The Satoshi Revolution: A Revolution of Rising Expectations
Section 4: State Versus Society
Chapter 9, Part 5
Crypto: Other Than The Black Market, A Last Stand For Economic Freedom?
Money…is the economic area most encrusted and entangled with centuries of government meddling. Many people, many economists, usually devoted to the free market stop short at money. Money, they insist, is different; it must be supplied by government and regulated by government. They never think of state control of money as interference in the free market; a free market in money is unthinkable to them. Historically, money was one of the first things controlled by government, and the free market “revolution” of the eighteenth and nineteenth centuries made very little dent in the monetary sphere. So it is high time that we turn fundamental attention to the life-blood of our economy—money.
-Murray Rothbard, “What Has Government Done to Our Money?”
Envisioning free-market crypto should be easy because cryptocurrency was created on the free market, and it remains unregulated in many places. How difficult is it for a person to envision what is standing in front of his or her own eyes? Coins like Bitcoin or Bitcoin Cash are success stories for all to see.
Unfortunately, governments also see it. They recognize crypto as a fierce competitor to their own fiat monopolies, their tax systems, and a relatively untapped source of wealth. To control crypto, however, government cannot praise the phenomenon; government needs to demonize crypto by creating public hysteria over problems both real (fraud) and manufactured (links to terrorism). Rest assured, if crypto was an economic Satan rather than a business sensation, governments around the world would not be salivating and scheming about how to co-opt the industry. To do so, they paint crypto as a ‘good’ that is currently rife with abuses, which only governments can solve. The free market has failed, they claim.
Pressure from government is increasing. As cryptocurrency becomes more accepted as money, the cry for regulation grows. A recent report from the trading giant eToro and the Imperial College London claimed, “Cryptocurrencies like Bitcoin offer a viable evolutionary ‘next step’ for money and have the potential to become a mainstream form of payment within the next decade.” The report stated that regulation was a necessary prerequisite for such an evolution.
And most people will listen to the call for regulation because they believe a government monopoly makes money safer for them to use—at least, safer than free-market money, which they do not understand. Of course, the opposite is true. Government money gives those in power an iron control of the economy, and that arrangement never ends well for the average person. By contrast, the free market panders to customers who are the source of profit. How many government restaurants would allow people to send meals back to the kitchen for a replacement? How many have a “no questions asked” return policy on goods or services?
The free market also provides goods and services, including money, more efficiently than government. For one thing, competition forces companies to be efficient in order to achieve the low prices that attract customers. The free market also expresses far greater morality because it is based on voluntary exchanges, while the government consists of coercion.
Nevertheless, money is considered to be a “special” case that requires government intervention because money is essential to the functioning of a healthy society. But so is food. And, yet, the free market provides a cornucopia of groceries from around the world at affordable prices. Most people can walk to stores with a bounty for sale. It is difficult to imagine a government managing a similar food chain; indeed, the governments that have tried have produced rationing, famines, black markets, and soaring prices on the essentials of life.
Hysteria is a standard fall-back position for those who wish to obscure reality. And hysteria against crypto is underway because it is the best strategy to convince people that government is an instrument of crypto justice, not a crypto-criminal wannabe.
Respectability=the Need for an Injustice to Remedy=Regulation
Governments are playing a multi-leveled shell game with crypto, which is likely to play out as follows.
First and wherever necessary, crypto will be redefined as money rather than as an asset, because central banks, government agencies, and traditional financial institutions have no proper authority to regulate privately-held assets that are legally acquired and held. Governments can tax and confiscate, to be sure, but that level of control is modest compared with the monopoly power to issue and/or to define what is legal money.
Next, crypto will be conflated with crypto-asset markets, such as exchanges and businesses that issue ICOs (Initial Coin Offerings). Although the two are separate, most people make little to no distinction between them; the concepts become jumbled together. Those who want to regulate crypto itself find the jumble to be useful because it facilitates broad legislation that covers the entire sphere of crypto and its many manifestations.
The blueprint for crypto control is predictable; it is also global. Last week, for example, the Financial Stability Board delivered a report to a G20 meeting of Finance Ministers and Central Bank Governors, which discussed a framework for setting standards on crypto-asset markets.
A few months earlier, the International Monetary Fund’s (IMF) Managing Director Christine Lagarde indicated how global bodies would proceed. There were familiar references to crypto’s alleged role in terrorism and money laundering. But the emphasis differed. On the IMF blog, Lagarde called for crypto-asset markets to protect consumers in the same manner as traditional financial markets do. Know Your Customer policies and global coordination were stressed.
The call for consumer protection is echoing. At a June 25th conference, for example, the Federal Trade Commission’s Bureau of Consumer Protection Director Andrew Smith, explained, “With the rise of cryptocurrencies we’ve seen many signs, from public sources to law enforcement actions brought by us…that scammers are using the lure of cryptocurrencies to rip off consumers.”
“People need protection from the new money!” is ascending as the argument for regulating crypto. The argument not only appeals to an ingrained bias against free-market money, it also plays on people’s fear. Popular support makes it much easier for government agencies and central banks to succeed in their global grab at crypto. And, so, the word “fraud” is becoming more common whenever crypto is discussed, even though crypto-asset markets are usually the focus. (Note: the fact that fiat currencies are total frauds, along with many penny and over-the-counter stocks, does not arise.)
The Most Damnable Aspect of the Widespread Fraud Claim
There is real truth to the accusation of fraud. Crypto, like every other investment, is a “caveat emptor” situation due to the risk of fraud and other forms of theft. “Caveat emptor” is usually translated as “Buyer Beware,” and it means that a buyer or customer is responsible for checking goods and services before purchasing them. The principle is valid, but it is unsatisfying and an incomplete answer when confronted with fraud, which is a crime—the crime on which government pins its dreams of usurping crypto.
How massive is the problem of fraud? A recent study prepared by the Satis Group found that, as a percentage of the ICOs it examined, “approximately 78% of ICOs were Identified Scams, 4% Failed, 3% had Gone Dead, and 15% went on to trade on an exchange.”
It is not clear if the findings are valid, especially since expert reports have become a stock aspect of any push for legislation; many of them are sloppy and politically motivated. Frankly, the figures seem exaggerated. On the other hand, many ICOs have been revealed as corrupt, and the existence of fraud is undeniable, especially in crypto-asset markets.
Admitting a problem, however, does not validate a particular solution, such as government intervention. For one thing, government has proven itself to be unwilling to prevent fraud in the monetary system it already commands: central banking. Satoshi Nakamoto explained,
“The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”
The debasement of currency is also known as inflation, which becomes inevitable because inflation is a prime source of revenue for the government and for the groups it favors. But the damage of government money extends beyond the degradation of value. Rothbard explained,
“It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc. It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs. In short, we find that coercion, in money as in other matters, brings, not order, but conflict and chaos.”
And, yet, one of the main arguments against free-market money is that the marketplace is too chaotic and corrupt. Nonsense.
There Oughta Be a Law
Fraud requires a legal response because a crime has occurred. But, again, admitting a need does not validate a particular solution. This is especially true of the legal solutions offered by government.
Generally speaking, there are four types of laws that function in society, and they sometimes overlap.
- Ones that impose a specific vision of the world or of morality. These include laws against alleged vices, such as alcohol or drug use, as well as laws requiring alleged virtues, such as voting or paying taxes. The goal is to mandate a code of behavior, thus erasing the boundary between the legal and (someone’s vision of) the moral. Typically, the laws are enforced on everyone, except those with power seem to be exempt.
- Ones that regulate a targeted segment of society. These include laws about who may conduct a specific business and how it must operate, as well as laws that discriminate between people based on factors such as race. The goal is economic and social control, with enforcement focusing on designated people.
- Ones that protect against physical harm and property damage, including theft. These include laws against assault and vandalism. Rather than mandate a behavior, they prohibit one–namely, violence, which includes fraud. The goal is to provide the safety that allows a healthy society to thrive, with enforcement applying to everyone.
- Ones that are created by contract. These include laws that allow creditors to seize assets in arrears, such as a repossessed car, and laws aimed at enforcing behavior, such as the performance of work for which payment has been rendered. A contract can always be breached, but there is a penalty for doing so: for example, a repossessed car, a refund of fees. The goal is to establish enforceable contracts, which are nothing more than enforceable consent between individuals. Again, it provides a safety that allows a healthy society to thrive and which discourages violence as the only way to resolve a dispute. The law applies only to those who contract.
On crypto, the government flexes only the first two forms of law: a specific vision imposed on the world; and, the regulation of a targeted sector. The laws do not protect people and property, as evidenced by the fact that recovered funds are not returned to those who have been defrauded. Fines, fees and recovered wealth go into the government’s coffers. In short, the laws serve government; they do not protect consumers.
The last two forms of law protect individuals, including consumers, and not government. They are laws that would exist in the free market because they fulfill human requirements. But what exactly would they look like? And how would they be enforced?
[To be continued next week.]
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