By Randall Margo, G.L.O.B.A.L. Board Director & Commentator
Bari Weiss, who penned a blistering letter of resignation as an editor/writer for the New York Times, recently posted a debate on Substack on the case for and against Bitcoin, Bitcoin Is Civilization - by Balaji S. Srinivasan - Common Sense with Bari Weiss (substack.com) and Michael W. Green - Common Sense with Bari Weiss (substack.com). I bring this forward to commend Ms. Weiss for providing well-reasoned opinions side-by-side as an example of what major newspapers and magazines should furnish, allowing readers to make up their own minds on timely and complex topics, and to examine the comments made by Messrs. Srinivasan and Green.
Although the seeds of cryptocurrency were planted in the 1980s, it has only been about a decade since the currency commenced public trading. Bitcoin, the largest of the cryptocurrencies has a current market value of roughly $600 billion, while the total crypto market is now $2.5 trillion. Whether these astronomical values reflect a sophisticated ponzi scheme or a transformative method of exchanging money continues to be argued. Less examined and understood are the implications as to why the popularity of cryptocurrencies exist.
Ms. Weiss hit on a key topic when she observed that fiat money systems are centralized through governments and central banks, whereas crypto systems are decentralized through an application known as Blockchain. Consequently, crypto systems function outside the regulatory control of governments. Key to crypto platforms is the privacy afforded individuals. Governments, however, tend to view this secrecy as enabling nefarious criminals to launder funds without detection or to escape taxes.
A recent example highlighting governmental concern was the cyberattack on Colonial Pipeline, which disrupted energy supplies and demanded ransom by Bitcoin payment. While the majority of funds were able to be recovered, the attack still netted the thieves a couple of million dollars. A larger issue though, is that these 'funds' are traded, maintained and accumulated beyond the reach of taxing authorities. To the extent cryptocurrencies can purchase goods and services from vendors, and the list is growing, it limits the power of governments to force individuals within their borders to accept their own currencies for payment.
Mr. Srinvivasan, former Chief Technology Officer for cryptocurrency company Coinbase, enthusiastically views this sweeping change occurring from the blockchain technology used to convey cryptocurrency. In countries where currencies are unstable and authoritarian regimes rule, he sees Bitcoin and other cryptocurrencies providing a lifeline for financing dissidents that can't be tracked to the end users. Moreover, it provides an alternative source of 'money', thereby creating an option for residents living within nations that dilute the value of their fiat currencies, by unleashing unlimited amounts of dollars and debts. He points to Venezuela as the most egregious example of this practice.
He further contends that the same blockchain technology enabling cryptocurrency to be transferred without a central hub, such as the federal reserve, also can serve to construct a decentralized social network. Consequently, just like no banks are needed to move cryptocurrencies, no social network platforms like Facebook are required for individuals to send encrypted digital messages to each other. Mr. Srinvivasan identified several partially decentralized social networks presently in existence, noting more are being built. In essence, encryption lies at the heart of blockchain technology for financial or communication exchanges. But, instead of being on a hub platform, it is decentralized on a myriad of individual platforms, as a record-keeping ledger. Srinivasan argues that this leads to a world where government is unable to spy on its citizens - think China's social credit system, or America's NSA. Online privacy of individuals is protected, not by inconsistent application of laws within nation-states, but by a technological system designed for confidentiality. He claims that the crypto community now reaches 100 million members across the globe in just its first decade, and is accessible to anyone with an internet-connected device, explaining that the cloud, not the land of one's residence, is where the future of financial and human freedom lies.
Michael Green, the former portfolio manager for Peter Thiel takes issue with much of the above. First, he argues that these cryptocurrencies are unsafe. If you lose your crypto-key, there is a power outage, or a cyber-attack, you lose everything. Unmentioned is that governments can easily shutoff land-based internet connections, as we have seen in Cuba and elsewhere, shutting out customers from their accounts. He further notes that China, Iran and Russia play a dominant role in the world of cryptocurrency, with China "...accounting for roughly 90% of the processing power in the Bitcoin network." These countries are using cryptocurrencies primarily to diminish the power of the U.S. dollar, which has remained the supreme currency for global trade since World War II.
Mr. Green emphasizes the criminal characteristics of Bitcoin, in which an estimated $400 million a month in illicit activity occurs, or roughly 40% of all Bitcoin usage. Meanwhile, the energy consumption used to mine the Bitcoins is now on par with that of Sweden. Of greater concern, is that the price of Bitcoin depends upon continuous additions of customers and fiat money. While the value may currently $600 billion, that is half of its value compared to just April of this year. It's difficult to make the case for an alternative currency to replace fiat money when that alternative lost half its value within the past three months.
Yet, if cryptocurrency is not the answer, it still leaves the overriding questions unresolved. How can fiat currencies increasingly expanded by nation-states to finance unsustainable debt, be corralled before these currencies are debased to the point worthlessness? And, is there a way to protect free speech where communication through digital platforms without the risk of tracking by governments, or high tech platforms? So far, the U.S. Treasury and Federal Reserve are promoting stablecoin as an alternative digital currency, which would mirror the dollar, albeit, with strict regulatory controls. While this could prevent a safer option for residents of nations like Cuba or Venezuela seeking a safe haven for their savings, it runs the same risks of government tracking.
In an environment where individual privacy is being eroded and fiscal policies among nations are severely testing the limits of government funded by debt, the debate on digital currencies and the accompanying blockchain technology reveals and presents these issues in an illuminating manner. How this debate is eventually resolved may provide the future course to our economic and private lives.