By Sam Westwood

It’s hard not to snigger at the sorry tale of Pixelmon, a recent example of a bold new technology gone badly wrong. It was touted as the Pokemon of NFTs (non-fungible token, basically a unique digital record of ownership). Ads for Pixelmon starred majestically animated, Lego brick-like creatures that could be bought, traded and shown off in the metaverse. When a limited run of 10,000 Pixelmon “eggs” went on sale in February, players snapped them all up within an hour — paying about US$9000 per egg on average, totalling US$70 million in sales. 

The Pixelmon NFT we were promised…Image: Pixelmon

Then the eggs hatched. The Pixelmon that emerged looked nothing like those glorious ads: lumpen, shapeless critters often obscured by flat, messy backgrounds. “Gobsmackingly bad,” declared Fast Company. The value of almost all the Pixelmon plummeted. The game’s 21-year-old creator publicly apologised. And, of course, social media erupted in mocking memes.

NFTs, blockchain, Bitcoin, Ethereum, hot and cold wallets — all this dizzying jargon can be wrapped up under the umbrella term cryptocurrency, which broadly refers to digital currencies and assets that utilise cryptography. It’s an astonishingly popular digital Wild West that investors poured more than US$30 billion into in 2021, a nearly fourfold increase from 2018. Yet to outsiders, the whole thing seems absurd to the point of outrage. People sink how much money? Into nothing?

The Pixelmon we got. And deserved. Image: Pixelmon

The Pixelmon saga is the latest in the long line of complex and deeply amusing fails to strike this rapidly expanding new industry. Take James Howells, a Welshman who threw away a hard drive in 2013 that contained the keys to a Bitcoin stash which has soared in value to more than half a billion dollars. (Howells is now trying to excavate the landfill where he thinks the lost hard drive ended up — a strange update on the classic buried treasure trope.) Or “Spice DAO”, a collective of crypto fans who pooled approximately US$3 million in 2021 to purchase the story bible for a never-produced film adaptation of Dune, apparently believing that buying the book would grant them the rights to produce their own animated adaptation of the sci-fi classic. (It didn’t. The fact that the bible has been freely available online for years only added to the hilarity.) Or Stefan Thomas, who lost the password to his $200 million-plus Bitcoin wallet. Or OneCoin, which turned out to be a $4 billion Ponzi scheme. Or… or… or…

Admit it: when you hear stories like these, you feel a thrill of smug malice. “Those idiots. What did they think would happen?” The English language has borrowed the German name for this dark emotion: schadenfreude. The Oxford dictionary defines it as “pleasure derived by someone from another person’s misfortune”. The Simpsons summed it more succinctly: “shameful joy”.

In her 2018 book Schadenfreude, historian of emotions Dr Tiffany Watt Smith writes that it’s a near-universal human sensation with five broad elements. First, it’s passive — brought on by witnessing events we haven’t caused ourselves. Second, it’s (mostly) furtive, because we recognise it’s immoral to gloat when others fail. Third, it’s stoked by comeuppances — the person suffering somehow deserves it. Fourth is its link to envy: schadenfreude is usually directed at those more successful than us. And lastly, it’s usually tied to relatively minor upsets. You’d smirk if your beautiful frenemy got dumped, but not if she was killed in a freak accident.

Crypto seems to have become one of the most potent fuels for schadenfreude — and to unpack why, you have to look back to how this technology developed.

Comments made by Elon Musk have directly impacted cryptocurrency Dogecoin. Image: Getty/Kimberlee Kessler

“Digital currency is an idea going back to about the ’60s,” says Dr Jack Parkin, a digital economist who has a PhD in cryptocurrencies and blockchains, explaining that it was envisaged as a way to escape the surveillance and control of an “Orwellian” society. “There’s a famous [1999] novel called Cryptonomicon by Neal Stephenson, which actually imagines an anonymous banking system to free us from fiscal control,” Parkin says.

Technical difficulties and a lack of early adopters held digital currencies back from the mainstream until Bitcoin “trickled in existence” in the wake of the 2008 global financial crisis. Created by a shadowy figure known as Satoshi Nakamoto (who has never been identified), Bitcoin is a decentralised platform not controlled by any one bank or government.

“There’s a powerful narrative behind it, in terms of this anonymous hacker bringing this thing into the world — saving us from all these evil centralised banks that caused the financial crisis,” Parkin says. “It’s like something from the movies.”

It’s also “bollocks”, according to Parkin, whose book Money Code Space is largely about the disconnection between the genuinely utopian ideology that underpins crypto, and the making-the-rich-even-richer way it’s actually turned out.

“I think it’s compelling for people because they can almost feel themselves being heroes or standing for this just economic cause while getting absurdly rich in the process,” says Parkin, who’s (literally) deeply invested in crypto but nevertheless healthily sceptical about the industry. “[But] really, it’s just a lot of rich people feeling good about themselves.”

For a perfect example of that, look up Paris Hilton’s recent appearance on Jimmy Fallon’s talk show, where they both talked about how they’d bought into the Bored Ape Yacht Club — an extremely popular series of NFT artworks depicting cartoon apes, which now cost more than $300,000 apiece. The moment seemed less like the realisation of a digital money utopia, and more like the grotesque spectacle of two multimillionaires flexing about the inherently worthless status symbol they can both afford to waste money on. 

Bored Ape NFTs became hot property for celebrities. Image Twitter.

“I’m so torn with [NFTs], because in one sense it’s like, ‘Oh yeah, it makes sense, these are unique digital licences,'” Parkin says. “But on the other hand it’s like, “What the f— are people doing?!’ They’ve got a poster which is worth $20 million, but I can copy that poster and put it anywhere on my website.”

But probably the biggest strike against crypto is its so-called “crypto bros”. It might not be a fair assessment, but crypto has a reputation for attracting a certain kind of loud, blind zealot — who hasn’t been bailed up by an Uber driver who drones about his crypto portfolio and expertise in painful detail?

“It’s gone from an underground movement, to this thing that edgy people do, to this thing that the smartest people in the room do, to the thing that annoying people corner you in a room and tell you to invest in,” says Parkin. “I get trapped in corners by loads of people telling me what crypto is and [that] it’s the best thing… everyone is now an expert. It seems to attract people that like the sound of their own voice,” he says, adding that he’s spent time in Silicon Valley with hardcore crypto fans who have “completely drunk the Kool-Aid”.

It’s fanatics like these who can make crypto seem like a pyramid scheme where everyone’s just snapping up overvalued asserts in the hope of offloading them to an even greater fool for a profit. That’s what powers such schadenfreude — it’s funny to imagine these “crypto bros” failing bigtime.

The reality is grimmer. An analysis by blockchain analytics firm Chainalysis estimated that US$14 billion was lost to crypto crime in 2021, and it’s probably not multimillionaire crypto cowboys losing out to thieves and scammers. Parkin cites a woman he was asked to help, who — against the warnings of her financial advisers — sunk everything she had into crypto. “It quickly became obvious that she had been scammed,” he recalls. “The company was a shell company, the website was dodgy, and they were making excuses as to why they couldn’t pay out. So she lost her home.”

It’s hard to feel shameful joy in cases like these, even when the victims should have known better. It’s only schadenfreude if you’re punching up, not down.

Despite how divisive it is, cryptomania will only get bigger — and so will crypto scams. Parkin says that stories of people becoming millionaires overnight, combined with a general ignorance of these systems, is “a glorious cocktail” for scammers. And although work is constantly being done to bolster the security of this emerging technology, he believes the best way to avoid becoming yet another crypto fail is pretty old-fashioned.

“Do your research and stick to big companies, because they’ve already been time-tested. But then again, they can still be hacked,” Parkin says. “But the way to really protect yourself is to only invest what you can afford to lose.”