Crypto will not save adult games

Spicy opinions about banking discrimination in Naughty List News #56

Nov 21, 2021

Last week I spoke with the creator of SpicyGaming.net about many topics, including his desire to get around the blockades thrown up for adult content by online payment processors. His idea is to use cryptocurrencies on the backend of the site, which means customers still pay in their local currency, but that money is converted into cryptocurrency first.

While I wish him and his project all the best, I don't think cryptocurrencies will solve the problem of banking discrimination against adult content.

This week I want to dive into why that is.

Why are they doing this?

Sex workers have been pointing out for a long time that they face systemic discrimination from the banks. Banks would rather not deal with transactions that carry a high risk for them, and sex workers often operate in legally gray areas. And when banks discriminate against sex work they don't face a lot of backlash from the rest of society. For some reason, it's really hard to rally a lot of people around a cause that mostly affects poor minorities and queer people.

When I wrote about OnlyFans being targeted by MasterCard, I intentionally framed this issue around the idea that adult games could be next. This is because the changes at MasterCard were not driven purely by profit but come from an ideological corner. The National Center on Sexual Exploitation (NCOSE) influenced these changes and their stated goal is to reduce "the public health harms of pornography", i.e. ban adult content entirely.

SpicyGaming sees the storm coming and wants to get ahead of it. While the games they sell on their marketplace likely do not feature live performances of adult actors, MasterCard et al. could refuse to do business with them on the same grounds they used against OnlyFans.

An online marketplace that cannot process transactions can never become a profitable business, which is another way in which banks discriminate against adult content.

Getting around banking discrimination

In their interview with me last week, SpicyGaming said they intend to have an account (a "wallet") with one or more of the popular crypto exchanges. Customers don't directly pay for games but instead convert their money into premium currency for the site. They then use this premium currency to actually purchase games.

My understanding is these customer payments are then used to buy cryptocurrency on an exchange, which is added to the site's wallet. This avoids a least one common source of frustration for customers: the inherent volatility of cryptocurrencies. SpicyGaming controls the prices for their premium currency, but the amount of cryptocurrency they add to their wallet is likely to be different each time.

When it comes to paying creators their share of the sales, cryptocurrency from the site's wallet is either transferred to a creator's wallet directly or converted to local currency first.

While this scheme mostly avoids dealing with payment processors, I can foresee a number of problems already.

Crypto is full of criminals

While cryptocurrencies indeed do not discriminate against any type of transaction, that doesn't mean they're necessarily a good fit for adult content.

When you have a currency that is not controlled by a government, its primary use case becomes goods and services that said governments do not approve of. This can range from relatively benign things like sex work and party drugs to completely abhorrent stuff like child pornography and assassinations.

But arguably the worst kind of criminals using cryptocurrencies are not the gangsters who pay for knees to be broken, but the white-collar kind. White-collar criminals will happily scam your grandmother out of her retirement funds simply by moving a column in a spreadsheet.

Fraud is everywhere in the cryptocurrency world. Free from the burden of financial regulation, crypto exchanges will happily take your money, but then refuse to let you take it out. One example is Binance, which disabled withdrawals in British Pounds after a banking partner pulled out. As the linked article notes, this is likely because the exchange has been "loosey-goosey with its anti-money laundering and know-your-customer rules".

Wash trading is rampant as well, which is where one creates artificial demand for a commodity by either pretending to be a buyer themselves or by giving funds to a third party to pretend to be a buyer. Wash trading is a form of market manipulation that is extremely illegal in regulated markets, but a recently published paper estimates that 70% of all transactions in cryptocurrencies are this type of market manipulation.

And don't worry, the exchanges are in on it too. They engage in old-school fraud like Painting The Tape, where they artificially increase the volume of transactions in order to attract investors. It's not so much that they're "caught" doing these illegal practices, they openly admit to scamming investors.

But that's not even the worst of it.

Environmental impact

No matter which way you slice it, the environmental impact of cryptocurrencies is significant. This is because blockchain technology is extremely wasteful.

A recent estimate of the electricity consumption of the most popular cryptocurrencies shows that each transaction costs around $100 in electricity, no matter how small. And that's with less than a billion transactions a year, while credit cards are able to process 40 billion transactions a year.

Bitcoin also produces around 31 metric kilotons of e-waste every year. On average, each transaction generates 272 grams of e-waste, the equivalent of throwing away a phone.

Because all cryptocurrencies are designed to be deflationary, i.e. they increase in value the longer you hold them, this problem will not get better on its own. Specialized hardware to mine blocks will continue to be built and used up until something faster comes along.

What to do instead?

Cryptocurrencies will not save paid adult content from being purged from the Internet because the problems run so much deeper. Even if the crypto exchanges were regulated, they would still have to deal with their banking partners. And once they do, they face the same kind of scrutiny on their transactions as other platforms do.

We need to get to the root here. Banks should not be allowed to discriminate against sex work. And they should not be able to put up barriers to entry so high that it becomes impossible to start a legitimate business centered around adult content.

An important first step you can take right now is to listen to sex work activists like Ashley Latke, who has been at the forefront of the fight against banking discrimination for a long time. We don't have to accept the world as it is, we can change it for the better if we want to.