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Friday, February 23, 2024

Forget About Bitcoin, Coinbase CEO Stands for US-Backed Stablecoin

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In a post-FTX world, it’s really hard to be a crypto executive. Not only are your bags empty and your revenues are declining, but the financial regulators of the United States are breathing subpoenas one day and lawsuits the next.
Then it’s understandable why industry leaders like Brian Armstrong might want to appear before both the media and the authorities with their worship of the state.

As CEO of Coinbase – America’s largest crypto exchange – one wrong move could lead to his company being sued and its regulation irreparable due to politicians already paranoid about the industry gripped by fraud. After all, what reason does the state have left to simply not ban cryptocurrency entirely?

In a press release earlier this week, the executive tried to answer that question: Supports “cryptography” while still standing up for the best interests of the United States government. As a result, however, he promoted the use of cryptography, most contrary to the ideal of “decentralization” in which Bitcoin was born.

That’s right: Brian Armstrong favors a stablecoin issued by the U.S. government.

Armstrong’s Arguments in Favor of Cryptocurrency in America

In an article published by CNBC on Wednesday, Armstrong cited his usual arguments for why the United States should be more welcoming to crypto so as not to drive the industry offshore. This would lead to many negative consequences, which can be roughly summarized in three paragraphs:

The United States would lag behind its international competitors in technological and financial innovation, losing many consumer advantages. The crypto industry will grow in an unstable and unregulated offshore environment – or in jurisdictions that simply have clearer rules. The dollar’s influence on the world stage will continue to weaken and risk being surpassed.

The final question is what Armstrong’s stablecoin idea is designed to address. As he writes:

Armstrong’s Arguments in Favor of Cryptocurrency in America

In an article published by CNBC on Wednesday, Armstrong cited his usual arguments for why the United States should be more welcoming to crypto so as not to drive the industry offshore. This would lead to many negative consequences, which can be roughly summarized in three paragraphs:

The United States would lag behind its international competitors in technological and financial innovation, losing many consumer advantages. The crypto industry will grow in an unstable and unregulated offshore environment – or in jurisdictions that simply have clearer rules. The dollar’s influence on the world stage will continue to weaken and risk being surpassed.

The final question is what Armstrong’s stablecoin idea is designed to address. As he writes:

“Imagine a world in which the U.S. issues its own stablecoin USD on the blockchain. This would not only provide access to the dollar to millions of people who previously did not have bank accounts, but would also become the de facto digital currency for remittances and international currency transfers, ensuring that the dollar remains a global reserve currency both inside and outside the network.”

Stablecoins vs CBDC

The idea of using stablecoins and other cryptosystems for international transfers is nothing new. MoneyGram last year partnered with the Stellar blockchain for just that purpose, and even some central banks have recognized their potential in the remittance market.
But promoting a government-issued stablecoin, as opposed to a privately issued token like Tether’s USDT or Circle’s USDC, is a different story. Such a token would be virtually indistinguishable from central bank digital currency (CBDC), which even pro-crypto congressmen understand could potentially be used as a tool for government oversight.

The Federal Reserve is already in talks about what a potential CBDC might look like. In September, Chairman Jerome Powell said the U.S. CBDC would be “private” but not “anonymous” — meaning it would still be a permission-based system that verifies the identity of its users.

Whether the Federal Reserve can be trusted that it won’t invade Americans’ privacy in this way – and turn into a 100% state-controlled monetary registry like China’s digital yuan – is another story. Ultimately, CBDCs require users to trust a centralized intermediary that does not censor, freeze, restrict, or devalue their money.
Aren’t these the problems that Bitcoin – the first decentralized public blockchain – was designed to solve?

The True Meaning of Bitcoin and Decentralization

Let’s go back to Armstrong’s other thesis about the many benefits of cryptography, as he lists them in his article:

“Crypto is a faster, privateer, more efficient, cheaper and user-controlled financial system. It’s not a replacement for the traditional financial system, it’s a renewal.”

While not everything about this statement is necessarily false, it does miss the point. Bitcoin was never originally created to be a more efficient means of payment.
At its core, Bitcoin is an open, neutral, borderless, censorship-resistant monetary network. This is often referred to as a “rules without rulers” system, which uses evidence of work to remain credible and secure (the consensus mechanism is often criticized for being highly ineffective).

Some of Bitcoin’s biggest proponents believe it’s a test of authoritarianism, allowing users living in both repressive and hyperinflationary regimes to maintain control over their money and its purchasing power. In short: BTC embodies freedom.
As a functional, untrustworthy monetary system, Bitcoin actually solves the problems that initially justify the existence of a central bank and fiat currency. To quote Satoshi Nakamoto:

“The root problem with conventional currency is the complete trust that is required for it to work. The central bank needs to be trusted not to devalue the currency, but the history of fiat currencies is full of violations of that trust. Banks need to be trusted to keep our money and transfer it electronically, but they give it out in waves of credit bubbles with only a small fraction in reserve.”

How do we relate this to Armstrong’s argument that cryptocurrency is not a “replacement” for the financial system? Compared to the level of government control over the banking establishment today, Bitcoin provides a much more liberating alternative. This puts the rights to digital property in the hands of its owners, taking them away from the banking institution that controlled them for decades as a simple by-product of technological limitations.

In this sense, Bitcoin is the opposite of the government-issued stablecoin that Armstrong idealized. This removes the control of the monetary authorities of our time – such as the US – instead of strengthening them.
Given that “decentralization” has been a favorite crypto buzzword for the past decade, that’s a good thing, isn’t it?

The Inevitable Betrayal of Crypto Industry Leaders

Decentralization may sound great from a humanitarian perspective – but for Coinbase? It’s just bad for business.

Of course, this sounds enticing to an army of crypto-loving libertarians who value such things. But for a regulated, publicly traded company in the United States, it’s hard to go into detail about what “decentralization” entails without tempting the government to go after you.

At the moment, Coinbase is already under serious legal pressure from the SEC, which only harms its profitability. Explaining to the government how cryptocurrency provides consumers with direct access to technology that threatens their geopolitical control would only worsen Coinbase’s relationship with regulators – as with the entire industry.

This explains Armstrong’s strange tendency to promote highly opposing crypto technologies, such as a government-issued stablecoin, in favor of real cypherpunk values. Its main incentive is to keep your company and industry alive, even if it means turning crypto into something unrecognizable.

Know that this is nothing new. Circle, a stablecoin company with close ties to Coinbase, did not hesitate to break crypto’s “censorship resistance” principle in August when it froze USDC blocked on Tornado Cash addresses tagged with OFAC. Even expressing disagreement with Treasury policy, his company’s hands were tied to enforce the new rules in accordance with the requirements of the Bank Secrecy Act.

Former FTX CEO Sam Bankman-Fried (SBF) (whose red flags are much easier to spot retroactively after recent events) was far less shameless than that. Just weeks before the crash of his exchange, he actively advocated for DeFi regulation using similar OFAC blacklists and requiring DeFi interface providers to register as broker-dealers. Naturally, it has come under widespread criticism from the crypto community for effectively disrupting the goal 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 – previously supported the release of cBDCs on the Ethereum blockchain in a 28-page CBDC white paper published by the firm.

How do we relate this to Armstrong’s argument that cryptocurrency is not a “replacement” for the financial system? Compared to the level of government control over the banking establishment today, Bitcoin provides a much more liberating alternative. This puts the rights to digital property in the hands of its owners, taking them away from the banking institution that controlled them for decades as a simple by-product of technological limitations.

In this sense, Bitcoin is the opposite of the government-issued stablecoin that Armstrong idealized. This removes the control of the monetary authorities of our time – such as the US – instead of strengthening them.
Given that “decentralization” has been a favorite crypto buzzword for the past decade, that’s a good thing, isn’t it?

The Inevitable Betrayal of Crypto Industry Leaders

Decentralization may sound great from a humanitarian perspective – but for Coinbase? It’s just bad for business.

Of course, this sounds enticing to an army of crypto-loving libertarians who value such things. But for a regulated, publicly traded company in the United States, it’s hard to go into detail about what “decentralization” entails without tempting the government to go after you.

At the moment, Coinbase is already under serious legal pressure from the SEC, which only harms its profitability. Explaining to the government how cryptocurrency provides consumers with direct access to technology that threatens their geopolitical control would only worsen Coinbase’s relationship with regulators – as with the entire industry.

This explains Armstrong’s strange tendency to promote highly opposing crypto technologies, such as a government-issued stablecoin, in favor of real cypherpunk values. Its main incentive is to keep your company and industry alive, even if it means turning crypto into something unrecognizable.

Know that this is nothing new. Circle, a stablecoin company with close ties to Coinbase, did not hesitate to break crypto’s “censorship resistance” principle in August when it froze USDC blocked on Tornado Cash addresses tagged with OFAC. Even expressing disagreement with Treasury policy, his company’s hands were tied to enforce the new rules in accordance with the requirements of the Bank Secrecy Act.

Former FTX CEO Sam Bankman-Fried (SBF) (whose red flags are much easier to spot retroactively after recent events) was far less shameless than that. Just weeks before the crash of his exchange, he actively advocated for DeFi regulation using similar OFAC blacklists and requiring DeFi interface providers to register as broker-dealers. Naturally, it has come under widespread criticism from the crypto community for effectively disrupting the goal 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 – previously supported the release of cBDCs on the Ethereum blockchain in a 28-page CBDC white paper published by the firm.

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