Concealed within his fortress, the lord of Mordor sees all. His gaze pierces cloud, shadow, earth, and flesh.
What happened this weekend in Washington DC, where the Senate debated and ultimately rejected various crypto-related amendments to the infrastructure bill, was not a bad thing at all for Bitcoin! TM, the Wall Street-abstracted representation of the price of Bitcoin. If all you care about is Number Go Up, then you can stop reading this note. All is well!
But if it bothers you even a smidge that the core censorship-resistant and anonymity-preserving DNA of OG Bitcoin is being genetically modified by Washington so that it’s just another gaming table in the Wall Street casino …
If you care in the least that what made Bitcoin special in the first place has been reduced to a false and constructed narrative that exists in service to Wall Street and Washington rather than in resistance …
Then, yeah, read on.
I wrote this back in April.
If there’s a Western governmental institution that is more unclouded by conscience, remorse, or delusions of morality than the US Treasury, I am unaware of what that institution might be. But unlike Wall Street, which is motivated by Flow, the US Treasury has an entirely different (but highly compatible!) goal.
The goal of the US Treasury is to see all of the money in the world.
That’s really all it is. That’s what Anti-Money Laundering (AML) regulations are all about. That’s what Know Your Client (KYC) regulations are all about. That’s what Report of Foreign Bank and Financial Accounts (FBAR) regulations are all about. That’s what the Treasury-led Society for Worldwide Interbank Financial Telecommunications (SWIFT) is all about. That’s what the Bank Secrecy Act (BSA) is all about. None of these programs are really about taxes. None of these programs are really about catching crooks or fighting terrorists. All of these programs are really about information for information’s sake regarding the greatest source of power in the world and the raison d’etre of every government on Earth: money.
The US Treasury is the Eye of Sauron — a gigantic panopticon tower that sweeps the world with its unblinking gaze, seeking out the owners of power, i.e. money.In Praise of Bitcoin
Here’s what I think happened this weekend with the Senate debate and vote.
First, I think that Treasury has been planning to announce these broad extensions to crypto-entity reporting and taxation requirements all along, in order to eliminate a blind spot that Sauron accidentally created via their own 2019 guidance stating that “a person conducting a transaction through an unhosted wallet to purchase goods or services on their own behalf is not a money transmitter” and is thus not subject to the Bank Secrecy Act.
Treasury’s December, 2020 proposed rule-making doc said as much directly:
The Treasury Department has previously noted that “anonymity in transactions and funds transfers is the main risk that facilitates money laundering.”
The Financial Action Task Force (“FATF”) has similarly observed that the extent to which anonymous peer-to-peer permit transactions via unhosted wallets, without involvement of a virtual asset service provider or a financial institution, is a key potential AML/CFT risk in some CVC systems.
FATF members have specifically observed that unregulated peer-to-peer transactions “could present a leak in tracing illicit flows of virtual assets,” particularly if one or more blockchain-based CVC networks were to reach global scale.
I think that implementing these three paragraphs is the entire goal of the regulatory language that Treasury put in the infrastructure bill. The Eye of Sauron wants to see EVERYONE involved in ANY crypto transaction, even if they’re not “a virtual asset service or a financial institution”, and yes that includes miners and developers. Will Treasury actually monitor some random dude with a few rigs in the basement? Nah. But they could if they wanted to. They will if this random dude becomes bigger than just a random dude. They will if this random dude connects with a “person of interest”. An effective panopticon doesn’t require active surveillance of everyone all the time. It requires the power to surveil everyone all the time and the elimination of any legal right not to be surveilled. Treasury doesn’t want to shut down miners and developers. They just want to see everything that miners and developers are doing. Why would you have a problem with that? You’re not a terrorist, are you? You’re not a money launderer, are you?
Second, I think that Treasury could have just announced these new regulatory requirements using whatever language they pleased and that would have been that. But in order to score the infrastructure bill more favorably (it was originally promised to be revenue neutral but ended up being scored as a $250+ billion deficit addition over 10 years), Yellen agreed to have the new regulatory requirements and its $25+ billion in new tax revenues included within the draft legislation.
To be really really clear … the US Treasury could not care less about the new tax revenues. But the White House cares and Congress cares (I mean, they don’t really care, either, but deficit impact is the political battlefield where this bill is being fought), so team-player Yellen tossed this into the pot. Oops.
I say oops because – third – once the new regulatory requirements were tossed into the legislative pot, the Treasury-approved language associated with those requirements became fair game for amendments and revisions and language that was decidedly NOT Treasury-approved. And that’s when all hell broke loose. The amendment process gave friends and enemies of the bill alike an entirely new avenue for mischief-making, either in efforts to take a poke at Treasury (Ron Wyden) or in efforts to derail the vote entirely (Ted Cruz and Bill Hagerty and Pat Toomey and Cynthia Lummis).
Fourth, efforts to “rescue” the original vague, Treasury-approved language with competing amendments were both pathetic and comical. Ultimately, the White House and Senate leadership called a halt to the farce, made it painfully clear to Dems like Ron Wyden that their little insurrection against Treasury was at an end, and moved to a Senate vote on the bill without any amendments at all. Wyden was a Yea on the roll-call vote for short-circuiting his own amendment, by the way, and he’ll be a Yea on the no-amendment infrastructure bill vote on Tuesday.
And please don’t @me about the Toomey-Lummis “compromise amendment” announced today, two senators who are voting against the bill anyway. Their amendment has been blessed by Warner and Sinema. meaning that Treasury is on board with the language here. It strips out the privacy protections that were in the original Wyden amendment, which is why he’s not attaching his name to it. Either we get a Senate vote tomorrow on an infrastructure bill with no amendments, or we get a Senate vote on an infrastructure bill with a Treasury-approved “compromise amendment”. Wheee!
[Ed note: I see that this “compromise amendment” just got shot down. Quelle surprise!]
From there the bill will go to the House, where I don’t think there’s a snowball’s chance in hell that a Wyden-esque, meaningful amendment sees the light of day. Even if it does, it’ll get stripped out in conference, where House and Senate bills are reconciled prior to a final vote. As for some separate piece of Wyden-esque, meaningful legislation that creates privacy protections against the Eye of Sauron … please.
In the immortal words of Omar Little, “You come at the king, you best not miss.”
Ron Wyden missed. Yellen gave him an unexpected shot, and it was a decent shot, but he missed. Treasury isn’t going to give him – much less his Republican fellow travelers – another chance.
I hope I’m wrong. I hope that a miracle happens and the US House bucks the White House and Treasury to include a meaningful privacy-preserving amendment to the bill. I hope that a miracle happens and there’s 67 Senate votes and 218 House votes later this year for a brand spanking new crypto law that goes directly against the express wishes of the White House and Treasury … not just the Biden White House and Treasury, mind you, but also the former guy’s White House and Treasury and the former former guy’s White House and Treasury.
I hope I’m wrong because I think what happened this weekend is really sad. I think that what Treasury is doing to crypto is bad for the country and for humanity in general. I really do believe that the US Treasury is Sauron, with every connotation that this metaphor implies.
I hope I’m wrong, but I don’t think I am.
I also wrote this in April.
Frankly, I doubt that the policy battle can be won. This has been my view since I first started writing about Bitcoin, and nothing has happened to change my mind. On the contrary, Treasury’s moves to make crypto visible and controllable have happened faster than I thought they would. I mean, I’m hopeful that we are at least at some point of policy equilibrium with the proposed rule changes to BSA and FBAR, an equilibrium that will at least allow self-hosted crypto wallets to exist in peace. But hope, unfortunately, is not a strategy.In Praise of Bitcoin
I think there is another way.
I think there is a way to reclaim the OG spirit and intention and resistance of Bitcoin, not by trying to find a blind spot of the Eye of Sauron and fighting the US Treasury directly through half-baked legislative amendments, but by subverting the entire system from the bottom-up.
I think we need a new archetypal story arc – Asimov’s Foundation, not Tolkien’s Lord of the Rings – and a new set of narratives that flow from that.
I think we have to flip the script.
The Second Foundation hides in plain sight.
Start here for a new story about Bitcoin and crypto, a new story that’s really an Old Story about autonomy of mind and generosity of spirit.
Understand what I mean when I say that Bitcoin! TM doesn’t stick it to the Man … Bitcoin! TM IS the Man.
And then go here for an example of what that new story could be: a proof-of-plant method for literally growing cryptocurrency tokens as a representation of the value stored in the human cultivation of plants.
When I say that I want to change the language of crypto from mining to growing, I do not mean this in a metaphorical sense!
And coming soon, the next installment of this new vision – The Green Protocol – available now on the ET Forum for subscribers to review and comment. It’s not just about plants. It’s about a set of fundamental rules for the tokenization of symbolic betting markets in positive social goods.