Tag: bitcoin

Real Democracy Requires a Separation of Money and State

Thomas L. Knapp

As we enter a new year, the running battle between the world’s governments and the world-changing technology known as “cryptocurrency” continues. As 2019 drew to an end, Swiss president Ueli Maurer asserted that Facebook’s digital currency (not a real cryptocurrency), Libra, has failed “because central banks will not accept the basket of currencies underpinning it.”

Politicians want to regulate — or, if possible, kill — cryptocurrency.

Large firms like Facebook want to capture cryptocurrency’s potential without rocking those governments’ boats.

Cryptocurrency advocates want democracy. Yes, democracy.

Of all the important words in the English language, “democracy” (from the Greek demokratia, “rule by the people”) may be the most fuzzily defined. Some people define it in terms of raw majoritarianism, others as one of various forms of representative government.

I define “democracy” in words used by Thomas Jefferson in the Declaration of Independence. “Democracy,” to my mind, is government that enjoys the “consent of the governed.”

Not just the consent of 50% plus one of the governed, and certainly not just the consent of a few big players who can afford lobbyists and bribes to get their way, but the consent of ALL the governed.

One major hinge on which the door of democracy as I define it swings is control of money — who may create it, how it may be used, and what portion of it must be handed over to government for “public” uses those paying the bills may or may not approve of.

Involuntary taxation is the opposite of the consent of the governed. It’s the opposite of democracy. We can have financial regulators and central banks, or we can have democracy. We can’t have both.

Cryptocurrency threatens the reign of government over money. It bodes a future in which, as an old antiwar slogan puts it, the Air Force will have to hold a bake sale if it wants to buy a new bomber.

That’s the future I want. It’s also the future that politicians, regulators and central bankers fear.

They don’t want to have to ASK you to fund their schemes.  They’re not interested in requesting your consent. They prefer to simply demand your compliance.

The ability to anonymously handle our finances without reporting them to government or involuntarily giving it a cut is a revolutionary development. And it’s here, now. More and more of us are using cryptocurrency, and the politicians are panicking.

While cryptocurrency won’t entirely kill involuntary taxation — land can’t be easily hidden, so we can expect property taxes to persist — it will make the global economy harder for governments to manipulate and milk.

The inevitable future of cryptocurrency, absent a new Dark Age in which we all go back to plowing with mules and reading rotting old books by candlelight, is a future without income and sales taxes (to name two of the biggest and most pernicious).

The ruling class will do everything it can to prevent the coming separation of money and state.

They’ll fail. And democracy will flourish. See you at the bake sale.

Open This Content

Facebook’s Libra Isn’t a “Cryptocurrency”

Thomas L. Knapp

In mid-June, Facebook — in cahoots with 28 partners in the financial and tech sectors — announced plans to introduce Libra, a blockchain-based virtual currency.

The world’s governments and central banks reacted quickly with calls for investigation and regulation.  Their concerns are quite understandable, but unfortunately already addressed in Libra’s planned structure.

The problem for governments and central banks:

A new currency with no built-in respect for political borders, and with a preexisting global user base of 2.4 billion Facebook users in nearly every country on Earth, could seriously disrupt the control those institutions exercise over our finances and our lives.

The accommodation Facebook is already making to those concerns:

Libra is envisaged as a “stablecoin,” backed by the currencies and debt instruments of those governments and central banks themselves and administered through a “permissioned” blockchain ledger by equally centralized institutions (Facebook itself, Visa, Mastercard, et al.).

To put it a different way, Libra will not be a true cryptocurrency like Bitcoin or Ether. Neither its creation nor its transactions will be decentralized and distributed, let alone easily made anonymous. A “blockchain” is just a particular kind of ledger for keeping track of transactions. It does not, in and of itself, a cryptocurrency make.

In simple terms, Libra is just a new brand for old products: Digital gift cards and pre-paid debit cards.

The only real difference between Libra and  existing Visa or Mastercard products is that Libra’s value will fluctuate with the “basket” of currencies and bonds it’s backed by, instead of being denominated in one particular (also fluctuating — you experience the fluctuations as changes in the prices of goods) currency like the dollar or the euro.

When it comes to the goal envisaged by cryptocurrency’s creator, the pseudonymous Satoshi Nakamoto — to free money from control and manipulation by  governments and central banks — Libra is a dead end. Instead of being manipulated by one government or central bank, Libra will be manipulated by all of them.

Cryptocurrency is, to get biblical, new wine in old wine skins — it bursts those skins, by design. Libra isn’t new wine. It isn’t even a new wine skin. It’s a blend of the same old wines, in the same old skins, with a fancy new label. And there’s nothing to suggest that the old wine is getting better with age.

Fortunately, these structural defects also mean that Libra isn’t a threat to real cryptocurrency. Accept no substitutes.

Open This Content

Why I am Still a Cryptocurrency Enthusiast, 2019 Edition

Thomas L. Knapp

Cryptocurrencies had a rough ride in 2018. As of January 7, 2018, the total market capitalization of all cryptocurrencies tracked by CoinMarketCap.com came to more than $800 billion, its highest point ever. As I write this on January 3, 2019, that total market capitalization is down to about $130 billion — about 1/6th of the market’s high point.

You might be surprised to learn that I’m still a cryptocurrency fan. But, just to be up front, yes, I am.

Not because I’m sitting on a huge pile of the stuff (as of this moment, my cryptocurrency holdings are worth less than $100 US), nor because I expect to make a killing speculating (when I get some crypto, I generally spend it without waiting very long to see if it increases in value).

I’m still enthusiastic about cryptocurrency because I’ve seen what it can do and make plausible predictions about what it will be able to do in the future. Cryptocurrency seizes control of money from governments and puts it in the hands of people. With improvements in its privacy aspects, that’s only going to become more true. In short, cryptocurrency fuels freedom.

But can it last? Will it win? I think that the last year, far from dispelling that notion, reinforces it. Let me explain.

Two kinds of noise related to cryptocurrency seem to have faded in tandem with the market cap’s downward trend. As one might expect, the ultra-bullish “Bitcoin will go to $100,000 real soon now!” voices have gone down in number and volume. But so have the voices comparing cryptocurrency to a Ponzi scheme or to the 17th century “tulip bubble.”

Yes, there are exceptions. One is Nobel-winning economist Paul Krugman, who still seems to think that transaction costs and lack of “tethers” to fiat government currencies will make crypto a bad bet. Of course, Krugman also said, in 1998, that “[b]y 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” So however expert he may be in other areas, I doubt I’m alone in discounting his predictive abilities when it comes to technological advancements.

This year-long market correction has been exactly that — a correction toward real values. After a period of hype (“Initial Coin Offerings” based on bizarre use cases) and scams (“pump and dumps” cons based on new fly-by-night “altcoins”), the wheat is separating from the chaff, the fraud is settling down to a level consistent with the rest of human activity, and the financial “mainstream” attitude has gone from dismissive to curious to “how do we get in on this?”

Cryptocurrency is getting better and better at what it was meant to do. It facilitates transactions without regard to political borders, it safeguards the records of those transactions through a distributed ledger system (“blockchain”), and to varying degrees (depending on which currency and the individual user’s habits) it protects the privacy of those who use it from prying eyes.

Cryptocurrency, and the freedom it entails, are here to stay. Welcome to the future.

Open This Content

The IMF Fears Cryptocurrency; It Should

Thomas L. Knapp

The International Monetary Fund refers to cryptocurrency only once in its 215-page World Economic Outlook for October 2018, but that reference is telling: “Continued rapid growth of crypto assets could create new vulnerabilities in the international financial system.”

Ironically and counter-intuitively — but in my opinion not accidentally — that sentence is grouped in a paragraph  with worries about the potential of cyber warfare to “undermine cross-border payment systems and disrupt the flow of goods and services.”

Cryptocurrency, of course, is the perfect solution to “cross-border payment systems.” In terms of both movement and accounting, it simply ignores borders.  A Bitcoin is a Bitcoin is a Bitcoin — in Minneapolis, in Mumbai, in Moscow. And it can be moved between those three cities in a tiny fraction of the time and with a fraction of the effort  it takes to set up wire transfers between bank accounts and to exchange dollars for rupees, or for rubles. All without government permission, too. A real time example is on https://www.instacoins.com where they monitor and compare in real time, such a transfer. It goes without saying which protocol was faster.

The “vulnerabilities” the IMF worries about are its own. Cryptocurrencies are, to varying degrees, resistant to supervision, surveillance, and regulation by entities like the IMF and its 189 member governments (the so-called “international financial system”).

Those governments (and their intermediary institutions like the IMF) fear money they can’t control. Who can blame them? The long history of central government banking is a history of money and markets easily subjected to taxation and political manipulation. Its purpose is to shear the sheep — that is, to clothe the ruling class at the expense of those who produce goods and services of actual value.

The brief history of cryptocurrency, on the other hand, is a history of emerging financial (and, ultimately, political) freedom for the productive class. That’s its philosophical genesis and its technical goal: Putting wealth beyond the reach of the thieves and extortionists who call themselves “governments.” Crypto is, as the anarcho-syndicalists like to put it, “building the new world in the shell of the old.”

Some players in the crypto sector seek co-option by the existing “international financial system” — for example, seeking regulation by the US Securities and Exchange Commission and its global equivalents.  They’re backing the wrong horse. The old “international financial system” will be replaced, not reformed.

The IMF’s purpose is not to facilitate “cross-border payment systems and … the flow of goods and services,” but to control them.  Fortunately, the time when that was even remotely possible is coming to an end.

Open This Content

Freedom is Winning in the Encryption Arms Race

Thomas L. Knapp

At tax time in the US, as Gaurav Sangwani  of India’s Financial Express reports, many American cryptocurrency users weren’t interested in discussing that aspect of their lives with the Internal Revenue Service. In an early April TeamBlind survey of 2,600 people who earned money from crypto, 46% said they wouldn’t be reporting those earnings to Uncle Sam. Meanwhile, per Investopedia’s Nathan Reiff, fewer than 100 of Credit Karma Tax’s 250,000 most recent filers had reported cryptocurrency transactions as of April 13.

That’s bad news for the IRS, but great news for America. People whose ancestors fought a revolution nearly 250 years ago on the slogan “no taxation without representation” are finally acquiring the weapons to fight a new revolution on a new slogan: No taxation without CONSENT.

Taxation as we know it is really nothing more than the typical mob protection racket: “Nice livelihood you got there — be a shame if anything happened to it.” And since the birth of employer “withholding” during World War Two, the mobsters have mostly had it easy. They rake what they want right off the top of your paycheck and encourage you to think of any partial refund as a gift.

The racket has always had two weak points, though.

One is that it’s dependent on a model of employment — centralized workplace, lots of employees, one employer — that’s increasingly giving way to a “gig economy” in which more and more people are becoming de facto self-employers.

The other is that it’s dependent on an easy access to personal information that once favored the mobsters but that has likewise been breaking down since the dawn of widely available Internet access.

Since the late 1980s, Americans have been engaged in an arms race with the federal government: Our strong encryption versus their attempts to compromise that encryption. Win some, lose some, but cryptocurrency is potentially our side’s decisive super-weapon.

If you thought the perpetual whining from law enforcement about encryption was about fighting terrorism, think again. It’s mostly about the money. Like other mobsters, politicians and their accomplices hate the idea of their rackets coming to an end.

Government will get much smaller and much less powerful once it has to ask nicely for a share of the wealth you produce, and justify the request, instead of just taking what it wants. That day draws closer as the percentage of people using cryptocurrency and declining to tell Uncle Sam about it grows.

Open This Content

First They Came for Backpage

Thomas L. Knapp

The First Amendment to the US Constitution is pretty clear: “Congress shall make no law … abridging the freedom of speech, or of the press …”

The Communications Decency Act is similarly clear: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

But even after repeated judicial rebuffs on these grounds the federal government continues to attempt to “get” Backpage.com for allegedly “facilitating” sex work by accepting advertisements  — usually, and usually falsely, described by rabid demagogues like US Senator Claire McCaskill (D-MO) as “human trafficking.”

On April 6, several federal agencies stole (the word they used was “seized”) the site’s domain names and raided its co-founder’s home, arresting him pursuant to a 93-count indictment from a grand jury.

As of the raid, the indictment remained “sealed,” legalese for “why should the US government be obliged to tell mere serfs what it is up to or why?” That’s a rotten kettle of fish in and of itself. A “justice system” that operates in secret has no legitimate claim to the title.

News accounts that may be based on leaks (I’ve been unable to verify that the indictment has been un-“sealed”) describe the charges as relating to “money laundering” and “human trafficking.”  The “money laundering” nonsense brings an additional disturbing element with it to the extent that it’s described as being about the use of cryptocurrency (Bitcoin), another activity that the feds would like to bring under their control.

I hesitate to describe the secrecy and cryptocurrency angles as distractions. They’re absolutely important. But the most urgent problem from my point of view is that the federal government has openly arrogated to itself the power to outlaw speech and punish publishers for allowing that speech on their platforms, so long as it clicks its collective heels together and says “there’s no crime like human trafficking” three times first.

In 2016, after a court slapped down the attempts of Kamala Harris (D-CA), then attorney general of her state and now a US Senator, to prosecute Backpage for “pimping,” I suggested that merely dismissing the charges was not enough. I am still of that opinion.

The ringleaders of the Backpage crackdown — legislators, prosecutors and law enforcement chiefs — need to be charged with conspiracy against rights under United States Code, Title 18, Chapter 242:

“If two or more persons conspire to injure, oppress, threaten, or intimidate any person in any State, Territory, Commonwealth, Possession, or District in the free exercise or enjoyment of any right or privilege secured to him by the Constitution or laws of the United States, or because of his having so exercised the same … They shall be fined under this title or imprisoned not more than ten years …”

These bad actors have completely abandoned rule of law, and they’ve done so for the express purpose of violating the First Amendment. If they are not brought to bay and severely punished, Backpage will merely be their first, not their final, victim.

Open This Content