The developing conflict between regulators and crypto-anarchists

Recently I got married to the most wonderful woman on earth and enjoyed a great lengthy honeymoon. After returning home I found myself amidst an interesting mix of innovations, news and developments; together signalling a large conflict in the crypto-space.

Alan Greenspan, former Chairman of the Federal Reserve (FED) of the United States recently considered it fair to say that the American bond market is in a bubble that is not discounted in the market places. Irrational exuberance was the term coined by Greenspan in the nineties to explain that the markets were in a bubble. This time the term was appropriate to describe the markets again, according to the former chairman.

The opaque FED

Meanwhile, a successor of Greenspan, Janet Yellen, declined an audit of the Federal Reserve in a heated conversation during a congressional testimony. The reasoning is perfectly understanding, from the perspective of the FED. From the other side, the criticism is sound as well. Maybe it is the system that is the problem here, as it allows for political interference that in turn drives fear of transparency.

Nothing new here you might say. But this time was different. Not the puppet-show in itself but a smirky fellow in the room at the testimony. In a one-man guerilla action he took the opportunity to perfectly bring about his message to “buy Bitcoin”. His timing perfectly matched the content of the discussion and became this nice still on national television.

Bitcoin sign guy, right behind Yellen

We remember the guy as ‘Bitcoin sign guy’ from now on. A nice touch as the incubent financial organisations are not planning on changing anything about their ways, so it seems.

Banking the unbanked

The past weeks an all time high cumulative of all ICO’s was charted prior to an all time high bitcoin price. After a split of the network and the activation of a state-of-the-art protocol technology; SegWit prices went up quickly. Segwit is a technology that is adopted in the Bitcoin network that offers scaling opportunities, now and in the future. The changes allow millions of transactions, paving the road to mainstream adoption of Bitcoin on a global scale.

At the same time a couple of satellites that run Bitcoin software were launched, allowing anyone in the world to do financial transactions, without the possibility of incumbents to interfere.

At a first glance the main goal of this project seems to be banking the unbanked and underbanked. But a close look shows European and North American territories are covered by the satellites as well. The satellites not only allow for some fairness in the developing world by banking the unbanked, but also allow people in the west to unbank themselves and opt-out of the surveillance and involuntary coercion of modern governments.

The impact of regulationi became very clear last week when China publishedthe rules on ICO’s. After the news got out the price of Bitcoin took a deep dive. The Chinese acted swiftly while other governments around the world are still planning on doing something to regulate the cryptocurrencies and token-related schemes. For exaple the UK and the IMF plan to ban cryptocurrencies or make them obsolete otherwise.

The real problem is the existence of Bitcoin, which has now been recognised as a real threat to fiat currencies

As governments start to regulate tokens and cryptocurrencies and try to render these censorship-resistant alternatives to fiat useless, by issuing central controlled alternatives, the Bitcoin network grows to a scalable and indelible network as new software is gradually added to the network.

A war between regulators and software engineers

All these developments reminded me of a recent tweet from Nick Szabo, a well known expert within the cryptocurrency space:

Taking a step back I’m afraid the only conclusion is that a large conflict is unfolding between the crypto-anarchists and incumbent regulatory organisations. To make things worse the two groups don’t talk with eachother on a regular basis.

As the conflict grows, the distance grows and regulations will have an increasing impact on the adoption (and price) of cryptocurrency. At least in the short term. A scenario that inevitably will negatively affect millions of people around the world that have come to rely on non-political financial services based on technology like Bitcoin. How this will proceed further is not clear, but in the end the result will inevitably be a more equal world. According to the American Banker blockchain technology will win in the long term, not regulators.

The nature of blockchain is such that this technology — not regulators — will win in the long term

Cryptocurrency and regulation

The connection between regulation and cryptocurrency is a striking one. Cryptocurrencies offer solutions to problems regulators are unable to solve. For years regulators around the world try to improve financial inclusion, stop information asymmetry, avoid moral hazard, improve privacy, heighten regulatory predictability, weed out systemic instability and lower barriers of entry. Cryptocurrencies in general have a positive impact on all of these aspects, compared to the way existing financial markets operate. The focus of regulators though is mostly narrowed down to KYC and related supervision.

When a cryptocurrency has users that are harmed, oppressed or exploited, while regulation will not solve the problem, it is likely to survive even in the harshest environments. As an example we see that crypto is banned in Argentina but use of the alternative currency keeps growing.

Let’s hope governments are able to accept this in a timely manner and prevent a full-on war on crypto-assets that can’t be won and only will produce losers.