Beyond politically connected scammers and frothy valuations, the attractiveness of cryptocurrencies lies in their potential for doing what cash does, but across distances. When governments inflate money, people turn to other stores of value, including crypto. When politicians and their financial-sector accomplices block transactions of which they disapprove, people look for alternative means of doing deals without permission, crypto among them. So, when officials talk of stripping privacy and autonomy from cryptocurrencies such as bitcoin, you know they would do the same to cash if they could.
“Rogue nations, oligarchs, drug lords, and human traffickers are using digital assets to launder billions in stolen funds, evade sanctions, and finance terrorism,” Sen. Elizabeth Warren (D–Mass.) huffed this week. “The crypto industry should follow common-sense rules like banks, brokers, and Western Union, and this legislation would ensure the same standards apply across similar financial transactions. The bipartisan bill will help close crypto money laundering loopholes and strengthen enforcement to better safeguard U.S. national security.”
The bipartisan bill to which Warren refers sports the tendentious moniker, Digital Asset Anti-Money Laundering Act of 2022. Stripped of grandiose claims, it attempts to extend the financial surveillance state cooked up by drug warriors and anti-terrorism fearmongers to cryptocurrencies. Warren and company picked an opportune moment to do just that, while the public is occupied with a headline-grabbing financial scandal that taints crypto’s already sketchy reputation.
In fact, Sam Bankman-Fried’s shenanigans at FTX, perhaps concealed by generous political donations, look old-school, including mingling personal and corporate funds in ways that would have raised red flags long before digital tokens. But they cast further shade over a crypto sector that had yet to gain acceptance by the American mainstream. After years of breathy warnings that cryptocurrency is shady, and speculative values detached from reality, many people are prepared to believe the worst.
“Crypto is an interesting technology that had one terrible piece of bad luck: its standard-bearer, bitcoin, went up in value 10,000x over a few years,” wide-ranging commentator Scott Alexander wrote earlier this month. “When something goes up in value 10,000x, it’s hard to think of it in any other context. Whatever it was before, now it’s ‘that thing which went up in value 10,000x’.”
Alexander points out that, despite the shellacking the crypto sector is taking in the press and from politicians, it remains popular in countries where it’s used for its intended purpose as a store of value and a means of exchange in defiance of authoritarian controls. “Vietnam uses crypto because it’s terrible at banks,” he notes. “There’s a history of the government forcing banks to make terrible loans, and then those banks collapsing.” In socialist Venezuela, “cryptocurrency provides a hard-to-ban alternative which has caught on among Venezuelan hustlers and small businessmen.”
This played out in Turkey when the government got serious about turning the lira into toilet paper and people bought gold, foreign currency, and bitcoin. Bitcoin also became a means for Canadian protesters to work around government attempts to financially isolate their protest movement.
“Of course a technology centered around avoiding governance and banking failures will be centered in the countries with the most governance and banking failures!” Alexander adds.
But any technology that can be used by good people can also be used by bad people. That’s as true of window curtains as it is of crypto (or cash). The same privacy sought by a family going through evening routines might serve a terrorist building bombs, just as businesses and activists evading a hostile state might use the same currency that purchases bomb parts. Politicians love playing up potential abuses.
“Following the September 11, 2001 terrorist attacks, our government enacted meaningful reforms that helped the banks cut off bad actors’ from America’s financial system. Applying these similar policies to cryptocurrency exchanges will prevent digital assets from being abused to finance illegal activities without limiting law-abiding American citizens’ access,” insists Sen. Roger Marshall (R–Kan.), co-sponsor of the Digital Asset Anti-Money Laundering Act of 2022.
When politicians hold up the post-9/11 panic that supercharged the surveillance state as their model, take them seriously. The legacy of that time is widely recognized as an over-powerful government that intrudes into Americans’ lives, subjecting our activities and communications to monitoring and diminishing our liberty. With their bill, Warren, Marshall, and company want to extend that surveillance to financial technology that was explicitly developed to empower individual liberty and privacy.
“The bill first seeks to classify self‐hosted wallets as money service businesses,” cautions the Cato Institute’s Nicholas Anthony. “For those unfamiliar, self‐hosted wallets are merely the digital equivalent of a wallet in your pocket or purse. … Where much of the financial surveillance in the United States depends on what’s known as the third‐party doctrine, self‐hosted wallets offer individuals protection from government surveillance and censorship. Yet Senator Warren’s bill would put an end to that protection.”
The bill, says Anthony, would “classify cryptocurrency miners, validators, and network participants as money service businesses.” It “also sets its sights on cryptocurrency mixers” who “offer individuals the opportunity to enhance their privacy when using cryptocurrencies on public blockchains.”
In fact, the bill’s language specifies that “the Secretary of the Treasury shall promulgate a rule that prohibits financial institutions from … handling, using, or transacting business with digital asset mixers, privacy coins, and other anonymity-enhancing technologies.”
Senators Warren and Marshall talk about “terrorism” and “drug lords,” but their clear goal (whether or not its within their reach, which is another matter) is to strip crypto of its ability to be used privately and without permission in the same way we use cash. Their objections to digital money also apply to banknotes and coins. Ultimately, it’s not crypto they fear, but our liberty to earn, purchase, save, and donate without being impoverished, scrutinized, or stopped by government officials.
Bitcoin and other digital tokens have their flaws, but they’re an attempt to fulfill a widespread desire for reliable stores of value and means of exchange independent of control. And while all such forms of money are vulnerable to fraud and theft, that’s already illegal. The Digital Asset Anti-Money Laundering Act of 2022 doesn’t even attempt to address such crimes, instead, it’s an attack on financial privacy and liberty. For all the reasons politicians are coming after crypto, you can bet that cash is next.