# The Crypto Trap Source: https://x.com/DrNickA/status/1832086698483708308 ## Summary The author argues that crypto, as currently structured, is a trap built on the game-theoretic logic Adam Curtis described in his documentary "The Trap", in which self-interested players chasing Nash equilibria produce adversarial outcomes. Bitcoin is presented as the purest realization of this logic, and the text says the resulting "F**k you buddy" dynamic has concentrated capital formation in centralised parties, leaving many token economies broken and causing retail harm. The text also says the trap extends across society, with examples including rage-bait social media and supplement-selling nutritionists, and that the only way out is collective alliance-building. ## Article Introduction In this article I will make the argument that crypto, as it is currently structured, is a kind of trap. If you can imagine a digital Venus flytrap that attracts us in with sweet nectar, but ultimately eats us alive, you're close. This trap is much, much bigger than us, but I believe it presents itself most clearly here and that might be an opportunity. Let's dig in to what it is, and how we might get out of it. The Trap There are literal traps in crypto of course, anyone who's been rug pulled, honey trapped, phished, or just plain old decieved and scammed by actors at any level of this industry will know this too well. But, the one I’m talking about is bigger than all that. The trap I'm referring was first presented by Adam Curtis nearly two decades ago in his documentary “The Trap: What Happened to Our Dream of Freedom”. It is a story about the influence of game theory on the world. This documentary is where I first discovered the core concepts of game theory and in retrospect it's potentially a big piece of what led me here. I've sinced played with the ideas extensively, getting deep into mechanism design and building a suite of smart contract based systems designed to shape human actions through blockchain based incentive structures. But honestly, I didn't really get the bigger picture of what Curtis was referring to until recently. The first episode is called “F**k you buddy” and it describes how simple mathematical games like the prisoners dilemma have shaped society at large. “F**k you buddy” is the name of a game designed by godfather of game theory John Nash, which involves 4 players with a stack of tokens (yep), whose goal it is to capture the other players tokens (yep). The game was designed explicitly by Nash, to be played between rounds and mostly off the board. The way to win is to form alliances and then breaking them. The winning move is deception, hence, “F*k you buddy”. More broadly, the documentary paints a picture of how the adversarial game designs arising from the mathematics community in the wake of Nash has shaped our society since the 80's. The promise was that it gave us the opportunity to break away from the class structured society and bureaucracies of old, by simply letting everyone play the game out of rational self-interest. If everyone plays the game rationally then we find an equilibrium that generates value without requiring explicit collaboration. These equilibria allow you to coordinate at mega scale and with minimal work required, you simply let the incentives do the work. In the post Cold War context, this was exactly the right sauce to defeat commies, so we went for it. All in. Thatcher, Reagan, Blaire, Bush, Clinton, Macron and pretty much everyone in between and thereafter, shifted the economy towards the idea that individual rational “freedom” will win out, neoliberalism was born. And won. The Crypto Trap Just a year after Curtis’s documentary aired in 2007, Satoshi Nakamoto released the Bitcoin whitepaper. As it happens, Bitcoin represents the purest realization of Nash’s theories, particularly the "Nash equilibrium". In this context, a Nash equilibrium occurs when all players in a system continue to adopt the same strategy because deviating would result in a worse outcome for them. Bitcoin’s monetary system operates as a highly stable, non-collaborative Nash equilibrium: participants act out of economic self-interest, reinforcing the system’s rules, because any deviation would be a losing strategy. It’s fascinating that this system exists and is a perfect example of the power of well constructed games. A fairly simple piece of code has managed to bootstrap trillions of dollars in value, a vast coordination of millions of people and inspire an entire industry to be fore. And to do it, people just needed to chase the coins. Bitcoin is the conceptual substrate of this industry and the attitude of the non-collaborative Nash equilibrium permeates everything. The “code is law” digital Wild West attitude all arises out of this perfect realisation of rational self interest. Put simply, everything has turned into a game of “F**k you buddy.” This, by the way, is basically what upsets the lefties so much about this industry, they can see it as the perfect realisation of neoliberal economics, which it is. Why? because there is super quick liquidity, vast opportunity, informational advantages and lots and lots of pure visceral greed. Crypto is actually a very real insight into the future of how this game plays out, at degen speed. And much like "F**k you buddy", most of the real game theory happens off chain. I believe this has created an innovation gap in crypto. The Innovation Gap I came to crypto because I saw this as the place that could be the “tip of the spear” of innovation. The place where ideas could make it to production and be tested in the market quickly. As a person who’s been obsessed with emerging technology since I was a kid, the possibility of working and building at the absolute cutting edge is where I most want to be. The problem is, that the game hasn’t played out like that. The game is now mostly off chain. The promise of radically open innovation has failed and it died with the ICO. There are a few reasons why this has happened. The quick liquid token game isn’t actually quick and liquid. It is comparable to the old world of sitting on equity until an IPO (which are extremely rare these days), but in terms of rapid evolutionary game design (what is actually required in this industry) the lack of the ability to do decentralised capital formation keeps a huge amount of ideas out of the market. So regulations and Fiat power of course play a big part in this, but that has deferred the choice of what innovation we see to centralised players. An old school game forged in the fires of good old meatspace big tech and venture, an entrenchment of the old world into the new. So, the current state of play is that we have collectively diverted all capital formation powers to centralised parties. Now, one could argue that this has tamed the game to some degree, mitigating the barrage of basic rugs seen in the ICO boom. And it did, to a degree, but instead we get a bigger game: the SBFs, Kwon’s and Kyle and Su’s of this world stepped up to play the game instead. In fact, instead of distributed damage we get concentrated, centralised explosive damage. Worse, most of the economies that do make it to market are the product of capture arising from this “F**k you buddy” layer of the market. Consequently, most of the economies are broken and dead on arrival. Often good tech is doomed to market failure because of down only token economics. Also, the additional risk at play in crypto means that starting off is harder. The regulatory gap has widened. It’s quite literally impossible to structure a token sale in my country without spending big sums of money on legal opinions and regulatory arbitrage games, or just outright breaking the law (which game players will want you to do). That’s before you get to smart contract risk. I wish it was possible to raise a quick $500k and take a product to market, but the reality of it is auditing is going to cost you a big chunk of that unless you’re willing risk losing a lot of other people’s money willy nilly and breaking through the cacophonous noise of KOLs (who have captured the market in their own ways). It is an extremely expensive game. Worse, getting that quick $500k means playing a game of “F**k you buddy” and someone is going to end with lots of chips, which even if the product is good will end in a risky broken token economy that could end (perhaps most likely) in broad retail harm. Blockchains Bring the Truth to Light The famous Orwell quote, “if you want a vision of the future imagine a boot stamping on your face for all eternity,” was born out of Orwell’s paranoia of the crushing totalitarianism that can come from centralised bureaucratic power. Well: “If you want a vision of the future, look at the cryptospace now”, is the updated version for the neoliberal world. No doubt, the same innovation gap exists in the real world, it might even be lower here than elsewhere, because here it is more direct and visceral. Whatever deals do make it market become abundantly clear when their token economies are revealed. Consequently, we see the game play out quicker as it is collapsed to hard immutable market truth. Blockchains bring the truth to light and that’s how we can evolve. The Meta Trap Curtis argues in the documentary that these simple reductive mathematical games have begun to dominate society. They are self reinforcing systems. If you end up unsuspectingly play a game of “F**k You Buddy” and end up on the losing end and.. “SUCKER!”. You’re less likely to play it the same way next time, and actually the game is pretty simple, it’s a f**k you race. Next time you’re going to play on the right side of the game. In reality, it’s games all the way down. From the very top of nuclear standoff geopolitics all the way down to the memecoin rugs of the crypto dungeons. The trap actually permeates every level of society. Further than that, not only was Curtis right, it’s been 20 years since he warned of this and now the game is more evident than ever. The trap has evolved into a fractal recursive game. The real game is dominated by entrenched incentives and political and economic power, but once you see it, you see it everywhere. The Trap is why people who hate YouTube reaction faces will build an reaction face AI generator thus industrialising the practice further, it’s why boyfriends are part time instagram photographers, it’s why nutritionists start as experts and end up as supplement shills, it’s why social media platforms converge on the most triggering rage bait and it’s why people who come to a game wanting to disrupt old ones, just make new, worse ones. The result is individual actors pursuing their own self interest and rational choices and are in fact compelled to do so by an endlessly cyclical trap of adversarial interactions made at higher levels of the game. What started out as high level nation state economic policy, has via the algorithmic world of big tech been baked into your very behaviours and practices. In crypto, this is token powered to the next level. The hardest pill to swallow is that the true crypto trap is a belief that this technology is going to make the world a better place. In its current state, it won’t. This is the worse trap of all, because it traps good people. People who want to change the game, and think this is the source of it, when actually it’s just the same game and if anything, it’s dialled up to 11. It’s Time To Transcend Ok, I’m sorry. I know you didn’t want to hear that. But you can’t change the game, your project can’t change the game, your DAO, your fund, your chain. The entrenched equilibria of basic adversarial games is too strong. The only way to shift this game is to influence it and the only way to do that is collectively. We're stuck in a bad equilibrium and it's a strong one. Some ideas for how we can escape the trap: Alliances “Apes together strong” was peak bull market vibes and ultimately was simply another trap. Diamond hands another one. A memetic trick to convince people to hold while the game players sell. But alliances with people who are able to collaborate (some just can’t, even out of self interest) is the key to building economic and coordinated power that might at least be a strong influence on the market. VIS UNITAS FORTIOR The only winning move is to play I’m sorry it’s a trap, you’re in it, if you don’t play you get rekt. All of us maybe. This meta level negative feedback loop here that optimises for game theoretic defection feels like a more substantial Xrisk than anything the rationalist set has imagined and it’s been coming a lot longer than AI. Acting decisively and quickly is the way you have the most power to influence. The “F**k you buddy” game is actually a huge waste of time. It slows innovation, kills it. Be better and ship. Plurality Diversity is actually a strength, despite what the unhinged loons on X will tell you. This is literally a mathematical fact (see complexity theory). Diversity is what drives innovation. However, this statement only holds true if those actors have actual independent minds. If every actor, no matter how diverse they are in characteristics, all think the same then we will succumb to the tyranny of the majority. Real diversity, from a systems design perspective, is the effective curation and utilisation of highly divergent informational inputs. A collective intelligence is better the more perspectives it holds. The trap could be conceived of as an NPC generator. The collapsing of all action to game theoretic equilibrium. Bitcoin forces people to behave like automatons, corrupt epistemologies do the same for people’s minds. I don't 100% agree with Vitalik's recent take on plurality, but it, and the ideas contained within it, are some of the most important in this industry. Steer I’m going to leave this one to a future piece, but the key point is this. If you are at the leading edge of technology, you are at the leading edge of reality. Technology defines our eras, it defines us and how we interact as a civilisation. So actually we have quite a lot of responsibility here. If crypto really is the future then the future for us, is now. Thank god we haven’t on-ramped the next billion, because frankly it would be an embarrassing shitshow if they were here. It's not too late to tidy up the place before the actual humans turn up. If we keep building systems that are retail meat grinders and chapioning unhinged megalomaniacs as "based" heroes, then we're doomed to make the world worse. Values The reality is (and I’m acutely aware of this) that most people who read that last sentence, absolutely will not care. Retail turning up to buy our bags is the big pay day everyone is waiting for. One more pump for the road. This keeps us stuck in a perpetual cycle of a handful of people checking out each cycle and a total reset of what this is all about after the vast majority get brutally rekt. The “OGs” of this industry who saw and shaped the original values have either checked out, cashed out, burned out, or are running traps themselves, with some wonderful exceptions (yes there are actually nice people here). The way out of this is actually some notion of shared values at the social layer of the entire industry. What is the point of all this, where do we want it to go? The way to start this process is to simply reflect on what you would like to see here. I gave a talk on this at ETHBerlin, where I used the values of ETHBerlin (which are a great starting point), but really it should be a collective negotiation. Collective Sensemaking Once we have those diverse inputs, we then need to make sense of it. The nature of radically distributed extra-institutional systems such as those we inhabit in the cryptospace absolutely requires radically new tools for understanding collectives at scale. Prediction markets are a good start, but they are purely plutocratic by design which excludes a big chunk of humanity from any influence. They are also limited by their oracles, their fractured liquidity and the governance over their question formation. We need to expand epistemological tooling to include dialogic inputs and preferences. I believe that quadratic voting (or QV-like systems such as my own semantic ballot voting idea) and reputation based systems are the way to unlock this. Evolutionary Games We need systems that evolve. Otherwise we get stuck in traps. Sticky equilibria that ossify over time. This leads to stasis, inertia, corruption and ultimately death. Why? Because the world changes. If you don’t, you die. Evolutionary games are powered by reflection, feedback loops, innovation, creativity, critical analysis and effective governance. We need systems that respond to signals and modify themselves to context. We need cybernetic dynamism. Games that change are the path to infinite games. Knowledge Sharing So many of the pitfalls here are so prevalent that they’re basically universal. Stay here long enough and you’ll see the same mistakes again, and again, and again. This could be due to extreme incompetence, it could be due to the fact that none of this is ever going to actually work. Or it could be that we simply don’t learn our lessons. The aggregation of knowledge and context at the meta level (at least at the ecosystem level) across projects is key. If we have a shared set of values, even if we’re competitors, we’re shooting for the same north star. If we make the ecosystem better, we all win. Closing the Innovation Gap In the gap between ideation and product in the market, here be dragons. The additional risk that crypto creates and increasing regulatory hurdles are expanding this gap dramatically. The centralised decision making that sits in this space, simply doesn’t fund applications, which is why we have endless blockspace and no users. It’s why difficult problems in the DAO space remain unsolved and attention is diverted to value extraction at the lowest levels of the protocol. There’s also generally a huge due diligence crisis in crypto. To really understand the implications, applications and potential of radically new systems (which could have civilisational consequences) you need a vast knowledge base. That’s expensive to scale and honestly at this point unless you’re hiring teams of PhD researchers directly from the academy you’re always behind the curve. The only way to get passed this is to pool intelligence (this is where I think venture DAOs could win). We need systems that jump start projects at the ideation stage, before a token is even mentioned (retroactive doesn’t cut it). We need open curation, systemic frequent ecosystem level (or industry level) public goods funding, competition, challenge and perhaps most importantly fun. This was always my dream for FactoryDAO, a hive of informed decision making and cutting edge innovation. I genuinely think DAOs are the only way this can happen. Summary Yes, crypto is a trap, but everything is. The reductionist moloch powered systems we installed in the 80’s have got to the point where the game is starting to collapse under the weight of its own self-reinforcing feedback loops. Simple basic games are bad abstractions of reality and the native equilibrium state of betrayal and defection is what is going to cause the really nasty stuff. So yes crypto is a mess, but we may have an outsized influence here. Our potential for the creation of new innovative systems across finance, organisation, AI, venture and many other places is vast, but currently we are squandering it. We are at the tip of the spear, working in the future, and that’s where we can steer the most. Let's push things forward.