Government Fears Bitcoin Will be As Awesome as Bitcoin Fans Hope It Will Be


For a half-decade or so, crypto-anarchists, libertarians, and freaks of all varieties of anticipated that bitcoin will upend all the powers and principalities of banking both government and private, credit, and perhaps even the legal system, IP system, rideshare system, and stock market via innovative use of the blockchain technology underlying it.

This week a bunch of federal sources decided to tell Newsweek that they agree, though they are nervous as hell about it, not excited.

The story, by reporter Leah McGrath Goodman, begins with a bizarre and pointless lede about a southern African portmanteau currency made by white nationalists exclusively for whites, that is irrelevant to anything about the story and I'm not sure why it was mentioned at all.

From there, she reports via voices such as Juan Zarate, a senior adviser at Washington think tank Center for Strategic and International Studies; Joshua Baron of the Rand Corporation; Yaya Fanusie, a former counterterrorism analyst for the CIA; Bala Venkataraman, global chief technology officer of banking and capital markets for Computer Sciences Corp; and sources unnamed that:

hundreds of experts inside the nation's defense and intelligence agencies, as well as private-sector researchers in finance, technology and various think tanks across the country—some of them under contract with the U.S. government—are now investigating how virtual currencies could undermine America's long-standing ability to disrupt the financial networks of its foes and even permanently upend parts of the global financial system.

"Feature not bug" the cryptoanarchist edge of the bitcoin community—who are clearly becoming a smaller percentage of that relevant community since it's beginnings—might say. But Zarate lets us know federal law enforcement never wants to lose the ability to cut off its enemies via cutting them off from the legitimate banking system.

The creation of an all-computerized, potentially anonymous, electronic banking system via blockchain makes this harder, and makes the feds upset and nervous.

Rand's Baron told Newsweek that:

America's enemies appear to have far more access in recent years to the kinds of advanced technology and encryption tools that would allow them to potentially design a virtual currency that could circumnavigate the global financial system. "We are seeing a trend toward increasingly sophisticated cyberservices being put into the hands of unsophisticated players," he says. And while this may be handy for privacy-savvy Americans, it can make it much harder for the government and law enforcement to fight terrorists and criminals, he says.

Baron does not seem to believe bitcoin as it exists will be that all-criminal virtual currency, as "the currency's publicly visible ledger of transactions is too transparent to attract terrorists, criminals or enemies of the state" in the reporter's summation. Though Goodman does report that, unsurprisingly, at least one terror propaganda organization, The Ibn Taymiyyah Media Center, accepted bitcoin to fund its efforts.

Venkataraman of "Computer Sciences Corp., a digital information-technology company whose sister firm, CSRA Inc., runs the IT backbone of the National Security Agency (NSA)," told Goodman that "with the introduction of Blockchain, a disruption of the global banking system is inevitable" and "in a cryptocurrency world, you know who becomes the bank?…You and I. You become not just the bank, but the central bank. And that can have enormous ramifications for things like sovereign authority. By 2040, I think we may be fully transitioned over to cryptocurrency. I don't think anyone can stop it from happening."

My reporting from when bitcoin's dollar price first broke $500, in November 2013, with some background on its startlingly quick rise. It leapt above $1,000 for a bit, then dipped considerably but lately has been hovering between $700-800.

Bloomberg reports today that bitcoin was your best currency speculation deal for 2016. It "surged 79 percent since the start of 2016 to $778, its highest level since early 2014, data compiled by Bloomberg shows. That's four times the gains posted by Russia's ruble and Brazil's real, the world's top two hard currencies."

But its value as a speculative investment vehicle, while potentially lifechanging to the smart and well-timed, ought to pale before its value as a world-changer, and forces in the federal government seem to agree.

I reported the other day on the IRS's attempt to force large bitcoin exchange Coinbase to give up all sorts of customer identification.

Jim Epstein reported from Venezuela in a detailed feature in our January 2017 issue about how bitcoin's properties give people suffering under stifling socialism at least a hope of a way out.