Cryptocurrency and geopolitics
Over the past few months, I’ve had the pleasure of giving a few talks and addresses on the intersection of cryptocurrency and geopolitics – at Oxford, in Hong Kong (over zoom), and other platforms. As someone working on a start-up that straddles Web 3.0, geopolitics, and civic engagement, I am in equal parts fascinated by, as well as wary of the over-hype surrounding crypto. So here’s a piece that, hopefully, will clarify and set out some of the core issues undergirding the sphere today. Cryptocurrency is an intriguing and potent tool that can transform social spaces and lived realities – yet it must be harnessed with care, even where regulation is not, in fact, possible.
The most obvious intersection pertains to cryptocurrency as a purported alternative to conventional currencies as units of exchange and stores of value. This has been brought to a particular light and salience given the sanctions and counter-sanctions surrounding Russia’s invasion of Ukraine. Many a commentator has touted the prospects for crypto to be the substitute for Russia and a means for the country to evade sanctions – I am more skeptical. The (in)stability of crypto, paired with the difficulty of setting up clear state, centralised institutions that could engage in the level of intensive farming and transactions that private crypto entrepreneurs and miners can, as well as the innate drive towards anonymisation and evasion of regulation embedded within crypto, are all reasons why we should not anticipate Putin turning anytime soon to Ethereum or Bitcoin as a primary means of circumventing sanctions. Given the availability of CIPS – amongst other alternative clearing systems – Russia has ‘better’ options to turn to, even whilst it presses on with its acts of atrocities and bellicose attacks in Ukraine. More broadly speaking, cryptocurrency can potentially serve as a reserve currency for trading – but doing so, and rendering it such (under IMF rules, for instance) would likely negate the anonymity feature of it, thereby eliminating the ‘crypto’ from the ‘cryptocurrency’. Note, digital currency issued by central banks of countries cannot be equated with cryptocurrency – the former is registered, tracked, and monitored by a unitary central authority; the latter, by definition and stipulation (see Satoshi’s words on it), is not.
So perhaps an alternative means in which crypto comes in handy, is as a source of revenue. El Salvador went ‘all-in’ on crypto as a way of boosting its coffers. Unfortunately, the gambit has since gone awry, with the recent rout and crash in the market. In my opinion, the cratering of the market is likely transitory, and has importantly compelled many previously involved in trading the currency to rethink their positioning and stance on the matter. Yet, such cratering has also wrought devastating havoc upon the national economy. On this front, China’s no-nonsense, no-frills, zero-tolerance approach may well prove to be a stabilising force grounded in empirical foresight. Crypto could make individuals rich, but – as with all semi-risky investments at large – investors would be better-off not placing all of their eggs in one singular basket. The consequences of doing so would be dire, and dire outcomes should be avoided (it goes without saying… you’d think… but then again, many tend to fall for the Gambler’s Fallacy, so it’s imperative that I say it here again!).
Finally, crypto poses innate security risks as it becomes the preferred unit of trading between criminal elements. Now, I am by no means suggesting that crypto trade is inherently pegged to criminality – that would be anachronistic balderdash. What I am suggesting here, however, is the high level of compartmentalisation and segmentation in most cryptos, paired with the innate resistance of exchanges to regulatory pressures, have rendered such currency a helpful conduit for those seeking to engage in stealthy and potentially illegal activities. Regulating crypto without destroying it altogether is a fine and delicate act that behooves careful rethinking on part of prospective regulators. More on this later.
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