They call it the Crypto Castle. Situated in a swanky San Francisco neighbourhood, the three-storey house is hallowed ground for cryptocurrency entrepreneurs. It's home to about half a dozen permanent, mostly male residents, plus guests, and it's often described as a ''commune'' for 20-something savants looking to make their mark in tech. Furnished with bunk beds and brimming with booze, it has also earned a reputation as a frat house where digital currency devotees and their hangers-on party as hard as they work.
Many of the denizens are bitcoin millionaires, but they say getting filthy rich isn't their main goal. They prefer to think of themselves as social activists on a mission to help the poor by using tech for good. To hear them tell it, cryptocurrencies are the solution to the world's income inequality problem, especially in developing countries.
''I saw this as a way that you could give an immigrant from Kenya a means to send money back to their family without giving 10% of their paycheque to Western Union,'' Crypto Castle founder Jeremy Gardner said in a local TV interview.
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''That's, like, what got me really excited, and I just wanted to evangelize.''
That's quite a whopper. Far from being the people's currency, cryptocurrencies are actually the least socially progressive currencies on the planet. First, there's the hefty price. Bitcoin, the most popular cryptocurrency by far, was trading at $8,500 (U.S.) in early August, far beyond the reach of the masses, especially in the developing world. Transaction fees have also been high because all transfers of a unit are recorded in an online ledger.
Then there's the tech-savvy and sophisticated equipment required to trade crypto. Not everyone has a powerful computer, high-speed Internet access or even affordable electricity.
In reality, the crypto market is a millennial boys' club. Statistics show that most bitcoins are held by educated young males in developed countries. A 2015 survey by the CoinDesk news site found that 90% of bitcoin users are men, and 66% of respondents identified as white. Those numbers are hardly a surprise. The tech sector's sexism problem is well documented, and crypto is no exception. Not only are the vast majority of investors and entrepreneurs men, but many so-called ''crypto bros'' seem to revel in their chauvinism.
The bros don't have any incentive to create a real sharing economy, either, because the market rewards them for keeping crypto wealth concentrated in a few hands. It's an open secret that a relatively small group of investors, known as crypto whales, have huge holdings. According to Bloomberg Businessweek, about 1,000 users hold roughly 40% of all bitcoin. They often meet online in so-called whale clubs to co-ordinate their buying and selling to maximize profits. As a result, prices of digital currencies are easily manipulated, and sudden market swings often hurt small investors. Despite lofty talk about empowering the poor, cryptocurrencies have only exacerbated income inequality.
Yet the industry continues to peddle the promise that cryptocurrencies are a great equalizer. Middle-class people, they say, can do their part by investing in crypto companies that form part of a moral economy. This pitch has become a marketing gimmick for initial coin offerings (ICOs), a fundraising method used by startups. So far, the offerings have been largely exempt from securities laws in many countries.
Regulators need to clamp down on these claims. A lot of ICOs have turned out to be scams, and the offerings are usually structured to enrich company insiders–not the investing public and certainly not the poor.
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Many crypto entrepreneurs admit their own investing strategy is ''hodl"–slang for ''hold on for dear life.'' Basically, they’re hoarding the stuff in an attempt to make speculative gains, rather than trying to create an open, fair and efficient market.
These men may fancy themselves social evangelists, but we should be wary of the cost of salvation.
Rita Trichur is the financial services editor with The Globe and Mail. You can reach her at email@example.com or on Twitter @RitaTrichur