🧠 In crypto, everything is a ponzi

…until sometimes, it’s not.

Hi, it’s Charley, and this is Untangled, a newsletter about technology and power.

In February:

• 🧠 I published the essay “The ongoing tug of war between open and closed AI.”

• 📚 I published my second Tiny Book, Crypto Untangled. Now, a paid subscription gets you access to two e-books, all special issues, and every other issue, including the podcast.

• 📖 I published my second-ever ‘reading list’ for paid subscribers, contextualizing my favorite articles, papers, and books about crypto and blockchain technology.

• 🗞️ I Untangled the News about techno-authoritarianism, how values become encoded in machine learning models, what we misunderstand about the harms of social media on kids, and what everyone is getting wrong about Sora, OpenAI’s text-to-video tool.

• 👋 I welcomed new subscribers from New Public, Unstuck Labs, American University, Blackbird, and many other organizations.

Now on to the show!

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Imagine if Uber built its driver network by offering drivers ‘Uber Tokens.’ Imagine further that these tokens functioned like equity, giving drivers a stake in the future value of the network. This is the promise of a new category of crypto project — ‘DePin’ or Decentralized Physical Infrastructure — that intends to use token incentives to overcome the ‘cold-start problem’ inherent to a two-sided physical or virtual infrastructure network. Let’s interrogate this model by digging into one of the most contested crypto projects: Helium.

Helium is a distributed IoT wireless network. Those inside the industry see it as full of potential; that it proves token incentives and blockchains can help build a network and overcome the ‘cold start’ problem. Hell, it’s the single practical use case Chris Dixon pointed to in his book, “Read Write Own.” Those on the outside say Helium is a scummy Ponzi scheme that lied about its partnerships with companies like Salesforce and Lime and isn’t generating real usage — it’s just lies and narratives all the way down.

Helium describes itself as the “People’s Network” and envisions a world where we’re all providing IoT wireless coverage to one another. In this world, we’ve removed money-grabbing ISPs and redistributed who captures value created by the network. Instead of a big ol’ company subsidizing the network buildout and capturing all of the value,* people pay for a hotspot that provides coverage for nearby IoT devices and earn ‘HNT’ tokens in return. If enough people do this, Helium can overcome the ‘cold start’ problem, and operate at scale. See, the network of Uber drivers isn’t valuable to riders if there are only a few of them. Nor will drivers join the network if riders aren’t willing to pay for the service. So Uber used various marketing tactics and subsidies to nudge both supply and demand until there was a sufficient flywheel for the network to grow organically. In the case of Helium, token incentives replace these subsidies, encouraging more and more people to purchase hotspots and provide local coverage. And networked narratives replace traditional marketing tactics.

Those who bought a hotspot believed deeply in the future promise of Helium; that together they would take down Big Wireless; that they would replace these networks with one built and owned by ‘the people.’ The “People’s Network” offered a counter-power message and a narrative that tapped into emotions like anger — who likes their wireless provider? — and allowed participants to feel part of something bigger than themselves. Becoming invested in the future success of Helium turned contributors into ride-or-die supporters — and marketers! Even when Helium allegedly lied about its partnerships (the claim has been disputed by Helium’s Founder), supporters continued to promote Helium’s narrative, churning out content not unlike the meme stock schemes of Reddit’s r/Wall Street Bets. The upshot? The Helium network now includes over 1M hotspots worldwide.

Networked narratives are powerful technologies. As Jens Beckert and Richard Bronk write in Uncertain Futures: Imaginaries, Narratives, and Calculative Technologies:

“In conditions of radical uncertainty — where the set of possible states of the world is unknowable — you have no choice but to rely on imaginaries and narratives about the future. Think of tech start-ups whose value is sustained by little else but narratives of future profits. Such contingent imaginaries serve two purposes: they structure expectations; and they reshape the future by motivating behaviour. In this way, imagination is a root cause of novelty and uncertainty, as well as our best tool for coping with both.”

Over the years, crypto has certainly been subject to shifting expectations and behaviors — in fact, I’ve come to think of crypto as narratively exaptive. Exaptation is a term from evolutionary biology and it means that a trait that once evolved for one function subsequently evolves to serve another. For example, feathers originally served the purpose of heat regulation, and only later became used for flight. Blockchain technology originally served a single purpose: enabling decentralized, permissionless transactions of Bitcoin. But if you look around, you might notice that ‘decentralization’ has largely fallen out of favor. For a time, it faded into the background and was replaced with ‘ownership’ and the notion that if blockchains constitute an ‘immutable’ ledger, we can own any non-fungible, digital thing. But then we realized that an ‘immutable’ ledger doesn’t quite enable ‘ownership’ and that not all digital things are valuable. Right, the value of an NFT relies on our belief in its value. While NFTs sometimes serve as a ticket to other offerings, it’s not often a productive asset. Its value is whatever we collectively agree it to be. As a result, the narrative in crypto shifted yet again. This is the problem with narrative exaptation — the constant shifts allow baseless ideas, bubbles, and Ponzi’s to hide in plain sight. Broad narratives also clump problematic projects with those that might actually offer some value.

DePin projects like Helium offer an alternative — the value of the project and the corresponding token don’t simply reflect speculations of its future value or our collective projections. It also aligns the value of the token to the usage of the network. Like any network, the more people or companies who pay to use it, the more valuable it becomes. During the last bull market, when the price of HNT skyrocketed, many credited the success of the network and all of those partnerships. But it turned out that many partners weren’t using the network all that much, if at all. Helium had built the supply side of the network but hadn’t yet successfully onboarded demand. As a result, while network usage is theoretically aligned to price, its speculative value caused HNT to rapidly increase. Right, investors love Helium — they see value in changing a wireless network's business model and cost structure — so they poured money into the project, propping up its price. But when the macroeconomic environment shifted, inflation spiked, and investors lost interest in a high-interest rate environment, the price of HNT tanked. Contributors felt betrayed, and many took a significant loss to their investment.

Well, the market has shifted yet again. Bitcoin just topped all-time highs and there are several projects that, similar to Helium, have developed the supply side of a physical or virtual infrastructure network and are onboarding demand. For example:

• Render is a decentralized* network for GPUs.

• Filecoin is a decentralized network for storage.

• Hivemapper is a decentralized network for real-time maps.

Helium now generates modest revenue, and new companies have started using the network. They also recently started offering a new 5G mobile data service — Helium Mobile — in partnership with T-Mobile in the U.S. and Telefonica in Mexico. A partnership with a big telecom company isn’t exactly fulfilling the original promise of decentralization, but maybe it portends a hybrid future where decentralized networks complement centralized networks.

In many ways, Helium’s story to date — of the promise of future value propped up by narratives only to come crashing down …. until it was propped back up by usage and demand — is a story about financialized capitalism. As Ian Bogost once argued, crypto is attempting to turn the internet into investment banking. Well, now it’s doing the same for physical and virtual infrastructure networks too. Along the way, projects like Helium turn consumers into:

• Start-up employees: We’re contributing to a network and receiving token-based compensation in return.

• Products: What we contribute to the network is sold to other companies.

• Investors: We have a stake in the future success and failure of a network.

• Marketers: Because of that stake, we’re encouraged to promote Helium, and tell its, err, our, story.

These shifts have the potential to alter who captures the value created by a network. But it also shifts the burden of risk in building a network to individual people and ties their future to the vagaries and complexities of the financial market. And I imagine it will contribute to all sorts of weird behaviors we can’t yet anticipate. If the crypto industry makes a successful comeback, it will be because Helium and other DePin projects shed their reliance on ever-evolving narratives, and generate real value for people. In the meantime, remember that everything in crypto is a Ponzi, until sometimes, it’s not.

*While I’d rather the government invest in public wireless infrastructure, this essay accepts the logic of capitalism and the private sector buildout of wireless.

**Remember that technical decentralization doesn’t decentralize power in a network.

As always, thank you to Georgia Iacovou, my editor.