The U.S. Clarity Act will further reify Bitcoin, the most anti-social ‘social network’ ever created, and many, many other cryptocurrencies
The crypto bros may just get their way soon. In the U.S., the Clarity Act, which would legalize and create formal regulations for most cryptocurrencies, is on the precipice of becoming law. If it passes, it will affect investors the world over.
If the Clarity Act is successful, it will follow the GENIUS Act that focused on one type of cryptocurrency, in legitimating crypto as a financial vehicle.
In anticipation of the Clarity Act, we must take stock of how crytpocurrencies, which are based on blockchain technology, fundamentally reshape the world beyond finances.
Bitcoin is the most well-known and valuable of the cryotpcurrencies. It has been around since 2009 and has at the heart of its mythology a mysterious founder, Satoshi Nakamoto, whose identiy – to date – remains unconfirmed, despite a recent New York Times story fingering British cryptographer Adam Back (he denies it).
What makes Bitcoin notable is that it started an entire genre of digital value on the idea that algorithms are more trustworthy than people. The Clarity Act will further reify Bitcoin, the most anti-social ‘social network’ ever created, and many, many other cryptocurrencies.
Societies and countries tend to function on a fundamental trust. A lack of trust is often seen as a problem for interpersonal and international relations alike. So, while the promise of a ‘trustless’ way to do business, interact and exchange may be enticing, we should proceed with caution and consider the implications of such anti-social social tools and how they are reshaping our world.
When Bitcoin emerged as the world’s first cryptocurrency in 2009, it offered a sea change in the way people interact with money and value, giving individuals more control.
Through an electronic ledger maintained by a network of computer nodes – called blockchain – Bitcoin provided a ‘trustless’ alternative to traditional financial systems, enabling people to buy, sell and transfer digital value without using typical intermediaries like banks to ensure the validity of transactions.
This built-in ‘trustlessness’ was a response to the 2008 global financial crisis that wiped away the fortunes of many large financial institutions and eroded public trust in governments and institutions.
Bitcoin is built on a system that circumvents trust in institutions and people in favour of trust in cryptographic calculations and algorithms – creating a social network that at its heart is also an anti-social network.
Bitcoin is revolutionizing the way we think about value, the safety of transactions and who controls access to money. Nowhere is this more apparent than in our economic and political systems.
Until Bitcoin appeared, state-issued currencies were the only system used to create money and assess value in modern societies. States made, certified and distributed money, thereby ensuring its value.
Bitcoin turns these norms upside down – taking sole control over value out of the hands of governments and banks.
Instead, value is embedded in code – the ‘blocks’ of transactions of the blockchain – that allows users to move funds, make purchases, trade in Bitcoin and accumulate it on a publicly-available ledger – all without involvement of traditional financial institutions.
While financial institutions were initially skeptical of Bitcoin and other cryptocurrencies – dismissing them as a fleeting novelty or a fraud – resistance is fading.
Many banks now give clients access to cryptocurrencies – with some even issuing their own cryptocurrency – and investment firms are increasingly including them in their financial offerings, marking a fundamental shift in approach and underscoring the ways in which Bitcoin has made its way into the traditional economy.
Although many governments remain concerned that Bitcoin poses a threat to their monetary sovereignty or is a tool for criminal activity – with some countries outlawing it – an increasing number of nations are embracing it.
President Donald Trump has said he wants to make the United States the crypto capital of the world.
The U.S., China, United Kingdom, India, Finland and Ukraine all hold substantial crypto assets – with the U.S. now the largest state owner of Bitcoin, with approximately 200,000 BTC (Bitcoin) seized from criminal raids or civil proceeding seizures.
A few nations have even experimented with Bitcoin and other cryptocurrencies as legal tender, while others look to digitize their own national currencies.
Governments are also increasingly looking to blockchain technology for non-currency purposes, including identity verification, land registries and secure record keeping.
But what happens if we continue on the digitization of currency unabated? If governments, bankers, and investors are all buying into the promise of blockchain, who is looking out for the social and political consequences of crypto for the rest of us?
For starters, while Bitcoin is transforming society, it is doing so at a heavy cost to the environment.
Blockchain is by design resource heavy. To ensure the trustworthiness of blockchain, Bitcoin’s code requires armies of computers across the globe to race to solve complex math puzzles – gobbling up massive amounts of energy and water, creating significant waste (‘work’).
Some estimates put its overall energy consumption on par with the country of Austria. Another source found that over two years, the amount of water Bitcoin operations used was equivalent to more than 660,000 Olympic-size swimming pools.
Trustlessness is also costly.
The collapse of cryptoexchange FTX and the continued scrutiny of Binance in illegal activities should give us pause. The lack of government guarantees that individuals have with their Bitcoin holdings are lessons that many a Bitcoin investor who have lost their keys have discovered.
The world of blockchain might hold promise for many applications. But when we consider how we might regulate or leverage Bitcoin and other cryptocurrencies, we need to account for their social and political consequences as well.
Photo courtesy of DepositPhotos
