News

Cash rethought: who’re the true monsters?

For this special Halloween edition, CoinDesk Editor-in-Chief Marc Hochstein speaks to a guest column about the creepier aspects of the banking system.

It is a perfect continuation of last week's newsletter on the harmful legacy of the US bank secrecy law.

Before getting into that, let me remind you to read this week's Money Reimagined podcast.

On this episode, Sheila Warren and I interview the newly-re-elected Prime Minister of Bermuda, David Burt, who is leading projects to use the island as a stablecoin testing ground and set up a national, community-owned digital bank.

Ghouls, goblins and shibboleths

With Halloween and the 12th anniversary of the Bitcoin White Paper, it's an apt moment to look at a classic horror trope through a money lens.

"Who are the real monsters?"

From Mary Shelley's "Frankenstein" to George Romero's "Night of the Living Dead" to Jordan Peele's "We" some of the scariest stories suggest that "normal" people are more vicious than the nominal bogeymen. This is a useful way to ponder the supposedly obnoxious properties of cryptocurrency compared to the established institutions it is questioning – and the supposedly safer visions they are now creating.

Since CoinDesk is a family publication, I will not go into the details of these bloody fictional works. Also, because there is also a farce element here, I have an even better seasonally appropriate metaphor: "The Munsters".

For the 99% of readers too young to remember, this was a 1960s sitcom about an eccentric family who lived in a cobweb mansion and resembled iconic movie monsters. The patriarch, Herman Munster, is a dead alarm clock for Frankenstein's monster, his wife and father-in-law are vampires, his son a werewolf. They are a friendly bunch, but they never quite understand why the neighbors are acting so strange around them.

The main character for this discussion is Marilyn, Herman's teenage niece. She's not a monster at all. She is the archetypal girl next door. The running gag is that the other Munsters pity Marilyn for the way she looks, and even she kind of blames herself for friends running away screaming when they meet their relatives.

Just like Marilyn Munster, the Bitcoin network is a healthy runaway among the scary creatures of the old financial system.

The censorship monster

The cryotocurrency's main value proposition, resistance to censorship, is not a radical departure from tradition as is sometimes implied. On the contrary, money has been like that since the days of the cowrie shells. All Bitcoin did was restore it for transactions over the internet.

You go to a butcher's shop, you give the man behind the counter a few banknotes, he'll give you a steak. No third party who thinks you should eat soy instead can veto the transaction. That is normal.

(CBS television / Wikipedia)

What is abnormal is Busybody A, which pressures intermediary B to prevent people C and D from doing legitimate transactions. Even more abnormal is moving into a world where every last C and D has no choice but to rely on a B and is therefore at the mercy of the Ace.

None of this means that intermediaries or should go away. You can add value. The problem is having no choice but to use one, making them choke points that can be exploited by scolders and bullies.

Obsessed, like Linda Blair in The Exorcist, you could say.

The asset seizure monster

Another characteristic of Bitcoin stocks (loyalists of other crypto tribes can replace the assets of their choice) with older forms of money, rather than the electronic type that resides in your bank account, is that they are bearer assets. Once you lose it, it is gone like cash and it is the holder's burden to keep it safe by carefully keeping its cryptographic private keys.

Yes, that's scary as many crypto investors can attest to. But also frightening is that police officers seize assets from individuals who have not been charged with a crime and place the burden of proving that an asset was not involved in a crime. Even more terrifying is moving to a world where ALL money is kept with intermediaries who are required to adhere to such a regime.

In this context, the advantage of having owner assets secured with public key cryptography is that authorities cannot unilaterally seize a person's funds by subpoenaing a bank. They need the key holder to work together even when under duress. As I have already written, "this robs the lurking Leviathan of a minimum of power for the individual".

The surveillance monster

Another thing in common with cash is that no personal data is required for Bitcoin – at least not for the open source basic software, even if regulated exchanges require it.

The pseudonymity of alphanumeric addresses, as well as the aforementioned resistance to seizure and censorship, go a long way towards explaining the technology's popularity among criminals and other unsavory types.

"The current use of cryptocurrency by terrorists could be the first raindrops of an approaching storm with expanded usage," warned a recent report by a US Justice Department task force. Laundering illegal funds, the report said, "can be much easier when money is transported online and anonymously." That's enough to give you goose bumps.

Remember, however, that the demand for legibility of financial flows is a modern phenomenon. The US bank secrecy law just turned 50 (with mixed results at best, as Michael J. Casey wrote last week). Depending on how you define it, money has been around for 5,000 years.

Readability is the aberration. Readability is an ongoing experiment.

This experiment produced its own horrors. Consumers in today's digital world must entrust sensitive personal information to a myriad of hackable organizations, Equifaxes-in-Waiting.

Those in power want to double themselves even cooler. US regulators recently proposed lowering the "travel rule" threshold from $ 3,000 for international money transfers to $ 250. When you transfer money to someone according to the travel rules, your bank not only knows your name, account number and address, but also the recipient's bank. She keeps records for five years. And if you do receive money, chances are the sender's bank has your name and address as well. Maybe this makes sense for high roller transactions, but $ 250?

The inflation monster

Also note that $ 3,000 in 1996, the year the travel rule was created, equates to nearly $ 5,000 in today's dollars.

Even if regulators fail to implement their proposal to lower the threshold for international cables, it is already happening in slow motion thanks to inflation. Every year the dragnet automatically expands a little, just like the cash transaction reports that banks submit to the government.

The result is that more and more personal information is collected by default over time.

And that brings us to the final path where Bitcoin is a return to form rather than a deviation, although this is perhaps the most controversial.

While the exchange rate to the dollar fluctuates widely from minute to minute, Bitcoin has appreciated greatly over time. To critics, the short-term volatility makes it useless as a currency; For proponents, given its long-term appreciation and tough upper supply limit, it is the ideal currency that offers incentives to save.

You have a point. "A penny saved is a penny earned." That is normal. Or was – you can hear parents say that in black and white sitcoms.

“Stop complaining about low interest rates, Hoarder. It is your patriotic duty to blow your discretionary income in the mall or to put it on bricks. We have to keep the economy moving. "These are nightmares.

The company's betting on Bitcoin

As the price of Bitcoin has risen in recent months, a number of publicly traded companies have announced that they will be getting into the cryptocurrency. On August 11, business intelligence firm MicroStrategy bought $ 250 million worth of Bitcoin before adding another $ 175 million on September 15. Three weeks later, the payment company Square invested $ 50 million in the cryptocurrency. Then, on Wednesday last week, UK-listed fintech company Mode Global Holdings announced a "major purchase" of Bitcoin for treasury management purposes and PayPal confirmed it would enable Bitcoin transactions in its payment app.

In the first three cases, the companies essentially subscribed to the thoughts of many Bitcoin cops and treated the cryptocurrency as a hedge against "digital gold" to protect their cash and cash equivalents from future monetary stress. With PayPal, the move was more likely geared towards capitalizing on an expected surge in public demand for Bitcoin. For all four, the announcements have boosted companies' share prices.

microstrategy_v3Source: Shuai Hao / CoinDesk

There were essentially two reactions to these movements.

One camp saw them as smart, proactive steps to drive a trend toward wider mainstream adoption. That view is that at least some bitcoin belongs in everyone's investment portfolio as it acts as a valuable, uncorrelated asset, and that this is more relevant now as uncertainty about the future of the global financial system increases. The other side saw it as a fairly cheap, even cynical move to use the currently soaring Bitcoin price to boost the company's share price. Late Thursday, New York time, Bitcoin was up 21% from the end of July and 17% from two weeks earlier.

Square-7Source: Shuai Hao / CoinDesk

A chicken and egg problem makes it difficult to assess these two perspectives. These high profile announcements were not neutral; They contributed directly to Bitcoin's price gains and increased the conversation about Bitcoin's relevance to hedging strategies. This, in turn, boosted the valuations of these companies – especially MicroStrategy, whose stake was so high that the rising price at BTC significantly increased the book value.

fashion-global

Global mode

Source: Shuai Hao / CoinDesk

But of course, Bitcoin is just one of the many factors that affect these companies' stock prices, and a small one at that. With that in mind, let's take a look at the stock charts starting Thursday to see how their stocks fared in the context of these announcements.

paypal_v5

(Shuai Hao / CoinDesk)

The global town hall

PANDEMIPRENEURS. As the saying goes, necessity is the mother of invention. According to Bloomberg columnist Justin Fox, an extraordinarily large number of new US companies were launched in the past year. In the first 42 weeks of the year, the Internal Revenue Service registered approximately 3.5 million new business requests, compared to 2.9 million in the same period last year. This is an impressive number given the fate and darkness surrounding COVID-19.

Fox points out that this often happens during a recession, as people who cannot find work go on strike on their own. This time, however, the trend has been compounded by factors unique to this social and economic phenomenon. For one, it was easier to get credit than it was during the Great Recession of 2009, which resulted directly from a debt crisis, for example. This is thanks in part to the small business loans introduced in the COVID-19 stimulus package, and in part to rising property prices as city dwellers fled to a safer work environment.

However, the trend could also reflect the ingenuity sparked by the crisis. In the unusual circumstances, whether it is the challenges of the WFH scenario or the hospital's increasing demands on protective equipment and respirators, entrepreneurs face a number of problems.

chris-montgomery-smgtvepind4-unsplash-2

(Chris Montgomery / Unsplash)

The cryptocurrency community was part of it. Witness the rise in DeFi innovation – not just saving the lives of nurses, but seizing the opportunities presented by the COVID-related debt problems that arise for Centralized Funding (CeFi) – or the frenzied efforts of Blockchain engineers and cryptographers to establish contact under data protection law – pursuit of solutions. As an industry with open source development at its core, the sector is also a trailblazer for this trend. It promotes an environment of cross-border collaborative inventions that accelerates the entrepreneurial process.

We don't know where all these ideas are going, but something good is sure to come out of them. Perhaps one day we will see these dark days more cheaply than we do now.

Relevant readings

Iran amends the law to allow cryptocurrency imports to be funded. One way to read Iran's embrace with Bitcoin to avoid US sanctions is to see it as an advertisement for the core value proposition of the cryptocurrency, since a censorship-resistant tender does not require intermediation by third parties – such as one regulated by the US Bank. The other option is to see all of this as a reminder of why Bitcoin continues to make US regulators extremely uncomfortable. Read the update from Daniel Palmer.

All-in at DeFi: Why the days of central exchange are counted. Binance, the most successful crypto exchange of all time, is based on a centralized model. So you should sit up and take notice when the charismatic founder and CEO Changpeng Zhao says it is time to get involved in the decentralized exchange. Check out the comments he has made for CoinDesk.

Bank of Canada Governor Says Digital Dollar Project is past testing. Canada seems to have come out of nowhere with its digital currency, and its central bankers are increasingly making noise about the urgency with which they are developing it. Could Canada be on China's heels with a real start? Report by Sebastian Sinclair.

Avanti Financial joins Kraken as a Wyoming Recognized Crypto Bank. The woman who almost single-handedly drove a dramatic legislative initiative in Wyoming to turn it into a crypto-friendly jurisdiction is now reaping the benefits of this work. Caitlin Long, the founder and CEO of Avanti Financial, unanimously approved his banking charter by the Wyoming State Banking Board on Wednesday, becoming the state's second newly chartered bank in 2020 after Kraken Financial received approval last month. Nathan DiCamillo reports.

https://www.coindesk.com/2020-most-influential-vote-now

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Close