Cryptocurrency: Money and State, Sophistry, Saviour, Law of Code

grarpamp grarpamp at
Thu Nov 24 17:03:05 PST 2022

Money and State
Sophistry and the Savior
Nov 11

    “The safe, regulated way to buy and sell Bitcoin and other digital assets.”

This has been the catchphrase underpinning FTX’s advertising campaigns
for months.

 FTX had become a poster child of the “responsible” and “compliant.”
FTX operated within the laws, it was “safe and regulated.”

Its leader, Sam (SBF), was given the opportunity to speak with
Congress and various regulators on responsible crypto legislation. He
played ball with DC, and was the second largest donor to the
Democratic Party, behind George Soros.

 FTX put its name on the Miami Heat stadium, and cozied up with Tom
Brady and Gisele. A wholesome, compliant American exchange trusted by
politicians and celebrities.  Check this clip out.

 Welcomed eagerly by the establishment, SBF continued to be involved
in shaping upcoming crypto legislation, and as noted by CoinDesk,
“[SBF] was a vocal proponent of the  DCCPA  bill that would create a
brokerage-like licensing system for decentralized finance and argued
against financial privacy.”
SBF in Washington

The Safe, Regulated CEO

Only a few weeks go, SBF conveyed some of his regulatory suggestions
to the community. I responded the next day, and this sparked a
conflagration within the community.

 A week later, we were both invited on the Bankless podcast to debate
this very topic in depth: to what degree is crypto regulation
appropriate, and specifically how should defi be treated (and should
it be treated at all) in the context of the DCCPA?

 That debate received an overwhelming response from the community,
which (rightly) was concerned that Sam was inviting licensing
restrictions to be born down on defi, so long as it enabled the DCCPA
to pass this year in the manner he wished (a goal for which,
presumably, he’s been donating towards).  Sacrificing defi (or at
least the web front-ends, which is how everyone uses defi) was “worth
the cost” he said, to get a good bill done.

Pretty impressive that 221 regulators tuned in!

While the public overwhelmingly resonated with the message of freedom
and a defense of that formerly core tenet of Western law, the
presumption of innocence, naturally those supportive of tradfi and the
US regulatory structure were eager to dismiss my points as
“idealistic” or “unrealistic;” the immature rantings of an extremist
libertarian viewpoint which has no place in proper society.

     “Of course the Federal Government ought to surveil and centrally
control our financial markets. 1st Amendment be damned. 4th Amendment
be damned. Statue of Liberty and the entire founding ethos of America
be damned. More regulation (or “clarity,” as we euphemize it) is
always appropriate.” -Patriotic Architects of the Status Quo

SBF was the pragmatist who towed that line and “knew how to get things
done in Washington.”  Getting frustrated by the community’s
belligerent response to his suggestions (aka their adherence to moral
principle), he passive-aggressively taunted those who—unlike
him—weren’t actually in DC having productive bribes conversations with
IMAGE 2022-11-09 10:19:50.jpg
IMAGE 2022-11-09 10:19:54.jpg

Then, on Nov 9 all hell breaks loose because the “safe, regulated way
to buy and sell Bitcoin and other digital assets” was apparently
insolvent to the tune of billions of dollars. Funds were not safu.

But how can a spot exchange be “insolvent?” Don’t they just take in
user deposits, let those users trade, and if all users want to
withdraw, they do so? No problem. It’s not like FTX was operating as a
fractional reserve bank.

Except that they were… a new financial intermediary mirroring the old,
just without any taxpayer backstops.

This safe, regulated exchange seems to have lent out billions of
dollars in customer deposits to its sister company, Alameda Research
(the other arm of SBF’s former empire). Alameda went bust on
speculative bets, couldn’t pay back the money, and the house of cards
fell apart after Binance announced it was selling its pile of FTT
token (which comprised a large portion of the FTX balance sheet).

If it sounds too familiar, this is similar to what nuked that other
safe, regulated custodian, Celsius, earlier this year (what a year!).
Celsius was loaning/leveraging customer deposits for its own gains.
And in both cases, this was not being disclosed to the users of these
platforms. Billions lost, but hey, at least they were doing KYC so
they have the ID’s and home addresses of everyone they fucked.

The sparkling shimmer of regulation is much like that little light on
the end of the angler fish, alluring not just to hapless victims who
can’t think for themselves and so look to politicians thousands of
miles away for protection, but just as alluring to those politicians,
for in its glow they see themselves as saviors.

Alas, my view is just that of a radical minority. Surely others
reading this think, “This is actually an obvious case of
not-enough-regulation, ser. Let’s get a new bill together and solve
this with the fine scalpel of Federal oversight. A committee shall be
formed, or better yet, several committees. Hearings shall be heard!
America will demonstrate its leadership with a resolute commitment to
consumer protection.”

I can see the lawmakers salivating over more lawmaking. I can imagine
the appropriate title of the pending 400-page diktat that emerges:
“The Freedom Bill for Responsible American Financial Oversight and
Also for Less Inflation.”  The bi-partisan TFBRAFOALI Bill.

Only an anarchist that doesn’t care about people, and probably isn’t
even vaxed, would oppose such proactive legislation.

A Humble Plea to Washington in the wake of FTX

If any regulators end up reading this piece…

Remember in 2008 when your system went down the shitter and hundreds
of billions of dollars had to be taken from taxpayers (honestly
through taxes or dishonestly through inflation) to bail out the
heavily regulated financial institutions that nearly brought down the
world economy and sent tens of millions into poverty and despair?

Well, the builders of the crypto industry, without a dollar of tax
money, built an alternative. This started with Bitcoin as a neutral,
honest, base money that anyone could use and access according to
transparent rules. It expanded with Ethereum and smart contracts, such
that all manner of decentralized financial tooling could be built.

 This suite of technologies is called “decentralized finance,” or
“defi,” and it has, in fact, already solved the problem of trust in
financial markets. Read that sentence again and rejoice.

 Isn’t that wonderful? With defi, financial transactions are
transparent, not just to government regulators, but transparent for
the entire public to see and learn from (or is that not good when the
public can know things, too?).

With defi, accounts are transparent. Transfers are transparent. Trades
and even complex financial derivatives are transparent.  Balances are
proven cryptographically. The code that executes these transactions is
open-source, anyone can review it or suggest changes! You can look it
all up for free on Etherscan, you don’t even need a $20k Bloomberg
account. The code works exactly as written, and no human subjectivity
need concern its execution. Incredibly, it’s all borderless, such that
every man, woman, and child on Earth has equal access and opportunity
to interact with global financial markets.

 How beautiful is that? Where’s Satoshi’s Nobel Prize? …oh it went to Bernanke?

     The opaque fraud that just happened with the highly regulated FTX
would not (can not!) happen in defi.

     The re-hypothecation through which the highly regulated Celsius
betrayed their users and lost millions, would not (can not!) happen in

     The complex derivatives and custody issues which froze financial
flows in 2008, back when safe, regulated financial institutions had no
idea who owned what and markets collapsed under the layers of
counterparty risk… these would not (can not!) happen in defi.

 And yet what have many regulators done in response to this suite of
miraculous technology that was built by brilliant, determined,
principled engineers over the past decade?  Have they even learned how
to use it? How many of those drafting crypto laws have ever actually
executed a defi loan?

Regulators - open, immutable, inclusive, honest finance is sitting at
your doorstep, merely wanting to exist without persecution, and you
forsake this Promethean Fire at every opportunity, or pretend to
embrace it while knifing every attribute that makes it special.

Consider that the only transparency we have on FTX at the moment
ironically comes from blockchain forensics through its use of defi,
not from any of you.

The false veneer of regulatory sophistry having yet again failed them,
the victims of SBF must now seek resolution through law.

But what will never be resolved through law is that when finance is
based on the subjective behaviors of men, it will be prone to the
failures of men.  It does not matter how many laws are written. It
does not matter who writes them.

Defi is finance based not on the subjective behaviors of men, but on
the immutable law of code. It is powerful and important, and if you
care about protecting consumers, it is the greatest set of
advancements toward that end in all of human history. Against the
innumerate flaws of man, this is an actual savior.

If you feel the need to regulate centralized custodians like FTX, I
get it. Remember, though, that you’ve already regulated them with a
hundred prior laws. Maybe reflect on that.

But if you feel the need to regulate defi—decentralized finance—pause
for a moment, and with humility recognize that you and your staff may
not yet understand it, and consider that your law may merely suffocate
a grand and ready solution to so many of the problems you rightly see
around you.

If you impose the licensing apparatus that has governed traditional,
fiat-based finance, you will at best be ineffective, and at worst will
subordinate billions of people to gradual impoverishment and continual
financial shade and trickery.

Yes, defi removes some of your power as regulators… but it solves the
problems you’ve been trying to regulate. Isn’t that more important?

Erik Voorhees
A Response to SBF and Principled Crypto Regulation

Money & State

For the first time in history, every person has financial sovereignty.
Private property can now truly be controlled by the owner, and nobody
else. The rules of finance, and our economic relationships, now become
set and regulated by markets instead of by politicians; by the
individual, not the collective. The value of one’s savings now cannot
be reduced through inflation and debasement. Trade between individuals
is now the business of only those individuals.

Money has been separated from the state, and we may now rejoice at the
next century of its consequences.
Erik Voorhees

Erik Voorhees is the founder of ShapeShift, an open-source,
self-custody digital asset platform. He advocates liberty, peace, and

Twitter @ErikVoorhees
Farcaster @ErikVoorhees

More information about the cypherpunks mailing list