The Breakdown - The Importance of Politically Neutral Money

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, near NFTX, and produced and distributed by CoinDesk. What's been on, guys? It is Sunday, May 8th, and that means it's time for Long Reads Sunday. Before we get into that, if you are enjoying the breakdown, please go subscribe to it, give us a rating, give it a review, If you want to get deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also, as always, in addition to them being a sponsor of the show, I also work with FTX.

Starting point is 00:00:51 So today we are getting back to the payment side of cryptocurrencies, with two opinion pieces from Coin desk from the past couple weeks that relate to the importance of politically neutral payment systems. The first is from J.P. Coning and is called Why We Need Crypto Payments to Work. Crypto has always held out the promise of a payments revolution, but that revolution never happened. We're 13 years into the Bitcoin age, and there's only one store in my neighborhood in downtown Montreal that advertises that it accepts Bitcoin. I was passing by that store the other day and noticed that a vandal had crossed out the bright orange bee written on the storefront, adding a non in protest. Why? The vandal didn't provide us with more information.

Starting point is 00:01:33 But if I had to guess, it probably had to do with their opinions on the environmental implications of Bitcoin's security method, proof of work. Proof of work requires huge amounts of electricity, and in an age of global warming, there's no place for such an awesome display of energy consumption. This small example is illustrative of the crypto payments challenge. It's tough enough for crypto to gain acceptance as a payments network. The medium's inherent volatility and novelty are huge hurdles. Add to that concerns about crypto's effect on the environment and getting the payments

Starting point is 00:01:59 ball rolling becomes even more of a challenge. But even normies who don't care about crypto should want it to succeed as a payments medium. Cash is rapidly disappearing as a payments medium. The big winners are the Visa and MasterCard oligopolis. Every time someone deserts cash, the card networks get a little more powerful. As consumers, we don't often notice the few cents that the card networks extract from us when we pay with our debit or credit cards, but it leads to fantastic profits for them. Visa and MasterCard's returns on equity, 40% and 120% respectively, give tech.

Starting point is 00:02:31 estimate to their wide oligopolistic moats. The average company's return is a meager 10 to 15%. There are a number of solutions to oligopolis, one of them being competition. If there are more payment networks fighting for market share, we consumers and the retailers we frequent can at least choose the cheapest one. And that's why it would be nice if crypto worked for payments. Alas, crypto usage has been mostly confined to relatively small confines of the speculative crypto economy, only leaking out once in a while to serve as a normy payments medium. These leaks may be slowly plugging up, too. Over the last year or so, activists have been trying to push the small advance that crypto has achieved in the payments realm into retreat. My neighborhood's store is just one

Starting point is 00:03:09 example. The storekeeper's internal dialogue must have gone after seeing their store window vandalized. Why bother accepting the odd Bitcoin payment when it attracts such negative attention? Last month, hundreds of longtime Wikipedia editors asked the Wikimedia Foundation to stop accepting cryptocurrency, the most popular reason put forth being its environmental sustainability. A few months before, Discord, a popular messaging platform, quashed rumors of a cryptocurrency integration after pushback from users concerned over energy use. The Wikipedia editors Viamen stands in contrast to the tiny amount of crypto that Wikimedia has collected. According to Wikimedia, just 0.08% of its donations have been in crypto, mostly Bitcoin.

Starting point is 00:03:46 The Wikimedia Foundation had little reason to say no to the activists. At 0.08%, crypto isn't proving to be very useful for accepting payments. Why bother pushing back? Had the activist campaign for Wikimedia to stop accepting Visa, for instance, it'd be a complete non-starter. Visa has an advantage over crypto. It's already big, likely accounting for a decisive percentage of Wikimedia donations. That you can't say no to Visa, but you can say no to crypto, illustrates the crypto payments dilemma. Retail payments networks are notoriously difficult to bootstrap. It's the classic chicken and egg problem. For an individual to adopt it,

Starting point is 00:04:20 a new payment option needs to be already useful, by being widely available and spendable at shops. But it can't be already useful if no one wants to try it in the first place. Making this paradox worse is that the card networks already have firm footholds. People have grown used to their plastic and the incumbents use dirty tricks to enforce lock-in, like card reward points and no surcharge policies. The nut is made even harder to break by crypto's incredible volatility. Risk-averse new users are reluctant to try it. But the crypto world has evolved a response to volatility.

Starting point is 00:04:49 Stable coins are a type of cryptocurrency that is pegged to traditional fiat money, which makes them less intimidating for people to use. And so where regular crypto comes short, stablecoins at least stand a fighting chance against the MasterCard and Visa oligopolis. Unfortunately, stablecoins are built on energy-intensive proof-of-work blockchains, which opens them up to the growing environmental critique. Given the already difficult chicken-eg payments problem being faced by stablecoin issuers, the last thing they need is for card users to come up with one more excuse not to give stable coins a try. Mozilla's recent reappraisal of its crypto-acceptance policy provides a good example of how I hope the debate evolves.

Starting point is 00:05:21 In January, Mozilla, the nonprofit organization that makes the Firefox web browser, decided to temporarily pause cryptocurrency donations to see how crypto fits with our climate goals. This month, Mozilla announced its new policy. Rather than closing the door on crypto, it came up with a more nuanced solution. Mozilla won't accept proof-of-work coins, but it'll accept proof-of-stake cryptocurrencies it sees as less energy-intensive. If Mozilla's more welcoming policy is emulated and one hopes it is, it offers stablecoin issuers a window.

Starting point is 00:05:49 But this window comes at a price. If stablecoins are ever going to compete in a meaningful way with the card networks, they need to disassociate themselves from proof of work. That may mean avoiding expansion of proof of work blockchains. At the worst, it means helplessly waiting while the proof of work chains on which they already exist, like Ethereum, switch over to less energy-intensive security methods. Removing as much ammunition as possible from critics will make the already difficult chicken and egg payments problem a little easier for stable coins to solve.

Starting point is 00:06:14 We need them to win, though. Visa and MasterCard aren't getting any less dominant. All right, back to NLW here. It should be clear if you are a regular breakdown listener that I do not share J.P.'s solution to this particular problem. Even from an environmental perspective, I don't think succumbing to reductive arguments and just switching to proof of stake is the right approach. I think there is a deep and rich conversation to be had about Bitcoin and proof of work and how they can be part of a sustainable energy mix and a sustainable energy policy. I'm unwilling to

Starting point is 00:06:47 concede that for the sake of the easiness of just trying to fit into a nice sound, bite type of box. This should also serve as a reminder that when it comes to long read Sunday, this reading of essays that I do every week, I don't necessarily choose the essays because I exactly agree with them. I choose them in the same way that I'd present tweets and threads that don't match my opinion from other people in the course of the regular show. What I'm trying to do here is present opinions that give you all tools to understand how different people, some more or less aligned with your own perspectives, are looking at all these issues. Part of why I wanted to share this particular piece, it's a great example of something where we might disagree vehemently about

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Starting point is 00:09:06 referral code breakdown to support the show. Let's move into an even more clear dramatization of the problem of politically neutral non-oligopoly monies and payment solutions. The second piece I'm going to read is by Daniel Kuhn and is called Matt Tybee, PayPal's D-platforming, and the case for crypto. veteran magazine journalist Matt Tybee just reported out the case for Bitcoin, perhaps without knowing it. On Tuesday, the Rolling Stone alumnus, known for as a Serbic prose and a writing style reminiscent of Hunter S. Thompson's, published a news story about how PayPal, the internet payments giant, replete with its own founding mafia, has selectively deplatformed alternative media sites. The story, PayPal's indie media wipeout, focuses on alt-publisher's consortium news and

Starting point is 00:09:52 Mint Press, which Tybee said have been consistently anti-war and critical, with the earned opinion from doing actual reporting of U.S. intelligence agencies. But Tybee is making a grander claim about censorship and how it has recently moved from just the inconsistent, poorly explained suppression or boosting of online content to something more perverse, financial strangulation. Tybee writes, going after cash is a big jump from simply deleting speech with a much bigger chilling effect. This is especially true in the alternative media world where money has long been notoriously tight, and the loss of a few thousand dollars here or there can have a major effect on a site, podcast, or paper. As readers of CoinDesk may already know, Tybee isn't tilting at windmills.

Starting point is 00:10:32 Authorities are increasingly willing, it seems, to quash dissent through financial machinations, like during the Canadian Truckers' protests where hundreds of mostly peaceful, if loud, protesters, lost access to bank accounts without due process. A similar sea change happened after Swift took the unprecedented move to cut Russia's central bank from its global financial messaging service. Taken together, the two stories show how any pariahs operating with the U.S. dollar-denominated economy could be choked off. The threat grows more severe in his mind now that the U.S. has its own, quote-unquote, Ministry of Truth, and as the government is increasingly willing to publicly say who or what is worth hearing. As Tybee said, deleting posts or censoring content is one thing,

Starting point is 00:11:09 threatening an organization's existence is another. He also quotes Mint Press founder and executive director NAR Adley correctly placing this, quote, current era of content moderation as beginning with PayPal's historic decision in 2010 to halt donations to WikiLeaks. Unsaid was how this moment in time led to a bifurcated path. There's the tightly managed, heavily surveilled ecosystem of established media and power brokers, and its underbelly, the world of crypto. Bitcoin founder Satoshi Nakamoto famously pleaded people to not fund WikiLeaks using his creation, thinking it would draw, quote, hornet's nest of suppression from the government to shut down Bitcoin before it really got going. Of course, Bitcoin was already then bigger than its founder, and people decided to fund WikiLeaks.

Starting point is 00:11:48 WikiLeaks anyway. Crypto today is still a primary source of funding for WikiLeaks, as it is for many offbeat operations like SciHub and Gab. This is crypto at its best, functioning non-state-aligned financial rails open for anyone's use. Alternatives? Writers like Tybee have been notably skeptical or silent about crypto, perhaps hoping that some alternative system will come along that offer similar solutions without crypto's libertarian baggage. And indeed, there has been notable growth in that regard. In the Reporter's Fear alone, there are figures like Cigar and Jetty and Crystal Ball, who fund a growing alternative mainstream media ecosystem, by which they mean they pay friends and politically aligned voices to do occasional reporting or commentary through subscriptions. Matt Tybee is another

Starting point is 00:12:28 example, who, after an ill-fated stint at The Intercept, was able to leave the pages of Rolling Stone magazine for Substack. Insofar as Ingetty, Ball, Tybee, and others still have to clear their paychecks and dollars, however, they still might find similar financial exclusion, or at least the threat of it. Subsdack has owners and investors, and though the email platform seems committed to allowing a diversity of writers to use its financial system, ultimately they only have their reputation to fall back on. The world waits for when it will finally be attractive enough to cash that in. There is a sense that all of this could blow up in the establishment's face, that in seeking to diminish or destroy critics, it could instead be directing them support

Starting point is 00:13:02 if viable alternatives exist. The stricent effect was in play recently with some $25,354 in donations flooding to consortium news after its PayPal was cut. That may be nearly halfway to consortium's $60,000 spring pledge drive, but something tells me it needs something a little more sustainable. Crypto comes with its own problems. It's environmental footprint, its weird political-economic cults, its never-ending series of Ponzi-like schemes, and I'd be thrilled if its use was kept to only the marginalized, only those who need it most, rather than onboarding the world. But it's not for me to say, who should or shouldn't use it for what today. That's its strength, and hopefully it will be there for anyone when they need it. Crypto needs your support today, if only in your mind,

Starting point is 00:13:41 and hopefully before you need to scramble to learn how to use a Bitcoin wallet. As I was reading Daniel's piece, I got my Epsilon Theory premium subscription letter from Ben Hunt, and it was a rerun of his piece, Bitcoin TM. It's from about a year ago, and in it he warned that Wall Street was just turning Bitcoin into another casino game and the true purpose, this outside-the-system purpose, was going to be lost. On the one hand, that's true. Bitcoin and crypto are being integrated into Wall Street more than ever.

Starting point is 00:14:08 You see this infidelity, giving people the chance to put Bitcoin in their retirement accounts. You see it in the correlation between Bitcoin and NASDAQ right now. But at the very same moment in time, it's being used by Ukrainians to flee a situation with a much bigger portion of their wealth than they would have been able to before. The truth is that Bitcoin is like the movie, everything, everywhere, all at once. It is not just to this and it is not just to that.

Starting point is 00:14:32 But it is worth remembering when we think about its true value, not its price, but its value, those moments in which it really is the only alternative. For now, I want to say thanks again to J.P. and Daniel for your great pieces, and thanks to my sponsors, nex0.io, NIR and FTX for supporting the show. And of course, a big thanks to everyone listening. Happy Mother's Day to all the mothers out there, and until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners, come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas.

Starting point is 00:15:14 the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems, Web3, and the Metaverse, and is designed for crypto newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few. Use code breakdown to get 15% off your pass at coindesk.com slash consensus 2022.

The Breakdown - The Importance of Politically Neutral Money

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