2020 begins with a lot of news in cryptocurrency

A new year, and new things to discuss in the world of cryptocurrency.

First came the Virtual Currency Tax Fairness Act of 2020, which would limit the tax on crypto purchases under $200. Passage of that bill could happen anytime now that Congress has gone back to … ahem, work, I think they call it.

Then we heard from Hester Peirce, an SEC commissioner. She sided with entrepreneurs who want to build projects and issue tokens but are constrained by determinations that the tokens are by definition securities, and should be regulated as such. She told the International Blockchain Conference that we should hit the pause button on heavy-handed regulations, for at least three years, to see what those tokens become.

Next came testimony from Fed Chair Jerome Powell before the House Financial Services Committee acknowledging that the central bank is exploring the idea of digital currency. He sounded out in support of private transactions, and essentially said that since every other major central bank in the world is exploring this, we shouldn’t sit out the dance.

Meanwhile, currency prices are up

In this environment, both Bitcoin and Ethereum have risen in value significantly, maybe because of the regulators’ statements, maybe because of the potential hedge they provide in a coronavirus world, maybe because of the Bitcoin halving approaching (the mechanism built into Bitcoin that periodically reduces by half the amount miners receive for confirming transactions, meant to lower threats of inflation). It should be noted that their equivalent in U.S. currency has leveled in recent days, possibly due in part to testimony in the Senate by Steven Mnuchin, President Trump’s Treasury Secretary, who raised the specter of new regulation citing illegal activity in digital currencies (which, to be fair, account for less than one percent of all transactions).

It is a whirlwind of thought and activity, after a year when we mostly marked time in the cryptocurrency and blockchain world. We all know about Libra because of Facebook, but that introduction didn’t go well. In other news… well, there really wasn’t much other news. We experienced little in the way of innovation, little investment, and little forward movement in terms of application and adoption.

Confusion is just part of the process

We could look at the development of this technology we love and compare it to other scientific revolutions, as defined by Thomas S. Kuhn in his now-classic book, “The Structure of Scientific Revolutions.” As he defined them, scientific revolutions occur when something different is going on that isn’t just more science, or better science, or more generally acknowledged science. What happens when scientific revolutions occur is more like an upheaval in thought, where accepted associated beliefs and sociological norms get swept up in the change. Those changes are never linear, and not necessarily even entirely provable in the moment. Later discoveries work backwards to verify what at the time might seem only to open up the opportunity for a different paradigm.

Kuhn points to the issue Copernicus had, knowing the Sun was at the center of the universe but unable to adequately prove it because he was working with Ptolemy’s dictums, which placed Earth at the center. There was a messy period where scientists tried to make sense of everything until a more useful theory of motion cleared the way.

We may finally be emerging from that messy period of experimentation of trying to compare cryptocurrency to the financial tools we know, and which exist in a world of central authority, control, and regulations that don’t necessarily fit.

So far, it’s hard to know exactly where things are heading. But we’re moving fast.

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