owned by a crypto exchange. In addition, the classic media report less about it, but influencers in social networks who have invested a lot in the crypto market. When I read that this token is a good investment, I don't know if the author has already bought it and wants to drive up the price. Insider trading, which is banned in the stock market for good reason, is the norm in the crypto market.
What do you think of offers like fan tokens from football clubs or musicians?
A very half-silky thing - because what do people get for it: an entry on a blockchain. Supposedly you get a picture, a moment or a shot on goal. A lot of people don't realize that they don't own any of it. Because NFTs have to be thought of like a post-it on which I write, for example "Mona Lisa in the Louvre". If I own it, I don't own the Mona Lisa in the Louvre. Many NFTs do not have a contract that guarantees usage rights or the like. Otherwise, when I buy something, like a digital photo or film, I'm usually getting a license to do something with it, like stream the film.
Are there any other pitfalls here?
These tokens are often made on extremely environmentally destructive blockchains, where transactions have an absurd carbon footprint. Generating one such NFT on the Ethereum blockchain consumes roughly as much electricity as one US household per week. A transaction, so if I sell it, costs as much electricity again. Also, people are being lured into the extremely risky crypto space with NFTs. I can't pay for a token from a football club in euros, I have to buy a cryptocurrency first. Then someone already has a crypto wallet in which there are coins - with which other speculations can also be driven.
Who is particularly at risk of becoming a victim of the hype, for example losing all of their savings?
In the USA, the crypto market is currently very much aimed at black people, for example black athletes have been used as advertising media. In Germany, the market is extremely white, young and male: often tech-savvy men who have the feeling that I am smart, that I have everything under control and that I can earn a lot of money without working. But it is spreading, some influencers, for example, specifically address women. Once someone is hooked, it's like roulette: every time you lose, you think, now you get it, next time it'll be better. But even in the casino, only the bank wins.
How do you think the crypto market should be regulated?
Tokens should be treated like other securities, so I have to document the risks if I want to offer them on the German market. Ideally, these would have to be independently certified. After all, there is already a discussion at EU level as to how anonymity could be ended, i.e. that providers and customers must be known. If in doubt, you would have someone to sue. This could at least make fraud more difficult. In addition, the speculation could then be properly taxed. That too would cool the market. It is also so interesting because I can potentially make a lot of money bypassing the tax office.
Stable coins promise to keep their value. Is investing here less risky?
There are different stablecoins. With some, like the recently died Terra project, an algorithm is supposed to guarantee value stability - I don't know of a single serious project here. And the asset-backed stable coins still elude any transparency and verification. In case of doubt, there is nothing behind any of the stable coins that secures the immense book values. The question is also what do stable coins bring you. I don't have anything from a token that's worth one dollar. If I speculate with tokens and exchange them for stable coins when their value has increased, I have "dollars" again, so I can breathe deeply, my profits have materialized. However, stable coins do not bring any money in this sense. They are more of a tool to operate on the speculative crypto market.
In your opinion, is there anyone who would make sense to invest in the crypto market?
Not for consumers, because it's like the lottery: someone wins, but most people lose. Since there is no real economic value behind any of these tokens or coins, I don't see how this can be recommended. No products or services are created here that generate income. Here, the factory building cannot be sold in the event of bankruptcy. Whoever makes money in this system takes it straight out of someone else's pocket. Going out without a loss is a coincidence here. Theoretically you could trade it if you have all day, but the price of a cryptocurrency can crash within an hour: in the morning you have 10,000 euros and when you come from work it is still 3 euros. As in the casino, you can only take money into the crypto market that you could burn.
Proponents argue crypto projects could play an important role in unfree countries precisely because they escape state control. Isn't it arrogant to dismiss them as useless from a wealthy perspective with a functioning financial system?
The argument has established itself as a last line of defense in recent years after it was noticed that Bitcoin consumes as much electricity as a medium-sized state. Cryptocurrencies are extremely volatile - I find it rather cynical to offer them to people who can save a dollar a day, for example. Instead, an infrastructure would have to be created to enable them to invest their money safely.
Another argument is that people in such countries would then have money to pay.
Transactions in Bitcoin, for example, take half an hour, while optimists speak of ten minutes. This is completely unrealistic for normal payment processes. In addition, blockchains can handle extremely few transactions, the second largest blockchain Ethereum, for example, 25 per second - for the whole world. So you don't have the space to handle the payment processes of an entire country. In such countries, many people have no access to electricity or the Internet anyway. If a Ukrainian refugee in Germany can access her money because she has invested in Bitcoin, or if an Argentine is hiding from inflation in this way, these are isolated cases. Here, too, the problem remains that you cannot pay anything with a cryptocurrency, but have to exchange it back into a real currency. I'm not convinced by the argument.
The crypto community is not only tinkering with currencies, but also wants to replace or democratize the current Internet with Web3. Isn't that a good idea given the superiority of a few corporations?
Indeed, the fact that today's web is fully centralized is a problem. But the Web3 is also centralized, by the same players. The US venture capital firm Andreessen Horowitz (a16z) was an investor in almost every major web platform. They made money from the fact that today's monopoly players were built and now they want to play the game again, build the same structures again. The current Internet is also technically decentralized; it has become centralized due to economic and political decisions. With Web3 we are already seeing extreme centralization, starting with the distribution of ownership. In our normal world, one percent has the money, in crypto, 0.1 percent has over 80 percent of the tokens. There are also only a handful of platforms where I can exchange my money for cryptos and providers where I can buy NFTs.
As a crypto critic, you were pretty much on your own for a long time. Did this change?
When a new record was announced every day, no one wanted to hear criticism. The blockchain has been around for 13 years now, and it never really mattered that its promise for the future was not kept. For a few weeks now, however, the focus has been very aggressively on the consumer market. At the Super Bowl, for example, all advertising was for crypto projects. People borrow on their house and buy cryptos to fund their retirement - and suddenly the token is worth nothing. That offensive attempt to rip people's money off has led to 26 experts writing an open letter to the US House and Senate, including some of the most notable cryptographers, people who use the Google Cloud or who helped develop the Amazon architecture, i.e. are deeply involved in the technology. I also signed, we demand that this financial market should finally be regulated. If prices recover, no one will listen again.
In view of the current energy crisis as a result of the Ukraine war, should the immense power consumption of blockchain technology be given even more attention?
I wish the Ukraine war would make people realize how absurd the crypto industry is. We're supposed to save every kilowatt-hour possible, while a casino for a handful of nerds uses as much electricity as an entire state. I can't tell people to turn off the lights or turn down the heat in the winter, but still keep the big blockchains running. China and other countries have already banned mining - regardless of the war - because it puts such a strain on the power grid there that it jeopardizes security of supply.
Is the industry actually dependent on the extreme hypes or would Bitcoin also be conceivable for $100?
The industry is extremely dependent on the hype: to make money because there is no real value creation and secondly to legitimize itself. She can only tell politicians that she is the future because there is so much apparent money in it. Relevance can be generated by tokens increasing in value up to a hundredfold. Otherwise she would have to explain what the technology creates - then it becomes very thin.
Christina Lohner spoke to Jürgen Geuter