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February 25, 2018
Feeding the beast?
The latest awkward use case for cryptocurrency is funding rogue states led by empanada-noshing dictators. The world may just have to live with this.
Read more in the THE TAKEAWAY below.
TOP TRENDS ON COINDESK
¡Viva el Petro!
It's 2018 and a country is launching a cryptocurrency.
No, it's not a far-fetched sci-fi story... it's reality in Venezuela, where a sovereign nation has (allegedly) completed a historic first, kicking off an ambitious pre-sale for its forthcoming oil-backed cryptocurrency, the petro.
Putting on a show for the world, President Nicolas Maduro is staging press conferences and Twitter campaigns.
So far, reported details on the project are abundant, even if hard facts are scarce. Maduro claims the government has sold more than $700 million worth of the cryptocurrency (though it's not clear who made the coin or what technology it uses).
Venezuelans, meanwhile, are split on the idea. Maduro's supporters are in, even if his opposition (and bitcoin hard-liners) are cringing. More on the petro's broader implications below.
Ripple rolls on, R3 stirs
On the enterprise blockchain front, signs are the press release conveyor belt is shaking off the rust, giving way to a small but notable churn of February news.
Ripple appears to be taking new interest in its XRP cryptocurrency, the market's third-largest crypto asset. The startup released new white papers attempting to appeal to academics and developers who have long gravitated toward bitcoin and ethereum.
Elsewhere, the company onboarded two banks and three remittance firms as customers for its more conventional distributed payment messaging products.
Not to be outdone, R3 began showing signs of life, showcasing that it's moving to get global lawyers off the bench (something that builds on its 2017 strategy) and that it's still very much active on the proof-of-concept front.
State by state
Though the U.S. Congress may steal the spotlight, it's important to remember that lawmaking in the country isn't a strictly top-down affair.
So, even while federal regulators petition Washington lawmakers to move on national policy, states are picking up the slack, moving to advance a collection of oddball bills that nonetheless speak to issues that hit home for crypto's growing body of enthusiasts.
This week, California became the latest state to seek to amend laws to recognize blockchain data; Wyoming moved to formalize a carve-out for so-called "utility tokens"; and Arizona took a step forward in enshrining the right to run a node.
Disparate, yes. But the collective message is that state regulators are moving.
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QUOTE OF THE WEEK
"Who in their right mind buys a [cryptocurrency] from a government that does not pay the foreign debt, with an economy in hyperinflation?"
– Marialbert Barrios, a Venezuelan National Assembly deputy, questioning the viability of the petro
THE TAKEAWAY
If Venezuela’s oil-backed cryptocurrency succeeds – and that’s still a big if – it could portend a whole new use case for the technology: fundraising for rogue states.
The world may just have to live with that.
One of the defining aspects of cryptocurrency is neutrality. Bitcoin, ethereum and the like are open networks. They don’t discriminate.
A public blockchain doesn’t care if you’re a Boy Scout or a convicted ax murderer. As long as you control the private keys to a bitcoin wallet, you control the funds in it, no passport required. (Setting up an account at a crypto exchange is a different matter.)
That is financial inclusion, in the truest sense, though it’s not exactly what policy wonks have in mind when they use the term.
Similarly, as long as you know how to code, you can build applications on top of bitcoin or ethereum, no Ivy League degree needed.
That is permissionless innovation. It’s what allowed Sir Tim Berners-Lee to create the world wide web and Satoshi Nakamoto to invent bitcoin.
And now it may allow Venezuela’s strongman president, Nicolas Maduro, to eat a whole lot more empanadas at his desk, and do who knows what else, while his country reels from an economic crisis.
Stepping back, this week Maduro’s government claimed it had raised $735 million in a pre-sale of its cryptographic token, known as the petro, and revealed a number of other details about the project. Much remains unclear, including which network the coin will run on top of – some public documents say it’s NEM, others say ethereum.
The coins are ostensibly backed by the country’s oil reserves, with their value somehow pegged to the previous day’s price per barrel in bolivars (so much for real-time). They’ll be legal tender and accepted for tax payments in Venezuela, according to the government, so in theory there’s a use case for local residents. Still, it’s hard to see any value proposition for outside investors in a token that’s controlled by a dictatorship. You could even argue that such a centralized set-up disqualifies the petro from being called a cryptocurrency in the first place.
But imagine for a moment that this scheme works. It could be an encouraging sign for other nasty dictatorships that have been cut off from the global financial system by economic sanctions. Already, Venezuelan officials have met with their Russian counterparts to discuss the petro, and late in the week Iran revealed its own cryptocurrency plans.
Now, it’s one thing for individuals or small business owners to use cryptocurrency to circumvent international sanctions. In such cases, it’s easy to root for the underdog, even when members of the Washington foreign policy establishment clutch their pearls. God forbid an Iranian shoemaker should be able to sell handmade footwear on the internet! Who’s in charge of this “bitcoin” anyway? Don’t they know financial intermediaries have a Responsibility to Society to make sure the shoemaker’s children starve? Why, for all we know, that merchant could be funding terrorism….one pair of wingtips at a time!
The most recent sanctions-skirting crypto projects, however, would enrich not the citizens of these countries but the repressive governments responsible for their pariah status. Which, as crypto critic Preston Byrne wryly noted on Twitter, doesn’t match up neatly with the tech’s early libertarian rhetoric.
That’s the thing about open-source technology and permissionless networks, though. Not only can the tools fall into the wrong hands – the very idea of “wrong hands” is foreign.
For example, let’s take a quick detour to the U.S., where the latest mass shooting has made firearms a hot-button political issue. In a recent op-ed in the New York Times, Andrew Ross Sorkin argues that if Washington won’t put stricter controls on gun sellers, the nation’s financial institutions should do so, for instance by refusing to do business with retailers that sell assault weapons.
This paternalistic idea would set a dangerous precedent, as my former colleague, American Banker editor-in-chief Rob Blackwell, argued in a response to Sorkin. But it’s also a helpful reminder of what sets apart cryptocurrency from the legacy financial system.
Bitcoin doesn’t know or care what the purpose of a transaction is. Nodes and miners, blind to the identities behind alphanumeric addresses, can’t be shamed by the Andrew Ross Sorkins of the world into trying to control people’s behavior. That’s one of the main reasons bitcoin has value.
Is this good or bad? You tell me, is fire good or bad? This much is clear: if banks took Sorkin’s advice and tried to choke off gun sales, bitcoin would probably rally.
Then there’s the alleged “Nazi problem.” You’ve probably read about how far-right platforms like the Daily Stormer, shunned by mainstream payment processors, have turned to cryptocurrency as an alternative means to accept donations, and apparently got rich in the recent run-up.
It goes without saying that these organizations’ words and ideas are despicable. But as long as they’re just words and ideas, not violent or criminal actions, what purpose did it serve to cut off their access to credit card payments?
As free-speech advocates will tell you, the antidote to bad speech is not suppression but more speech. Blackballing speakers you or I find offensive from financial services opens the door for banking to be weaponized against others that you or I may support.
Fortunately, the existence of cryptocurrency blunts this weapon. Today it’s the neo-Nazis taking advantage of bitcoin’s openness, but tomorrow it may be [insert a publisher dear to your heart] who needs it. You’ll thank Satoshi when that happens.
Returning to Venezuela: maybe the Western democracies can thwart the petro, or its Russian or Iranian equivalents, by, say, forbidding licensed exchanges to list them or by blacklisting ethereum addresses that receive the tokens. (No airdrops, please!) But to the extent these projects really do function like cryptocurrencies, shutting them down may be impossible.
That’s the hyperconnected world we live in today. Buckle up, buckaroos. – Marc Hochstein
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Beyond CoinDesk...
OTHERS ARE TALKING ABOUT
Telegram's ICO continues to be the talk of the town. According to The Verge (which won the now-weekly contest for project news), a second secret sale is underway for more tokens. Let's hope someone uses them.
Fortune's Jeff John Roberts takes a deep, deep dive into how the U.S. government is handling the bitcoins it seized from criminals. No cheap potshot, the story tells the tale front to back and packs it with details. Just what will the government do with those 50 bitcoins stolen from a drug dealer with the handle "JumboMonkeyBiscuit?" It's a question we'd never thought we'd want answered.
Elsewhere, Bloomberg's Matt Levine gets philosophical, questioning the nature of how human beings use ideas to coordinate. What does this have to do with bitcoin? Well, the answer is it might not be as crazy as the people who call it crazy say.
WHAT WE'VE BEEN UP TO
Clear your calendars from May 11 to May 17. CoinDesk is partnering with the New York City Economic Development Corporation to expand our flagship conference, Consensus, from three days to an entire week. Blockchain Week NYC will showcase the Big Apple as a hub for innovation and job growth in this dynamic young industry, and give Fashion Week a run for its money.
Forward-thinking state legislators in the U.S. are excited about the promise of smart contracts, but is a new, state-by-state legal framework necessary? Or could states rely on laws that already exist? Which approach would best encourage the growth of the blockchain ecosystem? Tune into our free webinar, presented in partnership with the Chamber of Digital Commerce, Feb. 27 at 11:00 a.m. EST. Register here.
Send feedback on this newsletter to marc@coindesk.com or tweet @MarcHochstein. And of course follow our main Twitter handle @CoinDesk.
Thanks, as always, for reading. Until next week ...
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