Crypto vs. Western Civilization
I recently had a conversation with someone who made a case against crypto. I am paraphrasing here, but the argument went something like this:
- Crypto is primarily good for illegal transactions and for avoiding taxes
- The rise of crypto threatens traditional law and institutions
- Therefore you should not support/invest in crypto because 1) it is a threat to our civilization if it succeeds and 2) traditional institutions will rise up and crush it so it will probably fail.
I don’t agree with the conclusion, but I actually agree with a lot of the premises, so let’s start with where we agree.
Crypto is Primarily Good for Illegal Activity
Yes. I believe this is currently true.
One way to understand crypto is that it is a way for people to engage in transactions with people that they don’t trust. This is mostly great if you don’t trust people. But the reality is that in a modern society we actually do trust each other. One of the reasons we trust each other is that we know if anyone is caught cheating the law will go after them.
There are a hundred ways that the traditional financial system is subsidized by the government. But one of the main ways is that the traditional financial system is built on top of the traditional legal system. The legal system provides a relatively solid foundation of trust.
Crypto acts as if trust doesn’t exist, and therefore it uses relatively costly systems (e.g., proof-of-work and proof-of-stake) to enable trustless interactions. The traditional financial system is based on a very extensive, and very heavily subsidized, set of social arrangements that make transactions relatively efficient.
So what is crypto good for? One thing it’s really good for is situations where, for one reason or another, you can’t rely on the traditional legal system to provide a base layer of trust. One primary area this is true is for illegal activity.
So, yes, I believe that the basic premise of crypto (namely, trustless transactions) implies that (at least for now) it is largely useful for situations where trust doesn’t exist, and this means stuff that is outside the law.
Crypto Threatens Traditional Institutions
In particular, let’s talk about the IRS and the Federal Reserve. Crypto might make it harder to tax people, and this could hurt the IRS (or really, the US government). And the problem isn’t just tax evasion. If crypto became more widespread, it might make it easier for wealthy people to leave the US and other heavily taxed nations and work from some tax haven or another.
One reason it would be easier to do this is that crypto banking might be easier in these locations. Another reason might be that there could arise a larger portion of the economy that is not based in a high-tax country (i.e., a crypto-native economy) and it would be harder for countries to tax activity in this economy ala The Sovereign Individual.
Another thing that was brought up was that if people have an alternative to the US dollar, it might be harder for the Fed to print money indiscriminately without causing inflation (i.e., demand for the dollar would fall). This would might hurt US asset prices or maybe raise borrowing rates for the US.
Yes, I agree that if crypto (or really, any non-US currency) becomes the primary global reserve currency, this weakens the hold that the US government currently has on the global financial system.
Crypto is Not a Threat to Civilization
Here is where I disagree with the original argument.
But first, let me point out that I (and many other crypto enthusiasts, including Vitalik Buterin) agree with the point recently made very, well, pointedly by Noah Smith that the US is great for liberty:
If the U.S. collapses, you can’t just move to Singapore, because in a few years you’ll be bowing to your new Chinese masters…Crypto will not save you…What the despots can take, they will take, unless you bend the knee and serve their purposes; this is the law of the jungle.
Thus it is very very important to every libertarian that the U.S. not collapse. This means supporting public goods — a strong industrial commons, strong infrastructure, robust investment in science and technology, a functional legal system, and all the rest.
So I believe all of the following:
- Crypto threatens traditional institutions
- Traditional institutions play an important role in Western society
- Western society (i.e., the US) is important for liberty
But, crucially, I also believe that:
4. In a free society, embracing new ideas and technology that threaten the old order ultimately makes the society stronger.
That is, we must allow the process of creative destruction to take it’s course. If crypto is allowed to develop, and it displaces some traditional institutions, it will ultimately make us stronger. This is one of the key differences between a free society and an authoritarian society. It’s one of the reasons why I want to live in a free society, and why I think that non-free societies like China will eventually collapse under the weight of oppression (the latter opinion isn’t very popular right now, but I still believe it).
Analogy 1: Public vs Private Education
In addition to finance, education is another institution that is critical for the success of Western society. Like the financial system, education is heavily subsidized in the US, and therefore most people prefer to send their children to public school. Does this mean that we should clamp down on attempts to educate children outside of public schools because it threatens traditional institutions? Some people (e.g., here and here) do believe this.
I have worked in the public school system, and I believe in many of it’s goals. I also believe that if too many people exited the public school system, it would collapse. However, I choose to homeschool my children, and if this right were taken from me I would probably leave the country. The right to educate my children as I please is fundamental to my liberty and, I believe, ultimately good for the nation.
Analogy 2: Gender Norms and the Traditional Family
Authoritarian countries are threatened by a lot of things, including new ideas about gender. For example, China has famously begun to crack down on TV personalities who break from traditional gender norms. Russia has basically begun an all-out war on homosexuality.
I believe that rapidly changing gender identities presents some pretty difficult challenges for society. The traditional family is at least as important to society as the financial system. Yet, adapting to fundamental changes in how people relate to each other is what a free society does.
I am a family-oriented person, and a lot of my views on the family are pretty conservative. But if the US banned homosexuality (or effeminate men), I would probably take it as a sign that this is no longer a free country and I would leave.
Analogy 3: Immigration
I believe, along with many conservatives, that rapid immigration threatens the social solidarity and trust that binds a society. However, I also believe that immigration (including illegal immigration) has been essential to ensuring that the US has experienced consistent growth and economic dynamism throughout it’s history.
I recently read a very educated person arguing that:
Immigration is extremely costly to Western countries, the evidence on this matter is very clear. Immigration is beneficial to immigrants, but not to natives…
I don’t really disagree with this assessment. And yet I also believe that immigration is essential for maintaining liberty and economic growth in the US. If the US banned immigration, I would probably take it as a sign that I no longer live in a free country and I would leave.
Of course, as Noah Smith mentioned, if liberty collapsed in the US (as indicated by any of the three potential bright lines discussed above) I might not have anywhere to run. So instead of running, and despite my belief that the country is probably too big for me to have any influence on politics, I may have no other options but to stay and fight.
Crypto and Freedom
As in the examples I listed above, I believe it would be a massive blow to freedom if the US tried to ban crypto. But more than that, I think that crypto actually provides and important limit on government power.
Consider the case of the anti-vaccine protests in Canada. In that case, we have seen that even the governments of free countries are more than willing to use their control of the traditional financial system to clamp down on political speech. Crypto might be less convenient than traditional banking, and the fact that it assumes trustless transactions might keep it that way for some time. But it also means that crypto could be very important for preserving liberty even in Western societies.
Another interesting example is the fact that US regulators have shut down any serious attempts to develop prediction markets. Crypto alternatives, like Augur, have the potential to step in and fill the gap (although the fact that Augur now mostly focuses on sports betting is not particularly promising.)
In my view, it is possible for two things to be true at the same time:
- The US government and the traditional financial system are essential to preserving liberty and prosperity throughout the world; and
- Government surveillance and control over our lives is greater than ever, and thus it is more important than ever to develop technology institutions that have the potential to challenge government overreach.
I don’t know for sure that crypto is going to become an essential liberty-preserving institution. It is still a pretty marginal technology. But far from fearing crypto because it threatens traditional institutions, we should support and invest in those projects that hold the capacity to challenge the stagnation and oppression that will inevitably cause the collapse of our society if we don’t adapt.