For many people, Bitcoin is synonymous with freedom, decentralization, independence and the future. Some consider it akin to anarchy, an online revolution that began with the minting of the first block of Bitcoin that flipped the proverbial bird at central banks and government policy makers.
For governments, however, the vista is different. Generally speaking, those who govern others routinely perceive the cryptocurrency ecosphere as a lawless place, used to fund terrorism and other illicit activities, launder money and evade taxes.
In response to the trillions of dollars of investor and commercial interest, President Joe Biden issued an executive order calling on the government to examine the risks and benefits of cryptocurrencies. The executive order’s explicit aim is to explore a U.S. central bank digital currency (CBDC), which would be a digital fiat, backed by the United States government. But if the original purpose behind the creation of cryptocurrency was to eliminate government control and oversight over fiat and monetary policy, how far will the U.S. government’s control over its citizens’ digital currency extend?
The executive order says that the “principal policy objectives of the United States with respect to digital assets are as follows: We must protect consumers, investors, and businesses in the United States.” The policy goes on to articulate that digital assets have “profound implications” on “crime; national security; the ability to exercise human rights; financial inclusion and equity; and energy demand and climate change.” The executive order isolates the asset class as “non‑state issued digital assets.” Future regulatory, governance and technological measures will purportedly be designed to “counter illicit activities” and “enhance the efficacy of our national security tools.” While there’s no denying the dark side of cryptocurrency and its possible criminal uses, not only does the U.S. government want to regulate cryptocurrency, they seek to control it.
It appears a sure bet that the United States government will (1) regulate private cryptocurrency while (2) issuing its own government-controlled digital token. And in the context of the world’s leading liberal democracy founded on a rule of law based on limitation of government powers, this development warrants serious scrutiny.
Going all the way back to the formation of the United States of America, the founding fathers were skeptical about giving banks and governments control over currencies. During the drafting of the U.S. Constitution, John Adams drew on the colonist’s distrust of government-issued money and declared that every dollar of printed fiat money was “a cheat upon somebody.” The drafters left the federal government with only the power to “coin money,” and forbade the states from making anything but gold and silver coin legal “tender.” Years later, in 1816, Thomas Jefferson wrote that “banking establishments are more dangerous than standing armies… [and] the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
The advent of Bitcoin appeared to be the antidote to the centuries-old problem identified by Jefferson. Bitcoin was specifically designed to obviate the need for a central bank or single administrator. In fact, Bitcoin does not need government support, or to be “backed” by gold and silver. Bitcoin was architected to comprise a store of value who’s value would be determined by the global population’s free market dynamics, via simply supply and demand arithmetic.
So why should any of this matter? At times, the U.S. government has historically suppressed the rights of Americans, and many Americans have shown that they are more than willing to give up those freedoms. It is only a matter of time before the United States issues a digital currency, and likely attempts to suppress, through whatever means, the value and utility of bitcoin, along with the rights of its citizens.
With a U.S.-issued digital coin, the government will have the technical capability, among other things, to limit and apply pressure on what Americans can purchase, to track and monitor citizens’ expenditures and place limits on the quantity or amount of products we purchase.
In extreme cases, the government could rescind or remove all CDBC funds from circulation or from a person’s control. That is already a reality in criminal cases, but here the concern is the ability and willingness of the government to use digital dollars to monitor and control even without the existence of criminal charges or a conviction. These concerns are not merely hypothetical. Last year the Canadian government ordered financial firms to cease facilitating any transactions from 34 crypto wallets tied to funding trucker-led protests over COVID-19 vaccine mandates.
Examples in the United States are easy to conceptualize. If Congress believes that cutting down on gasoline would lower emissions enough to reverse climate change, they could put spending limits on the amount of gas one could purchase. Instead of raising taxes on cigarettes, the government could nullify all cigarette purchases made with digital dollars. While the “in party” will be temporarily satisfied at the expense of the “out party,” fortunes can change fast. Constitutional questions (which often take years to resolve) notwithstanding, where a Republican administration might ban the use of digital dollars to pay for Planned Parenthood services for example, a Democratic administration could just as easily ban the use of digital dollars to purchase guns or ammunition. The reality is that both political parties may well be tempted to utilize digital dollars to influence societal behavior and punish transgressors by restraining the ability to use the currency for travel, education and other essential life activities.
So, are we headed inexorably and at warp speed towards a future where, as George Orwell warned, “nothing was your own except the few cubic centimeters in your skull?” Will the United States government utilize digital coins to create a social credit scoring system on par with China’s? That depends. Not only on the government’s actions, but on the vigilance of lawyers in private practice and civil libertarians more generally. Careful attention must be paid to any efforts by the government to utilize digital dollars for surveillance, control or unlawful restriction of individual privacy and liberty. Because, after all, if “love of money is the root of all evil,” then unconstrained U.S. government-issued digital dollars may turn into the “mother of all evils.”
Zachary Reeves, an associate with Baker McKenzie, also contributed to this article.
This is a guest post by Bradford Newman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.