PolitiFi: Crypto's Final Battle
Level 3 - Virgin DeFi Analyst
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It’s an election year in the US of A.
That means one thing and one thing only: extreme polarization.
If the 2020 election is any signal, there are no lengths politicians and the media will go to give their side an edge over the competition.
DeFi Ed has historically stayed clear from this topic, but with likely Republican nominee Donald Trump coming out in heavy support of crypto and the current administration having completely obliterated any chance crypto has to thrive in the US, we feel the need to comment.
Crypto is Inherently Political
Traditional financial markets are entirely controlled by centralized institutions such as banks and governments. Crypto challenges the monopoly of these institutions, threatening the heart of the primary resource that people use and compete over - money.
Peer-to-peer transactions that exist without these intermediaries give people individual sovereignty over their finances. No banks or governments necessary.
As a whole crypto challenges the state surveillance mechanisms that have been built over decades, particularly applications that enable privacy. Governments have come down hard on privacy crypto, with Tornado Cash developer Alexey Pertsev being sentenced to five years in prison for money laundering that is stated to have occurred on his anonymizing tool.
Remember that crypto competes with money. Money is deeply intertwined with power dynamics and is the lifeblood of society. Governments control the issuance and regulation of currency. Control over money is a key aspect of political power, giving governments and banking institutions the power to influence sectors of the economy. It’s important not just for the inner workings of a country, but in exerting influence internationally for finance and trade.
Simply put - it largely comes down to growing and maintaining power, which requires the consolidation of control. Crypto is a threat to the control states exert over their population, and could threaten international relations and the global power dynamic. Yes, it really is that big of a deal.
It’s not all bad - by maintaining power governments try to maintain public trust in the currency and financial system. Trust is a key piece of the current system as it ensures economies function smoothly, and people accept a nation’s currency for goods and services.
The value and functionality of a currency depends on its trust and acceptance. It’s no surprise then that governments would seek to exert control over, influence, and regulate crypto - an asset class that very well threatens nation state control.
The Philosophy Underpinning Crypto
Security without Identification: Transaction Systems to Make Big Brother Obsolete
Decentralized finance was conceived as early as 1985 in a paper by David Chaum with the above title. Since the mid 1980s mathematicians, computer software engineers, and political activists have contemplated how cryptography could change society by enabling private communication and secure electronic money.
The key philosophical beliefs common in contemporary “crypto culture” can be traced to the ideas popularized by “Cypherpunks”, members of an Internet discussion list of the same name founded by John Gilmore, Eric Hughes and Tim May.
“We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place. People have been defending their own privacy for centuries with whispers, darkness, envelopes, closed doors, secret handshakes, and couriers. The technologies of the past did not allow for strong privacy, but electronic technologies do.
We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.
Cypherpunks write code. We know that someone has to write software to defend privacy, and since we can't get privacy unless we all do, we're going to write it. We publish our code so that our fellow Cypherpunks may practice and play with it. Our code is free for all to use, worldwide. We don't much care if you don't approve of the software we write. We know that software can't be destroyed and that a widely dispersed system can't be shut down.
Cypherpunks deplore regulations on cryptography, for encryption is fundamentally a private act. The act of encryption, in fact, removes information from the public realm. Even laws against cryptography reach only so far as a nation's border and the arm of its violence. Cryptography will ineluctably spread over the whole globe, and with it the anonymous transactions systems that it makes possible.”
-The Cypherpunk Manifesto, Eric Hughes, published 9 March 1993 [emphasis added]
Hughes shrewdly observed that a free society requires privacy for both communication and economic transactions. A goal was set: write software which leverages the mathematics of cryptography to allow people to transact anonymously over the Internet. Sixteen years later this goal was achieved with the launch of Bitcoin.
Cypherpunk can be described as a socio-technical movement which promotes the expression of rights through cryptography. The term can refer to individuals, institutions, and technologies that, with a decentralized approach, design, build, support, defend, or rely on encryption systems in order to address social, political, or economic asymmetries.
In the Cypherpunk Manifesto we find the seeds of decentralization in a recommendation to disperse the computing system across jurisdictions so that it becomes uncensorable. The document also foreshadows the crypto community’s attitude towards regulation.
From a philosophical perspective, cypherpunks align with America’s founding fathers in their belief that certain freedoms, in this case privacy, are rights granted by God or nature, as distinct from privileges granted by the State. Evidence for this belief lies in the fact that natural law, as revealed through the disciplines of engineering, electronics, and applied mathematics is organized to enable privacy technologies. From this perspective there is no prospect of “working with” regulators; the outcome can only be either total victory or total defeat.
"We are literally in a race between our ability to build and deploy technology, and their ability to build and deploy laws and treaties. Neither side is likely to back down or wise up until it has definitively lost the race." -John Gilmore, co-creator of Cypherpunks list and founder of Free S/WAN, a tool to protect against Internet “wiretapping” using IPSec/VPN.
In this context, crypto is not a fringe movement of interest only to computer nerds or degen gamblers. It is an intentional challenge to the power of the State, steeped in a philosophy of individual liberty and small government. Cyperpunks are building software to advance various political and economic goals. High profile founders and affiliates of the movement have filed lawsuits against the government, funded lobby groups, and engaged in other activism on a number of issues:
legalization of possessing and exporting strong cryptography (previously categorized as a munition)
challenging (warrentless) mass surveillance
lobbying against Intellectual Property laws perceived as unfair / written by corporations
drugs, national security, anti terrorism, crime, and foreign policies
Some of this political activism has brought significant change. Strong cryptography is now legal and everyone uses it. More significantly, some of the core tenets are now broadly accepted in society. For example, one of the largest corporations in the world, Apple Computer, has adopted an idea from the Cypherpunk community, the “Warrant Canary”. The Company once published the following statement in its official reports, in apparent cypherpunk defiance of the use of secret court orders.
“Apple has never received an order under Section 215 of the USA Patriot Act."
What to Focus on in the Election Year
This post isn’t about where to vote - some people are single-issue voters, others take a more holistic view, and many others simply are not even US-based.
Here are some key themes to pay attention to in the coming months and the months post-election:
Tokenomics: Crypto tokens can easily distribute value to holders from fees, airdrops, token issuance, etc but due to fear of regulatory blowback many founders (particularly US-based) are weary of this approach. In an open playing field, we would see the highest quality projects creating tokenomics that represent the underlying value of a protocol, which would Make DeFi Great Again.
ICOs & token launches: Capital formation is one of the greatest contributions crypto has made to the financial system (though not without its risks). The ability for crypto to enable kickstarter-like raises, mega million dollar capital raises for projects, and easy donations is one of its killer features. This is not possible today without risking a letter from Gary Gensler and having to spend huge sums to defend yourself, not to mention the risk of losing.
Memecoins: Memecoins and social tokens continue to converge as we stated in previous posts, with tokens like TRUMP booming after Donald Trump came out vocally in support of crypto (as a sidenote we think TRUMP on Ethereum is the chosen winner as opposed to Tremp on Solana). BODEN is another popular pick as a comedic reflection of Joe Biden. We’ve also seen spoderman versions of tokens like POOWEL take off approaching FOMC (token of Jerome Powell - not a buy rec just pointing out the politifi trend). Political and celebrity meme tokens will continue to be a prominent trend this cycle.
Privacy Coins and Platforms: This segment of crypto has been under attack for years. We can categorize into three groups:
“Pure privacy” coins like Monero XMR - essentially designed to scare regulators and get craked by three letter agencies and/or banned.
“Mixers” align with the legal definitions of money laundering: transactions made with the purpose of obscuring source/destination/flow of funds.
DeFi platforms with privacy built into in the design but not deliberately targeted to launderers. Railgun - recently endorsed by Vitamin Butane - is a good example. Some of these platforms intend to keep transactions private from the public but not governments/regulators/tax authorities; e.g by including the ability for users to selectively reveal transactions. These quasi-private coins could be acceptable from regulatory perspective while mitigating the disadvantages of a completely public ledger. Our focus is here.
Concluding Thoughts
Crypto moves on narratives and catalysts - a set of stories people plant on tokens and speculate on. The big show of 2024 will be the U.S. election. Leading up to the election we likely see a runup in election tokens. However, we believe the election is a sell the news event for political memecoins.
We are generally of the view that crypto is offensive to both political parties, but we can’t ignore the fact that Trump has issued his own NFTs and owns millions of dollars in crypto. It’s likely that he will be more supportive of crypto than Biden, the extent of which we will only see when the time comes.
We hope you enjoyed the politifi coverage today — more to come on this front!
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Until next time..
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.
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If the 2020 election is any signal, there are no lengths politicians and the media will go to give their side an edge over the competition.
will NOT go to
Any thoughts on ETH being inflationary again please? 🙏