For years, crypto was the domain of techno-libertarians and so-called cypherpunks, who traded—and shared their enthusiasm for—alternative currencies on the dark web and message boards. But the meteoric rise (and fall and rise and . . .) of Bitcoin, Ethereum, and other coins over the past year has catapulted crypto into the public imagination. Paper billionaires have been minted overnight, catching the eye of neophyte investors, con artists, and regulators alike. Here’s a guide to the new players.
Brian Armstrong, cofounder and CEO of the six-year-old Coinbase trading platform, was the first to put a consumer-friendly face on crypto. His service now has more than 20 million users and, by the end of last year, had exceeded $1 billion in revenue from trading fees. Mainstream interest has led Square, Robinhood, and Circle to debut crypto-trading apps as well, creating more options for people to enter the market.
The Coin Kings
One of the biggest questions facing early crypto bulls: What to do with their newfound wealth? Chris Larsen, cofounder of virtual currency Ripple, which rose 36,000% over the course of 2017 (it has since come back down to Earth—somewhat), used some of his billions to help his company donate $29 million to fund all of the 35,000 classroom projects on DonorsChoose.org in March. The Winklevoss twins, who used their Facebook millions to launch a New York-based exchange called Gemini, have started dabbling in crypto art auctions. Other Bitcoin millionaires have been moving to Puerto Rico to establish a crypto utopia, called Sol, in order to avoid federal taxes on income and capital gains while sipping piña coladas.
As currencies proliferate and remain largely unregulated, scammers have rolled out fake and misleading initial coin offerings to investors with false promises of returns. A recent study found that 80% of ICOs are scams. Some are led by marketing-savvy con artists, who lend an air of credibility to their ventures by issuing white papers about their work. Others have more high-profile backers: As Venezuela’s currency, the bolívar, plummets, President Nicolas Maduro has been promoting an altcoin called the petro that he claims “can take on Superman.”
The Brazen Opportunists
This year began with companies using crypto for a stock price boost by adding variations on “blockchain” and “crypto” to their names: beverage maker Long Island Iced Tea became Long Blockchain, and Canadian gold-mining company Leeta Gold transformed into Hive Blockchain Technologies and began mining crypto. Kodak launched KodakCoin, which can be used to license photographs, and Oscar Mayer (jokingly) introduced Bacoin, “the first-ever cryptocurrency backed by the gold standard of Oscar Mayer Bacon.” Kudos to them for recognizing a coattail to ride on.
Warren Buffett has called crypto a “mirage.” Bill Gates said it’s “one of the crazier speculative things” he’s encountered. Jamie Dimon, CEO of JPMorgan Chase, labeled Bitcoin a fraud (though he believes in blockchain technology). Just as damning: PwC economist Alex de Vries found that the electricity required to generate a single crypto coin is equivalent to the energy used by the average American household over two years. If his analysis is correct, bitcoin mining could consume 0.5% of the world’s electricity this year.
The Enlightened Old Guard
While some finance veterans have approached crypto as either a nuisance or an existential threat, others have been quick to embrace it: Jeffrey Sprecher, CEO of Intercontinental Exchange (the owner of the New York Stock Exchange), is moving forward with plans to open a bitcoin trading platform, as is Goldman Sachs.
Nine months after establishing a cyber unit to chase down ICO scams and fraud, the SEC solidified its regulatory efforts by appointing Valerie Szczepanik as the commission’s first crypto czar in June. In April, the New York Attorney General launched an inquiry into how exchanges such as Coinbase protect investors. The Department of Justice, meanwhile, is reportedly looking into how traders might be manipulating the price of Bitcoin and other currencies.
The Crypto Glitterati
Where there’s ridiculous wealth, there are celebrities angling to get closer. Snoop Dogg performed—and hit up the parties—at New York City’s first-ever Blockchain Week in May. Paris Hilton, DJ Khaled, and Floyd Mayweather have touted sketchy ICOs, prompting the SEC to issue a warning about the risks of associating with fraudulent investments. And Dennis Rodman shadowed the Trump-Kim summit in Singapore in June—on a trip sponsored by a cannabis coin called PotCoin, earning it a ton of free media.
Swept up in (and often spit out by) the crypto frenzy: small-scale investors. Families are using savings accounts and even selling homes to buy Bitcoin, exposing themselves to the currency’s gyrations. And, signaling the emergence of a new American dream, a recent study of 1,000 university students found that one in five has used loan money to buy cryptocurrencies. One graduate student posted on Reddit that he had to declare bankruptcy after trading Bitcoin left him $50,000 in debt.