The Breakdown - The Progressive Case for Bitcoin

Episode Date: July 11, 2021

On this edition of “Long Reads Sunday,” NLW reads an excerpt from Sen. Elizabeth Warren’s questions to SEC Chairman Gensler about crypto and crypto exchanges. NLW then reads an essay responding to Warren’s recent discussions of the topic from Murtaza Hussain called “Elizabeth Warren’s Bitcoin Blind Spot.” -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is sponsored by NYDIG and produced and distributed by CoinDesk.com

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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, July 11th, and that means it's time for Long Reads Sunday. Today I'm doing something a little bit different. I'm first going to read an excerpt of a note sent by Elizabeth Warren, Senator from Massachusetts, to Gary Gensler. the chairman of the U.S. Securities and Exchange Commission, and I'm then going to read an essay from CoinDesk called Elizabeth Warren's Bitcoin Blindspot.

This has been a big picture week, and so we'll close it out strong with another big picture episode. This note from Elizabeth Warren sent to Gary Gensler has the intended purpose, I think, of figuring out what authority the SEC thinks it has versus what authority needs to be within Congress and the Senate. There is a lot of fluff and bluster in the main. parts of the letter that can leave no doubt as to how Elizabeth Warren feels about this. But the excerpt that I want to read are just her set of questions, because I believe that those are the most pertinent pieces when it comes to what happens next. To end her letter, she writes, as the cryptocurrency markets continue to grow and expand,

a lack of regulation to provide basic investor protections is unsustainable. The SEC regulates national securities exchanges, and cryptocurrency exchanges that operate in a similar manner should be subject to similar regulatory standards. To better understand the SEC's existing authority to protect consumers and investors who participate in cryptocurrency exchanges and the potential need for Congress to take additional action on these matters, I ask that you provide a response to the following questions by no later than July 28, 2021. 1. Do you believe that cryptocurrency exchanges are currently operating in a fair, orderly, and efficient manner? If not, what problems has the SEC identified that are associated with the use of these exchanges?

Two, how do the characteristics of assets traded on cryptocurrency exchanges differ from those of assets traded on traditional securities exchanges? Do these characteristics warrant additional investor and consumer protections for cryptocurrency exchanges relative to those provided for traditional exchanges? Three, describe the extent of the SEC's existing authority to regulate existing cryptocurrency exchanges. To what extent does that authority differ from the agency's authority over traditional securities exchanges? Four, foreign regulators have moved to restrict cryptocurrency exchanges in their jurisdictions in recent years while calling for international coordination to address regulatory gaps. One specific regulatory challenge may be a very question. One specific regulatory challenge

may arise from the unique organizational structure of some global exchanges. For example, Binance, one of the largest cryptocurrency exchanges in the world by trading volume, quote, is everywhere and yet based nowhere. The cryptocurrency exchange has processed trillions of dollars in trades this year as it transfers digital and conventional money around the world through a constellation of affiliates, and yet it has no headquarters. In your view, to what extent is international coordination needed to address gaps in the regulation of cryptocurrency exchanges and ensure the protection of investors and consumers in the United States. 5. In a recent address, CFTC Commissioner Dan M. Berkowitz stated, quote,

In a pure, peer-to-peer DeFi system, there is no intermediary to monitor markets for fraud and manipulation, prevent money laundering, safeguard deposited funds, ensure counterparty performance, or make customers whole when processes fail. A system without intermediaries is a Hobbesian marketplace with each person looking out for themselves. Caviat Emper, let the buyer beware. Berkovitz further argues that defy derivative instruments are likely illegal under the Commodities Exchange Act. A, do you agree with Commissioner Berkowitz? its assessment of defy platforms. B, did decentralized platforms raise similar investor and consumer protection concerns within the SEC's jurisdiction? If so, what challenges does the SEC face in

addressing these concerns? And C, do the characteristics of decentralized cryptocurrency exchanges warrant additional investor and consumer protections relative to those needed for centralized cryptocurrency exchanges? Thank you for your attention to this important matter, and I look forward to your response. The breakdown is sponsored by NIDIG, the institutional grade platform for Bitcoin. As long-time listeners know, NIDIG is a major force in the Bitcoin space, and they're now making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers to offer Bitcoin. That mainstream access is critical for all of us, and you can learn more about it at NIDIG.com slash NLW. That's N-D-I-D-G dot com forward slash NLW. Before I comment on that, and there's a lot to say, let's read Elizabeth Warren's Bitcoin

Blind Spot. It's by Mertaza Hussein, and its lead excerpt is, Progressives should step outside of their comfort zone and explore the possibilities offered by this new technology, says a progressive. After a pandemic year in which a craze for all things cryptocurrency spread over a housebound U.S. population, political battle lines are now being drawn over the issue. At a Senate hearing in June, Senator Elizabeth Warren fired what seemed to be an early warning shot on the issue on behalf of many progressive skeptical of the phenomenon. Bluntly describing crypto as a tool to, quote, scam investors, assist criminals, and worsen the climate crisis, Warren called for federal regulators to take steps to help, quote, drive out bogus digital private

money. It was a sentiment that likely resonated with supporters of the liberal senator, many of whom have already been beating the drum about a technology they view as a source of pure speculation and waste. On most issues, my political sympathies in the U.S. fall left of center. I'm in favor of treating quality health care and transit as a public good, urgent action to combat climate change, a fair system of taxation and peaceful cooperation with nations abroad. But I've realized that I'm a bit of an outlier when it comes to the subject of crypto. I don't hate it. To push it further than that, the more I learn about the technology, the more I can envision cryptocurrencies and blockchain being applied as tools to restrain corrupt institutions

and loosen the grip of an incumbent elite that constantly lies, fails, and abuses its power, and it never seems to face real accountability for its actions. Consider the role of Bitcoin, the first and most famous cryptocurrency, which today is somewhere near the level of global public adoption that the internet reached in the year 1997, when it had roughly 200 million users. Bitcoin was conceived as a form of permissionless money, recorded on a decentralized ledger known as a blockchain. Transactions on the blockchain ledger are immutable and transparent, and they can't be censored. The wealthiest users can't change the rules of the system in their favor, nor can they block the poorest users from having access to it.

The only technology anyone on earth needs to take part on equal terms in the network is a phone with internet access. The energy expenditure of Bitcoin, which Warren criticized in her Senate hearing for being frivolous, is designed to protect the ledger from malicious attack by raising the resource requirements for attacking it. Contrary to popular belief, the blockchain ledger is not a black box impervious to surveillance, but in a manner similar to encrypted messaging platforms, the system is designed in a way where targeted surveillance of individual users may be possible with enough effort, but mass surveillance of everyone is not. How attractive such a system sounds to you is likely to be a function of how repressive you believe that society can be and how satisfied you are

with the current global financial system. After more than a decade spent documenting the domestic and foreign impacts of the U.S. global war on terror, my own opinion is that our society has the capacity to be extremely repressive, and the financial system, as presently constructed, is frequently used as a weapon in the hands of unaccountable elites. The U.S. government for its part has used the dollar and its control of global financial infrastructure like Swift to wage economic warfare on entire countries to devastating effect. It has surveilled, blacklisted, and shut down legitimate businesses and aid organizations across the world that have had the misfortune of falling on the wrong side of Washington, D.C.'s political divides. For millions of innocent people whose lives have been

ruined by this global dragnet, as well as those living under undemocratic regimes subject to their own unaccountable domestic monetary regimes, there's often no question of justice, let alone compensation, when they find themselves blacklisted in the value of their labor frozen or confiscated. Bitcoin is not a silver bullet against such abuses, but it's not a silver bullet against such abuses, but it's certainly a start. The tech entrepreneur Naval Ravikant once referred to it as, quote, a tool for freeing humanity from oligarchs and tyrants, dressed up as a get-rich-quick scheme. A statement that speaks well to the feelings it arouses among both casual investors and ideological supporters. Bitcoin's existence also looks like it is going to be much more important in the years to

come, as global finance develops into something even more powerful and overbearing than it is today. Overlooked in Liz Warren's widely reported June 9th statement attacking Bitcoin were her accompanying remarks endorsing the creation of a digital version of the U.S. dollar. Warren was right to mention that there are potential merits to state-run digital currencies, including increased access to financial services for unbanked people and easier implementation of monetary policy. But a future world of such currencies, in which Bitcoin has been regulated out of existence by righteous progressives, would also be a world in which mass surveillance and social control is possible on a scale unprecedented in human history. A future U.S. Treasury Department wielding the digital dollar

would have the ability to monitor and block transactions of disfavored people and organizations at the push of a button, even confiscating or for spending their money if so desired. In China, a digital yuan with programmable capacities is already being promoted to use within and beyond the country's borders, without the slightest pretense that the Chinese Communist Party will respect quaint notions like human rights when it push comes to shove. It would not be an exaggeration to say that in such a future, a fully independent, online decent, centralized currency would be the only safe haven for individuals fleeing the threat of economic coercion by the two great superpowers of our time. For some, it already is. Bitcoin is neither perfect

nor above criticism. In my view, it's not impossible that it could even be replaced by another cryptocurrency with superior scaling, design, and function. But rather than offering constructive criticism of Bitcoin or possible alternatives for people threatened by the emerging state-backed digital currency order. The scorched earth response from progressives like Warren functions as a defense of it. The only reassurance they offer is a dubious bet on the permanent goodwill of government authorities, something that has been in short evidence in the past. For progressives, many of whom, including Warren, I believe to be motivated by a genuine desire to protect the innocent from harm and restrain the excesses of the state, it's worth keeping an open mind about new

technologies rather than trying to immediately regulate them into oblivion. Decentralized currency technologies like Bitcoin, cryptographically based forms of organization like Dow's, and the use of decentralized blockchain recordkeeping for property and identity documents could all play an important role in defending human rights at home and abroad. There's nothing stopping people with left-leaning politics from designing cryptocurrencies and tokens that reflect their own values and incentivize the type of behavior and cooperation they'd like to see in the world. Getting to that point will require discarding the technophobia that is in fashion today, as well as the rather ironic for self-identified progressives, nostalgic longing for social and political forms that existed in the 20th century.

Warren was right on one count, when she described cryptocurrency as a Wild West. Like the Old West, crypto at the moment has more than its share of outlaws and opportunists. But whoever finally tames this new frontier is going to find themselves wielding great power in the decades to come. For progressives willing to step outside their comfort zone and explore the possibilities offered by this new technology, that's something worth considering. All right, back to NLW here, and I think I'm not going to add that much today. I think this is a phenomenal response to Elizabeth Warren's note and her general stance and position

over the last month from someone who self-identifies as a progressive. I think for me, the thing that I think about all the time in which came up in the show a couple of days ago is this weird division where we sometimes get trapped in, are we debating the outcomes that we'd like to see or the mechanism to see those outcomes happen? It's very clear to me that progressives like Warren share certain desired outcomes in terms of freeing people from the yoke of big corporate influence when it comes to money, creating more grounds up participation for people in the economic systems that shape their lives. These are the things that Bitcoiners talk about all the time.

But we have, as I said before, very different theories of change. And my break with progressive politics, specifically, tends to be around an inability to appreciate methods of change that don't involve increasing the power of the government. My interest in power systems isn't about an abacus scale and moving a bunch of knots from the business side to the government side. It's about smashing that device entirely and reimagining it from the ground up. And that doesn't mean there isn't a place for politics, to be clear. But I wish that our conversations about Bitcoin, about crypto, about most issues, frankly, could separate themselves enough from the mechanism of change, from the theories of change we have.

To start by asking the question, is there a shared outcome we desire? and what might we do to get there? For now, guys, I hope you're having a great weekend. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace.