Ask the grumpies: Why hasn’t the world cracked down on crypto yet?

First Gen American asks:

Why do you think the world has not cracked down on crypto yet?

We should ban it because it allows people to tax evade and launder money for illegal activities, and, of course, the environmental factors.  The longer we don’t ban it the more difficult it will be to ban as pensions start including it in their portfolios.

(Answer from when this question was first asked):  Because President Trump sucks.  We need US leadership to get the world to do anything– see climate change (#Kyoto)

(Answer from this year): Since this question has been asked, China and 8 other countries have fully banned crypto.  But I think the main reason the US hasn’t is because our political process is being held hostage by ultra-rich people who are making money from it.

In other words:  Citizens United

5 Responses to “Ask the grumpies: Why hasn’t the world cracked down on crypto yet?”

  1. yetanotherpfblog Says:

    There are a couple reasons that governments haven’t “banned crypto” yet:
    1. Some governments don’t believe that crypto is an inherently bad thing and think that the economic gains that come with innovations in the space are interesting, and
    2. They don’t know how.

    On (1), I’ll take the US as an example. I’ve watched some of the hearings in the House on crypto regulation (which I found to be a lot more substantive than the ones in the Senate). The biggest constituencies who were pro-crypto or crypto-curious more or less fell into a few buckets:
    – pro-business Republicans
    – Reps of minority/immigrant communities, interested in use of crypto for remittances and helping the traditionally underbanked
    – innovation nerds
    – Democratic and Republican reps who see having a widely adopted USD coin being good for reinforcing dollar dominance and expanding US hegemony

    There are also some nice things that are happy for good governance that smart contract chains can bring. See, e.g. this article on the St Louis Fed site which talks about benefits like being able to see systemic counter-party risks (unlike, say, the nested credit default swaps that nobody could see in the GFC), transparency of having smart contracts out in the open and being able to use as standards, faster pace of innovation from everything being open-sourced, etc.:

    On (2), it’s actually pretty hard to ban people from owning a crypto token, in the same way it’s hard to ban things on the internet. You can:
    – make it relatively inaccessible by prosecuting purveyors marketing within your jurisdiction,
    – target fiat-to-crypto on-ramps (basically the Coinbase equivalents in China, etc.),
    – ban mining (particularly Bitcoin mining) by finding giant server farms with lots of energy expenditure and heat,
    – use transaction monitoring tools like Chainalysis to try and find a culprit who is working around your ban.

    But it’s really hard to ban the transfer of crypto. You can think of it akin to trying to prevent pictures taken in a country being sent elsewhere (think, Great Firewall). You can limit a lot of the information flow, but not all, and it’s very very hard if you don’t have excessive control over your internet rails. Especially if you have a contingent of your population that really wants to use this thing, because motivated people are canny and find workarounds. Which is part of the reason you see these bans happen again and again and again in, e.g. China (because actually achieving compliance has been hard).

    Frankly, my two cents is that it’s in the best interest of governments not to “ban crypto” but rather, as it looks like the US federal government is going the direction of, establishing a central bank digital currency (or setting rules of compliance for privately issued stablecoins) that come with all the typical KYC requirements, ability to freeze tokens and reverse transactions, etc. as in the current financial system, and have lots of regulation around the fiat on/off ramps.

    • Matthew D Healy Says:

      Like it or not, and due to the environmental costs I don’t like it much, cryptocurrency was very cleverly designed to make it as difficult as possible for any government to control it.

      The proverbial ship has sailed. But I think if Western governments are clever, they can leverage the cryptocurrency boom towards a different policy goal: increasing the economic costs to China of operating The Great Firewall.

      • yetanotherpfblog Says:

        Re environmental costs: I’m pretty sure the only major blockchain which is planning to stay on Proof of Work, which requires the energy expensive mining, is Bitcoin. And I guess Doge, but that’s multiple orders of magnitude less of an emitter than Bitcoin’s network.

        For what it’s worth, Ethereum is moving to Proof of Stake this year, which reduces the energy expenditure by 99.95%, and all the other smart contract chains are already PoS or distributed PoS already. So anything in the decentralized finance, NFT, DAO, etc space (i.e. the interesting and useful stuff) is going to be much greener in short order, if it isn’t already.

  2. Revanche @ A Gai Shan Life Says:

    Also I’d be shocked if the key people in US government who would make decisions about how to handle crypto in an intelligent way actually understands what it is. I feel like they still don’t have a clue about how tech operates in our world today.

    I’d be interested to know more about the greener versions that YAPFB mentions and what it means in absolute terms. I think about how we’ve been moving toward hybrid and electric vehicles but I had no idea how environmentally terrible the mining process is for the electric batteries. I don’t know a LOT about that but I’ve seen some articles on that more recently and it didn’t sound good.

    • yetanotherpfblog Says:

      Sorry, obviously I’ve gotten pretty interested in this stuff, so to share some more info on this:

      *Proof of stake energy consumption*

      Post proof of stake, Ethereum is estimated to consume 2.62 MW to run: I think this is an underestimation, especially if we’re talking long-term roadmap and including applications, rollups, etc, but is within an order of magnitude of what’s probably true.

      For comparison, Visa consumed about 740k gigajoules in 2019, which translates into roughly 32 MW to run:

      So Ethereum main chain post-PoS will probably have a total energy consumption around 1:1 to 1/10th of that of Visa. (Versus, today, when the consumption is like that of a small European country like Switzerland).

      *Proof of work versus proof of stake*

      Proof of stake works like the NY taxi medallion system: have X tokens, and in turn be able to run Y validator on the system. If you are caught cheating or sleeping on the job, some of those tokens you put up as collateral are taken away from you.

      Whereas proof of work is like telling all the taxi drivers to meet at some far-off depot, whose location changes every day, and the first N people get to be drivers for the day (a much more energetically expensive and inefficient process than just forking over some tokens). Both are supposed to function as ways of choosing who is allowed to participate in the network by finding people with skin in the game.

      *What nodes look like in proof of stake vs proof of work*

      What a proof of stake validator node looks like depends on the system. For Ethereum, where the community tries to make nodes accessible and easy to run, it basically means running some open source code on a standard laptop or desktop with 8 GB RAM / 100 GB of disk. Some people use a raspberry pi. The machine is mostly just listening to the network, so it’s running but not constantly computing like in mining, relatively little machine wear. There are about 100K validators but only about 10,000 live nodes on the proof of stake system today (you can have multiple validators running on a single node), so you can think of the hardware cost as 10,000 computers just kind of sitting there, on but waiting, that’ll last however long the computer manufacturer planned it to last (maybe ten years if you really eke it out?).

      In contrast, proof of work setups include pretty large server farms with GPUs or dedicated ASICs, which is what people typically use for Bitcoin mining. These are constantly running machines. In general mining does “wear” the hardware a decent amount, since it’s constantly going, and there’s also a lot of energy expenditure paid in cooling the server farm. So, you are talking a decent amount of energy cost for cooling (on top of computation cost) and also some electronic waste, though specialized ASICs seem to be able to last around five years of constant use.

      *Proof of stake: decentralization versus efficiency*

      To note, first, pretty much every major smart contract blockchain other than Ethereum (BNB, Solana, Polkadot, Cardano, Avalanche, Cosmos, Algorand, etc.) is already on some variation of proof of stake:

      Note that within proof of stake tradeoff between energy efficiency and decentralization. The fewer the number of participants (the more “centralized’), the more efficient the system (since you’re recording a transaction on fewer redundant devices). But also decentralization advocates see these systems as more corruptible, and not an improvement over the financial system that we have today. If you only have 1 participant, you’re more or less running an inefficient database.

      So more centralized systems, like Solana, are more energetically efficient, but then get the side-eye from people who think decentralization is important. More decentralized systems, like Ethereum, remain less energetically efficient than other proof-of-stake chains, but at the perceived benefit of long-term chain security and trustworthiness.

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