At an Oct. 11 hearing on “Exploring the Cryptocurrency and Blockchain Ecosystem,” members of the Senate Banking Committee heard two completely different perspectives on the topic.
When the committee paired Dr. Nouriel Roubini, an outspoken critic of crypto, with Peter Van Valkenburgh, the research director at Coin Center, it must have been hoping for a serious debate.
Instead, Roubini delivered animated rants retreading the usual arguments against cryptocurrencies and blockchain, nearly all of which have been answered countless times.
{mosads}The argument boils down to this: Criminals use it, so the government should shut it down or regulate it to death. It’s the same objection that was raised 10 years ago when bitcoin burst on the scene, and it’s no more persuasive now than it was then.
Like it or not, criminals are just like the rest of us in that they will take advantage of every technological advance. Take computers, for example: They use them for criminal purposes, yet no one argues we should ban computers or regulate who could buy them.
More importantly, as Van Valkenburgh testified, law enforcement officials can more easily catch criminals who use these public ledgers as opposed to those who use cash or other forms of payment with no record at all.
Roubini also argues that cryptocurrencies are dangerous because they exhibit so much price volatility. Bitcoin, he points out, has lost more than half of its value since its previous peak. This criticism is even less compelling. It implies that someone has orchestrated this price volatility and somehow benefitted from it at the expense of the people who own bitcoin. Neither is true.
Regardless, this critique highlights a major difference between two common views of consumer protection.
Progressives’ view of consumer protection is that the government should protect consumers from a loss in their assets’ value. Advocates of economic freedom, on the other hand, understand that using government power to prevent financial loss only leads to more widespread loss.
This view, consistent with a system of limited government and free enterprise, views consumer protection as something the government does to protect consumers against fraud. A loss in value is not inherently indicative of fraud.
Roubini also charged that most of the computers verifying bitcoin transactions are part of some kind of “oligopoly” in China or Russia. He didn’t explain just how the scheme worked, but would have us believe that the oligopoly threatens unsuspecting bitcoin holders because it has market power, thus giving it the ability to charge higher prices.
The truth, as Van Valkenburgh points out, is that any such cabal of miners could do very little. At best, they could pull off some kind of temporary denial of service attack. At the very least, Roubini should have explained what this sort of attack would accomplish.
Overall, Roubini believes that: cryptocurrencies are not money; they are not scalable; they are controlled by criminals and nefarious governments; they enable tax evaders and money launderers; and they’re dangerous because they don’t come with some kind of government-backed deposit insurance.
Taken together, these charges are incoherent, e.g., one cannot evade taxes with bitcoin if it is not money. Individually, they betray a superficial understanding of the technology and a decidedly clear preference for an expanded role for government.
Bitcoin, and much of the innovation it spawned, has given hope to millions of people all over the world who can’t trust their government to be good stewards of their national currencies.
It is easy to forget, but even the U.S. government has, at various times, destroyed the private wealth of its citizens via its monopoly on money. (Who would have thought, prior to its occurrence, that the U.S. government would, or even could, outlaw the ownership of gold?)
To ensure that the Federal Reserve acts as a moderately good steward of the national currency, Congress should eliminate barriers that impede people from using their preferred medium of exchange.
Competitive market forces can improve the means of payment in the same way that market forces improve virtually all goods and services, and no government-imposed mandate should force people to use any particular form of money in place of another medium of exchange.
There are many other advantages that blockchain, a decentralized method of computing, could provide over the central server model that has become so pervasive.
Van Valkenburgh spent most of his time combatting Roubini’s claims, but his written testimony provides examples of how these technologies hold the potential to improve financial inclusion, provide greater security and spur more competition that could benefit millions of consumers.
The incredible potential exists because these technologies provide a mechanism for people to trust unknown third parties, giving a whole new meaning to the term intermediary. Too bad the witnesses called by the Banking Committee didn’t have time to debate these issues.
Norbert J. Michel is director of The Heritage Foundation’s Center for Data Analysis.