(Ex post edit: if you like this blog post, head over to my friend and business partner Casey Kuhlman’s website to check out his piece, On the Sovereignty of Cryptocurrencies: what Bitcoin can learn from Somaliland, setting out his views on this subject.)
I stumbled across this on Reddit this evening:
“We have been brought to a point where it has become necessary to dissolve the bond between currency and institution…
“We hold these truths to be self-evident. We have been cyclically betrayed, lied to, stolen from, extorted from, taxed, monopolized, spied on, inspected, assessed, authorized, registered, deceived, and reformed. We have been economically disarmed, disabled, held hostage, impoverished, enervated, exhausted, and enslaved. And then there was bitcoin.”
The Declaration – published in May, but republished yesterday in a video starring some of the most well-known voices in crypto – is without question a response to recent efforts by authorities in the European Union and the United States to craft regulatory frameworks for cryptocurrency’s use.
It warns against efforts “to swallow bitcoin, process it, integrate it, devolve it, and keep it stagnant in the gears of a failed operating system.”
Its author and the individuals credited in the video add:
“Bitcoin is sovereignty. Bitcoin is renaissance. Bitcoin is ours.”
Poppycock. Bitcoin is none of these things.
1) Bitcoin already integrates pretty nicely
Bitcoin (and by this I mean all cryptoledger-based value transfer mechanisms) is not so radical or different from the existing order as we might like to think, despite its “anarchistic implications” and the fact that it “is not intended to be integrated.”
I’ll admit I’ve stumbled across a couple of problems with proprietary classification when considering ownership of the blockchain and private keys; apparently certain American states and the PRC have the matter well-covered, but English law (my home turf) doesn’t customarily recognise pure information as constituting property. (This isn’t a particularly pressing issue; I’ve every confidence the common law will invent an appropriate legal fiction in due course.)
In any event, the law has just about everything else pretty well-covered; although there are specific instances where coverage is light, on the whole most principles apply in the usual way, with occasional kinks in e.g. enforcement being somewhat frustrated by blockchain immutability, but nothing which can’t be overcome by a bit of commercial due diligence. Indeed, Satoshi’s magic plays virtually no role in Bitcoin’s ordinary commercial use, where tokens are usually bundled together with an enforceable promise of some kind to do or refrain from doing an act or thing – such promise being a form of property, readily amenable to traditional rules, and in relation to which Bitcoin’s users have shown a keen willingness to engage with the institutions (not disrupt them).
See, e.g., the fact that Mt. Gox is currently subject to a court – and therefore state – governed insolvency process. It is the sovereignty of Japan and the United States, not the purported sovereignty of the blockchain, through which relief is ultimately being sought. Although the credited individuals in the video-recorded Declaration might think anarchy is in Bitcoin’s “DNA,” the evidence tells a different story – while there are other examples, I’ll refrain from repeating them here.
2a) Onerous regulation is not just Bitcoin’s problem
About a month ago, I gave an interview to Adam B. Levine and Stephanie Murphy for Let’s Talk Bitcoin** on the subject of the New York BitLicence regulations (disclaimer: not New York-qualified – I guess Marco Santori wasn’t available that day).
From my point of view, the regulations looked quite reasonable; deposit-taking, trading on account, securities issuance/dealing, operating an exchange, or operating a bureau de change are regulated to some extent in practically every jurisdiction I have encountered in professional practice, and with good reason: people inevitably misbehave, as they have done for centuries, when they want to make a quick buck or when they are entrusted with other (particularly vulnerable) people’s money.
It was a tough crowd; there was much dissent. I seem to recall Stephanie bursting out laughing in disbelief when I mentioned I was a libertarian.
Ultimately, I don’t think there was any disagreement among the three of us on the basic facts or the existence of merits for each position. I’m reminded of my first day at a new school when I was very young; at the end the first morning’s assembly the school’s headmaster would deliver very brief remarks to set the tone for the year. On this occasion, Mr. Chase said: “behind me on the wall, there is a clock. At any moment its hands will tell only one time, but your perception of it will be different from that of the person sitting next to you.”
How one views the BitLicence (or any other financial regulation for that matter) is quite straightforwardly a matter of perspective in this sense; where Stephanie and Adam took the view that these regulations are unnecessary barriers to entry, I take the view that it is a necessary measure for the protection of the financial services-consuming public, who will consume bitcoin services much as they do any other.
This problem is unlikely to recede anytime soon, and the conflict between blockchain capability and regulation will only worsen as new forms of financing – particularly the proliferation of token pre-sales or blockchain-mediated crypto-equity as proposed by Dr. Patrick Byrne – are discovered by prospective entrepreneurs.
2b) Bitcoin is a database.
Although small businesses and individual investors will thus soon have the tools to actively participate in these new capital markets, they will continue to lack a safe, consistent, cost-effective and legal framework in which to use them. From a legal/compliance perspective, this changes nothing; even the most ardent libertarian should agree that if we are to have laws, it is proper for them to be fairly and equally applied, making the idea of a sovereign Bitcoin totally untenable.
The key take-away point is that the problems the Declaration identifies are by no means unique to Bitcoin. Access to capital is a problem all businesses face, blockchain or not. A far better approach than trying to claim exemption from the rules, however, is to leverage the rhetorical talent of individuals like Andreas Antonopoulos and Jeffrey Tucker, demonstrated in how they have effectively made and continue to make the case for crypto, in also making the case for wider economic reform for a future in which Bitcoin and its derivatives might play a meaningful part.
3) Bitcoin and related technologies stand to benefit society far more in legal uses than in subversive ones
Not going to spend too much time on this one. Think of any use-case you can name. Now think of it when you also have a safe and predictable framework for businesses to accept cryptocurrency in day-to-day use.
4) A difference in approach
Bitcoin is not perfect.
ECDSA is not perfect. The hunt for the perfect mining algo is ongoing; Bitcoin’s in particular has proven to be a tremendous waste of electricity, the process little more than an environmentally harmful race to the bottom. The protocol supports a mere 7 transactions per second. Protocol development has been difficult to implement on account of the centralisation of mining power and community inertia.
Exacerbating matters, overall the Bitcoin economy has a Gini coefficient of .88 – which, in case you were wondering, is horrendous. Rent-seeking and speculative hoarding behaviours are rife, not just in Bitcoin, but also in most of the well-known alts including Ripple, Ethereum, and (the much-loved) Dogecoin. The market is not so unintelligent as to fail to realise that any purchase of Bitcoin at $1000 per BTC as an investment is likely to be a lossmaking proposition; this is why altcoins exist. It is also why, in my view, Bitcoin adoption has slowed to a halt.
A great equaliser, crypto is not. On any objective measure, to date the tech’s accomplishments fall far short of the hype. We stand a far better chance of realising the benefits of decentralisation quickly if we play by the rules – even if it seems at first that we might have to wait a little longer.
**Which, as of time of writing, has not yet been posted – on account of which I hope Adam and Stephanie will forgive any minor inaccuracies in the description that follows and endeavour to correct me if I have misspoken.