Rug Pulled
13 min read

Rug Pulled

Rug Pulled

A month ago, I sat on my sofa watching an online debate about NFTs titled 'Are NFTs a pyramid scheme?'. While the title of the debate was rather clickbaity, it was a balanced discussion focusing on how NFTs can and can't be suitable for artists.

I didn't intend to interact - the kids were still making noise in their bedrooms and it was the end of a long workday. But while the debatees debated, I noticed a couple of viewers throwing out some lazy attacks on NFTs in the chatbox. Well, I thought, that'll be easy to put right.

Now, remember this: I am lazy. I was sitting on my sofa, tired, lacking the energy even to get up and pour myself a glass of wine—tough times. Every so often, I would summon the energy to type something in the chat if I felt the discussion was getting too hysterically anti-NFT.

The debate rolled on.

The leading critic of NFTs, calling in from the US or Canada I think, sounded somewhat overzealous in his hatred and distrust of NFTs. He had valid points, such as how they are grounded in a heavily manipulated crypto market, but there wasn't a hint of compromise in his punches. It was all bad, end of discussion. The two speakers in the room, more optimistic about the benefits of NFTs, were calmer and I sensed they were winning the audience over.

As things started to wrap up, I had the idea of quickly dropping a comment in to tell viewers that NFTs weren't just for art, which was the main focus here. I said something like, "oh, don't forget they could have applications in other areas, such as insurance and health". I then added, "but it'll continue to be messy for a while" because I didn't want to give the impression it was all ready to go.

Things suddenly unravelled from there.

I was asked to give an example of how blockchain could be used in healthcare, and my tired brain threw out "medical records". I don't know why I said that; it's a particular area I don't know much about. The primary example I had seen was for vaccine coldchain monitoring but I didn't think I could explain it quickly so, for some reason, I promptly plucked something else out of the air. Suddenly, my comment was pounced upon by someone called Molly.

There's too much instability to trust sensitive records in such a system right now, she said. She chastised me for saying "it'll be messy". You shouldn't advocate for something if it's not ready, not safe, she said.

She was right. I felt rotten.

As Molly spoke, someone mentioned she ran a website called 'Web 3.0 is Going Great', documenting daily wrongdoings in the Web3 space. Molly (White) also writes excellent long-form critical assessments of why she thinks Web3 isn't all it's cracked up to be here.

I spent some time looking at her work and I thought: 1) This is the wrong person to come up against in the debate at the best of times, and 2) her work is important, and a lot of people need this reality check.

Now, this may seem like a very long-winded story for such a tiny interaction (and it's going to get longer still) but this minor altercation, one I'm sure Molly doesn't even recall, stayed with me. Each day since my mind has wandered back to that one minute with a feeling of regret and embarrassment. I was caught out, told off. And rightly so.

Like the people at the beginning of the debate whom I pounced on for using lazy attacks on NFTs, I was now the one being imprecise and lackadaisical with my words. Rather than merely admitting "actually, I don't know", I just threw some information out there hoping it'll get a pass. I did precisely the thing I hate to see.

Being loose words in public arenas can be a dangerous thing. It can mislead or derail arguments. It can change the tone or direction of a discussion for no reason. It can also make you (me) look dumb. I came away from it not feeling none too good about myself, to say the least.

"But why are you taking me on this little counselling session, Simon?" I hear you ask. Well, there's more shock and horror to come.

Rugged

Longtime readers will know that I've taken an interest in NFTs, primarily through the artist's perspective. Pixels put together the right way can be beautiful and important, and I'm glad there is now a way to create value in them in new and surprising ways.

That said, I do try to temper my enthusiasm. The entire reason I created my own NFT was to try and understand what is behind it all. I don't want to give people the impression that Web 3.0 is some utopia you can step into today. Indeed, my own NFT experience began with a hack which derailed my project. I could have been I rich I tell ya!

Like the internet and like all media, the NFT space is a reflection of people and their societies. That means there is beauty, it also means there a lot of shaddy stuff happening. Lots of good can happen, and so can lots of bad.

Right now, there's an insane amount of noise around how NFTs (and crypto and blockchain) is going to save the world. Well, it might make a bunch of good stuff happen, it'll probably also make a bunch of bad stuff happen. You know, like the printing press.

So let me tell you a story of another bad thing that happened to me in this space (you're so much cheaper than a counsellor).

A week after being told off at the debate, an NFT project I was investing in turned out to be a big scam. I lost a good chunk of money and I was left shaken by what had happened. It was a 'rug pull', a term commonly used in NFT circles for projects that get money only for the developers to take the money and run.

Many NFT projects are run by people without a face. They are anonymous, untraceable. Sometimes it's for a good reason, not everyone wants their identity known to thousands of random strangers. But it can also be the perfect way to steal large sums of money.

The project I invested in was run by an 'undoxxed' team, meaning their identities were unknown. Generally, it's never a good idea to invest in projects without names or faces. I knew this but decided to trust this one because... I don't really know.

One day I logged into Discord and people started asking where the developers had gone. Someone said they were on holiday. I thought that was fair enough. A couple of days later, I returned and saw panic with people suggesting this was a rug pull. I couldn't believe it was possible. I told people to look at all the work that went into the project. The artwork was great and clearly had love poured into it. This doesn't make sense, I and others kept insisting.

But, quickly it became clear that the project was indeed a rug pull.

I was hurt about the loss of money, but I was mainly shocked by all the scammers' efforts put into the project. I heard about rug pulls but assumed it would be evident with the quality of the work put in.

In this project, the artwork was strong, they had an active and positive community, and they were producing many things quickly. I had even interacted with the scammer on several occasions through chat. He was enthusiastic and friendly. Everyone was really behind this project.

To witness first-hand how quickly you can lose money and the lengths to which people will go to take your money was astonishing to my naive brain. They spent months building, talking, interacting, and creating stuff before they walked off with close to $1 million. Around 6,000 individuals, like me, were duped.

So, yet again, I felt stupid. After that, I went back to Molly's website. Nothing of what happened to me is unique. In fact, it's far too common at the moment.

This got me reflecting hard on what I think about the space and what I should do moving forward.

Reflections on the NFT world

I still believe that NFTs offer great potential for artists. I think they are a fabulous way of compensating artists who create anything digitally and as a way of connecting and building communities.

I've purchased some art I liked and spoken to artists in Japan and Venezuela to learn about their work. I've bought some NFTs to join communities to share and learn about coding, generative art, and NFT markets. I've purchased a few NFTs believing they will appreciate in value long term and make for a decent investment.

That's the great side. There's also a not so great side.

I've purchased NFTs that I thought we investments but quickly went to zero. I've purchased some hoping to join a positive community, only to find them dumb or useless. I've purchased an NFT to have access to more art from an artist, only to release the rest of their work is rubbish...

These were simply bad bets. I've done that same on the stock market: some stocks did well, some didn't. I try my best to approach these things in a thoughtful way: create a model that I think works for a particular market, test it, change it if it doesn't work.

But investing in NFTs isn't the same as investing in stocks, the gains can be measured both with and outside monetary value. As I've mentioned, I've learned a bunch of new things and have met people who have given me great new perspectives. I'm in communities that train me each week on something new because I hold one of their NFTs. Yesterday I was even invited to join a party with The Weekend in LA. I guess that means I'm really cool, right?

The conflation between NFTs and money is the problem. The amount of money being pumped into the market is unsustainable and unhealthy. Too many people - buyers and sellers - expect to become millionaires in seconds. It creates the wrong incentives and puts most projects on the road to failure. It also leaves many people open to scammers.

With my own little NFT journey, I was struck by how many offers I got - literally in the hundreds a day at one point - for mass direct messaging, promoted posts, and the creation of messaging bots. All things against the terms of service on social media providers. There's a huge economyon Fiver and UpWork being generated to trick, scam, and spam message you to death, to buy NFTs.

Phrases and memes such as WAGMI, Wen Lambo?, and LFG, to name just a few, are used constantly by NFT enthusiasts looking to make fast profits. That promise is rarely fulfilled, and puts undue pressure on individuals and groups who are trying to create original artwork, videos, games, coding communities, writing groups etc.

I can't help but feel that taking 95% of the money out of the space would actually help it.

Wen moon?

On Molly's website, she makes the reasonable argument that blockchain technology isn't so new, that compared to other technologies it's moving slowly, and that we are constantly being promised 'what it could be and do'. I agree that there needs to be more of 'what it is' rather than 'what it could be'. Much of what Web3 offers today is slow, clunky, and expensive to use.

But the technological aspect is only part of this development. Many technologies sit around for years waiting for a market to appear. What was an obscure piece of technology used by the Queen of England in 1976 was the revolution of communication 'suddenly' appearing in the 90s. Here she is using email:

Queen sending email in 1976

I often get into little verbal scuffles when people marvel at how we live in the most amazing technological age. They often point to the internet, home computers, smartphones and social media as evidence that we live in an age like no other.

Well, I say, yes, they were advances, but computers were invented in the early 1800s and smartphones are basically just small computers with touch screens. The first-ever touch screen phone, by the way, was invented in 1994 and had the most wonderful name: IBM Simon.

The IBM Simon. Really. 

After I rant about computers and the like, I then start talking about the revolution of electricity and piped water in homes. By now everyone has lost interest and I'm standing alone in a corner at the party again.

My point here is that all this blockchain stuff, in the grand scheme of things, probably isn't moving that slowly and the psychological shift in the social perception of value that's required to make the NFT market move is an enormous development in society. This doesn't mean it's a good or bad thing, but it's certainly a thing.

Many people are now putting a real-world value on intangible things. One jpeg is worthless, while another is worth $100,000. It seems ridiculous, and it is. But it's also absurd that people buy cars for $100,000 when a third hand Fiat Punto for $500 will get you from A to B just fine. Most of the time, anyway.

Much like dancing, the concept of value is strange when you start to think about it. But they both bring certain advantages.

The shift is what makes me enthusiastic and interested in the space. But it's also worrying because where the money goes, so doth whales and naughty people.

Whales

A 12-year-old made a lot of money selling these. 

I'm not talking about actual whales here, I assume they have no interest in computers let alone NFTs. I'm talking about people with lots of money. They can either be the 18-year-olds that held thousands of 'worthless' Bitcoin ten years ago and are now millionaires many times over. Or they are the dollar-rich individuals and companies seeing a new frontier for money-making.

One worrying trend is that these whales can easily manipulate the market. They can throw large sums around to inflate prices and deflate prices at will using their big wallet. Many individuals have such vast quantities of crypto on hand that one move can pull a market in any direction.

Take a look at this picture. It was purchased for $1.4 million the other day. Ludicrous.  

With such money moving around, it's only a matter of time before the more traditional market players want in, which means there's a move towards centralisation (Molly White offers excellent insight here).

As I mentioned in a previous article, there's a lot of potential (that word again) in how blockchain can move us away from the old way of doing business. But with all this money involved, there's a small population of mighty whales who want to control the ecosystems, meaning it's possible this market will end up no different from Wall Street.

And, to go back to how this started, big money means there are many unscrupulous people around ready to take your money.

So are WAGMI?

Modern online debates visualised

I originally wrote some lines about which directions Web3 could go in. But, honestly, my guess is as good as my 3-year-old's. But my rambling, overarching point here is about how we disagree constructively online to move towards positive solutions.

After initially feeling dumb, I was pleased to run into Molly White and learn about her work. It gave me new insights and perspectives. It stung at first because I had been so optimistic about NFTs, and to read about all the dicey things happening in the world of Web3 made for uncomfortable reading.

I stewed on it for a while and wondered what I should do. I even debated with myself whether I should write something here because maybe you'd think I'm stupid again. But I finally resolved to write something because I think that's the healthy thing to do.

It's healthy to look across a spectrum of ideas and opinions. It's healthy to adjust your standpoint and views. It's healthy to admit that, yes, I was a bit ignorant there. I sense debates and human progress, in general, would tick along a little better if we can sometimes admit we were being stupid.

I'm impressed by Molly's work because I can't imagine how much shit she must get from crypto-bros and web3-nuts online. She is properly courageous. I want to seek out more people like her who can set out sensible arguments for why I'm perhaps being wrongheaded.

And that's the key right there: knowing that what you see is never the whole picture. If you think about it, it's remarkable how often we think we have a pretty sensible worldview, only to look at everyone around us and think the way they see the world is odd. We're all odd, the sooner we embrace that the better.

Am I embarrassed about being potentially conned by a 15-year-old now living it up on a beach in the Bahamas? Yeah, I am. I could have kept this information to myself, I could have continued to give the impression that all is going well and fine with NFTs. But that wouldn't be entirely true.

I hope by admitting my silly mistake both with the rug pull and Molly, it serves to show that being open to seeing the bad in things you believe is good is perfectly fine, and healthy. Now go out and make silly mistakes, you have my permission.

Counselling session closed.

[Rug pull update: the scammer returned to Discord, citing "a few issues I had to sort out". It obviously has nothing to do with a pair being charged by US authorities for a $1.1 million rug pull days before this miraculous return...]

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