In the post-FTX world, it’s really hard to be a crypto executive.
Not only are your bags empty and your revenues plummeting, but the US financial regulators are trampling on you with subpoenas one day and lawsuits the next.
So it’s understandable why industry leaders like Brian Armstrong might want to present themselves to both the media and the authorities by putting their state-respecting foot forward.
As CEO of Coinbase – America’s largest crypto exchange – one wrong move could see his company sued and regulated beyond repair by politicians who are already paranoid about an industry full of scams. After all, what reason is left for you not to just ban cryptocurrencies altogether?
In a media raid earlier this week, the executive tried to answer that question: support “crypto” while citing the best interests of the US government. As a result, however, he promoted the use of a cryptocurrency most contrary to the ethos of “decentralization” in which Bitcoin was born.
That’s right: Brian Armstrong is in favor of a stablecoin issued by the US government.
Armstrong’s Case for Crypto in America
In op-ed published Wednesday on CNBC, Armstrong laid out his usual argument for why the US should be more crypto-friendly so as not to push the industry overseas. Doing so would have countless negative consequences, which can roughly be summed up in three points:
- The United States would lag behind its international competitors in terms of technological and financial innovation, losing many benefits to consumers.
- The crypto industry will thrive in an unstable and unregulated offshore environment – or in jurisdictions that simply have clearer rules.
- The position of the dollar on the world stage will continue to weaken and there is a risk that it will be overtaken.
The last issue is what Armstrong’s stablecoin idea is supposed to be used for. Writes:
“Imagine a world where the US issues its own USD stablecoin on a blockchain. Not only would this provide access to the dollar to millions of people who previously did not have a bank account and did not have a bank account, but it would also be the de facto digital currency for remittances and international currency transfers, ensuring that the dollar remains the global reserve currency both in the and beyond.”
Stablecoins vs CBDC
The idea of using stablecoins and other cryptocurrencies for international transfers is nothing new. MoneyGram partner with the Stellar blockchain last year to do just that, and even some central bankers recognized their potential in the money transfer market.
But advocating a government-issued stablecoin — as opposed to a privately-issued token like USDT Tether or USDC Circle — is another story. Such a token would be virtually indistinguishable from a central bank digital currency (CBDC), which even congressmen who support cryptocurrencies understand has the potential to become a tool of state surveillance.
The Federal Reserve is already in talks about what a potential CBDC could look like. In September, CEO Jerome Powell stated that the US CBDC will be “private” but not “anonymous” – meaning it will still be a permission-based system that verifies the identity of users.
Whether one trusts the Federal Reserve not to invade American privacy in this way – and turn it into a 100% state-controlled monetary ledger like China’s digital yuan – is another story. Ultimately, CBDCs require users to do so trust centralized intermediary that does not censor, freeze, limit or devalue their money.
Aren’t these the problems that Bitcoin – the first decentralized public blockchain – was supposed to solve?
The real point of Bitcoin and decentralization
Let’s go back to Armstrong’s next point about the many benefits of cryptocurrencies he mentions in his article:
“Crypto is a faster, more private, efficient, cheaper and user-controlled financial system. It’s not a replacement for the traditional financial system, it’s an update.”
While not everything about this statement is necessarily false, it really misses the point. Bitcoin was never originally created as a more efficient payment railway.
Essentially, Bitcoin is an open, neutral, borderless, and censorship-resistant monetary network. It is often called the “ruleless rules” system it uses proof of work to remain credible and secure (consensus mechanism often criticized for its high level ineffective.)
Some of Bitcoin’s biggest supporters consider it to be check out authoritarianism, allowing users living in both oppressive and hyperinflationary regimes to keep control of their money and its purchasing power. In short: Bitcoin embodies freedom.
As a functional, trustless monetary system, Bitcoin actually solves the problems that justify the existence of central banking and fiat currency. Down quote Satoshi Nakamoto:
“The main problem with conventional currency is the trust that is required to make it work. The central bank must be trusted not to depreciate the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to store our money and transfer it electronically, but they lend it out in waves of credit bubbles with just a fraction of the reserve.”
How do you reconcile this with Armstrong’s argument that crypto is not a “replacement” for the financial system?
Compared to the level of state control currently exercised over the bank, Bitcoin represents a much more liberating alternative. It puts digital property rights back into the hands of its holders, taking them back to the banking institution that has controlled them for decades as a mere byproduct of technological constraints.
In this sense, Bitcoin is the opposite of the government-issued stablecoin that Armstrong idealized. This removes control by the monetary authorities of our time – such as the United States – instead tonic their.
Considering that “decentralization” has been a favorite crypto buzzword for the past decade, that Is good thing right?
The imminent betrayal of Crypto leaders
Decentralization may sound great from a humanitarian perspective – but for Coinbase? It’s just bad for business.
Sure, it sounds good to the army of cryptocurrency-loving libertarians who appreciate such things. But for a regulated U.S. publicly traded company, it’s hard to go into details about “decentralization” without getting the government to take care of you.
As things stand, Coinbase is already in the red serious legal pressure from the SEC, which only hurts the bottom line. Explaining to the government how crypto gives consumers direct access to technology that threatens its geopolitical control would only worsen Coinbase’s relationship with regulators — as with the industry as a whole.
This explains Armstrong’s odd propensity to promote highly antithetical crypto technology, such as a government-issued stablecoin, favoring true cypherpunk values. His main motivation is to keep his company and industry alive, even if it requires turning cryptocurrency into something unrecognizable.
Know that this is nothing new. Circle, a stablecoin company with close ties to Coinbase, didn’t hesitate to compromise the “censorship-proof” cryptocurrency ethos in August, when it froze USDC blocked in Tornado Cash addresses marked by OFAC. Even opposing the Treasury’s policies, his firm had its hands tied in enforcing the new rules under the requirements of the Bank Secrecy Act.
Former FTX CEO Sam Bankman-Fried (SBF) (whom red flags are much easier to see in retrospect after recent events) was much less shameless than this. Just weeks before his exchange imploded, he was active recommended to regulate DeFi using similar OFAC blacklists and require front-end DeFi providers to register as broker-dealers. Of course, it has been widely criticized by the crypto community for successfully defeating the DeFi target with such rules.
Even CBDCs are not a new idea for cryptocurrency leaders. Joseph Lubin – co-founder of Ethereum and CEO of ConsenSys – previously supported the issuance of CBDCs on the Ethereum blockchain, as part of the 28-page CBDC white paper published by the company.
“CBDCs give central banks forward-looking tools that allow them to implement monetary policy in a more direct, innovative way and keep up with technological changes,” he wrote.
Executives like Armstrong, Allaire, SBF and Lubin may or may not have the core values of cryptocurrencies at heart. Regardless, everyone is just a cryptocurrency brother second, and a businessman First. It was only a matter of time before they were forced to side with the government for values.
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