Goldman Gary is at it again.
Goldman unofficially became Gary Gensler’s prefix once he made between $41-119 million at Goldman Sachs before former US President Clinton nominated him to be the Assistant Secretary of the Treasury.
Over the past few months, Gary Gensler has been cracking down on the seemingly most inconsequential events in crypto. He’s missed out on becoming an iconic fiduciary figure by preventing a spot bitcoin ETF and by not preventing FTX’s collapse (even though he had meetings with SBF and friends) because he was too busy fining Kim Kardashian for an Instagram post. Meanwhile, the SEC’s entire mantra of protecting investors has been scoffed at.
While Kim only made a few hundred thousand on that post and was fined $1.26 million - the fine was eventually dropped and she regularly makes a million per post so it was a questionable exhibition by the SEC. Gary Gensler then goes on to brag about it on his Twitter while SBF checked off the box declaring that FTX’s bankruptcy is somewhere in the ball park of $10 - $50 billion.
It’s easy to point out the flaws in a controversial government figure, but theres a larger issue looming over the blockchain industry than any one man could muster.
Onboarding
Onboarding to a blockchain is difficult for first time users. Even though there is an estimated 30-40 million developers in the world, thats still less than 0.5% of the population, meaning 99.5% are technically untechnical when it comes to computer science.
Blockchains are advanced implementations of concepts in advanced computer science categories so its difficult to explain the safety and utility concerns of it to untechnical individuals. Even technical individuals have their pushback due to ideological differences or disinterest. But the problem goes deeper than this.
Getting Money onto a Blockchain
There are only 2 ways you can fund a blockchain account, also known as a non-custodial digital wallet. With a CEX or with a third party integration.
Fund it from a centralized exchange - this is a whole can of worms and requires a KYCd bank account connected to a KYCd centralized exchange (that hasn’t gone under).
Purchase it from a third party integration within the wallet - examples include Moonpay and Flexa. This always requires KYC protocols and account generation, in the same way that a bank requires it, meaning its essentially the same as a bank.
I’m not including the option to fund it with another wallet because that wallet will have had to be funded via one of the two options above. There is also the edge case of a miner/validator having natively rewarded tokens but their existence is too inconsequential to matter.
If you understand the financial plumbing behind both of the above options, you can appreciate how flawed the idea of financial sovereignty is from a censorship perspective.
When the US wants to stop 95% of crypto traffic within its borders, they just have to block all transactions with centralized exchanges and prevent individuals from transacting with vendors like Moonpay and Flexa.
Thats a problem and there is not currently a scalable solution which would prevent price collapses. Most people are not going to break their bank’s policies, even if the government still allows it.
I say 95% of activity will stop because there will likely be fringe blockchain users who would be considered power users, and miners/validors could keep chugging along if they keep their distance from relevant authorities. Its 5% because of a disproportionate amount of technical people in crypto compared to the 0.05% resulting from sampling of the general population mentioned above. Still, most people won’t do this.
When China shut down and banned all blockchain activity, there were still a few miners that could be geolocated in the region. The censorship resistant aspect of blockchain design has been largely solved from a technical standpoint, but not from an on nor offboarding standpoint.
Offboarding
Lets say you were able to get your money into a nifty digital wallet. Now you’re financially free and you’re scouring DeFi telegrams with the word ‘Ape’ in their name to find the highest yield for your $asUVNslsBUSD tokens.
Non-custodial digital wallets can be viewed as investment or checking accounts. This one is your investment account and you are putting your entire portfolio into $doge. Elon goes back on SNL, says you can buy a SpaceX rocket with it, and $doge goes to all time highs. You sell at the top - the sky is the limit.
Now all you have to do is withdraw the stable coins you received for your volatile tokens and your whole life will change for the better.
The only ways you can withdraw money from a blockchain without using a centralized exchange and a bank are the following:
P2P IRL - peer to peer in real life. You have to find a willing buyer/seller, negotiate a deal, arrange a meeting with someone, and conduct the transaction. Cash for crypto. This can be dangerous - especially if the crypto was illegally obtained. Supposedly this is big in Africa but there have been P2P exchanges that have been shut down and they’re very uncommon.
You can pseudonymously purchase gift cards with crypto and configure some plan to pickup items where your name is not attached to an address. This is very limiting, but in some cases better than nothing at all. Still, most won’t do it.
Blockchains and what they enable are amazing feats of engineering but the political and financial infrastructure surrounding them is not. This infrastructure has been built to throttle the advancement of what many in crypto idealize about - financial sovereignty and new tools that take on incumbent industries.
A blockchain and every thing it enables is only as strong as its weakest link and until further notice, on and offboarding is its fatal flaw. Until public sentiment, governmental policies, and UX/UI improvements take place (that’s a whole different discussion), its going to be difficult to onboard the next/first billion users like everyone talks about in their pitch decks.
Arguments Against This Article
This is an exhaustive list.
Users can on and offboard with CEXes and bank accounts in countries and Special Economic Zones (SEZ) that allow crypto.
Yes but this is not scalable for billions of people.
Any other argument.
Yes but this is not scalable for billions of people.
A Crypto Idealist’s Solution
Blockchains become economies that are independent from the real world. Banks have no control, governments have no control, markets are free, and individuals have financial sovereignty. Algo-stable coins actually work at scale and there are no bank runs in DeFi.
But what are the stable coins stabled to?
There are either algo-stables stabled to fiat (is it still an independent economy?), or centralized stables (also stabled to fiat) that can be shut down or go insolvent at any moment. More fail points. Is the solution to get rid of stable coins and have every asset be volatile? No.
Conclusion
I don’t like looking at crypto as an investment.
Its a technology backed by blockchains and it’s price shouldn’t be so focused on (anymore, Bitcoin did go up by 6,965,454,545.45% between 2010 and 2021). Lower cap coins are manipulated constantly and due to Bitcoin’s mainstream popularity, its now roughly as correlated to what the Fed says as every other high-beta risk asset.
Blockchains offer legitimate solutions and their value is clear to many industries. There are exceptions but for the most part, companies and technical individuals are embracing blockchains as new, better gateways for payments and near-instantaneous transactions across the globe.
Governments, on the other hand, are not so sure about blockchains and many see it as a problem. They mostly probably want CBDCs and I suspect they will begin banning blockchain activity more often when those are ready to be rolled out.
Non-technical people see blockchains as a confusing and largely unnecessary thing that is killing the planet (only bitcoin actually is). Given public and policy sentiment, its difficult to persuade anti-blockchain people (no-coiners) when they are not technical.
Technical people either see the value in it, don’t see the value in it (usually due to not understanding the wider macroeconomic and philosophic context), or don’t have time for it (AI engineers). Either way, they are the minority.
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Who is zachary r0th?
Zachary is a product-minded writer with a creative background and technical sensibilities - particularly in finance, AI, and blockchain technology.
As a freelance writer, Zach manages the DAOJ - a freemium newsletter about blockchain-enabled innovations with an occasional sponsor.
Other Career Highlights
Helped raise $1.25 billion.
• Assisted in authoring Private Placement Memos that raised a collective $1.25 billion for two separate private equity funds. $500 million for international metal streams and royalties, and €750 million for the development of mid-size companies with profitable business structures in the DACH region
Helped onboard millions to Solana.
• Significantly contributed to the growth of Solflare, Solana's most feature packed digital wallet, by managing product roadmaps and implementing onboarding practices that helped 10x the monthly active user count from 200,000-2 million.
• Conducted individual user interviews and market research on high-performant blockchains.
• Authored technical documentation alongside senior level engineers.Created Mirror Theory.
• Developed novel music theories and nomenclature using combinatorics and radial symmetry.
• Utilized python programming and influences from Messiaen's Modes of Limited Transposition, Slonimsky's Thesaurus of Scales and Melodic Patterns, Negative Harmony, and set theory to construct formulaic simultaneities that can be applied to any finite, TET tuning system.
Accumulated 100,000 streams across music platforms.
To keep up with Zach, follow him on Twitter, GitHub, or LinkedIn.
His website features work across dozens of publications, including MoonPay, Solflare, Solrise, Rise, Substack, Global Coin Research, CryptoManiaks, and more.