Cryptonite September 2021

Shenanigans in the cryptoverse.

This is the last weekend of the month so its time for Cryptonite - our monthly roundup of all things crypto - with Tejaswi Nadahalli.

You can follow Tejaswi on twitter @nadahalli and he blogs at

The big news as we went to print this month was the Chinese Central Bank (PBOC) banning all crypto-related activity.

This follows their ban on crypto-mining last month. Our post, Bitcoin's Secret Sauce, discussed how resilience against nation-state attacks are part of the Bitcoin protocol itself, ensuring its survival. This is not the first time China has banned Bitcoin/Crypto. They did it back in 2013 and 2017. It’s interesting that they banned Google/Facebook once, and didn’t have to repeat those bans again. With Bitcoin/Crypto, every 4/5 years, they have to ban it again. Fred Wilson, the famous VC once said “The lesson from the internet is anything China bans, invest in”.

While Bitcoin, the protocol, might survive the current onslaught, the announcement does take a big bite off the market for crypto-coins, exchanges, etc. for now. It will be interesting to see how this pans out in the weeks ahead, given the current energy crisis in parts of China.1

While China was busy digging a hole to bury crypto, El Salvador, a tiny Latin-American country, adopted Bitcoin as its official currency.

There could be more to this than meets the eye. Because, otherwise, it is quite bizarre.

In 2001, El Salvador adopted the US dollar as legal tender to ensure the monetary stability that the country’s national currency, the colón, had historically failed to deliver. - El Salvador's Bitcoin Folly

Bitcoin is the prototypical anti-establishment grassroots movement. Having it imposed top-down just sounds weird.

Take Lebanon, for example. This makes sense:

Over the last two years, Lebanon has been gripped by an economic death spiral, the culmination of years of government corruption and mismanagement. The electricity supply has collapsed, pharmacies and gas stations are empty, and the Lebanese pound has lost more than 90% of its value.

The financial crisis has led to a spike in cryptocurrency usage in Lebanon, both as a means of recovering savings through speculative trading and as a way to circumvent a broken banking system. Due to domestic bank restrictions and international sanctions, Lebanese bank accounts and credit cards have been rendered effectively useless for making purchases outside of the country, including buying cryptocurrency on international exchanges. That’s where Awad comes in. Over-the-counter (OTC) suppliers like him are part of a complex and legally murky ecosystem through which cryptocurrency is purchased abroad, sent to Lebanon, and then distributed through a network of dealers to be sold to clients in exchange for hard cash. - The crypto dons of Beirut

Speaking of making sense, the NFT universe seems to exist in an alternative reality in a parallel universe.

Set of ‘Bored Ape’ NFTs sells for $24.4 million in Sotheby’s auction

The images were part of the “Bored Ape Yacht Club” collection of NFTs – a set of 10,000 computer-generated cartoon apes, made by the U.S.-based company Yuga Labs. Owners of the ape NFTs become members of an online club. 2

These are not the only popular NFT collections out there. “Pudgy Penguins” come a close second. And these things are traded on an exchange. The most popular one seems to be OpenSea. And they broke $3 billion in monthly sales in August.3

And where there’s money, there’s theft.

Ethereum-based NFT collections, Bored Ape Yacht Club and Pudgy Penguins, sell for millions of dollars.

But developers on Ethereum-rival Solana have released their own, very similar collections.

So, someone cloned NFTs that were selling for millions of dollars on one blockchain onto another.

It gets worse. Somebody paid $1.3 million for a picture of a rock.

And continues to get even worse.

Insider Trading and Front Running

Some people don’t even want to put in the effort of creating a rock jpeg. They’d rather steal candy from a baby.

OpenSea has a front-page where they show trending NFTs. One of their executives had advanced knowledge of which ones were about to be posted and traded them ahead of it.

Insider Scandal Shakes Up the Booming World of ‘Illiquid JPEGs’

While this can be dismissed as a one-time, rouge-agent thing, consider this:

Cryptocurrency traders call it the “sandwich” maneuver, and nobody wants to be the turkey caught in the middle. Here’s how it works: You spot another trader on the network trying to buy a token, such as Ether or another so-called altcoin. Then you place an order, too. If you are able to get your purchase done before the other trader, you’ll get a good deal on a coin you know there’s demand for. Your purchase pushes up the price the other buyer has to pay. Completing the sandwich, you sell for an easy profit. - Robot Crypto Traders Are the New Flash Boys

The problem with crypto-utopia seems to be that it is still inhabited by shitty humans :/

Notable Mentions

NFTs that degrade every time they trade. Because, why not?

Blockchains are immutable, un-hackable distributed databases. An NFT can live on it forever. Unchanged and untouched. Clearly, if you create something that self-destructs on an indestructible platform, it should be worth more, no?

NounsDAO wants us to buy Nouns

We discussed DAOs in our Governance, Decentralized post back in June.

NounsDAO is basically a smart contract that randomly generates a new NFT digital avatar (called a Noun) every 24 hours and auctions it off to the highest bidder. And in less than two months, it has amassed $20 million and is growing by roughly $500k a day.

The purpose of the NounsDAO is to make Nouns more valuable.

Nathan Baschez does a great job of explaining it here: Will DAOs replace Corporations?

Meme of the week