Visible Capital

A quick Wednesday piece, as part of my effort to publish more often and more quickly. The next cohort of Hype-Free Crypto is 95% full. If you're looking for an impartial introduction to the promise and limitations of Decentralized Finance, Web3, DAOs, NFTs, and beyond — join us.

Crypto makes the world more visible. This makes many people uncomfortable.

"All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses, his real conditions of life, and his relations with his kind."

— The Communist Manifesto

Karl Marx was often wrong, and his errors had a disastrous effect on humanity. But he was a great writer and an astute reader of the human condition. He managed to see connections and outcomes that were invisible to most people. Now, these connections and outcomes are becoming visible to all.

One quirk of crypto markets is that they're both private and incredibly transparent. Most token issuers are exempt — de facto or de jure —  from reporting requirements that apply to public equity markets. At the same time, transactions in most tokens occur on a public ledger that can be tracked and analyzed by anyone. In that sense, crypto markets are more transparent than public markets because they don't just expose everything investors report; they expose everything investors do.

This transparency makes certain things very visible. Crypto markets are rife with insider trading. They have service providers that front-run their own customers. They are rife with "wash trading" — where people act as both buyers and sellers of the same item in order to create the appearance of a market transaction. And they are highly concentrated, with most of the information, money, and power held by a minority of participants.

All these ills are more visible in crypto markets. But are they more common? I am not sure. What I am sure of is that in traditional private markets, there is simply no way to track and analyze insider trading, wash trading, and market concentration with such accuracy. But even without accurate measurement, we know these things exist in other, non-crypto, private markets. And, to be clear, in a private market, it is legal to act on so-called inside information.

It follows that crypto markets are not uniquely unfair or corrupt; they are unique for being visibly unfair and corrupt. They show us something about the world that is easier to ignore in other markets. Arguably, the comparison holds even with public markets: There, too, some entities trade on information that is not publicly available, front-run their own customer's trade, and accumulate excessive returns.

But it doesn't end there. Crypto makes market relations more visible, but it also makes social relations more visible. Or, more accurately, crypto exposes social relations as market relations. What do I mean?

A common criticism is that crypto "financialize everything." Tokens and smart contracts can be used to design complex incentive schemes that change the behavior of large groups of people. Tokens and smart contracts make it possible to pay people automatically each time they complete a simple action — watch a video, wave to someone on a video call, upload a file. As I wrote in The Token Society:

"In some corners of the internet, every human glance, every utterance, every expression of affection are already being sold to the highest bidder. But this process is still cumbersome and requires users to risk their personal information and to pay fees that sustain giant, privately-owned intermediaries. This is why — like all new technologies — it currently caters only the strongest human urges.

Web3 promises to simplify this process and make it easier for more people to trust each other and transact directly for increasingly smaller transactions. As a result, many more gestures, favors, and utterances will be governed by market mechanisms. Some will be paid for on-demand. Others will be bundled together and automated in new ways.

Imagine paying a monthly fee to ensure everyone you see says hello to you. Or letting your neighbor earn a fixed amount every time he keeps the volume down and lets you sleep well at night (your sleep tracker will automatically trigger a smart contract that compensates the neighbor each morning; there’s no need to actually speak to him or say thank you). I’ll leave it to your imagination to come up with other possibilities."

The criticism is that tokens turn all human relations into commercial relations; they turn every interaction into a transaction.

It's true. But here, too, what is unique about crypto markets is not what they cause but what they make visible. All human interactions are, to one extent or another, economic transactions. As Marx observed long before Satoshi Nakamoto, the evolution of capitalism:

"...has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors”, and has left remaining no other nexus between man and man than naked self-interest, than callous 'cash payment'."

Marx ascribed this state of affairs to "bourgeois" values and private property. But it goes much deeper than that. At their core, economics and biology are the same science. And the actions observed by economists are, in essence, biological processes — organisms interacting selfishly with their environment in order to survive.

The evolution of capitalism is a process by which this dynamic becomes visible, in all its terrifying ugliness. Crypto markets represent the highest peak of this process, but not its end — and definitely not its beginning. By making this dynamic more visible, crypto compels us to "face with sober senses" our "real conditions of life" and our "relations with [our] kind." No wonder we don't like it.

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