Big Brother Is Coming for Bitcoin
Many advocates of Bitcoin and other cryptocurrencies have a naïve belief that their digital assets are ‘beyond the reach of governments’. That they ‘cannot be traced’. And ‘cannot be frozen or seized’.
They’re beginning to learn otherwise.
When it comes to Bitcoin, I take a laissez-faire approach — do your own thing. If you want some Bitcoin in your portfolio as part of a diversified bundle of assets, that’s up to you. If you want to speculate in some of the other lesser-known cryptocurrencies, that’s fine too.
My only suggestion is to be wary. You need to take the time to understand how it works and what the risks are.
The technology behind cryptocurrencies is usually called the ‘blockchain’. But a more descriptive term now in wide use is ‘distributed ledger technology’, or DLT.
There’s no denying that fortunes have been made and will continue to be made in various DLT applications. While I’m not necessarily a fan of individual cryptocurrencies, I am a believer in this technology.
And here’s the thing:
Governments don’t want to kill the blockchain; they want to control it.
Governments enjoy a monopoly on money creation and they’re not about to surrender that monopoly to cryptocurrencies like Bitcoin.
But governments know they cannot stop the technology platforms on which the cryptocurrencies are based. Blockchain technology has come too far to turn back.
They seek to do so using powers of regulation, taxation, investigation, and ultimately more coercive powers. This includes the arrest and imprisonment of individuals who refuse to obey government mandates with regard to blockchain.
Governments, regulators, tax authorities and the global elite are moving in for the crypto-kill. The future of Bitcoin may be a dystopia in which Big Brother controls what’s called ‘the blockchain’ and decides when and how you can buy or sell anything and everything.
Furthermore, cryptocurrency technology could be the very mechanism used by global elites to replace the dollar-based financial system.
In 1958, Mao Zedong, the leader of the Communist Party of China, was confronted with demoralised intellectuals and artists who were alienated by Communist rule. As a policy response, he declared a new policy of intellectual freedom.
Mao declared: ‘The policy of letting a hundred flowers bloom and a hundred schools of thought contend is designed to promote the flourishing of the arts and the progress of science.’
This declaration is referred to as the ‘Hundred Flowers Campaign’ (often misquoted as the ‘Thousand Flowers Campaign’).
The response to Mao’s invitation was an enthusiastic outpouring of creative thought and artistic expression.
What came next was no surprise to those familiar with the operation of state power. Once the intellectuals and artists emerged, it was easy for Mao’s secret police to round them up, kill and torture some, and send others to ‘reeducation camps’ where they learned ideological conformity.
The Hundred Flowers Movement was a trap for those who placed their trust in the state. It was also a taste of things to come in the form of the much more violent and comprehensive Cultural Revolution of 1964–1974 in which all traces of Chinese bourgeoisie culture and much of China’s historical legacy were eradicated.
Something similar is going on with Bitcoin and the distributed ledger technology today. Governments have been patiently watching blockchain technology develop and grow outside their control for the past eight years.
Libertarian supporters of blockchain celebrate this lack of government control. Yet their celebration is premature, and their belief in the sustainability of powerful systems outside government control is naïve.
Blockchain does not exist in the ether (despite the name of one cryptocurrency) and it does not reside on Mars. Blockchain depends on critical infrastructure including servers, telecommunications networks, the banking system, and the power grid. All of which are subject to government control.
Last year, a group of major companies, all regulated by government, announced a joint effort to develop an open-source blockchain as a uniform standard for all blockchain applications. The group includes JPMorgan, Wells Fargo, State Street, SWIFT, Cisco, Accenture, the London Stock Exchange and Mitsubishi UFJ Financial.
That’s not exactly five guys in hoodies working in a garage. That’s a sign of the corporate-state consortium taking over.
An elite US legal institution called the Uniform Law Commission (ULC), which proposes model laws intended for adoption in all 50 states, also released a proposal called the ‘Uniform Regulation of Virtual Currency Businesses Act’.
The ULC released a final version of the Uniform Regulation of the law on 9 October 2017. No state has yet to adopt the law, but several state legislatures are expected to take it up this year.
This new law will not only provide a regulatory scheme for state regulators, but will also be a platform for litigation by private plaintiffs and class action lawyers seeking recourse against real or imagined abuses by digital coin exchanges and facilities. Once litigation begins, anonymity is the first casualty.
Perhaps most portentously, the International Monetary Fund (IMF) has weighed in. In a special report dated June 2017, the IMF had this to say about blockchain (my emphasis added):
‘Distributed ledger technology (DLT), in particular, could spur change in the financial sector… DLT can be categorized as “permissionless” or “permissioned” depending on who can participate in the consensus-driven validation process. Permissionless DLTs allow anyone to read, transact on, and participate in the validation process.
‘These open schemes (that underlie Bitcoin, for instance) could be very disruptive if successfully implemented. By contrast, in permissioned DLTs, the validation process is controlled by a pre-selected group of participants (“consortium”) or managed by one organization (“fully-private”), and thus serve more as a common communications platform.’
IMF releases require expert translation because they are never written in plain English. The real meaning is always hidden between the lines. But the thrust of the language in this report is clear.
The IMF favors ‘permissioned’ systems over ‘open schemes’. The IMF also favours control by a ‘pre-selected group of participants’ or ‘one organisation’, rather than allowing ‘anyone’ to participate.
This paper should be viewed as the first step in the IMF’s plan to migrate its existing form of world money, the special drawing right, onto a DLT platform controlled by the IMF. In time, all other forms of money would be banned.
These and other developments all point towards an elite group including the IMF, JPMorgan, the Davos crowd, the IRS, SEC and other agencies converging to shut down the existing free-wheeling blockchain ecosphere and replace it with a ‘permissioned’ system under ‘consortium’ control.
Big Brother is coming to the blockchain.
All the best,
For The Daily Reckoning Australia
PS: Last year, I was in Adelaide to present at the As Good As Gold Australia’s 2017 Conference — The Perfect Wealth Transfer Storm. My presentation — Gold: The Once and Future Money — delved into how the monetary system really works, how it connects with geopolitics, and what upcoming events you need to look out for that could impact gold and your investments.
I’m pleased to announce that you can now watch my presentation in its entirety.