Almost everyone is getting “crypto” wrong
Not just Ben McKenzie
Hello! We’re back in your inboxes with a look at a hunky actor’s flawed crypto crusade, then we examine the questions raised after Circle zapped its Zama stablecoin. We close with a smattering of Glitchy happenings guaranteed to delight.
Just a heads up as well, in case you missed it during your busy spring-time schedule: we recently ran a detailed breakdown of the novel security challenges that come with AI agents. Take a moment for it.
What we talk about when we talk about crypto
by Mike Orcutt
I was watching journalist Mehdi Hasan’s recent podcast interview with the actor Ben McKenzie when something curious happened.
“It’s a get-rich-quick scheme,” McKenzie said when Hasan asked him to explain what crypto is “to those of us who still don’t get it.” Crypto doesn’t work as money, he argued, so it should be seen as nothing but an unregulated investment scheme. “Is it a scam? Is it a con? Is it bullshit? Is it not real?” Hasan asked. “Yes,” McKenzie said with a wry smile.
The show then cut to an ad, read by Hasan, for a company offering to “track down and remove” its customers’ data from the internet using an automated process that monitors “hundreds of known data brokers that collect and sell your data without your consent.”
“The number of data breaches worldwide rises every year,” Hasan read. “This means that you and your loved ones are at increasing risk of having your personal information exposed online.”
No shade to Hasan—people have to pay the bills—but he was apparently oblivious to the fact that a powerful solution to the problem he described in the ad may come from the crypto world. You know, the thing his guest had just been shitting on.
Talking points are cheap
I never watched “The OC,” the popular teen drama from the early aughts that launched McKenzie’s acting career (my colleagues tell me he played a bad-boy outsider with a heart of gold). But two years ago, he co-wrote a book with journalist Jacob Silverman called Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud. Lately, he’s been making the rounds on liberal-leaning podcasts, dunking on crypto bros and shilling a documentary he wrote and directed called Everyone is Lying To You For Money. “What began as a promise of financial freedom has evolved into a volatile ecosystem rife with fraud and reckless gambling, carrying with it devastating consequences for everyday people,” reads the film’s website, describing how, in the movie, McKenzie “turns investigator, pulling back the curtain” to expose the situation.
A professional actor, he’s a polished talker, and he has a list of anti-crypto talking points that he skillfully works into every conversation. He evades questions that veer out of the scope of those talking points and gets away with it because the hosts (again, no shade to them) don’t have a deep enough understanding of the subject matter to call him on it. In most of what he says, he’s not wrong—he often starts from a basis in fact. It’s just that what he says is incomplete.
This isn’t an act of investigative journalism, it’s a rhetorical tactic designed to make his political point—namely that crypto is an elaborate financial scam. And there are very many corrupt and scammy things going on in crypto! That is demonstrably true, and to pretend otherwise would be disingenuous. But so is omitting that cryptocurrency systems have inspired breakthrough technological innovation in data privacy.
Look, this isn’t about McKenzie and Hasan, per se—though McKenzie’s insistence on kibbitzing with prominent hosts like Hasan, Jon Stewart, and others with large followings is distinctly unhelpful. The underlying point is more about the sorry state of political discourse, particularly in America. Once an issue leaves the realm of safe, niche obscurity and enters the popular mind, polarization quickly sets in and nuance dies out in favor of half-truths and prolonged campaigns of information warfare, rather than discussion of facts.
By now, we all know what this looks like with crypto. The narrative is basically: Democrats are doomers who want to kill crypto. Crypto is MAGA, and pro-crypto is pro-crime and corruption. These are extreme, exaggerated statements that may be rooted in truth, but only loosely.
Why does all this matter? Let’s return to the ad that Mehdi Hasan read on his show, about how our personal data is at risk.
Forget “crypto.” Focus on your data.
Cryptocurrency can indeed be useful to fraudsters, scammers, and scoundrels. That’s a big problem. But so is what Hasan described in the ad. The internet has become an extremely adversarial place, and your personal information has become a target—often a fairly easy one. If the folks who want your data can’t steal it, they can probably buy it from a data broker.
Many of us may feel a sense of fatalism about our data being everywhere; we’re used to being the subject of microtargeted ads, and news about massive database breaches is so frequent it’s become like background noise. But the problem is much worse than most people know. As one example, a bipartisan group of legislators recently sent a letter to the Pentagon, sounding the alarm about how America’s adversaries have used “commercial location data” to target US soldiers in an active war zone.
If the US can’t even protect its own soldiers from the work of data brokers, what hope is there for regular people?
It seems unlikely that policymakers will fix this. Could technology? Tools the cryptosphere has incubated during the past decade are powerful enough that there’s a reasonable chance.
Blockchains as originally designed are transparent to a fault—pseudonymous blockchain addresses, account balances, and transaction data are visible to everyone. Because of this, and because there are no humans to police selfish, antisocial, or even criminal behavior, it’s safest to assume that other blockchain users are trying to glean information about you so they can take advantage. Protecting sensitive personal information in this environment is vital. Privacy is security.
Cryptographers have long understood this, and many have been chipping away at the blockchain privacy problem for more than a decade. A result has been the emergence of powerful new capabilities, like zero-knowledge proof systems, that promise a new digital reality in which we have precise control over who can access what information about us, and even have the power to prove things about ourselves without revealing anything else.
Do your normie friends know about any of this? Do they know that software developers working on these technologies are hesitant even to test them in the real world for fear of potential criminal prosecution? Because if they don’t know that, they surely don’t realize that civil liberties advocates have fought like hell to get language in the US government’s big proposed crypto market structure bill, the CLARITY Act, that protects crypto software developers from this sort of prosecution. If they turned on Hasan’s interview with McKenzie to learn a thing or two about crypto, they didn’t hear anything about that. If they listened to the whole thing, they may have even walked away convinced their democratic duty is to simply stand opposed to “crypto” without learning anything else about it.
The evolution of technology is, in many ways, a social phenomenon. Conversations about a new thing or capability shape what it ultimately becomes. The typical back and forth between crypto folks and those who, to use Hasan’s language, “still don’t get it,” has always made me cringe. But now that crypto is just another political issue, most of the real dialogue that may have existed before has been reduced to a flamewar. Maybe that was inevitable. But it seems bad if technologies that could improve privacy and freedom online are getting lost in the shuffle.
I’ll go out on a limb and suggest that whether you lean left or right, you don’t like authoritarianism or the idea of a panopticon. But it’s not only that governments are quickly gaining in their capacity to learn about, locate, and track their citizens online—it’s getting easier and cheaper for anyone to learn about, locate, and track you. The global push for age verification laws and digital government IDs, and the expanding power of artificial intelligence systems stand to make matters much, much worse.
Advanced cryptographic systems originally built to help blockchain users keep transaction data secret could offer desperately-needed privacy protections for all of us. But the more folks who choose political flamewar over good-faith, evidence-based dialogue, the less likely that outcome seems.
Here’s a Glitchy thing:
Circle froze a private stablecoin in response to a court order. The coin is called confidential USDC (cUSDC), and it lives on the Zama protocol. Like other private stablecoin systems that use Circle’s stablecoin, it relies on a smart contract on Ethereum, where users deposit USDC in return for a more private version, which they withdraw from a corresponding contract on Zama. The protocol uses an advanced cryptographic technique called fully homomorphic encryption (FHE) to keep cUSDC balances and transaction amounts secret. At a high level, FHE enables computation on encrypted data without decrypting it.
On May 29, a federal court in California ordered Circle to switch off the cUSDC contract on Ethereum, freezing the whole $12.6 million supply of the coin. Why? In the background is a classic crypto tale: investors in a DAO say the DAO’s founder tried to abscond with the organization’s $12.5 million treasury, so they took him to court, which ordered the freeze.
Someone did deposit that much money into the cUSDC contract earlier in May, according to a Zama founder Rand Hindi. Hindi said his team was surprised that Circle did not warn them before freezing those assets. Then, on June 1, the court lifted the freeze on cUSD. “Zama’s cUSDC contract, along with all the USDC held in it, are now back to normal,” Hindi wrote on Twitter.
What’s the takeaway here? The high-level design—deposit a stablecoin like USDC into a smart contract on Ethereum, and get a private stablecoin via a corresponding smart contract elsewhere—raises thorny questions about legal responsibility. (We touched on some of these at the Stablecoin Privacy Summit in April.) Now we have a more concrete one: Should we expect Circle to keep freezing entire private stablecoins?
“We believe this was a circumstantial case, and it does not reflect Circle’s posture, or that of any other stablecoin issuer, on freezing assets held by a protocol,” Hindi wrote, suggesting that future responses involving Zama could be more precise. Hindi said Zama aims to design the system such that “if Circle freezes a USDC address, it will propagate automatically and freeze the corresponding cUSDC held by that address.”
ETC.
A security researcher used AI to find a vulnerability that’s been lurking in Zcash’s primary anonymous pool, Orchard, since the pool’s inception in 2022. And we can’t know for sure whether it was ever exploited. Behind the bug hunt was Shielded Labs, the company where Zooko Wilcox, who led the original development of Zcash, now works. (Shielded Labs / Twitter)
The developers working on Zcash have responded with upgrades, which required a blockchain “soft fork” followed by a “hard fork.” Zodl, the VC-backed startup developing Zcash tools and technology, has also proposed a new shielded pool, called Ironwood. (Zodl / Twitter)
Researchers from NVIDIA and Microsoft say AI agents are like Mr. Magoo. The cartoon character, known for his nearsightedness, is literally blind to the consequences of his bumbling actions. According to the researchers, AI agents “consistently exhibit Blind Goal-Directedness (BGD): a bias to pursue goals regardless of feasibility, safety, reliability, or context.” (404 Media) (Related: How agents are changing the meaning of computer security)
Seattle is on the verge of passing a one-year moratorium on new data centers. The plan is to spend the year figuring out how to create regulations tailored to the AI industry. (The Guardian)
A poll by the climate-focused outlet Heatmap found that 7 in 10 Americans do not want new data centers built near where they live. That’s up from 4 in 10 a year ago. (Heatmap)
Don’t worry, the Trump administration isn’t turning doomer. That’s basically what tech investor/influencer and former White House advisor, David Sacks, said about an executive order related to AI that the president signed last week. The EO calls for a “voluntary framework” through which AI developers could engage with the government on national security risks and other sensitive issues associated with “frontier” AI models. Sacks reportedly “hated” an earlier version, which Trump backed out of signing at the last minute. “The change in the EO from a 90 day to a 30 day period is a game changer because it allows AI labs to comply … without delaying new model releases,” Sacks said. (Twitter)
A new political action committee will support “Congressional leaders who advocate for policies that allow crypto technologists to build with clarity and confidence in the United States.” The Defend Developers PAC’s founder is the DeFi Education Fund’s policy lead, Gavin Zavotone, and the board includes DEF’s CEO Amanda Tuminelli, Solana Policy Institute CEO Miller Whitehouse-Levine, and Uniswap Labs Head of Policy Brian Nistler, among others. (Defend Developers PAC)
“This is a pro-regulatory bill, it’s a pro-law enforcement bill, truly.” —White House cryptocurrency advisor Patrick Witt, during a virtual town hall last week, focused on the CLARITY Act. Opponents have suggested that language in the bill aimed at protecting crypto software developers from unfair criminal prosecution will hinder law enforcement’s ability to police financial crime. (The Block)