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Governments Hate Bitcoin and Cash for the Same Reason: They Protect People’s Privacy.

Officials want to track every financial transaction you make, and they see cryptocurrencies and cash alike as barriers to achieving that goal.

Publicly fretting about Bitcoin and other cryptocurrencies, last month, Treasury Secretary Steve Mnuchin assured an audience at the Economic Club of Washington that "one of the things we will be working very closely with the G-20 on is making sure that this doesn't become the Swiss numbered bank accounts." He specifically cited the difficulty cryptocurrencies pose to tracking transactions as a major concern.

Soon afterward, India's finance minister, Arun Jaitley, sounded an even stronger note, saying, "The government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system."

Why are government officials sounding such similar notes of hostility to increasingly popular non-state cryptocurrencies?

"The core technology underlying cryptocurrencies, known as blockchain, is premised on anonymity," Richard Holden, an economics professor at the University of New South Wales, and Anup Malani, a law professor at the University of Chicago, explain. "But anonymity is also the main fuel for the underground economy, which is now conducted largely via cash." They add, "If cryptocurrencies were to replace cash as the preferred anonymous medium of exchange, they could significantly expand the underground economy because they are so much more convenient than cash."

It's worth remembering that India's government hates cash, too. Less than two years ago, India demonetized all 500- and 1,000-notes—the highest denominations in circulation—turning them into worthless paper overnight. Officials happily plunged the economy into chaos, and forced many people to resort to barter, in an effort to force the private cash holdings powering the country's vast shadow economy into official view, subject to tracking and taxation.

"We can gradually move from a less-cash society to a cashless society," Prime Minister Narendra Modi said at the time, making his ultimate aims clear even as his policies disrupted the lives of people subject to his rule.

Lots of economic heavy-hitters agree with that sentiment, including Peter Bofinger, a member of the German Council of Economic Experts, who calls for "the abolition of cash, since coins and bills are obsolete and only reduce the influence of central banks." He insists that with the end of the anonymity provided by cash, "the markets for moonlighting and drugs could be dried up."

Harvard University's Kenneth S. Rogoff, former chief economist of the International Monetary Fund, puts a similar book-length argument forward in The Curse of Cash. "The big problem with paper currency is that a large part of it is used to facilitate tax evasion and a huge spectrum of criminal activities," he says. Concerns about constant scrutiny by Big Brother don't sway him either, leading him to retort, "the government's right to tax, regulate and enforce laws trumps individual privacy considerations."

Rogoff unsurprisingly also thinks cryptocurrencies are entirely too freewheeling, snarking that "bitcoin—it is a solution if you're wanting to launder money or tax evasion. I think the government will eventually have to regulate it severely and I think someday will issue its own digital currency." He adds, for emphasis, "it's the anonymity that's really the problem."

Even in the absence of a formal policy decision, those concerns are already seeping through into everyday life in the United States. In recent weeks financial institutions including JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc. have restricted the use of their credit cards to purchase cryptocurrencies at least partially over concerns about the government's ability to track their use. Banks are required by regulators to monitor their customers' transactions for anything the government might interpret as money laundering, notes Bloomberg, "which isn't as easy once dollars are converted into digital coins."

The assault on cryptocurrency is having some effect; Reuters reports that bitcoin "approached three-month lows on concerns about a global regulatory clampdown on the trading of the digital coins."

Since government objections to cryptocurrencies are essentially identical to those made against cash, the arguments in their favor are largely the same too.

"The rich have many ways of hiding assets and making them safe from states and from the taxman," author John Lanchester wrote in a New York Times Magazine column about the push to abolish cash. "Cash is one of the few ways in which ordinary citizens can enjoy a tiny taste of the freedom, privacy and security that the rich take as their due."

"Cash is printed freedom," is how Lars Feld, also of the German Council of Economic Experts, pithily rebutted his colleague Bofinger. And Feld was blunt that by "freedom," he meant escape from complete state scrutiny and control. His countrymen seem to agree.

"The main reason people give for preferring cash is anonymity compared to card payments," Helmut Hammes, head of the German Central Bank's cash department, remarked after the Bofinger-Feld public sparring match.

Well, if you're going to have a debate, the sides might as well be upfront about their motivations.

If advocates of expanded power are going to be so transparent about their motivations in opposing cryptocurrencies and cash, if they're going to be so explicit in their hostility to the anonymity and liberty those means of exchange offer people, we should take them at their word. Let's be clear in response that what they see as problems are the precise features we like about cash and cryptocurrencies. We support our well-worn folding money and bitcoin and its successors to come precisely because they put at least some of our activities beyond the reach of control freaks who want to monitor, tax, and regulate our lives.

Cryptocurrencies and cash are valuable not despite their anonymity, but because of it.

Photo Credit: Alain Pitton/NurPhoto/Sipa USA/Newscom

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  • DajjaI||

    Bitcoin is worthless. Having said that, a war on it could artificially inflate its value, at least temporarily. A war on cryptocurrency would entail endless merriment not to mention employment opportunities.

  • loveconstitution1789||

    It was not worthless to people who bought things fairly anonymously via the internet and there is a war on it.

    Bitcoin was also not worthless when I sold some near a high of $19,202.13 USD December 2017.

  • ace_m82||

    Value is relative, so you are both correct and incorrect when you call it "worthless". It has no worth to some people, and a lot of worth to others.

  • nomofiat||

    Bitcoin is the most decentralised crypto by far. It is pretty much the only coin that is truly censorship resistant and irreversible.

    Most cryptos are companies in disguise with single points of failure. These coins squandered cryptos unique selling points to give people low fees and fast tx times now, at the expense of decentralisation in the future.

  • Telcontar the Wanderer||

    the abolition of cash, since coins and bills are obsolete and only reduce the influence of central banks

    Centralization = Progress

    You heard it here first... if you've never read anything about the history of the last 170 years, anyway.

  • Telcontar the Wanderer||

    He insists that with the end of the anonymity provided by the Fourth Amendment, "the markets for moonlighting and drugs could be dried up"

    And you know what? He's right!

  • BestUsedCarSales||

    How can people do cocaine with dollar bills? Check. And. Mate.

  • BestUsedCarSales||

    Without.

  • Telcontar the Wanderer||

  • Sometimes a Great Notion||

    Once CA bans straws I guess just by smoking it or shooting it. Obviously the two best and most safe way of doing the drug.

  • Cynical Asshole||

    How can people do cocaine with dollar bills?

    I know, right? Hundred dollar bills or GTFO.

    *I saw your correction, I just still wanted to make that joke.

  • BestUsedCarSales||

    the government's right to tax, regulate and enforce laws trumps individual privacy considerations

    That's as totalitarian of a statement as I fear we can get.

  • Cynical Asshole||

    I'm sure it sounded better in the original Russian. Or German.

  • sasob||

    Governments don't have rights - only powers - which have either been usurped by them or delegated to them by some of their citizens.

  • Billy Bones||

    Huh, seems to me all these concerns could be easily remedied by a proper tax system, one that exerts no force or pressure by the government; a consumption tax (in lieu of income tax).

  • ace_m82||

    Taxation is force and pressure by government!

  • BestUsedCarSales||

    Sounds like we could lessen the black market by forcing less goods into the black market.

  • Fist of Etiquette||

    We support our well-worn folding money and bitcoin and its successors to come precisely because they put at least some of our activities beyond the reach of control freaks who want to monitor, tax, and regulate our lives.

    You sound like a crazy militia person. What are you trying to hide?

  • GlenchristLaw||

    Puitting aside the pesky fact that blockchains are in fact NOT anonymous...

    The whole "funding illegal activaties" bromide is a shibboleth.

    Like gold before it, cryptocurrecy is anathema to the state because it cannot be debaed.

    And the modern state, especially the modern United States Government, simply cannot persist without debasing the currency.

    See also, "a little inflation is a good thing..." propaganda.

  • sasob||

    Exactly right. That is the main problem both governments and central banks have with it; they can't control the supply of it in existence and therefore the value of its purchasing power. Therefore they cannot defraud holders of it of their purchasing power by means of the stealth tax known as monetary inflation.

  • Ken Shultz||

    "The core technology underlying cryptocurrencies, known as blockchain, is premised on anonymity," Richard Holden, an economics professor at the University of New South Wales, and Anup Malani, a law professor at the University of Chicago, explain."

    It may be that blockchain technology can be utilized in an anonymous way, but where the headline reads, "Governments Hate Bitcoin and Cash for the Same Reason: They Protect People's Privacy.", I think that's incorrect.

    Bitcoin is not anonymous. It's traceable. Using Bitcoin makes your use of the currency everything but anonymous forever. In fact, the traceable aspect of Bitcoin gives it one advantage over cash--it might help solve the problem of theft in the future. Regardless, the government will probably want to issue digital U.S. dollars with blockchain technology like Bitcoin specifically because Bitcoin's implementation makes every transaction traceable forever and hence defeats anonymity.

    Cryptocurrencies can be and some are anonymous. Bitcoin is a bad example of that.

  • Jere Krischel||

    People have to imagine that in order for cash to be like bitcoin, each dollar bill and coin would have to have engraved on it, every transaction it was ever a part of.

    While arguably pseudo-anonymous, associating transactions back to real people is an explicitly supported function of a blockchain - and while perhaps difficult for an individual to take on, it's trivial for a government.

  • Ken Shultz||

    Anyone who says that Bitcoin has no inherent value isn't accounting for the value of being able to bypass China's capital controls.

  • $park¥ leftist poser||

    Anyone who says that Bitcoin has no inherent value knows that it has no inherent value.

  • Leo Kovalensky||

    I mean it's not like it's a picture of a dead guy on a piece of paper. Now THAT is value!

  • Ken Shultz||

    You're right being able to use something to pay taxes or avoid China's capital controls isn't like a picture of a dead guy at all.

    Is there someone who believes U.S. currency is valuable because it has a picture of someone on it?

  • sasob||

    Depends on who the dead guy is.

  • sasob||

    That was in reply to Leo.

  • Ken Shultz||

    Actually, being able to bypass China's capital controls has value.

  • ace_m82||

    There is no such thing as "inherent value". Value is relative.

    https://mises.org/library/subjective-value-theory

  • Ken Shultz||

    You mean relative to the ability to do things like bypass China's capital controls?

  • ace_m82||

    I mean that value is relative. Whether something can do something (or not) affects whether or not people value it, but doesn't endow the thing with "value".

    Value is relative. Don't forget that.

  • Ken Shultz||

    So you're saying Bitcoin isn't valuable because of its inherent ability to be used to avoid China's capital controls?

  • $park¥ leftist poser||

    If the monetary value of Bitcoin goes to $0.00, what would you use it for?

  • ace_m82||

    It may be useful, and useful may mean that many people will see it as valuable (to them), but that doesn't mean it will have value, because value is relative.

    Use =/= value.

    Use is objective. Value is subjective. See my link.

    People don't use their subjective concept of value to try to discover the real, overriding "value" that pre-exists outside people. People value things. Nothing has innate value. Innate value doesn't exist.

  • Ken Shultz||

    "It may be useful, and useful may mean that many people will see it as valuable (to them), but that doesn't mean it will have value, because value is relative."

    You guys went from trying to be grammar police to painting yourselves into some ridiculous corners.

    Things are valuable because they're useful.

    Bitcoin is more valuable to some people rather than others because it's more useful to some people rather than others.

    One of the things Bitcoin can be useful for is avoiding China's capital controls.

    Yes, Bitcoin is valuable because it's useful, and one example is its usefulness in avoiding China's capital controls.

    The observation that Bitcoin has no value apart from its usefulness is of no value because it's useless.

  • ace_m82||

    Things are valuable because they're useful.

    People give value to things because they are useful. I have no need to avoid China's capital controls (right now), so that gives me no value.

    What is the "value" of 20 lbs of gold in my hand right now?

    Now, what's the "value" of that 20 lbs of gold if I'm trying to swim far out in the ocean?

    Now, if "value" is relative to one individual at different times, then why wouldn't it be relative to different people?

    Did you read my link?

  • $park¥ leftist poser||

    Bitcoin is more valuable to some people rather than others because it's more useful to some people rather than others.

    And this has nothing to do with inherent value. Talk about painting yourself into a corner.

  • JFree||

    Ever since I first found out about bitcoin, I've always thought that all it will take is one honest government to implement honest blockchain protocols (it could even include demurrage or taxing) - and all the private cryptocurrencies would disappear almost overnight.

    After 6 years, the only thing missing is - there doesn't appear to be one honest government anywhere. All of them are complete whores of banking intermediaries.

  • loveconstitution1789||

    Good point. Much of the DOW Jones drop MSM hysteria includes a heavy dose of what the Central Bank is doing to save us.

  • Cynical Asshole||

    Concerns about constant scrutiny by Big Brother don't sway him either, leading him to retort, "the government's right to tax, regulate and enforce laws trumps individual privacy considerations."

    Fuck off, slaver.

  • Leo Kovalensky||

    "the government's right to tax, regulate and enforce laws trumps individual privacy considerations."

    This is only true when it comes to immigration. WTF is wrong with these people?!?!?

  • Myshkin78||

    Not to minimize the dangers of intrusive government, but Ponzi schemes are typically frowned on and Bitcoin is a prime example.

  • FreeToFear||

    whatever you might think about the long term viability of BTC's purchasing power, It's not a Ponzi scheme. Ponzi schemes are where the buy in of new investors are used to pay out old ones, much like social security. BTC relies on the assumption of shared value in a finite resource

  • Colossal Douchebag||

    Intrusive government is a prime example.

  • Joe Clave||

    "Officials want to TAX every financial transaction you make..."
    fify

  • dmoney||

    If government hates it, all the more reason for me to love it. Give me some cryto.

  • Brian.bs||

    Let's not forget the other thing government wants to do - negative interest rates. They can only do that to us if our money is "savely" residing in bank accounts, etc. When it becomes clear they have run out of the money they taxed away from us, they will turn to the money we are not "using" - they need it after all!

  • sasob||

    They already have, long ago. Leave a sum of money sitting in your bank account for ten or twenty years and see what happens to its purchasing power.

  • vek||

    Ever since I first heard of Bitcoin a million years ago, I have been wishing a properly structured crypto would become popular. There are many problems with Bitcoin, but just addressing a few key ones could make it THE defactro transaction system for internet commerce, if not real world commerce.

    There needs to be trillions of coins, with the potential for tens or even hundreds of trillions. .00035 BTC is not something people can easily comprehend in their head. $3.50 is. This allows numbers people can understand, and could encompass sufficient circulation to handle trillions in transactions for real scalability.

    You can also eliminate the user paying a fee by enabling mining to go on profitably indefinitely. This would make it a fee free transaction system for buyers and sellers. For every transaction done, perhaps issue .5% or 1% of the value to the miner/processor.

    If you ran the numbers, you could create a system that perfectly scaled with its volume of use, which would keep the value approximately STABLE, instead of crazy like BTC.

    Fixing speed of processing as well, because slow just doesn't cut it.

  • vek||

    If you did the above things you could literally wipe Visa, Mastercard, etc off the face of this earth, and democratize a fee free transaction system. It's stability could also enable it to be a reasonable store of value for the short to mid term. I guess the problem here is it has all been programmers, and not people who understand monetary issues, that have designed all the systems. I'm still amazed nobody has figured out the obvious, or if any obscure coin has, that it has not become popular. It's tempting to want to create a good crypto, but I'm sure at this point it would be very tough to break through and gain traction.

  • Cryptocurrency||

  • Cryptocurrency||

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