CBDC

China Is Drafting Laws for the Circulation of National Digital Currency

26/03/2020 by Idelto Editor

Amid the coronavirus pandemic, China’s central bank has reportedly completed the basic development of the nation’s central bank digital currency. The central bank is now drafting legislation for its circulation, according to local media. A number of patents have revealed what the digital yuan will be like.

Also read: 2x Bitcoin — Wanna Double Your BTC to the Moon? Forget About It

Coronavirus Pandemic Could Accelerate the Launch of China’s Sovereign Digital Currency

China’s central bank, the People’s Bank of China (PBOC), is reportedly closer to issuing its own digital currency, Chinese publication Global Times reported on Tuesday, citing an unnamed industry insider. The central bank, in collaboration with private companies, “has completed development of the sovereign digital currency’s basic function and is now drafting relevant laws to pave the way for its circulation,” the publication detailed. The insider elaborated:

As more central banks around the world are cutting interest rates to zero or even entering negative territory to release liquidity into the market amid the coronavirus (covid-19) pandemic, China should accelerate the launch of its digital currency.

The next step “involves digital currency legislation and working with banking and insurance regulators on supervision,” the insider noted, adding that this step “could be more lengthy” and “poses uncertainties for the exact date of the launch.” Cao Yan, director of the Advanced Research Institute of Blockchain under the Yangtze Delta Region Institute of Tsinghua University, believes that the PBOC “should accelerate the launch of its digital currency in the face of the unprecedented coronavirus pandemic,” the publication conveyed.

China’s central bank, the People’s Bank of China (PBOC), has reportedly completed the basic development of the central bank digital currency. The bank is now drafting relevant laws for the circulation of the digital yuan.

The PBOC started researching the possibility of launching its own CBDC in 2014 with the aim “to cut the costs of circulating traditional paper money and boost policymakers’ control of money supply.” In August 2019, Mu Changchun, deputy director of the central bank’s payments department, said that the digital yuan was “almost ready.” However, Governor Yi Gang later clarified that there was no timeframe for the launch and more time was needed for further research, testing, trials, assessments, and risk prevention.

Central bank officials explained that the CBDC will use a two-tier system where both the central bank and financial institutions will be legitimate issuers. Mu detailed that it would not be a cryptocurrency like bitcoin or a stablecoin, adding that the central bank has “completed the top-level design, standard formulation, functional research and development, joint debugging and testing.”

Patents Related to China’s Central Bank Digital Currency

A large number of patents have reportedly been filed relating to China’s central bank digital currency. The PBOC is said to have filed 84 patents relating to its plans to launch a digital yuan, as news.Bitcoin.com previously reported.

According to Global Times, a number of private companies participated in the development of China’s digital currency, including Alibaba, Tencent, Huawei and China Merchants Bank. Alibaba’s payment platform, Alipay, publicized five patents related to China’s CBDC between Feb. 21 and March 17, the news outlet detailed, adding:

The patents cover several areas of digital currency, including issuance, transaction recording, digital wallets, anonymous trading support and assistance in supervising and dealing with illegal accounts.

Many patents filed by the PBOC and Alipay revealed the nature and scope of China’s central bank digital currency.

The first patent, entitled “Implementation and Electronic Equipment of CBDC transaction,” was publicized on Feb. 21, the 8btc publication reported, asserting that by filing this patent, Alipay likely plans to participate in the second issuance in the national digital currency’s two-layer structure alongside commercial banks.

The next patent, revealed by Alipay on Feb. 25, was entitled “A Digital Currency Account Control Method and Device.” It indicates that “If regulators want to restrict illegal transactions, they need to go through the bank’s currency operating agency when illegal activities have occurred and it’s very difficult to recover the transferred fund,” the publication described.

Another patent, publicized on Feb. 28, was called “Digital Wallet’s Method and Electronic Device.” It discusses many types of digital wallets for different services. The next patent revealed by Alipay on March 17 was entitled “An Anonymous Trading Method and System Based on Digital Currency.” It details a system that uses temporary passwords for anonymous transactions.

Do you think China will be the first country to launch a central bank digital currency? Let us know in the comments section below.

The post China Is Drafting Laws for the Circulation of National Digital Currency appeared first on Bitcoin News.

Disney World Economics: How Coronavirus Could Be Used to Justify a Global Financial Reset

13/03/2020 by Idelto Editor

‘What in the world is going on’ has now become a question of real pertinence, instead of just a cliché for common bewilderment. As COVID-19 panic grips the world, ripple effects are crashing markets and effectively canceling economies across the globe, scrawling the writing on the wall for something big. Even the beloved Walt Disney World has announced it will close its doors for the time being. It stands to examine then, whether there is substance to the idea that the ‘world grinding to a halt’ could be used to implement a new financial paradigm. One that is digital, surveillance-based, and most importantly, covers the economic sins of unsustainable times past.

Also read: Gold and Bitcoin Markets Tested, While Central Banks Try to Quell Stock Market Rout

Corona: The Favored Virus of ‘the Crown’?

Recent news of Disney shutting down brings attention to another ‘magic kingdom’ — the whimsical endless credit monarchy of Keynesian recklessness. It too appears to be reaching a terminal impasse. There is speculation the COVID-19 pandemic could be the perfect opportunity for the world’s financial planners to cover their past sins of mega bubbles, unsustainable inflation and debt creation, wiping the slate clean — this time with a decided focus on digital surveillance, control, and unmitigated printing powers, using the disease outbreak as a convenient scapegoat. But is there any substance to such conspiracy talk?

In the interest of avoiding tinfoil hat, baseless assertions when looking to the future here, it’s best to understand what has already been established on the world economic scene prior to the outbreak of COVID-19. A few major facts to bear in mind:

The global economy was running out of options for dealing with recession, as major economies headed closer and closer to, or further beyond, the zero bound, engaged in massive stimulus, and continued to create artificial credit bubbles.

Central Bank Digital Currencies (CBDCs) were actively being developed and researched, and China’s version — the digital Yuan — is already complete and in testing phases. Financial policymakers around the globe have been noting the utility these could have for forcing monetary policy on individuals, where physical cash enables them to evade such things as negative interest rates in banks.

Fewer and fewer people were expressing confidence in state authorities and their respective central banks. Political unrest — much of which was concerned with economic policy — was manifested in unprecedented fashion via demonstrations worldwide. Decentralized cryptocurrencies like bitcoin were increasingly viewed favorably by a significant segment in the context of centralized corruption, worldwide bailouts, and distrust of leaders, even on mainstream media outlets.

With the above in mind, it is interesting that the outbreak of this novel coronavirus has resulted in a worldwide panic drowning out these factors, prompting even the doubtful to once again encourage their peers to trust the state for leadership. This is not to assert that the virus isn’t a threat, or that regulators “planned” its release. It is simply to note that politicians and financial planners have historically leveraged such situations to implement new — and often highly intrusive and unethical — policy, and openly admit to doing so. At times, even desiring disaster. With this knowledge at the forefront, it becomes understandable some are connecting the dots.

Leveraging Catastrophe: Nothing New Under the Sun

At the outset of the last major financial downturn in 2008, then Chief of Staff for President Elect Barack Obama, Rahm Emanuel, stated at the Wall Street Journal CEO Council in Washington, D.C.:

You never want a serious crisis to go to waste. And what I mean by that, it’s an opportunity to do things that you think you could not do before.

Emanuel went on to note that in virtually every area of governance, major crisis provides opportunity. Opportunity for regulators to make bold moves in implementing otherwise controversial policy. “This is an opportunity, what used to be long-term problems, be they in the health area, energy area, education area, fiscal area, tax area, regulatory reform area — things that we had postponed too long that were long-term are now immediate and must be dealt with.

This crisis provides the opportunity for us … to do things that you could not do before.

Much like the panicked speculations of today, Emanuel’s prescription was not merely for one area of reform, but a system-wide overhaul. And much like today, the choice as to what policies are implemented does not involve the common individual. The “opportunity for us” to do things is just that. The “us” does not include you. Central bankers and financial planners concur, and have been wanting to take various economic measures for decades. Now could be their newest and biggest chance to date.

A paper published by the European Central Bank in January notes the potential benefits, perceived by some, of government-approved CBDCs:

By allowing to overcome the zero-lower bound (‘ZLB’) and therefore freeing negative interest rate policies (‘NIRP’) of its current constraints, a world with only digital central bank money would allow for – according to this view – strong monetary stimulus in a sharp recession and/or financial crisis.

“This could not only avoid recession, unemployment, and/or deflation but also the need to take recourse to non-standard monetary policy measures which have more negative side effects than NIRP.”

The publication also details there is an existing argument for CBDCs to make drops of “helicopter money” to the populace much easier. Further, “A number of authors have argued that CBDC widens the range of options for monetary policy, essentially since variable interest rates on CBDC would provide for a new, non-redundant monetary policy instrument that would allow improving the overall effectiveness of monetary policy.” In other words, no more hiding from negative interest rates by taking your money out of banks. When the cash is digital, and centrally controlled, interest rates can be applied directly to the supply.

Some examples of recent quotes, prior to the COVID-19 crisis, from policy makers and economists may present the picture more clearly:

At the current stage, the central bank’s major goal of issuing digital currency is to replace the physical cash.

If everyone is holding cash, negative interest rates become useless.

-former People’s Bank of China (PBOC) governor, Zhou Xiaochuan

Let’s tax cash holdings, simple as that: we’re back to monetary policy as usual; people are disincentivised to be holding large lumps of physical cash; they are having to think harder about putting money to work.

-New Zealand Reserve Bank Governor, Adrian Orr

My personal conviction is that given the developments we are seeing, not so much in the bitcoin segment, but in the stablecoins projects … we had better be ahead of the curve if that happens. Because there is clearly a demand out there that we have to respond to.

-European Central Bank (ECB) President, Christine Lagarde

Since the 2008 crisis, we did not solve a single problem. We lowered the interest rates to a record low level and we flooded the world with cheap money. The central banks created one financial bubble after the other and now we have the biggest bubble in history.

Trillions of dollars spent to solve the problem just created a new mess, a bigger bubble and when this one bursts, 2008 will look like a kindergarten. This one will be epic.

… central banks will issue CBDCs and they will control us all, seize our freedom and wealth. They need negative interest rates and they can only achieve that when the fiat money moves into the digital world and they abolish paper money.

-German-based author and finance strategy consultant, Marc Friedrich

Even so-called conservative U.S. President Donald Trump has been clamoring for negative rates as the Federal Reserve injects new money and credit into the American economy recklessly. Trump said in January: “Meaning they [people in negative rate countries] get paid to borrow money, something that I could get used to very quickly. Love that. Gotta pay back your loan? No. How much am I getting?” This is the level of fiscal insanity that now qualifies as leadership.

The Bubble Is Bursting Right Now, Worldwide — Why Isn’t Bitcoin Being Adopted?

There is a lot to take in. A deluge, really. The world populace is overwhelmed with understandable fear and panic, and a tsunami of conflicting information from governments and media. The virus is the new plague, but tests are not being made available in many places. Trust the official stats and follow political leaders, but these stats are incomplete without tests, and some political leaders, like Donald Trump in the U.S., don’t even get tested. China’s censored medical media is of course not to be trusted, either.

Flights, public schools and large gatherings are banned, cancelled or closed. No NBA, no SXSW, no Disney, overwhelmed hospitals. Global markets are in sharp and rapid decline, plunging past historic lows, with the ripple effect from so many major industries grinding to a halt sure to be felt much more painfully in months to come. Italy is suspending mortgage payments. Ireland offering pay for those out of work sick. To compound the disaster, martial law — as being experienced in China — appears to be on the horizon, even for Western countries.

Crypto is also suffering, not looking currently to be the store of value its proponents had claimed. This is not to say bitcoin isn’t a more sound money than government fiat, though. There is a reason policymakers are not promoting bitcoin and crypto as sound means to salvage the world economy now. That would make them pay, and they’d have to feel the very real pain from the death of the monstrous bubble they’ve created, via endless printing and debt creation for centuries. As the International Monetary Fund blog maintained in February:

Severe recessions have historically required 3–6 percentage points cut in policy rates. If another crisis happens, few countries would have that kind of room for monetary policy to respond.

In short, the only way to beat this thing is to erase the debt record. Down the memory hole. But they still depend on you and I to support them, as these “leaders” are generally not producers, but parasitic in nature. Bitcoin makes this difficult for them. When you own the private keys to some bitcoin, you don’t have to pay anybody. This is why the stuff has been smeared as criminal over and over again, and CBDCs will likely be ushered in. For the rulers of the world, when the game isn’t going their way, they don’t try to improve — they just push reset.

Do you think the pandemic signals a global financial reset? Why or why not? Let us know in the comments section below.

Op-ed disclaimer: This is an Op-ed article. The opinions expressed in this article are the author’s own. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the Op-ed article. Readers should do their own due diligence before taking any actions related to the content. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any information in this Op-ed article.

Images courtesy of Shutterstock, Adriana Iacob, fair use.

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The Government Can’t Stand Decentralized Innovations Like Bitcoin, so It Tries to Ruin Them

10/03/2020 by Idelto Editor

Feeding the homeless, affordable medicine, an easy-to-use gas can design, starting a small business to meet the needs of one’s community — borderless, permissionless P2P electronic payments. These are all simple, practical activities and tools that can be leveraged in decentralized fashion to benefit human societies immensely. So why do we see governments consistently and violently standing against such progress? One of the latest instances of this suffocation is found in Germany’s shutting down of non-licensed bitcoin ATMs. The examples are virtually unending, though, and the timeline of such oppression as long as the history of statism itself.

Also read: German Crypto Regulator BaFin Shuts Down Unauthorized Bitcoin ATMs

Self-Sufficiency Puts the State Out of Business

As the late libertarian writer Harry Browne put it: “Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, ‘See, if it weren’t for the government, you wouldn’t be able to walk.’” It will also tax the wheelchair, the ramps it uses, and make you pay for a license to own it, which, if you do not acquire, will land you in a cage.

Just to get this out of the way, for those unfamiliar with voluntaryism — or the idea that all legitimate human action requires consent — this article will not be advocating for a cartoonish chaos of molotov cocktail “anarchy” with no societal order. That’s an idea reserved for the juvenile and foolish, much like the idea that a few good people (“government”) can successfully dictate how millions of others are to live — by force. Both are pie in the sky hallucinations having little to do with the reality of how things work, and deserving of little attention.

This article aims to examine specific instances of the state crippling human progress, and in the end, making everybody’s life worse for supposedly trying to help and protect people. The picture becomes clear as history repeats itself: the regulators, rulers, politicians and central bankers of the world could give a damn about you. It’s all about control and power, and anything that threatens this stranglehold on innovation and practicality is quickly shut down.

From the Dust Bowl to Bitcoin: Peer-to-Peer Is a Threat to the State

“The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is a failure; and in the eyes of the hungry there is a growing wrath.”

-John Steinbeck, The Grapes of Wrath

Part of U.S. President Franklin D. Roosevelt’s agricultural program during the impoverished Dust Bowl era of 1930’s America included destroying surplus crops and forbidding subsidized farmers to grow food, to artificially drive up prices in the then-collapsed, war-inflated economy. So while countless men, women, children and infants starved, their peers were forbidden by law to help them, or to share their produce. Instead it was destroyed, as Steinbeck describes in the passage above.

Modern farms hauntingly suffer from centralized regulation as well, while fruit rots on trees due to a lack of workers resultant from immigration regulations. This is, in effect, the state telling farmers how they may or may not use their private property, and who they may or may not hire. Imagine if farmers could do as they please, and sell food as they liked, or provide jobs on their own property as they saw fit.

Imagine workers being able to seek employment without fear of their families being caged for crossing an arbitrary, non-private property line called a “border.” But that would be decentralized chaos.

Decentralized chaos was also founder of the nonprofit Love Thy Neighbor, Arnold Abbott, who was an elderly man over 90 when arrested by Florida police for feeding the homeless. In fact, he had been arrested multiple times for taking direct, peer-to-peer action to voluntarily help less fortunate members of his community.

As economist Jeffrey Tucker writes in his excellent article, How Government Wrecked the Gas Can:

These days, government is always open to a misery-making suggestion. The notion that public policy would somehow make life better is a relic of days gone by. It’s as if government has decided to specialize in what it is best at and adopt a new principle: ‘Let’s leave social progress to the private sector; we in the government will concentrate on causing suffering and regress.’

In this humorously biting piece, Tucker details how even something as simple as a plastic gas can has been rendered non-functional, more expensive and dangerous by bureaucratic interference making working models illegal. He also details how the private market of users gets around these things. Highly functional “water cans” are now in higher demand, for example.

All of these are examples of how a centralized bureaucracy will never be able to read the market signals of individual economic actors and their needs. The truth is, they don’t want to. Where the violent gun of the state exists, progress is always thwarted, because progress of the private individual means the state becomes increasingly unnecessary.

Literal weeds that grow easily and can relieve pain or decrease severity of seizures are illegal or heavily regulated while state-sanctioned heroin is pushed openly on the populace. Street vendors providing desired services have their wallets emptied by the cops, as licensing rackets in business, medicine, tech, and finance drive costs sky high for consumers and bear witness to the sociopathy.

Genius minds like that of Nikola Tesla, who helped build and design much of the electric infrastructure and invention we know and use today, are referred to as crackpots in modern scientific circles. But who knows how far he could have gone with his ideas of cheap energy for all in an atmosphere of greater financial power and independent, non-centrally-subsidized funding. Finance — the area of control most desperately guarded by government, is ultimately run by people with guns threatening anyone who tries to use their own kind of money freely. This is chaos.

Bitcoin Already Works, No Gov Needed

Bitcoin threatens to remove this pesky leech, and swat the mosquito of centralized control, by making money itself separate from the state. The blockchain is a good example of “anarchy” in action. It’s the same anarchy present in any working society or system where the participants or elements are incentivized and prone to work together.

Most people don’t steal at their neighbor’s yard sale. Most people don’t swerve into oncoming traffic on the highway. Most barbers don’t slit their customers’ throats with the straight razor. Why? Because there is a government or police presence? That would be absurd.

Aside from the fact that most folks are basically good, non-psychopathic people when their primary needs are met, they are also incentivized to cooperate with other individual “nodes” of society. This cooperation makes the overall social network more valuable, and participants benefit. The straight razor barber that kills his customers, on the other hand, will soon be dead, or find his shop empty.

Coming full circle, Germany can remove all the non-regulated bitcoin ATMs it pleases under the guise of fighting crime, and governments can continue to make laws rendering the use of crypto more and more difficult, and trying to turn it into a new fiat with central bank digital currencies. As long as there are people who value innovation, practicality, and freedom, however, bitcoin will continue to be a big middle finger pointed right at the state in the name of decentralized, permissionless order. It already works very well, can be sent and taken anywhere by anyone in relative privacy — and very affordably — and is built on a much better value proposition than the government’s ever-devaluing fiat trash. Of course, thanks to all this practical convenience and benefit to the masses, the state hates it.

What are your thoughts on government regulation of crypto? Let us know in the comments section below.

Images courtesy of Shutterstock, fair use.

The post The Government Can’t Stand Decentralized Innovations Like Bitcoin, so It Tries to Ruin Them appeared first on Bitcoin News.

Rumors of Bitcoin’s Death Are Greatly Exaggerated

09/03/2020 by Idelto Editor

According to the Bitcoin Obituary Page, Bitcoin died 379 times between 2010-2019 of an astonishing array of causes. The number is undoubtedly understated since it is based on a limited sample of obituaries. Despite the glee with which the corpses of Bitcoin are contemplated, however, cryptocurrency thrives because it continues to fill the human need for privacy and financial control.

Also read: A Sea Change to Crypto Hits America, Again

The Antifragile Bitcoin

The structure of crypto is robust. The economist Nassim Taleb developed the concept of “antifragility” in his book “Antifragile: Things That Gain from Disorder.” Taleb distinguished the concept from resiliency. Antifragile things “benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty … Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”

Crypto on a blockchain is viewed as antifragile. In a 2018 blog post on Medium, Taleb explained why. Central banks that are “a perfect monoculture” that all operate under the same centralized model, whereas Bitcoin works in a “distributed” or decentralized manner. Taleb cited Friedrich Hayek’s defense of decentralization, which rested on the superiority of distributed knowledge. Taleb commented, “Well, it looks like we do not even need that thing called knowledge for things to work well. Nor do we need individual rationality. All we need is structure.”

The blockchain structure has no owner, no centralized authority, no need to deal with a trusted third party. The freedom from third parties gives Bitcoin a marked advantage over other private currencies, like gold. “Banks control the custodian game and governments control banks … So Bitcoin has a huge advantage over gold in transactions: clearance does not require a specific custodian. No government can control what code you have in your head.”

The distributed control of “the crowd” not only sidesteps centralized authority, it also offers the diverse innovation by which Bitcoin improves by being tested. Decentralization is its antifragility. Overconfidence would be a mistake, however. Powerful and highly motivated enemies want to destroy free-market crypto, and they should not be underestimated.

How to Kill Crypto

The state and a tech attack by bad actors are the two greatest threats to free-market crypto. The latter is the least worrisome, however. The Bitcoin blockchain is close to unhackable, and innovative development can address other technical problems that arise. By contrast, the state knows where you live, and there is sometimes no escape.

An April 24, 2018 paper by Morgen Peck in the MIT Technology Review is entitled “Let’s Destroy Bitcoin.” Option one in doing so is labeled “Government takeover” and refers to creating a national digital currency. Peck envisions a dystopian future in which taxes are paid through “an algorithm” that “automatically makes a withdrawal from your electronic wallet, in a currency called Fedcoin.” Fedcoin is a digital currency that is issued by central banks with the blockchain administered by the state or institutions under its authority.

Peck sketches the Fedcoin system. “Each bank is responsible for a chunk of addresses on the blockchain. When new transactions come through, the bank validates them in a new block and sends it to the Fed. The Fed then acts as the final arbiter, checking the entries and unifying the blocks into a master version of the blockchain that it makes public.”

To access the system, a person needs to prove their identity and establish a wallet with the Federal Reserve or an approved financial institution. At first, Fedcoins could be purchased for cash; when people become comfortable with the new currency, however, the coins can replace cash entirely. The cashless society would allow the state to tax and impose monetary policy more efficiently. New coins could be minted at will, for example. Blacklists could exclude objectionable people and organizations from participating in the only authorized financial system.

Fedcoin would kill Satoshi Nakamoto’s vision of a private, decentralized currency through which individuals become self-bankers. Or would it?

Can the State Destroy Bitcoin?

Probably not.

For one thing, an effective ban on free-market crypto would require a worldwide effort that would be very difficult to coordinate. National responses to crypto vary widely. Several nations ban crypto, while others rush to embrace it as a money-making proposition. Users tend to shift their money over to the friendly venues. Global attempts to control crypto would resemble a whack-a-mole game.

For another thing, although the state can hunt down miners or users, it cannot destroy an idea. And this is what lies at Bitcoin’s core — an idea, a protocol — a well-known idea and an easily duplicated protocol. Even if Satoshi’s whitepaper had been censored in 2008, the technology could not have been suppressed. At most, it could have been delayed. When crypto inevitably did emerge, it would have an immediate advantage because coding is faster and more adaptive than legislation.

Perversely, a common consequence of censorship or bans has been to strengthen the target, not to eliminate it. There are several reasons. Outlawing things and activities often lends them a cachet or a thrill. Meanwhile, illegality usually hikes the price of an item — drugs, for example — but the item continues to be readily available. Some contraband — drugs, for example — can become more available because they are so profitable that merchants flood into the market.

Saifedean Ammous, author of “The Bitcoin Standard: The Decentralized Alternative to Central Banking,” is among those who believe attempts at suppression encourage free-market crypto. “People think that if a government were to pass a law that bans Bitcoin,” Ammous explained, “then Bitcoin goes away and they get to laugh at us and that’s the end of the story. I think it’s actually the other way around.” A ban would increase public awareness of two realities: if users are willing to risk imprisonment, then crypto must be valuable and useful; and the state is at war with financial freedom. Both insights favor crypto.

Even the severe and showcased punishment of crypto users does not necessarily discourage whatever illegal activity the state presents as justification. Ross Ulbricht —creator of the darknet marketplace, the Silk Road — is a case in point. Arrested in 2013, Ulbricht was eventually sentenced to a double life term in prison with no possibility of parole. And yet, darknets persist. The attempt at suppression of targeted offenders can backlash by making the freedom of crypto more attractive and accelerating the conversion of wealth from physical assets into digital ones.

A state’s best chance to monopolize digital currencies is a three-pronged attack.

1) Issue its own digital currency that competes vigorously by offering legal advantages to users while retaining some practical advantages of the free-market ones, such as speed of transfer.

2) Constantly demonize private cryptos as high-risk vehicles of crime and immorality. Instead of blatant censorship, the state runs a propaganda campaign.

3) Then ban or strictly regulate private crypto. Free-market crypto would become black market and so justify an ever-tightening grip by the state.

“The way for them to kill Bitcoin is for them … to offer a technology that is better than Bitcoin — that can obviate the need for Bitcoin,” according to Ammous. “Or, at least, they need to try.” Actually, the state only needs to convince people that free-market crypto is dangerous and state-issue is a safe replacement, whether or not it is true. In short, a money monopoly = safety and morality; freedom=risk and turpitude.

The state needs to convince people fast because the economy is running out of time. The “everything-bubble” — a large and simultaneous bubble in a variety of asset categories — is stretched to breaking, and the center cannot hold. A new currency and payment system could give the banks an air of efficiency and progress, while buying time for the state.

Ammous is correct. The state needs “to try” to recreate crypto as a vehicle of state power. The attempt may succeed temporarily and to some degree, but state-issued crypto will ultimately fail because it no longer benefits the users. If it did, state crypto would not require the force of law. As merely one example: the Bitcoin blockchain is designed to distribute power across a peer-to-peer system that does not allow an authority to rewrite the rules arbitrarily. This is an essential check on the system’s integrity. If a centralized authority controls the blockchain, however, it becomes a database that serves the interests of the state. The blockchain loses its free-market “use value,” which is the private and convenient transfer of money over distance. Instead, the blockchain and its coins acquire a “use disvalue,” which is their cost in terms of surveillance and taxes, including inflation.

Rumors of Bitcoin’s death are exaggerated, but they should not be ignored. Knowing how to sidestep a danger means knowing what and where it is.

Images courtesy of Shutterstock, fair use.

Did you know you can verify any unconfirmed Bitcoin transaction with our Bitcoin Block Explorer tool? Simply complete a Bitcoin address search to view it on the blockchain. Plus, visit our Bitcoin Charts to see what’s happening in the industry.

The post Rumors of Bitcoin’s Death Are Greatly Exaggerated appeared first on Bitcoin News.

A Sea Change to Crypto Hits America, Again

01/03/2020 by Idelto Editor

A sea change is coming to cryptocurrency in America. It is likely to hit in two separate waves: a central bank digital currency (CBDC) and draconian regulation that shuts down free-market activities, including development.

Also Read: No Backdoor on Human Rights: Why Encryption Cannot Be Compromised

The Wave of a Central Bank Digital Currency

Robert Wenzel of the Economic Policy Journal has a warning. “A [U.S.] Federal Reserve created digital coin could be one of the most dangerous steps ever taken by a government agency. It would put in the hands of the government the potential to create a digital currency with the ability to track all transactions in an economy—and prohibit transactions for any reason. In terms of future individual freedom, this would be a nightmare.” If recent statements by American lawmakers and bureaucrats are an indication, however, state-issued crypto seems to be on its way.

A shift in attitude on CBDC is in the air. Consider Federal Reserve Governor Lael Brainard. In May 2018, she stated, “There is no compelling demonstrated need for a Fed-issued digital currency.” While acknowledging the efficiency and low cost of blockchain transfers, Brainard presented a familiar check list of objections to digital currencies. They were too volatile to be utilized as money; their anonymity protected crimes like money laundering and sex trafficking; they eluded regulation. Then Brainard added what may have been the fundamental reason for dismissing a CBDC. At the beginning of 2018, digital currencies were so small a part of the financial system that they posed no stability risk. They did not threaten the monetary status quo. Or, at least, Brainard did not perceive the threat.

In February 2020, her tune differed. “The Fed is conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC.” The main public argument for a CBDC is a perceived need to stabilize crypto by pegging it to traditional fiat, which is assumed to be less volatile. The “nightmare” of which Wenzel warned already has a name: Fedcoin.

What changed between May 2018 and February 2020?

Crypto surged in popularity and price while central banks and their fiats continued a slow implosion. Several nations — including America’s financial nemesis China — announced an intention to issue e-currencies. “We are collaborating with other central banks as we advance our understanding of central bank digital currencies,” Brainard explained, all the while “making sure” we are at the “frontier of both research and policy development.” Translation: the U.S. does not want to be left behind. Neither will it eat Facebook’s dust; Brainard claimed that Facebook’s digital currency Libra, which emerged last year, “imparted urgency” to the conversation. Digital currency was becoming a large enough part of the financial system for agencies like the Internal Revenue Service (IRS), the Federal Reserve, and the Treasury Department to notice.

The Wave of Draconian Regulation

The regulation attack is surging, and it will extend far beyond the current licensing of exchanges to make them function in conformity with state law.

The IRS has stepped up crypto prosecutions and has created new rules. In his article “IRS Explains What Crypto Owners Must Know to File Taxes This Year,” Kevin Helms observed, “Among the changes to the 2019 Form 1040, the main U.S. tax form, is the addition of ‘an inquiry regarding the acquisition or disposition of any virtual currency’, the agency explained. The new crypto question appears on Form 1040’s Schedule 1, entitled ‘Additional Income and Adjustments to Income’.” This is prelude.

Treasury Secretary Steven Mnuchin recently revealed that the Department’s Financial Crimes Enforcement Network (FinCEN) was preparing “significant new requirements” in order to provide transparency to crypto in a quest to prevent “crimes” such as tax avoidance. Here, transparency is a synonym for state surveillance. “We want to make sure that technology moves forward,” Mnuchin continued, “but … we want to make sure that cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts.” He added that FinCEN and the Treasury Department are “spending a lot of time on this.”

The Department of Justice was even more blunt, declaring bitcoin mixing to be “a crime” in and of itself. Yahoo Finance’s article “US DOJ Calls Bitcoin Mixing ‘a Crime’ in Arrest of Software Developer,” indicated how seriously the DOJ takes this alleged crime. “Larry Harmon was arrested earlier this week for allegedly participating in a money-laundering conspiracy worth more than $300 million in cryptocurrency involving darknet marketplace AlphaBay. However, the family of the Coin Ninja CEO claims he was never involved with AlphaBay. Harmon’s case raises pressing questions about developer liability in the crypto industry.” The mere development of tools has been criminalized.

The Two Waves Flood Together

As yet, Mnuchin has not supported a CBDC. He merely echoes President Trump’s loud concern that crypto is being used by bad actors, and the “abuses” must be reined in by careful state monitoring. The easiest way for this to be done is to create some form of CBDC on a blockchain protocol that the state controls, however.

The state’s pattern in monetary matters can be judged by how it handled private competition to the money it has issued in the past. Whatever the politicians say now, the same pattern is likely to hold with crypto as soon as it becomes pragmatically possible.

First, state money is issued through a central bank and free-market competitors are controlled by regulation. “To start with, I suspect it’s going to be a parallel currency,” the investment guru Doug Casey explained. “Perhaps usable just within the U.S. which, in effect, would be a form of foreign exchange controls even more effective than the inability of Americans to open up foreign bank and brokerage accounts today … I think it’s a near certainty that they’re going to do something like this and soon.” Second, the state will attempt to establish a monopoly by criminalizing the ownership of free-market crypto and, perhaps, mandating the ownership of state-issue. One manner in which a fiat has been historically mandated is by making taxes or other state fees payable only in that form of money.

Establishing a CBDC may be irresistible to Trump, not only as a way to stay competitive with rival monetary powers but also because of the extreme political power it offers. A CBDC would serve the state in at least two ways:

By controlling the design of the Fedcoin’s blockchain and its terms of use, the state can strip away encryption and anonymity so that every transaction is identifiable. Every user can be taxed. Every coin can be confiscated; the threat of confiscation or of being shut out of the financial system is a means to impose social control.
The CBDC eases people into a cashless society. States dislike cash because it offers an anonymity that blocks their ability to tax and control. If only the CBDC were permitted, however, extra “taxes” could be levied and social control asserted. If the state wanted to prevent someone from traveling, for example, it could block the person’s ability to buy a plane ticket … or ammunition for a gun.

As usual, the freedom and prosperity of individuals will be stolen in the name of a noble cause: fighting sex traffic or child pornography. In reality, it will be done to empower the state. The title of an Electronic Frontier Foundation (EFF) article stated “In Foreshadowing Cryptocurrency Regulations, U.S. Treasury Secretary Prioritizes Law Enforcement Concerns.”

The wording of the coming regulations and probable Fedcoin are not yet known. Their purpose is clear, however; the state wants to convert cryptocurrency into a form of state fiat and a technology of financial surveillance. The latter can reveal far more than economic transactions. As EFF observed, they can point “to everything from your friend network to your sexual interests to your political affiliations.”

State-controlled e-currency means state-controlled individuals.

Images courtesy of Shutterstock.

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