Why is blockchain/ crypto so scammy?

People either love it or hate it. Whenever the topic is brought up in your casual weekly friends’ meet-up or on a family holiday, people you know won’t touch it with a ten-foot pole, or others have invested in it. Then there are those technology enthusiasts who have an account on every exchange, own hardware wallets and have tried mining it. Everyone has their head ping-ponging from looking from one group to the other, unable to make up their mind. I used to be that person for the longest time.

After all, it’s just a technology…

Blockchain is indeed just a technology. If you're like me, you might wonder how people can hate a tool so much. Sure, it would be silly and inefficient to tighten a nut with a hammer, but it’s not the tool’s fault. It’s just the hand that yields it, right? Well, yes and no.

Hating technology is nothing new

People hated the internet and software because many devices, businesses and with it, jobs have been eliminated or have changed drastically. Computers put an end to typewriters, email put an end to fax, ride-sharing apps ate the shares of taxis and so on. Before ChatGPT was even a thing, decision trees AI in civil offices took humans out of processing people’s complex cases and, as a result, took humanity and nuance out of it. And AI now seems to be devouring jobs left and right.

Technology can sometimes be purposefully harmful, too. Media apps need to keep growing and keep the revenue graph moving upward, and they do this by hacking human psychology.

Scams are nothing new

Taking advantage of people by exploiting rules, and technology they don’t know is as old as time. With technology, it becomes easier because of the speed with which it evolves. I, a software engineer by trade who has been amused at people getting scammed by emails from the “Prince of Nigeria”, have been a victim of internet scams myself. They evolve too fast and are getting better all the time. The messages forwarded from my family’s WhatsApp group that warn of a “new” potential scam to me always seem dated. By the time you understand the new scam, it already has claimed its victims.

But Blockchain scams are at another level, right?

Yes, they are, and it took me a deep dive to understand why that is. As a software technology enthusiast, I plunged into it when NFTs (Non-Fungible Tokens) and smart contracts were gaining popularity. I am a game developer, and it made so much sense that in some game types, people’s in-game assets should live in an open marketplace where anyone can buy or sell anything. It’s just like the auction house in World of Warcraft. The use and rarity define the price, and when you’re done playing the game, you could sell it, making some money back that you could use in your next game. I knew the development and integrations would be hard. I also knew that the players would assume that how an item works in the game should never change, and that makes game design very hard.

So, I started learning how to program Ethereum smart contracts, and the more I learned, the more I realized I was creating financial applications. I was no longer making non-consequential games that I could patch and fix as I went. If I made a mistake in a smart contract, more often than not, it was permanent. I was converting people’s hard-earned money from one form into another. If a hacker exploits a vulnerability, my mistake could cost people their money. I was working on two separate projects requiring me to write the contracts. The realization made me ponder if I wanted to continue down that path, and eventually, I decided against it. I would rather not stress about writing complex financial software and leave that to the very detail-oriented experts.

That is where the problem lies with the tool. Many blockchain developers out there either care more about the profit than creating safe financial software or are outright scammers. If you learnt that someone without training or experience wrote your banking app, you probably won’t ever use it again. The same can be true for blockchain projects, but I didn’t quite realise this until I had taken the plunge.

During the crypto and NFT boom, many people creating projects didn’t care enough about people’s money as long as they were getting paid. People who had never written a line of code were pulling code from public GitHub repositories without knowing what it all meant. They didn’t consider hiring auditors or white hat hackers. They often lied that the NFTs they were selling would fit into a larger ecosystem or a game, promising utility when they had no intention of delivering it. They just hopped from one project to the next because that made money, and the hard work to give value and utility to the digital asset didn’t. It sometimes surprised me that the victims of these useless tokens or the many “rug pulls” were so trusting of an asset or an ecosystem made (or promised to be made) by individuals with no reputation or portfolios. But maybe it shouldn’t be surprising because people still invest in Ponzi schemes for calling cards.

Most crypto enthusiasts are traders, not enjoyers

I can’t deny that other than the pointless monkey jpegs, there was also a lot of stunning art that the blockchain boom brought in front of people. But it also made selling stealing art a lot more lucrative. Suddenly, digital art thieves were making tens of thousands of dollars instead of getting mostly social media engagement from their victim’s work. Artists were livid and asked crypto art traders to stop, and their response was, “Well if you don’t want your art stolen, you should just publish it yourself.” That’s like someone stole your canvas, sold it in a gallery under their name, and blamed you for not selling it to the gallery first.

Video game fungible and non-fungible tokens were a huge hit but the market was dominated by traders, not players. Traders didn’t care how fun the game was; they were trying to get the most monetary value out of it. This also forced the game developers to quit the idea of blockchain games or embrace the fact that their primary audience was traders and design their games accordingly. Many of these games were from the freemium genre. Freemium games are loaded with microtransactions or are pay-to-win. People seem to hate that revenue model, but businesses are still benefiting, so that must mean that players are willing to pay. However, that is an entirely separate discussion.

So, is there any use of Blockchain software at all?

Yes, there is. Sending money to a person has become so much easier. Transaction fees are much lower, and you can bypass financial institutions. There are also many other blockchain applications made for niche use cases, for example, Everledger attempts to create transparency in the trade of expensive goods like diamonds.

In the case of video games, in particular, rewarding players worldwide has become possible. Game developers can send competition or esports rewards to players’ cryptocurrency wallets. The players can then convert that reward into any crypto or fiat currency. There is no need to worry about different currencies, tax considerations, or banking systems.

Secondly, an alternative noninflationary currency like BitCoin is a positive thing. It's like gold but can be stored in a digital wallet and is transparent by design.

But, can you not see that all these examples have problems?

Yes, there will always be problems. Rewarding players with a custom coin is great, but fluctuating prices can suddenly devalue it. Bypassing financial institutions means people can dodge taxes. BitCoin consumes too much power.

With every tool, there are problems, and there are also opportunities to make it better. There are stable coins pegged to fiat currencies that give people an alternative to wild price fluctuations. Companies like Coinbase have become formal banks themselves to allow for the regulation of digital currencies. Cryptocurrencies based on alternative algorithms to Proof-of-Work that BitCoin uses have reduced power consumption.

With every tool, it is up to us to decide whether we would like to build with it and use products built using it or argue that the negatives outweigh the positives and advocate against it. However, we also need to realise that most blockchain products are financial software. The very nature of it makes it more likely to be used to scam people because where there is money, bad actors will always exist. Ultimately, the tool is here to stay.