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Addressing the Letter in Support of Responsible Fintech Policy

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A few days ago, an anti-cryptocurrency letter directed to Washington lawmakers was published which argued that cryptocurrencies were a technological dead end and a solution in search of a problem — a vessel for robber barons and swindlers of all sorts to fleece the luddite public of their money as they try to hop aboard the runaway freight train that is the crypto market.  It’s hard to say they don’t have a point.   When we wander down to the bottom of the coinmarketcap website, we see that there are 135 pages of cryptocurrency projects.  The projects aren’t even ranked in numerical order on the final page.  I’m not sure how far down the list they stopped counting, but it does look like they’ve stopped — a hundred and thirty-five pages of useless drek.  As the letter says, solutions in search of a problem. 

Distributed ledgers have sprung up, swallowing a hodgepodge of traditional tech functionality and slapping the blockchain onto it as an “innovation.”  Often, the blockchain adds cost and latency to a tech innovation that already functions quite well.  Worse, these innovations are crowdsourced – funded by non-tech-savvy members of the public.  When the idea inevitably fails, the founder walks away with millions or billions and leaves the people they’ve swindled without recourse.

But I’m not certain what’s being advocated in this letter.  The letter’s complaints are specific, but the prescriptions are deliberately vague.  When we consider what lawmakers want to do with the public use of encryption in general, these vague and non-prescriptive statements are very dangerous.  There are legal steps that are very reasonable considering the kinds of predatory individuals and organizations who scam novice crypto investors but giving congress carte blanche simply because the signatories personally consider blockchain a technological dead-end is short-sighted and alarming, especially since lawmakers can now point to this letter as justification for a whole spectrum of wide-ranging tech development crackdowns.

Consider the proposed legislation earlier in the year, which would have slapped the impossible burden on Bitcoin miners of being required to KYC every transaction on the network.  These are the kinds of laws spewed out of American legislative bodies and to write a letter like this without specific prescriptive steps is irresponsible.  The letter also features elements that are incorrect and provocatively alarming to legislators:

Blockchain technology cannot, and will not, have transaction reversal mechanisms because they are antithetical to its base design.  Similarly, most public blockchain-based financial products are a disaster for financial privacy; the exceptions are a handful of emerging privacy-focused blockchain finance alternatives, and these are a gift to money-launderers.

Matthew Green made this point:  Some stable coins are blockchain technologies with freezing of funds as an option, and it is possible for decentralized chains to enable transaction reversibility. Not only are the prescriptive measures of the letter vague, elements of it are incorrect. 

Further, the letter illustrates that the vast majority of blockchain technologies are privacy nightmares, save for a few privacy-focused coins, which they then punt away by stating that these are a gift to money-launderers.  This is a dishonest sleight of hand.  If the signatories are accusing the entire blockchain space of being essentially useless, they can’t just awkwardly shuffle away a useful aspect of the technology (which they have themselves highlighted) simply because it’s used by undesirable elements of society. 

I don’t think it’s a coincidence that they both included and framed privacy coins solely for their position as money laundering vessels in a letter to members of Congress.  These technologies represent a significant challenge to the state’s ability to coerce citizens through financial control mechanisms.  If widely adopted, they also offer functional transaction privacy, which prevents government agencies from using financial transactions as intelligence-gathering tools against dissidents and individuals or groups that fall out of favor with the regime in power.  The loss of such control is frightening to lawmakers drunk on power, which is why the authors included these very useful privacy technologies in a letter to Congress.  The irony is, in a letter about how useless most cryptocurrency “innovation” is, they’ve used one of the few legitimate and demonstrably useful aspects of blockchain technologies to scare lawmakers into seeing their point, which is a little foul.

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