Hackneyed Cliches and Demagoguery
The Committee on Financial Services meeting did not begin well. Rep. Brad Sherman (D-CA) delivered a stinging tongue-lashing to cryptocurrency in the congressional ICO hearing on Wednesday. On close scrutiny, his diatribe amounts to nothing more than hackneyed cliches and demagoguery.
He started out by calling crypto a "crock" - and things went downhill from there. He proceeded to fall back on the cliche of "men sitting on the couch in their pajamas all day and telling their wives they're going to be millionaires".
The Usual Suspects
Next he trotted out all the usual suspects - naming every possible class of malefactor who might be using crypto for ill - criminals, terrorists, money-launderers, tax evaders, and companies who want to defraud investors.
If Rep. Sherman had done his homework he'd know that the transparent and distributed nature of blockchains makes it possible for anyone to monitor the movement of stolen or ill-gotten funds, as investigators of the Mt. Gox and Coincheck hacks have done.
Blockchain can actually be a tool for regulators and law enforcement to follow the trail of criminals - including tax evaders and fraudsters. Clever analytics applied to the bitcoin blockchain led to the apprehension in Greece last year of the Russian money launderer Alexander Vinnik, who was involved in the Mt. Gox heist.
But talk like this is nothing more than fear-mongering and evasion of the fact that the Feds have found it much easier to capitalize on the image of the hoodie'd crypto-hacker-evildoer by pretending that bitcoin invented money laundering than to face the truth: they focus on the demon "dark web" because they've been unable to rein in the estimated $800 billion to $2 trillion in U.S dollars that is laundered annually around the globe. At last check, this was more 5 times the market cap of all cryptocurrencies combined.
The analytics firm Elliptic published a 3-year study tracking the circulation of illicit funds within the bitcoin economy and they found that such funds comprise less than one percent of bitcoin transactions and that percentage has exponentially declined as bitcoin has become more and more mainstream. According to the report:
Bitcoin's illicit use is mainly based on anecdotal evidence, usually without supporting data analysis of how it is used across geographical regions, or trends over time
Sherman's next target was ICOs, or in his words, "companies that commit fraud, take the money, and perhaps one percent of the time they actually create a useful business." As was pointed out several times during the hearing, this glib, eye-rolling dismissal of all the creative work being done by innovators in the blockchain space also flies in the face of the numbers: smart investors are still pouring money into ICOs at a rate of more than a billion dollars a month.
He also ignores an MIT study on ICO fraud which indicates that he's got the numbers all wrong: the percentage of legit businesses is closer to 95% based on the total amount of money raised so far. The risk of fraud is of course present in every financial sector, and even more so with a new asset class, but Sherman's "1% legit" is way off the mark.
The 10-Ton Elephant
Sherman finally got down to the Elephant in the room - why the feds really fear crypto.
"Seigniorage is the benefit that the U.S. government gets by issuing currency - it is the float, it is the fact that we do not pay interest on newly created dollars." In other words, the federal government gets a free ride - an interest-free loan - every time it prints new currency. According to a Mckinsey report, this can generate an estimated $10 billion per year, and Sherman pegged the number as high as $50 billion.
This begs the obvious question: where would all this money go if not a free loan to the US government? creative new innovative technologies in the crypto space? the unbanked of the third world? Who knows. But the Feds are clearly terrified of losing control of the stranglehold the US dollar enjoys as the world's reserve currency.
It's All About Control
If you listen carefully to Sherman's testimony, you will hear him start saying the word "control" - and then abruptly cut himself off to opt for gentler diction.
But make no mistake - that's precisely what the opposition to cryptocurrency is all about - not regulation but control. Those who embrace the revolutionary new asset class see its massive potential to work in synergy with the conventional economy as a force for innovation, the democratization of capital, and the globalization of wealth. Those who oppose it fear they are losing control.
Images via Shutterstock, Youtube