How Progressives are Ruining Crypto

From excessive regulation to proof-of-stake, from CBDCs to “redesigning the financial system”; progressives are doing their best to ruin…

From excessive regulation to proof-of-stake, from CBDCs to “redesigning the financial system”; progressives are doing their best to ruin crypto

The recent meltdown in crypto markets has triggered yet another wave of doomsayers proclaiming that “crypto is dead”. Interestingly, none of them seem to have trusted their superior insights enough to short crypto and make a fortune. Talk about not putting your money where your mouth is…

None of the doomsayers trusted their insights enough to short crypto and make a fortune…

But whether crypto markets will ever recover, or if this is the crypto winter that will bury the industry forever, is not the focus of this article. The focus of this article is the naïve progressive effort to make crypto mainstream, which is inadvertently killing it and helping preserve the financial status quo they claim to despise so much.

Bitcoin: The Land of the Free and Home of the Libertarian

Early crypto enthusiasts shared a strong orientation towards free markets. The elegant technology behind Bitcoin represented a promising alternative to big government running the money show — with the unlimited spending, looming inflation, and taxation power that comes with it; not to mention the threats to privacy and freedom of speech.

It is fair to say that crypto was never socially conservative — but it was fiscally conservative. Fiscal conservatism is arguably the main driving force behind Bitcoin. Whether you believe Bitcoin is indeed non-inflationary or not, that was one of the key features that incentivized early adoption.

With the goals of promoting freedom and undermining government overreach, the original Bitcoin crew is commonly described as libertarian. And Bitcoin’s ace in the hole (its “proof-of-work” consensus mechanism), was an elegant free markets solution: you didn’t need a big brother to whip market participants into shape, since it was very expensive to trick Bitcoin.

Enter Ethereum: Let’s Redesign Financial Markets! Yay!

When Bitcoin’s libertarian philosophy was infused with a Silicon Valley-inspired drive for social engineering, Ethereum was born. While Bitcoin was conceived as a decentralized currency, Ethereum was conceived as a tool to redesign the financial system and build a utopia.

While Bitcoin was conceived as a decentralized currency, Ethereum was conceived as a tool to redesign the financial system and build an utopia

Ethereum’s main differentiator is the idea of smart contracts — self-executing pieces of code that could enforce trading rules. Which is indeed an interesting technology. All the rest was roughly the same, including the underlying proof-of-work consensus algorithm.

Smart contracts added that extra flair of sophistication to crypto; while Bitcoin is a hardworking, blue-collar guy that drives a gas-guzzling pickup truck, Ethereum is his blue-haired, non-binary cousin that drives a coal-powered electric car.

But it didn’t take long for the Ethereum community’s heightened awareness of societal issues, and the megalomania of its original developers, to become problematic for the network. The constructivist belief that “technology will solve all our problems” behind Ethereum would quickly turn into authoritarianism.

Satoshi Nakamoto vs Vitalik Buterin

It speaks volumes that nobody can tell with certainty who created Bitcoin, while the select intelligentsia behind Ethereum is very well known. The face of Bitcoin is an anonymous entity called Satoshi Nakamoto. The face of Ethereum is wunderkind Vitalik Buterin (even though many others played fundamental parts).

Behind Bitcoin, we have an unknown libertarian, behind Ethereum a known technocrat. An anarchist versus a socialist. An idea versus a man. I don’t mean to diss Vitalik Buterin; he’s a man of vision, he hustled to build a $100bn+ business from scratch. He is a true tech entrepreneur. But it’s undeniable that he made Ethereum into a plutocracy. Even if he doesn’t believe that:

Buterin’s influence makes it very difficult to trust Ethereum’s decentralization claims. He and his brain trust act as Ethereum’s de facto nomenklatura, exercising central planning and having control over prices, levels of production, and the use of resources. Ethereum is a centrally-planned economy.

And that is by design. Ethereum is built to enforce rules designed by a centralized planner (hence the crazy levels of centralization observed in DeFi). To enable centralized identities and full traceability. To allow for programmatic equality of outcomes. The complete opposite of the free market ideals at the genesis of Bitcoin.

Two episodes make it crystal clear the authoritarian nature of Ethereum: the DAO fork and Ethereum’s switch to “proof-of-stake”.

Back in 2016, the Ethereum powers that be decided to violate a core tenet of blockchain: its immutability. After the “DAO” — an organization ran by friends of Ethereum’s top brass — was hacked and lost hundreds of millions of dollars, Ethereum’s blockchain was reset to a state before the hack happened, effectively bailing out the people behind the DAO. Central planners changing the rules to benefit their friends. Where did we see that before?

The proof-of-work mechanism ensures the accuracy of Bitcoin by basically making it very expensive to enter a malicious record: to record a block in Bitcoin’s blockchain you need a lot of electricity (a “real world”, scarce resource). So Bitcoin’s large electricity consumption is not an accident or collateral effect: it is something that happens by design, to keep the network honest.

Ethereum, so far, works in the same way. However, the woke Ethereum community is getting ants in the pants because of the electricity consumption (and — you guessed it — Climate Change). So, by virtue of Ethereum’s lopsided governance, they are pushing for a switch to a proof-of-stake algorithm.

While it is true that proof-of-stake uses a negligible amount of electricity, because it works as basically validating blocks according to the opinion of the largest coin holders, proof-of-stake is also absolutely centralized, undermines competition and detaches Ethereum’s economy from real-world resources.

By adopting proof-of-stake, Ethereum is fully embracing its tendency to become a centrally-planned economy, where the authority of the people holding political currency trumps scarcity as the main driver for the allocation of resources.

Does it Mean Bitcoin leans to the right, Ethereum to the left?

In 2018, CoinDesk ran a survey to identify the political leanings of crypto holders. While their results corroborate the view that Bitcoin leans right and Ethereum leans left, I’d take those results with a grain of salt for many reasons. Above all, I believe this is more of a philosophical rather than a political divide.

I don’t believe political preferences have any weight in the decision of holding one or the other coin. My point is that Ethereum provides progressives with a window to shoehorn their twisted views of the world. And Bitcoin doesn’t.

Bitcoin’s value proposition plays much more to the conservative cohort: a simple design, low maintenance, and a strong mind about its core mission: stable money supply, decentralization, and security.

Ethereum’s value proposition focuses on the opportunity to redesign money and financial markets as a way to build a more egalitarian society. With an unhinged optimism about technological progress. Technocracy meets social engineering. Complete with an elite of luminaries to deliver it to us.

Regulation, CBDCs and Other Dumb Ideas

If Bitcoin is the cutting-edge of financial innovation, Ethereum is the blunting-edge of control. Take the two pieces of legislation coming each from one side of the Atlantic. MiCA, in Europe, is focused on Ethereum-enabled crypto (such as ERC-20 tokens and stablecoins), with a strong drive to protect the EU’s own experimental coin (aka the euro) from the competition.

Lummis-Gillibrand, in the US, is focused on ringfencing Bitcoin as a commodity (even if Ethereum might also qualify) and removing barriers to an efficient mining, trading, and operating environments. It doesn’t take it upon itself to save the US dollar from crypto. Rather, it seeks to strengthen the US dollar by fostering innovation.

One brutally problematic idea, based on the desire to leverage smart contract logic to increase government reach, is the concept of Central Bank Digital Currencies (or CBDCs). While still early in the process, many have raised the issue that CBDCs might be a great threat to citizens’ privacy and economic freedom. No wonder China leads the pack on this technology…

But progressives know the future looks bright. Perhaps too bright for their failing eyes to process. So they’ll keep coming up with other, ill-conceived ideas. If Bitcoin, for good or bad, represented the Zeitgeist of a generation seeking freedom, Ethereum represents the esprit de corps of a generation afraid to make its own decisions.

Bitcoin represented the Zeitgeist of a generation seeking freedom, Ethereum represents the esprit de corps of a generation afraid to make its own decisions