The network scam | Seth’s Blog

Lana Swartz coined this term in her breakthrough paper on crypto.

A scam always involves a transaction. In the traditional fraud, the scammer tells a lie and the buyer, either with or without diligence, believes it and loses everything. You buy the magic beans, but they don’t grow.

But modern scams have a network component to them. Either there are conditions present where the scams are far more likely to occur (because of the magnification media and other forces can offer to the scammer) or, in this case, because the gullible buyer has a hunch it’s a Ponzi scheme, but plays along because he believes he can then pass the buck to the next sucker and come out ahead.

If someone bought an NFT in the belief it was going to go up, without regard for its actual utility, they are participating in a network scam. Without a society of others sharing the same belief, it wouldn’t work.

Perhaps climate denial is also a kind of network scam. If you can pump oil or sell cheap disposable fashion or benefit from subsidized cheap beef, it’s only because other people are joining you in sharing a short-term outlook on the world. Sooner or later (probably sooner), the delusion fades, and people (all of us) are left holding the bag.

In a well-lit and rational world, we could see network scams for what they are, and do something about them before they spiral out of control.

Alas, the alternative is something Swartz quotes a hustler as saying: “If it’s a Ponzi, get in early.”

PS Black Friday is a network scam.

November 24, 2023