In Rep. Brad Sherman’s speech to the US Congress about his proposed cryptocurrency ban, he once again, without any apparent grasp of the technology behind cryptocurrencies, proceeded to paint all crypto users as criminals. As he has reiterated numerous times, his main point was that the only advantages to cryptocurrencies are to disempower:
- US political and economic influence abroad
- Tax collection
- Law enforcement
In fact, Sherman explained that virtual currencies are only used by criminals. He said people using crypto only do so to engage in narcotics or other criminal activities, evade taxes and aid terrorism by stripping the US of its political power to intervene in foreign governments.
People who are now working in this industry can honestly say that this is not the case. While there are nefarious characters within every industry, at least in cryptocurrencies we see innovators developing environments where good acting is incentivized. A far cry from how many governments work today. Spend one day researching the latest crypto projects and be amazed at the problems these teams are trying to overcome with brand new solutions.
Can fiat do everything cryptocurrency do?
The other big talking point of Shermans’s is that there’s nothing that can be done with cryptocurrencies that can’t already be done with fiat. Here is one very specific example of how cryptocurrencies provide something fiat can’t (or won’t):
Say you want to pay a freelancer for work she has performed. You cannot use Paypal because she is not allowed to accept payments through Paypal in her country. One choice is to go through a clunky at best freelancer agency where the freelancer pays up to 20% in fees and the payment takes at least a week to hit their account. (That’s if you can even find her to begin with through the platform’s US-preferential database.)
Another way would be to wire her the money, which would cost about $50 on your end plus the time needed to go to your bank and wait for someone to process your international wire. On her end, a possible physical trip to the bank plus fees of at least $50 (but probably more). On top of that, it would take 5-10 days or more before she gets her money. Even with a recurring wire, this type of transaction is costly in terms of money and time.
A third choice would be to send bitcoin or ETH (or something else you’ve agreed upon) wallet to wallet. The freelancer would have her money in a matter of minutes for a minuscule amount of coin in a completely private and safe transaction. You know she’s getting what she earned and it was pretty easy and quick, not to mention cheap. No third parties are necessary.
Just because you use crypto, does that mean you’re a criminal?
If you did such a thing, does that mean you are a terrorist, drug trafficker or overthrower of the American government? Probably not. You just found a more efficient, fair and economically feasible way to make a payment. It doesn’t mean you don’t intend to evade taxes. You run a business after all and the tax man will cometh regardless of what you do.
There are so many other examples of ways that cryptocurrencies can improve upon our current monetary system. But this gives you an idea of the kind of freedom and improved efficiency cryptocurrencies can offer. Once you’ve experienced it in person, it’s very hard to go back to the former thinking that fiat is good enough.
Benefits of Cryptocurrency
Crypto offers people payment options, savings account options, investment and trading options, and earning options, to name a few. You’ll have options you could never dream about in a million years soon coming your way. Why stop this amazing growth and innovation in an open source, free to all industry?
[This is how fast crypto moves. While writing this article, Ethereum World News reported that Whatsapp is now enabling crypto transactions for its 1.5 billion users.]
Companies that are working on decentralized ecosystems and pathways to broaden crypto usage are hardly criminals. Their work represents examples of infrastructure being laid for what people want.
Yet regulations continue to slow everything up. Nevertheless, innovative businesses are going to try and reach these hungry audiences. Whether they do it in the US or Asia or anywhere else is up to those nations.
People should be able to choose the currency of their choice now that there are options. Maybe we should let the markets decide. You can spend time trying to ban it or you can enable your country to remain competitive. Competition is healthy. But just because we are using cryptocurrency, or helping others to do so, doesn’t mean we are crooks.
What’s the deal with the bans?
This is not the first time Sherman has publicly called for action against cryptos. In July 2018 he also called for a blanket ban on crypto, just months after previous statements nullifying the need for virtual currencies. Both times the crypto twitter community swept up a storm of outrage while CoinDesk coined one article about Sherman’s stance, “You Can’t Ban Math.”
Another news piece that came out during the writing of this article was about Poloniex. One of the top crypto exchanges, Poloniex delisted nine popular altcoins and laid off employees because of the uncertain regulatory atmosphere in the US.
Now that we’ve talked about how cryptocurrencies can do things fiat never could, let’s get into some of the major reasons why a cryptocurrency ban won’t work.
Previous bans have had the opposite effect
China has banned cryptocurrency multiple times in different ways, yet the popularity of trading virtual currencies has flourished among its citizens.
Some of the crypto bans that China has pursued during the last few years include:
- Banning all crypto trading and ICO websites in early 2018.
- Blocking their citizens from using foreign crypto trading platforms after banning all domestic exchanges failed to stop the Chinese from trading crypto. Meanwhile, Chinese domestic exchanges that left for greener pastures have been thriving.
- More recently, China announced a ban on bitcoin mining operations.
There have also been rumblings of banning cryptos in the US by companies that are feeling the squeeze of uncertain regulations and potential unknown risks.
- In May 2019, the US stepped up enforcement of sanctions on Iranians. Possibly in response to this and to remain in compliance, Finnish platform, LocalBitcoins, cancelled its service to Iranians, following a week of heavy trading in the area.
All that banning, and what are the results?
- CryptoGlobe reported that in December 2018, more than 7.5 million Chinese were using crypto-related apps. That’s a jump of 231% since September 2017.
- Chinese investors have reportedly been moving Yuan into bitcoin on a large scale. Heavy volumes are occurring on the OTC market during Asian trading hours. This capital flight may have been a part of bitcoin’s recent surge to $8000+ and also may have a connection to recent trade woes with the US. But we do know that one Chinese OTC exchange reported a recent tripling of their daily volume in the last two weeks as bitcoin’s price surged. We also know that a large part of this trading was done in small transaction amounts by probable retail investors.
- On the same day that LocalBitcoins announced it’s letting go of Iranian users, crypto exchange HodlHodl sent out a press release welcoming Iran’s citizens to buy bitcoin using their service.
Incidentally, during all of China’s banning activities, they’ve been planning their own cryptocurrency to be issued by China’s Central Bank. Some say the intention is to replace the Yuan.
The worst timing ever
Congressman Sherman couldn’t have picked a worse time to announce a ban. For one, it was Blockchain Week in New York City. The huge Consensus conference was one of many events going on throughout the week and historically, cryptos have a nice jump in price and the market is flooded with positivity.
Secondly, Sherman’s proposed bill announcement also came soon after investment giant Fidelity Digital Assets announced they would be offering crypto investing to their clients.
A third instance of bad timing is the news of a possible trade war between China and the US.
As to the positive press on crypto around the time of Sherman’s ban proposal, the crypto Twitter crowd had a veritable field day:
Many in the industry agree that Sherman’s attempt to put a ban through meant that he understood the power of bitcoin and cryptocurrencies.
FOMO doesn’t have the same power
Fear of missing out (FOMO) is no longer just a tool of the organized press and governments. No, FOMO has reached every corner of social media. In fact, it’s sort of taken on a life of its own in places like Twitter, Discord, and Reddit.
Crypto newbies who are entering the space quickly become familiarized with FOMO and FUD (fear, uncertainty, and doubt) because basically, everyone is always talking about it. In the current crypto space, FOMO is almost like a mascot and we all chuckle a little bit at it, it’s so cute sometimes!
The point is that the crypto industry knows its FUD and is teaching it to the newbies. They are creating a digitally literate user base. So while big players may try to manipulate the market by shouting about bans and the horrendousness of cryptos, the industry itself is teaching the truth to those just entering the space.
The irrepressible nature of blockchain tech
It’s so strange to hear people talking about bans on crypto. Because how can you stop a technology that can run itself and/or be built upon by anyone in the world with an Internet connection? Open source and public blockchains won’t buckle under a ban because anyone can just start them right back up. All the technology and knowledge is open and public, right there for the taking.
Another point, which was so eloquently brought up by Andreas Antonopoulos, has to do with the potential for creative collaboration. He compared the type of innovation that is going on in closed environments, such as traditional industries like banking and commerce, to the blockchain ecosystem.
How can closed projects that include only one team compare to the open collaboration and sharing of ideas on an epically global scale as we see with cryptocurrencies? How will governments who move at the rate of molasses ever be able to keep up with regulating the speeding train that is this technology? Not to mention try to ban it?! It seems ludicrous.
Logistically, banning cryptos could be impossible
How would they actually do it? Let’s walk through it. The government might say let’s disallow fiat exchange using banks. Okay, the crypto community builds its own banks (already in the process). Or, we’ll buy bitcoin in other ways and trade on a DEX.
Well, then let’s ban all crypto to crypto transactions. Okay, we’ll just get a VPN and maybe invest more in privacy coins.
Let’s ban the exchanges. Okay, and so begins the move to offshore OTC markets.
Maybe we should just block all websites that are crypto related. We hate to tell you that soon domains will be living on a blockchain, immutable.
Well! We’ll just cut off Internet service to those people we suspect of using crypto. Okay, then it’s time to check out Blockstream’s free bitcoin via satellite service.
The acceptance of volatility
Inflationary policies, debt policies, and the American peoples’ growing understanding of the house of cards that is the US dollar have led many to believe that the current World Reserve Currency might not be the USD for long. With all that said, people are feeling ok with accepting volatility and more personal responsibility in return for financial privacy and freedom.
People often say they came into cryptocurrency to make money. But they also say they have stayed because of the fairness of this technology solution to corrupt monetary systems. Volatility or not, they are sticking around.
Isn’t the US the Land of the Free?
From a country who dumped all their precious English tea into the Boston Harbor centuries ago just to snub taxes, we’ve certainly come a long way. In the US today, residents are taxed on everything they buy except unprepared food. We have the income tax, gas tax, heating oil tax, phone data tax, property tax, excise tax, sales tax, capital gains tax, estate tax, etc. etc. Then we have a tax code so convoluted there’s an entire industry (doing quite well) of professionals whose sole job is to decipher and try to skirt it.
Now, it’s not that Americans want to avoid their civic duties. In fact, most of them are carrying at least one job (many have side jobs) while also volunteering extensively in their communities. Why shouldn’t Americans (and all people) have the freedom to transact in the currency of their choice? And make no mistake, they all now have a choice.
Conclusion – The threat is real
A few of Sherman’s comments really tell it all:
“An awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions.”
“Clearing through the New York Fed is critical for major oil and other transactions. It is the announced purpose of the supporters of cryptocurrency to take that power away from us, to put us in a position where the most significant sanctions we have against Iran, for example, would become irrelevant.”
– Rep. Sherman
It’s clear that the potential of cryptocurrencies is finally dawning on US regulators. But instead of trying to get the cat back into the bag, maybe regulators should try this:
If a cryptocurrency ban won’t work, what will?
How about this: Remove the designation of crypto used for retail purposes as a taxable event.
Bitcoin adoption is happening. If someone wants to make an online purchase, it’s insane to require them to track the capital gains or losses related to every retail transaction. A retail purchase is not an asset transfer and it should not be treated in the same way taxwise as a property transfer. We don’t do it for any other currency when we shop and spend our money.
But there’s a big bridge here for regulators to jump over because once they do, then the new and untested crypto retail market would likely blossom with innovation. That is also the best part about it – and maybe it’s where the US can begin to make up for the lost time in the blockchain business sphere.
We hear enough about American politics and have certainly had enough of murky at best regulations for supporting a burgeoning industry. A cryptocurrency ban is certainly not a solution. So why not just let the consumers at large drive the new market? To do this, we need to provide tools for retailers to crossover to crypto payments.
Actually, companies like Squareup, BitPay and CoinPayments have already built tools for businesses to easily accept bitcoin as payment. So what’s left is for Congress to pass legislation removing virtual currency retail payments from the securities designation.
It certainly seems that the US has an opportunity here to lead with innovative, smart regulations that embrace this new industry and asset class. If they don’t, someone else will. Spending more time trying to implement a cryptocurrency ban will put the US even further behind.
Also published on Medium.