Bitcoin and Washington's War For Power
By Moon Hodler
Few men throughout history have known what George Orwell knew in the 1940’s. “We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship” (Orwell pt. 3, ch. 3). Today, the United States Government has the most power when it comes to control of the global economy. The US Government along with the Federal Reserve wield unprecedented power when it comes to setting the financial policies that govern the world for much of the last century. Rarely has such power been willingly abdicated, and it is unlikely that the Fed will relinquish their power willingly, if ever.
Washington’s war for global dominance is ongoing, but the war over Bitcoin is just beginning. Evidence of this can be found inside the pages of the November/December issue of Foreign Affairs. Written by Justin Muzinich, “America’s Crypto Conundrum” outlines the problems facing the United States from cryptocurrencies, before going on to discuss stable-coins such as the USDC and Meta’s (formerly Facebook) Diem, as well as Central Bank Digital Currencies (CBDCs) such as China’s digital Yuan. Yet, Bitcoin is a major focus of the article, mentioned 18 times. In contrast, Ether and Monero are each mentioned once. Bitcoin, it seems, stands out among the crowd of cryptocurrencies, and Washington knows this. But what exactly are the problems facing Washington, and what can it do about it?
Cryptocurrencies, the author states “...can undermine some essential government functions valued on both sides of the aisle-- and therein lies the risk that a limited public policy framework should address” (Muzinich 133). In a country and capitol that is as divided as America and Washington, there is support on both sides of the aisle for US government oversight and control of the monetary policy of not only the United States, but the world, which makes Bitcoin a partisan issue at its core. The Bitcoin protocol can expect continued opposition from both sides of the aisle. The author states:
the Biden administration should establish guardrails in the areas
where these currencies pose the greatest collateral risk-- namely,
in the government’s ability to set monetary policy, ensure financial
stability, and fight illicit finance. At the same time, the United States
should lay the groundwork to launch a digital dollar or bless a private
sector solution that ensures the dollar’s preeminent role in international
Bitcoin is a direct threat to the US Government’s ability to control monetary policy with their best interests in mind. As opposed to every other digital currency, Bitcoin has no master. There is no CEO, board of directors, hedge fund, or group of venture capitalists who can influence the Bitcoin protocol without widespread majority user support. The Bitcoin protocol was launched on January 3, 2009 by someone whose identity has never been revealed, and at this point will likely never be revealed. For example, to alter the Bitcoin protocol in a way that would allow an increase or decrease in supply, would require the voluntary consent of a majority of the users (node operators) of the system. This consensus is infinitely more difficult to achieve than with a centralized authority such as the Federal Reserve making decisions which set monetary policy.
Despite being taught at universities across the globe, the promotion of the centralized government control of monetary policy (Keynesian economics) has failed time and again to produce any result that can be described as successful. Modern Monetary Theory has yet to fix the problem. Such policies have only allowed those in power to fix the system in their favor. Adopting Bitcoin as legal tender would limit the government’s ability to control and exploit monetary policy. One option surely being discussed in Washington launching “digital extensions of regular currencies” called Central Bank Digital Currencies (CBDCs) (131). CBDCs are ideal for authoritarian governments because it expands their control over the entire economy. Widespread adoption of CBDCs would solidify the union between politics and monetary policy, which is a union that no lover of Liberty should embrace.
In the mind of the US Government, without the ability to control monetary policy, it will be unable to ensure financial stability. Upon serious reflection, how much financial stability has the government recently provided? The Federal Reserve is in the convenient position where it can always claim that the outcome of a recession or depression would have been definitely worse had it not intervened, regardless of what the outcome is. The last recession in America not met with government intervention was in 1920, and lasted about one year. This contrasts starkly with the recession of 1929, during which the government intervened, and which evolved into the Great Depression.
Some of the perceived weaknesses of Bitcoin are laid out in the article as well. As Bitcoin is only 13 years old, and has no central authority to define it, the government struggles to classify it, and by extension assign its oversight to the appropriate agencies. At the moment, Bitcoin is taxed like the share of a company being traded is taxed. Capital gains are paid on any increase in value between the purchase and sale of Bitcoin. This can cause complications for those using Bitcoin for everyday purchases, who also want to accurately report their taxes to the IRS. Another perceived weakness is Bitcoin’s price volatility. Over the past 9 months alone, Bitcoin has swung from a high of $65,000, to a low of $29,000, back to $69,000, and is currently valued around $47,000 per Bitcoin. This volatility will decrease over time as more people around the globe leave the corrupt fiat money system and opt into an economy based on a Bitcoin standard.
Cheaper transaction fees are cited as an advantage, but one that will disappear as government oversight increases the costs of supervising these transactions. The writer does not mention second layer solutions such as the Lightning Network, which offers instant, near-free settlement on transactions that are backed by Bitcoin and settled on the block-chain at a later time. More companies online and in person are accepting Bitcoin via the Lightning Network for items as inexpensive as a cup of coffee or a pack of gum.
The financing of terrorism and other “illicit” activities is and should be a major concern of every government. If not to protect We The People, what is the function of government? There is mounting evidence that shows Bitcoin is used less than fiat currencies for terrorism and other crime. According to a report published by SWIFT, the leading global financial messaging service for cross-border payments, "Identified cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods" (Follow The Money, 20). In time, studies will continue to show Bitcoin is used less for illicit finance. However, this concern is as old as Bitcoin itself, and is for the most part continuing to exist as a stereotype among the uninformed. Bitcoin’s immutable ledger permanently records every transaction which authorities or anyone else can access and analyze at any time. Connecting an anonymous Bitcoin wallet address to a person’s real identity is not as hard as the media will make it out to be. The word terrorism has been weaponized, and can destroy industries if they are labeled as supporting, facilitating, or funding terrorism. Despite a history of criminal abuses involving Bitcoin, it's technology, culture, and understanding has moved past the earliest stages of adoption, and widespread abuse is not considered any more a threat than it is with fiat currency.
The government does not have many options. According to the author, in order to address its concerns while also embracing new technologies such as digital currencies, the US Government must either create a digital dollar or adopt a “properly regulated private-sector alternative” (141). A few people with power in Washington realize that Bitcoin is the answer, but the threat of the digital dollar to all citizens is real. With a primary goal of maintaining monetary supremacy at home and abroad while convincing the public that monetary control from the government is absolutely necessary for economic and social stability, Washington must act. The Global War on Terror has ended, and it is not hard to imagine that the next war, a digital war on the financing of terrorism, can begin and will be used to increase government control of the financial system. This course most definitely includes a government-sponsored US Digital Dollar. Many resources will be devoted to its development, deployment, and maintenance. Once in place, the government’s ability to analyze your transaction history, or reach into your bank account to add or subtract funds, will be unquestioned. It makes one think, George Orwell would have stored his wealth in Bitcoin.
"Follow The Money" Bae Systems. p. 20, sec. 3.4.5, 2020. www.swift.com/sites/ default/files/files/swift_baereport_Follow-The%20Money.pdf. 05 January 2022.
Muzinich, Justin. “America’s Crypto Conundrum”. Foreign Affairs, Nov./Dec. 2021, pp. 129-141.
Orwell, George. "1984". www.george-orwell.org. c. 2003. www.george-orwell.org/1984/19.html. 04 January 2022.
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