The BPI took on the U.S. Department of Treasury’s challenge. Treasury requested public comment on digital assets’ national security implications, and the Bitcoin Policy Institute answered with a bomb of a document. It explains the overall value of bitcoin as a tool for freedom. It compares bitcoin to classic US-funded initiatives like Radio Free Europe and the Tor network. It touches the heartstrings and exposes the case in a convincing way.
Today, @USTreasury requested public comment on the national security implications of digital assets.
— David Zell (@DavidZell_) November 3, 2022
To persuade people to read it, the BPI summarizes it like this:
“Open digital assets that empower individuals can help advance the cause of freedom, stymie the objectives of authoritarian adversaries, and help advance a core national security interest. Peer-to-peer systems like Bitcoin represent the essence of autonomy, voluntary cooperation, and liberal values that our country was built on.”
Over at Twitter, one of the authors took a different approach. David Zell wrote:
“Today, the US Department of the Treasury requested public comment on the national security implications of digital assets. In response, Matthew Pines and I submitted this report, detailing how bitcoin promotes American interests and values abroad.”
We now know what we’re dealing with. Let’s analyze the BPI’s case to see if they can convince us.
The BPI Compares Bitcoin To Tor
The BPI sets the stage by making the case for bitcoin as a whole:
“Bitcoin allows anyone in the world with an internet connection to store and send value in a manner that cannot be reversed, frozen, or seized. It is open and permissionless. It is distinct from other cryptocurrencies in that it is credibly neutral, widely-decentralized, uncontrolled by any leadership or founding team, and optimized for resisting censorship.”
The bitcoin/ Tor comparison might sound weird at first, but the BPI brings it home with these examples:
“Just as Tor enabled tens of millions of people to see and access the freedom of open societies, Bitcoin enables tens of millions to escape the capital controls of authoritarian states and connect to the western financial system. Just as Tor digitally enshrines and exports the right to communicate freely across the globe, Bitcoin digitally enshrines and exports free trade and the right to transact.”
BTC price chart for 11/04/2022 on Gemini | Source: BTC/USD on TradingView.com
The BPI Acknowledges The Risks
In the risks section, the BPI seems to throw some altcoin projects under the bus. They acknowledge that “criminal groups (some state-sponsored) have dramatically increased the scale, sophistication, and severity of ransomware operations.” Then, the BPI says that criminals are increasingly using Monero more and more.
The BPI also admits that “revenue from hacking and theft are on the rise,” but they say its “principally driven by the dramatic increase in funds stolen from decentralized finance (“DeFi”) protocols.” This is true, but did the BPI have to write the following? “This portion of the crypto-ecosystem inherits the “move fast and break things” ethos of silicon valley and their open source code is a ripe target for hackers to exploit and reap very large bounties.”
Last but not least, they address the elephant in the room, “The Lazarus Group (a hacking group controlled by the North Korean intelligence service) is the dominant exploiter of DeFi protocols.” But then, the BPI blames “their use of the Ethereum-based mixer Tornado Cash to launder their stolen assets.” They don’t celebrate the OFAC’s decision to sanction the smart contract, though. The BPI wrote that the act “precipitated widespread consternation in the crypto-community and will likely be challenged in U.S. court.”
To close the risk section, the BPI brings up sanctions and Russia:
“It has been a common refrain that Bitcoin is a useful tool for rogue nations and entities to evade U.S. sanctions. This concern was raised in the immediate aftermath of Russia’s invasion of Ukraine, but thus far, no significant use of Bitcoin to evade sanctions has materialized.”
Actionable Items AKA Strategic Principles
The BPI left Treasury with some simple actionable items that they called “strategic principles,” to “mitigate risk, while maximizing the promise of these emerging technologies.” Those were:
- “A balanced, net assessment of the broad implications of Bitcoin and other digital assets networks.” This technology is still fairly new, it’s complex and it requires mastery of a wide variety of topics to even begin to comprehend it.
- “Policy should not be narrowly drawn to address a particular risk (e.g., illicit finance) without considering the larger strategic interests at stake.” Bitcoin is a complex subject, it touches it all.
- The BPI warns against “making premature, heavyhanded policy decisions that overweight apparent national security interests at the expense of open innovation and technology leadership.”
- And they urge the Treasury to recognize that “decentralized digital asset networks by definition have no leader or governing body and are likely to be underrepresented in the political process.” Which is an extremely important point to make.
- To close it off, the BPI gives Treasury the best advice. “Our cross-border tax policies and accounting rules should make it easier for US entities to receive Bitcoin as investment and as payment for exports.”
This report is not only important to the US. Every country’s leadership should study it and adapt it to its realities. Bitcoin is that important.