It has always been a libertarian ideal to decentralize the powers of the government, none more so in recent years than the immense power of the Federal Reserve. The institution has grown immensely in size and scope since the financial crisis, a rise to prominence which has largely centered around two of its key traits: its power over the American money supply, and its lack of accountability.
Ron Paul has been somewhat successful in addressing the latter issue. His thoughtful and persuasive 2009 publishing of End the Fed laid bare the workings and issues with the entirety of the Federal Reserve System, and his Audit the Fed campaign brought the issue to halls of government.
The former congressman’s work has been a giant step in the right direction, but it has mostly failed to address the other issue with the Federal Reserve: its control over the currency and money supply of this nation. That is where cryptocurrencies and blockchain technology come in.
Blockchain was born out of an ideal to end the manipulation of data inherent in all systems that relied on a centralized authority. The principle behind blockchain is that it is an open ledger, recording transactions permanently and without the possibility of someone with an ulterior motive altering the ledger. The manipulation of data may not seem a dire problem to those of us living in the countries of Europe or the United States, but developing nations lack the trust in government officials necessary for the successful functioning of a free society.
At its best, blockchain may solve the issue of allocating property rights to people in poor societies, but the technology has currently found a home in the realm of currencies. Bitcoin, the first cryptocurrency, was created in 2009, with the power to revolutionize the very idea of money. Nearly a decade on, Bitcoin has spawned many imitators, some successful, some not, and has government agencies in a puzzle over what to do about cryptocurrencies.
Bitcoin and Ether are arguably the two most successful cryptocurrencies in existence today, a success which has proven that blockchain has the potential to work and the public has interest in it. A virtual currency and decentralized ledger, both of which are inherent to Ether and Bitcoin, undermine the power of the central banking system. Neither hard currency, nor trust in government institutions (two key features of the Federal Reserve) are necessary for monetary transactions when cryptocurrencies exist. They directly interfere with the authority that central banks have amassed in the past decade, and therefore governments around the world do not like them.
In February 2018, China banned all sites affiliated with cryptocurrencies. Last month, the European Union voted to more closely regulate cryptocurrencies, and in the United States the Department of the Treasury, the Securities and Exchange Commission, and the Federal Trade Commission have all been fighting to regulate these virtual coins. Under the pretense of protecting consumers against deceptive cryptocurrency schemes, governments around the world are trying to regulate a technology they admittedly know very little about.
Although some initial coin offerings (ICOs), similar to initial public offerings but for coins, have been operating as scams, government heavy-handedness is not the solution to bad actors. Much as the dot-com bubble wiped out fraudulent and unnecessary use of websites and cleared the way for the enormous potential of the internet to become reality, the ICO fad will pass and what will be left behind are cryptocurrencies with the potential to revolutionize how we think about money.
What government is truly afraid of, and why it is in such a rush to regulate, is that the success of cryptocurrencies like Bitcoin and Ether is a direct threat to government institutions like the Federal Reserve. Government officials do not like anything that undermines their authority, and a loss of control of the money supply would cut this authority off at its knees.
The beauty of cryptocurrencies lies in their distributed ledger technology. Each transaction comes with a time stamp almost impossible to manipulate, as the underlying technology has made sure of.
Bitcoin relies on a proof-of-work system, requiring miners to put in a considerable amount of time and energy usage in order to generate a successful block. Once a block is generated, a majority of miners must agree on the block. Currently, 51 percent of miners have to agree, a point which cryptocurrency dissenters have noted as a possible avenue of attack on the ledger. Theoretically, if an actor wanted to halt transactions or change the ledger for nefarious purposes, he could do so by acquiring 51 percent of the computing power. Yet such a scenario would be almost impossible to execute, given the enormous amount of computing power it would take for one actor to acquire such a huge stake and the technical difficulty of such a task, and given that there is an implicit honor among miners that would prevent most from being part of such a scheme. Ether runs on the same technology, yet has recently discussed moving to a proof-of-stake system due to the large electric usage that comes with proof-of-work. Greener and cheaper, proof-of-stake provides the same security as proof-of-work, but could be the bridge between cryptocurrencies and wide public use that the space is currently missing.
The potential of cryptocurrencies is massive, not only to shrink the authority of government institutions, but to bring the power of the money supply back to the public. Cryptocurrencies are an innovative way to decentralize control of transactions and public records, and the technology is built for the security and privacy of individuals.
During a debate with Reid Hoffman at Stanford University several months ago, Peter Thiel called cryptocurrency “libertarian,” noting that its autonomy and decentralization is the reason the “Chinese Communist Party hates crypto.” The public would do well to remember that as governments around the world continue to crack down on cryptocurrencies in the name of societal well-being.
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