Wasn't crypto supposed to disrupt governments? It isn't looking like it.

13 Nov, 2018
by Arthur Sillers
Analysis
Wasn't crypto supposed to disrupt governments? It isn't looking like it.

Cryptocurrency was created to enable individual actors to exist in an economic space apart from government and corporate oversight. While this may continue to be enabled by privacy coins on DEXs, this not only will be the exception to the rule, but cryptocurrency is bound to create international institutions which are finally economically empowered to enforce rules on the vast majority of people.

 It is perhaps well known that the inceptive cryptocurrency Bitcoin was created by a group of anarchist utopians as a means to empower individuals against the government, corporate, and financial institutions who have control over our lives. The idea was that a self-authenticating currency would allow individual actors to have control over their transactions, contracts, and economic behavior. If anyone could opt-out of fiat currency, one could opt out of the control structures by which these behemoth institutions control our behavior.

As it turns out, the very institutions which crypto was designed to dismantle are very excited about cryptocurrency and the blockchain, and in fact far from leading our world into one with individual sovereignty and freedom from coercion, we are at a serious risk of blockchain giving corporate and government entities the tools to not only consolidate control over us, but to create a more globally connected network of corporate and government interests (which are increasingly inseparable) whose basic control over our very lives is reified by what was promised to ‘decentralize’ and ‘democratize’ our world.

Basic Crypto writes a compelling description of a potential cryptocurrency called The Orwell, which he borrowed from Erik Townsend in his Macrovoices podcast.

The essay, which is basically a piece of dystopian microfiction tells the story of a centrally backed cryptocurrency called ‘The Orwell,’ which inverts the fundamental principles of cryptocurrencies in order to make every transaction on the cryptocurrency trackable, and outlaw every other cryptocurrencies. This turned out to be prescient to at least some degree- Iran and Venezuela are indeed creating centrally backed financial blockchain systems while banning all other digital currencies. Both of these cryptocurrencies likely will barely take off the ground, with Venezuela’s Petro already being a non-starter.

A more substantial realization of this idea is the Chinese model, where the situation is Orwellian indeed. Crypto trading is officially illegal, as is mining, though Chinese citizens essentially lead the world in both crypto trading and mining. These incoherent facts are only compounded by the fact that the Chinese government is going all in on creating blockchain technologies to update their existing financial infrastructure. The official stance is ‘Blockchain not Bitcoin’ using distributed ledger technology to bring the banks and transactions into a digital space. China also notably has been developing a frankly frightening system of ‘social rankings’ (yes, exactly like that Black Mirror episode).

It isn’t a huge leap to imagine these two projects coming together, wherein all digital transactions (which is most monetary transactions) must take place on a government watched blockchain which can track who makes every transaction, what they buy, and who they buy it from.

China’s Orwellian approach to the blockchain technology of the future is not contained within Asia, however, though it is a stark and clear example of the possibility ‘decentralized’ currencies to empower a central authority and instate financial surveillance and control.

In the ‘West’ (i.e. America and the developed neoliberal democracies friendly to each other) as always, the story is subtler but if anything more insidious.

Diar has reported the fact that the US Government has exponentially increased its spending on crypto tracking, mainly to the firm Chainalysis, who inspects blockchain transactions and have already proven that ‘blockchain analysis’ is an effective tool for using ‘pseudo-anonymous’ transactions to track people down.

While the US government has been upfront that they are putting effort into anti-money laundering efforts and the fight against tax avoidance, it is notable that the FBI and ICE agencies together paid Chainalysis about the same as the IRS did, not to mention the DEA. These latter organizations are law enforcement agencies outside financial crime, and so the only possible reason for these blockchain analysis contracts is that they are using crypto transactions to keep tabs on individuals who may or may not be undocumented, or may or may not be engaged in illegal activity.

Of course, while this only affects people who actually use cryptocurrency, but if we’re to believe some of the more optimistic claims that crypto enthusiasts have- crypto will revolutionize the financial system underpinning our economy, right?

Either way, the fact is that countries broadly in the West have taken up facilitating friendly regulation to fight against fraud and tax evasion while preserving and promoting ‘innovation.’ En masse, liberal democracies have all started coming around to cryptocurrency. Individually, nations such as Japan, South Korea, the US, Switzerland, the UK, and many more have decided collectively that they are willing to accept cryptocurrency as a legitimate financial asset, as long as proper regulation ensures that fraud and money laundering is kept in check. Increasingly, these nations are coming up against a regulatory problem, namely that blockchain is hard to localize in any particular jurisdiction, which will require cooperation between nations in order to handle a financial technology which enables borderless transactions and facilitates the movement of money worldwide without national mediation.

Many countries increasingly are calling for international cooperation and international partnerships to develop regulatory frameworks to deal with this problem, most recently South Korea.

The IMF, too, has called for ‘greater international discussion and cooperation among regulators,’ which is an interesting turn in the political place that crypto holds. Its an open question what kind of future these discussions and regulatory decisions will lead to, but one thing is clear is that it will involve new trans-national authorities, new entities which supersede nations, and it will increase the global connection of the economy.

Just today, Michael Arrington, talking to Bloomberg, noted his desire to see a ‘Global Network’ to deal with the legal ramifications of cryptocurrency. Ripple also notably heads a lobbying agency in Washington DC to push forward its interests, which will surely lead to regulation favoring Ripple, whose model of a cryptocurrency has nothing to do with decentralization, and evidently is willing to undergo government oversight.

This is certainly a turn for the political impact of cryptocurrency, which was created by a group of anarchist right-libertarians in order to enable individuals to opt out of what they viewed as an oppressive and coercive force on the freedom of the individual. The reasons that it is turning into a technology which enables surveillance, bureaucracy, and creating new ways for a global elite cabal of corporate and government interests to exact control over individual freedoms might be an analysis beyond the scope of this present piece, but suffice to say that blockchain technology has been coopted as a tool by the very entities it was designed to disrupt, and in order to make sure that the tool cannot be used by individuals to combat the goals and ends of these powerful global actors, the global actors must create a new regulatory infrastructure to keep in control of it.

Cryptocurrency, because it enables international trade so easily, is a perfect vehicle for those in charge of the global economic system (government institutions, and pseudo-government institutions like the IMF, World Bank, and megacorporations) to extend their control, tentacle like, over the developing digital currency network which was supposed to connect us as individuals.

What makes crypto so attractive to these institutions is the fact that it is a viable means of transfer of value. International laws are real only to the extent that they are enforced, and a global system of capital which is connected via crypto is a perfect vehicle for the enforcement of international standards. International institutions created to deal with crypto, will be able to enforce standards to an extent that, for example, the United Nations has much less power to. In fact, the more important and adopted crypto is, the more power that these transnational regulatory bodies will be- able to stifle or free up the flows of cryptocurrency according to the way they regulate. International law ostensibly exists, but only to the point that it can be enforced. If nations are globally interconnected economically, and through crypto they might be, a top-down authority can finally enforce sanctions and economic controls, creating actually respected international legal institutions which so far only exist nominally. The UN hosted a speech from Malta, the 'blockchain island' which was a well recieved treatise on the benefits of cryptocurrency. It's only a matter of time until the UN unveals a set of crypto laws.

While the early Cypherpunks saw crypto as a way to empower individuals to connect to each other without a mediator, most people are at most only vaguely frustrated with the control exerted over them by both corporate control and government laws. To the extent that anyone has a frustration with a lack of freedom, it is usually an incoherent annoyance at the general state of bureaucratic controls with which they must contend. Of course, the people who are most frustrated by the centralization of power, especially economic powers, are the libertarians who espoused the ideologies which caused Bitcoin to come about. In this sense, its somewhat of a cruel irony that crypto might create larger, more interconnected international bureaucracies at least, and at the most extensive predictions of crypto’s future, will in fact enable autocratic governments stifling control over individual’s economic and political lives.

While there is currently an ostensible battle between regulators and Fintech developers, its not an ideological conflict of two parties who want a different future, its merely two entities who agree on what the future should look like, and who are competing for control over that future. This future is one in which megacorporations, government, and pseudo-government entities will have increasing control over our lives, and the difference between all three will become even murkier than it already is. The problem with crypto isn’t crypto itself, it is that creating a technology which frees up capital does not change the way capital operates. The process of those who control capital and economic power co-opting any threat and using it to reify their centralized control is nothing new, and it is doubtful crypto will be any exception.

Read more: How will regulators tackle global blockchain?

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