Crypto Policy Symposium brings together blockchain skeptics

John Reed Stark helped launch the SEC’s Office of Internet Enforcement in 1998, at the height of the dot-com boom.

Under Stark, the firm’s founding head, the team was tasked with cracking down on securities fraud committed via the nascent but rapidly expanding web. The job was to go after the bad guys with the same technology they were using – technology that Stark found fascinating.

“I was an internet evangelist,” he told Protocol. “I was there talking about how amazing the internet was and how endless the possibilities were.”

More than 20 years later, Stark is speaking out against what he sees as a new wave of fraud. But this time he’s also taking aim at the technology he says scammers are using: cryptocurrencies and blockchain.

“There are so many reasons to be skeptical of cryptocurrency,” Stark said. “I just feel like it’s really shameless.”

Stark has emerged as one of the most outspoken critics of cryptocurrency and is a leading figure in the movement pushing for a more critical view of the industry and trend.

This loose network includes leading technologists, academics, journalists and activists. One is prominent software engineer Stephen Diehl, who was among the tech experts who in June sent a letter to US Congressional leaders urging them to resist the cryptocurrency hype.

On Monday, Stark will attend the first major conference of this network of crypto critics, including MP Brad Sherman, Chair of the Financial Services Subcommittee of the Investor Protection Chamber, and Alex Sobel, Member of the British Parliament.

In an interview with Protocol, Stark discussed what the network of cryptocurrency detractors hope to accomplish and why he decided to fight blockchain.

This interview has been edited for clarity and brevity.

How did the idea for this cryptocurrency critics conference come about?

Stephen [Diehl] began working on this letter with a group of other extraordinary technologists. Once the letter came out, there was so much momentum because the skepticism around cryptocurrency, DeFi, NFTs, and all the other Web3 nonsense is extraordinarily multifaceted.

There are so many aspects to this, whether you’re talking about bitcoin and the biggest fool theory, or the externalities of ransomware and drug trafficking and human sex trafficking, or the systemic financial risk created by cryptocurrency, or the real bluster, hype and nonsense belief. on blockchain. There are so many reasons to be skeptical of cryptocurrency.

There are critics who are concerned about the way the cryptocurrency industry is evolving, but they do not entirely reject blockchain technology. I have the feeling that this movement totally rejects these technologies.

Yes Yes Yes. That’s a broad way of putting it. That’s fine with me because blockchain is the fundamental aspect of it all. And as the technologists explained in the letter, this is not the solution. [Blockchain technology] usually makes things worse. Don’t scale. He has all sorts of problems associated with him.

There was a Wendy commercial when I was growing up [which asked], “Where’s the steak?” I was head of the Office of Internet Enforcement for 11 years. Nearly my entire tenure at the SEC, which was nearly 20 years, was spent juxtaposing law, business, and technology.

I was an internet evangelist. I was there talking about how amazing the internet was and how endless the possibilities were. In fact, I helped install the first internet terminal at the SEC’s headquarters. It was this incredible technology.

“The wave of cryptographic crimes is taking the world by storm.”

Fast forward to today. [I asked] one of those crypto enthusiasts, “OK, tell me what, what are the benefits here?” Is it so incredibly aspirational, or is it just a marketing ploy so an IT person can get a little more funding. It’s not that panacea that people make it out to be.

Also, the ramifications of blockchain technology being used in cryptocurrencies, in NFTs, for decentralized finance – all these things have wreaked havoc, not just in terms of ransomware, human sex trafficking, drug trafficking. The wave of cryptographic crimes is taking the world by storm. Then there are the environmental issues associated with cryptocurrency mining.

What do you say to those who argue that cryptocurrency is similar to the web, which also met with a lot of skepticism but ended up evolving and thriving?

The first thing I always say is, “Tell me a use that isn’t just aspirational chatter. [like], ‘Hey, this is going to make when you buy your house, it’s instant. This will make it safer than ever when you make a credit card transaction.’”

They just throw away anything. They say it’s about financial inclusion, which is worst of all – that it will solve the problem of the unbanked. That’s how they connect people. So what I say to them is, “Tell me a use.” Don’t tell me this is here to stay, just because a lot of criminals started using it and a lot of venture capitalists got rich investing in it. Tell me why it’s worth it.

John Stark helped launch the SEC’s Office of Internet Enforcement in 1998.Photo courtesy of John Stark

It doesn’t work as a currency. Is there anyone who uses it? Of course. It’s very volatile. What retailer would want to take it one day and the next day it’s worth a third of what it was worth? It makes no sense.

And the idea that it’s decentralized is a complete fraud. There are miners. There are digital wallets. There are platforms, exchanges. There are so many intermediaries. There’s just more and more each time you read about it.

Seven or eight years ago, I was willing to entertain the thought that this could be something someday. But I’m done with it. Because there came a point in my research, my writing and my experience where I felt like it was really shameless.

Gary Gensler is considered one of the main critics of cryptocurrencies. But I never heard him denounce blockchain as a hoax. In fact, in his 2018 MIT lectures, he is open to the potential innovation of cryptography and blockchain technology.

I fully appreciate President Gensler’s position. If you go back to my original writings in 2017, 2018 and even 2020, I would normally end up saying that blockchain can have the most incredible potential.

I’m not a technologist, although I’ve been around technology my entire life. I’m not an engineer. So I was very careful.

“It doesn’t work as currency. Anyone use it? Of course not. It’s very volatile.”

So I started reading more and more technologists and talking to more and more of them. I started collecting data, gathering sources of information, attending lectures, reading everything I could about it. I came out one day, a few years ago, and I said, “You know what, blockchain is bullshit.”

I’m behind this, not as someone who comes to this conclusion somewhat reflectively or without much study. Gensler was right where I was while teaching. I think I would have said the same thing.

But you know, it’s not the first few days. It shouldn’t be difficult for anyone to explain the benefits to me.

There are crypto industry leaders who recognize the need for regulation and who are even taking steps to set up frameworks and systems for compliance requirements like KYC. What do you think of these moves?

I think, first of all, the industry is falling apart. You can view it with optimism because all these venture capitalists are putting money into it. It’s a magic cash machine. Put the Web3 label on anything and what do you get? An exponential valuation of the company.

Look at the NFT market. Initially, I was like, “You want to buy some silly looking electronic drawing with a link to a JPEG file and you want to pay a lot of money for it and help someone else reap more money? Go ahead.”

People want to be ridiculous with their money, let them do it. But as you look at it, it has become an amazing industry, full of fraud and cheating. None of this made sense to me. It looked like a big money laundering machine.

All of a sudden, to me, there was so much evil in these things, and celebrities publicizing it, to me, seem so incredibly scary, so shameless, that you would exploit your own fans to pocket a few extra millions. The conflicts of interest were so incredible.

People talk about: “We need a new regulatory framework”. I don’t see it. I see the existing regulatory framework. They keep saying how wonderful everything is going [but] we need regulatory clarity. We just want to do this right. There is no transparency whatsoever in any of these entities. And you can’t have a financial system without that kind of transparency. It’s not safe.

I’m not a big regulation guy. But when it comes to finances, it’s not just an area where you can let people run free.

You argue that the industry is falling apart. But it’s hard to imagine crypto and blockchain disappearing.

You know, that’s a really good point. Like, what are we going to do with this industry? It’s here to stay. All I can say is how bad it is.

What do you hope to achieve with the conference?

The idea is to shed some light on all these many misrepresentations and fallacies of Web3, cryptocurrency, bitcoin, DeFi, NFTs – all of it. And to focus on all the questions about why these products are not a good thing.

We are all just a hodgepodge of experts from different fields who will come together to talk, through their lens, why they believe what they believe.

None of us will make money from what we say at this conference. Maybe someone is making money somehow, I don’t know. But I know that waking up in the morning with a bunch of hate and vitriol on Twitter isn’t necessarily the right path to business development and profit. There is no anti-encryption factory you can work in.

From my point of view, I think the magnificence of this conference is that it’s the first in history to actually present these experts who are coming together for the first time in a way that presents all angles. Because it’s a multifaceted situation. There are hundreds of cryptocurrency conferences, and it’s all these love festivals where everyone sits around and talks about how good it is, because everyone is getting rich off of it.

I don’t mean to sound cynical, but that’s the truth. This is the reality. Therefore, it is an antidote to this disease, which is ravaging space now.

Can you talk about your role in creating the Office of Internet Enforcement?

That was a long time ago. I have always been very interested in technology. I started doing a lot of tech-only cases and developed a name for myself in the Execution Division as someone you could turn to if you had any kind of tech-related issue. I wrote the first set of guidelines for electronic investigations.

It started to explode. More and more cases hit the internet. There were so many investigative issues, so many prosecution issues. I wrote a white paper that we should create an office dedicated only to online [issues] that would help with surveillance, education, liaison and prosecution. We created the first online enforcement complaints center. We created an email box called [email protected]. And I would open that email box every morning and read each one and figure out what to do with each one.

I had a fantastic director, Dick Walker, who was very tech savvy in his own right, and he said, “Let’s create an office.”

They created the Office of Internet Enforcement, and it grew. We keep doing more and more. We had different specialists – broker registration specialists, tax specialists. We had tech people. We also had experienced enforcement agents.

I have a picture of me pointing to the sign outside my office that says, “John Reed Stark, Head of the Office of Internet Enforcement.” You can see I’m so excited, like a child.