Crypto and Politics: Chicken or the Egg

Bright Premises

In the vision of Satoshi Nakamoto, Bitcoin was supposed to be a financial revolution.

Over the ages, we have entrusted our savings to banks in exchange for the illusion of safety. This has often resulted in famous betrayals and epic disappointment. The advent of blockchain gave us real and tangible security, creating an opportunity for a decentralized system not based on trust.

So, banks silently started research and development with blockchain tech while publicly appearing largely dismissive or dismissive of the space, until five years ago, when without much fanfare (and success), the experimental phase began…

Total Ban

The first, blatantly authoritarian front was ushered in by China, which as early as 2013 began tightening the noose around Bitcoin’s neck by preventing financial institutions from using it. Last summer, mining was banned as well, officially to ensure energy for companies struggling to keep up with the post covid demand boom, but the reality is quite different, as we will see below.

It is also difficult to understand how the overall percentage of mining, which went from 75% to zero in a matter of days, is back above 20%. We can assume a clever use of VPN, but this is also probably due to a kind of “mining privilege” that a certain Chinese elite can allow themselves. It has in fact been proved that much of the surviving Chinese contributions to pools come from IP addresses controlled by state-owned institutions.

Enthusiastic Adoption

San Salvador is the first (and the only) state to have declared Bitcoin legal tender. Perhaps less well known is the fact that this Central American state bought 2,381 bitcoins over the past year and is at a loss of about $40 million because of CryptoWinter. Mainly, for this reason, several analysts have called this crypto adoption a “failed experiment” but, despite the impending maturity of an $800 million installment for a total debt of $24 billion, the economy minister flaunts an Olympian calm.

Kazakhstan, too, after welcoming at least 100,000 Russians who were unwilling to be mobilized, is considering the adoption of certain cryptocurrencies as legal tender, in a sort of revised “San Salvador 2.0.”

Exasperated Regulation

Across industrialized countries, we continue to see immigrants sending remittances to their loved ones in line at Western Union branches, with fees ranging from $35 per transaction and up. We are talking about a market of nearly $1 trillion.

Instead of dealing with this situation, which is both disgraceful and an opportunity, the Federal Reserve and the European Central Bank appear to be more interested in profiling crypto asset holders and somehow trying to control and regulate usage.

For years we have been witnessing more or less sophisticated attempts to tax miners, ranging from the requirement of a license (such as in Iran) to an average income tax of 20 percent in the U.S. for coins acquired through mining, but it is easy to get through these broad meshes: unlicensed Iranian miners consume more than 2 gigawatts per day, while any US miner could safely underreport incomes without too much risk.

Centralization Attempts

The only bloodless attempt at ceding national sovereignty is the European Union, but it is plain for all to see that this is a long and difficult process, opposed by sovereigntist urges and obvious conflicts of interest. The crypto world is not so different: why would central banks cede their monetary sovereignty to a global blockchain? The emerging CBDCs (Central Bank Digital Currency) are indeed a (negative) answer to this question.

China, by preemptively banning other cryptocurrencies, immediately cleared the field of any misunderstandings. It’s obvious that the world is moving toward the creation of Centralized Digital Currencies that adopt the latest technological innovations while at the same time remaining in the hands of governments, while the existing Decentralized Digital Currencies will be progressively taxed more and more, eventually reverting to a niche asset.

The digital Yuan (which paradoxically is not blockchain-based) is already a reality and is considered a national threat by the U.S. Overseas will certainly respond with a digital Dollar that is already under consideration, while existing stable coins could be banned as “misleading.” Tailwinds remain the European Union, but we cannot expect streamlined decision-making from a 27-headed entity. In some ways, it’s for the best.

 Quadratic Democracy

“Democracy is the worst form of Government except for all those other forms that have been tried from time to time” — Winston Churchill

In addition to slowness, another major flaw of democracy is that it is often not engaging: citizens do not feel part of the community, and many tend to become disinterested in it, leaving decision-making power in the hands of the few.

Traditional democratic voting systems only ask us to share our preferred option. A step forward has been taken in San Francisco, where there is a preferential voting system that allows us to rank options from favorite to least favorite. But one key piece of information about how much we care about such issues is missing.

Quadratic voting, on the other hand, highlights exactly how much we care about certain topics: people are given a pool of credits to allocate. But each extra vote is quadratically more expensive. One vote costs one credit, two votes cost four credits, three votes cost nine credits, and so on. There is an incentive to have some influence on matters we mostly care about.

Some “early adoption” cases:

• The Taiwan government uses it to encourage public participation in budget matters
• In Colorado state, lawmakers decide on their legislative priorities for the coming years
• In Germany, the Volt party determines the most valued topics among its members
• In Gramado, Brazil, the quadratic vote permits reaching a consensus on tax amendments.

A Blocked and Chained Revolution

Thirteen years since the advent of cryptocurrencies, we are witnessing the first tentative attempts by world governments to incorporate blockchain.

During this “lapse,” the bright premises of a global crypto dream have nevertheless come up against a reality of Ponzi schemes, rug pulls, exploits, theft, and greed. Many people first heard of blockchain because of the hacker attacks due to Cryptolocker in the fall of 2013. In such a context, it’s obvious that an authoritarian country like China has decided to enslave this technology for the benefit of the few. On the other hand, San Salvador’s naïve approach also runs the risk of sinking its economy and doing great harm to its citizens.

Of course, if we were only to consider these two countries, we might think that blockchain leads to a compression of freedoms or starvation, but it doesn’t…

As we hear so much about nuclear power these days, the gift of Satoshi has to be used judiciously. While nuclear power could be considered centralized, the now widespread and decentralized diffusion of Blockchain makes it a mighty democratic tool too big to be caged. We all have a say: as long as we stay connected, we will be the real governance, in spite of those who govern us.