Crypto Needs Journalists More Than It Wants to Admit

I’ve been writing about blockchain and cryptocurrency for more than half a decade now, and one of the most consistent and unfortunate things about the community is its irrational hostility to journalists. That was on display yet again this week in a bizarre spat between two of the most important companies in crypto: giant Malta-based crypto exchange Binance, and crypto-focused trade publication The Block.

The saga began when The Block reported that a Binance office in Shanghai had been “raided” by Chinese authorities, then shut down. Binance not only denied that they had been “raided,” but said that they had no office in Shanghai. Binance founder and CEO Changpeng Zhao (best known as simply ‘CZ’) even went Full Trump, declaring The Block to be “fake news” and threatening to sue.

The Block responded by publishing photos of the supposedly nonexistent office, and detailing that they had sourced information in the original report through firsthand witnesses, including building management. One source, a vendor, even claimed that CZ was personally present in the imaginary workspace.

Ultimately Binance turned out to have little substantive objection to The Block’s reporting. The Block did rephrase its headline, which now describes a “visit” by authorities rather than a “raid.” But Binance was ultimately left arguing that just because it had a place where people worked for the company, that didn’t make it an “office.”

Okay.

One commentator, seeming to speak as a proxy for Binance, took a particularly wild swing, saying that the office wasn’t an office because “Binance may have this presence here and there as clusters. They’re in a hub-and-spoke model.”

This, of course, describes nearly every modern company of any size. Fortune has offices in New York, San Francisco, London, and – yes, we admit it – Beijing.

The evasions ring especially hollow because, according to sources familiar with the situation, Binance was in talks about a possible strategic partnership with The Block as recently as this Fall. (Binance did not respond to Fortune’s request for comment).

The absurd contortions by Binance make just slightly more sense in light of pressures from China’s government. Binance is officially based in Malta, but Zhao was born in China and the company appears to be working to expand the business there. But the lack of clear rule of law in China makes such expansion subject to the whims of CCP leadership, and the raid/visit came just days after the People’s Bank of China ordered a crackdown on crypto scams and exchanges. By pushing back on The Block’s reporting, Binance may somehow be hoping to curry favor with Chinese authorities.

As for Binance’s threat to sue, it seems likely to have been posturing. Preston Byrne, a crypto-focused lawyer who has had his own conflicts with The Block, nonetheless warned that Binance had a lot to lose in litigation. “Proving a defamation case in the United States is a tall order. Binance obviously has considerable resources to bring litigation anywhere and against anyone it wishes, but [I] would query the wisdom of opening the kimono, so to speak, in a discovery process with a group of folks who buy ink by the barrel.”

In other words, a lawsuit would mean big exposure for Binance – and not just in court discovery. “The real story here is that an offshore exchange which made its name hawking worthless tokens to retail investors with no compunction felt that they could bully an upstart media publication into silence through the threats of lawsuits,” says Nic Carter, a crypto-focused investor at Castle Island Ventures. “This can’t possibly be doing them any favors as they try and ingratiate themselves to US regulators.”

However performative, the threat of a lawsuit did play well among crypto stans on social media. Zhao even followed it up by arguing that crypto startups should “allocate some funds for fighting FUD”. “FUD” – for Fear, Uncertainty, and Doubt – has come in crypto circles to be roughly synonymous with “fake news.” Or, as The Block CEO Mike Dudas put it, “facts that run contrary to their business interests.”

The idea of a “FUD fighting fund” was quickly cosigned by none other than Justin Sun, founder of the smart-contract platform Tron. This is revealing because Sun has been repeatedly and credibly accused of various forms of deception, including plagiarizing Tron’s whitepaper and code, that were ultimately revealed by reporters and researchers.

Sun continually denied those findings despite public, obvious evidence, but Zhao seemed happy to have his support in the quest for truth. And Zhao himself has previously appeared to threaten The Block while arguing that when it comes to crypto in China, “some things are better left unsaid.”

There are a lot of factors to the cryptosphere’s distrust of the media. It’s true that some mainstream financial and business news sources have never taken the ideas behind crypto seriously. Many purported crypto-news websites are effectively scams themselves, taking payment for coverage. And the ease of investing in cryptocurrency means critical reporting is likely to generate backlash from a lot of people with money on the line – in fact, many seemed to blame a subsequent drop in bitcoin’s price on The Block’s reporting.

But what gets lost in that mess is that journalists aren’t just naysayers and scolds. They’re the immune system of any industry, warning of dysfunction and gathering storms, and hopefully giving companies and investors the ability to react before they become catastrophic. The lack of trusted, serious reporting during the 2017/2018 bubble arguably left the crypto market uniquely vulnerable to billions of dollars in scams and bad ideas.

To spell this out in the current case: if The Block didn’t exist to report on the regulatory environment in China, the crypto investors who attacked its reporting would still have faced consequences from the unreported facts. The CCP would still have the ability to clamp down on crypto trading at any time – investors just wouldn’t have any insight into that fact.

“If this industry abandons the pursuit of truth, it will degenerate into chaos,” says Carter. “Anything that sheds light on malfeasance is a net good for the industry, and the baying crowds yelling ‘FUD’ would do well to recognize that.”

David Morris

david.morris@fortune.com

@dzanemorris

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“When you walked in, it was a very front-y feeling . . . Four desks in a weird room, no business operations going on. It looked hollow.” 

That was one visitor's impression of the offices of QuadrigaCX, the Canadian cryptocurrency exchange that collapsed in spectacular fashion early this year following the death of cofounder Gerald Cotten. Though widely regarded as an honest operator in cryptocurrency circles before his death, a new Vanity Fair feature by Nathaniel Rich recounts that Cotten had long been an aficionado of Ponzi schemes and other scams. In Rich's words, "Gerald Cotten may have had a sophisticated grasp of cryptocurrency, but his expertise—his formal training—lay in the art of the confidence game." 

According to Rich's reporting, Cotten launched his first pyramid scheme when he was just 15. He found inspiration on the forum TalkGold, which connected would-be scammers with both victims, and each other. Cotten reportedly met Michael Patryn, a convicted fraudster who would go on to be a cofounder of Quadriga, when the two tried to scam each other. (Amazingly, TalkGold was run until 2016 by the Krassenstein brothers. After the 2016 U.S. Presidential election, the Krassensteins parlayed their expertise in viral marketing into prominence as mouthpieces of the Hillary Clinton-mourning "Resistance." Earlier this year, Twitter permanently banned the Krassensteins for allegedly manipulating the platform to elevate their posts. Birds of a feather, and all that.)

Perhaps the most damning finding in Rich's piece is that the QuadrigaCX exchange took its name directly from one of Cotten's prior grifts, a supposed investment vehicle called Quadriga. And according to Rich's sources, both the FBI and Canada's RCMP seem to have entertained the idea that Cotten isn't dead at all, and may have secreted funds taken from Quadriga depositors in bank accounts around the world. That would make QuadrigaCX one of the most elaborate "exit scams" of all time.

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