The War for the Heart of Cryptocurrency

We are in a ‘Crypto Winter’. There has been a huge decrease in the dollar value of all cryptocurrencies. Even those people who can barely unlock their phone, let alone invest in a DeFi protocol, have heard about the collapse in cryptocurrency price. It is the perfect time to evaluate the landscape. It may not be the bottom of the dip, but it is certainly a juncture for the industry. From here, many paths are open and thus we have a war for the future of cryptocurrency.

Let us build the debate from the bottom up, assuming only a small amount of knowledge to try and clear the murky waters which swirl around the nubilous topic of cryptocurrency.

Now ideas around digital money have been proposed and worked on since the inception of the electronic banking era. Although we have seen the idea of energy currency as far back as the time of Henry Ford¹ and Buckminister Fuller, the cryptographic form of anonymity comes later. David Chaum in 1983 discussed Blind Signature Cryptography proposing a way that banks can anonymously process a transaction, by means of special envelopes which hide the name of the payee, whilst still being auditable.² In 1998 programmer Nick Szabo published his work on ‘Bit-Gold’. This was one of the first proposals seeking to emulate a function of gold by digital means. He proposed a sequence of puzzles, where the solution of one puzzle would form part of the next puzzle. One could play along and try to solve puzzles first, to claim the bit-gold, by using a certain amount of computing power. Interesting to note is one comment on his blog post asking: “What makes it desirable? Why would I want to own proofs of wasted computational effort?”.³ The proof would be in the pudding.

Then came Nakamoto. The anonymous creator of Bitcoin proposed a “purely peer-to-peer version of electronic cash”⁴. Among many innovations bundled together into the Bitcoin protocol was decentralisation, the network being a voluntary system made up of the users themselves rather than users applying to a central authority. This also takes away the cost of the middleman having to resolve disputes and monitor users to prevent fraud. In short it is a trustless system: you don’t need to trust any other party, you can independently verify the transaction yourself. This was a revolution in money – there hadn’t been a trustless form of money since the days of yore when gold was the medium of exchange. Even gold based systems usually required a monarch’s stamp to give authority to the coin proving that it wasn’t in some way alloyed or underweighed. Through digital cryptography a new currency was born, and it took the legacy banking system by surprise.

It took a couple of years for the network to become widely adopted. Initially being mined and transacted by a few nerds, the first recognised transaction of Bitcoin for real world goods was the now infamous 10,000 Bitcoin pizza in 2010.⁵ It would grow from there to be a currency of illegal online marketplaces like the Silk Road, busted in 2014. Yet by 2017 it was accepted by Japan as legal tender, with many other countries following suit. In 2021 it became legal tender in El Salvador hailing a split from the US Dollar hegemony that the country had endured since the 1979 US backed coup and 15 years of civil war. Bitcoin grew from a nascent bundle of technologies to a real world economic force, whilst maintaining much of its original form.

The legacy system of international financial control is a network of institutions including the IMF. The International Monetary Fund issues debts to nation states ostensibly for investment. Yet their long history, having been created out of the World War 2 geopolitical order, has been one of financial domination, by powerful vested interests, of poorer and weaker nations. These victim states are forced by the IMF to de-regulate their economy, to allow vulture capitalists to move in and to allow the human and natural resources of a state to be plundered. As such the IMF are not happy when the usually supplicant El Salvador tries to break away from their system of control and use an alternate currency. They have repeatedly demanded that President Bukele rescind the law issued to adopt Bitcoin as legal tender and threaten various dire consequences if not.⁶ As yet, Bukele is holding on, with high ratings and support internally, despite the downturn in Bitcoin’s price.

Monero is a privacy coin. Conceived and issued in 2014 it was created to address some of the shortcomings in Bitcoin, namely in privacy. As Bitcoin utilises a distributed ledger, its transaction history can be viewed by anybody viewing the blockchain. Although it is ‘pseudanonymous’, meaning that the blockchain only stores hashes and wallet IDs, not personal data, it is possible to tie those IDs with real-life identity. Monero does the same job as Bitcoin in being digital cash, but it does so anonymously. Through various technologies, Monero is transacted anonymously such that one can never decipher either user, the amount transacted or exactly when it took place. The US tax office, the IRS, in 2020 offered a bounty of $625,000 to anyone who could crack Monero’s code.¹⁴ Yet it seems that Monero is too valuable for talented hackers as the bounty still stands, and the IRS is frustrated by a technology which truly sidelines their tax auditing capabilities.

The Bank of England too, over a hundred years old, is the creator and maintainer of the British Pound. They like to keep a tight hold on economic policy – if you control the currency, to some degree, you can control the people. Traditionally fiat currencies were the playthings of rich and powerful families and legacy institutions. It was they who could decide the values of currencies, how often and to whom they are distributed as well as how they are controlled. Therefore a peer-to-peer currency such as Bitcoin or Monero, would allow people to transact outside of this paradigm. Bitcoin and cryptocurrency at large is therefore a threat to central banks.

It should come as no surprise then that the Bank of England has continually produced a stream of anti-cryptocurrency propaganda. That is not to say, may I add, that there are not problems in the cryptocurrency world, we will address these soon. I argue though that the Bank of England, other central banks, governments and international institutions will all be jumping on the bandwagon right now, whilst their enemy is down. The Biden White House put out a statement ahead of this week’s G20 calling for more regulation of cryptocurrency. Furthermore, U.S. Treasury secretary Janet Yellen said this week that the fall of FTX “demonstrate[s] the need for more effective oversight of cryptocurrency markets.”¹⁵

 There is, in my opinion, a wave of negative stories and media coverage of cryptocurrency at this critical juncture, to try and divert that flood of libertarian economics into controlled and limited hangouts. There is a presented dichotomy: dangerous and volatile cryptocurrency, then a solution; government issued digital currency. An example of this is Saudi central banks issuing a new blockchain-based token for cross border trades with the UAE.⁷ Here we have two brutal dictatorships, issuing a digital money laundering token and cashing in on the wave of cryptocurrency to make them both look good. We will also turn to investigate these centrally controlled tools. But let us first look at the Bank of England’s latest statement on cryptocurrency.

Sir Jon Cunliffe is a Deputy Governor and Head of Financial Stability for the Bank of England. I’m sure he’s doing a great job and we wouldn’t like to slander him. I would mention that the British pound’s value has slipped in freefall multiple times in 2022. I would highlight that the Bank of England is printing money at record levels and that confidence in the currency is nearing all time lows. Yet he does still have keys to the back-door to the pounds in each of our pockets and digital bank accounts, so we should be at least polite. So Jon came out with a statement recently about cryptocurrency.⁸ The only prompting for the speech seems to be kicking crypto while it’s down. He initially even admits that: “even with the recent collapse crypto assets and crypto markets have not posed a systemic risk”. So far cryptocurrency does not have enough sway to cause ripples in their walled garden. The entire global cryptocurrency sector today stands at around $1 trillion; in comparison the USA government spent $7 trillion in 2021. Yet Cunliffe still seeks to expand the remit of regulation into cryptocurrency. Here is the most telling statement:

“where we can find no way to mitigate and manage the risk to the extent necessary… we should not let activities proceed.”

He doesn’t tell us how they will stop the “activities” from proceeding. Yet the “we” he mentions tells us more. He refers to the system of financial regulation in the UK, the Bank of England, the Thatcher-created Financial Conduct Authority and the UK government. But if all of those parties have a vested interest in legacy finance, which entails printing billions, handing it to big banks, gambling with it and patching up any major losses with taxpayer funds, can they be trusted? This is a model which has created a corrupt City of London, famous the world over for money laundering and financial crime. It has meant the UK Pound Sterling is inflating any value out of the UK economy. It is a scheme of control and domination, which until cryptocurrency, was an inescapable system.

In seeking to do-down cryptocurrency, Jon, similarly to high level politicians, employs the slimy art of spin. He variously groups Bitcoin among “financial assets with no intrinsic value” – which ignores the value case indicated by Henry Ford, as an energy currency. He also ignores the cryptographic case outlined earlier, in transacting value outside of central control. He goes on to call Bitcoin and other cryptocurrencies “crypto-assets”. It can be viewed as an asset, yet Bitcoin’s own whitepaper mentions it is a form of “cash” in the first line. They really don’t want people to view Bitcoin and others as a currency, for that is their remit and their talons are dug in deep. In fact he never mentions ‘cyrptocurrency’ in his speech, it is a carefully crafted piece. What he moves onto as the focus of his speech is ‘stablecoins’. These are technological means of arbitrage to allow the transaction into an asset which is pegged in value to a fiat currency. Ah, they breathe a sigh of relief, if it is tied to one of their currencies of control, it is under their control. Therefore when we learn that the “The Basel Committee on Banking Supervision”, which sounds like a fun place to hang out and sup brandy by the fire, intends on creating schema to regulate “cryptoassets” we know their direction of travel. The central banks wish to hoover up any vestiges of an independent banking system in cryptocurrency by regulating and controlling stablecoins. If you wish to bring your cryptocurrency into the legacy banking system, cash in your Bitcoin for Euros for example, it will be under these new frameworks being forged in the vaults and crypts of Switzerland. If you seek to transact outside of their systems of control, they will have to take stronger measures to stop you.

“If in fact you can’t crack that…, if the government can’t get in, then everybody is walking around with a Swiss Bank account in their pocket,” – Barack Obama ⁹

So how did such a valuable proposition, banking outside of the legacy system, fall so far this year? At one time its proponents were all over the internet claiming cryptocurrency was headed ‘to the moon’. Well it is thanks to some notorious collapses in crypto companies. This isn’t the first time the failure of a private company has caused a collapse in the price of cryptocurrency. Mt.Gox was the biggest Bitcoin exchange in 2014, handling over 70% of Bitcoin transactions.¹⁰ When it was hacked and 850,000 Bitcoin were stolen the value of Bitcoin dropped from around $800 to a low of $250 per coin.

Yet this modern era of cryptocurrency collapse is not due to hacking. It was due to scams. Already in 2022 we had the collapse of Celsius, which I covered in July¹¹. It had spent all of its investors’ money on risky investments, at the same time as presenting itself as a saving service. When there was a dip in cryptocurrency price, Celsius couldn’t tend its debts. There was a ‘run on the bank’ when investors tried to pull out their savings and the whole house of cards fell. It had a contagion effect as the company rested on an arbitrage between Bitcoin and a dodgy stablecoin called Terra USD. When Terra couldn’t put up enough dollars to balance out their digital stablecoin issuance, they went under. The stablecoin went unstable and is now worth a hundredth of a cent and in reality you can’t cash out any Terra USD. Yet they won’t be flushed and have launched Terra 2.0 and are attempting to revive their asset, even whilst Do Kwon, its creator is on the run. We also have a similar case with Three Arrows Capital. Three Arrows was a hedgefund which utilised cryptocurrency to back its high-risk investment strategy. When, in June 2022 they couldn’t meet their margin calls, they were ordered to liquidate by the British Virgin Islands. Another victim of the 2022 bear market, said some commentators, but I allege they fell victim to the same expansive greed which brought about the 2008 financial crisis and are facets of the same ideology that is causing so much pain today.

This leads us to the second big collapse, the high profile collapse of FTX. A company run by Sam Bankman-Fried, whose mother Barbara Fried was a big fundraiser for the Democrat Party.¹² In fact it turns out SBF was the second biggest donor to the Democrat party in 2022, behind only George Soros. It is interesting to note that the biggest funders to the ruling party in the USA are now both billionaire scam artists. Soros being famous for his attempt to collapse the British Pound in 1992.¹³ FTX collapsed in a similar way to Celsius, the price of cryptocurrencies dipped; they were unable to back up their risky and highly-collaterised investment debts. The company has folded and wiped out a huge amount of American cryptocurrency user’s stacks. FTX had risen at a time when cryptocurrency was gaining traction, it was being looked at by big institutions and many people who had initially been sceptical and had begun to get on board. They famously sponsored a sports stadium, the ‘FTX arena’ and paid for a half-time show at the superbowl. I highlighted the close ties between FTX, SBF and the Democrat party as one of the reasons why such an obviously high-risk company was allowed to operate and expand without being stopped. I am of the opinion that it was a racket between the Democrat party and regulators to allow easy money to sluice into the party. Now FTX is going through liquidation and bankruptcy but we know for sure that the Democrat party is not giving that money back. 

Thus we have the crypto winter. Cryptocurrencies are being battered from all sides. One hand is throwing negative press, issuing derogatory statements and feeding the dearth of true understanding of cryptocurrency. The other hand is clamping down with regulation, mandating restrictive KYC (Know Your Customer) legislation on exchanges, such that you must provide a passport and other documents to even buy Bitcoin. The legacy institutions are pursuing a policy of death by a thousand cuts on the revolutionary cryptocurrency technology.

Then out of their top hat, they are pulling out CBDCs; Central Bank Digital Currencies. These will probably take the format of stablecoins – centrally issued and controlled tokens. It is easy to envisage how these government-issued digital currencies would tie in with a social credit system. If you protest too often, you can’t spend your government bucks at the store, rendering them useless. If you fail to adhere to the guidelines, they may not issue your stipend of Universal Basic Income. Once these digital financial control systems are established they will be hard to escape or sideline.

 That is why I remain passionate about the existence of true cryptocurrencies. They offer, in my opinion, our best option to escape the expanding remit of financial control. The fact that central controllers are so threatened by them is a good sign. And markets dipping in price and confidence may be the exact shakedown we needed to rid cryptocurrency of a lot of scammers and to root out the valuable propositions, the diamonds in the rough and the gold from amongst the silts.

¹ Henry Ford’s Energy Currency – a precursor to Bitcoin – https://news.bitcoin.com/how-henry-ford-envisaged-bitcoin-100-years-ago-a-unique-energy-currency-that-could-stop-wars/

² David Chaum’s paper on Blind Signatures -https://www.hit.bme.hu/~buttyan/courses/BMEVIHIM219/2009/Chaum.BlindSigForPayment.1982.PDF

³ Nick Szabo’s blog post on Bit Gold – another precursor to Bitcoin – https://unenumerated.blogspot.com/2005/12/bit-gold.html

⁴ Satoshi Nakamoto’s whitepaper – the creation of Bitcoin – https://www.bitcoin.com/satoshi-archive/whitepaper/

⁵ The infamous 10,000BTC pizza – https://www.investopedia.com/news/bitcoin-pizza-day-celebrating-20-million-pizza-order/

⁶  El Salvador Adopts Bitcoin as legal tender – IMF disapproves – https://decrypt.co/91210/imf-again-calls-el-salvador-drop-bitcoin-legal-tender

⁷  Saudi and UAE Central Banks digital token – the future of central bank activity – https://www.ccn.com/uae-saudi-central-banks-work-cross-border-cryptocurrency/

⁸ Jon Cunliffe’s revealing speech on cryptocurrency and stablecoin regulation – July 2022 – https://www.bankofengland.co.uk/speech/2022/july/jon-cunliffe-speech-on-crypto-market-developments-at-the-british-high-commission-singapore

⁹ Obama’s statement against encryption and Bitcoin – https://bitcoinist.com/obama-swiss-bank-wallet/

¹⁰ A short history of the Mt Gox hack – https://blockonomi.com/mt-gox-hack/

¹¹  My article on Sango Coin and Celsius’ collapse – July 2022 – https://blakelovewell.com/sango-coin-post-colonial-car-and-the-state-of-crypto/

¹² FTX tied in with Democrat party – https://dailycaller.com/2022/11/16/sbf-mom-resigns-dem-dark-money/

¹³  Soros causes a run on the pound in 1992 – https://theeconreview.com/2018/10/16/how-soros-broke-the-british-pound/

¹⁴ IRS issues a bounty to break the privacy of Monero cryptocurrency – https://cointelegraph.com/news/the-irs-offers-a-625-000-bounty-to-anyone-who-can-break-monero-and-lightning

¹⁵ Biden and Yellen call for more regulation – https://www.forbes.com/sites/billybambrough/2022/11/20/joe-biden-leads-critical-call-for-game-changing-global-bitcoin-and-crypto-rules-after-shock-ftx-collapse/