Streetwise Professor

November 7, 2021

You Can’t Spell “Cryptocurrency” Without “Crypt”

Filed under: Cryptocurrency,Exchanges,Politics,Regulation — cpirrong @ 7:25 pm

The libertarian/anarchist roots of cryptocurrency, especially Bitcoin, are well known. The supposed allure is that crypto would allow individuals to transact without requiring on state issued fiat currencies (which are subject to various government controls and monitoring) or state-sanctioned financial institutions. Crypto is in theory anonymous, decentralized, and peer-to-peer, outside of the purview or control of the state. A way to Go Galt, virtually.

In the early days of crypto, which of course are not that long ago, I expressed extreme skepticism about that vision. It could be realized only if crypto remained unimportant and utilized by few: if it were ever to become close to realizing the vision on a broad scale, it would be a threat to governments and they would intervene to control it, neuter it, co-opt it, or destroy it.

There’s an irony here. If you believe the ideological argument for crypto–that it is justified as a means of escaping a tyrannical government-sanctioned and controlled financial system–you also have to understand that governments would not permit crypto to survive as the true believers desire it to.

And we are at that point. Crypto has flourished in the last several years. Not surprisingly, governments are moving to crack down on it.

China–again not surprisingly–was the first to attack crypto in a systematic way, implementing a blanket ban on crypto transactions. But other governments are not far behind, including the US.

Indeed, perhaps you didn’t know this, but the marvelous “infrastructure” bill just passed by the House includes a provision mandating reporting of crypto transactions. The language is unsurprisingly murky, but the intent is quite clear: to bring crypto into the view of the federal government’s Panopticon, especially its tax Panopticon.

In both China and the US the regulatory/legal attack is focused on intermediaries (e.g., exchanges, brokers) that facilitate transactions. In theory, true peer-to-peer transactions (e.g., transactions between anonymous wallets) can be used to circumvent this, but the very fact that intermediation has proved so integral to the operation of the crypto market (which is in itself a refutation of the anarchist vision, as I pointed out in a post about Ethereum creator Vitalik Buterin) demonstrates that the regulations will seriously compromise the ability of crypto to achieve that vision. Moreover, this is just a first step, but one which strongly indicates intent: if non-intermediated transactions flourish, governments will devise means to bring them to heel too.

There’s also something else to keep an eye on: central bank digital currency. It is no coincidence, comrades, that the first country to crack down on non-government crypto–China–is also in the lead in implementing–mandating, actually–a government digital currency.

Private crypto is a competitor to government digital money. Governments don’t like competition. So they do their best to destroy it. Furthermore, the Chinese government truly desires to create an actual Panopticon that permits monitoring, rewarding, and punishing all aspects of individual behavior. Government digital currency greatly advances that objective, and private digital currency impedes it. So to advance the former China destroys the latter.

Governments world wide have cognitive dissonance when it comes to cash. On the one hand, it provides a source of revenue–seigniorage. On the other hand, it provides a way to circumvent the tax system as a way of generating revenue–and of monitoring and controlling behavior. Government digital currency allows states to resolve that dilemma. They can have their revenue cake and eat your privacy too.

China is open and unapologetic about its social credit system and its view that government digital currency will allow it to extend and deepen the operation of that system. Other governments are not so blatant, but there have been discussions in the US and Europe and elsewhere about not just the adoption of central bank digital currency, but how that system could be used to compel desired behavior.

A retired Swiss banker friend once held up a 100 CHF note to me and said: “when I hold this, I feel free.” Well, that’s a feature to him, but a bug to governments. When you “hold” government digital currency, you will not be free. Its use can be monitored. It can be wiped out at the speed of light if you use it in a way that offends governments–or if you do other things that offend governments. Think that social credit can’t come to the US? If so, you are a trusting fool. Especially since government digital currency incredibly leverages the power of a social credit system.

In other words, government digital currency is a major step to the implementation of a dystopian Panopticon. Destroying, or at least severely hobbling, non-government digital currency is a crucial first step to the successful introduction of government digital currency. So this provision buried in the “infrastructure” bill, along with other strong signals from the Treasury, OCC, SEC, CFTC, and Congress of an intent to throttle private crypto should be viewed with alarm, and not just if you are a believer in the crypto dream.

There’s another thought that comes to mind, more speculative, but one that cannot be dismissed out of hand. Namely, that what we are seeing is a huge bait-and-switch. Bitcoin’s origins are incredibly murky. Its creation myth is an anarchist one–which makes it very appealing to those who value freedom and independence, and bridle at government coercion and control. What better way to identify and ensnare such people–who are an anathema to control-obsessed governments–than creating cryptocurrency with an anarchist creation story?

And even if governments did not create the bait, they are certainly not above exploiting an emergent phenomenon (if that’s what crypto really is) to advance their anti-liberty agenda. Crypto has gained a cachet in large part because of its anti-authoritarian aura. Once attracted to crypto by this aura, people are much more vulnerable to being seduced into the use of government crypto, with the loss of freedom that implies.

The poem The Spider and the Fly comes to mind.

But although these speculations would have important implications if proven true, in many ways they are beside the point. The point is that governments are turning the screws on anarcho-crypto and moving to create fiat-crypto. These actions are complementary, and bring closer the day in which fiat-crypto will supplant the fiat currency you can hold in your hand. And when that day comes, freedom will be on its death bed, if not dead already.

Remember, you can’t spell “cryptocurrency” without “crypt.”

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  1. Quite so, Prof.

    The power – and antics – of the card companies & banks are frightening enough already.

    Comment by Fen Tiger — November 9, 2021 @ 10:06 am

  2. A digital dollar in the US is a really terrible idea. They can turn them off and on. Imagine being politically on the opposite side of the government, and them just turning off your money-or deciding where you can spend it.

    On the other hand, organizations like are building true competitors to the telcos oligopoly. Very worthwhile.

    Comment by Jeffrey Carter — November 9, 2021 @ 11:10 am

  3. I suspect that “crypt” is some sort of allusion to where that old fart Brandon ought to be.

    Comment by dearieme — November 9, 2021 @ 3:23 pm

  4. I think that the risk with a social credit system is not that the system as we see it in China comes to the US or Europe, but as the prof implies, it can be done obliquely. In fact, the US already has it, with thanks to cancel-culture: People with low enough social credit (as decided by a relatively small group of self-appointed moral guardians) get cancelled from internet platforms, payment platforms, etc. the point that nobody hears them anymore. The means might be different, but I don’t see how this result is any different from the Chinese system…

    Comment by HibernoFrog — November 10, 2021 @ 8:24 am

  5. @dearieme. Where he apparently escaped from, actually. “Tales From the Crypt” is an old US TV show. It could also be a documentary about the Biden administration.

    Comment by cpirrong — November 10, 2021 @ 2:23 pm

  6. Regarding government extending its control over the population, the most concerning thing for me wasn’t that governments ‘tried it on’ – it’s in their nature, and so is not surprising; it was that so many people went along with it, ‘for their own good/safety’, and rounded on those who had the temerity even simply to question the power-grab and erosion of liberties. It’s as though most of the population doesn’t understand where those liberties came from, how hard-won they were, and how important they are to their own wealth-health-happiness. Whole populations in the west which have been indoctrinated with ‘all discrimination is always and everywhere bad, there is never an acceptable reason for discrimination’ are now openly supportive of discrimination against the unvaxxed, and openly hostile to those who question governments’ stories. I”m in awe of the machinery which created this outcome; the chorus of Dire Straits’ ‘Your latest trick’ sums up my feeling.

    The situation is better in the States, you have that massive ornery rump that is refusing to comply, and which (with good reason!) is growing every day, it seems. Here in Oz opposition is thin – it’s tremendously alarming. If people can be persuaded in overwhelming numbers to take a jab of an experimental vaccine against a virus for which no vaccines have ever worked (and still don’t!), and to vilify and exclude those who see through or refuse to participate in the scam, persuading them to sign up to the shiny new e-currency will be a doddle.

    On the plus side, I don’t think I’ve ever had a better and deeper appreciation of the rights that I do still have, and of those men and women who won and secured those rights for me, than I do now.

    Re. Bitcoin’s murky origins, I can out-speculate you Prof: the Japanese characters for the creator’s name can be read ‘Satoshi’ = wisdom/intelligence, ‘Naka’ = central, ‘moto’ = money/currency (the Japanese reading of the kanji for ‘yen’). I’ll leave it to you to join the dots. ‘Where is Satoshi?’ Maybe he is everywhere.

    Comment by Ex-Global Super-Regulator on Lunch Break — November 10, 2021 @ 5:50 pm

  7. Crypto gives and takes. CBDCs are indeed something to worry about. However, as of right now the angle of attack on crypto is the control of off-ramps, ensuring taxability (somewhat).
    The people really feeling the heat, in my humble opinion, are our beloved traditional financial institutions and big digital players. The future which Nick Szabo foresaw is playing out quite explosively. There are banks and exchanges living on the blockchain which you can’t sue or regulate without blocking access to the whole p2p network. UK bans retail investors from buying derivatives? There is DYDX or Perpetual Protocol. Collateralised loans are of interest? MakerDAO does not care who you are or where you live, it only knows if you pay on time. Matters get only more exciting from there on: Decentralised–hosting, data storage, oracles, computation. This list grows everyday. These digital developments are disruptive not because they are unstoppable, but because in order to stop them one has to go for extreme measures.

    Comment by CIA metadata analyst with 8 mestizo kids — November 17, 2021 @ 8:51 am

  8. Imagine a world where the US govt is highly politicized and values its goals over citizens. Imagine that you are against those goals. You go to the grocery store, and you try to buy groceries for your family. Your digital US dollars don’t work because the govt has turned them off.

    Imagine a world where the US govt has socialized medicine. You go to the grocery store. At your recent doctor check in, your BMI was too high. In reality, it wasn’t high, but the lobbyists and Fauci determined an artificial number. You go to buy groceries. Your digital dollars can’t buy what you want, only what the govt lets you buy.

    I am in favor of cryptocurrency. I am against a fiat digital dollar.

    Comment by Jeffrey Carter — November 20, 2021 @ 11:26 am

  9. Bitcoiners knew this attack was coming from the very beginning. The belief (about to be tested like never before) is that decentralization puts government overseers at a disadvantage. We do have models of success from the destruction of copyright-enforced cartels (and earlier, home video neutralizing Miller v California/”community standards” for banning porn). Who here remembers all the fretting about the Big Four music labels, or Clear Channel buying up all the FM radio stations? Satoshi himself wrote, before he disappeared:

    “Yes, [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”

    Keep in mind that private possession of US gold coinage supposedly was illegal from 1933 to 1971, but you can buy those pre-1933 coins today; where do you think they came from? To my knowledge, only the Spartans were successful at banning non-fiat money over the long run. Even Red China legalized private gold ownership in 2006 (apparently to provide a savings alternative to price-bubbly real estate or capital-flight dollars). My guess is that the window of opportunity for governments to quash crypto has passed. They can (and China effectively has) shut down centralized exchanges, but (anticipating the threat) blockchainers have built decentralized alternatives. China had to make law-enforcement busts of crypto miners even after they closed all the centralized exchanges: how do you think those miners paid their operating costs?

    Comment by M. Rad. — November 20, 2021 @ 12:11 pm

  10. “And even if governments did not create the bait, they are certainly not above exploiting an emergent phenomenon (if that’s what crypto really is) to advance their anti-liberty agenda.”

    Definitely. The State (take your pick from among the FBI, the CPC, CIA, NSA, MI6, GCHQ …) certainly has form here: ProtonMail, anyone? VPNs? The ‘dark’ web? Even those mobile phones from Australia that were supposedly totally ‘secure’ (and thus a ‘hot’ item with the criminal fraternity.

    Every time you try to take the more secure and unusual route e.g. picking ProtonMail over GMail, you are waving a red flag over your head advertising that you have something to hide.

    Personally, I prefer to hide myself in the crowd … and the bigger the crowd, the better 🙂

    Comment by Simple Simon — November 21, 2021 @ 11:30 am

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