Thread by @EpistemicHope

Real frontiers, places were something new is happening are always filled with scams.

This is true of crypto, as it was of the internet bubble at the turn of the century, and it was probably also true of various gold rushes and oil-prospecting and land speculation schemes.

Basically, if there's something new and important, a wealth-creating engine, there's an opportunity to invest in that new thing, and reap big financial gains.

People are greedy, and so they want to get some of those gains for themselves.

This creates an opportunity for scammers and swindlers:

If you can offer an opportunity that has something in common with the wealth creating engine, most people won't be able to tell the difference between the real version and the fake version, and many, motivated by greed/hope will want to buy into it.

And on top of that is speculation dynamics: Someone might invest in something, knowing that it has very little fundamental value, because they expect that other people will invest in it, driving up the price.

In the limit you get a Keynesian beauty contest where everyone knows that the underlying fundamentals are fake, but they still think bet they can ride the boom and exit before the bust.

But more realistically, every investment vehicle has a mix of people buying because they're betting in the underlying wealth-generation mechanism (correctly or incorrectly), people who are speculating, and people who are too confused to know what they're betting on.

But this is a bit of a digression from my core point:

The presence and even predominance of scams is not strong evidence that some new wealth-creation engine is fake.

Scams are a natural side effect of real wealth-creating innovation.

New-wealth engine -> Some people getting rich quick -> Buzz -> Hope / Greed of getting rich quick-> Economic niche catering to that hope / greed -> Scams

Of course, sometimes you get this whole thing built around something that isn't creating new wealth at all, too.

@threadreaderapp unroll