Cryptocurrency Will Cripple Governments -- And They Won’t See it Coming

--Reality is perceived in models. Or maps, if you will. But the map, observed Alfred Korzybski, is never the territory. Meaning, the best we can do is create effective models that work well with reality — yet, with full knowledge that it will never represent the full scope of reality. And will, therefore, need uncompromisable adaptability.

Some maps, then, are more effective than others. And it usually goes that the more mainstream the model, the less effective it works in helping you navigate through the tangled webs of reality.

Looking at politics in terms of partisanship, for example, is a very poor representation of reality. It fails to give you the big picture. It fails to represent politics as politics really works — which is, in reality, transcendent of partisanship.

Looking at politics, rather, in terms of centralization vs. decentralization is not perfect, but it is, we think, a much better representation than the latter.

Politicians are generally centralists (there are exceptions… but very few). They see a perpetual need for more privileged (AKA powerful, but little-to-no skin in the game) fixers (see:pseudo-experts) to give the plebs what they “need.” Whether the plebs want it, need it, or ask for it is, of course, entirely irrelevant.

On the other hand, those who see this aforementioned mentality as an enormous and fundamental problem are, generally, decentralists.

One decentralist, Paul Rosenberg of the Freeman’s Perspective blog, outlines why stacking on more centralization to our over-centralized Jenga Economy is counterproductive in his latest piece:

#1: Centralization disrupts price discovery: “Disrupting price discovery… that sounds very ‘economic.’

“What it means is this: Whenever headquarters decides to meddle in business transactions, large sections of the marketplace are thrown out of order. The biggest offenders in this area were the 20th century’s socialist states. I’m not sure precisely how many people died (mainly of starvation) from their economic ‘experiments,’ but the number is in the range of 100 million.”

#2: Centralization robs the people: “Centralization creates a group of people who eat (and generally grow rich) at the expense of everyone else. Every dollar that goes to politicians — for their very fine offices and cars and travel budgets and everything else — is money that is stolen from you and your neighbors.”

#3: Central bosses enforce arbitrarily in order to gain artificial legitimacy: “Did you ever notice that politicians are forever creating new fears? And why? Well, because solving those fears (even if they’re mostly imaginary, as most are) makes them seem necessary.

“From this we get any number of disasters, especially wars. Have you noticed that presidents become far more popular when they wage a war? Fear sells, and war is a tremendous spectacle. And it makes the centralizers look necessary. (Too bad about all those dead guys.)”

#4: Centralization is limiting.“Centralized power solving our fears requires an ever-increasing number of laws, and each law is a restriction of some kind. Pretty soon, you can’t do half the things you could a couple of decades before. There’s a law for every problem and a department to solve it. Address it yourself and you’re likely to get hurt.

“So, to keep us safe from our professionally cultivated fears, your kid can’t run a lemonade stand without a license, your older aunt can’t watch the neighbor kids, and God help you if you try to give a lost child a ride home.”

#5: Centralization kills cooperation: “There are rules for everything. So, you can no longer cooperate with your neighbor because you enjoy it. No… you cooperate because it’s commanded by law and you’ll be punished if you don’t.

“Have you noticed people yearning for the old days and talking about small, rustic communities where the people ‘still look out for each other’? Well, they’re right to yearn for that, because it’s a very healthy way to live. And it’s centralization that stole it from us.”

#6: Centralization robs you of self-worth: “Following on from #5 above: What happens inside you when you help people because you, by yourself, give a damn? I think we all know the answer: You become a better, happier, and more beneficial person. You know you did a good thing. And then you feel good about yourself.

“Every time you do ‘the right thing’ because it’s mandated by law, you are being robbed of self-worth and self-improvement. And your friends and neighbors are robbed of your improved state.”

Welcome To The Age of Decentralization

Decentralization won’t happen if the decentralists wait for full permission from the centralizers.

That’s just the truth.

Fortunately, we live in an era where decentralization has a fighting chance — because it, ultimately, doesn’t need permission. Permissionless innovation truly does have the ability to creatively destroy (and, at the same time, create anew), the forces which hanker for unlimited control and resources to themselves and their cabal.

(Take, for example, this piece in Reuters on how Venezuelans are bypassing backwards currency controls with bitcoin.)

This is precisely why we’ve spent much time the past year digging deep into the cryptocurrency space. Cryptocurrencies have incredible potential to compete economically with the world’s governments.

Maybe not subvert them completely, as some claim (such as, for example, the author of today’s featured article below) — but they can certainly, at the very least, whip them into shape.

Today, to explain the broad view, we invite Rick Falkvinge to the show to share his perspective: Cryptocurrency, according to him, will cripple today’s centralizing forces. And, unfortunately for them, they won’t see it coming.

Read on.

How cryptocurrency will cripple today’s governments – and they won’t see it coming

Rick Falkvinge

Cryptocurrency will cripple governmental ability to collect taxes, and they won’t see it coming. When it’s already happened, expect major changes to take place in how society is organized on a large scale — but also expect governments to act in desperation to retain control.

As bitcoin launched in 2009, most early adopters saw its disruptive potential. While bitcoin has stalled for some time approaching a valid use of the term “stagnation”, cryptocurrency in a larger context is still just as disruptive. In 2011, I stated that bitcoin (cryptocurrency) will do to banks what email did to the postal services. This is not just true, but it will be even more brutal to governments, and by extension, governmental services.

Now, governments love anything that smells like innovation, because it means jobs, this magic word that smells of magic unicorns to anybody in government. Therefore, people who like innovation are nurturing this bitcoin thing, this cryptocurrency thing, this ethereum thing (as if governments made a difference, but still).

Lots of startups in tip-of-the-spear financial technology means that their government may get a head start over other governments. They have no idea that cryptocurrency will radically scale back the power of government, not just their own one, but also all those other governments over which it seeks a competitive edge.

Individual people in government can also love bitcoin because it gives them something to do. More specifically, it gives them something to regulate. Fortunately, other people in government see that this gives them something to do, which is to hold those government regulators with an overdeveloped sense of order somewhat in check.

You’ll hear no shortage of wannabe regulators saying that “bitcoin is bad because it’s being used in crime and contraband trade!”, to which I usually respond, “well, bitcoin is a currency, so I mean you put it in relation to the US Dollar, which then… is not used in crime and contraband trade, is this the argument you’re using to support your position?”, at which point the discussion generally changes topic.

This completely disregards the observation that bitcoin and cryptocurrency were designed to not submit to regulation in the first place. Well, at least not governmental regulation. It is heavily regulated – but by its source code, and by its source code alone.

The reason this will cripple today’s governments — today’s idea of what a government is and does — is because today’s economy is built on one layer doing actual work and three layers of abstraction on top.

At the first and bottom layer of our economy are the individual people doing all the actual work.

The second layer on top of the first is the abstraction we call corporations, which is a way to organize our economy and optimize transaction costs.

The third layer on top of the second would be banks, which handle money for corporations and individual people in a middleman gatekeeper position.

Finally, the fourth layer is the government, which takes advantage of the banks’ gatekeeper position to siphon off taxes from money flows in order to fund itself and governmental services. In other words, layer four completely depends on layer three for its operations – or at least for the relative simplicity of funding its operations.

Now, what bitcoin and cryptocurrency do is make away with the banks – cutting them out of the loop entirely, making them redundant, obsolete, dinosaurified. This resulting absence of anything where banks used to be creates an air gap between the functional part of the economy – people and corporations – and governments who want funding.

The way governments want to tap all money flows in order to fund itself is not entirely unlike how the surveillance agencies want to tap all information flows in order to have an information advantage.

In this way, the deployment of cryptocurrency is to tax collection what deployment of end-to-end encryption is to mass surveillance. The government can no longer reach into money flows and grab what it wants, but will be dependent on people actively sending it money. The government can’t point a gun at a computer and have it give up its money; you can only make a computer operator feel very sorry for not voluntarily producing the keys to that money. So the government is no longer able to collect taxes without the consent – even if coerced and forced consent – of the people being thus collected.

The deployment of cryptocurrency is to tax collection what deployment of end-to-end encryption is to mass surveillance.

Governments, and individual people in government, have no idea about this bigger picture. They’re far to wrapped up in things-as-usual to notice. They won’t see it coming until it’s already happened.

When this happens, there will be no shortage of people in government who suddenly want to regulate cryptocurrency – only to find out it will be as effective as regulating gravity. When this happens, government as we know it will be redefined from a coercive Colossus able to take what it wants and do what it wants into a construct that actually depends on people wanting to fund it. This will be a very interesting time to live in. While today’s governments will see themselves as getting crippled, I suspect most citizens will regard it as unquestionably healthy that governments will actually begin to depend on the approval of the people at large.

We’re just beginning to see the changes to society that the Internet brings. This is one of them.

(Note: I write cryptocurrency and not bitcoin on purpose here, just as I’d prefer proclaiming the success of social media over the success of Myspace.)

[Ed. note: This article originally appeared on Rick’s blog at this link.]


Richard Falkvinge
Head of Privacy, Private Internet Access

Chris Campbell

Written By Chris Campbell

Chris Campbell is the Managing editor of Laissez Faire Today. Before joining Agora Financial, he was a researcher and contributor to