It has been almost two months since President Joe Biden took office and, for Bitcoin believers, his arrival brought modest good news.
Most notably, the Biden government appears to have canceled a campaign by the former Treasury secretary to impose new onerous rules on the crypto industry, a campaign that many saw as anti-crypto revenge. Meanwhile, Biden’s choice to lead the SEC is a former MIT blockchain professor who may not follow pro-cryptography policies, but clearly understands Bitcoin deeply.
This is a departure from the Trump administration, whose members, including the former president himself, have often expressed open hostility to Bitcoin and cryptography. But the United States is still a long way from developing policies to encourage innovation in cryptography. The law here is a mess, as different agencies are looking for competing or even contradictory regulations. And Congress, which passed laws in the 1990s to help the country lead the world in Internet technology, seems content to let other countries take the lead when it comes to cryptography.
So, what is happening? Why have U.S. legislators and regulators failed to embrace one of the most transformative technologies of this decade? The short answer is “it is complicated”.
I recently spoke with a longtime Justice Department attorney who processed high-profile money laundering cases, including those involving Bitcoin. He admitted that the U.S. crypto policy has been dysfunctional, with parts of the federal government trying to encourage Bitcoin-style innovation, while other parties are trying to shut it down.
The lawyer attributed this dysfunction to the disproportionate role that national security agencies played in shaping the US view on cryptography. People at these agencies have looked at cryptography and Bitcoin entirely through the lens of the country’s war on terrorist financing. He noted that, since the Patriot Act was passed in 2004, the feds have turned the US dollar into a “strategic weapon” to boost foreign policy objectives.
Ironically, this decision may have accelerated the rise of currencies competing for the dollar, including Bitcoin and other cryptocurrencies. While the New York Times noted this week, “dollar armament” angered Europe and prompted local governments to explore financial tools that would make them less dependent on the US currency.
Meanwhile, China has taken the lead in issuing an encrypted version of the yuan through its central bank. The country’s new digital currency is partly an extension of its wide-ranging surveillance state, allowing the Communist Party to better track how people spend money. But, as the former DOJ lawyer told me, it is also a new form of soft power for Beijing, which wants to use the convenience of blockchain-based money to involve other countries in trade deals that don’t use the dollar.
All of this means that the failure of the United States to develop a coherent political crypto could undermine the country’s geopolitical influence sooner or later.
It is not too late, of course, for the United States to win the era of cryptography, as it did at the beginning of the Internet age.
Many of the world’s top crypto companies are based in Silicon Valley, and the relative freedom of the United States compared to China’s totalitarian regime will ensure that the dollar does not go away anytime soon. And, paradoxically, Bitcoin has also inadvertently strengthened the U.S. dollar, as Satoshi Nakamoto’s currency is not especially practical for day-to-day transactions. As the lawyer notes, “even North Korean hackers who steal Bitcoin convert it into dollars”.
Still, it is better for the Biden administration to start prioritizing cryptography policy, treating cryptography as part of the race for innovation, rather than a threat to be eliminated. Current assumptions about national currencies are changing rapidly, and the United States needs to be prepared for an era in which cryptography is the dominant form of money.
As for the DOJ lawyer, he left the government a few years ago. He now advises an encryption boot.
That is Roberts on cryptography, a weekend column written by Decrypt chief editor Daniel Roberts or Decrypt executive editor Jeff John Roberts. Sign up for the decrypt email newsletter to receive it in your inbox in the future. And read last weekend’s column: Why the NBA was built for the NFT craze.