What’s the story?
This week, Democrat Congressman Sherman called for a ban on crypto in the United States.
His statement was noteworthy for a number of reasons. First and foremost, it appears crypto has moved into the third phase of Nicholas Klein’s famous quote: “First they ignore you. Then they ridicule you. And then they attack you and want to burn you. And then they build monuments to you”.
Until now, the major criticism of crypto by senior economists and politicians has centered around the assertion that Bitcoin and other cryptocurrencies have no value as they aren’t backed by anything. That a purely digital form of money, backed by math and code, is worthless.
The statement is worth reproducing in full:
Democrat Congressman Rep Sherman (May, 2019)
“I look for colleagues to join with me in introducing a bill to outlaw cryptocurrency purchases by Americans, so that we nip this in the bud.
In part because an awful lot of our international power comes from the fact that the dollar is the standard unit of international finance and transactions. Clearing through the New York Fed is critical for major oil and other transactions. And it is at the announced purpose of the supporters of cryptocurrency to take that power away from us. To put us in a position where the most significant sanctions we have on Iran for example would become irrelevant.
So whether it is to disempower our foreign policy, our tax collection enforcement, or our traditional law enforcement, the purposes of cryptocurrency, the advantage it has over sovereign currency, is solely to aid in the disempowerment of the United States and the rule of law. “
“…to aid in the disempowerment of the United States”
There is no mention anymore of cryptocurrencies not having any value, or questioning their worth. Instead, the call for a ban on crypto is based on a perceived existential threat to the international power of the United States. It acknowledges that a lot of this power stems from the role of the US Dollar. And that a reduction in this role would result in a disempowered United States.
“..the advantage it has over sovereign currency”
The congressman furthermore explicitly states that cryptocurrency has an advantage over sovereign currency. He doesn’t go into detail about what he means by this. Whether it’s a technical advantage, a philosophical advantage, or some other kind of advantage. It would be interesting to understand what he meant with this statement. Nevertheless, it carries a very different tone compared to the previous ridiculing and marginalizing of the technology and potential.
“…announced purpose of the supporters of cryptocurrency to take that power away from us”
For me this is one of the most important parts of the statement. It is the root of a lot of misgivings about crypto. As Chris Dixon states in a discussion this week with Olaf Carlson-Wee about crypto:
“It’s the most misunderstood. I feel like tech is often misunderstood, but this is by far the most misunderstood. The delta between the reality and the perception. And partly it’s a self-inflicted wound because of the early crypto movement and there was a lot of kind of political anarchist types got into it, but that’s lingered and it’s just really misunderstood.”
Yes, the origins of crypto have a strong anarchist and political component. And yes, there are still prominent, vocal figures in the crypto space who have strong libertarian views. But crypto has definitely moved on from that. This is not a splinter group at the fringes of society looking to burn everything down.
Again, yes, crypto has some undeniably shady aspects and potential for criminal use. And the extent of opportunistic charlatanism, scamming and profiteering in the last years has at times made me sick of the whole space. But equally there has been a huge amount of noble intentions and innovative thinking about solving serious societal problems. Providing financial services for the unbanked. Administering identity, food and other services for refugees. Finding new ways to give to charity. These are just some examples, the list goes on.
It is not the announced purpose of all supporters of crypto to take away power from the US.
“the purpose of cryptocurrency […] is solely”
Related to the above, another misconception is that cryptocurrency is only about digital money. This is worthy of an entire post of its own, but the notion that crypto = bitcoin = digital money has for some time not been valid anymore.
The comment is understandable though. The majority of people, having not looked into crypto beyond the headlines, will equate crypto with bitcoin and will primarily be familiar with the money use case.
That’s however only how it started. That was the first use case for blockchain, as a way to overcome the double spend problem and provide for a way to make payments without the need for a trusted intermediary. And indeed, many bitcoin maximalists still see that as the main crypto use case. It’s a very logical one.
So much more
But so many new, different ways that crypto can be used have already started to be explored. The most obvious one being smart contracts, spearheaded by Ethereum but with a number of other platforms now being released. Their use case is not about money. It’s about creating a new, decentralized way of building and running applications. It’s creating entire new business models. Facilitating new organizational structures, where stakeholders are aligned in ways they weren’t before. Turning users of applications into owners. Allowing for decentralized market places to form. For people to take back control over their own data and privacy.
The amount of imagination and innovation and the amount of experimenting with new ideas has been amazing. Yes, it’s been fueled by stupendous sums of money and ridiculous valuations. And definitely, the vast amount of projects and ideas will fail. Most likely the main use case for crypto and blockchain hasn’t even been found yet.
But no, the purpose of cryptocurrency isn’t solely about aiding the disempowerment of the United States. It’s not even solely about digital money. And a ban on crypto isn’t just a ban on digital money. It’s a ban on all projects.
Valid concerns
That’s not to say that the concerns from congressman Sherman aren’t valid. If successful, crypto and the digital money use case provides a threat the US Dollar. And with it, it provides a threat to the power the dollar brings the United States. Of all the countries, the US probably stands to lose most from a new, non-sovereign currency. Simply because it IS the dominant power.
It’s also undeniable that the global power of the US brings with it values that the vast majority of the west, and indeed beyond the west, don’t want to see disappear. Democracy, freedom, the rule of law. These are all upheld as cornerstones of US and western society. And the US has taken the self-proclaimed mantle to uphold and defend these values.
Cryptocurrency brings with it a series of serious questions and considerations to be addressed. But all new technology does. Gene editing resulting in designer babies. Facial recognition technology invading privacy. Smart phones addiction affecting entire generations. All new technology has the potential to be harmful.
But to simply put a ban on crypto feels both unimaginative and like burying your head in the sand. I think we’re still some time off from the final stage of Klein’s quote. No monuments of Satoshi will be built anytime soon. And in a way it’s definitely positive to see the progression from ignoring and ridiculing to acknowledging the potential that crypto has. Let’s just hope that it doesn’t result in any rash decisions and a ban on crypto.