Today, Congress had its first official hearing on cryptocurrency and the commentary was predictable and in alignment with its approval rating, bad. Congress is already making cryptocurrency a partisan issue with Democrats demonizing crytocurrency while Republicans try to defend its position.
What is already lost from the start is a firm foundation on the history of currency and basic understanding of economics and monetary policy. Say what you will about Ron Paul but he brought a depth of knowledge of economic and monetary history to Congress. His leadership at least help guide meaningful conversations and call out colleagues that clearly had little understanding or grasp of the subject matter.
Representative Brad Sherman, a Democrat from California, stated that cryptocurrencies are a “crock” and expressed doubt that they can be used to accomplish any social good that cannot be achieved otherwise. “Perhaps we’ll have another hearing after a major terrorist event is financed using cryptocurrency,” he quipped, adding elsewhere that cryptocurrencies are only “popular with guys who want to sit in their pajamas and tell their wives they’re going to be millionaires.”
I would love for Sherman to say that to families in Venzuela where Bitcoin kept them from starvation. Representative Sherman literally diminished an asset class and technology that has gone from non-existent to nearly $1 Trillion at its peak in less than 10 years to guys sitting around in pajamas trying to get rich. Here is my problem with what is going on in Congress. It has shifted from that of the State trying to intervene in our lives and take control to that of just pure ignorance. The problem with Washington DC is not power, it is the illusion of knowledge. Daniel Boorstin said it best, the greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.
The Cryptocurrency Illegal Activity Fallacy
I wrote a blog last year in response to the CEO of JP Morgans criticism of Bitcoin. In this blog I addressed the attack on cryptocurrency for illegal or illicit activities.
Jamie Dimon states that Bitcoin will be used and is being used for illicit purposes and will eventually cause harm or death to individuals. This same claim can be stated about fiat currency, specifically the US dollar. According to the United Nations Office of Drugs and Crime, The money laundering industry is estimated to be approximately 2 to 5 percent, approximately $2 Trillion, of global GDP yearly. Think of the amount of harm and illicit activity that is going on with fiat currency compared to cryptocurrency at the moment.
To condemn the medium of exchange and not the act illustrates the weakness of the argument. Central banks and governments have not remotely been able to control illicit use of fiat currency and there is no evidence that this would be worse with Bitcoin or any other cryptocurrency. This is purely opinion until there is ample evidence to illustrate that decentralized cryptocurrency will produce greater percentage of illicit activity than fiat currency.
What is astounding to me is how we define illegal and illicit activity. We are perfectly fine debasing our currency to pay for American soldiers to risk their lives in wars that can not be won yet we draw the line at cryptocurrency being used for hypothetical illegal activity. The very party that claims to be about peace, the environment, and equal rights is perfectly fine with loose monetary policy and fractional reserve banking. You want equality? You want peace? You want clean air? It starts and ends with sound money. History has shown that governments urge to pay for wars or growth or popularity nearly always supersedes the principles of maintaining sound money.
Not Worth a Continental
The American monetary and currency history illustrates that government is notorious for leveraging currency and monetary policy to pay for wars or growth. Some of you might recognize the term “not worth a continental”, the Continental Congress issued paper money backed by future tax revenue to pay for the Revolutionary war. What started as a one time issuance of a couple Million dollars turned into a quarter Billion dollars. The early American settlers lost confidence in the government paper money which caused it to depreciate to nearly nothing and hence where the term not worth a continental came from.
Just after World War I and before World War II most of the world came off the gold standard to deal with the costs of war. The United States took a different route and enacted the Federal Reserve and fractional reserve banking to increase money supply. Later the United States devalued the US Dollar significantly by increasing the value of gold from $20.67 per ounce to $35 per ounce to deal with the Great Depression. This coincided with outlawing the private possession of Gold thus confiscating considerable wealth from many Americans. This is just a couple of examples of many abuses of our currency by our government.
Why did cryptocurency emerge? Because of individuals like Representative Sherman who don’t even take the time to understand the importance of a medium of exchange or new technology to an economy. It is this illusion of knowledge that has lead the government to continually erode the wealth of hard working Americans. Decentralized currency is a result of the average American being tired of leaving these decisions up to Representatives like Sherman that speak out both sides of their mouth.
Thomas Jefferson clearly saw the danger of allowing government to control banking and money, he warned us against this. If he was in that Congressional hearing today he would have taken on Representative Sherman and I imagine he would have said that cryptocurrency is exactly what this country needs right now.