We Are Not Criminals, Terrorists or Money Launderers
A recent report from the Financial Action Task Force says the following about projects like Libra: “[stablecoins] could…have implications for money laundering and terrorist financing risks.”
We expect an enforcement body to have this viewpoint, but they are not alone in focusing on the nefarious uses. Here’s the Bank of International Settlements: “If not effectively regulated and supervised, cryptoassets, including stablecoins … may create new opportunities for money laundering, terrorist financing and other illicit financing activities.”
All of the backlash against Libra could be explained as either hatred of Facebook or fear of Libra being used for something bad. As a letter from two members of the U.S. Congress to the CEOs of Libra Association members said: “Your companies should be extremely cautious about moving ahead with a project that will foreseeably fuel the growth in criminal activity.”
There is little that’s “foreseeable” about any emerging technology, and politicians are usually not known for their powers of prediction. Nonetheless, most of the companies whose CEOs received that letter dropped out of Libra shortly thereafter.
Let it be stated for the record that the vast majority of digital currency users are not thieves, terrorists or — as the letter from Senators Shatz and Brown hints — child pornographers. Nor is Bitcoin the only, or even primary, medium through which bad guys transact. There is $20B in credit card fraud every year, and more crime gets committed in a single week using good old fashioned dollars than there are bitcoins in existence. Al Qaeda and El Chapo financed themselves just fine without having to learn about private keys, thank you very much.
So why all the hoopla?
Maybe because fear mongering about credit cards doesn’t have the same sensationalist ring to it. Or because there is always a bias against new technology. Thirty years ago, the New York Times ran a story titled “Schools Responding to Beeper, Tool of Today’s Drug Dealer, by Banning It.” Teenagers today have a far more sophisticated mobile device in their pocket, and the world has not ended. (if anything, law enforcement has gotten easier)
Also to blame is the fact that our existing banking and payment systems have been weaponized for policy enforcement. Anti-money laundering and sanctions enforcement is stronger than ever, mostly at the expense of the silent majority who are doing nothing wrong. Libra is proposed in part as a solution for unbanked, poor and disenfranchised people whose exclusion from the current financial system is exacerbated by compliance. Having to identify every user and confirm they aren’t doing something nefarious is cumbersome and expensive, leading to lack of access for some and higher fees for all.
These requirements also lead to centralization and a different kind of abuse. A financial system built on monitoring and identity leads to red lining and discrimination, not to mention databases full of personal data begging to be hacked. Cryptocoins (or fiat-backed coins riding the same infrastructure) offer a different solution. By using cryptography instead of identity to authorize transactions, they enable anonymous usage, and anonymity leads to fairness. The blockchain is the only payment method that treats billionaires and the poor the same.
Anyone worried that anonymous payments are dangerous should remember that cash, still the most commonly used payment method, is also anonymous, and has been for a thousand years. Blockchain technology re-introduces the notion of the bearer asset into the digital world, so instead of having to rely on corporations or governments to establish ownership, users can rely on math. Digital bearer assets allow everyone to reclaim something vital: their data.
How ironic then that the same lawmakers who are concerned about anonymous payments are also lambasting Facebook for wanting to collect financial data. The Libra blockchain was designed to allow anonymous usage, but legally Facebook has no choice but to have its Calibra subsidiary collect reams of personal data on every user.
Crypto is not the first technology to force a difficult decision. Even a service as benign as email can be (and obvious has been) abused by terrorists and criminals. Most countries allow unfettered access anyway, in part because digital footprints help solve crimes. Crypto is now forcing the issue over payments, and the same answer works. Bitcoin transactions might be anonymous, but they take place on a transparent ledger that gives far more clues on money movement than physical cash. All that is needed to solve crime is some good old fashioned police work.
If governments and regulators around the world don’t eventually come around on this technology, we can make two conclusions. One, the real reason they don’t like crypto is not because it empowers the bad guys, but because it diminishes their monopoly over currency, stunting the impact of misguided policies like negative interest rates, bailouts and QE. Two, the technology will be driven underground and become even more anonymous and uncontrollable.
A lot of crypto purists also don’t like Libra, because they view fiat-backed stablecoins as too much of a compromise and too dependent on the legacy financial system they hope cryptocoins can someday replace. The biased, unreasonable and at times ridiculous government reaction is proving them right.
