Ban Bitcoin? What will they think of next?
From the makers of “If I move from here and go over there and sit with my Democrat friends, which will make them real nervous, does Google track my movement?” now comes a proposed bill to ban Bitcoin and other cryptocurrencies.
Just when you thought it was safe to switch on your cryptocurrency mining rig, Congress has an all new plan to hard fork your dreams of decentralization.
This summer, coming to a legislature near you….it’s the Cryptopalypse to end all decentralized dreams — a ban on Bitcoin and all other cryptocurrencies.
Not so long ago, in a capitol far far away, Republican congressman, Ted Poe of Texas grilled perpetually peaceful person and Google CEO, Sundar Pichai,
“If I move from here and go over there and sit with my Democrat friends, which will make them real nervous, does Google track my movement?”
“Does Google, through this phone (holds up an iPhone), know that I have moved here and moved over to the left?”
Pichai, ever the patient one, answers with all reasonableness,
“Not by default. There may be a Google service which you’ve opted in to use, and if…”
“So Google knows that I am moving over there?”
“It’s not a trick question. You know you make a $100 million year, you ought to be able to answer that question.”
“Does Google know, through this phone, that I am moving over there and sitting next to Mr. Johnson?”
“It’s yes or no!”
Pichai, nonplussed replies,
“I won’t be able to answer without looking at…”
“You can’t say yes or no?”
“Without knowing more details, sir.”
“Yes or no?”
“I genuinely don’t know without knowing what services…”
A smug Sherman,
“I’m shocked you don’t know.”
But perhaps not as shocked as the American public.
And indeed, perhaps not as shocked as the rest of the world, at the complete and utter lack of basic technical knowledge of a sitting (at the time) U.S. representative, on the powerful House Judiciary Committee.
But there was more where that came from and for the full roll, take a look here:
So it should come as no surprise, that the same Congress which eagerly demonstrated its lack of understanding of technology, would be the same Congress proposing a ban on Bitcoin and cryptocurrencies — and just in time for Bitcoin’s run-up for the summer!
Long derided as a threat to the existing financial system and the central banks that run it, Bitcoin’s menace, thanks to the spectacular crash of cryptocurrency prices in 2018, has until recently, been relegated to a fringe concern — along with the zombie apocalypse and an alien invasion.
But with Bitcoin rising off it’s early 2019 lows, heading towards US$9,000 at one point before coming back down and hovering just a hair’s breadth below US$8,000, cryptocurrencies are once again back on the radar.
In particular, despite bigger partisan fish to fry, U.S. Democratic representative Brad Sherman has taken up the gauntlet and urged his colleagues in the “tech-savvy” Congress to consider banning Bitcoin and cryptocurrencies due to the threat they post to the United States’ international financial power.
At a meeting of the House Financial Services Committee last month, Sherman argued,
“An awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions.”
“Clearing through the New York Fed is critical for major oil and other transactions.”
“It is 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 against Iran, for example, would become irrelevant.”
It is perhaps no surprise that Bitcoin is anathema to Sherman’s stated aim of preserving America’s global financial hegemony.
Bitcoin allows users to transfer value around the world, well beyond the sight and reach of governments and law enforcement.
And while Bitcoin may have a poor reputation, thanks in no small part to mainstream media’s coverage of the cryptocurrency’s ability to facilitate criminal activity and tax evasion, because of the pseudonymous nature of the Bitcoin blockchain, it is as yet unclear how much criminal activity it actually supports.
Yet that failed to faze Sherman as he added before the Committee,
“So whether it is to disempower our foreign policy, our tax collection enforcement or traditional law enforcement, the advantage of crypto over sovereign currency is solely to aid in the disempowerment of the United States and the rule of law.”
Sherman has previously referred to Bitcoin and cryptocurrencies as “a crock” and suggested that the federal government should prohibit people from buying or mining cryptocurrencies.
But whether or not Sherman’s statements before the influential House Financial Services Committee last month reflected ignorance regarding the nature of cryptocurrencies, or insight as to the genuine challenge they pose to legacy financial systems is less clear.
Just How Dangerous?
Following Sherman’s statements before the Committee, Bitcoin advocate and founder of Morgan Creek Digital Assets Anthony Pompliano immediately hit back at the proposed ban.
Writing in a blog post, Pompliano noted that the laws Sherman was proposing would be “nearly impossible to enforce” and would have the converse effect of “driv(ing) more (cryptocurrency) adoption.”
“While many people will claim Brad Sherman doesn’t know what he is talking about, I would argue that his statement highlights that the Congressman knows exactly what is happening.”
“He sees the increased probability that we are moving to a world where non-sovereign currencies are the default and it sounds like he is scared.”
“Mr. Sherman realizes that the United States, and other countries with major currencies, will lose considerable power if they are no longer in control.”
“While his understanding of the technology’s potential is accurate, it appears that the Congressman does not understand the improbability of being able to ban ownership of these decentralized digital currencies.”
“The laws could be created but they would be nearly impossible to enforce.”
Pompliano may be right to suggest that Sherman’s proposed laws may be difficult to police, but that’s not to say that other countries haven’t tried, with varying degrees of success.
And They Said It Couldn’t Be Done
In the midst of the initial coin offering (ICO) bubble of 2017–2018, China, in September 2017, banned all cryptocurrency exchanges as well as ICOs and this year, the Middle Kingdom announced plans to ban cryptocurrency mining as well.
For a country that effectively regulates and censors all its internet traffic, something which former U.S. President Bill Clinton once dismissed as “sort of like trying to nail Jello to the wall,” China has proved that if it wants to control something, it can and it will.
China’s move to suppress cryptocurrency activities within its borders led to its domestic cryptocurrency exchanges fleeing offshore, with some cryptocurrency miners moving their operations either offshore or underground.
Today, some of the world’s largest and most significant cryptocurrency exchanges, including Binance, are run by Chinese entrepreneurs outside of China’s borders.
And despite tentative moves to eventually ban cryptocurrency mining, today, in remote, inland parts of China, where electricity is cheap and plentiful, cryptocurrency mining is still a major industrial activity.
In China there is a proverb,
(Tian gao, huang di yuan.)
Which (poorly) translated means,
“Heaven is high and the emperor is far away.”
The proverb, thought to have originated from Zhejiang province during the Yuan dynasty, is often meant to suggest that central authorities have little influence over local affairs.
While often used in reference to corruption, the proverb could similarly apply to cryptocurrency and its related activities.
Because of the lack of reliable data, it is difficult to estimate the number of Chinese involved with cryptocurrencies and even more difficult to estimate the value in dollars of the economic activity generated by cryptocurrencies for the Chinese economy.
Yet for a country that is allegedly responsible for as much as 70% of the world’s cryptocurrency mining, it would be fair to say that the economic impact of the sector is not small.
But the size and economic impact of cryptocurrencies on China has not deterred Beijing, which views cryptocurrencies as a tool for undermining central authority and control, from trying to stamp out the digital assets.
Unlike cryptocurrency exchanges which exist online and can therefore relocate with (somewhat) ease, cryptocurrency miners have infrastructural and logistic costs associated with moving.
And unlike exchanges, Beijing can simply “switch off” the one key resource necessary for cryptocurrency mining — electricity.
According to sources cited by Bloomberg, China has already been curtailing power supply to cryptocurrency miners for some time, a move which disrupts their ability to mine the digital assets.
So while Beijing may struggle to stop individuals from obtaining cryptocurrency — their pseudonymous nature making it difficult to prove ownership — they can certainly make it highly inconvenient to transact in cryptocurrencies as well as mine them — the two principal activities in the cryptosphere.
Closer to home, if Beijing’s approach were adopted by Washington, it may not necessarily push cryptocurrency activity offshore, but underground.
Banning cryptocurrencies in the United States may have the unintended consequence of encouraging greater (newly) criminal activity surrounding cryptocurrencies as opposed to greater transparency, which is what current firms are focused on.
American companies like Bakkt (backed by Goldman Sachs, Microsoft and Starbucks), Coinbase and Gemini, have all been working closely with various regulatory authorities to ensure their cryptocurrency activities adhere to existing laws and to prevent money laundering and other nefarious activities from becoming primary use cases for cryptocurrencies.
By banning cryptocurrencies, Congress may instead encourage such existing cryptocurrency firms to take their activities underground, creating an entirely new criminal layer.
The same way that Prohibition created a huge underground market for alcohol and provided a financial basis for organized crime to flourish, the banning of cryptocurrencies could easily do the same — because nothing generates criminal demand quite like a ban.
And as the world has already witnessed, cryptocurrency continues to be the currency of choice on the dark web for any and all manner of criminal activity — banning it would only cement its status.
Unlike alcohol, cryptocurrencies are ethereal in nature and far more difficult to ban.
That countries such as China have banned cryptocurrencies to the extent that they have and succeeded as far as they have, means that an American ban may be difficult, but not impossible.
We are at a watershed moment when it comes to cryptocurrencies.
I would argue that far from attempting to ban cryptocurrencies, Congress should instead consider providing the world’s first comprehensive regulatory framework for the nascent digital assets, so that the United States can continue to lead the world in technology and innovation.
The United States has an opportunity to take the lead when it comes to cryptocurrencies, Congress should pick up this gauntlet instead.