The following article originally appeared in Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.
If Venezuela’s oil-backed cryptocurrency succeeds – and that’s still a big if – it could portend a whole new use case for the technology: fundraising for rogue states.
The world may just have to live with that.
One of the defining aspects of cryptocurrency is neutrality. Bitcoin, ethereum and the like are open networks. They don’t discriminate.
A public blockchain doesn’t care if you’re a Boy Scout or a convicted ax murderer. As long as you control the private keys to a bitcoin wallet, you control the funds in it, no passport required. (Setting up an account at a crypto exchange is a different matter.)
That is financial inclusion, in the truest sense, though it’s not exactly what policy wonks have in mind when they use the term.
Similarly, as long as you know how to code, you can contribute or build applications on top of bitcoin or ethereum, no Ivy League degree needed.
That is permissionless innovation. It’s what allowed Sir Tim Berners-Lee to create the world wide web and Satoshi Nakamoto to invent bitcoin.
And now it may allow Venezuela’s strongman president, Nicolas Maduro, to eat many more empanadas at his desk, and do who knows what else, as his nation reels from an economic crisis.
A nebulous plan
Stepping back, last week Maduro’s government claimed it had raised $735 million on the first day of a pre-sale of its cryptographic token, known as the petro, and revealed a number of other details about the project. Much remains unclear, including which network the coin will run on top of – some public documents say it’s NEM, others say ethereum.
The coins are ostensibly backed by the country’s oil reserves, with their value somehow pegged to the previous day’s price per barrel in bolivars (so much for real-time). They’ll be legal tender and accepted for tax payments in Venezuela, according to the government, so in theory there’s a use case for local residents.
Still, it’s hard to see any value proposition for outside investors in a token that’s controlled by a dictatorship. You could even argue that such a centralized set-up disqualifies the petro from being called a cryptocurrency in the first place.
But, imagine for a moment that this scheme works. It could be an encouraging sign for other authoritarian regimes that have been cut off from the global financial system by economic sanctions. Already, Venezuelan officials have met with their Russian counterparts to discuss the petro, and, late last week, Iran revealed its own cryptocurrency plans.
Now, it’s one thing for individuals or small business owners to use cryptocurrency to circumvent international sanctions. In such cases, it’s easy to root for the underdog, even when members of the Washington foreign policy establishment clutch their pearls. God forbid an Iranian shoemaker should be able to sell handmade footwear on the internet! Who’s in charge of this “bitcoin” anyway? Don’t they know financial intermediaries have a Responsibility to Society to make sure the shoemaker’s children starve? Why, for all we know, that merchant could be funding terrorism … one pair of wingtips at a time!
The recent sanctions-skirting crypto projects, however, would enrich, not the citizens of these countries, but the repressive governments responsible for their pariah status. Which, as crypto critic Preston Byrne wryly noted on Twitter, doesn’t match up with the tech’s early libertarian rhetoric.
Thoughts on Ethereum and the Petro pic.twitter.com/qLnpPODye3
— Preston Byrne (@prestonjbyrne) February 21, 2018
That’s the thing about open-source technology and permissionless networks, though. Not only can the tools fall into the wrong hands – the very idea of “wrong hands” is foreign.
For an illustration, let’s take a quick detour to the U.S., where the latest mass shooting has made firearms a hot-button political issue. In a recent op-ed in the New York Times, Andrew Ross Sorkin argues that if Washington won’t put stricter controls on gun sellers, the nation’s financial institutions should do so, for instance by refusing to do business with retailers that sell assault weapons.
This paternalistic idea would set a dangerous precedent, as my former colleague, American Banker editor-in-chief Rob Blackwell, warned in a response to Sorkin. But it’s also a helpful reminder of what sets apart cryptocurrency from the legacy financial system.
Bitcoin doesn’t know or care what the purpose of a transaction is. Nodes and miners, blind to the identities behind alphanumeric addresses, can’t be shamed by the Andrew Ross Sorkins of the world into trying to control human behavior. That’s one of the main reasons bitcoin has value.
Is this good or bad? You tell me, is fire good or bad? This much is clear: if banks took Sorkin’s advice and tried to choke off gun sales, bitcoin would probably rally.
Then there’s the alleged “Nazi problem.” You’ve probably read about how extremist platforms like the Daily Stormer, shunned by mainstream payment processors, have turned to cryptocurrency as an alternative means to accept donations, and apparently got rich in the recent run-up.
It goes without saying that these organizations’ words and ideas are despicable. But as long as they’re just words and ideas, not violent or criminal actions, what purpose did it serve to cut off their access to credit card payments?
As free-speech advocates will tell you, the antidote to bad speech is not suppression, but more speech. Blackballing speakers you or I find offensive from financial services opens the door for banking to be weaponized against others that you or I may support.
Fortunately, the existence of cryptocurrency blunts this weapon. Today it’s the neo-Nazis taking advantage of bitcoin’s neutrality, but tomorrow it may be [insert a publisher dear to your heart] who needs it. You’ll thank Satoshi when that happens.
Returning to Venezuela, western governments could try to thwart the petro, or its Russian or Iranian equivalents, by, say, forbidding licensed exchanges to list the tokens or by blacklisting ethereum ERC-20 addresses that receive the tokens. (No airdrops, please!) But to the extent these projects really do function like cryptocurrencies, shutting them down may be impossible.
That’s the hyperconnected world we live in today. Buckle up, buckaroos.
Nicolas Maduro image via Wikimedia Commons