December 2017. Shanghai.
It is mid-December 2017. In Shanghai. And I have just fallen victim to a crypto rug-pull scam.
A few days prior, I had been recruited into an âenthusiastsâ WeChat group (WeChat is Chinaâs premier social app, think FB + IG + CashApp, all in one, and then in Mandarin) for a Chinese crypto token. A friendly-faced Laowai (Chinaâs half endearing, half slur for foreigners, particularly, white foreigners) had approached me at Cages Bar â a uniquely Chinese oddity of a place, a sprawling âAmerican Sportsâ themed bar complex and a haunt for lost Westerners of all sorts â to share the good news.
This new friend, managed to sell me that this token would be the Honest-to-God FUTURE of supply-chain traceability. And what luck! Through meeting him, I was to join a group of favored insiders, privy to pre-market information on this earth-shaking new technology. Even luckier was that I was joining this group mere days before the projectâs âbiggest announcement everâ which was sure to send prices âto the moon.â It all sounded so very exciting!
Fast forward three days. The announcement has just dropped, token prices are moving quickly and parabolically to the upside across exchanges. Except for Binance. Where all of us in the group had our tokens. Inexplicably, Binance goes down at the EXACT moment when this news is released â âDue to recent increase in user growth, Binance will be preforming a system upgrade shortly after 2017/12/18 10:00 AM (UTC).
The upgrade will take approximately 20 minuteâ their message reads. Simultaneously, on another exchange, a whale (massive token holder, capable of single-handedly moving the market) liquidates several million dollars worth of tokens. By the time Binance is up and running again, the token is on a similarly parabolic price collapse. Never to recover.
I can confidently say that it is by such magic, one may turn several thousand dollars into several tens of dollars in mere days, or perhaps even just minutes!
Welcome to Shanghai! Welcome to Crypto!âŚI guessâŚ
The School of Rug-pull Fundamentals
Here, I received a foundational lesson in the mechanism of âcrypto." Specifically, rug-pull scam 101 - by which nefarious but convincing crypto marketeers target technologically ignorant retail âinvestorsâ to be the exit liquidity for the project founders and earliest backers.
The WeChat âenthusiastâ group I had joined was nothing but a pump and dump shop. The group members, rather than being privileged insiders were full-on dupes - serving as both free marketing hype and the exit dumping ground for the project founders. Peer-pressure, social proof, and faux camaraderie were applied by the truckload to induce us to promote the token and to bring in others, yet when the time came, we all found ourselves locked out of the party by forces seemingly far above and well beyond our comprehension. And this is when the real insiders exited.
However, on that brisk Shanghai winter evening in 2017, I knew none of this. I was the worst, or rather the best kind of mark â the kind with enough broad educational and professional achievements as to be very self-assured in their own intelligence while also being completely oblivious to their area-specific ignorance and inexperience - particularly on this "new" technology, called "the blockchain."
That I was possessing of such qualifications should surprise no one who has ever worked with management consultants. At the time, I was one â bright-eyed and bushy tailed, newly minted on a full-time international assignment to China. In reality though, the depth of the information asymmetry arrayed against me in this situation was tantamount to me having negative information while fully believing that I was some kind of anointed insider. What fun!
So how did I get here? Well...
Borderless
I landed in Shanghai in January of 2017, a stranger in a strange land. My arrival in Shanghai uncovered an interesting problem. A few months in, I realized that all of my money was sitting in RMB, in a Chinese bank account, yet I still had financial obligations in the United States, dominated in USD, along with a fast-dwindling USD account balance to support these obligations...
It was at this time that I discovered that the process to transfer money outside of China was arcane - requiring at least two months of planning, several trips to the Chinese tax authority, reams of paperwork, AND support from an internationally accredited employer. In short, a bureaucratic dog-and-pony show replete with unnecessary but entirely purposeful friction and obfuscation. But such is the squarely anti-free market Great Game of big-power nation capital controls.
It was this problem that spurred my first contact with bitcoin. I was searching for the best and most efficient way to transfer money to myself across borders. This eventually brought me to various articles and YouTube videos about bitcoin. From there, I got a Coinbase account (which worked in the China at the time), linked my bank account, and figured out LocalBitcoins - through which I could buy bitcoin peer-to-peer in RMB, and then transfer that bitcoin back into USD.
FUN FACT: While bitcoin had already been âbannedâ by the Chinese government several times by 2017, it was still legal to trade p2p. Also the largest RMB-for-bitcoin sellers on LocalBitcoins all appeared to be Africans. And I mean to the tune of thousands of bitcoin moved volumes. It would seem that perhaps large Chinese bitcoin holders may have been using Africans as plausible deniability frontmen to move in and out of large sums of bitcoin over Chinese social payment rails. The More You Know!
And just like that, I managed to Forrest Gump my way right into one of the most relevant, important, revolutionary â and in the West, overlooked â use cases for bitcoin - making money borderless, facilitating international value transfer in a way that completely obviates the rent-seeking artifice of arbitrary financial controls. But for all of that, I still couldn't see it. I was happy with what bitcoin did for me in that moment, but I failed to see any larger implications - I thought of it a novel, but certainly not anything ground-breaking. Further, my trust in the system was still too strong - believing on some deep level that the banks, both Chinese and US, truly wanted to help me but where beholden to cumbersome processes and regulations imposed on them from above.
Even in this very first exposure to bitcoin, it addressed a real and pressing problem for me and dramatically improved freedom of access and utility of my money - allowing me to transfer money back my USD bank account on-demand. I had a problem. Bitcoin fixed it. And all of the villagers rejoiced! âŚOr they would have if that had been the end of it. But as fate would have it, my first brush with bitcoin also coincided with the breakout of the wild 2017 bitcoin & crypto bull market run.
Initially, I just bought a bit of bitcoin to solve a problem and thought little of it. But when the bitcoin price started to take off (aka Number Go Up, or âNgUâ in internet parlance), I had to take another look. But this time, I would be caught in the balmy, Icarian up-currents of tech speculation and good old fashioned get-rich-quick greed. But, me â I was in it for the technology, of course...
All My New Friends
And so, I began to research bitcoin and then "crypto" more deeply. In so doing, I âlearnedâ that while bitcoin was âthe father of all cryptos,â it was actually âoldâ technology. Bitcoin was slow, environmentally wasteful, limited in capability, and destined to be overtaken by newer, âbetter,â cryptocurrency technologies such as Ethereum or XRP. Knowing no better, I accepted these silly falsehoods, convincing myself that bitcoinâs core value was simply its tenure. Being more established, bitcoin was just a marginally less volatile asset in a sea of horrendously volatile, and otherwise interchangeable, crypto tokens.
But there was opportunity here too, I sensed. The real innovation in the space, I believed, would ultimately be led by other projects. That being the case, my incentive then was to âstudy the space and place calculated bets" (an MBA euphemism for wild-eyed speculation). Why hold onto Bitcoinâs AOL, when Ethereum is clearly going to be cryptoâs Google? With any new technology, the first mover is always overtaken by a more innovative copy-cat, right?? RIGHT???
Moreover, I was desperately in need of Western friends. And knowing Iâd find them in droves wherever there was speculative money to be had, I dived headlong into the Shanghai âcrypto scene.â On the standard âHeroâs Journeyâ this is where a mysterious but benevolent, Gandalf-like mentor would have appeared to shepherd me through the peaks, valleys, and pitfalls of this new space. Obviously, this is not what happened. Instead, over freeium beers in the vaunted Millennial Chic common areas of so many Shanghai WeWork offices, I would meet some of the most colorful characters of my time in China...
A whip-smart but spectacularly sketchy Baltic fellow of significant, though indeterminate means who argued that any blockchain project that managed to successfully prevent supply chain malfeasance who see the project founders dismembered by some Eastern European mafia. Only half-jokingly, he suggested, at his direction.
A Middle Eastern âprecious metals traderâ who I later ascertained was probably more akin to a conflict minerals smuggler looking to use excitement and ignorance around âtraceability on the blockchainâ to wash his wares.
A South Asian âcrypto-entrepreneurâ who claimed to have a method, leveraging "blockchain technology," to swap large sums of physically delivered Chinese cash (think suitcases full of red bills) into infrastructure investment projects in Myanmar.
Several personally modest but obviously wealthy South American scions riding out political instability in their home countries while funneling money into ICOs (Initial Coin Offerings - crypto's answer to IPOs) with reckless abandon.
An American who shared, unsolicited, his pre-China 3LA (Three Letter Agency) background at first meeting, though I suspect he may have been telling a dangerous and stupid lie.
An obvious sex-kompromat honey-pot Chinese couple who described themselves as âcrypto-observesâ and who were, at a minimum, actually gathering intelligence for something. Fit and flirty in a way suggestive of some kind of open-door polyamory, and a little too fluent in English. Seemingly at every event and always hugged up onto any Westerner that seemed to be gaining influence in the space.
And finally the long tail of Moonboys (idiot gamblers who fashion themselves tech/investment mavens), minor conmen, âcross-border currency arbitrageâ consultants, LBH (Loser Back Home) English teachers, broke college students, and an ever shifting menagerie of hypemen-simps riding the coattails of Shanghai's laowai crypto-influencer of the week.
It was in this fast-moving and footloose âAnything goes and weâre all gunna get rich AF!â environment that the December supply-chain token âopportunityâ appeared to me. And of course, dazzled by fantasies of instant and meteoric crypto wealth, I went for it and I got burned right along with all the other Lambo-chasing chumps.
I was the worst, or rather the best kind of mark â the kind with enough broad educational and professional achievements as to be very self-assured in their own intelligence while also being completely oblivious to their area-specific ignorance and inexperience.
But in retrospect it could have been far worse. I could have put more money into the rug-pull or it could have been a straight-up wallet draining scam. And while I still had miles to go and years of learning ahead of me before fully eschewing âshitcoiningâ (the act of buying non-bitcoin crypto tokens in a state of deeply degenerative and highly speculative mania), this experience did, thankfully, give me the frame of reference to avoid further, similar insider malfeasance going forwardâŚfor the most part...
Do Cryptos Dream of Electric Stupidity?
The silver lining here was that the speculative extremes and clearly questionable mental acuity of some of my new âcrypto friendsâ gave me pause and cautioned me to anchor, relatively speaking anyways, to rationality and search for truth, as my consultant training so demanded. Though, I cannot in say good faith that this was intended in an entirely ethical or altruistic way at the time... After all, the fundamental role of a management consultant is to understand the truth more deeply than others so that you may choose when to best reveal or obscure it for social, political, and or economic gain â especially when you've assessed that you significantly outclass those around you intellectually.
That said, being an American (and so legally barred for participating in many ICOs) and a rare rĂŠsumĂŠ on the scene, I came to be viewed - hilariously - as something of âthe adult in the room,â to some. I would even eventually even sit down with a few founders to advise on their well-intentioned but deeply flawed and over-engineered crypto projects...
As I rode the 2017 bull-market wave up and then back down again (and where greed intervened to prevent me from selling the top, or even at a relative top), my perspective on the space matured.
Why couldnât anyone articulate what actual, real-world problem their project was solving?
Why were so many projectsâ assumptions around token usage (and therefore value) based on artificial needs that the project protocol itself created, or worse, inexplicably bizarre misunderstandings of incentive-driven human behavior?
Even the most lucid and well-presented project I encountered was still predicated on several other paradigm shattering technologies coming to the fore. They may as well have ended their pitch with âAnd as you can see here â when SkyNet, teleportation, Replicator, and Lightsaber technology all reach ubiquitous global scale (and we project this happening by Q3 2021 Âą 3 mo) our protocol will be poised to capture MAXIMUM value, etc etcâŚâ
The entire space came to resemble an unironically earnest masterclass in absurdity. Because that is, ultimately, what it was. And so, I developed expertise in tearing crypto white papers apart over their gibbering technical Esperanto and nonsense logic, ideally, in front of as many people as possible.
I made no attempt to hide my annoyance at every new projectâs âgraphic saladâ or âFlying Spaghetti Monsterâ tech stack representation, alway a meaningless clownshow of sleek-designed neon-pastel toned boxes, cylinders, arrows, and lines indicating some much "obvious value."
I came to regard every crypto project as, at absolute best, a solution looking for a problem. A viewpoint that still holds to this day. No âcryptocurrency expertâ Iâve spoken with, no matter how well-educated or well-meaning, has ever been able to articulate to me how a given âblockchainâ solution solves any real (non-speculative, non-gambling, non-financial crimes based) problem better than existing solutions, imperfect as those may be.
Anything goes and weâre all gunna get rich AF!
But most of all, I was perturbed because we had very much not gone âto the moon.â If anything, my crypto holdings seemed to be, boldly, charting a path for the Marianas Trench, perhaps an equally ambitious though categorically different feat.
This disillusionment with âcryptoâ though healthy in retrospect, unfortunately also spawned an apathy towards bitcoin, what would ultimately become a long pause that significantly slowed my bitcoin understanding.
If there was any mentor in this situation, it was the market itself, all cruel vagaries, malicious intent, and so many rows of glistening, blood-stained teeth. As the long 2018â2019 crypto winter set in, defeated and financially depleted, I, like so many others, assumed (rightly) that crypto was a scam and (wrongly) that bitcoin was âdead.â I resolved myself to let go of all expectations so that I might be pleasantly surprised if the bitcoin price ever, for some unfathomable reason, did recover.
How could I have known how many unfathomable things would transpire both in the world and in my own life by the time that this would actually come to passâŚ
ćŻçšĺ¸ćťäşďźćŻçšĺ¸ä¸ĺ˛ďź(Bitcoin is dead! Long live Bitcoin!)
Thanks so much for reading Part 02 of my story! I look forward to any comments or feedback, it brightens my day and inspires me to keep writing! And in case you missed it, you can read Journey Into Bitcoin 01 here.
Postscript
In the spirit of inter/multi-disciplinary bitconery, here are a few top notch recommendations that to me are related to elements in this piece.
Music: Canât Con an Honest John, The Streets; Dip, Young Fathers; Everything Is Recorded, Everything Is Recorded
Movies: No Manâs Land (2013), Shang-Chi (2021), The Message (2009)
If youâre ever in Shanghai: Sober Company (fine dining, 4 bars concepts at venue, 1 is hidden), Speak Low (Shanghaiâs original speakeasy), The Odd Couple (East Meets West Pac-Man Bar)