The Next Generation Of Currency Wars: Private Vs State-backed Crypto

Tyler Durden's picture

Authored by Tho Bishop via The Mises Institute,

Recently Russia announced that it will be unleashing a CryptoRuble, just a week after Vladimir Putin strongly criticized Bitcoin and other private cryptocurrencies.  When announcing the move, Minister of Communications Nikolay Nikiforov acknowledged that it was in part inspired by the aim of getting ahead of other governments:

I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after two months our neighbors in the EurAsEC will.

In doing so, Russia is following the lead of another country that too has become hostile to private crypto, China. Last July the People’s Bank of China became the first central bank to announce it had developed a crypto-prototype that it plans to offer alongside the traditional renminbi.

That the first forays into state-backed cryptocurrency comes from two countries with a history of restricting a free and open internet is not surprising. While Bitcoin originated as a way to opt out of government control of money supply, increasingly governments see the underlying technology as a way to increase their control of the economy.

As Xiong Yue explained:

For example, if the government plans to subsidize certain farms, say some corn farms, to support this sector of agriculture, they can directly add a certain amount of money to the wallets of some farms, for instance 100 million dollars and program this money to be sent to certain fertilizer merchants at a certain time, and that each can only spend maximum of 10 million dollars per year, and in this way, they can make sure that the farmers won’t squander the windfalls, and that this money won’t flow to other sectors, for instance, the stock market or real estate market.

 

Even though this kind of monetary policy is bound to fail, from the perspective of government officials, CBDC provides them a better tool. For them, with the help of the CBDC, they can plan and manage the economy better.

Not to be left behind, the IMF – who some analysts, such as Jim Rickards, believe is prepared to step up to replace the US dollar as the next global reserve currency – recently opened the door to issuing their own cryptocurrency in the future. While some crypto-advocates have naively celebrated recent comments by Christine Lagarde on the future potential of digital currency, such praise simply reflects the increasing awareness of technocrats that the finance is changing and they must be prepared for it. Considering central banks around the world have continued to advance their war on cash, it is not surprising to see Lagarde and others come adapt to the concept so quickly.

Exchange Regulation

The usefulness of state-controlled crypto is why we should expect increased scrutiny and regulation on private cryptocurrency exchanges.

It's been reported that the Chinese government, which shutdown private crypto-exchanges in September, is looking into reopening exchanges with increased regulation. Russia, too, is working on exchange regulation, rather than an outright ban.  This apparent change in direction may be the consequence of China’s exchange ban resulting in an increased use of peer-to-peer platforms in the face of the government crackdown. 

For the same reason that government prefers regulated bank accounts to cash and safes, state officials may recognize the benefit to propping up licensed exchanges. Already we have seen numerous cryptoexchanges be willing to collect and hand-over sensitive customer information in exchange for government-issued licenses. Much like banks, these exchanges are increasingly being enlisted as tax collectors for government.

Calm Before the Storm?

While this loss of privacy may outrage Bitcoin’s initial supporters, it’s understandable why many current holders may be perfectly happy with these developments. After all, while much of Bitcoin’s initial appeal was its usefulness in black markets, a major reason for its astronomical rise in value is its increasing appeal among average customers who were never all that concerned with financial services regulation. Not only has it helped its appeal as an investment, but also its daily use. Japan, for example, saw a major surge in retailers accepting Bitcoin once a firm regulatory framework was implemented.

It is worth wondering whether this harmony between government and consumers will continue, however, once state-controlled crypto truly ramps up.

After all, we’ve already seen government rely upon traditional boogeymen of terrorists, drug dealers, and other criminals as justification for their increased control. The increasing use of Bitcoin by hackers and extortionists provides a modern-day twist to these age-old scare tactics. Is it all that difficult to foresee a scenario where governments attempt to freeze all regulated exchanges in the aftermath of some terrorist attack or other scenario? Or go one step further, and legally mandate replacing a privately-held asset for a government-issued currency?

The example of China demonstrates the inherently decentralized nature of Bitcoin will likely always ensure a degree of functionality beyond the reach of government. At the same time however, the increased popular appeal of crypto-currency also means increasing reliance on third-party services, and fewer individuals securing their investments in private wallets.  Since the most popular – and thus most lucrative – exchanges and other services have an inherent incentive to maintain a good relationship with legal authorities, it is easy to see how this easily plays to the benefit of government officials.

Already within the industry debate is raging between those who prioritize “efficiency” and mainstream appeal – even at the expense of crypto's decentralized-origins. Luckily, Bitcoin’s original Austro-libertarian ethos means that we are likely to see major industry influence pushing back on state-control.

A Preemptive Strike for Monetary Freedom 

In the meantime, this is yet another reason why what little political capital libertarians on monetary policy have should not be wasted pursuing moderate reforms such as forcing the Fed to embrace rules-based monetary policy. There is no hope to ever transform the Federal Reserve into a useful – or even non-harmful – institution. That hope does exist, however, in crypto.

As future monetary policy is soon to become a major topic of conversation as President Trump rolls out his Federal Reserve nominations, it would be a major loss for the cause to not see Senator Rand Paul and other Fed-sceptics use the opportunity to push discussion about the need for competition in currencies. Further, the recent surge in states that have legalized the use of gold and silver for the payment of debt means there has never been a stronger political case for the elimination of legal tender laws and the taxes imposed on alternative currencies like Ron Paul proposed when in Congress. Such a move now could help set the stage for America being a true safe haven for private crypto in the future. 

Doing so may give the cryptocurrency industry the freedom to give us a fighting chance to truly end the Fed, and their clones around the world.

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Juggernaut x2's picture

I stopped reading at "if the government plans to subsidize certain farms"

HRClinton's picture

I'm FOR Private Crypto, and AGAINST Gov Crypto.

For obvious reasons. 

wee-weed up's picture

 

 

Unfortunately, State-backed crypto will eventually destroy private crypto.

The State has no other choice if it wants to survive.

 

ScratInTheHat's picture

How do you suck all this overage of fake money back out of the system? Let crypto suck it in and then explode crypto!

tmosley's picture

That isn't how money works. When you buy crypto you don't just stick dollars into your CD tray. You give your dollars to someone else who already has crypto. The dollars stay in circulation.

Also, how do you think governments are going to "explode" crypto? Wave their magic wands?

Mr_Potatohead's picture

"Also, how do you think governments are going to "explode" crypto?"

That's the really fun part, isn't it?  I can think of several scenarios but I really don't know.  I'm gonna have to wait to see - just like you.  Whatever the case, I don't have to know the how or when to be right about the what.  And here's the best part: if I'm wrong, the cost to me is absolutely nothing.  I wonder if the same is true for all of the people who believe what you believe - especially the people who are late to the game and unlikely to dump as quickly as you will when things start heading south for good.

tmosley's picture

>if I'm wrong, the cost to me is absolutely nothing

>I don't know what opportunity cost is

Wew.

Mr_Potatohead's picture

Wrong!  Like many things, you're making assumptions about opportunities and costs based on your thinking and actions.  Peanutz often see a bigger picture.  Just because we don't jump at your preference for "opportunity" at your incurred costs doesn't mean we lose anything.

tmosley's picture

You love of government fiat means you will lose everything.

Maybe you can sell your PMs for crypto at a fair rate one day.

Which reminds me, one bitcoin now buys 4.75 toz of gold. Was 3.3, what, two weeks ago? Ouch.

Also, if peanutz could see the bigger picture, they wouldn't be peanutz.

loebster's picture

That's what happens when the US$ is DEAD. http://wp.me/p4OZ4v-2GY

tmosley's picture

I ain't clickin' that shit nigga'.

espirit's picture

If they can't tax it, they're going to ax it.

Bet on it.

tmosley's picture

There was a time when the church held absolute power as well.

They tried to stop the invention that usurped that power, but it was too late. It was always too late, from the very second someone had the idea.

Mr_Potatohead's picture

Peanutz see what peanutz see, and our disdain for bitcoin doesn't imply love for anything in particular.  I know that's hard for many non-peanutz to understand, but you seem to be really smart.  You also seem very determined to advance your beliefs.  In fact, you're almost as smart and determined as the really good penny stock pumpers in 2000.  Naaaaahhhh....  it's crazy....  as much as you sound like "Surf-It" for the good ole days, you probably aren't old enough...

tmosley's picture

You use dollars for day to day transactions. You try your best to tear down alternatives.

That is all anyone needs to know about you on this subject.

Mr_Potatohead's picture

I suspect that you also use dollars for most day-to-day transactions.  I'm not trying to tear down all alternatives.  Only one: bitcoin.  Why?  Because it behaves like a penny stock and is promoted like a penny stock.  Real alternatives to crappy fiat currencies don't behave like penny stocks.

tmosley's picture

Penny stocks follow a technological adoption S-curve?

Really?

No, you are just saying words to justify the decision you made with no evidence. You don't like bitcoin because it isn't gold, so you will never buy it.

Mr_Potatohead's picture

Are you smoking something tonight?  I didn't say anything about S-curves. Really!  Most penny stocks are momo plays that prey on the uneducated masses.  There is no technology, no adoption, and no S-curve. It's largely a pump and dump game where guys like you suck in the gullible masses. In fact, the most effective pumpers are those who actually believe what they're saying.  As an old fart who has seen plenty over his lifetime, I can assure you that bitcoin is a bubble play rather than a serious contender for replacement of the dollar.  Why are you equating anti-bitcoin sentiments with pro-gold?  I'd advocate going all-in with pork-bellies before I'd recommend buying bitcoin.

tmosley's picture

>I didn't say anything about S-curves

Of course you didn't, because you don't know what they are. You are too poorly educated to make comparisons between bitcoin and penny stocks. You just type words that sound like arguments to support your pre-conclusion. 

>I'd advocate going all-in with pork-bellies before I'd recommend buying bitcoin.

No-one is interested in the opinions of a slave.

Mr_Potatohead's picture

Getting desperate, aren't you?  The usual tricks aren't working, are they? 

tmosley's picture

Desperation would imply that I had a goal in mind when talking to you. I know that I can't change your mind. Because you are a peanut. Peanuts don't change their minds under any circumstances.

No, more like bored.

I do enjoy berating you, though.

Mr_Potatohead's picture

LOL.  You definitely are correct about not being able to change my mind on this one, but you should know that peanutz do indeed change their minds when there are compelling reasons to do so.  Unfortunately, all you've offered is arguments and personal insults, which don't qualify as compelling reasons.  My suspicion is that you're not bored.  But whatever the case, I'm definitely not considering your responses as beration because I don't think you're capable of doing what the defintion requires.  If you disagree, please fell free to try to prove me wrong.

tmosley's picture

>you should know that peanutz do indeed change their minds when there are compelling reasons to do so

You are so stupid you don't even know that a peanut is someone caught up in cognitive dissonance. It is IMPOSSIBLE for you to change your mind NO MATTER WHAT NEW INFORMATION IS PRESENTED.

This is why it is so very, very easy to predict what your responces will be to various bits of news.

ScratInTheHat's picture

Tulips could get a buttload of gold too before they couldn't!

E-Knight's picture

Gov issued cryptocurrency...of course this was the game plan all along. A perfect ledger that can track you for EVERYTHING you ever do.

old naughty's picture

and so gov doing gods (who is?) work,
coz we US-eful idiots fight among ourselves, no?

tmosley's picture

>of course this was the game plan all along

You would have to be pretty fucking stupid to introduce something great like crypto, let it take hold in the market, then come up with a half-baked replacement that doesn't share any of the characteristics that people liked about the other thing.

It's like inventing and marketing the sandwich and then claiming that the government is going to use our love of sandwiches to force us to eat shit sandwiches.

Nomad Trader's picture

As John McAfee says, since the vast majority of people are storing their Bitcoins insecurely (eg. Mobile wallets), one day the world will wake up to a find that a hacker has stolen a lot of coins. That would cause a  significant decrease in interest from the remaining Joe Public who were on the fence and as well as a massivee reduction in the velocity of Bitcoin usage.

herkomilchen's picture

Versus right now when the world wakes up every day to find the government has stolen a lot of the value of their fiat.  Just by constantly printing it.  Which people can't stop.

I'll take the security challenge of keeping my private key secured from private thieves compared to the challenge of protecting my wealth from theft by government "legitimate" thieves spinning up printing presses.

libertyanyday's picture

The dollars stay in circulation.

what? declare all cryptos are counterfeit and are not acceptable as payment for debts public and  private

Paul Kersey's picture

Blockchain keeps track of Bitcoin, but nothing keeps track of the Fed's audit-prohibited digital currency. So which currency appreciates against the other? Hint, it ain't the world's official reserve ponzi currency.

Bunga Bunga's picture

It is impossible to destroy cryptocurrencies other than by bombing the world back into medieval ages.

10mm's picture

Or the Sun takes a big fart.

tmosley's picture

Or the Earth exploding!

old naughty's picture

heard "tired mountain" yet?

PlanetX racing toward tired Earth?

tmosley's picture

Peanutz are fully protected by their gold and gunz.

ZIRPdiggler's picture

Yeah, because everyone is going to voluntarily give up their Bitcoin because it's "illegal" (sarc).  That's exactly what WONT happen, for the very reason you mention: protection against government tyranny.  Bitcoin penetrated $6090 today BTW.  Guess "the people" are really scared of the big bad criminal govt's.  You're obviously clueless

NoCamelCase's picture

The state has peaked. It's only downhill from here...

grasha87's picture

I have created a currency that is better than gold, bitcoin, and the dollar. It is based on Say's Law and is neither inflationary nor deflationary. It helps alleviate unemployment during recessions:

 

https://bunky1787.wordpress.com/2017/09/06/the-wallark-neo-scrip/

Ajax-1's picture

There is no such thing as private Crypto. All Crypto is government endorsed and/or sponsored Crypto. I have no doubt that Bitcoin is a test pilot program that was conceived, engineered, financed and implemented by the Federal Reserve. Have you ever heard that the greatest trick ever levied by Satan is convincing people that he doesn't exist? Much like the Federal Reserve claiming that they have nothing to do with Crypto Currency or an establishment politicians claiming that he is the anti-establishment candidate just to get the support of the naive sheep. It's a brilliant strategy of mis-direction because the Fed is actively involved in destroying the USD. Do you honestly beleive that the Fed doesn't have a back-up plan to keep the music playing? These cock suckers are in it to win it, and they leave nothing to chance.

Endgame Napoleon's picture

Government plays teacher’s pet with the economy. That is all it ever does.

tmosley's picture

Peanutz will think they predicted this.

malek's picture

For laughs and giggles tell us what you predict:
that Private will win Vs State-backed Crypto?

tmosley's picture

Duh.

Once you have a state-issued shitcoin, it is in the ether, where private cryptos live. It becomes trivial to exchange the national cryptos for private ones. This effort was doomed from the start.

malek's picture

So you agree that the private tulipcoins will only survive in a niche, because state-issued needs to be used to pay taxes etc so most people will use that.

tmosley's picture

No, and you are stupid for making such an assumption.

Stop arguing in bad faith.

I_rikey_lice's picture

How is he stupid? Chinese will use cryptoRenminbi and Russians will use cryptoRuble, not because they want to...because they have no other choice. If the Gov's find out you sell your state cryptos for private ones they will instantly know, and your wallet will be shut down or fined or whatever the fuck they want to do. 

Thanks to you crypto fuckheads the fucking state will now know each and every time I visit my local Rub n Tug and probably shut my wallet off as well. They will know what we eat, where we spend every dime of our money and have the ability to cut us off from our funds whenever they fucking want.

This is exactly what they wanted and you fucking cultists did the hard work of beta testing every type of crypto out there so they know which ones they will use to create a truly cashless society.

Every private crypto will be shut down in the end. 

 

tmosley's picture

>If the Gov's find out you sell your state cryptos for private ones they will instantly know

How? Magic? All they see is you sent some government crypto to someone else.

>Thanks to you crypto fuckheads 

Life is hard on the slave plantation when some of the slaves flee but you choose to stay.

>Every private crypto will be shut down in the end. 

Jack off fantasy.

malek's picture

You mean the infalsifiable blockchain only works in your favor, but never against you when the single layer of "anonymity" between your ID and your identity ever gets breached?

"Stop arguing in bad faith."
Duh.