Trust us: The problem with crypto-billionaires and effective altruism

Reading Time: 9 minutes

The Effective Altruism movement, championed by secular thinkers like neuroscientist and podcaster Sam Harris and moral philosopher Peter Singer, aims at getting the most bang for your buck when doing charity. Picking up garbage on the beach for an hour might make you feel warm and fuzzy inside––but wouldn’t it be better to use that hour, for example, to work at your corporate law job or to trade cryptocurrency? With the money you earn in that hour, you could pay dozens of people to clean up the same beach. Even better, you could donate that money to the Against Malaria Foundation, which distributes mosquito nets that could save lives directly.

The logic is certainly compelling: make as much money as you can to do as much good as you can in this life. But a fundamental flaw of effective altruism is that it says nothing about the way that money is earned in the first place.

Consider the case of Sam Bankman-Fried (or simply SBF), who has been celebrated by both Harris and Singer. SBF is a 30-year-old devotee of effective altruism and a cryptocurrency trader worth over $21 billion. (Practically every article cites a different figure, since the value of crypto fluctuates wildly day to day, or even hour to hour.)

There is much to recommend about SBF’s life story. As a teenager, he became fascinated by the ethical philosophy of utilitarianism and maximizing the good he could do over the course of his life. He resolved to earn as much money as he possibly could and then donate the vast majority of that wealth to charitable causes.

There is no reason to doubt his commitment to the cause. In addition to his donations, he eats a vegan diet, lives with roommates, and rarely takes vacations. Yet in the rush to embrace and celebrate the effective altruism philanthropy of crypto billionaires like SBF, we risk overlooking the pitfalls of a society that enables someone to accumulate billions of dollars—even if done for noble ends.

SBF began his career on Wall Street before cutting his teeth in cryptocurrency trading, taking advantage of the price differences of Bitcoin, one of the main cryptocurrencies, between the US and Japan. The firm he founded, Alameda Research, would buy Bitcoin in the US and then sell it in Japan, where it was worth more. The profits of this could then be used to buy more Bitcoin, and repeat as so.

It was a cumbersome process, however, with various banking and government regulations slowing the trades. With this in mind, in 2019 SBF started a new exchange, called FTX, to make it easier to trade cryptocurrencies. From there, his wealth began to skyrocket.

So he’s made a lot of money, and already he and the company are donating that wealth to the most effective charities. So far, so good.

Where things get more complicated, however, is when we think about the relationship of people like SBF to the rest of us mere mortals.

In a recent appearance on Sam Harris’s podcast, SBF and Harris talk about efforts to tax billionaires (beginning around 40:00). SBF agrees that loopholes for the ultra-wealthy should be closed. But he and Harris throw cold water on the idea of taxing billionaires out of existence. The goal instead, Harris and SBF agree, should be to address income inequality at the bottom, for the very poorest, rather than at the top.

The solution to social problems, in this view, is not to be found at the structural level, but at creating norms for ultra-wealthy individuals to use their own resources in the service of helping the poor (and on other issues, like ending factory farming). What is needed is not a system that produces an equitable distribution of wealth, in this view, but one where the richest people feel a sense of noblesse oblige to the poor.

Better than billionaires spending their wealth on superyachts. But this kind of billionaire altruism, in the best-case scenario, turns billionaires into benevolent despots. One doesn’t even have to doubt the benevolent part to question whether any one individual—no matter how pure their motives—should have so much wealth that they can bend governments and societies to their own ambitions, however rational they may be.

This mindset that effective altruist billionaires know best leads them to use their influence to set the rules—including rules limiting their own ability to generate wealth. And if they don’t get their way, they can always flee to somewhere that will do what they wish.

One doesn’t even have to doubt the benevolent part to question whether any one individual—no matter how pure their motives—should have so much wealth that they can bend governments and societies to their own ambitions, however rational they may be.

SBF’s exchange, FTX, was for a time based in Hong Kong, since it had looser regulations than the US. SBF threatened to move the exchange should the government there tighten regulations on crypto trading, saying in an interview in 2021, “What we’ve been doing also is reaching out to try and find governments that would be really excited to have us and work with us. That’s something we’re still working on, and we have a lot of candidates in mind.”

Sure enough, soon after that interview, FTX relocated from Hong Kong to the Bahamas.

The time-honored goal is to escape to places where taxes and regulations are low or non-existent. That’s why crypto billionaires have been flocking to Puerto Rico, to cite one example—much to the annoyance of the people who already live there.

But this move offshore leads to all sorts of ethically questionable arrangements. SBF’s trading firm, Alameda Research, helped to play a crucial role in FTX at the exchange’s outset by providing it with liquidity. Having a trading firm and an exchange working together raises questions of conflicts of interest, as noted by Roger Parloff, who profiled SBF.

But Parloff also points out that FTX was not supposed to be dealing with US-based customers. (There is now FTX.US specifically for American traders.) But wasn’t Alameda Research based in the US when it was making these trades? SBF denied this in a telling back-and-forth:

“Yeah, it’s an interesting question,” says Bankman-Fried. “The answer is that [Alameda Research] is not a US entity at this point. Its operations are not generally in the US.”

When did it switch?

“A couple years ago. Before FTX was founded.”

Does it still have offices in Berkeley?

“It doesn’t have a substantial office there.”

Where is it based now?

“So part of the answer is that it’s a bit distributed. Especially during COVID, it’s been the case that people will get stranded in various places for months to a year. . . . But it’s been predominantly Asia-based for the last few years.”

Where is its charter?

“BVI [British Virgin Islands].”

All of this points to a broader concern about crypto effective altruists. Since they have appointed themselves supreme arbiters of the rational use of wealth, there is a subsequent desire to avoid the laws, regulations, and responsibilities that come with living in a democratic society.

To them, the messy, democratic process of allocating money is simply inefficient. It does not deliver the rational bang for your buck that effective altruism demands. These enlightened individuals would prefer to sidestep this inefficiency and tip the world’s scales in a way that they have rationally calculated is best.

This extends not just to funding malaria nets, but also to political lobbying. As SBF and Harris talk about in the podcast interview, influencing political decision-making could be another place where wealthy effective altruists could do real good. Indeed, SBF donated $5 million to Joe Biden’s campaign.

A Vox interviewer remarks that it is strange that SBF hasn’t met Biden despite being one of his biggest donors. SBF replies that he doesn’t necessarily see a reason for the two to meet, but does muse—tongue-in-cheek?—about advising Biden on crypto: “The place I could be most useful to him is—I don’t think Biden’s ever going to put much thought into it—but if [the administration] is ever looking for like an expert on crypto regulation …” (The ellipses are from the original interview where he presumably trails off.)

SBF also donated some $7 million to a super PAC supporting Carrick Flynn, who ran (unsuccessfully) for the Democratic nomination in Oregon’s 6^th Congressional District. Flynn, a fellow effective altruist, attracted SBF’s support because of Flynn’s interest in addressing long-term risks––one of effective altruism’s key ideas––including things like governing artificial intelligence and confronting future pandemics. And yet the House Majority PAC, a super PAC closely linked with Nancy Pelosi and other leading Democrats, also gave Flynn $1 million, something that has been condemned by his opponents since the PAC does not usually endorse candidates in this way. There is speculation that this PAC may have donated to Flynn’s campaign in exchange for gaining support from SBF and access to his funds for the 2022 midterm elections––although it is still only speculation at this point.

SBF has donated to Republicans as well, including Senators Susan Collins, Mitt Romney, Lisa Murkowski, and Ben Sasse. The political donations have no explicit connection to crypto regulation, and yet, as Sam Sutton of Politico reports, “FTX is circulating a regulatory wish list as officials consider new rules for the industry.” And, again as Sutton notes, SBF “is becoming an increasingly familiar face on Capitol Hill,” testifying at several congressional hearings on crypto in recent months. And SBF has also rubbed elbows with the likes of Tony Blair and Bill Clinton at a recent cryptocurrency convention in the Bahamas.

Again, regardless of whether the end of this kind of political lobbying is just, in a democratic society it is a problem for any one individual to have the power to be able to purchase such massive political influence. Sure, we might luck out and get only benevolent billionaires. Putting aside that even billionaires claiming to be benevolent often act in their own best interests, we must ask ourselves whether lone individuals––rather than societies––should be able to make society-altering decisions based on their own desires and accountable to no one else.

There is another problem too. The Bitcoin system involves a process called mining—“the process of creating new bitcoins by solving extremely complicated math problems that verify transactions in the currency.” The process is cumbersome by design to ensure that the digital record of transactions is impossibly difficult to alter. But such mining requires enormous amounts of computing power, so much so that the electricity needed to mine Bitcoin is greater than that used by whole countries, like Switzerland or the Czech Republic.

In a discussion with the ethicist Peter Singer, SBF acknowledges the environmental concerns around using crypto. The massive energy usage is something that SBF says will not be sustainable in the long term, economically or environmentally. SBF places his hopes in less energy-intensive methods for mining crypto, but these methods have not yet been widely adopted. 

At a time when the planet is at a tipping point in terms of the climate, it is deeply inconsistent and counterproductive to say that one wants to do the most possible good with their money, while at the same time earning that money in a way that creates catastrophic long-term implications for the environment.

And the effects of crypto’s energy usage are not abstract challenges that will only affect future generations: the effects are being felt right now. Crypto miners have sought out developing countries with cheap electricity and lax regulation and proceeded to push that country’s energy supply to the brink. This is what happened in Kazakhstan beginning late last year, with electricity shortages due to crypto mining leading to unrest, then a subsequent government crackdown, and 164 people eventually being killed in protests. By the time Kazakhstan kicked out the crypto miners earlier this year, the damage had been done, and the miners will set up shop elsewhere.

What is more, it is not clear in SBF’s case whether speculating on cryptocurrency is a means to an end, or if it’s an end in itself. In other words, is he using cryptocurrency merely as a tool to achieve his effective altruist goals, or does he really believe that it is a currency of the future?

There is no need to doubt SBF’s genuine desire to do good. But his altruism can paper over the inherently undemocratic nature of his project and the harms that come along with promoting cryptocurrency.

The two are necessarily co-mingled. To the extent it works at all, crypto can only work if people believe in it. And for SBF’s speculations to be successful, for him to actually realize his gains, crypto itself needs to be successful. To this end, FTX has recently struck promotional deals with Major League Baseball, Tom Brady, and the Miami Heat, in order to keep up the impression of its growing value as a currency—to keep up the belief.

However, the promises of cryptocurrency for the regular person—as opposed to speculators—is entirely illusory. On closer examination, claims of greater security, privacy, or protection against fraud turn out to be hollow. Instead, as Sohale Andrus Mortazavi notes, “Cryptocurrencies have virtually no legal use case. They’re great for facilitating ransomware, laundering money, distributing narcotics and child porn, running Ponzi schemes, and… not much else.”

SBF’s intention to donate nearly all his wealth is admirable and again, there is no need to doubt his genuine desire to do good. But his altruism can paper over the inherently undemocratic nature of his project and the harms that come along with promoting cryptocurrency.

Ultimately, the fact that someone could accumulate billions of dollars by speculating on cryptocurrency—or in any way, for that matter—should strike us not as an inspiring story for would-be effective altruists, but rather as the sign of a fundamentally broken society.