• +44 203 603 0672
  • contact@citygoldconsulting.com

Is It Too Late To Kill Wild-Crypto?

Is It Too Late To Kill Wild-Crypto?

Sources: ethernodes.org, The Times, Investopedia, Wikipedia, US House of Rep, bitnodes.earn.com, ipvanish.com, www.bitcoinmarketjournal.com

Mark Carney’s proposition that Central Banks club together to create a globalcoin, aka stablecoin was nothing more than a slight of hand, designed to prevent the much weakened US dollar from being replaced by the Yuan, as the worlds reserve currency.

This proposition is not about altruism towards crypto by central banks or world governments; this is about power, pure and simple. The power for a sovereign nation or group of nations to dictate their own financial destiny regardless of whether their constituents benefit or not. Those who control the mints and money presses can in effect do what they want, with little to no sanction.

So, to one Satoshi Nakamoto and his/her/their Bitcoin crypto that was launched with little to no fanfare. Below is an abbreviated Bitcoin timeline:

18 08 2008, the domain name bitcoin.org was registered.

31 10 2008, a link to a paper authored by Satoshi Nakamoto titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was posted to a cryptography mailing list.

03 01 2009, the Bitcoin network goes live with the mining of the genesis block of bitcoin (block #0), which had a reward of 50 bitcoins. The last block is scheduled to be mined in the year 2042.

Feb 2011, Bitcoin hits parity with the US dollar - Maybe it's not a joke.

17 12 2017, 1 Bitcoin = U$19,783.06 - Nope it's not a joke.

30 08 2019, 17,906,175 of 21,000,000 bitcoins have been produced

Bitcoin was launched in response to the economic events of 2008 and this seemingly benign technical innovation blindsided political leaders. A trawl of the internet shows that no major news outlet or political operator seriously considered this financial game-changer for almost two years.

It is is not an exaggeration to call Bitcoin disruptive technology. It has shown that with significant adoption as a medium of transaction and store of value, it has the potential power to disrupt many national financial, economic and monetary agendas. Thus putting Bitcoin and any other crypto-currency on a direct collision course with many governments and regulators.

It is the view of the author that a government trying to kill wild-crypto, in particular, Bitcoin, have set themselves an impossible task, akin to trying to defeat the Hydra of Greek mythology. The crypto-genie is out of the bottle, but many world governments are yet to get the memo and are going to have to go through the five stages of grief before they figure this out.

5 Stages of Governmental Crypto Grief

1. DENIAL – All governments were initially dismissive of the new approach to money and currency; it was considered a flash in the pan. In 2009 most regulators and heads of government were well over the age of 30 and the concepts proposed by the white paper, to merge currency, money and technology in this manner would have been as alien as telling someone in 1930 about fabrics made from oil and other chemicals – nylon.

2. ANGER – Several countries are still in this stage where they can see possibilities and fear the loss of control. For some world governments the solution has been to malign crypto-currencies in general and Bitcoin specifically in an effort to to discredit it. The fears of government and the entire financial services sector are not without foundation. Allowing a crypto-currency they did not create become a legal tender would have severe implications on how they do business, if they are still in business. The government, central banks and law enforcement will lose control over:

  • monetary policy to exert economic influence,
  • how fiat currencies can be transferred,
  • the ability to track currency movement,
  • who profits from that movement of currency,
  • the ability to collect taxes on currency movements,
  • the ability to trace criminal activity using existing tools.

In a wild-crypto economic environment, fiscal controls that have been used for decades could become obsolete as governments lose the privilege to increase or restrict the amount of money circulating in an economy as a tool to stimulate investment and spending, generate jobs, or avoid out-of-control inflation and recession. Unfortunately, history has also shown that the use of these tools when done with a political agenda, can result in the creation of environments ripe for inflation or recession.

Worst affected would be retail bankers in their role as custodians of funds. In this new world, what exactly would their role be? With most decentralised crypto, the owner/holder of the crypto-currency is the banker, and the network keeps a record of who owns what. Bankers would have to lend their money from their reserves rather than that of depositors, and it is highly likely that the concept of fractional reserve lending would suffer a heart attack and die. FINALLY!!

In some cases, governmental reactions to the perceived threats have included banning crypto or restricting its use in the financial sector. Listed below are some of the countries that have banned crypto outright:

COUNTRIES THAT HAVE A BAN ON CRYPTO-CURRENCIES     - Afghanistan - Pakistan - Algeria - Bolivia - Bangladesh - The Republic of Macedonia - Saudi Arabia - Vanuatu - Vietnam

Banning a thing that for all intents and purpose is progressive will only serve to drive it underground making a mockery of the whole banning exercise. Bans don’t solve any perceived behavioural problems.

3. BARGAINING – The proposition by Mark Carney to create a synthetic hegemonic currency (SHC) can be viewed as an attempt by a Central Bank head to try and get ahead of the coming changes to retain some form of control. The challenge for governments, Central banks and large organisations like Facebook who are looking to create stablecoins is they have serious credibility issues which puts them in a weak bargaining position.

During the financial crisis of 2009 – 2011 major central banks and governments collaborated to rescue themselves and the world economy but in the process lumbered their constituents with austerity whilst big business seemed to be benefitting with no consequences – No significant captain of industry was convicted of causing or contributing to the near-collapse of local and global economies.

Question: How does a Central Bank bargain or negotiate with a faceless entity like Bitcoin which is currently running on full automatic with no identifiable location or authority?

4. DEPRESSION – Many governments and central banks are yet to cross this river. At this phase in the grief cycle, there will be a realisation that a centralised crypto-currency controlled by a government, central bank or cartel of corporate entities has just as much chance of being accepted or rejected by the public as any other crypto. The track records of economic mismanagement would handicap any government-sponsored crypto.

It is a fact that banning or restricting the procurement, holding, and use of crypto is a journey to nowhere. For every ban on the internet, the world-wide-web community will find a hundred ways to circumvent that restriction. A case in point is the blanket blocking of porn and illegal file-sharing sites such as PirateBay by the Internet Service Providers (ISP) in the UK. Though ISP’s have complied with the strictures of the UK government and copyright holders, customers can still access the blocked sites through the application of virtual private network (VPN) technology which is transparent to the ISP’s. Using these same solutions, it is possible in a country with restrictive policies and legislation for businesses and individuals to continue trading in crypto in relative anonymity.

5. ACCEPTANCE – As yet Bitcoin is not recognized as legal tender by any government. That it can only be used as payment if both parties in a transaction agree to its use as a form of payment is the position the majority of world governments have taken when it comes to Bitcoin. Japan and New Zealand are probably the closest to granting Bitcoin the status of legal tender.

Why Decentralised Crypto Is Hard To Kill

The Bitcoin network which processes all Bitcoin transactions is currently supported by approximately 10,000 nodes worldwide. These nodes vary in size and complexity, from devices as small as a mobile phone and others that are sophisticated warehouse-size operations.

The map below shows the global dispersal of Bitcoin nodes:

Ethereum is an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality. It is not only a derivative of the bitcoin principles, but it is also the second most popular crypto in the market.

Ethereum provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.

The map below shows the global dispersal of Ethereum nodes:

Conclusion

A government, central banker or large corporate entering into the world of crypto with the explicit purpose of dominating all other cryptos will have to have the global faith of the public otherwise they will be doomed to failure. Further unilateral sovereign moves against crypto-currencies are pointless unless that country cuts itself off from the internet and the global community.

Question: How does an individual country measure its GDP in wild-crypto when the transactions are invisible and the funds can be stored in and retrieved from a different jurisdiction.

For a government to attempt to destroy the Bitcoin environment, they have to capture the public faith at a global level. No government is in that position, as all governments though not always self-serving must strike a balance between competing agendas while managing finite resources, It is in this balance where they often fail due to priorities based on political agenda’s. Sometimes the government does the right thing but the optics and perceptions of society result in a negative bias within the community.

The way for them to kill Bitcoin is for them to make the economic incentive to use Bitcoin irrelevant — to make the demand for using Bitcoin go away at the source,” explained Ammous. “They need to offer a technology that is better than Bitcoin — that can obviate the need for Bitcoin. Or, at least, they need to try…

Saifedean Ammous

Wild-crypto, like Bitcoin, does not have an agenda and can not be assigned one. As a result, it is entirely reliant on public faith in it to maintain and drive up its value. Furthermore, Bitcoin has to compete against more than 700 alt-coins; this is the epitome of a level playing field. Bitcoin offers a level of transaction transparency most central banks would consider obscene. What is a government to do???

Governments and Central Banks should acknowledge they are going to lose this war and the best they can do is win battles that allow them to stay relevant in the new financial world order.

Previously published LinkedIn on September 3, 2019

[crypto-donation-box]

admin