The Breakdown - Why Progressives Should Embrace Crypto

Episode Date: November 4, 2024

A reading and discussion inspired by https://time.com/7111315/kamala-harris-crypto-laura-shin-essay/ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Sunday, November 3rd, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link at the show notes or go to bit.ly slash breakdown pod. All right, friends, today we are doing our last LRS before the election, and so of course it has to be election themed. And for our selection, I picked the essay by Laura Shin in Time magazine called

Kamala Harris Shouldn't Just Embrace Crypto. She must help it flourish. Now, writing this piece in a moment where Democrats are clearly unfavored by the crypto industry, for understandable reasons, is, I think a pretty brave thing from Laura. In announcing this post, she tweeted, Hey everyone, today I published an opinion piece in time in which I reveal my political stance. This isn't something I would normally do since my personal political opinions aren't relevant for my work. I've had people from both major political parties on my show, and I don't think one's political leanings really have much to do with the technological innovation that is constantly occurring

and will for the rest of our lives. I've said before and we'll say again, crypto is nonpartisan the way the internet is nonpartisan. It doesn't make sense to be for or against it. It's there and it will only grow and become more and more integrated in our lives like the internet has these last few decades. I'm publishing this opinion piece as an American who cares about my country and who is worried that anti-crypto sentiment could lead it to become a technological or financial backwater. I'm publishing it as an American who doesn't want to see China, which perpetrates human rights abuses every day, has the largest censorship regime on the planet, and which I believe would like to use blockchain technology to chip away at the U.S.'s

superpower status, get a leg up on our country in any way. Still, it seems worth addressing here the facts that I am a Democrat and want Kamala Harris to win. I can understand if that is surprising or disappointing to my crypto audience because of how the Biden administration, Elizabeth Warren, and Gary Gensler have inexplicably politicized crypto and tried to punish well-intentioned crypto entrepreneurs and entrepreneurs and not just the scammers and fraudsters in the space. For those reasons, I can understand if you choose to vote for Trump. I respect your right to vote. In fact, I think the fact that we all get to decide who we like to vote for is one of the things that makes this country so great. For the same reason, I hope you can respect my right to

choose who I'd like to see as president. So let's turn it over to A.I. NLW to read, quote, unquote, this piece from Laura, and then we'll come back and discuss. it. Kamala Harris. Shouldn't just embrace crypto, she must help it flourish. As a journalist, I try not to reveal personal opinions. But I'm breaking that rule today because as an American, there's something I, a progressive Democrat and a journalist who has covered crypto for more than nine years, have to speak up about. The Democrats, and more specifically, its progressive wing, are making a mistake being anti-crypto. Their opposition is threatening to not only turn the U.S. into a technological backwater, but also to imperil our country's status as the world's only

superpower. Being hostile to crypto could chip away at the U.S. dollar's dominance as the world's major global reserve asset. Plus, progressive opposition isn't even logical since crypto broadly aligns with progressive ideals. Most urgently, their stance could cost Vice President and Democratic nominee Kamala Harris the election and hand Donald Trump, who tried to overturn the 2020 election, the presidency. Throughout her presidential run, Harris has made minimal statements on crypto. At a Wall Street fundraiser on Sep 22, she said, we will encourage innovative technologies like AI and digital assets while protecting our consumers and investors. At the Economic Club of Pittsburgh on Sep 24, she said, I will recommit the nation to global

leadership in the sectors that will define the next century. We will remain dominant in AI and quantum computing, blockchain, and other emerging technologies. She also pledged to create a regulatory framework for crypto as part of her economic plan for black men, since 20% of black Americans own digital assets. While it's promising that her few utterances on crypto were vaguely positive, she, as well as the Democratic Party, should go further. Harris's campaign, and hopefully her administration, should embrace crypto and help it flourish, so we don't lose our decades-long edge in tech, and the U.S. dollar retains its reserve currency status. Over the last few years, I've watched with dismay as my party has attacked the technology that could help usher in the change it

wishes to see. For an election that will be decided by inches and in which, according to Pew research, 17% of U.S. adults have ever owned crypto, Democrats have let Trump come in and claim the issue as his own. But crypto is not inherently partisan. Being against it is like being against the internet. Just as the internet or a knife or a dollar bill can be used for good or bad, crypto is also a neutral technology. I expect crypto will follow a similar trajectory to the internet. This small fringe phenomenon will over the next couple decades become embedded in of our lives alongside the dollar and other financial assets. The way that email and text messages are more central to our existence than snail mail. In fact, Democratic antipathy has turned many lifelong Democrats

who work in crypto into Trump supporters, since the Biden administration has put their livelihoods at risk and treated these entrepreneurs as criminals. Watching this saga gives me blockbuster Netflix deja vu. Democratic leadership fails to understand that crypto has the potential to usher in a progressive era through the technology itself. A blockchain at its core is a collectively maintained ledger of every transaction involving its coin. Imagine if you lived in a village whose financial system consisted of every villager gathering in the town square every day at noon and calling out their transactions since the day before. For each expense such as, I paid the baker $10. Every villager would log it in their own ledger. No single person or entity like a bank would be in charge of keeping what would

be considered the authoritative record. Instead, we would agree the only correct ledger did not exist physically, but would be the one represented by the majority of the ledgers. This is like Bitcoin, except swap the villagers for computers around the globe running the Bitcoin software, managed by anyone contributing to this transparent community-run financial system. Of course, people should be paid to keep these ledgers, but instead of hiring employees, Bitcoin's software mince new coins every time a new block of transactions is added to the ledger. In Bitcoin, this happens on average, every 10 minutes, unlike the village's daily cadence. The people maintaining the ledgers are incentivized by the opportunity to win those new Bitcoins, which

which is how they get paid. What a marvel. In the last 16 years, through this combination of cryptography, decentralization, and incentives, Bitcoin went from obscurity to surpassing a $1 trillion market cap, which only Apple, Amazon, Nvidia, Meta, Alphabet, Microsoft, and Berkshire Hathaway have done, except those entities did so with a board, C-suite, and employees. Meanwhile, Bitcoin, a grassroots phenomenon, attracted workers via incentives. This is the core of crypto's decentralization concept, one that could take on big banks and big tech. More services beyond an electronic peer-to-peer cash system, as Bitcoin creator Satoshi Nakamoto described it, can be offered on the internet in a decentralized way, with a cryptographic token and well-designed

incentives. Though this is the ideal, crypto has seen numerous scams and frauds, for example, FTX, one coin, and numerous pig-butchering schemes in which the tricksters ensnare their victims in emotional relationships and dupe them into handing over money. But as U.S. Attorney Damien Williams, whose office-prosecuted FtX co-founder Sam Bankman-Fried said, while the cryptocurrency industry might be new and the players like Sam Bankman-Fried might be new, this kind of corruption is as old as time. Similarly to how no one advised investors to avoid stocks after Bernie Madoff's Ponzi scheme, the usage of crypto to perpetrate scams and frauds doesn't mean everyone should shun crypto.

Unfortunately, the U.S. has regulated the industry so poorly that crypto entrepreneurs have left the U.S. and cut Americans off from their projects. For example, polymarket, a prediction market, is off limits to America. Americans and U.S. residents. The way that there's the Internet and then China's own censored version, now the world has a burgeoning crypto economy, while the U.S. has a censored crypto landscape. Frequently, crypto projects will list blocked countries and name the U.S. alongside the likes of North Korea, Cuba, Iran, China, and Russia. Not the typical company the U.S. keeps. Already the U.S. is becoming a technological backwater. Furthermore, the way the SEC under

President Joe Biden's appointed chair Gary Gensler has regulated crypto has been egregiously unfair. 2021 after his appointment, Gensler wrote a letter to send Elizabeth Warren saying the SEC did not have the authority to regulate crypto. Although such power was never granted, the SEC began applying decades-old regulations to crypto by targeting entrepreneurs with enforcement actions or punishments for infractions of rules designed for a very different type of financial system. I'm not talking about cases of fraud such as FTX, which regulators should rightly pursue, but incidents such as when the SEC sued Coinbase, which is aimed to be compliant from its earliest days, for not registering as a securities exchange. The dirty secret is that while Gensler often says crypto companies should come in and register, the SEC has not made that possible. This episode of The Breakdown is brought to you by XAT Network.

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When the agency blocked crypto-companies applications to offer Bitcoin exchange-traded funds for so long that a then-potential issuer sued the SEC, a panel of three judges, two appointed by Democratic presidents, unanimously sided with the plaintiff, calling the SEC's reasoning for not approving the ETF's arbitrary and capricious. In March 2024, in a case against the Crypto Project debt box, Judge Robert Shelby in Utah excoriated the SEC for what he called a gross abuse of power in a judgment that noted multiple instances of SEC lawyers lying to the court. Judge Shelby levied a $1.8 million fine against the agency, which closed its Salt Lake City office. Its poor win-loss record on crypto cases shows how the

SEC and Chair Gensler gave Donald Trump a layup to take Democratic votes. At a speech Trump gave at the July Bitcoin 2024 conference, he promised the crypto community common sense things a reasonable regulator already would have done. Which pledge got a standing ovation, that on day one, he would fire Gensler. Some Democrats have clued in that their approach to the industry may cost them this election. Both Senate Majority Leader Chuck Schumer and Speaker Emerita Nancy Pelosi, along with dozens of other Democrats in the House and Senate, broke party lines to vote for pro-crypto bills. But it may be too little too late. Members of the crypto community now regularly criticize the SEC, the Biden administration, Vice President Harris, Senator Warren, and Gensler,

advocating for a Trump presidency. Most importantly, being anti-crypto has geopolitical implications. If Harris wins without signaling a complete about face from the Biden administration's anti-crypto approach, China could use this technology to gain more power over developing regions like Africa, which would further erode the dominance of the U.S. dollar. China already has launched a digital yuan and created hundreds of blockchain-based initiatives. One could see them, say, requiring African business partners, especially as part of its Belt and Road initiative, to transact in the digital yuan, which would mean these businesses and countries could begin holding the digital yuan like a reserve currency. While the yuan accounts for only 4.69% of global

reserves, it is growing quickly. It is increased by more than a full percentage point in the last year. If it continues to gain a toehold, it will be a total own goal by the U.S. because crypto has, so far, actually reinforced the primacy of the U.S. dollar abroad. According to the European Central Bank, 99% of so-called stablecoins, whose value is pegged to that of another asset, are tied to the worth of the U.S. dollar. These crypto dollars, $170 billion worth in circulation, are now gaining adoption in countries that have a weak currency or poor financial systems. Citizens of, say, Argentina or Afghanistan grasp the promise of crypto more easily than Americans

who enjoy a stable currency and safe and robust financial systems. Roya Mahbub, the Afghan entrepreneur whose girls' robotics team made news in 2017, told me that Bitcoin was the solution in 2013 when her blogging platform face challenges paying its women bloggers who didn't have bank accounts or whose payments would get confiscated by male relatives. Argentine entrepreneur Wences Casares has shared with me that a non-governmental money outside the control of the banks would have helped his family, who lost their life savings multiple times during periods of Argentina's hyperinflation.

Surely the notion of a financial instrument and technology benefiting underserved populations resonates with progressive and liberal values. Liberals are often concerned about crypto's environmental impact. This is an issue primarily with Bitcoin, the main crypto-assad. asset whose security model is proof of work, which requires the burning of electricity. In September 2022, Ethereum, the second most popular coin, switched from POW to a new method called proof of stake, which cut its electricity consumption by over 99%. This or similar methods are used by most new tokens launched nowadays. Bitcoin miners can help renewable energy facilities,

whose output is intermittent, resulting in inconsistent revenues, by evening out their revenue by purchasing excess energy at times when, say, wind is plentiful, but demand is low, and by shutting off facilities when usage is high. Secondly, renewable energy facilities can run miners themselves to earn Bitcoin when energy is plentiful, but demand is low. When I started covering this technology almost a decade ago, there was optimism and open-mindedness about what it could do. While in 2022, the industry saw many collapses like FTX, of centralized entities not the ideal of what crypto can enable, U.S. agencies had been politicizing it long before then. A truly neutral regulator or Congress would have already created clear rules that would give American

crypto entrepreneurs peace of mind that they wouldn't be punished using decades-old laws whose application to crypto is unclear. Such directives would also make it easier for the public to separate legitimate entrepreneurial activity from scams and frauds. A head-in-the-sand-sand-a approach from our leaders only gives countries like China an opportunity to encroach on the U.S. power. As our nation and American companies like Apple, Google, Facebook, Amazon, and Netflix did with the Internet, let's be leaders in this new frontier of innovation. If liberals, progressives, and Democrats take a fresh look at crypto without preconceived judgments, they will see much that aligns with their ideals.

I urge Vice President Harris to reject the politicization of this world-changing technology and instead embrace it to help propel her to victory. All right, back to the real non-AI NLW here. So one of the things that's pretty clear after you read that is that this is not really an op-ed arguing for a vote for Kamala because of crypto. Instead, it is effectively an open letter to Kamala about crypto. And that, I think it's actually chosen to make a much more important statement. It would be one thing if it was just an argument about who to vote for, but God knows there are

plenty of those right now. Instead, what it is is a template for Democrats and progressives who are at some point in the future going to be thinking about crypto one way or another. They're either going to be thinking about what they should do with crypto if Kamala has won, or they're going to be thinking about, as they will with all issues, to what extent the Dem and Progressive approach to crypto impacted her if she doesn't. This essay does work helping advance an intellectual framework for rejecting the recent previous Democrat and progressive approach to crypto. It picks up many of the same themes as the progressives case for Bitcoin, and I think could be foundational in that way. One way or another, this election is coming

to an end this week. And what's clear is that crypto has absolutely and undeniably forced itself onto the agenda as a major issue. No matter who wins on Tuesday, the next work for this industry is going to be making sure they actually put into practice the changes around crypto that we need. I don't know about you guys, but I am ready for that phase and looking forward to it starting. That's going to do it for today's breakdown. Appreciate you listening, as always. And until next time, be safe and take care of each other. Peace.