book review

Book Review: Nathaniel Ellison’s Essential ‘Crypto Confidential’

Shein is a Singapore-based clothier that makes clothes in just-in-time fashion as a way of it relentlessly trying to mirror the needs and styles of its users. While future brides frequently purchase custom-made wedding dresses, Shein makes it possible for its customers to buy every clothing item as though they’re a bride.

Have you heard of it? Don’t feel bad if you haven’t. Until recently, I hadn’t either. Which is the point. What I hadn’t heard of is the world’s largest fashion retailer, and hugely popular with young Americans, and young people around the world. It seems the Shein way is the way young people increasingly buy clothes, and the bet here is that their buying habits will soon enough be ours.

Shein came to mind while reading Nathaniel Ellison’s excellent new book, Crypto Confidential: Winning and Losing Millions in the New Frontier of Finance. As I read about Discord, tokens, farming, gas, bored apes, and all manner of aspects of the crypto world, I found myself thinking the young yet again are inventing an entirely different future.

Recognize that the above assertion comes care of someone who has published a book, The Money Confusion, that is subtitled with How Illiteracy About Currencies and Inflation Sets the Stage for the Crypto Revolution. How, if I see crypto as the future, could I not be intimately familiar with all the crypto lingo that Eliason is?

The answer to the question can be found in my deeply held view that money in circulation is as natural a market phenomenon as the goods and services it facilitates the exchange of. When he was reporting on commerce in action centuries ago, Adam Smith casually observed that “the sole use of money is to circulate consumable goods.” Crucial about Smith’s observation is that nothing’s changed. Production is what always and everywhere precedes consumption simply because production is an expression of a desire to consume. Money is the agreement about value among producers that enables rapid exchange, which means money in circulation is yet again a natural market phenomenon. Where there’s production there’s always money, as though it was placed there by – yes – an invisible hand.

The only thing that’s realistically changed since Smith’s times is the sad rise of economists. They chose to arrogate to themselves a role in centrally planning the laughable notion of “money supply,” only for money to be perverted by the PhD crowd from a facilitator to an actual instigator of production that must be controlled by economists, as opposed to a natural aspect of production that exists as though once again places there by an invisible hand.

My book predicted a crypto or private money future simply because the toxic combination of economists, governments and money has long resulted in currency instability, devaluation, and usually both. The latter has led to the creation of trillions daily worth of currency trading that didn’t formerly take place, and that would thoroughly puzzle Smith, David Ricardo, Jean-Baptiste Say, Albert Jay Nock, John Stuart Mill and all manner of other classical economic thinkers who understood that producers never, ever buy things with “money,” rather they buy products with products, money the measuring rod that fosters exchange. Crypto is the future simply because someone in this new world of gas, Discord, tokens, farming, and bored apes will issue exchange mediums with foot, minute, and tablespoon qualities of constancy, and that will replace the dollar, pound, euro, yen and Swiss franc. There’s too much money being made in the very necessary currency trading that also very unfortunately wastes so much human potential, which is why crypto or private money is the future.  

Those are some of the beliefs that inform why I read Eliason’s book so eagerly, and also why you should. And while I still don’t understand what a “blockchain” is or why it’s important after reading Crypto Confidential, I’ll say that Eliason explains it better than anyone. Along with all sorts of other crypto concepts. If you’re looking for a great story that also educates you on the currency world ahead, buy this book. And explain blockchains to me once you’ve read it.

About my inability to get blockchain, it can’t be stressed enough that my confusion is neither a comment on Eliason nor a dig. In truth, it’s another powerful signal to me that crypto has a bright future that Eliason and others will create. Lest readers forget, there was a time when no one understood the internet either. Jimmy Soni, author of the excellent book (review hereThe Founders, writes a glowing blurb for Crypto Confidential (going forward, it will be referred to as Crypto), and Soni’s book (I probably quote it more than Soni does) reminds readers that up to the final days of the 20th century, and surely beyond, the U.S. Postal Service still played a starring role in the vast majority of transactions. It’s also notable from Walter Isaacson’s book about Elon Musk that when the Musk brothers (Elon and Kimbal) were pitching their searchable database (Zip2), they endured lots of disbelief that internet search would ever replace the Yellow Pages…

Which is a long way of telling readers that as you read Crypto, embrace your confusion. Better yet, revel in it as you read passages like “the mystery investor would buy a bit, pair it with ETH, and deposit it into the liquidity pool so they could farm the CRAFT-token rewards.” That we don’t understand what’s coming means what’s coming promises to really and truly improve life and living standards for the better. Just as the internet is now a dominant fact of life that we understand and can’t live without, so will blockchains eventually become routine to us. Young people taught us how to use the internet, and they’ll gradually do the same with cryptocurrencies.

Which brings us to a more detailed discussion of Eliason’s book. He was a blogger of some reknown, had been working in marketing, but perhaps as evidenced by his graduation from Carnegie Mellon, Eliason had a technical mind.

This is important mainly because after exiting his marketing job, Eliason found himself fearful of the future. Married in Austin, TX, with a child on the way, he was looking for a way to make a living that would make it possible for him to secure his family’s future.

As a regular at a coffee and pastry hangout called Velocity, Eliason found himself exposed to the growing crypto economy. Even Johnny, the relentlessly optimistic owner of Velocity, was speculating heavily in crypto. Which was plainly the problem. And Eliason knew it. “Quinn” (the name is put in quotes because Eliason is clear that he changed some of the names in his memoir) had already made a lot money in crypto, and she warned Eliason against existing as “exit liquidity” for more seasoned speculators. Translated, you want to be buying Nvidia in July of 2022, not 2024. Crypto is no different. Precisely because it’s new, or old, depending on how you see it, you need to be early to make the real money. Think Bitcoin, the most famous crypto coin of all.

Eliason reports that as late as 2010, “someone spent ten thousand Bitcoins on two Papa John’s pizzas.” Do the math there…Since then, and as many readers know, Bitcoin has been all over the place. Per Eliason it rose to $1,100 per coin in 2013-14, but fell to a low of $172 by the end of 2014. In 2017, it rose as high as $20,000, but sat at the $3,000 as 2018 was ending. As this review is being written, one Bitcoin fetches $65,000.  

All of which speaks to why Bitcoin is decidedly not money. In truth, it reveals all of the worst qualities of really awful government money. Seriously, who in their right mind would buy, sell, borrow, or lend with the coins? Depending on when you do any of the four either you would make out in a major way, or you would lose even more substantially. Real money is the sober measure enabling the exchange of goods, services and labor for goods, services and labor.  

Which is the why behind the rise of gold as a definer of money long, long ago. Gold didn’t just happen one day, nor was it some kind of random discovery, rather gold’s unique stock/flow characteristics imbued it (and still do) with constant qualities of the foot, minute and tablespoon variety. The reality is that gold doesn’t move, but the currencies in which it’s priced do. It explains why gold is such a unique hedge against actual inflation; meaning shrinkage of the unit: gold moves up as the unit moves down. Bitcoin has none of these qualities. It’s merely a speculation, while gold is a purchase of constancy that will objectively reveal the merits and demerits of the currencies in which it’s measured.

Eliason makes the crucial point that that “Before Bitcoin, there was no way to move money around the world using the internet without going through a financial institution.” Think about what this means for people in Afghanistan, Iran, Venezuela and other locales where the local currency isn’t even trusted by the locals. It’s a reminder of what crypto can be, but also why Bitcoin won’t be the one standing if and when digital money replaces traditional forms. Once again, how to transact, lend, borrow or save with something so turbulent, and which because it’s so turbulent, exhibits none of the qualities of money?

Further on Bitcoin, Eliason makes a traditional libertarian point (to be clear, I’m a libertarian) that “If your government routinely devalues your savings by printing money, a store of wealth with a fixed supply suddenly becomes very attractive, especially if you can store that currency digitally and easily access it anywhere in the world.” There’s no argument about the storage qualities and global access, but major pushback on the fixed supply. The “fixed supply” aspect of Bitcoin reminds us of just how much Milton Friedman and the economics crowd perverted what money is with their puzzling focus on so-called “money supply.” It presumes that money creation instigates commerce as opposed to what’s true, that money is yet again a natural consequence of commerce.

Which means the supply of it would never be fixed simply because production is money. That’s why there’s lots of money in Palo Alto, but very little in west Baltimore. Central planners didn’t decree this outcome, rather trusted exchange mediums are always, always, always where there’s production. Applied to Bitcoin, the pretense that its fixed supply gives it legitimacy is like saying that foot rulers, timers and cups would be more valuable if there were a limited supply of them. Quite the opposite, actually. The reality is that is you can never have too much (or too little) good money simply because you can never have too much production.

Eliason writes that “If you could vote on the inflation rate for your currency, would you ask for more inflation?” He’s asking the previous question to make a case for Bitcoin as protection against inflation par excellence, but then as his own discussion of extraordinary Bitcoin volatility reveals, the crypto coin has been all over the place despite the promise of fixed supply. In reality, what makes money most like money is a fixed price, not fixed supply. Or does it? Perhaps the crypto types will succeed in redefining what money is, but for now, and as evidenced by daily currency trading measured in the trillions, the markets very much desire currency price stability. Currency markets are loud evidence that those with title to money aren’t exactly thrilled with its instability borne of economists winning out over price rules when it comes to official policy.

Importantly, Eliason’s book is not just about Bitcoin, or even a lot about it. If it were, there’s likely no book as Eliason would have served as “exit liquidity” for someone else long ago. Eliason was eager to make real money with his family top of mind, and he combined Quinn’s advice about still unknown coins with an eye on farming the right coins or “tokens” that would attract serious buying necessary for the exits crypto owners were, and seemingly are, reliant on to make money. As Eliason puts it, “crypto speculators are gamblers.” No doubt they are, which raises more questions not as a critique of Eliason, but as a comment more than anything: money is supposed to be quiet, or in the words of George Gilder, it’s supposed to be low entropy. If money is being talked about, or if it’s the story, then it’s not money. This isn’t to say that it will never be money, but it asks what crypto experts think of all the volatility: do they think these volatile tokens can be money in the world that’s ahead, or are they solely focused on the gambling/speculation part?

It’s hopefully a pertinent question for reasons beyond money. That is so because Eliason is clear that the coins or tokens he was “farming” or arriving to early were attracting enormous liquidity. Consider the “HawkDex.” As Eliason explains it, “Despite its having been alive for only a day, there was more than $100 million already deposited into farming the token.” What is farming? I still don’t know despite Eliason’s very patient and pithy explanations. Just the same, I DO believe I will know, and that we all will. Why I think this has to do with the massive amounts of money flowing to these new concepts in such a short time. The future is being discovered.

More on HawkDex, the quick arrival of $100 million to the newborn is yet another rejection of the Fed narrative that excites too many, including sadly, all too many libertarians. The reality is that it’s not that important either way. Money always and everywhere finds opportunity, and without regard to the doings of the Fed. Just as money flowed in staggering amounts to AI concepts amid lots of rate “hiking” by the Fed, so has it found its way to crypto. Future generations will marvel at the Fed obsession. So much wasted emotion on near nothing.

About the Fed comments, they should in no way be construed as nonchalance about currency devaluation. More realistically, the dollar’s exchange value has never been a Fed function contra the deeply held views of libertarians, neo-Austrians, monetarists, and nearly other market-oriented economic school. Lest readers forget, when FDR devalued the dollar in 1933 (from 1/20th of a gold ounce to 1/35th), and reserved the right to continue fiddling with the dollar’s value as he saw fit, he did so in the face of loud protests from a Federal Reserve Chair (Eugene Meyer) who was powerless to stop him. So incensed was Meyer that he resigned his post, and bought the Washington Post in order to protest FDR’s inflationary policies.

Fast forward to President Nixon, Fed Chair Arthur Burns begged Nixon to not sever the dollar’s link to gold. The problem is that he too lacked the power to do anything about it. Again, the dollar’s exchange value is not part of the Fed’s policy portfolio. It never has been. Furthermore, the very notion of a central bank controlling inflation through so-called “money supply” is a non sequitur given the much bigger truth that devaluations are as old as government involvement with money, and no doubt older even than that. To then presume, as the various market-oriented schools do, that the dollar’s weakness relative to a century ago is a Fed story really and truly brings new meaning to absurd. If any readers doubt this, particularly libertarian readers, they might contemplate whether they seriously believe that absent the Fed’s formation in 1913, that the dollar would remain 1/20th of a gold ounce.

More throat clearing like the above is required simply because Eliason makes the essential point that “Argentineans worried about the government zeroing out their savings via inflation could simply buy the dollar-pegged stablecoin USDC with every paycheck, park it in one of the lending apps to earn some interest, and instantly have access to the currency stability and many of the same financial services of a U.S. citizen.” Yes! Eliason’s description of stablecoins speaks to the genius of what’s taking place. People work, they take money for their work, but the money doesn’t always hold its value. Argentina is one of many countries that has devalued its currency to worthlessness, and by extension it’s one of many countries where the dollar has long circulated not because Fed officials provided it with so-called “money supply,” but because producers require a reasonably trusted currency, period. In other words, production around the world is the surest sign of dollar circulation. Get it? Where crypto, or stablecoins come in is as a market response to local currency instability, and as an even easier way for producers to buy, sell, lend or borrow goods, services and labor.

It’s a long way of saying that devaluation is a problem, arguably the biggest economic problem in the world, and that crypto exchange mediums pegged to the dollar will exceed the dollar itself as a way of mitigating government confusion about what money is. The problem with money is governments, not central banks created by governments.

And yet as I read Eliason’s essential point about Argentina, stablecoins, and the immense value of digital money, I found myself wondering. If crypto is meant as a way out of currency error, why the focus on the dollar? Or measurement of so much in dollars? The question is raised because after making “a few thousand dollars” in “shitcoins” (Eliason’s description of the vast majority of crypto monies) like DOGE, the wildly intelligent Eliason went pro as it were. No gambler, he became a serious student of crypto on the way to making millions (at least on paper) in this all new world. This is notable for so many reasons (the book is about Eliason’s understandable and very noble desire to provide), but for the purposes of this review/commentary, it’s notable because the story for all crypto players, from the dabblers to the pros, is how to exit into dollars.

Think Quinn yet again, and the new entrants in search of quick returns actually serving as the proverbial sucker, or “exit liquidity” for the pros. Eliason explains it so clearly throughout that your net worth (always measured in dollars) in crypto has little to do with your actual net worth. Since your “wallet” is open to the public, and since the crypto markets remain highly illiquid despite valiant efforts by people like Sam Bankman-Fried to make them liquid (the deeply held view here is that SBF’s imprisonment is a major shame, and that in time he’ll get his reputation back as someone who went to great lengths to legitimize this new world of money), realizing one’s paper net worth is much more often than not a fool’s errand. In other words, selling highly appreciated Shitcoins is not the same as selling shares of ExxonMobil.

Still, there remains what won’t go away: while crypto money is billed as an escape from unreliable fiat money, the reality is that the underlying theme of the crypto world is that the owners of the coins aren’t much different from owners of Venezuelan bolivars, Argentine pesos, Iranian reals and Russian rubles: they’re all trying to figure out a way to get out of paper or digital money, and into dollars. And this includes Eliason. Crypto begins with Eliason having $10 million worth of crypto assets at risk, and trying to figure out how to dollarize his digital wealth. In his words, “this was crypto. Everything was public, everyone could see what I was doing, and more than a few were already watching me. They’d notice if I pulled my money. They’d get scared and start asking question, or they’d assume I knew something was up and pre-emptively sell everything.”

What can’t be stressed enough about Eliason’s highly exhilarating story, and highly uplifting story of providing for family, is that it also speaks to the problem of crypto as we know it today. While tokens, farming, gas, Discord, blockchain and the rest will eventually become second nature to those of us still trying to understand what the hell a blockchain is, what keeps your reviewer skeptical is the speculative nature of the actual crypto coins. And this isn’t just because Eliason had a front row-seat to the implosion of Luna, one of the bluest of blue chip stablecoins. About the latter, and as was argued in The Money Confusion (and many columns before the book), we would know crypto was for real once myriad crypto coins and businesses started to collapse. It was and is a sign of a serious market. It’s a short way of saying that the carnage in crypto, and that Eliason writes about so entertainingly, speaks to crypto’s bright future.

At the same time, what has me wondering through it all is if the proponents of this dazzling future understand why it’s dazzling. Simply put, good money doesn’t go up or down. As in truly dazzling money is as boring as the inch. Money isn’t wealth as much as it’s a measure of it. Good money isn’t ever even thought about except for being thought about in the hope of earning it. This rates routine mention from me given my deep belief that the crypto crowd has made the same mistake as economists have been making for decades: complicating what isn’t complicated. Sorry, but “the sole use of money is to circulate consumable goods.” The bet here is that the winners in crypto will figure this out, and in doing so will brilliantly replace fiat money (including dollars) with money that has inch-like qualities. About the previous sentence, I want to know why I’m wrong.

The questions keep coming up because Eliason’s story is one about speculation, market-timing, exiting. Talking readers through his ownership of a certain token, Eliason writes that “Starting with the supply side, you have to ask yourself: based on supply alone, should I expect the token to hold or increase its value, or will that value be inflated away by an increasing supply of the tokens?” Yet again, here’s the problem with “supply” and money. Think about it. If the money is trusted by producers exchanging products for products, it’s only natural that the circulation of the medium is going to rise as production does, and decline commensurately as production declines. With good money, increases and decreases of the good money in circulation would logically have nothing at all to do with inflation (a shrinkage of the measure) any more than a surge in the usage of stopwatches would shrink the second. Yet Eliason contends that with certain crypto concepts, and due to supply limits, “there shouldn’t be any inflationary pressures bringing down the value of the coin.” Except that as the supply-limited Bitcoin reminds us, that’s not true.

Eliason writes that he expects “inflationary tokenomics to erode the value” of coins that aren’t constrained in supply like DOGE, but the view here is that this is mistaken. There are a lot more Swiss francs in circulation than there are Argentine pesos, which is precisely the point. Good money is everywhere, while devalued money ceases to circulate altogether. Avoiding “inflationary tokenomics” isn’t a function of limiting supply as much as it’s strictly defining what the value of a concept will be regardless of its supply. The dollar circulates all over the world in large amounts. Just think how many more dollars would circulate if the U.S. Treasury revived its commitment to dollar-price stability…

The fun thing with Eliason is that as he develops an impressive understanding of these new forms of money forming under more traditional monetary structures, he’s also discovering or amplifying his own remarkable ability to program and code for this burgeoning new industry. Eliason’s mind fascinates, and it will be fun to see where he goes from here.

Most frustrating about the book is that having made serious money in crypto, Eliason recalls as “terrifying” the “looming need to pay taxes” on his gains. Stop and think about that. Muni income is exempt from federal, state and local taxes, while Treasury income is exempt from state and local, but if you’re actively putting wealth to work in order to discover the future, government reaches out with long fingers. It’s maddening.

Eliason adds about this that “The IRS can barely keep up with the crypto innovations from five years ago, let alone the DeFi and NFT stuff.” How sad and unfortunate that it’s attempting to tax this, or any other intrepid activity. The agony is magnified as Eliason realizes the IRS expects taxes to be paid on gains that are exceedingly difficult to liquefy. In other words, as he raised money to pay taxes, Eliason’s crypto net worth declined substantially.

If there’s an optimistic aspect to the tax story, hopefully the rise of private money makes hiding precious wealth from government easier and easier. And for those offended by the previous sentence, get over it. When innovators keep wealth from government, it means we all attain access to it in the marketplace. There are no companies, no jobs, and no life-enhancing advances without unspent, untaxed wealth. Conversely, when government taxes wealth away, it’s consumed such that we can’t access it.

Did Eliason succeed when it came to providing for his family? Read this excellent, essential book to find out. And ask questions as you do. The biggest for me remains the one about dollars. Crypto proponents bill the crypto future as a way to move on from fiat money, including dollars, yet as Eliason acknowledges, the rich and would-be rich in crypto are all focused on the real prize: dollars. Why?

My answer to this question can be found in the closing line to Nathaniel Eliason’s book: “I’ll see you in the next bull run.” Yes, there will be another crypto bull (some say it’s happening now), and amid this run the crypto crowd will hopefully happen on money concepts that push the dollar out of circulation as opposed to preserving it as the monetary Polaris.

Republished from RealClear Markets

Author

  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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