The Crypto-Recession: An upcoming global economic meltdown caused by blockchain technology

In recent weeks, I have grown convinced that cryptocurrency is something more sinister than just a passing fad or a speculative bubble. Cryptocurrency is one of a unique few technologies that causes economic damage through its invention. In fact, I’m struggling to think of something that is as unique as cryptocurrency, in the sense that it causes severe economic damage and yet can’t be adequately addressed. I want to give a brief overlook of some of the unique manners in which cryptocurrency causes severe economic damage. My expectation is that the next economic recession will be caused by the ongoing global propagation of blockchain technology.

Resource misallocation: The zero-sum game

The most popular cryptocurrencies depend on a zero-sum game, known as mining. It works as following: People use their computers to solve a complex computer puzzle. Those who manage to solve the puzzle decide which transactions should be confirmed and are rewarded with new coins. When more people try to solve the puzzle, the puzzle it automatically made more difficult, to maintain a stable inflation rate. Currently, Bitcoin mining uses 0.33% of the world’s electricity. Ethereum uses another 0.1%. This is electricity that is effectively lost, producing nothing valuable in the process.

Resource theft: Stealing electricity to produce coins

If you hack an old computer, what do you do with it? You can look for passwords, but other than that it’s hard to make money by hacking a computer. At least, it was hard in the past. Today, you can use the computer to mine cryptocurrencies. Although you need specialized devices now to mine Bitcoin, you can still easily mine Monero and a few other currencies. This can damage the computer in question, but it’s not yours, so you don’t care.

When people mine Bitcoin, the value of the Bitcoin earned needs to exceed the cost of electricity to mine the Bitcoin. If you hack into someone’s computer, it doesn’t matter how much electricity you’re wasting, because you won’t pay the electricity bill! Monero is thus a violation of Gresham’s law: The bad actors drive out the good actors. Currently, these hackers are thought to make up a minority of Monero miners, but this will change in the future, as legitimate miners will discover that mining isn’t profitable for them.


Resource misallocation: Personnel costs

If you’ve paid attention, you will have noticed the blockchain companies have gone on a hiring spree. You can code for a normal company and earn peanuts, or you can code for a blockchain company and earn a small fortune. When people work for a blockchain company, they’re learning skills uniquely relevant for blockchain technology. If blockchain technology delivers no clear benefit to society, the employment generated by these companies is a form of resource misallocation. It’s the equivalent of fertilizing a tree that won’t grow fruit. Keep in mind that these are big companies. The big crypto exchanges have hundreds of people working for them.

Tax evasion through cryptocurrency

In some European nations, the highest tax bracket can be over fifty percent. It’s not hard to envision a scenario, where people might choose to use cryptocurrency to underreport their income. People may also want to use cryptocurrency to avoid gift and inheritance taxes. If cryptocurrency causes an increase in tax evasion, governments will suffer growing budget deficits, with significant economic damage as a consequence.

Theft through cryptocurrency

Let’s say you gain unauthorized access to someone’s bank account. What do you do? You can send the money to another bank account, but this is suspicious and you’ll need someone willing to lend you their bank account, or somehow get a bank account that can’t be linked to you. You can also buy products on the internet, have them delivered somewhere, then sell those products to other people. Again, not a very efficient way to steal money. What’s the most efficient way? You buy cryptocurrency with the bank account! When you buy cryptocurrency, it’s relatively easy to cash out the money again. It’s hard to judge the origins of the coins once you sell them again, so you get away with theft very easily.

Companies, organizations and individuals face bankruptcy, as a result of money lost through such theft. Keep in mind, you need just one dumb person in an organization with access to the bank account to fall victim to the theft, to lead to the loss of everyone’s money. When banks decide to reimburse the victims, you’re left with an even worse scenario: People can now easily double their money, by pretending they fell victim to a cryptocurrency scam!

Gambling addiction

In some countries, gambling is illegal. In others, it’s tightly regulated, with government controlled casinos where personnel is tasked with making sure no gambling addicts lose their life savings in the casino. When the casino makes a profit, the money is used by the government for programs that (hopefully) benefit us all. Today, the gambling addicts can gamble through Bitcoin. It doesn’t matter if the US government bans poker sites, if the poker addicts can just use Bitcoin to play poker! People now lose their life savings again, as they suffer from an addiction nobody notices, as they can gamble away their life savings without leaving the comfort of their own homes. The money then ends up in the hands of the owners of these casinos.

Bitcoin blackmail

Some people make a living now, by blackmailing people through the Internet. If you send a million people an email telling them you hacked into their computer and watched them masturbating, at least a few of them will pay your Bitcoin bounty. Some people go a step further and use videos of women on dating sites, to convince men to take off their clothes for a webcam. The scammers then blackmail those victims, demanding Bitcoin.

Lethal and addictive drugs sold through Bitcoin

Since late 2012, it’s possible to buy lethal drugs online, using Bitcoin. It used to be the case that people had to use a TOR browser and all sorts of other special software to buy drugs with Bitcoin. Today a computer illiterate 60 year old woman can quite easily get her Benzos on the normal web, using Bitcoin. Teenage boys can buy steroids that will make them die of heart attacks in their forties, using Bitcoin. Again, it’s not necessary for those people to install a TOR browser or to do any other complicated stuff. It’s incredibly simple.

Funfact: Dead people are bad for the economy

Those who are willing to go a step further can use Bitcoin in combination with a TOR browser to buy highly dangerous and addictive substances, either for personal use or to sell to people in their own environment. Since 2013, we have seen a spike in deaths from synthetic opioids in the United States. This is when the dark net markets became really popular. Drug addiction causes enormous economic damage. The person becomes unemployable, may resort to theft or prostitution to fund their addiction, needs medical care, may end up in jail, etcetera. In some parts of the United States, the opioid epidemic has now become so severe that many companies are unable to find sufficient people to carry out blue collar jobs for them.

The prediction markets

Cryptocurrency is not yet mature. There are still new developments ahead. One important development still ahead of us, is the development of an anonymous prediction market, backed by a stablecoin. We are not there yet, as the technology isn’t ready yet. In a few years, this will be a widespread phenomenon. What does this mean? You can’t imagine how massive the consequences of this will be, once it happens.

To start with, you can now order assasinations online. It’s relatively easy. You make a bet, suggesting that Person X will NOT die before the end of this year. Individual Y, who is willing to kill person X, will then make a bet that the person in question will in fact die. Once the person is murdered, a set of people designated as oracles decide that individual Y won the bet. Individual Y then earns a lot of money, by getting paid for a murder. When the prediction markets are mature, you can pretty much forget about the SEC. People who work for big companies will be able to easily earn money, using their insider knowledge.

Bitcoin kidnappings

When you kidnap someone, you send a ransom note to the family, demanding money in exchange for their release. The kidnappers tend to be caught, because the ransom has to be received by the perpetrators in some way. With Bitcoin, it’s now effectively possible to receive the ransom anonymously. Bitcoin kidnappings are unfortunately a real thing. As this technology spreads from the first world to less politically stable countries, the phenomenon of Bitcoin kidnappings will become more common too.


Another excellent way to use cryptocurrency is through ransomware. You install a virus on people’s computer and display a message that tells them to send Bitcoins to a particular address. If the victim doesn’t send Bitcoins to the address, you start deleting files from their computer. If the person doesn’t have up to date backups of those files, they’re in big trouble. Most of these people will eventually tend to pay, those who don’t pay suffer serious economic consequences. The next phase of this phenomenon may soon emerge, as computer scientists claim viruses can be created that can deliver a guarantee your files will be unharmed if you pay the ransom. During recent ransomware waves some companies bought Bitcoin in advance, because they feared they might eventually get hit by a ransomware attack.

Asset seizure evasion

I’m a wealthy criminal, who made a lot of money by selling heroin mixed with fentanyl through the Internet. Fifteen people died, the cops began to look for me, it turns out I made a mistake somewhere and now they knocked down my door at 3AM and lifted me out of bed. My money however, is safe. What? Yes, my money is safe. I have 200,000 dollar worth of paper bills stacked under my bed. I have a 1.2 million dollar mansion. I have another 200,000 dollar worth of Bitcoin on my hardware wallet in my closet. The cops tortured me to get me to spill the password for my hardware wallet and seized my 200,000 dollar worth of Bitcoin.

What they didn’t realize, is that I also had a brainwallet. What’s a brainwallet? A chain of words that leads back to a particular private key in a deterministic manner. When I figured out I had made a mistake in my procedure and the cops would eventually find me, I decided to take my three million dollar Bitcoin fortune and sent it to my brainwallet address. I told my wife and my fifteen year old son to remember the following sentence: “Bitcoin is an invention that will ruin the global economy, but that’s not your problem, it’s going to make the two of you pretty rich.” 

My son and wife moved to another country, supposedly because of the stigma involved in my arrest. They soon set up a company in Malta, a little jewelry store that does surprisingly good business. As I rot away in jail, the police are none the wiser.

The consequences of the above issues

The problem outlined here is relatively simple: The balance of power has now shifted towards criminals and crooks. There are now numerous ways in which criminals can enrich themselves that were off limits or risky for them in the past. As the balance of power shifts from productive individuals towards parasitic individuals, the degree of social complexity our society can maintain is negatively affected. Imagine a healthy good looking fox wandering through the forest. Now imagine the same fox, but with ugly swollen ticks covering its body. The bulging bodies of these ticks have names on them. Some are called “ransomware”, others “blackmail”, yet others are called “darknet fentanyl”, “crypto-miner”, “ICO scam” or “Ponzi scheme”. If you have enough of these ticks, the fox becomes a sickly animal that eventually lays down on the ground and dies.

This is what the concept of a crypto-recession amounts to: A society entering the information age reaches a stage where criminal activity can conceal itself behind an abundance of white noise.

What can we do about the crypto-recession?

To start with, let me make a very important point that everyone is missing: It’s not a problem that’s going to solve itself. The liberal media tends to insist that Bitcoin is a speculative bubble that will blow over soon, so there is no long term problem in their opinion. The young libertarian men who peddle cryptocurrencies to the masses insist that this fraud is an issue inherent to every payment system, which is simply not true.

Should you ban cryptocurrency? This can help, but it doesn’t solve the entire problem. Imagine Germany decides it’s going to ban all cryptocurrency by next month. A few things happen. Companies will buy cryptocurrencies, because they fear they’ll fall victim to ransomware and find themselves unable to pay. Germans who think the price will eventually go up will buy now, to avoid regret.

Then when the scheme is banned, you’re still not rid of the problem. Germans who already have cryptocurrency won’t let go of it. Teenage boys who want to buy steroids will leave their computer on for a few nights, to mine Monero. People who find ransomware on their computer will call their uncle Bob, because uncle Bob used to work with a guy who was very much into this cryptocurrency thing. Some people will have Steam games they can sell online for cryptocurrency, others may simply reply to a job posting that offers payment in cryptocurrency. People who are fearless will simply meet up at a train station and buy some coins, even though it’s against the law.

If you want to truly eliminate this phenomenon, you’ll have to create a totalitarian society. You can discourage people from participating, but your discouragement won’t mean much to them, when they notice their neighbor drives around in an expensive car. Governments should regulate the cryptocurrency companies and force them to share information when they see patterns that are very suspicious, but this won’t be sufficient to address the problem either.

Cryptocurrency is a technology we will have to learn to live with. It’s a rare and tragic example, of a technology that delivers no clear benefit to humanity but nonetheless becomes pervasive throughout society. For now we can expect accelerating economic damage, as our economy hemorrhages money. There are times and places, where hard work is the easiest way to get ahead. Our time is a time when online scams are the easiest way to get ahead in life. Twenty-something year old boys who become millionaires today don’t do so by inventing something useful, no, they set up scams and trade drugs through cryptocurrencies.

Most people don’t take this problem very seriously. The idea critics tend to have is that this whole phenomenon eventually fades away and all the angry libertarian men have to go back to their day job. The thing the critics forget is that Bitcoin is not a normal currency, it’s an entirely new phenomenon. If you insist it works terrible as a store of value or a currency, you’re ignoring the simple fact that you can now hack someone’s computer and force them to send their money to you.  To compare this thing to gold or to Paypal, is like judging a dolphin on its ability to climb a tree. As a result we see that every time critics breathe a sigh of relief as the price has crashed, they eventually find themselves faced with the bitter reality that the scheme has returned and become more malignant than the time before.


  1. What you’re saying, while certainly true, is already being accomplished through the traditional economy. How much electricity to various banks and payment processors use when carrying out their day to day operations relative to bitcoin and other cryptocurrencies? How much electricity do their employees and customers use in their private lives that is derivative of traditional banking and payment processor activity?

    Also, the Panama Papers shows that people can do all the illegal things you describe and still get away with it because nobody of consequences cares or is willing to act because the real criminals have so much money that they accomplished regulatory capture a long time ago and are untouchable.

    Also, crypto isn’t anonymous, and there is always a trail. Almost all publicly released software is probably compromised at the root level, but good luck knowing that unless you are one of handful of experts in the field who just happens to use their time to figure that out. Cryptos are likely a surveillance honeypot / experiment / money-making scheme for a handful of rich insiders and their enablers in government.

  2. How much electricity to various banks and payment processors use when carrying out their day to day operations relative to bitcoin and other cryptocurrencies?

    Banks and payment processors use fiat currencies, which are created by fiat of a central bank. This basically consists in adding a few zeros to a number in a digital ledger somewhere — i.e. a negligible cost.

    By contrast, bitcoins and other cryptocurrencies are created through bitcoin mining, which uses an incredible amount of electricity. Mining involves a proof-of-work process, which involved solving computationally expensive math problems. This is made worse by the fact that it is zero-sum — multiple miners are chasing the same bitcoins, but only one wins so all the others have essentially wasted the electricity used in the process.

    The main purpose of the mining, though, is to validate the day-to-day transfer and exchange transactions. For traditional currencies, a transfer between two banks is relatively easy — if Bank of America tries to cheat Citibank, Citibank will sue them — and news of this will hurt Bank of America’s reputation more generally. All the major banks and stakeholders have an interest in dealing fairly, so typically no extra layer of verification is needed for transactions. For cryptocurrencies to have any advantage over traditional currencies, though, they have to be nearly anonymous. Thus, reputation is worthless for validating transactions. Instead, bitcoin relies on the proof-of-work process mentioned above — which uses a lot of electricity.

    So the electricity use of both creating cryptocurrencies and of making cryptocurrency transactions is much higher than for traditional fiat currencies. This is inherent to the nature of cryptocurrencies — most attempts to solve these problems would lead to the elimination of the perceived advantages of cryptocurrencies.

    Also, the Panama Papers shows that people can do all the illegal things you describe and still get away with it because nobody of consequences cares or is willing to act because the real criminals have so much money that they accomplished regulatory capture a long time ago and are untouchable.

    Also, crypto isn’t anonymous, and there is always a trail.

    This is a specious argument. It is always impossible to eliminate crime. The best we can ever do is to reduce the opportunities for it and create incentives to reduce people’s desire to commit crimes.

    Objectively, cryptocurrencies create more opportunities to commit crimes. Objectively, cryptocurrencies work around the incentives against committing crimes. So all things being equal, we expect cryptocurrencies to increase the number of crimes committed.

    Yes, there is still a trail, but the trail is harder to follow — that’s one of the major advantages of cryptocurrencies according to its proponents! Its efficacy for getting away with money laundering is one of the selling points for cryptocurrency!

    What the Panama Papers disclosures show us is that we have to work harder to hold people accountable for “white collar” financial crimes. Cryptocurrencies make it harder to hold people accountable for such crimes.

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The patients in the mental ward have had their daily dose of xanax and calmed down it seems, so most of your comments should be automatically posted again. Try not to annoy me with your low IQ low status white male theories about the Nazi gas chambers being fake or CO2 being harmless plant food and we can all get along. Have fun!

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