Our CBDC Future Awaits
Just two days after the Ethereum merge from proof-of-work to proof-of-stake, the White House has provided its decree on how these assets should be regulated. Buckle up.
Less than 48 hours after the Ethereum merge from proof-of-work to proof-of-stake, we have a new fact sheet from the Biden admin on how crypto is to be viewed by regulators. Maybe I’m just a tin-foil hat guy in the rust belt, but I don’t think this timing is a coincidence.
As I said last night, in The Fight For Bitcoin Begins, what just happened with Ethereum is significant because it now creates a scenario where large money holders have control validating transactions and maintaining the network. This wasn’t the case when the validation was done by miners. Anyone with a proper GPU setup could mine Ethereum and secure the network. Now, that security layer is maintained by stakers - and somewhat hilariously, stakers need to have a minimum of 32 ETH to run their own validator. My dumb guy math suggests that prices out the overwhelming majority of the Ethereum community and it’s precisely why we’ve seen staking entities like Lido and Coinbase essentially become the network.
My piece last night claimed Ethereum, as a network, now has significant risk of regulatory capture. The minimum ETH requirement was the death blow to any theoretical decentralization of Ethereum. 60% of the ETH staked is controlled by 4 entities. And you can read a more detailed explainer of why this is so bad from Jordan Schachtel if you desire.
Would You Like Some Financial Weaponization With Your UBI? No? Here, Have Some Anyway.
So again, less than 48 hours after the Ethereum developers gave the chain away to regulators, we get more details on how crypto will be managed by the state. While the opening language of the note focuses on how much money people have lost in crypto in the last year, things get interesting when the administration seemingly acknowledges major problems with the current banking system just a few paragraphs in:
Today, traditional finance leaves too many behind. Roughly 7 million Americans have no bank account. Another 24 million rely on costly nonbank services, like check cashing and money orders, for everyday needs. And for those who do use banks, paying with traditional financial infrastructure can be costly and slow—particularly for cross-border payments.
Much of this is true, but it also assumes that everyone should have a bank. I’m not so sure we want that. This custodial-permissioned approach to all transactions is not how things have always been. But the banking system is what has enabled much of the financial tyranny we’ve seen in recent years. Operation Choke Point. Trudeau’s sledgehammer. I think it’s important to remember who is really running the show. George Carlin told us a long time ago. Crypto is specifically about leaving a table where the game is rigged against most of the players. Those rigging it know this and don’t want the game to end. Luckily for us plebs, we have a solution from our central bank!
To make payments more efficient, the Federal Reserve has planned the 2023 launch of FedNow—an instantaneous, 24/7 interbank clearing system that will further advance nationwide infrastructure for instant payments alongside The Clearinghouse’s Real Time Payments system. Some digital assets could help facilitate faster payments and make financial services more accessible, but more work is needed to ensure they truly benefit underserved consumers and do not lead to predatory financial practices.
FedNow. I wonder what that leads to? Hmmm…
Agencies will encourage the adoption of instant payment systems, like FedNow, by supporting the development and use of innovative technologies by payment providers to increase access to instant payments, and using instant payment systems for their own transactions where appropriate – for example, in the context of distribution of disaster, emergency or other government-to-consumer payments.
Disaster or other government-to-consumer payments. That sounds a lot like UBI but I’m no expert. We already know there is WEF support for Ripple (XRP-USD) and Circle - the company that created and issues USDC stablecoins. Perhaps all of this talk about CBDCs misses the possibility that we already might have it. Maybe only in spirit, not yet in policy. But give it some time. Today’s White House fact sheet specifically laid out the possibility for CBDCs as well:
A U.S. CBDC – a digital form of the U.S. dollar – has the potential to offer significant benefits. It could enable a payment system that is more efficient, provides a foundation for further technological innovation, facilitates faster cross-border transactions, and is environmentally sustainable. It could promote financial inclusion and equity by enabling access for a broad set of consumers. In addition, it could foster economic growth and stability, protect against cyber and operational risks, safeguard the privacy of sensitive data, and minimize risks of illicit financial transactions. A potential U.S. CBDC could also help preserve U.S. global financial leadership, and support the effectiveness of sanctions.
There it is. Right out there. Why would those in control of financial weapons want to give that control up? Obviously, they don’t have any desire to do that. And it’s why what just happened with Ethereum is so scary. That network can now be taken over very easily. Bitcoin, as a truly decentralized proof-of-work chain, still cannot be taken over in that way. It’s imperative that we protect it.
What Am I Personally Doing?
Well I can tell you I’m actually not selling my ETH. As you all likely know, I’m in the business of trying to help crypto investors make sense of what is happening through research and fundamental analysis. I try to do some of it here in an understandable way for this audience (I know I probably often fail at that), and the more high level stuff is available in my BlockChain Reaction service through the fine folks at Seeking Alpha.
Is ETH a token that is going to be great for personal freedom? At this point, almost certainly not. But it’s also not a token that is going anywhere. Too much of the crypto infrastructure is built on it. Brave Browser’s BAT token is on Ethereum. Almost all of the popular NFT projects like Bored Ape Yacht Club, Crypto Punks, Art Blocks, XCOPY, Beeple, and Fewocious are on Ethereum. All of the Mint Songs NFTs I’ve purchased also require Ethereum’s existence. My new dot crypto page lives on the Polygon network; an Ethereum L2 scaling chain. Ethereum lured everybody in with the promise of self-ownership and then the developers handed the keys to a handful of entities that will absolutely do what they’re told. Incredibly disappointing. But it doesn’t mean the price will go down.
What We Can All Do
Even if you don’t like Bitcoin, Gold, privacy coins, or other assets that can’t be controlled by centralized parties, that’s fine. Where we should probably all be united is on cash. We cannot give up cash (or coinage) under any circumstances. If we do, it’s over. We’ll have a future where most people are financial slaves to the digital permission system and the rest are criminals under the letter of the law. This is not a choice we want to have to make. To his credit, Neel Kashkari, who I often mock for his monetary policies, gets it completely right on CBDCs. Watch this:
Kashkari is a high ranking Fed official. He’s not someone who I would generally view as an ally to Bitcoin or other crypto assets. But he’s actually making the argument that Americans won’t go for a CBDC. He’s right. We shouldn’t. Make it a voting issue. With all due respect to the other problems we have domestically, fighting a direct government-controlled CBDC should probably be at top of the list.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice.
Interesting the CNBC article says "Widespread buy-in — and public PSAs — from respected financial institutions lent credibility to the project, further driving the narrative that the whole thing was legit.
The implosion of this stablecoin project led to a series of insolvencies that erased nearly $600 billion in wealth, according to the White House."
Oh so what happened to those respected financial institutions? NOTHING
The next paragraph says "To make stablecoins “safer,” the administration says the Treasury will “work with financial institutions to bolster their capacity to ..."
Let me guess are these the VERY SAME ones?? I bet so.
I wonder if a "vote" would result in the same farce as 2020???
Remember it'll be easier to "get your stimulus" wirh CBDC !! LOL
It’s so ridiculous. Terra collapse was bad. But it’s centralized bank-like companies like Celsius and Voyager that went bust and froze account withdrawals. And to your point, as if the establishment banking system has any claim on risk management superiority here after GFC. “Trust us. We’re institutions that pay our fraud fees on time.”