Government can shut down the cryptocurrency experiment any time it wants. Government money creation worked because the government insists you pay taxes in their money and they have people with guns. Crypto exists as long as governments wants it to and no longer.
There is a great deal of triumphalism in the crypto-world, because it has made a bunch of people rich. People who get rich virtually always think it is because they are great people. They feel empowered and so on. (And, according to the research, generally become selfish jerks with a reduced empathic response.)
The simple power relationship is this: Any government can put the hurt on crypto and largely shut it down in their country simply by criminalizing it and having their taxation folks watch the entrances and exits.
Crypto can be badly hurt by three governments: China, the EU, and the US, in exactly the same way. Crypto is arguably in violation of a host of security laws as it stands, and could be made more illegal any time a regulator or government chooses to.
People with guns beat people with cryptography. Code is not law, and the people who thought it was were fools. Law is what people with something approaching a monopoly on violence in an area say it is, and nothing else.
Peer-to-peer financial networks are a good idea: Cutting out banks for exchanging money is a good idea. (Bitcoin is a bad way to do both, but that’s not this article. Other coins do a better job.)
But it must be allowed by those people who control organized violence, and if they choose not to, all your technical wizardry will not save your networks, even if some crippled, black web version remains.
Nor is money creation quite what you think it is. Money exists mostly because powerful people want to be able to coerce the non-powerful through either taxation or debt-farming. Other benefits are incidental, if appreciated.
That doesn’t mean that crypto can’t, in theory, grab money creation from banks (though co-optation is far more likely). It means that, like banks, whether crypto can do so rests on whether they can cut a deal with, and prove their usefulness to, state-sanctioned, organized violence.
This is all it is ever about.
This article was originally published on Ian Welsh’s blog.