You Can’t Spell “Cryptocurrency” Without “Crypt”

The libertarian/anarchist roots of cryptocurrency, especially Bitcoin, are well known. The supposed allure is that crypto would allow individuals to transact without requiring on state issued fiat currencies (which are subject to various government controls and monitoring) or state-sanctioned financial institutions. Crypto is in theory anonymous, decentralized, and peer-to-peer, outside of the purview or control of the state. A way to Go Galt, virtually.

In the early days of crypto, which of course are not that long ago, I expressed extreme skepticism about that vision. It could be realized only if crypto remained unimportant and utilized by few: if it were ever to become close to realizing the vision on a broad scale, it would be a threat to governments and they would intervene to control it, neuter it, co-opt it, or destroy it.

There’s an irony here. If you believe the ideological argument for crypto–that it is justified as a means of escaping a tyrannical government-sanctioned and controlled financial system–you also have to understand that governments would not permit crypto to survive as the true believers desire it to.

And we are at that point. Crypto has flourished in the last several years. Not surprisingly, governments are moving to crack down on it.

China–again not surprisingly–was the first to attack crypto in a systematic way, implementing a blanket ban on crypto transactions. But other governments are not far behind, including the US.

Indeed, perhaps you didn’t know this, but the marvelous “infrastructure” bill just passed by the House includes a provision mandating reporting of crypto transactions. The language is unsurprisingly murky, but the intent is quite clear: to bring crypto into the view of the federal government’s Panopticon, especially its tax Panopticon.

In both China and the US the regulatory/legal attack is focused on intermediaries (e.g., exchanges, brokers) that facilitate transactions. In theory, true peer-to-peer transactions (e.g., transactions between anonymous wallets) can be used to circumvent this, but the very fact that intermediation has proved so integral to the operation of the crypto market (which is in itself a refutation of the anarchist vision, as I pointed out in a post about Ethereum creator Vitalik Buterin) demonstrates that the regulations will seriously compromise the ability of crypto to achieve that vision. Moreover, this is just a first step, but one which strongly indicates intent: if non-intermediated transactions flourish, governments will devise means to bring them to heel too.

There’s also something else to keep an eye on: central bank digital currency. It is no coincidence, comrades, that the first country to crack down on non-government crypto–China–is also in the lead in implementing–mandating, actually–a government digital currency.

Private crypto is a competitor to government digital money. Governments don’t like competition. So they do their best to destroy it. Furthermore, the Chinese government truly desires to create an actual Panopticon that permits monitoring, rewarding, and punishing all aspects of individual behavior. Government digital currency greatly advances that objective, and private digital currency impedes it. So to advance the former China destroys the latter.

Governments world wide have cognitive dissonance when it comes to cash. On the one hand, it provides a source of revenue–seigniorage. On the other hand, it provides a way to circumvent the tax system as a way of generating revenue–and of monitoring and controlling behavior. Government digital currency allows states to resolve that dilemma. They can have their revenue cake and eat your privacy too.

China is open and unapologetic about its social credit system and its view that government digital currency will allow it to extend and deepen the operation of that system. Other governments are not so blatant, but there have been discussions in the US and Europe and elsewhere about not just the adoption of central bank digital currency, but how that system could be used to compel desired behavior.

A retired Swiss banker friend once held up a 100 CHF note to me and said: “when I hold this, I feel free.” Well, that’s a feature to him, but a bug to governments. When you “hold” government digital currency, you will not be free. Its use can be monitored. It can be wiped out at the speed of light if you use it in a way that offends governments–or if you do other things that offend governments. Think that social credit can’t come to the US? If so, you are a trusting fool. Especially since government digital currency incredibly leverages the power of a social credit system.

In other words, government digital currency is a major step to the implementation of a dystopian Panopticon. Destroying, or at least severely hobbling, non-government digital currency is a crucial first step to the successful introduction of government digital currency. So this provision buried in the “infrastructure” bill, along with other strong signals from the Treasury, OCC, SEC, CFTC, and Congress of an intent to throttle private crypto should be viewed with alarm, and not just if you are a believer in the crypto dream.

There’s another thought that comes to mind, more speculative, but one that cannot be dismissed out of hand. Namely, that what we are seeing is a huge bait-and-switch. Bitcoin’s origins are incredibly murky. Its creation myth is an anarchist one–which makes it very appealing to those who value freedom and independence, and bridle at government coercion and control. What better way to identify and ensnare such people–who are an anathema to control-obsessed governments–than creating cryptocurrency with an anarchist creation story?

And even if governments did not create the bait, they certainly not above exploiting an emergent phenomenon (if that’s what crypto really is) to advance their anti-liberty agenda. Crypto has gained a cachet in large part because of its anti-authoritarian aura. Once attracted to crypto by this aura, people are much more vulnerable to being seduced into the use of government crypto, with the loss of freedom that implies.

The poem The Spider and the Fly comes to mind.

But although these speculations would have important implications if proven true, in many ways they are beside the point. The point is that governments are turning the screws on anarcho-crypto and moving to create fiat-crypto. These actions are complementary, and bring closer the day in which fiat-crypto will supplant the fiat currency you can hold in your hand. And when that day comes, freedom will be on its death bed, if not dead already.

Remember, you can’t spell “cryptocurrency” without “crypt.”