The rise and fall of crypto currency

Welcome to Opening Moves, the podcast where we explore the first steps in tech, coding, and digital literacy. I'm Nadia, an AI host.

And I'm Farris, the show's AI co-host. Today we're diving into something that's been impossible to ignore: cryptocurrency.

That's right. Bitcoin, Ethereum, Dogecoin, NFTs, the whole wild ride. We're going to trace the rise, the fall, and everything in between.

And just to set expectations, Nadia here is going to make the case for crypto, and I'm going to be the one asking the awkward questions.

Fair enough. I think there's genuine innovation in there. Farris thinks half of it is elaborate gambling with extra steps.

I said I'd ask awkward questions, not that I'd be wrong. Let's see where we end up.

Let's start at the beginning. What actually is cryptocurrency? Nadia, give us the basics. At its core, cryptocurrency is digital money that runs on something called blockchain. It's a decentralised ledger, meaning no single bank or government controls it.

No bank, no government, no central authority. That's the pitch, at least.

Exactly. Transactions are recorded across thousands of computers, so to tamper with the records you'd need to control most of them. That's the security piece.

In theory. In practice, we've seen exchanges get hacked, private keys lost forever, and entire networks argue about which version is the 'real' one.

We'll get to the bumps in the road. But the fundamental idea is that you can send money across the world in minutes, not days, and without a middleman taking a cut.

You can also send money to the wrong address and never get it back. No customer service, no chargebacks, no come back later.

That's true. And it's a feature some people want and others find terrifying. The first and biggest crypto is Bitcoin, created in 2009 by someone going by Satoshi Nakamoto.

And we still don't know who that is. Which is either brilliantly mysterious or deeply suspicious, depending on who you ask.

It added to the intrigue. A mysterious creator, a whitepaper that promised to shake up the financial system, and a currency you could mine with a computer.

Mining being the energy-intensive process of solving puzzles to validate transactions. We'll definitely come back to the energy piece.

We will. But let's set the scene: Bitcoin starts essentially as an experiment. Two pizzas bought for ten thousand Bitcoin in 2010.

Those pizzas would be worth hundreds of millions of dollars today. At the time, it was just a funny story about a weird internet money experiment.

And then things got serious. Let's talk about the rise. Around 2017, Bitcoin went from a few hundred dollars to nearly twenty thousand. It captured the public imagination.

It captured the public's greed, more like. Everyone knew someone who was 'investing' or had bought a laptop to mine from home.

The appeal was obvious: a currency outside the traditional banking system, something finite, something global.

Something that went up in price dramatically, which is really what most people cared about. The finance bro era of crypto begins.

You say that like it's a bad thing, but there was genuine excitement about what this technology could become.

I'm not saying the excitement wasn't real. I'm saying the excitement was mostly about Lambos, not about financial inclusion.

Okay, fair point. Some people were in it for the tech, some for the profits, and some just didn't want to be left out.

And then Ethereum entered the chat in 2015. This wasn't just money; it was programmable money, smart contracts, an entire platform.

Exactly. Ethereum let developers build apps on top of its blockchain. Decentralised apps, decentralised finance, the whole Web3 vision.

Web3. The phrase that makes every normal person's eyes glaze over while crypto enthusiasts swear it's the future.

But the concept matters: you could create new tokens, build new financial instruments, all without asking permission from a bank.

Or without any regulatory oversight, which turns out to matter when people's life savings vanish overnight.

We'll get to the crashes. The key point is that by 2020 and 2021, crypto went mainstream. Companies started accepting it, funds started investing in it.

Elon Musk tweeted about it and the price did backflips. That's literally how much power one person had over the market.

You're being reductionist. There were institutional investors, major companies adding Bitcoin to their balance sheets.

And then there was the NFT mania. JPEG images selling for millions. A monkey cartoon that made someone famous for owning a picture of a monkey.

Okay, I have to defend NFTs a little here. The underlying technology, proving ownership and authenticity, that's actually useful.

Sure, in theory. In practice, most NFTs were speculation on a monkey picture, and the market collapsed almost immediately.

The market for JPEGs collapsed. The concept of verifiable digital ownership still has legs.

We can debate that later. The point is, by late 2021, crypto was everywhere, and prices reflected a future that hadn't arrived yet.

Let's talk about what people hoped crypto would do. The promises. Financial inclusion was big: bringing banking to the unbanked, people without access to traditional financial systems.

A noble goal. How's that working out? Most crypto users are in countries with solid banking infrastructure, buying speculative assets.

It's a start. There are people in countries with unstable currencies who do use crypto as a store of value.

Volatility isn't exactly stable. When your currency drops forty percent in a week, that's not financial inclusion, that's a different kind of problem.

True. Another promise was faster, cheaper cross-border payments. Send money internationally in minutes, not days.

Again, in theory. In practice, Bitcoin transactions can be slow and expensive when the network is busy. Ethereum has been congestion-prone too.

That's the scaling challenge. Newer blockchains have addressed some of this, with faster transaction times and lower fees.

Newer blockchains that are often centralised in different ways. You solve one problem and create another.

The dream of decentralisation, removing power from big institutions and giving it to individuals.

The dream of not needing banks. Instead we got centralised exchanges like Coinbase and Binance, which are effectively banks with worse customer support.

That's a fair critique. But the underlying technology, the idea that you can verify transactions without a central authority, that's genuinely powerful.

I'll give you that. Blockchain as a technology probably has legitimate uses. Crypto as an investment? That's where I get nervous.

And that's exactly where a lot of people got excited. The idea that early adopters could build wealth outside the traditional system.

The idea that some people got rich while many more lost money is the oldest story in finance, just with more jargon.

And then reality hit. Let's talk about the crashes. 2022 was brutal. The crypto market lost about two trillion dollars in value. Entire ecosystems collapsed.

Two trillion dollars. That's not spare change. That's people's life savings, gone in a market that has no circuit breaker, no safety net.

The biggest shock was probably Terra Luna, a so-called stablecoin that wasn't stable at all.

Stablecoins are supposed to be pegged to a real currency, like the dollar. Terra Luna claimed to be backed by an algorithm, which turned out to mean it was backed by nothing.

Forty billion dollars in value evaporated in a week. It wiped out millions of retail investors.

And then came FTX, which was supposed to be one of the most trusted exchanges in the space.

FTX was the third-largest crypto exchange. And it turned out they were mixing customer funds with their own company funds.

They were literally using customer money to buy real estate. The founder is now in prison, facing decades.

It was a massive scandal, no question. But it also showed the system working in a way: the fraud was exposed, people went to jail.

It showed the system working only after tens of billions were stolen. How many more FTXs are out there that we don't know about?

That's a fair concern. The lack of consistent regulation across countries has been a real problem.

That's an understatement. Crypto's whole pitch was 'trustless,' but people still had to trust the exchanges, and clearly many of them couldn't be trusted.

The lesson: don't keep your crypto on exchanges, hold your own keys. That's the standard advice now.

Standard advice that requires technical knowledge most people don't have. For every story of someone who held their own keys, there's someone who lost access to their wallet forever.

The technology is still maturing. We're seeing institutional custody solutions that didn't exist a few years ago.

Which basically brings us back to the institutions crypto was supposed to replace. It's a bit of a loop.

Let's pivot. You keep saying blockchain might have uses. What do you actually see as the legitimate case for it?

Supply chain tracking. Provenance. You can track where a diamond came from, whether a luxury bag is real, things like that.

Exactly. There are real-world examples. Walmart uses blockchain to track food sourcing. Maersk tracks shipping containers.

But that's not cryptocurrency. That's just using a distributed ledger, which is a useful database technology that doesn't require a token.

That's true. The underlying technology has applications beyond money. But the crypto ecosystem built financial infrastructure on top of it.

DeFi, decentralised finance. The idea that you could lend, borrow, trade, all without a bank.

And in some ways, it worked. You could earn yields far above what traditional banks offered. There were stable, regulated protocols.

Until they weren't stable. The yields were often unsustainable, coming from new money paying old money, textbook pyramid economics.

Some DeFi projects were indeed unsustainable. Others were genuinely innovative, offering services to the unbanked in ways traditional finance never did.

Let's be honest: most DeFi users weren't the unbanked in developing nations. They were gamers looking for yield and people chasing returns.

Okay, I concede the user base wasn't what was advertised. But the technology allowed for programmable money, automated agreements, new possibilities.

Programmable money that moved billions to the tune of a tweet. The technology enabled some genuinely cool things and some genuinely terrible things.

So what's your core objection? Not the technology, you seem to admit it has uses.

My objection is twofold: the environmental cost and the fact that crypto, as an investment, has destroyed more wealth than it's created for regular people.

The energy issue is real. Bitcoin alone uses more electricity than some entire countries. That's a fair critique.

And newer 'proof of stake' systems, like Ethereum switched to, use far less energy. But Bitcoin, the biggest one, still runs on energy-intensive mining.

There's an ongoing debate about whether that energy is renewable, whether it's using otherwise-wasted excess power.

There's a debate, but the data is murky, and the emissions are real regardless of the source.

Fair. But the bigger issue you raised is the wealth destruction. That's a harder sell for the pro-crypto argument.

Look at the numbers. Since 2020, crypto has created some billionaires, but the median investor has lost money. The top one percent control most of the wealth.

That's true of traditional stock markets too. Inequality exists everywhere.

At least stocks have earnings, dividends, productive companies behind them. Crypto's fundamental value is what, exactly?

The value is in the network itself. The adoption, the utility, the scarcity built into the protocol.

That's circular. It's worth what people think it's worth, which means it's worth whatever the next person will pay, which is the definition of a bubble.

That's also true of gold. People assign value to things for reasons that aren't always rational.

Gold at least has physical properties. Crypto is entirely digital, can be forked, can be copied, can be replaced by the next shiny token.

That's the nature of technology. Newer, better systems can emerge. Doesn't mean the underlying concept is worthless.

It means it's incredibly volatile, incredibly risky, and for most people, a terrible investment.

Okay, so we've covered the rise, the dreams, the crash, the arguments on both sides. Where does that leave us today? Crypto markets have stabilised somewhat. Bitcoin is down from its peak but still worth significantly more than 2020 levels.

Down seventy percent from its peak, then rallying on news of spot ETFs, BlackRock getting involved, that kind of thing.

The spot ETF approval in early 2024 was a huge moment. It let mainstream investors get exposure to Bitcoin through their regular brokerage accounts.

That brought crypto into the traditional finance world, for better or worse. Now your pension fund can own Bitcoin.

And that's been a catalyst for renewed interest. Institutional money is flowing in, slowly but surely.

It's also brought more regulatory scrutiny. The SEC has approved some ETFs but still says most tokens are securities.

Regulatory clarity, whether strict or lenient, is probably healthy for the space. It means rules of the road.

The rules are still inconsistent. One administration says one thing, the next says another. It's hard to build a long-term business in that environment.

True. What do you think ultimately happens? Does crypto fade away, or does it become boring infrastructure?

I think it becomes infrastructure. The speculative mania cools, some useful applications emerge, like it or not.

Interesting. You sound almost optimistic.

I think blockchain is a useful tool in specific contexts. I just don't think it's the future of money, and I think the cult-like culture around it is off-putting.

The 'to the moon' crowd gave everyone a bad name. But the technology builders, the ones quietly building payments systems, identity solutions, those are still at it.

And I wish them well. I just think for most people, most of the time, the risks far outweigh the rewards.

That's fair. My position would be: crypto isn't going anywhere, but it's not the revolution some claimed, and it's definitely not a get-rich-quick scheme.

And my position: it destroyed a lot of wealth, enabled a lot of fraud, and the jury is still out on whether it creates more value than it consumes.

We can agree to disagree but agree that people should understand what they're getting into if they dive in.

Absolutely. If nothing else, this episode should make someone think twice before putting their rent money into a token named after a dog.

Dogecoin was created as a joke. It briefly had a higher market cap than Ford. That's something.

That's exactly the problem.

Let's wrap this up.

So here's where we ended up. Crypto started as a wild experiment in decentralised money, caught the world's attention, and created some genuine pioneers and a lot of hype.

The rise was meteoric. From pizza purchases to billions in market cap, from niche tech to mainstream conversation.

Then came the crashes. Terra Luna, FTX, hundreds of billions gone. Lessons learned the hard way.

And now we're in a more mature phase. Institutional investors are involved, regulators are paying attention, and the technology continues to evolve.

Right. And the debate continues. Nadia sees genuine innovation, useful tools for specific problems.

And I think you can be skeptical of the hype while acknowledging the technology has legs.

And I think it's worth being very, very cautious. The wealth destruction has been enormous, the fraud prevalent, the environmental cost real.

The one thing we agree on: if you're going to engage with crypto, understand what you're buying, understand the risks, and never invest more than you can afford to lose.

That's the most important advice anyone can give. Thanks for this, Nadia. It's been fun.

It's been a proper debate. Thanks for pushing back, Farris. If you want to keep learning, chkmate academy has short video courses on digital literacy, coding, software development and cloud, and one-off courses are free with an account: it's in closed beta, so join the waitlist on its website for an invite.

Thanks for listening to Opening Moves. We'll see you next time.