Arriving roughly one hour into a full-day blockchain-themed event called “Initial Taco Offering,” I’m greeted by a sight familiar to many attendees of Austin’s South By Southwest Interactive Festival. There is a throng of badge-wearing, drink-craving conference goers — and there are free tacos.

The event, a play on the initial coin offerings that have turned digital currencies into some of the buzziest and most fraught investment opportunities on the planet, is being held at a steakhouse on Lavaca Avenue in downtown Austin. The organizers, a group called the Founders Organization, lured attendees away from more traditional sessions in the city’s convention center and nearby hotels with the promise of complimentary food and spirited discussions about the future of cryptocurrencies.

Because it is SXSW and nothing is taken too seriously, the event is scattered with googly-eyed taco plushies and Bitcoin logo-branded chocolate coins. In the back, a man tries to sell onlookers on an intimidating, multi-monitor setup called the Blockchain Terminal. It is a cryptocurrency tracker in the vein of Bloomberg’s signature financial product that is not itself capable of buying and selling cryptocurrency, for various technical reasons. Though the air is light-hearted and smells strongly of fried fish, a vast majority of the speakers and attendees take their seats as the five-hour onslaught of panels kicks off, everyone listening intently in hopes of understanding the future. And hopefully getting rich in the process.

Blockchain tech was far and away the hottest topic at this year’s SXSW festival

Cryptocurrency, as a catch-all term, derives from the cryptography used to sign and record transactions on the blockchain — the technical foundation of digital currencies like Bitcoin and Ether. At SXSW this year, cryptocurrencies are far and away the hottest topic, vacuuming up billions of dollars in barely regulated and crowdsourced investment. Blockchain-focused panels have been granted top placement at the convention center’s biggest stages and have at times drawn crowds comparable to those for talks featuring Bernie Sanders and the cast of Westworld. Even the smaller talks held in a smattering of Austin hotels often hit capacity in a manner of minutes, with standby lines snaking across the floor as people waited in hopes that a seat would free up.

The reason for the explosion in popularity is the astronomical jump in value last year of Bitcoin, which peaked close to $20,000 just a few months ago and now sits closer to $8,000 after another tumultuous slide just this week. But the surge in the value of Bitcoin and other cryptocurrencies, most notably Ethereum, have drawn millions of dollars of investment and an influx of top-level talent, all in the belief that the next generation of multibillion-dollar companies will be born on the blockchain.

And while SXSW has long lost the innovative glimmer that once made it a debut destination for Twitter more than a decade ago, it remains a litmus test for where the culture of technology is headed. In fact, SXSW, more than any other conference, feels ready-made to put on display the breathlessly radical, overzealous, get-rich-quick mentality that threatens to swallow the culture of cryptocurrencies. So it’s here, sitting in the crowd at Bob’s Steak and Chop House among the plates of tacos and pint-sized cans of beer, that I’m starting to think that maybe the blockchain isn’t complete bullshit.

Maybe the blockchain isn’t actually complete bullshit

Nearly everyone I’ve talked to at SXSW, from the extremely bullish to the sheepishly skeptical, agrees that there’s too much hype, marketing nonsense, scams, frauds, and misinformation surrounding the industry. Too many people have adopted a gold-rush mentality, empowered by federal regulators who have been slow to act and dot-com-style appeals promising to turn buyers into millionaires overnight. The avalanche of money and bad actors has taken a toll on the true believers, who now spend much of their time apologizing for the scammers among them.

Asked how the blockchain industry has changed in the last few years, an animated Hartej Singh Sawhney, co-founder of the auditing and security firm Hosho, says, “If I played a drinking game, and I took a shot every time Bitcoin was mentioned on CNBC, I’d be really fucked up.” The line earns raucous laughter from the crowd at the Initial Taco Offering’s second panel of the afternoon, prompting Sawney to add, “Oh, and a lot of dumbasses started buying ICOs and they realized they could raise money to avoid VCs.”

Photo by Nick Statt / The Verge

Photo by Nick Statt / The Verge

Photo by Nick Statt / The Verge

Sawhney is referring to those initial coin offerings, which allow basically anyone with access to the internet to create a website, use open-source code to develop a cryptocurrency, and sell the tokens to the public as if they were stock. These tokens sell on the promise that they will be used to implement some blockchain-based product, but in reality, people buy them mostly because they think the currencies will rise in value and make them rich. By the end of last year, nearly $5 billion had been raised using ICOs, according to a January report from Crunchbase.

Many of these ICOs, which individually have raised millions, are from companies that do not yet have a product and some are from companies that never intend to produce anything at all. Some employ old-school pump-and-dump schemes from the world of stock trading, while others are transparent trolls like the one ICO hawking something called Ponzicoin. To combat the scams, Google and Facebook have banned cryptocurrency and ICO advertisements, and the SEC has launched probes into dozens of companies and individuals over potential fraudulent behavior related to the largely unregulated sale of cryptocurrency tokens. Yet, that hasn’t stopped a flood of ICOs from foreign companies from taking money from people around the world with little to no oversight.

“A lot of these projects will fail, and people are going to lose their money.”

It’s that influx of wealth and negative attention that has many of the more level-headed members of the community ticked off. “I think it’s pretty clear for the last couple of months that we’re in the middle of a speculative bubble,” says Vinny Lingham, CEO of identity management company Civic, on a panel focused on blockchain-based businesses. “You have three or four thousand projects all being traded on all these exchanges and nobody is using any of these tokens. People are just speculating on the future value of what these tokens will be worth.” When pressed by the moderator on what might happen in the next 18 to 24 months, Lingham says it’s going to be a bloodbath: “A lot of these projects will fail, and people are going to lose their money.”

Julian Hosp, a Singapore-based Austrian entrepreneur and former medical surgeon who runs the crypto company TenX, thinks the inevitable crashes and bloodletting will be good for the industry. “Cryptocurrency is the most boring app on the blockchain, but it’s the easiest to conceive,” he says, speaking to a blockchain meetup crowd tucked away in the corner of Austin’s downtown JW Marriott hotel. It’s only when the cryptocurrency craze burns off that the real blockchain believers will be left to push the industry forward, Hosp adds.

“The community has to stop this get-rich-quick stuff,” Hosp says. “Everybody wants to make money… but you can’t be betting to get rich tomorrow. The market is bleeding and it’s a really good lesson that the market doesn’t make you rich overnight.” If there is a silver lining here, cryptocurrency enthusiasts at SXSW echo Hosp’s prediction that it’s only the entrepreneurs and those genuinely interested in the possibilities of blockchain applications that will be left once the speculation dies down.

Photo by Michele Doying / The Verge

“For all the millions of people that suddenly started to buy into tokens or Bitcoin, maybe 10 percent of them get it now, but that 10 percent of them are absolutely blown away by the potential of blockchain and decentralized systems,” says Michael Casey, a senior adviser for the Digital Currency Initiative at MIT’s Media Lab, on a panel about the future of programmable money. “They’re now starting startups and building platforms. There’s this ideation that’s happening, sparked by something as crazy as the ICO madness.”

Others, like Sawhney, say that while ICOs are currently being abused, it’s a liberating concept for entrepreneurs from developing countries, and could help revolutionize how those engineers and entrepreneurs receive funding in the future. “The positive side, if you’re not American and you find out about the concept of an ICO, you no longer have to rely on Silicon Valley. Maybe you’re in Ukraine or India and you’re not going to make it over to Sand Hill Road,” he says. “You have the internet and steady electricity, this concept of an initial crypto offering is very exciting.”

In a jam-packed SXSW keynote titled, “Ethereum Will Change The World,” which earned a line across the entire fourth floor of the Austin convention center and down two flights of stairs, Ethereum co-founder Joseph Lubin balanced his exuberant predictions of the future with calm calls for more robust regulation. “The barrier to entry is very low, so you can launch a token project quite easily,” Lubin, who is also a founder of blockchain software maker ConsenSys, told former Forbes journalist Laura Shin, who hosts two crypto-themed podcasts called Unchained and Unconfirmed. “You can copy and paste an entire token issuance project with no interest at all in bringing value to your token holders. it’s basically a scam, and there are many of those projects going on in the world. It absolutely makes sense for regulators to take a look.”

Blockchain proponents are inviting regulatory oversight from the SEC

One acronym that’s been mentioned by almost every panel this past week is SEC. Federal regulators in the US have recently taken measures to combat fraud by requiring ICO participants to be accredited investors and launching numerous investigations into potential scams. And while there is your standard “regulation will kill innovation” critics, many of the community’s biggest names, including Lubin, invite the scrutiny. “We understand that for hundreds and thousands of years, bad actors have been taking advantage of people,” Lubin says. “I think it’s prudent for the SEC to let people know that they’re watching. That will enable better behavior, that will cause people to do deeper legal homework around these events.”

Speaking to the crowd at the Initial Taco Offering, Sawney says it is everyone’s personal responsibility to better educate themselves, and that the SEC can only do so much given how fast the blockchain industry is evolving. “Read the white papers. Everyone and their mom is just pumped up about the wrong thing,” he says. “It’s not my personal passion to educate people’s aunts who don’t understand math.”

“It’s not my personal passion to educate people’s aunts who don’t understand math.”

Though regulation is top of mind for everyone in the community, the dreams of a decentralized future remain largely unwavering and rather grandiose. “In general, I like the idea of decentralized freedom for the people. It’s not just about cryptocurrencies, but all the social aspects of blockchain,” says Fabian Wabbel, a German media professional who works for Switzerland’s NZZ newspaper, at a cryptocurrency meetup in Austin this past week. Wabbel says he became interested in blockchain technology over the last two years or so, and while not an engineer or entrepreneur, he’s convinced it could revolutionize the world. “It’s going to change the world — or I really hope it will,” he says.

“We’re at a point in time when it’s still so young. It’s very much a baby,” says Benjamin Siegel, the strategy lead for social impact at Lubin’s ConsenSys. “We have a two-and-a-half-year-old baby, and it’s not ready to go solve the world’s problems. But one day, Siegel suggests, it will. Siegel points to identity management, a popular topic among blockchain enthusiasts. Storing your personal data on a decentralized blockchain — instead of with a central authority like Facebook or the government — could give individuals more direct control over how their data is used, in the same way Bitcoin gives people more direct control over the contents of their wallet.

“Identity is a weapon those in power hold over people. Identity is a human right. You get it from being born,” Siegel says to an enthusiastic crowd. Some in blockchain world see a blockchain-based identity management system as a bad idea, potentially making sensitive data more vulnerable to breaches and impostors, but those criticisms have not stopped the topic from bubbling up in Q&A sessions throughout the week.

Photo by Michele Doying / The Verge

Other blockchain hype at SXSW felt even less grounded. Forbes’ Laura Shin, moderating a panel at the taco offering two days after interviewing Lubin at a conference keynote, interrogated the recent fad of putting any old business on the blockchain and using the attendant marketing buzz to raise huge amounts of money. She was particularly concerned about businesses selling cryptocurrency tokens that don’t actually do anything, but pretending that they are not actually taxable securities, despite the only reason people are purchasing them is to sell them later at a higher price.

She focused on Telegram, the encrypted messaging platform that raised a record-breaking $850 million over the last few months in a presale of the company’s cryptocurrency, ahead of a formal ICO. Dave Hendricks, CEO of a company called Vertalo that’s building blockchain-based HR software, found no problem with the situation. “They’re investing in the company. It’s a great company, and it’s a great service,” Hendricks said of Telegram. When Shin pressed him on how such a purchase isn’t considered equity, he responded that he does not consider it a formal investment.

“Did you invest?” Shin followed up.

Hendricks said he did personally put his own money in.

Is it actually worth $850 million, she asked.

“I don’t know,” he responded. “I didn’t do due diligence.”

Nervous laughter broke out among the crowd. But Hendricks was unfazed. “There’s a lot of room for a lot of models. I think it’s going to be fun,” he said. Telegram is raising money to build a blockchain-based apps and services ecosystem to take on Facebook and other Silicon Valley giants, all by selling people on the promise of a new cryptocurrency called Grams. The company is poised to raise another $850 million in the coming months, before a potential public ICO that would raise even more money on top of that.

We don’t fully understand what Telegram is actually selling, when it will materialize, and whether the company is just riding the cryptocurrency hype wave. But it hasn’t slowed it down. Plenty of smart people, including those within the biggest venture capital firms, are lining up to buy in. They want a piece of Grams, regardless of whether the SEC eventually considers it to be equity. More importantly, however, they don’t want to be left behind. They’re buying into the future, hoping to get in on the ground floor.