If someone told you they need to monitor and regulate your phone calls, or possibly even restrict the use of phones altogether, because criminals also use telephones, then you might have some questions.
Or how about if we were talking about money? What if a government agency insisted that all your transactions must be centrally tracked, and that in fact, non-monitorable money was a dangerous tool?
The reason, again, is that all manner of bad actors, fraudsters, terrorists, spies, you name it, use money, and, therefore, we must all agree to have our money closely monitored. All in the name, of course, of safety and security, which is to say: trust us, it’s for your own good.
That second example, money, gets to the essence of the ongoing debate around crypto regulation , and crosses over into a related topic: various governments’ recent interest in issuing CBDCs.
This all also, ultimately taps into, a battle that runs to the very heart and soul of cryptocurrencies, and the reasons that Bitcoin was launched in the first place, over a decade ago.
Old Arguments Rehashed
There’s a famous quote from Ronald Reagan, which states, “Freedom is never more than one generation away from extinction,” and that, “It must be fought for, protected, and handed on.”
Even if you’re not an admirer of Reagan or his affiliations, from a politically disinterested perspective, it’s telling that his words are still resonant several decades after they were first spoken.
The quote is particularly relevant, right now, to crypto, as while the core facet being wrestled over, freedom, remains the same as it has been grappled with for generations, the form that freedom takes, or the shell in which it is carried, may change.
What differs now, in the third decade of the twenty-first century, is that some freedoms are represented by computer code and a blockchain ledger, and a pertinent liberty currently in question is the individual capacity to transact unrestricted and with privacy.
As always, proposed restrictions are framed as being a security issue, for the sake of safety and protection, and a shadowy threat (those hackers and scammers, and also, if you’re in politics, protestors of various ideological persuasions) must be kept in focus in order to convince the public that financial doormen are required.
CBDC Risks
The argument for CBDCs takes in security and convenience, but at its core also comes down to increased control. In fact, proponents will openly frame the control enabled by CBDCs as a positive thing: governments can rapidly micro-manage the money supply to overcome challenges as they arise.
That might be true, but it would require a precarious level of naivety to also believe, firstly, that the level of centralized power enabled by CBDCs would not, over time, become corrupted, assuming that it’s not already critically corrupted from the start.
Secondly, even if corruption is negligible, bureaucracies and central banks have proven themselves to be competent enough to exercise this level of control.
And, finally, in liberal democracies, there would be enough consensus over how everyone spends their money that a CBDC system (which allows for programmable currency) could be implemented peacefully, smoothly and without state coercion or ethical violations.
The Decentralized Alternative
Bitcoin and cryptocurrency offer solid alternatives to existing fiat money systems and to the even-worse fiat spin-off offered by CBDCs, and decentralization is critical to crypto’s promise.
This is the key feature that separates crypto and CBDCs. While both are digital and use blockchains, with crypto, the network is distributed and, in the case of Bitcoin, at least, immutable, meaning the ledger cannot be altered, and the consensus layer (where transactions are validated) cannot be tampered with.
With CBDCs, it’s the opposite: a completely centralized blockchain that can be altered unilaterally by the controlling authority.
Without the decentralized component, cryptocurrencies veer off track, as a key original intent of Bitcoin was to create an independent, self-operating network that requires no trusted party to process and authorize transactions.
That means a decentralized blockchain is a secure ledger that exists outside of either private or state control. It should be neutral, incorruptible, and open to everyone.
Does that mean that it’s open to nefarious use? Yes, that will be in its nature, but the benefits of separating money and state, or digital networks and corporate controllers, outweigh concerns about criminal activity, just as the benefits of the printing press and social media outweigh the fact that bad faith actors can more easily disseminate questionable texts.
What’s more, to return to the opening examples, are telephone networks and bank notes not also open to nefarious use?
And, following on from that, how about digitally-enabled central control of our communications and money: would that not be open to nefarious use, but at an institutional level, and how could such degrees of control remain compatible with the values of an open society?
Ultimately, the new battles unfolding around crypto regulation and CBDCs come back to familiar discussions about individual liberties, and the extent to which we are willing to let central authorities dictate terms.
This time around, it’s crypto on the front line, and though it may be an emerging new sector, it has historical tailwinds in its favor.
