In a post-FTX world, it’s really hard being a crypto executive.
Not only are your bags empty and revenues down, but you also have United States financial regulators breathing down your neck with subpoenas one day, and lawsuits the next.
It’s understandable, then, why industry leaders like Brian Armstrong may wish to present themselves to both media and authorities with their state-worshipping foot forward.
As the CEO of Coinbase – America’s largest crypto exchange – one wrong move could get his company sued and regulated beyond repair by politicians already paranoid about a fraud-ridden industry. After all, what reason does the state have left to not just ban crypto entirely?
On a media blitz earlier this week, the executive attempted to answer that question: supportive of “crypto” while still pleading to the United States government’s best interests. The result, however, saw him promote a use of crypto most antithetical to the ethos of “decentralization” Bitcoin was born into.
That’s right: Brian Armstrong is in favor of a US government-issued stablecoin.
Armstrong’s Case for Crypto in America
In an op-ed published with CNBC on Wednesday, Armstrong made his usual case for why the United States should be more welcoming to crypto, in order to not drive the industry offshore. Doing so would have myriad negative consequences that can be roughly summarized in three points:
- The United States would fall behind on technological and financial innovation versus its international competitors, losing out on many consumer benefits.
- The crypto industry will grow in an unstable and unregulated environment offshore – or in jurisdictions that simply have clearer rules.
- The dollar’s prominence on the world stage will continue to weaken and risk being overtaken.
The final issue is what Armstrong’s stablecoin idea is meant to address. As he writes:
“Imagine a world in which the U.S. issues its own USD stablecoin on the blockchain. Not only would this provide access to the dollar to millions of the previously unbanked and underbanked people, but it would also be the de facto digital currency for remittances and international currency transfers ensuring that the dollar remains the global reserve currency both on and off-chain.”
Stablecoins VS CBDCs
The idea of using stablecoins and other cryptos for international transfers is nothing new. MoneyGram partnered with the Stellar blockchain last year for exactly this purpose, and even some central bankers have recognized their potential in the remittance market.
But advocating for a government-issued stablecoin – as opposed to a privately issued token like Tether’s USDT or Circle’s USDC – is another story. Such a token would be virtually indistinguishable from a central bank digital currency (CBDC), which even pro-crypto congresspeople understand has the potential to be weaponized as a state surveillance tool.
The Federal Reserve is already in talks about what a potential CBDC could look like. In September, chairman Jerome Powell claimed that a US CBDC would be “private,” but not “anonymous” – meaning it would still be a permission-based system that verifies its users’ identities.
Whether one trusts the Federal Reserve not to invade American’s privacy in this fashion – and to not devolve into a 100% state-controlled money ledger like China’s digital yuan – is another story. Ultimately, CBDCs require that users trust a centralized intermediary to not censor, freeze, restrict, or devalue their money.
Are these not the problems that Bitcoin – the first decentralized public blockchain – were intended to solve?
The True Point of Bitcoin and Decentralization
Let’s return to another of Armstrong’s points about crypto’s many benefits, as he lists them in his article:
“Crypto is a faster, more private, efficient, cheaper, and user-controlled financial system. It’s not a replacement of the traditional financial system, it’s an update.”
While not everything about this statement is necessarily false, it really misses the point. Bitcoin was never initially created to be a more efficient payment rail.
At its core, Bitcoin is an open, neutral, borderless, censorship-resistant monetary network. It’s often called a system of “rules without rulers” that uses proof of work to remain credible and secure (a consensus mechanism often criticized for being highly inefficient.)
Some of Bitcoin’s biggest proponents consider it a check on authoritarianism, allowing users living in both oppressive and hyperinflationary regimes to retain control of their money and its purchasing power. In short: Bitcoin embodies freedom.
As a functional, trustless monetary system, Bitcoin actually solves the problems that justify the existence of central banking and fiat currency to begin with. To quote Satoshi Nakamoto:
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”
How do we square this with Armstrong’s argument that crypto isn’t a “replacement” for the financial system?
Compared to the level of control the state has over the banking establishment today, Bitcoin provides a far more liberating alternative. It puts digital property rights into the hands of its holders, taking them back from a banking establishment that’s controlled them for decades as a mere byproduct of technological limitation.
In that sense, Bitcoin is the opposite of the government-issued stablecoin that Armstrong idealized. It removes control from the monetary authorities of our time – like the U.S. – rather than strengthening them.
Given that “decentralization “ has been crypto’s favorite buzzword for the past decade, that is a good thing right?
The Inevitable Betrayal by Crypto’s Leaders
Decentralization might sound great from a humanitarian perspective – but for Coinbase? That’s just bad for business.
Sure, it sounds good to the army of crypto-loving libertarians that value such things. But for a regulated, publicly traded company in the United States, it’s hard to go into too much detail about what “decentralization” entails without enticing the government to come after you.
As things stand, Coinbase is already under major legal pressure from the SEC that’s only hurting its bottom line. Explaining to the government how crypto gives consumers direct access to a technology that threatens its geopolitical control would only worsen Coinbase’s relationship with regulators – as with the entire industry.
So explains Armstrong’s strange inclination to promote highly antithetical crypto tech like a government-issued stablecoin, in favor real cypherpunk values. His primary incentive is to keep his company and industry alive, even if that requires twisting crypto into something unrecognizable.
Know that this isn’t anything new. Circle, a stablecoin company closely connected with Coinbase, did not hesitate to violate crypto’s “censorship resistant” ethos in August, when it froze USDC locked within OFAC-flagged Tornado Cash addresses. Even while voicing opposition to the Treasury’s policy, his company’s hands were tied to enforcing the new rules under Bank Secrecy Act requirements.
Former FTX CEO Sam Bankman-Fried (SBF) (whose red flags are much easier to spot in hindsight after recent events) was far less shameless than that. Just a few weeks before his exchange imploded, he actively advocated for regulating DeFi using similar OFAC blacklists and requiring DeFi front-end providers to register as broker-dealers. Naturally, he was widely criticized by the crypto community for effectively defeating the purpose of DeFi with such rules.
Even CBDCs aren’t a new idea for crypto leaders. Joseph Lubin – co-founder of Ethereum and CEO of ConsenSys – has previously supported issuing CBDCs on the Ethereum blockchain, within a 28-page CBDC whitepaper published by the firm.
“CBDCs give central banks future-oriented tools to allow them to implement monetary policy in more direct, innovative ways and keep pace with technological change,” he wrote.
Executives like Armstrong, Allaire, SBF, and Lubin may or may not hold crypto’s core values at heart. Regardless, each is only a crypto bro second, and a businessman first. Seeing them forced to side with government over values was only a matter of time.