Standing On The Cryptocurrency Frontier

In a 1980 presidential debate, Candidate Ronald Reagan eviscerated a hapless incumbent Jimmy Carter by responding to several of Carter’s declarations in a pitying, sarcastic voice saying “there you go again.”  As I listen to the current discussions about the “wild frontier” of cryptocurrency, all I can think of is here we go again.

The Internet, Cyber Space, and the consequent Fourth Industrial Revolution they caused, have not been kind to 20th century powers and ideas.  Revolutions rarely are.  And we’ve just been through a decade of debate on how to deal with the consequences of a new cyber domain and its use and the “rules” that govern it. Cyber space - while hardly settled - is no longer the wild frontier it was.  

Cryptocurrencies – digital money created from computer code by individuals - have been on the edge of that debate. “Crypto-land” was a small, unruly part of the territory with little impact on the real-world economy.  An interesting use of blockchain by college kids with servers.  Slowly, but surely, it got bigger. A lot bigger.  Trillions of dollars bigger.  And it has become a speculative, gold mining camp with massive fortunes won and lost filled with perceived anarchy by the law enforcement authorities.  And increasing concerns by nation states that maybe, just maybe, their 20th century-based currency systems could be blown apart by this advance.  They are confused.  They are not happy.  They cannot stop it.  But, they will try to control it.

It Is What It Is

Money is one of the great human conceptions - some would say accepted delusions.  Anything could be money - from stones to gold to paper.  Money is a medium of exchange.  Money is a measure of value.  Money is a store of value.  In other words, if you are willing to trade with it, view it as a “price,” and believe it’s going to keep some worth - congratulations, it's money.

The concept of precious metals and paper money have been around for millennium. The type of centralized regulation of money we currently have is relatively new – really since the mid-19th century.  In fact, in the United States - today’s international currency standard - in the U.S. we accepted Spanish doubloons up until the Civil War.  The Federal Reserve notes you carry in your pocket are a function of a long overdue 1914 formation of an American central bank.  And the U.S. Dollar as the standard of world currency; only since 1946.

The rise of cryptocurrency is even more recent with earliest creations coming from forms of computer based “e-cash” going back to the early 1980’s. It was not created by a central bank, but by individuals who could “mine” on their computer servers securely encrypted string of data - a “hash”. People were willing to accept these unique “packets” as a currency – a medium of exchange, a measure of value, and a store of value.  A money.

It wasn’t until the Internet took off in the mid-1990’s and the power of individual computers increased that the concept of cryptocurrency came into more common use and that the currency began to expand.  With the creation of easy to create, easy to purchase, and easy to obtain Bitcoin in 2009, that’s when cryptocurrencies exploded.  

Transparency and Control and Beijing

Central banks have been uneasy about cryptocurrency since the early 10’s. Admittedly, while it is an easy, secure currency for international trade, it has been notorious in its use on the Dark Net for any number of nefarious purposes from illicit activities, to the drug trade, to terrorism.  However, for those of us who remember the late cocaine wars in the late 70’s, most of the paper dollars in Miami had residue of cocaine on them. And were sometimes found floating in bales off the coast. Some things do not change.

The question of value is also a sticky one and rightfully concerning.  Right now, the fluctuation of value is rather high - to put it politely - with speculation pushing value all over the place.  Still, once you step beyond the well-controlled Yuan, Euro, and Dollar, you will note that many less developed country currencies values are all over the place.  See what a Venezuelan Bolivar will get you some time. 

Even with these challenges, the large central banks are not rejecting the possibilities of cryptocurrency.  Many are, like the U.S. Federal Reserve, studying what it would take to set up a Crypto-Dollar.  And, as you might guess, China is moving very quickly to position an easy to use and easy to obtain “crypto-Yuan.” Beijing has made no bones about wanting to the Number One power by mid-century. It is using Economic Power to do just that.  And finding a way to take over as the reserve currency from the U.S. Dollar with a well-received crypto currency is one of many ways to do that.

The Wild Frontier Is Closing

So, here we go again.  Like the Internet today, the Cryptocurrency Wild Frontier is going to close likely in this decade; or at least be better and more heavily patrolled. Individual miners are not going away yet.  But, the world’s governments and central banks, concerned about transparency and control, are going to build their own “coin and wallets” and will surely regulate miner behavior. And there are enough new users - two trillion dollars and growing by some estimates - that the “settlers” will want and will get peace and stability in Cryptocurrency-land. 

Governments will give it to them.  In the 21st century, the concept of the state as protector of the people and national interest is not going away any time soon.

Ronald Marks is Term Visiting Professor, George Mason University, Schar School of Policy and Government. He is President of ZPN Cyber & National Security Strategies     

Image: Unsplash

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