Whether or not you think Bitcoin will change the world, few people disagree that the blockchain will revolutionize how data is sent, verified, accessed, and stored. For the vast majority of us that’s excellent news- but not for everyone. Data has a value, and as in that sense data itself can be viewed as a currency- one that is increasingly accessible, transferable, and less dependent on its issuers than those who hold it.
It’s easy to see recent reactions to cryptocurrencies by China and the USA's financial regulatory body, the SEC, as uninformed fear-mongering, but doing so is a dangerous underestimation. What these agencies have done under the guise of ‘protecting consumers’ from the risks of a new technology is nothing short of a carefully calculated act of self defense.
A New Threat
The US Dollar has long dominated the globe as the world’s reserve currency. Influence over the currency of international trade and the ability to borrow in its own currency affords the US many luxuries, including the unique ability to inflate away any international debts, since the Dollar's exchange rate is irrelevant to how many Dollars the US owes. Similarly, China has long relied on a strict control over its currency to engineer unsustainable growth, manufacture liquidity in credit markets, and artificially promote the value of the Yuan.
Yet as recently as a year ago, cryptocurrency was still seen by the mainstream as a fringe product, useful only for rampant speculation or the novelty of paying with ‘internet money.’ Ethereum, smart contracts, and ICOs have changed the game.
Cryptocurrencies have become currencies of data
Cryptocurrencies have established themselves as not just an alternative means for making payments and storing value, but also as a means to conduct business, make investments, purchase insurance, track reputation, enforce agreements, dynamically allocate resources, and unlock economies of scale.
In short, these new 'data as a currency' cryptos are rending the global economy less and less reliant upon government sanctioned avenues, meaning the utility of government assets are directly lessened by the growing utility of cryptocurrencies.
Why China and the SEC Care
This wouldn’t matter if the Dollar and Yuan were nothing more than impartial means of exchange, with relative values freely determined in the marketplace. But that is far from the reality of the situation. For both the US and China, currency has long been not just a means of economic exchange, but a means of political control. Controlling debts means controlling rival nations. Controlling banking means controlling business. Controlling taxes means controlling citizens.
Seen in this light, recent crackdowns on exchanges and ICO issuances are not driven by ignorance, but by a logical motive for self preservation. Blockchain based assets represent not a misunderstood technology, but a direct threat to these governments' most potent mechanism for maintaining control.
The Case for Decentralization
While there's nothing wrong with the fundamental concept of protecting consumers- on paper, the idea of a group of experts doing research on our behalf to save us all time sounds great. Yet complications immediately arise in practice, because in order for any centralized regulatory agency to combat the very phenomenon they are designed to eliminate, they must inherently also be granted the authority to define that phenomenon nature and scope. For instance, without the authority to classify and define what constitutes a crime, the legal system could not prevent all cases of crime.Yet, as should be obvious, once granted this authority, the regulator is handed a monopolistic control over the phenomenon itself. The police monopolize 'justice.' The military monopolizes 'acceptable violence.' The SEC monopolizes 'financial security'.
Once control over a phenomenon is concentrated in the hands of a regulatory authority, this body will inevitably regulate the phenomenon's pattern of occurrence so as to allow themselves to continue to ‘maintain order.’
In other words, regulators will always regulate however they need to regulate in order to keep regulating.
This conclusion is irrespective of political leanings or personal beliefs- it requires only the assumption that the regulatory agent behaves in an internally consistent manner, not even one that is necessarily rational. As a regulator you either:
- Believe you can actually do good- in which case you need to continue to exist to continue doing good, or
- Believe you can't actually do any good- in which case your very existence as a regulator demonstrates you already value your own interest above those of the social good.
Put simply, regulators are definitionally either misled disciples of the system, and therefore will do whatever it takes to keep the system in place, or corrupted agents who know the system is broken but don't care.
In every case, the centralized regulator's first priority is always to ensure its own continuation, and the primary tool at its disposal to ensure it does continue is a complete control over defining the phenomenon it was designed to eliminate.
The end result is that the regulatory body does not eliminate the phenomenon's occurrence, as intended, but merely eliminates any randomness in the patterns of when and where the phenomenon occurs- it will conveniently occur anywhere the regulator's own purpose is called into question.
For instance, the SEC has labelled ICOs as a threat to consumers because their own existence is threatened by ICOs, and given control to label anything they wish as a financial fraud, their logical reaction is to classify ICOs as such, regardless of whether there is or is not any risk posed to consumers.
Fear the Future… if You Own the Present
Cryptocurrencies, through PoS, PoW, and various other self-regulating algorithms, are creating a future in which the network itself ensures its participants safety, removing the reliance on oversight by a centralized, distinct entity with entirely different incentives and participants than those in the network itself. While a great many of ICOs can and will ultimately fail, the present represents a once in a multi-generation chance to take part in redefining how global economies and societies incentive and reward certain behaviors, and prevents others. In this sense, blockchain is more alike the advent of democratic voting than the advent of monetary currency.
There are of course risks- the values outlined in the Magna Carta did not see meaningful application for hundreds of years- but this is the true scope of opportunity, a chance to not just be involved in a new way to pay for coffee (or college), but a chance to build a new kind of social order. And its pioneers stand to reap the rewards.
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