Can blockchain stay economically and politically neutral in a world that’s not?
by Edmund Yong
[Continued from Part 1]
Henry Kissinger, the master of international diplomacy and statecraft, had this to say last year: “The Age of Reason originated the thoughts and actions that shaped the contemporary world order. But that order is now in upheaval amid a new, even more sweeping technological revolution whose consequences we have failed to fully reckon with…”
Amidst the specter of China rapidly overtaking in artificial intelligence, “the U.S. has not yet, as a nation, systematically explored its full scope, studied its implications, or begun the process of ultimate learning.”
Kissinger served during the Nixon administration when the U.S. won the space race by putting a manned mission on the moon. But let’s not forget the Russians went to space first. In a similar posture, China delivered its blockchain announcement like a Sputnik moment but is the U.S. ‘woke’ yet?
The Hand that Rocks the Cradle of Innovation Rules the World.
Consider the publicly obvious subtext that is not in the announcement:
- Most of the world’s mining capacity resides in China, including 74% of total hash power for Bitcoin (Princeton University), and most of the block producers for EOS (Coindesk);
- China has three times more blockchain patent filings than the U.S., which it overtook since 2016; and 60% of the world’s total in the last 10 years (Nikkei Asian Review);
- Global trading activity is concentrated on Chinese-owned exchanges, many of which are not even in China, including 60% of dollar-backed Tether volume vs. 10% for U.S. (Diar);
- Chinese courts have been handing down decisive rulings on the various aspects of blockchain for regulatory certainty, with new cryptography laws taking effect on Jan 1, 2020.
China will “seize the opportunity” from a position of strength. Russia’s hands are on deck too: “Look, the internet belonged to America. The blockchain will belong to us.”
While many have voiced concern of the lack of U.S. leadership, support is not forthcoming from Capitol Hill or the White House. For instance:
To pass through the much-anticipated Token Taxonomy Act, its author Congressman Warren Davidson has to go uphill against Brad Sherman, who chairs the subcommittee on investor protection and previously wanted crypto banned as it will “disempower our foreign policy… the United States and the rule of law”! He also has to face off Maxine Walters, chairwoman of the financial services committee, who pulled the plug on Facebook’s Libra months earlier due to “national security and monetary policy concerns” among other things.
Elsewhere, President Trump tweeted that he’s not a fan, and neither is Secretary of Treasury Mnuchin. Which leaves the SEC. (Yawn –^Ö^–)
The Technology is Neutral – But Given a Political Mandate.
Personally I think the ‘Blockchain not Crypto’ debate is a distraction, but a useful one when it serves its purpose. They are different sides of the spectrum, what wood is to fire. You don’t have to demonize one or lionize the other, just use it to further your ends. In one of my guest lectures in a university, I’d joked that crypto has turned into Rosemary’s baby, the devil’s child raised by his godly blockchain mother.
Here onwards for China, you can expect further culling and crackdown on crypto so that the state can rein in the sector and retool it. Expect blockchain rankings to shuffle. Expect new public-private ventures. All to pave the way for its digital Yuan. This is statecraft. “Point at the mulberry tree to curse the locust tree”, as the saying goes.
But for the U.S., the discussion is at a deadlock. U.S. deserves a strategic response to Wechat and Alipay. Libra could finally be the killer app the world wants but is stillborn. Why? Because crypto.
Russia wants to build an alternative to SWIFT; rogue states are building resistance to U.S. sanctions – with blockchain. Yes, blockchain-based financial infrastructure is a slippery slope… to crypto. The risks are real. Crypto is dangerous (but so are your damn guns, which you also do nothing about). If you can’t get over your crypto FUD, you can’t craft a strategy for national security interest.
The neocons (FDD) recently stepped in and took lawmakers to task, that they “need to take the lead in this evolving international crypto race” soon, complete with “a red team and financial threat scenarios”. Let’s see.
Rising Global Inequality is Calling for a Multipolar Response.
Coming back to the idea of a unified Muslim cryptocurrency, and why it might actually work!
Great income and social inequalities have been impressed on the peoples of these countries. They have the right combination of factors: low financial literacy, high intermediary costs, and (get this!) relatively high trust in governments (Edelman). They have to routinely deal with sanction lists, ‘high risk’ tags, and monitoring which often result in delayed or withheld transfers.
Worst of all, there is a build-up of global systemic risk in U.S. financial institutions, which drags the rest of the world down when they fail. And the cascading impact is felt harder by poor countries.
The global financial status quo is not doing them any favors. Crypto lets them cross that divide, an option to counterbalance the West. It’s not like crypto is new to these folks, 20% of Turks already own crypto according to the 2019 Global Consumer Survey (Statista). Iran itself has a huge mining industry, with one of the lowest production costs second only to China (Elite Fixtures). Crypto has created a shadow financial system right for them that works and will continue to do so.
Conversely what happens if they let economic imbalances and struggle to persist? These countries could see the rise of far-right demagoguery, which will be even more destabilizing.
Sidebar: There were some social media comments that both Sunni and Shia leaders in the KL Summit seem to universally assume that crypto is certified halal, which may not be so. That’s a good point. Nonetheless without addressing this, here are some recent precedents:
Saudi Arabia and UAE just launched a settlement coin for interbank transactions between both countries. The smaller Gulf states are even crypto-friendlier: Bahrain has licensed exchanges while Qatar issued dinar tokens. Egypt is going ahead with its digital pound even though its top cleric forbade it on Shariah grounds. If anything, crypto has been declared halal in the most populous Muslim nation in the world, Indonesia.
Guess where there’s a will…
For the sign of things to come, we should all go say hi to Jack Dorsey in Africa.
Disclaimer: This is a lay opinion. My experience on geopolitics is strictly limited to binging on the TV series “The Man in the High Castle” (an alternate vision of post-World War II America being colonized by the Axis forces) during the Xmas holidays. It was fun watching the Kempetai and Nazis pretend the H-bomb didn’t exist, play with I-Ching sticks, and yell at everyone in English.