What Do Governments Want from Bitcoin?
Several large regimes have hinted they'll be looking more favorably on bitcoin, leading to record prices for the digital currency.
Everett Numbers reports at The Anti-Media:
The price of bitcoin just surpassed $1,800, its second all-time high this week. As governments worldwide eye the blockchain technology and ready new cryptocurrency rules, there is no sign bitcoin’s astronomical rise in value, up 81 percent this year, is over
According to Coindesk’s Bitcoin Price Index, the average price of bitcoin hit $1,839.23 on Thursday after starting the day’s trade session at $1,732.13. That jump of more than $100 follows the historical achievement Tuesday of bitcoin breaking $1,700 for the first time.
What’s driving this mega surge? Recent comments and developments from officials in the US, Japan, and Russia, according to CNBC.
Though the price of the digital currency had already been steadily mounting, Federal Reserve Bank of Minneapolis President Neel Kashkari spoke favorably of the blockchain technology Tuesday before the record price increase of bitcoin.
“I think sentiment has shifted in the markets, in the Fed,” Kashkari told attendees of a technology conference in Minneapolis, Minnesota, according to Reuters. “I would say I think conventional wisdom now is that blockchain and the underlying technology is probably more interesting and has more potential than maybe bitcoin does by itself.”
The blockchain is a digital, public ledger on which bitcoin transactions are recorded. Some proponents of the technology say its implications go beyond disrupting government currencies, threatening the status quo in global finance altogether as well as insurance markets and even governments themselves.
Last week, Russia announced that bitcoin would be legal by 2019, Cointelegraph reported. And in March, Japan legalized bitcoin for payments, which led to more purchases of the cryptocurrency with yen.
Back in the US, the infamous Winklevoss twins, Cameron and Tyler, are waiting to hear back from the U.S. Securities and Exchange Commission as it reviews its original decision to reject a proposal for an exchange-traded fund, or ETF, that facilitates the entry of large institutional investors into the bitcoin market, CNBC reported.
This week isn’t over yet, and already since Monday the market capitalization of bitcoin has surged more than $3 billion to $29.53 billion, CNBC reported.
Meanwhile, in the bitcoin community, there is controversy pending over how changes could be made to the blockchain technology, which has been slowing amid a backlog issue. Some people are calling for a “hard fork,” in which two separate bitcoin currencies would operate, though no concrete solution has been proposed yet.
So how are state regimes positioning themselves in relation to bitcoin and blockchain technologies?
One strategy is to create state-controlled digital currencies. As Xiong Yue noted last year at mises.org:
On January 20, 2016, People’s Bank of China (PBoC) released an announcement on its website about its digital currency conference. At the conference, the PBoC urged its digital currency team to speed up effort and release its own digital currency quickly. Similarly, Bank of England, Bank of Canada, and some other central banks also expressed similar intentions to or claimed that they had considered issuing their own digital currencies. Since its creation, Bitcoin and other digital currencies have inspired the issuance of many private-issued and denationalized digital currencies. Now, it looks like that the central bank-issued digital currency is also becoming a global trend.
"Replacing the genuine by releasing a copycat," Yue writes, "this is certainly not the first time that a government has done such a thing." For many regimes, the best case scenario here is to take regulatory control of cryptocurrencies while using the perceived convenience and strength of cryptocurrencies to help the regimes abolish physical cash once and for all.
So, in some ways, states are becoming more open to cryptocurrencies like bitcoin, possibly on an experimental basis, and as an opening phase of attempts to expand regulation. After all, as this article as WIRED shows, the pro-regulation side is already calling for regulators to seek better "understanding" of cryptocurrencies in order to take control of them. "Obviously," the author writes, "this disruptive technology requires some kind of regulation."
At the same time, as Neel Kashkari noted above, "blockchain and the underlying technology is probably more interesting and has more potential than maybe bitcoin does by itself.”
The implications are indeed large as Patrick Byrne noted at the Mises Institute in 2015:
The key to overcoming the problems in these central institutions [i.e., in state institutions] is the block chain. Because, with the block chain, for the first time, we no longer need these central institutions for settlement, or for guaranteeing the value of coins, or for land titling. All of these functions can be replaced by a transparent public ledger that is safe from tampering, and which can make value and ownership clear and open for everyone. This is information that is decentralized, and is not controlled by any central organization. We don’t need central institutions to control or protect this information anymore. Using the block chain, we can disrupt all these systems — and much more, too — and the institutions behind them. In turn, this spreads decision-making and the use of knowledge to a much larger number of people and institutions. The advantages of decentralization that are already being employed in private companies can then be felt society-wide.
But, just because you no longer need state institutions doesn't mean you won't get them.
If Neel Kashkari is thinking about the blockchain, we can all be fairly sure that it's not for purposes of maximizing freedom.
We've already seen that central banks are attempting to co-opt digital currencies. the fact that the Japanese and Russian regimes have voiced some support for the use of bitcoin is hardly a surrender on their part, but likely a part of the regimes' efforts to figure out how they will take control of a new technology. After all, neither of these regimes are particularly notable for thier laissez-faire leanings.
But can the regimes succeed, or will the technology pass them by?
Many boosters for bitcoin and the blockchain often seem to assume that the bright minds behind these technologies will never help the state undermine them. History usually tells us exactly the opposite.
As Robert Higgs explained:
Many of my friends think of the state as stupid, and therefore an easy foe for determined dissidents to defeat. I have a different view.
For one thing, the state has always had ready resort to those with cutting-edge expertise in the private sector, from the days when it hired Eli Whitney to manufacture muskets with interchangeable parts to our own time, when it hires Oracle, Microsoft, and a host of other high-tech companies to help it spy on us. History has shown that no task is so revolting and criminal that the state cannot attract private contractors to carry it out.
It's helpful to remember the state has relatively limitless funds, weapons, and prisons with which to "entice" the world's best and the brightest to give states a helping hand.