Bitcoin, the largest and original cryptocurrency, ended the first half down over 70% from it's peak. As many as 1,000 different coins are now functionally worthless.
Why does this matter to Libertarians?
Well, cryptos do matter to Libertarians. For starters, every Libertarian should read the original paper inventing Bitcoin and explaining BlockChain technology. The appeal of cryptocurrencies includes that the blockchain technology they are built on is peer to peer and needs no central authority - potentially making them and other blockchain based solutions what I call GIP, "government idiot proof" or "government involvement proof". They become a non governmental digital currency enabling financial transactions between private parties independent of monetary policy or capital controls of one or more nations, and even independent of the companies or organizations that helped spawn or manage them.
Better yet, they are unbelievably democratic as well as decentralized - 5 Texans in Marfa or Houston can start their own, the underlying blockchain principles are free and easy to replicate - though the technology to implement them is more complex and expensive. It literally is make your own "NealCoin" if you want. That's why there were 1,000s of them in such a short time.
Not only are cryptos good for creating money, blockchain is highly useful for enabling private contracts and solving problems we now use governments to help manage. A dozen years ago I filed some fairly well cited patents on verification and registration systems for managing carbon and energy credits and their smart contracts across border. We had some really slick ideas. We developed and built a system used by banks and energy companies on every continent except Antarctica. A few years later blockchain literally rewrote that book, and if I did again I'd junk my whole original platform idea for a smart contract built on a private blockchain. Today every major company has a blockchain initiative for a massive range of applications that are good for the world.
Even more crucial, in a digital age, they are ultra-private - the blockchain itself may carry it's record with it, but the users can remain, and generally do, anonymous. There is no other way to functionally conduct large scale financial exchanges that do not involve your identity than with cryptos, blockchain, or some sort of middle man who sees everything.
Blockchain and cryptos don't "get" borders or single points of failure. They aren't dollar or yen based, or tied to physical volumes or Henry Hub (their literally is one place in the US that anchors the price of all oil transactions), or rooted in a single exchange, or a bunch of British corporate bankers calling each other to set interest rates. They can be built fluid and distributed and private and transparent all at once.
In short, crypto-currency represents so many things that are utterly libertarian.
Again, so why does a crash of 70% matter to Libertarians? It's not just for the reasons cryptos and blockchain are good, it's also partly in the reason crypto values are falling. Those reasons include:
- Plain ole tulip and dot com style style bubble coming down
- Structural and technical issues
- Hacks and theft
- And here's the big one - government action.
"While it was difficult to find fresh catalysts for Bitcoin’s drop on Friday, hacks at two South Korean exchanges and a regulatory clampdown in Japan have weighed on sentiment in recent weeks. Regulators around the world have stepped up scrutiny of cryptocurrencies on concern that they’re a breeding ground for illicit activity including money laundering, market manipulation and fraud." - Bloomberg
What do governments not like about bitcoin and other cryptos?
Well, for starters they are hard to track, anonymous, outside the easy of control of regulators, hard to tax, don't care about borders, easy to start, highly transparent - you know, all the things we like about them.
They can't figure out whether this is a currency, and illegal for private citizens to make in most countries, a commodity, that they want to regulate trading in, or just a product. Unfortunately for them, blockchain technology is not likely going away, and neither are cryptos.
And just like the internet and early payments processing systems, it will enable crime as well as less savory industries that prefer to be out of sight of the government, just like it will enable privacy for those of us who like being out sight of and less dependent on the government. In fact, one of the issues in the early IPOs of payments processing companies was the fear that the large number of porn related customers using them might be a turn off to investors or cause the government to step in. And like IP and web based payments processing, bitcoin and cryptos are going to keep on trucking. We need to make sure the unsavory or super private uses don't encourage government over-regulation.
Yes, I think Bitcoin was in a bubble, that was always clear. I think 99% of cryptos will fail or be irrelevant. I think it will trade like a commodity for a while and eventually like a currency. I think like a commodity, it will be subject to volatility. No I don't think it's a good investment, or inflation hedge, just like gold isn't.
I don't think it's going away, and I don't think it should. It's a good innovation. I think unlike the internet, this innovation wasn't born in government labs, and our government needs to keep it's hands to itself. In fact, I think the opposite needs to happen. The US government, as part of National Privacy Protection Act, needs to make the US is the leading haven for cryptocurrency and blockchain technology. If other governments want to crack down and regulate it, we need to have the courage to be the beacon of light that says, America to the World: Blockchain and Bitcoin we are Open for for Business.